George Mason University Is Virginia's Largest Public Research University

FINANCIAL FRAMEWORK Prepared by the Office of the Senior Vice President George Mason University is Virginia’s Largest George Mason University is Virginia’s Largest PublicPublic Research Research University Financial Framework

EXPENSES REVENUES (E&E)

State Mandatory Cost Appropriations Increases and Regulatory Tuition & Fees Environment

Retention & Academic & Enrollment Mix Administrative Enterprise Philanthropy

Debt Service New Programs

NET RESOURCES

Operating and Capital Reserves Physical Plant Capital Infrastructure |2| REVENUES

New programs Philanthropy

State appropriations

Retention and enrollment mix

Tuition and fees GEORGE MASON UNIVERSITY |3| FY 2016 Revenue Budget $977.6M

Philanthropic Activities, $43.0 One-Time Funds, $3.7 Operating, $128.4 VA State Funding, 23% Sponsored Research, $102.6 Financial Aid, $18.7 Capital Community & Improvements, User Service Fee, $75.1 $86.1 Capital All Other Mason Bond Activities, Contracted Proceeds, $10.1 28% Services, $27.2

Room & Board, $67.9 Enrollment Related Fees, 49%

Mandatory ($ in millions) Students Services Tuition, $335.7 & Activity Fees, $79.2 GEORGE MASON UNIVERSITY |4| GENERAL FUND Diminishing Support

George Mason University 1985 General Fund vs. Tuition and Other as a Percent of the Educational and General Budget 80% 33% State Appropriations Tuition & Other 73% 70% 67% 67%

60%

50% 2000

40% 33% 43% 30% 27% 57% 20%

10% 2016 0% 27%

73%

*State imposed 20% tuition reduction for in-state undergraduate students in FY2000 and rates were held flat through FY2001 and FY2002. GEORGE MASON UNIVERSITY |5| Funding Disparity

Doctoral Average w/o Mason General Fund $7,833 $8,420 $6,893 $6,707 $5,884 $7,147 $5,488

In-State Tuition 14,114 12,347 10,628 10,719 6,193 $10,800 7,976

Total 21,947 20,767 17,521 17,426 12,077 17,948 13,464

Mason percent of average is 75.0% of total

* General Fund estimate is based on SCHEV FTE projection in the 2B report; numbers for all institutions will change with actual revised numbers. General Fund estimate includes budget reductions in FY 2015 GEORGE MASON UNIVERSITY |6| Tuition and Fee Comparison

$18,000 $16,000 Range of ∆ = $1,635 to $7,274 per student $14,000 W&M $12,000 UVa $10,000 VCU $8,000 VT $6,000 Mason $4,000 $2,000∆ = $1,047 per student FY 2001 FY 2009 FY 2015

Source: SCHEV 2000-01, 2008-09, 2014-15 Tuition and Fee Report – Tuition and Total Mandatory Fees

Finance and Land Use Committee | 7 GEORGE MASON UNIVERSITY |7| Mason’s Affordable Tuition Initiative

PRELIMINARY METRICS

Debt default rate  Virginia doctoral average Mason Tuition Tuition & Wages Price Elasticity Post Graduate How George Mason University’s student loan default rates compare

National Public Virginia Virginia Virginia Mason four-year four-year doctoral universities

GEORGE MASON UNIVERSITY |8| Degree Projections

Economic Pressures

Ten year degree projections for George Mason University . Price elasticity . Limited state funding growth, at lower-than-historic Degree projections to reach 100,000 degrees based on levels and with increased requirements most recent SCHEV enrollment projections. . Increased competition for students, particularly among regional public universities . Increased constraints and competition for research and patient care revenue

Changing Landscape

. Shifting student demographics . Increasing adoption of disruptive technologies . Increasing demand for college-educated workers . Post-recession market growth has improved investment performance and fundraising

GEORGE MASON UNIVERSITY |9| Annual Growth Gifts and Pledges

George Mason University Foundation, Inc. Total Gifts and Pledges By Fiscal Year In Millions of Dollars $80 $72.0

$60 $54.4 $47.0 $41.9 $40 $32.4

$20

*FY 2015 financial statements finalized mid-August, 2015. GEORGE MASON UNIVERSITY |10| EXPENSES

Asset Reutilization Managing the Core Mason Hall Merten Hall Mason Global Center Science & Tech Campus

Debt Deauthorization State Base Budget Cuts FY 2013 $81M FY 2014 $31M FY 2015 $85M FY 2016 TBD GEORGE MASON UNIVERSITY |11| Academic Spending per FTE

2012 2013 Academic Spending per FTE Enrollment $35,000 $29,750 $30,000 $25,000 $20,000 There are clear $15,859 George Mason achieves academic $15,410 $15,000 relationships between academic quality and success despite academic spending. relatively modest $10,000 spending levels. $5,000 $0 Average for Top 10 George Mason Public Universities Public Universities University (#138 Ranked #170-200 per US News per US News) per US News

George Mason aims to achieve increasingly-greater academic success while spending less than the nation’s highest-ranked public universities.

Note: The US News rankings used here include all public and private national universities offering undergraduate, master’s, and doctoral programs. The top 10 public universities within the US News rankings are UC-Berkeley, UCLA, University of Virginia, University of Michigan-Ann Arbor, UNC-Chapel Hill, College of William and Mary, Georgia Institute of Technology, UC-San Diego, UC-Davis, and UC-Santa Barbara. GEORGE MASON UNIVERSITY |12| Cost Control and Efficiencies

Academic Organization Operational Streamline/Reorganize Academic Affairs Budget Model Redesign Establish College/School Faculty Workload Guidelines Analyze business services to increase efficiency and Establish College/School Dashboards minimize cost Academic Strategies Supporting move from Tier 2 Multidisciplinary Research/Education to Tier 2.5 or Tier 3 Platform for Educational Innovation Sustainability Initiatives Institute for Biomedical Innovation Major clinical partnership(s) Utilization of Innovation and Entrepreneurship Center Existing Assets George Mason Online Graduate Program Partnership University’s core Housing Solution spending per Restructure debt Build Resources student FTE is 63% Meet Enrollment, Retention and Debt Policy of its Peer Group Completion Goals Average Reserve Policy Meet Executive Education Revenue Target Increase Study Abroad and International Enrollments |13| CAPITAL INFRASTRUCTURE

GEORGE MASON UNIVERSITY |14| $65 MASON ANNUAL DEBT SERVICE The Cost of Borrowing

$62.0 $61.0 $60 $60.6 $60.3 Deferred Maintenance & Reserves $56.6 $56.2 $55

$50 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020

END OF FISCAL YEAR $ in millions |15| Key Financial Ratios

George Mason should monitor key financial ratios, including the following:

Ratio Description Calculation Measure

Expendable Financial Availability of expendable financial Expendable Financial Resources (excludes plant Liquidity / Leverage Resources to Debt resources to cover debt liabilities and permanently restricted assets) / Debt

Expendable Financial Availability of expendable financial Expendable Financial Resources / Annual Liquidity Resources to Operations resources to cover operating expenses Operating Expenses

Debt Service Burden Portion of operating budget applied to Annual Debt Service / Annual Operating Leveraged Operations debt service (principal and interest) Expenses

Debt Service Coverage Ability of operating activity to absorb the EBIDA (Net Revenues Before Interest and Operating Efficiency and carrying cost of debt Depreciation) / Annual Debt Service Leveraged Operations

Operating Cash Flow The efficiency of operating activities to EBIDA (Net Revenues Before Interest and Operating Efficiency Margin generate positive cash flows Depreciation) / Annual Operating Revenue

GEORGE MASON UNIVERSITY |16| Expendable Financial Resources to Debt

George Mason University Expendable Financial Resources to Comments 0.75 Debt • George Mason University had $669.3 million George Mason University of outstanding debt as of June 2014 • Significant debt increases in the mid/late 0.50 2000s—including amounts for student housing, research facilities, parking garages, Target and the Performing Arts Center—resulted in 0.25 a leveraged position • This ratio has improved in recent years due to strong investments returns (esp. - Foundation assets), improved operating 2009 2010 2011 2012 2013 2014 activity, and a stabilization of debt levels

Ratio Components 2014 $ in millions Expendable Financial Resources $ 186.1 Debt $ 669.3 Expendable Financial Resources to Debt 0.28 Target 0.30-0.45

Note: Medians for A2 public universities per Moody’s Investors Service are used in the graph above as a comparable measure to George Mason’s current “A” rating per Standard & Poor’s. GEORGE MASON UNIVERSITY |17| Expendable Financial Resources to Operations

George Mason University Expendable Financial Resources to Comments 0.75 Operations • George Mason has had less expendable George Mason University financial resources than most other universities of its operating size 0.50 • Recently, George Mason’s financial Target resources have grown due to strong investment returns and improved operating 0.25 activity

- 2009 2010 2011 2012 2013 2014

Ratio Components 2014 $ in millions Expendable Financial Resources $ 186.1 Operating Expenses (excluding interest) $ 737.8 Expendable Financial Resources to Operations 0.25 Target 0.35-0.50

George Mason University Debt Service Burden Comments 0.15 • During fiscal 2014, George Mason’s debt George Mason University service requirements totaled $61.6 million, including about $30 million of interest 0.1 payments and the remainder for principal • Due to a heavy debt load, George Mason’s Target debt service (principal and interest payments) 0.05 total about 8% of its operating budget, which is relatively high

0 2009 2010 2011 2012 2013 2014

Ratio Components 2014 $ in millions Annual Debt Service (principal and interest) $ 61.6 Operating Expenses (excluding interest) $ 737.8 Debt Service Burden (debt service to operations) 8.3% Target 5.0%-7.0%

George Mason University Debt Service Coverage Comments 3.5 • Due to a heavy debt load, resulting in annual 3 George Mason University debt service requirements in excess of $60 million, George Mason’s debt service 2.5 coverage ratio is below the median for other 2 Target A-rated public universities 1.5 • Recent improvements in operating activity, 1 resulting in EBIDA growth, have improved this ratio 0.5 0 2009 2010 2011 2012 2013 2014

Ratio Components 2014 $ in millions Unrestricted Operating Cash Flow (EBIDA) $ 93.1 Annual Debt Service (principal and interest) $ 61.6 Debt Service Coverage (EBIDA to debt service) 1.5 Target 1.5-2.5

George Mason University Operating Cash Flow Margin Comments 20.0% • George Mason’s unrestricted operating cash George Mason University flow (or EBIDA) has trailed the median for 15.0% similarly-rated public universities; however, recent improvements in operating activity have increased this ratio 10.0%

5.0%

0.0% 2009 2010 2011 2012 2013 2014

Ratio Components 2014 $ in millions Unrestricted Operating Cash Flow (EBIDA) $ 93.1 Adjusted Operating Revenue $ 773.0 Operating Cash Flow Margin 12.0%

George Mason University Capital Intensiveness Comments 50.0% • Median ratios are not readily available for this George Mason University measure; however, typical capital 40.0% intensiveness ratios for major universities range from 7% to 10% 30.0% • George Mason’s capital investments were 20.0% unusually high a few years ago; and have since declined to a normal level 10.0% 0.0% 2009 2010 2011 2012 2013 2014

Ratio Components 2014 $ in millions Annual Capital Expenditures (capex) $ 57.8 Adjusted Operating Revenue $ 773.0 Capital Intensiveness (capex to operating revenue) 7.5%

George Mason University Average Age of Plant (years) Comments 14.0 • As the result of significant capital 12.0 George Mason University investments, largely funded by debt financing, George Mason’s average age of plant 10.0 facilities is much less than (i.e., newer than) 8.0 the median for similarly-rated public 6.0 universities 4.0 • In order for George Mason to maintain its low average age of plant, significant new capital 2.0 investments, upgrades, or renovations would - need to occur 2009 2010 2011 2012 2013 2014

Ratio Components 2014 $ in millions Accumulated Depreciation $ 513.3 Annual Depreciation Expense $ 57.9 Average Age of Plant 8.9 years