1

Ana|ys|s of the I|nanc|a| Cond|t|on of the

Un|vers|ty of I|||no|s System

repared by
noward 8uns|s: hD, M8A, I.D., 8.S., CA
rofessor of Account|ng
Lastern M|ch|gan Un|vers|ty
734-487-2S19
hbuns|sQem|ch.edu

Ianuary, 2010


2

Content of Ana|ys|s:

I. Introduct|on and a d|scuss|on of Government-W|de Statements
II. Wea|th of UIC: Statement of Net Assets
III. Cperat|ons: kevenues versus Lxpense erformance
IV. 8reakdown of kevenue Sources (focus on enro||ment and tu|t|on)
V. 8reakdown of Lxpenses (focus on |nstruct|on and compensat|on)
VI. Cash I|ow Ana|ys|s
VII. Ana|ys|s of 2009-10 and 2010-11 8udgets
VIII. M!!"#$% '!(" )*+,(-% *(" )*+,!%
Ik. Comparab|e Inst|tut|on Ana|ys|s
k. Conc|us|ons



3

I. Introduct|on

1he analysls below ls malnly of Lhe enLlre unlverslLy of llllnols sysLem, as Lhe audlLed flnanclal
sLaLemenLs reporL resulLs for Lhe sysLem as a whole, and noL for Lhe lndlvldual campuses.
1hose sLaLemenLs do noL dellneaLe Lhe resulLs on Lhe campus level. 1he 2009 and 2010 budgeLs
do reporL Lhese budgeLs for Lhe lndlvldual campuses. 1here wlll be an analysls done of Lhe ulC
campus based on LhaL llmlLed budgeL reporL. 1he resulLs for Lhe enLlre sysLem are based on Lhe
acLual resulLs Lhrough !une 30, 2008.

Cverall, Lhe flnanclal condlLlon of Lhe unlverslLy of llllnols sysLem ls sLrong. 1hls concluslon ls
based on an analysls of Lhe flnanclal sLaLemenLs, as ls demonsLraLed by examlnlng Lhree broad
measures of flnanclal performance:
8evenues versus expenses, and Lhe growLh ln revenues
Low levels of debL
SLrong reserves

More lmporLanLly, Lhe flrsL llne of Lhe 2008 flnanclal reporL sLaLes (whlch was wrlLLen ln !anuary
of 2009): 1he unlverslLy ls well poslLloned Lo conLlnue lLs sLrong flnanclal condlLlon"

WhaL ls mlsslng from Lhls analysls ls an examlnaLlon of Lhe 2009 audlLed flnanclal sLaLemenLs.
1he flscal year end for Lhe ul sysLem ls !une 30
Lh
, and Lhe sLaLemenLs for Lhe year ended !une
30, 2009 are deflnlLlvely compleLed. Powever, Lhese are noL avallable on Lhe ulC webslLe aL:
hLLp://www.obfs.ullllnols.edu/obfshome.cfm?level=2&paLh=abouLobfs&xmldaLa=annualreporLs.

SLarLlng ln 2002, nCs creaLed flnanclal sLaLemenLs LhaL were analogous Lo Lhose ln Lhe for-
proflL world (Lhls requlremenL was mandaLed by Lhe CovernmenL AccounLlng SLandards 8oard,
and ls called CAS8 34). Speclflcally, Lwo maln governmenL-wlde sLaLemenLs are requlred: (1)
1he SLaLemenL of neL AsseLs, whlch ls analogous Lo Lhe 8alance SheeL ln Lhe for-proflL secLor,
(2) 1he SLaLemenL of AcLlvlLles, whlch ls analogous Lo Lhe lncome SLaLemenL ln Lhe for-proflL
secLor. lor Lhe flrsL Llme, lL ls much easler for users of nC flnanclal sLaLemenLs Lo undersLand
Lhe flnanclal condlLlon of Lhese enLlLles.

A flnal noLe on whaL ls belng analyzed: Lhe audlLed flnanclal sLaLemenLs of Lhe unlverslLy of
llllnols aL Chlcago are comblned wlLh Lhe unlverslLy of llllnols aL urbana-Champalgn and Lhe
unlverslLy of llllnols aL Sprlngfleld. Powever, Lhe budgeLs for Lhe 2009-10 and 2010-11 years
are separaLed by Lhese lndlvldual campuses, and some analysls wlll be performed aL LhaL level
as well.
4

II. Wea|th of the UI System

(Source for th|s data are the Annua| I|nanc|a| keports, wh|ch are at:
http:]]www.obfs.u||||no|s.edu]obfshome.cfm?|eve|=2&path=aboutobfs&xm|data=annua|reports)

1he SLaLemenL of neL AsseLs reporLs Lhe asseLs versus llablllLles of Lhe ul SysLem:

!"#$% '( )*"*%+%,* -. /%* 011%*1

2003 2006 2007 2008
1oLal AsseLs 4,316,181 4,337,087 4,903,343 3,143,193
1oLal LlablllLles 2,007,097 2,167,102 2,489,489 2,787,844
neL AsseLs 2,309,084 2,369,983 2,413,836 2,333,349
2003 2006 2007 2008
1oLal AsseLs 100 100 100 100
1oLal LlablllLles 47 48 31 34
neL AsseLs 33 32 49 46


1he SLaLemenL of neL AsseLs reveals LhaL LoLal asseLs greaLly exceed LoLal llablllLles.
1here has been solld growLh ln asseLs, buL llablllLles are growlng somewhaL fasLer. 1he
maln reason for Lhls ls LhaL ln prlor years, new caplLal pro[ecLs were flnanced by Lhe
SLaLe and some debL, over Lhe lasL few years, Lhe SLaLe has reduced (Lo almosL zero) any
approprlaLlon for caplLal needs, and Lhe ul sysLem has had Lo borrow Lo flnance Lhese
new caplLal pro[ecLs. 1he SLaLe approprlaLlon for operaLlons ls qulLe subsLanLlal, and
wlll be dlscussed laLer.
As we wlll see laLer, Lhe level of debL ls noL LhaL hlgh, and lnLeresL paymenLs are noL a
slgnlflcanL burden on Lhe ul sysLem.
ln addlLlon Lo Lhe maln unlverslLy, Lhe ul sysLem also has whaL are called u8C's, or
unlverslLy 8elaLed CrganlzaLlons. 1hese are under Lhe conLrol of Lhe ul sysLem, and lLs
maln componenL ls Lhe ul loundaLlon. 1he loundaLlon has asseLs LhaL are mosLly sLocks
and bonds. 1hese loundaLlon asseLs cannoL be used Lo fund core academlc operaLlons,
Lhough lncome from Lhe loundaLlon help fund some scholarshlps.
o As of !une 30, 2008, Lhe loundaLlon had approxlmaLely $1.3 bllllon ln asseLs.
o When Lhe asseLs and llablllLles of Lhe loundaLlon are comblned wlLh Lhose of Lhe
Lhree unlverslLles (Moody's does Lhls ln Lhelr analysls), Lhe comblned asseLs of
Lhe enLlre ul sysLem are approxlmaLely $6.3 bllllon, wlLh only $3.6 bllllon of
llablllLles.
3

o Many proponenLs of furloughs have conLended LhaL one reason for Lhe furloughs
ls LhaL Lhe value of Lhe lnvesLmenLs ln Lhe foundaLlon has decllned slgnlflcanLly.
Powever, Lwo maln polnLs demonsLraLe LhaL Lhls argumenL has absoluLely no
merlL:
! 1he unlverslLles ln Lhe ul sysLem do noL counL on Lhe lncome from Lhese
foundaLlons (someLlmes referred Lo as endowmenLs) Lo fund operaLlons,
Lherefore, Lhe clalm LhaL Lhe decllne ln value of Lhese endowmenLs ls a
reason for furloughs ls noL warranLed
! 1he decllne ln value of Lhe ul loundaLlon over Lhe lasL several years ls noL
slgnlflcanL. As Lhe graph below demonsLraLes, Lhe decllne ln value from
!une 30, 2007 Lo !une 30, 2008 was noL LhaL large (a 4 decllne)

23456% '( 7"$5% -. 89 2-5,:"*3-, 011%*1

1,047,S01
1,176,821
1,379,474
1,323,362
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
200S 2006 2007 2008
Va|ue of UI Ioundat|on Assets


We wlll now examlne some speclflc aspecLs of Lhe SLaLemenL of neL AsseLs.
llrsL, Lhe sysLem has cash and cash equlvalenLs of over $600 mllllon as of !une 30. 2008
(Lhls does noL lnclude Lhe loundaLlon). ul ls very llquld.
8onds payable are rlghL aL $1 bllllon, glven LoLal asseLs of Lhe ul sysLem are over $3
bllllon, Lhls ls noL an excesslve amounL of debL. When we analyze Lhe Moody's raLlos,
we wlll deLermlne speclflc meLrlcs for Lhe level of debL.
1he lasL and mosL lmporLanL componenL of Lhe SLaLemenL of neL AsseLs ls a revlew of
neL asseLs. neL asseLs ln Lhe nC secLor are Lhe equlvalenL of owner's equlLy ln Lhe for-
6

proflL secLor. 1hey are ofLen referred Lo as reserves. 1here are several componenLs of
neL asseLs:
neL AsseLs lnvesLed ln caplLal asseLs, whlch do noL reveal any slgnlflcanL lnference
abouL an lnsLlLuLlon's flnanclal condlLlon
8esLrlcLed neL asseLs, whlch are Lhose LhaL are earmarked for speclflc purposes, buL
whlch may be uLlllzed aL Lhe admlnlsLraLlon's dlscreLlon. Some of Lhese are
expendable, and some are noL expendable.
unresLrlcLed neL asseLs, whlch can be seen as a pure reserve fund for Lhe ul SysLem,
Lo be used wlLhouL resLrlcLlons.
Lxpendable neL asseLs are Lhe numerlcal sum of resLrlcLed-expendable neL asseLs
and unresLrlcLed neL asseLs. 1he expendable neL asseLs are Lhose neL asseLs LhaL can
be used for operaLlons or Lo pay off debL of Lhe ul sysLem. 1herefore, Lhey are an
lndlcaLlon of flnanclal flexlblllLy. 1hese expendable neL asseLs do noL represenL a poL
of cash, however, Lhey lndlcaLe LhaL Lhe ul sysLem elLher has cash of Lhls amounL, or
has access Lo cash ln Lhls amounL. Lxpendable neL asseLs are seen by Lhe flnanclal
communlLy as an lmporLanL measure of flnanclal sLrengLh, whlch ls why we wlll see
Lhese meLrlc used ln several raLlos used by bond raLlng agencles.

1able 2 below clearly reveals LhaL neL asseLs of Lhe ul sysLem have been lncreaslng over Lhe lasL
several years, Lhough Lhey dld decllne from 2007 Lo 2008:
!"#$% ;( 0,"$<131 -. /%* 011%*1
Un|vers|t|es Cn|y 200S 2006 2007 2008
Unrestr|cted Net Assets 1S6,496 12S,494 140,86S 89,864
kestr|cted-Lxpendab|e
Net Assets 327,40S 364,S99 392,6S1 396,220
1ota| Lxpendab|e Net
Assets 483,901 490,093 S33,S16 486,084

8efore conslderlng Lhe loundaLlon, Lhe ul sysLem had almosL x a bllllon dollars ln
LoLal reserves
lf Lhe loundaLlon ls lncluded, Lhe LoLal reserves are almosL $900 mllllon

Concluslons abouL Lhe wealLh of Lhe ul SysLem:
1he ul sysLem has sLrong reserves
1he ul sysLem does noL have a slgnlflcanL amounL of debL

7

III. Cperat|ons: kevenues versus Lxpense erformance
1he maln measure of operaLlonal performance ln Lhe nonproflL secLor ls called Lhe change ln
neL asseLs, and ls Lhe dlfference beLween LoLal revenues and LoLal expenses. lL ls Lhe equlvalenL
meLrlc Lo neL lncome or boLLom llne proflL ln Lhe for-proflL secLor.

!"#$% =( >?",4% 3, /%* 011%* @%6.-6+",A%
200S 2006 2007 2008
1ota| kevenues 3,373,109 3,671,138 3,862,426 4,046,002
1ota| Lxpenses 3,330,366 3,610,237 3,816,333 4,106,309
Change |n Net Assets 42,343 60,901 43,871 (60,307)
of 1ota| kevenues 1.2 1.7 1.2 -1.3
Change |n Unrea||zed
Va|ue of Investments 11,393 3,200 36,429 (60,308)

ln 2008, for Lhe flrsL Llme ln four years, LoLal expenses were greaLer Lhan LoLal
revenues.
Powever, Lhe maln reason for Lhls resulL was Lhe unreallzed change ln Lhe value of
lnvesLmenLs. ln essence, Lhls ls a paper loss" on Lhe maln sysLem's lnvesLmenL
asseL (Lhls does noL lnclude Lhe loundaLlon).
Lach year, Lhe ul sysLem has LoLal revenues LhaL are very close Lo LoLal expenses, Lhe
analysls below wlll break down boLh revenues and expenses, so LhaL we can furLher
analyze any poLenLlal Lrends and developmenLs.

IV. 8reakdown of kevenue Sources
1he SLaLemenL of AcLlvlLles (analogous Lo Lhe lncome sLaLemenL ln Lhe for-proflL world) deLalls
23 dlfferenL revenue lLems for Lhe ul sysLem. ln order Lo analyze Lhese sources ln a more
condensed manner, l have grouped Lhe revenues lnLo Lhe 7 dlfferenL caLegorles represenLed
below ln Lable 4.

8

!"#$% B( 0,"$<131 -. 9,:3C3:5"$ D%C%,5% )-56A%1

2003 2006 2007 2008
CranLs and ConLracLs 760,728 769,949 783,373 808,226
PosplLal/Medlcal 623,191 633,389 686,331 778,074
SLaLe ApproprlaLlon 633,913 633,321 663,732 680,303
SLudenL 1ulLlon and lees 307,137 334,836 617,812 662,464
All CLher lLems 474,883 486,216 499,817 428,789
aymenLs for frlnges 286,397 266,706 303,047 337,637
Auxlllary enLerprlses 264,660 282,321 304,094 330,309
1oLal 8evenues 3,373,109 3,671,138 3,862,426 4,046,002
2003 2006 2007 2008
CranLs and ConLracLs 21.3 21.0 20.3 20.0
PosplLal/Medlcal 17.3 17.9 17.8 19.2
SLaLe ApproprlaLlon 18.3 17.9 17.2 16.8
SLudenL 1ulLlon and lees 14.2 13.1 16.0 16.4
All CLher lLems 13.3 13.2 12.9 10.6
aymenLs for frlnges 8.0 7.3 7.9 8.8
Auxlllary enLerprlses 7.4 7.7 7.9 8.2
1oLal 8evenues 100.0 100.0 100.0 100.0


1he Lop panel of Lable 4 reveals LhaL LoLal revenues were 3.373 bllllon ln 2003, and
grew Lo 4.046 bllllon ln 2008, wlLh LoLal revenues lncreaslng each year
CranLs and conLracLs were Lhe largesL revenue source. noLe LhaL Lhls lncludes
federal granLs, sLaLe granLs, and prlvaLe granLs.
uslng lndlvldual sources, Lhe SLaLe approprlaLlon ls Lhe largesL source, followed
closely by LulLlon and fee revenue.
1he boLLom panel reporLs each revenue lLem as a percenLage of Lhe LoLal.
1herefore, ln 2008, Lhe sLaLe approprlaLlon of 680.303 mllllon was 16.8 of Lhe
4.046 bllllon LoLal revenues.
1he SLaLe of llllnols approprlaLlon ls sllghLly larger Lhan LulLlon as a revenue source
as of 6/30/2008, Lhls may change when we examlne Lhe 2009 resulLs.
1he mosL reveallng aspecL of Lhe revenue analysls ls Lhe growLh ln LoLal revenues.
When we examlne Lhe 2009 and 2010 budgeLs for ul and ulC, we wlll see LhaL Lhe
admlnlsLraLlon has experlenced growlng revenues, and conLlnues Lo expecL revenues
Lo grow. Clven LhaL expenses are elLher growlng or are expecLed Lo grow aL a raLe
almosL ldenLlcal Lo revenue growLh, lL ls noL approprlaLe LhaL furloughs are even
belng consldered.

9

!"#$% E( F6-G*? 3, !-*"$ D%C%,5%1( ;HHE *- ;HHI

2003 2006 2007 2008
1oLal 8evenues 3,373,109 3,671,138 3,862,426 4,046,002
Annual ercenLage lncrease 3 3 3
lncrease from 2003 Lo 2008 13


WhaL Lhls Lable reveals ls LhaL LoLal revenues have grown each of Lhe lasL Lhree
years. As we wlll see laLer, LoLal expenses have had a slmllar growLh paLLern.
1oLal revenues lncreased 3 from 2003 Lo 2006 (2003 refers Lo Lhe academlc year
endlng !une 30, 2003), 3 from 2006 Lo 2007, and 3 from 2007 Lo 2008.
Cver Lhe 4-year perlod, LoLal revenues lncreased 13, Lhe 13 lncrease ls Lhe
change from 3.373 bllllon ln 2003 Lo 4.046 bllllon ln 2008
1he growLh and Lrend ln LoLal revenues can be readlly seen ln llgure 2 below:

23456% ;( !-*"$ D%C%,5%1 .6-+ ;HHE *- ;HHI

3,000,000
3,200,000
3,400,000
3,600,000
3,800,000
4,000,000
4,200,000
200S 2006 2007 2008
1ota| kevenues


1he flnal componenL of Lhe revenue analysls wlll be comparlson of LulLlon and fee revenue
when compared Lo Lhe SLaLe of llllnols approprlaLlon. lL ls clearly Lhe case LhaL LulLlon and fee
revenue ls growlng, whlle Lhe SLaLe ApproprlaLlon ls relaLlvely flaL. CrlLlcs may clalm LhaL Lhls
daLa only goes Lhrough 2008, and LhaL Lhe SLaLe ls ln much worse flnanclal condlLlon now.
Powever, as we wlll see ln Lhe budgeL analysls, as of november 12, 2009, Lhe ul sysLem wlll
clearly experlence growlng revenues Lhrough 2010.


10

!"#$% J( )*"*% 0KK6-K63"*3-, C1L !53*3-, ",: 2%% D%C%,5%

2003 2006 2007 2008
SLaLe ApproprlaLlon 633,913 633,321 663,732 680,303
SLudenL LulLlon and fees 307,137 334,836 617,812 662,464
Annual ercenLage lncrease:
SLaLe ApproprlaLlon 0.2 1.6 2.2
SLudenL LulLlon and fees 9.4 11.3 7.2
lncrease from 2003 Lo 2008:
SLaLe ApproprlaLlon 4.1
SLudenL LulLlon and fees 30.6


WhaL ls mosL sLrlklng abouL Lhls Lable ls Lhe lncredlble growLh ln LulLlon and fee
revenue. As we wlll see shorLly, Lhls ls noL [usL a LulLlon prlce lncrease, for boLh uluC
and ulC, Lhls ls drlven by a pure lncrease ln enrollmenL or Lhe number of sLudenLs
1ulLlon and fee revenue lncreased over 30 from 2003 Lo 2008, even Lhe sLaLe
approprlaLlon lncreased over Lhls Llme. lurloughs are cerLalnly noL necessary ln Lhls
envlronmenL.

23456% =( )*"*% 0KK6-K63"*3-, C1L !53*3-, ",: 2%% D%C%,5%

400,000
4S0,000
S00,000
SS0,000
600,000
6S0,000
700,000
7S0,000
800,000
200S 2006 2007 2008
1u|t|on and Iees Vs. State Appropr|at|on: 200S to 2008
SLaLe ApproprlaLlon SLudenL LulLlon and fees


11

1hls graph ls very lnLeresLlng, as we see LhaL Lhe Lrend seems Lo polnL Lo Lhe facL
LhaL LulLlon and fee revenue wlll soon exceed Lhe SLaLe approprlaLlon.
1he need for furloughs ls based on Lhe facL LhaL Lhe SLaLe approprlaLlon, a revenue
source LhaL ls less Lhan 20 of LoLal revenues, wlll be decllnlng. Powever, Lhe
approprlaLlon was noL decllnlng Lhrough 2008, and as of november 2009, lL was
expecLed Lo lncrease Lhrough 2010. 1hls expecLaLlon may have changed slnce Lhen,
Lhough Lhe effecL on LoLal revenues of Lhe ul sysLem wlll noL be overrldden by
expecLed enrollmenL lncreases, as we wlll see below.

!"#$% M( N,6-$$+%,* !6%,:1 "* 89> ",: 898>

LnrollmenL
Annual
Change LnrollmenL
Annual
Change
lall 2009 26,243 4.0 41,918 1.0
lall 2008 23,243 0.3 41,493 1.4
lall 2007 23,123 3.8 40,923 -0.6
lall 2006 24,200 41,180
Change
2006 Lo 2009 8.3 1.8
UIUC UIC


Sources for enrollmenL and LulLlon daLa:
ulC enrollmenL lnformaLlon: hLLp://www.drla.ulc.edu/sLudenLs/pdfs/mlnlSu8/lall2009Lnrl.pdf
ulC LulLlon lnformaLlon: hLLp://www.ulc.edu/depLs/oar/undergrad/LulLlon_undergrad.hLml
uluC enrollmenL: hLLp://www.dml.llllnols.edu/sLuenr/lndex.asp#absLracL

1he Lable above reporLs fall enrollmenL flgures as reporLed by each unlverslLy.
WhaL ls mosL lmpresslve ls LhaL Lhe fall 2009 enrollmenL ls 4 hlgher Lhan fall 2008
enrollmenL aL Lhe Chlcago campus, lL ls 1 hlgher aL urbana-Champalgn.
1yplcally, we see LhaL enrollmenL lncreases ln Llmes of hlgh unemploymenL.
1he enrollmenL Lrend from fall 2006L Lo fall 2008 ls especlally lmpresslve aL ulC,
whlch has experlenced an 8.3 enrollmenL growLh over Lhls perlod.
ln Lerms of LulLlon prlce lncreases, aL Lhe ulC campus, Lhere was a 2.4 lncrease
from 2008-09 Lo 2009-10:
o lor 2008-09, Lhe range of LulLlon for undergraduaLe llllnols resldenLs was
$3,437 Lo $7,610 (dependlng on when Lhe sLudenL began sLudles and whaL
program Lhe sLudenL ls enrolled ln). 1hls corresponds Lo an average of
$6,334
12

o lor 2009-10, Lhe range of LulLlon for undergraduaLe llllnols resldenLs was
$3,616 Lo $7,769. 1hls corresponds Lo an average of $6,693
o 1he 2.4 lncrease ls Lhe percenLage change from $6,334 Lo $6,693

Concluslon of 8evenue Analysls: 1he ul sysLem has growlng revenues, whlch are drlven by
enrollmenL lncreases. 1he SLaLe approprlaLlon may be flaL or down sllghLly, Laken LogeLher,
Lhese Lwo revenue sources are lncreaslng. 1he clalm LhaL furloughs are necessary due Lo Lhe
effecL of Lhe SLaLe of llllnols approprlaLlons ls not warranLed ln any way, shape or form.

V. 8reakdown of Lxpenses (focus on |nstruct|on and compensat|on)

1he dlfferenL expenses reporLed ln Lhe audlLed flnanclal sLaLemenLs:

!"#$% I( O6%"P:-G, -. 89 )<1*%+ NQK%,1%1R ;HHE *- ;HHI

2003 2006 2007 2008
03 Lo 08
Change
lnsLrucLlon 677,813 666,200 703,340 738,676 12
8esearch 337,038 336,874 361,876 368,946 2
ubllc servlce 277,626 300,990 326,348 342,840 23
Academlc supporL 206,894 218,043 236,361 249,000 20
SLudenL servlces 79,616 82,636 88,374 99,314 23
lnsLlLuLlonal supporL 163,770 130,372 167,172 178,372 9
lanL 199,183 229,038 218,028 239,068 30
Scholarshlps and fellowshlps 173,166 183,133 198,016 199,197 14
Auxlllary 207,823 229,933 234,731 261,408 26
PosplLal and medlcal 394,122 406,466 431,762 470,343 19
lndependenL operaLlons 9,213 9,639 10,023 9,963 8
uepreclaLlon 173,978 183,103 191,679 199,609 13
lrlnge paymenLs 347,232 327,927 376,637 441,480 27
lnLeresL expense 39,068 61,637 71,768 68,091 13
1ota| expenses 3,S30,S66 3,610,2S7 3,816,SSS 4,106,S09 16


ln 2008, LoLal expenses were 4,106 bllllon. 1hls represenLs a 16 lncrease over Lhe
3.330 bllllon ln LoLal expenses from 2003.
1he maln academlc expenses are Lhe flrsL Lwo llnes: lnsLrucLlon and research. 1he
maln admlnlsLraLlve expenses are publlc servlce, academlc supporL, sLudenL servlces,
and lnsLlLuLlonal supporL:
13

o noLe LhaL lnsLrucLlon lncreased only 12 from 2003 Lo 2008, and research
lncreased only 2. 8oLh of Lhese lncreased slower Lhan Lhe 16 lncrease for
all lLems.
o 1hree of Lhe four maln admlnlsLraLlve caLegorles lncreased more Lhan 20
from 2003 Lo 2008
Concluslon: 1he ul sysLem has noL been Lrue Lo Lhe core academlc mlsslon, as Lhey
have lncreased admlnlsLraLlve cosLs aL a hlgher raLe Lhan pure academlc cosLs

ln addlLlon Lo examlnlng Lhe percenLage changes ln expenses, lL ls useful Lo reporL Lhe
conLrlbuLlon of each expense caLegory Lo LoLal expenses, whlch ls reporLed ln Lhe charL below:

23456% B( NQK%,1% >-,*63#5*3-, -. *?% 89 )<1*%+R ;HHI
(Lach lLem ls a percenL of Lhe 4.106 bllllon of 2008 LoLal expenses)

18
14
11
11
8
6
6
6
S
S
4
2
2
Lxpenses as ercent of 1ota|: 2008
Instruct|on
kesearch
nosp|ta|]med|ca|
Ir|nge payments
ub||c serv|ce
Aux|||ary
|ant
Academ|c support
Deprec|at|on
Scho|arsh|ps
Inst|tut|ona| support
Student serv|ces
Interest expense

lL may be surprlslng LhaL lnsLrucLlonal cosLs are only 18 of Lhe LoLal.
noLe LhaL lnLeresL expense ls only 2 of LoLal expenses, Lhls reporLs LhaL Lhe 68
mllllon ln 2008 lnLeresL expense ls only 2 of Lhe LoLal of 4.1 bllllon of LoLal
expenses. 1hls ls furLher proof LhaL Lhe debL level of Lhe ul sysLem ls noL LhaL large.

ln addlLlon Lo LoLal expenses, we can examlne compensaLlon cosLs, as Lhese represenL over 60
of LoLal expenses for Lhe sysLem:


14

!"#$% S( 0,"$<131 -. >-+K%,1"*3-, NQK%,1%

CompensaLlon: 2003 2006 2007 2008 03 Lo 08
lnsLrucLlon 337,300 367,006 383,428 613,373 10
8esearch 337,919 368,371 367,139 371,610 4
ubllc servlce 163,273 179,134 190,341 198,349 21
Academlc supporL 126,133 140,793 130,023 136,020 24
SLudenL servlces 48,916 32,271 36,833 61,306 23
lnsLlLuLlonal supporL 120,372 116,801 131,033 130,339 8
PosplLal and Medlcal 198,307 224,280 239,230 239,073 31
All CLher 613,089 641,282 704,008 783,817 28
1oLal 2,183,313 2,289,960 2,422,279 2,374,291 18
1oLal Comp/1oLal Lxpenses 61.9 63.4 63.3 62.7
lnsLrucLlon Comp/1oLal
Lxpenses 13.8 13.7 13.3 14.9


Concluslons from Lhe compensaLlon analysls:
CompensaLlon cosLs were $2.374 bllllon ln 2008, and Lhese are 62.7 of Lhe LoLal of
$4.106 ln flscal year 2008 expenses
1oLal compensaLlon cosLs lncreased 18 from 2003 Lo 2008, however academlc
compensaLlon dld noL lncrease as qulckly (10 for lnsLrucLlon and 2 for research).
As was evldenL wlLh LoLal admlnlsLraLlve cosLs (caLegorles of publlc servlce, academlc
supporL, sLudenL servlces, and lnsLlLuLlonal supporL), admlnlsLraLlve compensaLlon
cosLs lncreased fasLer Lhan academlc compensaLlon cosLs from 2003 Lo 2008. 1hls ls
lndlcaLlve of a sysLem LhaL ls puLLlng more and more emphasls on lLems ouLslde Lhe
core academlc mlsslon.


VI. Cash I|ow Ana|ys|s

lL may be clalmed LhaL Lhe revenues of Lhe ul sysLem may noL LranslaLe Lo acLual cash flows. ln
facL, Lhe cash flow analysls below reveals LhaL Lhe cash flows of Lhe sysLem are greaLer Lhan Lhe
change ln neL asseL numbers would suggesL. 1hls ls mosLly due Lo Lhe facL LhaL depreclaLlon
expense ls lncluded ln Lhe change ln neL asseL performance, and depreclaLlon ls a non-cash
expense. l am noL suggesLlng LhaL depreclaLlon expense ls noL lmporLanL, however, ln
analyzlng Lhe cash flows of Lhe sysLem, Lhey need Lo be added back.


13

!"#$% 'H( >"1? 2$-G 0,"$<131

2008 2007 2006 2003
Cash llow from CperaLlons (334,032) (387,641) (389,879) (384,382)
noncaplLal llnanclng (mosLly Lhe
SLaLe of llllnols approprlaLlon) 837,263 807,172 796,136 763,136
uebL lssue/aymenLs (197,063) (139,663) (131,132) (166,138)
1oLal Cash llows 86,166 79,868 33,103 12,396


lor each of Lhe lasL four years, LoLal cash flows of Lhe ul sysLem have been poslLlve
1he debL prlnclple paymenLs have easlly been made each year.
Any clalm LhaL furloughs are necessary Lo meeL debL servlce paymenLs ls slmply noL
supporLed by Lhe facLs


VII. Ana|ys|s of 2009-10 and 2010-11 8udgets

1hough Lhe 2009 acLual resulLs are noL avallable, Lhe 2009-10 and 2010-11 budgeLs are
avallable, aL hLLp://www.obfs.ullllnols.edu/obfshome.cfm?level=2&paLh=abouLobfs&xmldaLa=budgeLs

lrom Lhese budgeLs, we wlll be able Lo examlne LoLal revenues and expenses of Lhe ul sysLem,
plus examlne Lhe ulC budgeL ln more deLall. noLe LhaL Lhe 2010-11 budgeL documenLs were
reporLed on november 12, 2009.

!"#$% ''( 0,"$<131 -. ;HHS ",: ;H'H O5:4%*1

2008 2009 2010 08 to 09 09 to 10
1oLal 8udgeLed 8evenues 3,899,682 4,164,888 4,662,328 6.8 11.9
1oLal 8udgeLed Lxpenses 3,906,129 4,170,838 4,663,228 6.8 11.9
8udgeLed 1ulLlon 8evenue 399,133 648,449 730,942 8.2 12.7
SLaLe ApproprlaLlon 726,014 747,113 747,113 2.9 0.0
1oLal CompensaLlon and
8eneflLs 1,939,623 1,983,269 2,032,401 1.3 3.4


1he mosL compelllng evldence LhaL Lhe ul sysLem ls noL ln any flnanclal Lrouble ls
Lhelr own revenue forecasL. ln order Lo be conslsLenL, Lhe daLa from Lhe budgeL
16

documenLs (as opposed Lo Lhe audlLed flnanclal sLaLemenLs whlch are noL yeL
avallable) ls uLlllzed Lo deLermlne annual percenLage changes.
lrom 2008 Lo 2009 (academlc years 2007-08 Lo 2008-09) reveals LhaL LoLal revenues
were expecLed Lo lncrease 6.8
lrom 2009 Lo 2010 (academlc years 2008-09 Lo 2009-10) reveals LhaL LoLal revenues
AkL expecLed Lo lncrease 11.9.
1wo sources of Lhls revenue lncrease are:
o A LulLlon revenue lncrease of 12.7
o A flaL SLaLe approprlaLlon
Lven lf Lhe SLaLe approprlaLlon decllnes (noLe LhaL as of 11/12/2009, lL was expecLed
Lo be flaL), Lhe 12.7 lncrease ln LulLlon wlll more Lhan compensaLe for any decllne.
8emember, Lhls budgeL comes from Lhe admlnlsLraLlon. 8equlrlng furloughs wlLh
Lhls Lype of revenue forecasL ls absurd, and makes no sense from a flnanclal
perspecLlve.

1he budgeL daLa allows us Lo examlne Lhe ulC flnanclal slLuaLlon more speclflcally (recall LhaL all
of Lhe above analysls ls for Lhe ul sysLem as a whole). As Lhe graph below reporLs, mosL of Lhe
ul sysLem cosLs are spllL beLween ulC and uluC

23456% E( O6%"P:-G, -. ;HHI 89 )<1*%+ >-1*1

48
44
2
3
3
8reakdown of I|||no|s System by 2008 Lxpense
UIC
UIUC
UIS
Centra|
Adm|n|strat|on
Un|vers|ty rograms


lrom Lhls polnL, we wlll underLake a close examlnaLlon of Lhe revenues and expenses for Lhe
ulC campus.

17

!"#$% ';( D%C%,5% 0,"$<131 -. *?% 89> >"+K51

UIC Cn|y - kevenues 2008 2009 2010 08 to 09 09 to 10
SLaLe ApproprlaLlon 283,193 289,104 289,349 2.1 0.1
1ulLlon and lees 203,111 219,440 230,238 8.0 14.0
lnsLlLuLlonal lunds 97,431 94,394 102,933 -3.1 9.1
Auxlllarles 114,722 113,300 118,037 -1.1 4.0
ueparLmenL AcLlvlLles 326,802 336,214 394,390 3.6 6.9
ClfLs, CranLs, ConLracLs 431,030 432,944 482,840 3.1 6.6
1oLal 8evenues 1,636,291 1,723,396 1,837,827 4.2 6.3
Change


1he concluslon from Lhe above Lable ls clear: Lhough Lhe SLaLe approprlaLlon ls noL
expecLed Lo lncrease, LulLlon and fee revenue ls drlvlng Lhe lncrease ln LoLal
revenues.
ln addlLlon, every revenue source ls expecLed Lo lncrease from 2009 Lo 2010
Cnce Lhe acLual 2009 flnanclal sLaLemenLs are released, we wlll llkely conflrm whaL
Lhe budgeL predlcLed, LhaL LoLal revenues lncreased from 2007-08 Lo 2008-09
Cnce agaln, Lhe need for furloughs ls noL apparenL

!"#$% '=( 89> NQK%,:3*56%1 #< T"3, >"*%4-63%1

UIC Cn|y - Lxpend|tures
2008 2009 2010 08 to 09 09 to 10
lnsLrucLlon 339,629 372,603 399,306 3.6 7.2
8esearch 238,742 237,390 281,327 -0.3 9.3
ubllc Servlce 136,234 173,332 178,832 12.2 2.0
Academlc SupporL 80,229 83,336 93,393 4.1 11.8
SLudenL Servlces 24,309 23,624 27,217 4.3 6.2
lnsLlLuLlonal SupporL 63,642 66,977 69,063 3.2 3.1
lanL 83,636 93,283 93,949 8.9 0.7
SLudenL Ald 43,390 33,441 39,333 17.7 11.4
PosplLal/Aux 382,280 397,386 633,183 2.6 6.3
1oLal LxpendlLures 1,636,291 1,723,396 1,837,827 4.2 6.3
Change



18

!"#$% 'B( 89> NQK%,:3*56%1 #< U64",3V"*3-,

UIC Cn|y - Lxpend|tures
by Crgan|zat|on
Non-Adm|n|strat|ve: 2008 2009 2010 08 to 09 09 to 10
8uslness 19,600 19,649 21,238 0.3 8.2
uenLlsLry 37,491 38,817 40,688 3.3 4.8
LducaLlon 19,382 19,810 20,692 2.2 4.3
Lnglneerlng 37,498 37,214 39,174 -0.8 3.3
ArchlLecLure 10,916 11,044 12,109 1.2 9.6
CraduaLe College 3,686 3,473 3,399 -3.8 -2.1
Llberal ArLs & Sclences 87,748 92,939 98,160 3.9 3.6
nurslng 24,784 23,482 26,333 2.8 4.1
harmacy 38,674 64,862 67,906 10.3 4.7
School of ubllc PealLh 49,333 32,837 34,317 6.7 3.1
Applled PealLh Sclences 22,133 22,661 23,671 2.3 4.3
Soclal Work 12,066 13,487 13,764 11.8 2.1
urban lannlng 10,914 11,197 11,472 2.6 2.3
Llbrary 19,034 19,113 19,286 0.4 0.9
Medlclne 383,689 393,323 421,816 2.0 7.2
1oLal 799,168 823,948 874,443 3.4 3.9
Adm|n|strat|ve:
PealLhcare SysLem 489,761 308,633 342,302 3.9 6.6
All CLher 367,362 390,993 421,080 6.4 7.7
1oLal AdmlnlsLraLlve 837,123 899,648 963,382 3.0 7.1
1oLal LxpendlLures 1,636,291 1,723,396 1,837,827 4.2 6.3
Change
Change


1he above Lables lndlcaLe LhaL LoLal expendlLures for ulC are expecLed Lo lncrease
4.2 from 2008 Lo 2009, and 6.3 from 2009 Lo 2010
Powever, Lhls lncrease ls noL unlform. 1he Lop panel of Lable 14 reporLs Lhe
academlc areas of ulC, Lhe boLLom panel reporLs Lhe admlnlsLraLlve caLegorles.
o 1he academlc areas are expecLed Lo lncrease 3.4 from 2008 Lo 2009, versus
a 3.0 lncrease for admlnlsLraLlve cosLs
o 1he academlc areas are expecLed Lo lncrease 3.9 from 2009 Lo 2010, versus
a 7.1 lncrease for admlnlsLraLlve cosLs
1hls evldence supporLs Lhe proposlLlon LhaL Lhe ulC admlnlsLraLlon ls devoLlng
lncreased resources Lo admlnlsLraLlve cosLs, and Lhls lncrease ls smaller Lhan Lhe
lncrease for Lhe core academlc mlsslon.


19

VIII. .!!"#$% '!(" )*+,(-%

1he credlL raLlng agencles use flnanclal sLaLemenLs Lo [udge Lhe flnanclal healLh of
munlclpallLles, wlLh Lhe goal Lo ldenLlfy varlables LhaL encompass Lhe flnanclal condlLlon/ablllLy
Lo repay debL of Lhe munlclpallLy as a whole. Moody's uses Lhree varlables, Lhen puL varlous
welghLs on Lhose varlables, and come up wlLh a composlLe score for an lnsLlLuLlon. 1hese are
used by Moody's ln Lhe area of publlc flnance. 1he raLlos are all derlved from Lhe maln
componenLs of Lhe SLaLemenL of neL AsseLs and Lhe SLaLemenL of AcLlvlLles. 1he raLlos are
descrlbed below:

!"#$"%"&' )#&"*: Lxpendable neL asseLs dlvlded by debL.
+)",#)' )-.-)/- )#&"*: Lxpendable neL asseLs dlvlded by LoLal operaLlng expenses.
0-& 123*,- 4#&"*: Change ln LoLal neL asseLs dlvlded by LoLal revenues.

1he deflnlLlons of Lhe componenLs of Lhose raLlos are:
567-28#$%- 2-& #..-&.: 1he sum of unresLrlcLed neL asseLs and resLrlcLed expendable neL
asseLs.
9-$&: 1oLal long-Lerm debL (lncludlng Lhe currenL porLlon Lhereof).
:*&#% 4-/-2;-.: 1oLal operaLlng revenues
:*&#% *7-)#&"2< -67-2.-.: 1oLal operaLlng expenses, plus lnLeresL on long-Lerm debL.
:*&#% 2*2=*7-)#&"2< -67-2.-.: All expenses reporLed as non-operaLlng wlLh Lhe excepLlon of
lnLeresL expenses.
>?#2<- "2 &*&#% 2-& #..-&.: 1oLal revenues (operaLlng and non-operaLlng), less LoLal
expenses (operaLlng and non-operaLlng).
A composlLe score ls complled, and below are Lhe numbers asslgned Lo each varlable. A score
of 3 lndlcaLes Lhe hlghesL degree of flscal sLrengLh ln each caLegory.
0 1 2 3 4 5
Viability Ratio < 0 0 to .29 .30 to .59 .6 to .99 1.0 to 2.5 > 2.5 or N/A
Primary Reserve Ratio < -.1 -.1 to .049 .05 to .099 .10 to .249 .25 to .49 .5 or greater
Net Income Ratio < -.05 -.05 to 0 0 to .009 .01 to .029 .03 to .049 .05 or greater
Ratio Scores


A summary of Lhe Moody's analysls ls as follows:
20

Numerator Denominator Weight
Viability Ratio
Expendable
net assets Debt 30%
Primary Reserve Ratio
Expendable
net assets
Operating
Expenses 50%
Net Income Ratio
Change in
Net Assets
Total
Revenues 20%
Final score = 30% * Viability Ratio + 50% * Primary Reserve Ratio + 20% * Net Income Ratio
+ 20% of Net Income Ratio
If the ratio is > 3, the NPO is considered to be in solid financial condition
solid financial condition.


8elow are Lhe varlables and Moody's raLlos for Lhe ul SysLem for Lhe lasL four years. 1here ls a
decllne ln Lhese raLlngs, Lhough Lhe level ls noL lndlcaLlve of flnanclal weakness.

!"#$% '() *++,-./ 0+12+/34% 5"4367/ )A-6% .-6 *?% 89 )<1*%+R ;HHE *- ;HHI
2008 2007 2006 2003
vlablllLy 8aLlo 78.8 86.2 101.0 102.3
rlmary 8eserve 8aLlo 21.7 24.7 23.3 22.6
neL lncome 8aLlo -1.3 1.2 1.7 1.2
vlablllLy Score 3.0 3.0 4.0 4.0
rlmary 8eserve Score 3.0 3.0 3.0 3.0
neL lncome Score 1.0 3.0 3.0 3.0
ComposlLe Score 2.6 3.0 3.3 3.3


LasLly, whaL are Lhe acLual Moody's raLlngs for Lhe ul SysLem? 1he mosL recenL raLlng ls Aa3,
whlch ls Lhe 3
rd
hlghesL raLlng Moody's offers (ouL of 21 poLenLlal raLlngs). Powever, lL should
be noLed LhaL Moody's downgraded every slngle publlc lnsLlLuLlon ln Lhe SLaLe of llllnols ln
uecember of 2009, based on Lhe SLaLe's flnanclal lssues. Powever, as we wlll see below, Lhe ul
sysLem recelves a much smaller percenLage of lLs overall revenue base from Lhe SLaLe Lhan
oLher publlc lnsLlLuLlons ln llllnols.

21

Ik. Comparab|e Inst|tut|on Ana|ys|s

1he oLher publlc lnsLlLuLlons ln llllnols all have lower bond raLlngs Lhan Lhe ul sysLem, as each of
Lhese lnsLlLuLlons relles on Lhe SLaLe of llllnols for a much hlgher percenLage of lLs LoLal
revenues. ln Lhe fuLure, we wlll examlne Lhe reserves and debL levels of Lhese comparable
lnsLlLuLlons.

!"#$% 'J( 9,.-6+"*3-, .-6 @5#$3A 9,1*3*5*3-,1 3, 9$$3,-31

2010 8udgeL ln
uollars
of 8udgeL
from SLaLe
Moody's
8ond 8aLlng
unlverslLy llllnols 4,700,000,000 16 Aa3
SouLhern llllnols 420,000,000 33 A2
WesLern llllnols 123,900,000 48 A2
llllnols SLaLe 363,700,000 23 A2
norLhern llllnols 433,000,000 23 A2
uecember 2009: SLaLe downgraded from Aa3 Lo A1,
All publlc unlverslLles on waLch llsL for poLenLlal downgrade



WL Conc|us|ons

1he ul SysLem ls ln solld flnanclal condlLlon. 1hls ls demonsLraLed by:
SLrong revenue growLh
SLrong level of reserves
Low level of debL
SLrong raLlngs by ouLslde credlL-raLlng agencles

1he need for furloughs ls slmply noL apparenL from Lhe flnanclal lnformaLlon of Lhe ul sysLem
and from Lhe ulC budgeL. 1hls concluslon ls based on Lhe audlLed flnanclal sLaLemenLs as of
!une 30, 2008, as well as Lhe 2010 budgeL. 1he ul sysLem revenue growLh ln LulLlon and fees, as
well as wlLh oLher revenue lLems, wlll llkely more Lhan compensaLe for any decllne ln Lhe SLaLe
approprlaLlon, an approprlaLlon LhaL ls less Lhan 20 of LoLal revenues.

1he concepL of furloughs for academlc employees ln Lhe ul sysLem should noL be accepLed by
Lhe academlc employees of Lhls sysLem.