FINANCIAL ANALYSIS

The campus plan includes a financial model to evaluate the capital and operating performance of proposed projects, to ensure they are feasible and implementable. In addition to assessing financial feasibility, the model served as a decisionmaking tool as the plan’s recommendations were developed, refined, and finalized. This analysis helped the University visualize the capital requirements and trade offs of sequencing the campus plan projects to maximize the yield of Alcorn’s investments using federal, state, foundation, operating revenue, and auxiliary funding sources.

Methodology

The campus-wide financial analysis was developed using financial audit data provided by the University (FY 2016 through 2021), which was then overlaid with the University’s enrollment growth projections. This data was used to forecast how increases in enrollment and assumptions related to additional state and federal funding will impact the University’s ability to pursue capital projects. Operating revenue, such as student fees, and non-operating revenue (e.g., federal grants) were compared with operating expenses (personnel and non-personnel) and debt obligations (current and future) to develop a realtime view of how capital improvements will impact Alcorn’s financial position going forward.

Financial Analysis Results

From the end of FY2020 to the end of FY2021, the University’s net financial position increased by $14 million, from $98 million to $112 million. In that same period, Alcorn’s cash and cash equivalents increased by nearly $6 million to exceed $48 million. Alcorn’s total assets grew to over $260 million (a 9.6% increase) and liabilities grew to over $148 million (a 6.5% increase), resulting in a net positive position of $112 million (a 13.9% increase) between the end of FY2020 and FY2021. See Tables 5.14 and 5.15 for more details.

Alcorn’s greatest sources of revenues include student tuition and fees, state appropriations, federal grants and contracts, and housing revenues. While recent fluctuations in enrollment have led to slightly lower tuition and fee revenues, these funds are anticipated to grow as Alcorn targets an ambitious enrollment growth to 3,700 students (FTE) over 10 years, or 1.5% enrollment growth per year from 2019.

As previously outlined, the financial analysis focused on shaping the final recommendations to ensure that the University’s strategic and financial objectives were addressed. To achieve this end, the planning team projected the capital costs that may be expected to fully address the University’s growth and campus improvements identified on pages 97-104 of this report. In short, more than $450 million (2023 dollars) in capital is needed to pursue the renovation and development of approximately 690,000 GSF of residential space, 390,000 GSF of academic space, 200,000 GSF of student life space, 50,000 GSF of athletics space, and 180,000 GSF of administrative and additional facilities. Additional capital is needed to pursue the non-facilities projects, including grounds and open space projects, circulation and parking projects, and infrastructure and utilities projects. Unit costs for various non-facilities components are listed in Table 5.17, to assist with project cost estimates.

The financial analysis utilizes Alcorn’s historical revenues, expenses, and debt obligations to create a baseline financial scenario. Over the next ten years, the analysis assumes moderate annual growth in tuition (3%), student fees (2%), and housing rental rates (3%), which are commensurate with typical growth rates across higher education institutions. For FY2020, expenses were converted to dollars per student and dollars per square foot (“SF”), with annual adjustments to reflect enrollment and square footage increases. New construction and renovation rates per SF1 were provided for a range of asset types (housing, academic, recreational, etc.), with options for high, medium, and low investment (see Table 5.16). This approach provides the University optionality on methods to address strategic priorities. These construction and renovation costs were utilized to estimate project costs by asset, with a 10% cost escalation modeled in 2023 and a 4% annual escalation assumed from 2024 onward.

The analysis includes annual provisions of state and federal funding earmarked specifically for new capital projects or capital reinvestments, with a FY2023 baseline of $7 million in state funding and $1.5 million in federal funding (for agriculture-related projects). These capital funds equal over $80 million in state funds and $17 million in federal funds over a ten-year period.

Renovation New Construction Demolition

Low Reno Medium Reno High Reno Low Construction Medium Construction High Construction

Classroom $307 $358 $417 $399 $452 $516 $31

Admin $307 $358 $417 $399 $452 $516 $31

Phys. Plant $307 $358 $417 $399 $452 $516 $31

Housing $248 $347 $440 $385 $440 $523 $35

Recreation $215 $242 $275 $275 $330 $385 $24

Union $451 $495 $539 $495 $550 $605 $30

Retail $307 $358 $417 $399 $452 $516 $31

Athletics* $314 $347 $413 $187 $488 $550 $35 Other $307 $358 $417 $399 $452 $516 $31

Table 5.16: Unit Costs, Facilities (2023 dollars)

NON-FACILITIES Unit Cost per Unit Notes

Earthwork SF $20

Fine Grading SF $0.35

Low Signage Wall Each $200,000

Shrubs SF $25 Allow 10% of each open space

New Shade Deciduous Trees Each $1,200

Evergreen Trees Each $1,500

Specimen Trees Each $600

Annuals and Perennial Plantings SF $24

Hardscape SF $12

Concrete Walkway LF $8

Terrace / Courtyard Special Paving SF $30

Table 5.17: Unit Costs, Non-Facilities (2022 dollars)

NON-FACILITIES, CONTINUED Unit Cost per Unit Notes

Rain Gardens and Bioretention SF $183

Sod Improvement SF $2

Central Pavilion Area Allowance $200,000

Yard Terrace and Amphitheaters Allowance $300,000

Campus Core Outdoor Furnishings Allowance $70,000

Honors Quad Outdoor Furnishings Allowance $35,000

Heritage Village Outdoor Furnishings Allowance $20,000

Benches Each $1,200

Paved Parking Lots Space $12,000* Includes earthwork and drive aisles

Two-Lane Asphalt Road LF $250* Includes earthwork

Staging Areas for Construction Each $20,000

*2023 dollars

The sheer amount of capital required to bring Alcorn’s academic, athletic, and quality-of-life facilities in alignment with the University’s mission and vision and its outlook for 1.5% annual enrollment growth underscores the importance of the sequencing of capital improvements proposed in the campus plan:

• Near-Term Priorities: Near-term priorities are key projects that directly advance the three plan drivers; therefore, the University should pursue these projects in its legislative priorities over the next five years. These projects include several capital projects for which the University has already received partial or full funding, such as the Whitney Complex renovation and expansion, the Child Development Center renovation, and Lott Hall renovation. The full list of near-term priorities is shown in Table 5.4. The estimated cost of facility projects included in near-term priorities is $88 million. The University has already requested or intends to request over $20 million in state and federal funding for these projects. A significant portion ($50 million) of this total estimated cost is related to the Whitney Center renovation and expansion project. Due to the general academic, research, and student life focus of near-term priorities, $77 million in project costs may be eligible for state and federal funding. Considering its positive impact on the State of Mississippi and the United States, the University should also consider requesting additional funds from local, state, and federal sources to reduce capital and operating costs. Projects that are not able to secure such funding may be financed using the University’s balance sheet, through the foundation, or through equity partners.

• Ten Year Plan: Beyond the near-term priority projects, the University also intends to complete additional projects by the end of the ten-year time frame. These projects are included in Table 5.5. Total project costs for facility construction and renovation within this tier exceed $100 million (in 2023 dollars), with significant investment anticipated for housing and construction of the Carter Dairy Welcome Center.

• Long-Term Campus Vision

The campus plan also outlines long-term projects for Alcorn, including the construction of additional academic buildings and housing facilities, demolition and relocation of the Facilities Management building, and renovations of several administrative and student life facilities. These projects are listed in Tables 5.7, 5.8, 5.9, and 5.10. Full build-out of the long-term facilities projects exceeds $200 million (in 2023 dollars) in project costs, with the construction of new housing facilities and renovations for several large facilities accounting for the majority of those costs.

Funding Sources

As the University begins implementing projects, Alcorn should continually focus on the projects’ strategic importance, potential funding sources, capital costs, prioritization and sequencing, and associated revenue and expense impacts. For Alcorn to successfully deliver its priority and tenyear projects, funding sources will need to include government finance, self-finance, and publicprivate partnerships (P3). Table 5.18 describes these funding sources as well as their capital and operating expense impacts.

Furthermore, funding sources are aligned with different asset classes to provide optionality as the University seeks to deliver new projects, as described on the following page and in Table 5.19.

• Housing Assets: In order for Alcorn to deliver projects and maintain current auxiliary cashflows, housing rental rate increases or an upfront cash contribution would need to be considered for new residential facilities. Newly constructed beds would require 20% higher rates than the highest rates currently charged on campus to be financially self-sustaining. Furthermore, housing renovation projects for Lott, Burrus, Revels, and Robinson would need to be funded by rental rate increases ranging from 10% to 20% to bridge the gap between current allocations and project budgets, with extensive renovations for Lott potentially requiring rental rate increases over 20%. To minimize the financial impact on students, the University could contribute upfront capital towards these projects. Similar circumstances impact the affordability of new graduate, faculty, and staff housing, though state allocations or upfront contributions could help to subsidize these units. The campus plan strongly recommends a detailed housing demand study for students, faculty, and staff to fully analyze opportunities and understand demand and pricing preferences to deliver new and renovated units on campus.

• Classroom and Administrative Assets

Alcorn should seek state and federal funding to cover new construction and renovations of classroom and administrative buildings. State funding and appropriations may be leveraged for general academic projects, but USDA funds should be sought for additional agricultural-related projects as a supplement to state funding. These facilities may also be financed by the University or supported by fundraising.

• Recreational Assets While recreational facilities may be covered by state appropriations, Alcorn should also assess the impact of raising its student fees. The current student fee of $25 per semester generates a leveraged amount of roughly $3 million over thirty years (2023 dollars; 4.5% rate) if escalated by 3% annually. Increasing the student fee to $35 per semester adds $1 million in leverage over ten years while a $50 per semester student fee results in a leveraged amount of $6 million over the same period. These additional dollars can support recreation and other student life facilities on campus. Recreation projects could also be supported through fundraising and, in specific cases, P3 delivery structures. Please note that the financial model classifies the Whitney Center renovation and expansion under the recreation category.

• Athletics Assets: While the scope of major athletics projects within the ten-year time frame is limited to the construction of a new athletics administration building and the renovation and expansion of the Whitney Complex (which is classified as a recreation asset for the purpose of the model), Alcorn can support these initiatives through state appropriations, self-financing, and fundraising. The University requested and received proposals to complete an athletics master plan. The campus plan advises the University to utilize the results of that plan to comprehensively analyze athletics needs on campus.

• Retail and Other Assets Generally, other projects included in the ten-year time frame may be funded by the University or via P3 structures. One exception is the Child Development Center renovation, which received full funding in the 2022-2023 legislative session. Retail endeavors, in particular, should explore P3 delivery options, provided they have sufficient demand and cash flow, and can draw market interest.

• Non-Facility Assets Similar to retail and other assets, non-facility assets, including landscape, pedestrian, road, parking, and utility projects, may be funded by several sources or a combination of different sources. For revenue-generating assets, such as parking, Alcorn should explore adjusting or creating dynamic pricing structures, provided those assets have strong and reliable demand and positive cash flow impact. For example, a tiered pricing system for parking spaces based on location and availability could support the development of new parking lots around campus.

The full scope of near-term priority and ten-year facilities projects requires $199 million (in 2023 dollars) in total funds, with $52 million (26%) of funds requested or earmarked and an additional

$97 million in state and federal funds potentially available over that time frame. The remaining funding gap amounts to $50 million. The University can address and reduce the funding gap for priority and ten-year projects by leveraging alternative funding sources.

Ultimately, some near-term cost savings are realized in this campus plan due to its emphasis on the renovation of existing facilities and a conservative approach towards new construction. The greatest challenges to delivering the full tenyear program are the high cost of construction, uncertainty regarding future escalation of prices, and interest rates. For Alcorn to deliver on its priority and ten-year projects, the University must: 1) aggressively pursue state and federal allocations, 2) consider opportunities to use foundation/fundraised resources, and 3) assess moderate increases to housing rental rates and student fees.