March 14, 2023

Dear WSU Community,

Welcome to spring break!

Over the course of the semester, I have sent several systemwide communications focused on institutional fiscal health — both short and long‑term.

As everyone is aware, we are currently preparing for a 6% budget reduction in FY2024 to better support the university during a time of enrollment and tuition revenue declines. This reduction in our budget represents a significant financial challenge for Washington State University and continues a trend of diminished flexible financial resources at all levels of the institution. The most recent cuts have both short‑ and long‑term effects on our overall fiscal health, as evidenced by an inability to fill current positions and the postponement or delay of many needed initiatives.

In this letter, I want to provide some details on how we have navigated our long‑term fiscal health since 2016 — including comparisons with peer public research universities on issues such as managing university debt load, operating margins, and tuition discounting — and offer insight into strategies we are implementing to maintain the health of WSU moving forward.

In my previous message on enrollment efforts and projections for fall 2023, I mentioned that tuition dollars from enrolled students are a significant source of revenue for the system — but tuition is not the only one. Tuition revenue and state appropriations comprise almost forty‑five percent of the annual budget. Another thirty percent comes from gifts, grants, and contracts. Auxiliary enterprises and other business-like activities account for another seventeen percent, and the remaining sources are dedicated student fees, interest earnings, and other miscellaneous revenues.

In looking at the broader picture of the university’s finances, we have made significant strides over the last few years thanks to large-scale collaboration across the system.

A recent history

As you may recall, WSU implemented a financial recovery effort from FY18–FY20. Thanks to the efforts of faculty and staff, we converted a $30M annual deficit into a nearly $30M surplus by the end of FY20. These reserves were essential in weathering the impacts of a global pandemic in FY21, where we saw a number of our fiscal health measures shift.

Figure 1: Cash and Investments

Ratio of Spendable Cash to Total Adjusted Debt¹

(desired direction = ↑)

Learn more about the ratio of spendable cash to total adjusted debt at WSU and peer institutions. See details depicted in Figure 1.

¹ Source: Moody’s MFRA data as of April 15, 2022

1. Peers: Median of 11 selected peer universities with similar FTE enrollment, outstanding debt, operating revenue and an Aa Moody’s rating, 6 universities are in the top 25 public research institution ratings and 5 universities were identified by the Institutional Effectiveness Council as Institutional Peers used to benchmark progress in the 2014–17 strategic plan.
2. Based on data reported to Moody’s as of April 15, 2022; medians will change as more universities report data
3. FY 2016–20 is from the Moody’s MFRA Database and may not include any accounting changes or restatements

The ratio of spendable cash and investments to total adjusted debt measures the ability of the institution to pay debt from existing cash. A higher number indicates progress, and a greater proportion of university funds available to cover debt.

WSU’s ratio has increased by 26 points since FY16 and 12 points from FY20 to FY21 (Figure 1).

The rise in these numbers is a result of a systemwide focus on building up core funds and limited acquisition of new debt. The low‑interest rates of FY20 and FY21 also enabled the university to refinance much of its debt and generate savings upward of $27M.

Figure 2: Revenue and Expenses

Operating Margin (%)²

(desired direction = ↑)

Learn more about the operating margin at WSU and peer institutions. See details depicted in Figure 2.

² Source: Moody’s MFRA data as of April 15, 2022

1. Peers: Median of 11 selected peer universities with similar FTE enrollment, outstanding debt, operating revenue and an Aa Moody’s rating, 6 universities are in the top 25 public research institution ratings and 5 universities were identified by the Institutional Effectiveness Council as Institutional Peers used to benchmark progress in the 2014–17 strategic plan.
2. Based on data reported to Moody’s as of April 15, 2022; medians will change as more universities report data
3. FY 2016–20 is from the Moody’s MFRA Database and may not include any accounting changes or restatements
4. 2020 Operating Revenue for WSU includes $19.1 million received related to the CARES Act

Operating margin describes the extent to which operating revenues (profits generated by the university from day-to-day functions) cover operational costs (general and administrative expenses).

Over the last several years, WSU’s operating margin between revenues and expenses has also improved considerably. It became a positive number for the first time in five years in FY19, and we are tracking within peer ratios for FY21 (Figure 2).

The increase in our operating margin can be attributed to the financial recovery efforts we implemented from FY18 to FY20 and the work of the entire university community in reducing costs and aligning their budgets.

Figure 3: Revenue

Total Tuition Discount (%)³

(desired direction = ↓)

Learn more about the total tuition discount rates at WSU and peer institutions. See details depicted in Figure 3.

³ Source: Moody’s MFRA data as of April 15, 2022

1. Peers: Median of 11 selected peer universities with similar FTE enrollment, outstanding debt, operating revenue and an Aa Moody’s rating, 6 universities are in the top 25 public research institution ratings and 5 universities were identified by the Institutional Effectiveness Council as Institutional Peers used to benchmark progress in the 2014–17 strategic plan.
2. Based on data reported to Moody’s as of April 15, 2022; medians will change as more universities report data
3. FY 2016–20 is from the Moody’s MFRA Database and may not include any accounting changes or restatements

The total tuition discount tracks discounts reported on university financial statements each year. While not perfect, it is calculated using a standard method for public colleges and universities and is useful for benchmarking purposes.

Our discount rates continue to go up, reducing the potential revenue from enrolled students that qualify (Figure 3).

WSU remains committed to our mission of access and affordability. While the expansion of our tuition waivers means we will receive fewer funds from students who qualify, it may also encourage more students to apply and contribute to our overall tuition revenue. As we look to develop a sustainable long‑term solution, we will continue to seek additional monies through private fundraising to assist students with meeting financial needs.

The annual financial report for FY2022 should be finalized in May, and we will have updated numbers and trends then.

Opportunities ahead

Overall, we are continuing to improve our fiscal health and are approaching values consistent with peer institutions. We are using our dollars responsibly, evaluating costs, and working collaboratively to ensure each of our campuses, colleges, and units are set up for success moving forward.

As part of these coordinated efforts, our colleagues in the Office of External Affairs and Government Relations are working to secure state appropriations to increase the state’s contribution toward cost-of-living adjustment for WSU employees. In the last session, the Legislature enhanced the state’s share of these increases from 53 percent to 65 percent, the remainder of which lawmakers expect will come from growth in tuition revenue that has not actualized. We continue to push for a greater share of the split to be covered by state investment, as it was before the Great Recession.

In addition to advancing our priorities in the Legislature, we are also making strategic partnerships with other institutions to expand access to underserved student populations, increase enrollment, and reduce administrative costs. The creation of a degree partnership program between WSU Everett and Everett Community College, for example, will not only enable students enrolled at WSU and EVCC to take advantage of courses and resources available at both institutions but will support our fiscal health by streamlining the transfer process and supporting recruitment at WSU Everett. We hope to expand this program and others like it in WSU’s future.

Thank you for your continued commitment to WSU. I know that working through budget reductions is difficult and disheartening for many — especially given the efforts that went into realizing our fiscal recovery from FY18–FY20 and weathering a global pandemic in FY21.

As we work together to keep our finances in line and at healthy levels, I am grateful to this university community for all that you have done and continue to do in service of our students and our state.

Thank you,
Kirk

Kirk H. Schulz
System President
Washington State University