For many years, students have wondered about what Fordham actually spends its money on. Repeatedly, The Ram has requested to see a copy of the University budget, but officials such as Vice President of Finance Frank Simio and Vice President for Student Affairs Jeffrey Gray insist that the budget remain confidential because it is a private business document. As a student advocate, The Ram has undertaken an investigation of Fordham’s budget using publicly available information.
Even though it is not generally liable for income tax, tax regulations require Fordham to file a return each year. This document, a Form 990, is made publicly available by the IRS, and many philanthropy-themed Web sites have databases that make available for public access years of returns for many high-profile organizations. We have based our analysis primarily on this information and on private conversations with experts in the corporate world and academia. The Ram also made an attempt to reach out to Fordham Chief Financial Officer John Lordan, but the email requesting a comment for this article was never returned. In light of the unavailability of information from within the administration, we have done our best to ensure that our statements are true but cannot guarantee that our analysis is completely accurate. The most recent fiscal year for which data is available is 2007, which covers July 1, 2007, through June 30, 2008.
In short, Fordham faces several hurdles in the near term. Among other challenges, the University has a high long-term debt burden. As the Lincoln Center development plans commence, Fordham will surely need additional debt to fund this project. Moreover, recruiting will be key as Fordham’s traditional student base begins to enter into relative demographic decline. Plans to increase the prominence of Fordham’s athletic programs will also require significantly higher fixed expenses for scholarships and coaches; however, the sources of the University’s revenue remain cloudy and unclear, and barring a sustained increase in alumni giving rates, tuition will need to increase in order to fund ambitious projects like these. Nonetheless, we are optimistic about University management, especially in light of improved operating metrics since 2000.
Fordham’s Debt
To raise funds needed for major capital projects, Fordham issues bonds through the New York State Dormitory Authority (DASNY). Usually when organizations issue bonds or other long-term debt obligations, they must receive a credit rating from one of the three major ratings agencies: Standard & Poor’s, Moody’s or Fitch Ratings. Because Fordham qualifies to issue bonds through DASNY, the procedure differs. DASNY requires all non-profit entities that issue municipal revenue bonds through it to obtain insurance against the possibility of default in order to help organizations obtain the lowest possible interest rate. Accordingly, the DASNY bonds for which Fordham is named as obligor carry ratings that the agencies “wrap up” in the ratings of the insurance companies. Though Fordham has different insurers for its bond issues, the ratings on its debt are either ‘A’ (MBIA Insurance Corp., National Public Finance Guarantee Corp., Financial Guaranty Insurance Co.) or ‘AAA’ (Assured Guaranty Corp., Berkshire Hathaway Assurance Corp., Ambac Assurance Corp.) on Standard & Poor’s rating scale with one of the issues not rated.
It should also be mentioned that there is a mortgage outstanding on Finlay Hall, payable to the United States Department of Education. The loan, originated in 1991 and due in 2021, has more than half left to be repaid; however, the fair market value of this loan is worth less than the principle due. Fordham could reap a meaningful gain were it to repurchase the loan.
Although the lack of a corporate-level credit rating on Fordham hinders our ability to judge the University’s overall financial risk profile from an independent point of view, we can glean several important details.
First, records show that Fordham carries a debt load that exceeds $200 million; this represents a significant amount of the University’s overall net worth.
Second, given the amount of debt outstanding, we can also assume that the University pays a significant sum in default insurance premiums. Combined, these interest payments and premiums comprise more than $10 million worth of fixed expenses that the University must pay on an annual basis. This figure does not include amortization, which generally follows a yearly schedule with a quiet period prior to two principal bullet payments spread five years apart. Lastly, Fordham’s debt burden will surely increase as the Lincoln Center development plan begins, pending a lawsuit.
Notable Expenses
Fordham’s 2007 Form 990 reveals a number of interesting expenses. One of these is $9.7 million in expenses for student meals. Essentially, this is the accounting notation for what happens when students pay their room and board. When the money comes in, Fordham collects the portion for meal plans, about $2,000 per student, and the University simply remits this money to Sodexo. What is missing from this figure is any amount that Sodexo pays Fordham. Other universities, namely the University of Hawaii after dropping Sodexo several years ago, have disclosed that they receive a percentage of retail sales of about nine percent in addition to facility lease payments. Also of interest are several loans Fordham has made to former and current officers. Attachments to the 2007 Form 990 list four outstanding loans of this type totaling more than $2.1 million, of which more than three-quarters of this amount is interest free. In addition, the return also specifies more than $400,000 of loans to employees, as well.
With regards to employees, Fordham has 1,336 employees receiving compensation of more than $50,000 per year. We suspect that the majority of these employees are professors. This past year, faculty expressed concern that they only received a two percent raise in their salaries. Usually Fordham’s professors receive a four-percent raise, and the two-percent increase came as a compromise to the administration’s proposal for a 1.6 percent raise in light of what it cited as difficult economic circumstances. While some faculty accepted this raise without question, others are angry because of changes in the administration’s pay structure: even though the administration touted the fact that their salaries did not increase, many vice presidents and assistant vice presidents have been quietly promoted with corresponding salary raises. As such, The Ram predicts a salary expense increase of at least six percent for fiscal year 2009 over the prior year.
We have also received unconfirmed reports of expense accounts for graduate business faculty. Although such leads could not be corroborated, we noted expense accounts for three employees on the return. While we do not have complete information, we found it notable that the expense account for men’s basketball Head Coach Dereck Whittenburg, incidentally the University’s highest paid employee, was more than 50 percent more than the other two employees’ expenses combined. Altogether, the 2007 Form 990 lists $5,406 in personal expense accounts (more than the value of some scholarships) for Vice President for Development Albert Checcio, Senior Vice President and Chief Academic Officer Stephen Freedman and Whittenburg.
Fordham also recorded $631,661 in lobbying expenses. We assume that these went toward convincing the New York City council and Manhattan borough president to vote in favor of the Lincoln Center development plan. Another onetime expense includes a $1.5 million loss recognized in the sale of Marymount.
Financial aid has traditionally been a large expense for Fordham with regards to its total operating budget. For the most recent year for which data is available, the University recorded a $97.8 million expense for financial aid.
Budget Highlights
In fiscal year 2007, Fordham recognized a $76 million operating surplus – a measure akin to for-profit corporation’s net operating income figure. Some, however, feel that this figure is misleading.
“It stands out to me that they were recognizing $38 million gains on the sales of assets in a bad economy,” said Bohdan Ivantsyk, CBA ’11. “Even more strange is the fact that they are holding onto nearly $68 million in unrecognized losses. It makes me wonder why they’re holding back. Also, I have no idea what the $55 million auxiliary revenue means.”
In total, Fordham listed total revenue of $576 million with $500 million in expenses. Total net assets were valued at $1.077 trillion with liabilities of $320 million.
Revenues and Liquidity
Certain revenue items seem particularly vague. We are concerned about the recurring nature of these revenues; even if they are not one-time, they create the impression that the University relies too heavily on erratic revenues. The most notable of these nontransparent revenues are those which the University lists as auxiliary revenues. Not only are these a significant sum – $55 million – their name seems intentionally misleading. For the most part, though, the remainder of revenues seems pretty straightforward. It is interesting to note, though, the large amount of interest revenue. Again, while we are not informed on current practices, in the past, the University used to put tuition in short term deposits and investments that mature on a monthly basis as payroll and other expenses come due. This would seem to explain the strict deadlines and late-fee policies Fordham has with regard to on-time tuition payments.
Lastly, we have uncovered an interesting source of revenue: affinity cards. Although this practice is not as pronounced here at Fordham, other schools oftentimes work with banks to issue cards with their logo on them. These banks, then, visit campuses, offering freebees to students who sign up for the cards. In effect, what happens is that the university profits (it earns fees each time the card is swiped) as students go deeper into debt. Again, we do not see this practice here at Fordham too often, but the University should be careful as to which products it puts its logo on and to ensure that it does not profit from usurious practices.
Management
Going forward, we are optimistic about the University’s ability to manage the challenges it faces. From a quantitative standpoint, long-term debt to EBITDA (earnings before interest, taxes, depreciation and amortization) has decreased to just 1.61x in FY2007 from 2.48x in FY2001. Leverage (assets divided by assets minus liabilities) also decreased to 1.42x in 2007 from nearly 1.6x in 2000. The proportion of assets financed by debt has also decreased to just 29.8 percent in 2007 from 37 percent in 2000. In addition, pledge turnover, our proprietary measure of the effectiveness of fundraising efforts, has increased to 1.11x from just 0.81x in 2002.
These trends seem to correspond to the installation of Rev. Joseph M. McShane, S.J., as president of the University. Accordingly, we believe that going forward, Fordham is in good shape. Indeed, while it faces several short-term risks, all signs point to the administration’s ability to execute long-term planning goals.
Enrollment
Should Fordham be unable to maintain high enrollment levels, the University will experience significant difficulties given that tuition revenue accounts for nearly 75 percent of all revenues. Thus, while McShane often cites that endowment losses are not a major consideration since Fordham does not rely on its investments as much as other peer and aspirant research universities, the school needs to maintain a student population comparable to current levels in order to continue its plans for expansion. Freshman retention rates must remain under control and overall student sentiment must remain high in order to maintain enrollment levels and ensure that once these students graduate that they continue to give back to the University.
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