FY20 Budget Board of Trustees June 26, 2019 Key Issues UConn - PowerPoint PPT Presentation

FY20 Budget Board of Trustees June 26, 2019

Key Issues – UConn & UCH Over the past decade (since FY10), UConn and UConn Health have faced $166M in State cuts, fund sweeps and rescissions and have paid $1.9B in fringe costs from non-state funds * .  High fringe benefit costs, due primarily to the State’s unfunded liabilities, are impacting UConn’s and UConn Health’s competitiveness.  Research competitiveness – UConn and UCH research fringe rates are about 20% points higher than our peers. This results in less research grants, research dollars, innovation and commercializing technologies.  Clinical competitiveness – Current state fringe rates for UConn Health’s John Dempsey Hospital are 45% higher than other Connecticut hospitals. This results in tens of millions of dollars in more costs for UConn Health to provide clinical care compared to other hospitals in the state.  With the additional $33.2M of State support to cover the unfunded liabilities, the original UCH projected FY20 cash shortfall of $40.3M, now drops to $7.1M. * Non-state funds include tuition, fees, patient revenue, grants and contracts, and revenue from sales and services. 2

State Support The State is a strong partner to UConn, supporting most of debt service and about half of faculty and staff salary and fringe costs. FY20 Funding Split ($M) State UConn - Storrs Total Salaries – Faculty & Staff $198.1 $227.9 $426.0 47% 53% Salaries – Temporary Payroll* $0 153.3 $153.3 0% 100% Fringe Benefits $168.1 $168.8 $336.9 50% 50% Financial Aid $9.0 5% $185.7 95% $194.7 Other Expenses $21.6 $304.1 $325.7 7% 93% Debt Service** $212.1 $27.0 $239.1 89% 11% Total State Support $608.9 *Temporary Payroll includes graduate assistants, students, post doctoral associates and other special payroll **State debt service attributable to both UConn and UCH UConn funds come from tuition, fees, federal & private grants, sales & services revenue and foundation reimbursements. 3

UConn Pays Increasing Share of Fringe Costs As fringe costs rise, and the State covers a smaller share, UConn pays more for fringe expenses and less for student service expenses. $350 $337.0 $300 $250 UConn’s Share ($168.8M = 50%) $200 $158.2 $168.1 $150 UConn’s Share ($61.8M = 39%) $100 $96.4 $50 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Budget STORRS - Total Fringe Expense STORRS - Fringe Paid by State Fringe rates are determined by the State Comptroller's Office. UConn has no input or control over these rates. 4

State Block Grant The State block grant is only used to pay for salaries of University employees, but it only covers 47% of all employees.  Since FY10, the State block grant has averaged ~$214M per year - the FY20 appropriated block grant is ~$14M less than this 10 year average.  The remaining 53% of employees are funded by non-State revenue sources including tuition and fees, auxiliary enterprises, research, grants and contracts, Foundation, and sales and services. $40M $240.6 $233.0 cut since FY16 $195.8 $200.4 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Forecast Budget 5

Fringe Benefit Rate Components - SERS The State Comptroller determines the fringe benefit rates and the University is charged those rates for each employee. Below is an example showing the components of the fringe rate for an employee who is a member of the State Employees Retirement System (SERS)** with an annual salary of $100K. FY19 State Fringe Benefit Rate Components Unfunded Pension Liability 33.61% Retiree Health 20.94% State Retirement (SERS) ** 64.30% Normal/Current Retire. Costs 5.30% FICA SS 6.20% Other Post Employ. Benefit Costs (OPEB) 2.86% FICA Medicare 1.45% Administrative Costs 0.37% Unemployment Compensation 0.23% Roll-forward/Adjustments 1.22% Group Life Insurance* ~0.20% 64.30% Health Insurance* ~24.02% 96.40% *Rates vary according to coverage selected **Other retirement options are available for non-classified employees (A lternate Retirement Plan (ARP) Rate at 14.50%). 37% of our current employees are on the ARP. UConn Health UConn Storrs & Regionals Retirement Plan Headcount % Headcount % SERS 3,030 62.9% 2,731 62.7% ARP 1,778 1,607 36.9% 36.9% Teachers 13 0.3% 17 0.4% 4,821 4,355 6

FY20 Combined Budget The deficits would be non-existent without the State’s unfunded SERS liabilities. UConn-Storrs UConn Combined & Regionals Health Total FY20 Budget ($M) State Block Grant 200.4 128.2 328.6 Fringe Benefits & Adjustments 66.8 63.4 130.2 Total State Support $ 267.2 $ 191.6 $ 458.8 All Other Revenues $ 1,072.5 $ 938.4 $ 2,010.9 Total Revenues $ 1,339.7 $ 1,130.0 $ 2,469.7 Total Expenditures $ 1,328.3 $ 1,126.2 $ 2,454.5 Operating Gain/(Loss) $ 11.4 $ 3.8 $ 15.2 Unfunded SERS Pension and Retiree Health Costs $ 135.4 $ 125.3 $ 260.7 Less amount funded by the State $ 104.4 $ 70.6 $ 175.0 Additional State Support (portion of the unfunded liabilities) $ 33.2 $ 33.2 Net SERS Unfunded Pension and Retiree Health Costs $ 31.0 $ 21.5 $ 52.5 10.6 10.6 Non-Operating Gain/(Loss) Excess/(Deficiency) $ (19.6) $ (7.1) $ (26.7) Lapses 19.6 7.1 26.7 Projected Net Gain/Loss $ 0.0 $ 0.0 $ 0.0 7

Financial Overview $0.0 $10.6M Reduction in ($2.9) Capital Spending ($10.0) ($9.9) $7.1M Lapses ($12.6) ($12.5) ($15.4) ($15.9) ($20.0) ($18.2) ($17.7) ($15.9) ($18.2) ($18.4) ($25.9) ($30.0) $33.2M Additional State support for a portion of the State’s unfunded ($40.0) liability ($40.0) ($40.5) ($50.0) ($48.1) ($50.9) ($60.0) ($59.4) ($70.0) FY15 FY16 FY17 FY18 FY19 FY20 Original Projection w/o Intervention ($25.9) ($40.0) ($48.1) ($59.4) ($40.5) ($50.9) Final Budget and Proposed FY20 ($12.5) ($15.9) ($15.9) ($18.4) ($18.2) ($17.7) Actuals/Forecast FY19 ($2.9) ($12.6) ($15.4) ($9.9) ($18.2) 9

FY20 Budget Key Drivers of Deficit REVENUE:  Dermatology Department Updates  Mohs move from Hospital Based to Office Based Clinic  Provider Ramp-up  Pharmacy Utilization Decrease  DOC Pharmacy Contract EXPENDITURES:  Salary – SEBAC 5.5% CBI Increases  Fringe Benefits –  Salary CBI increases  Full Impact of the SAG Award  9% Health/Dental/Pharmacy Insurance Increase and estimated Retirement rate increase 10

Clinical Enterprise – UMG and JDH Fringe Benefit Differential 80.00% 70.43% 70.00% 62.34% 59.10% $72.9M Gap 57.53% 60.00% Connecticut Hospital Association 52.30% 50.10% 49.07% JDH and UMG 50.00% 42.60% $13.5M FB Diff. State Support 41.05% 40.69% 40.25% 40.00% 36.85% $19.6M Add'l State Support for a portion of the State’s unfunded liability 30.00% 31.08% 30.61% 30.14% 29.54% 28.80% 28.79% 28.70% 28.13% 27.75% 27.14% 27.20% 26.67% 20.00% 10.00% FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Budget Proposed Budget For FY20, the difference in rates is expected to result in over $106M of additional costs to run the Clinical Operations compared to other area hospitals. After accounting for the $13.5M that the state provides UConn Health annually to help with this fringe cost differential, and the one time FY20 appropriation of $33.2M for a portion of the state’s unfunded liabilities, UConn Health will still pay $72.9M more in fringe costs than other area hospitals to provide clinical care. 11