UM System’s financial report shows a lower increase of wealth

The system is still financially stronger than most universities, Chief Financial Officer Brian Burnett said.

The UM System made more than or met expectations for most aspects of fiscal year 2016, though some aspects of the financial report show a decrease, UM System Chief Financial Officer Brian Burnett said during the Board of Curators’ Oct. 6 meeting.

During a presentation, Burnett said that the institutional wealth of the UM System increased by 2.5 percent. Despite the growth, most of the increase came from noncurrent assets, such as long-term investments and not yet received gifts. Current assets, which are assets expected to be used within a year, went down 9.9 percent, or $10.9 million.

While the total institutional wealth has increased, the return on the institution’s assets decreased from 2.6 percent to 2.4 percent.

Burnett said even though there were decreases in gains, the UM System is still above average for most universities. According to the Composite Financial Index, the UM System is still financially healthy. However, the index also indicates the system has low financial flexibility.

Other negative signs include a yearly increase in pension and other post-employment benefits liability, which is the total amount of money due to retirees that the institution does not currently have. These have greatly increased each year since 2009’s $24 million of liability. The current liability is $890 million.

Curator John Phillips asked if the board has done enough to help reduce the pension liability, and Burnett responded by saying that he was considering the possibility for a new pay structure for new hires.

Burnett said since the system’s debt did not increase this year, the liability would begin steadying out this year and decrease. Burnett said that for pensions, “difficult decisions are still going to be made,” despite the relative financial strength of the institution.

Due to the low amount of flexible spending, there are some key risks going into the next fiscal year. Burnett said good investment returns are needed but not totally predictable, and the payment for deferred maintenance needs an estimated $1.6 billion.

Treasurer Thomas Richards explained that it has been difficult to predict financial returns due to the volatile market created from the 2008 recession. In the 2016 fiscal year, there were four significant changes in monthly returns ranging from -6 percent to 8.4 percent.

To adapt to the new financial environment, the UM System created a new equity structure that gave more emphasis on less traditional investment programs. Richards called this a “success” so far, and said the program made $12.5 million dollars more than expected this year.

Other aspects of the equity structure are not making their expected results, especially with the more traditional investment programs. As a result, the retirement plan lost .4 percent on its investments.

“Everyone’s got be saving more,” Richards said in regard to preparing for retirement.

One of the larger investments the UM System is making is the Intercollegiate Athletics Master Plan. This plan includes renovations in Faurot Field’s south end zone and the creation of a new 100-yard indoor facility and football operations building.

The renovations will provide more premium seating for the stadium and increase the space athletes have to train. The additions are being funded by gifts of $31 million, and more seven- to eight-figure gifts are incoming.

Phillips said while it seems like a bad financial decision to invest in athletics, it brings in revenue and gets people who watch Southeastern Conference games to be interested in MU’s campus.

Edited by Claire Mitzel | cmitzel@themaneater.com

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