3.10.1 Financial Stability

The institution’s recent financial history demonstrates financial stability.

Judgment of Compliance

PVAMU SACS Accreditation - Judgement Compliance

Narrative of Compliance

Prairie View A&M University’s recent financial history demonstrates financial stability.  The University, as an agency of the State of Texas, is audited annually as part of the statewide audit and has increased its net assets steadily over the past few years to plan for potential future changes in state funding and student enrollment. Endowments are growing, and liabilities remain low compared to assets. Additionally, the Office of Business Affairs and Office of Development have competent, qualified individuals to manage and sustain Prairie View's financial stability.

Praire View's annual financial report (AFR) is prepared in accordance with accounting principles set forth by the Governmental Accounting Standards Board (GASB). The AFR is submitted to the Texas A&M University System (TAMUS) where the AFR is reviewed and consolidated with reports from the other system institutions in order to generate a TAMUS Combined AFR. This report then goes to the State Auditor's Office for inclusion in the Statewide Single Audit and the firm of KPMG, LLP for independent auditing of federal monies. For 2005, 2006, 2007, and 2008, it was determined that the Comprehensive Annual Financial Report "accurately presents the financial position and activities of the State" [1] [2] [3] [4]. No special findings for Prairie View A&M University were listed in any of the state audits; findings for student financial aid in the independent federal audit are described in the response for Comprehensive Standard 3.10.3. Although the state does not offer opinions on the specific financial statements of component units [5], the AFRs for FY 2006, 2007, and 2008 are available for viewing [6] [7] [8].

The Texas A&M University System has ranked Prairie View's composite financial index (CFI) as meeting targets for FY2006 through 2008 [9]. Four financial ratio measures--primary reserve, viability, return on net assets, and net operating revenue—are calculated and then assigned strength and weight factors to arrive at four individual scores; these are added together to arrive at the CFI. In FY2007, in addition to meeting the overall target CFI, the University met three out of four individual targets with especially strong performance in return on net assets [10].

Additional evidence of financial stability can be found in the continued increase of net cash balances and net assets over the past several years. Net cash balance in state treasury funds increased by 9.6% between FY2007 and 2008 [11] [12]. Prairie View A&M University also has been successful in increasing total net assets 56% and more importantly, unrestricted net assets 72% between FY2005 and FY2008 [13] in order to maintain sufficient operating reserves in the event that state appropriation funding or student enrollment declines.

Student enrollment, in fact, has grown 25% between Fall 2000 and Fall 2008, from 6,609 to 8,288 [8]. Tuition and fees therefore account for a rising proportion of total revenues; in FY2006, just 16.2% of total revenues came from tuition and fees, versus 21% in FY2008 [14] [15] [16] [17]. Although the Texas A&M University System Board of Regents has authorized Prairie View A&M University for pre-approved fee rates of up to $500 per semester per course, with rates in excess of this amount requiring approval from the Board, Prairie View A&M is striving to limit such increases so as not to burden students. Still, to offset decreases in funding from gifts, grants and contracts, the rising income from auxiliary enterprises and endowments has been supplemented by an increase in designated tuition and fees.

The State of Texas has continued to fund Prairie View A&M University with state appropriations at constant levels.  In the 2008-2009 biennium, hold harmless funding was provided to ensure no reduction resulted from general revenue funding.  Overall, state appropriations have provided between 44 and 46% of total revenues for FY2006 through FY2008 [14].

Additional revenues come from endowments established and invested in accordance with Texas A&M University System Policy 22.02: Investments [18]. Since 1985, Prairie View has shared in benefits from the state's perpetual endowment fund known as the Permanent University Fund (PUF), which is managed by the nonprofit University of Texas Investment Management Company (UTIMCO) [19]. As of June 30, 2009, the PUF had a market value of $9.1 billion [20]. PUF distributions to the Available University Fund (AUF) are used first to meet debt service on bonds issued by the University of Texas and Texas A&M Systems and then for academic excellence programs at the University of Texas at Austin, Texas A&M University at College Station, and Prairie View A&M University; distributions equal 4.75% of the prior twelve quarters' average value of PUF net assets, with provisions for higher distributions in cases of exceptional portfolio performance. The AUF increased from $400.7 million in FY2007 to $448.9 million to $530.9 million in FY2009 [21], and for FY2010, Texas A&M planned to distribute $12,150,000 in AUF funds to Prairie View A&M [22].

The value of Prairie View A&M University's own endowment increased almost 29% between FY2005 and FY2008, to a market value of $51,647,332 as of August 31, 2008 [13]. This value does represent a 6.5% decrease from the endowment's high point in FY2007. Even with the recent economic downturn, because of the TAMUS investment policy related to distribution of income based on five-year average market value as of the previous February, scholarship and endowed chair accounts should not see a significant drop in the near future.

Financial stability also comes from fundraising, especially the University's first-ever Capital Campaign, "Extending the View." The goal, $30 million in five years, was met in an extended six-year period with $32.6 million in cash, gifts and pledges in December 2008. Almost two-thirds of the funds are earmarked for student support and faculty enrichment; monies for endowed scholarships and endowed faculty chairs are matched dollar for dollar by the State of Texas. Between 2004 and 2008, over 75 scholarship and endowment funds were established [23]. The success of the Capital Campaign is especially gratifying since the Annual Campaign totals have dropped substantially since 2006, due in large part to a decrease in funding from corporations and foundations [24].

Liabilities and Depreciation
The University follows Texas A&M System Policy 23.02: Debt Management in managing its indebtedness [25]. Total institutional liabilities have ranged between 8.4% and 11.1% of total assets since 2005 [13]. Prairie View A&M University also participates in the Texas LoanSTAR Revolving Loan Program, initiated in 1988 to provide funding for improved energy efficiency [26], and the institution owed just over $4.1 million at the close of FY2008 [27].

Prairie View A&M University records depreciation in accordance with the State Comptroller’s Capital Asset guidelines and Texas A&M University System guidelines.  Depreciation is computed using the straight-line method over the estimated useful lives of the asset. The depreciation period is generally 30 years for buildings, 20 to 25 years for infrastructure, 5 to 7 years for equipment and 15 years for library books.  The State Property Accounting (SPA) User’s Guide lists the useful life of the various assets [28]. Over the past several years, the value of accumulated depreciation relative to the University's total assets has decreased, from 41% in FY 2005 to 31.4% in FY2008 [13].

Supporting Documentation and Links

Comprehensive Standards 3.10.1

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