Financial statements confirm AU's $27m asset loss, $3.7m endowment drop from COVID-19

It appears that American University's estimated calculations earlier on in the year about the possible economic fallout of the pandemic on university finances were more or less accurate. On a general note, it is unclear and uneasy to gauge what is due to COVID-19 and what isn't. However, what we can concretely conclude is that between last year and this year, there have been substantial hits sustained to the AU financial condition. We have described the most significant developments below.

A newly released series of accounting statements fresh off of audit confirms AU's dramatic $27 million loss in total financial assets and liquidity resources from fiscal year 2019, which spans the 2018 to 2019 academic year, to fiscal year 2020, which spans the 2019 to 2020 academic year. There is no documentation yet for the effect on AU's financial condition in the Fall 2020 and upcoming Spring 2021 semester—that will have to wait until the Fall of 2021.

The loss is almost purely defined by the decrease in cash and cash equivalents, which dropped from $142 million in 2019 to $82 million in 2020, notwithstanding increases in net contributions, working capital investments, and student loans receivable—which means that during 2019 to 2020 academic year, the volume of student loans and grants (and accrued interest) increased by $1.3 million.

A key component of the decrease in assets came in the form of a substantial investment loss. The investment categories that affect net asset values are domestic equity, domestic bonds, real assets, hedge funds (the biggest portion), and private equity.

In the fiscal year 2019, the fair value of these assets amounted to about $463 million. By the end of the fiscal year 2020, that number had nosedived by over a third, down to $299 million. Although AU saw a slight increase in its real assets and private equity ownership, its domestic equity stake slumped by an incredible 97.9 percent, from $155 million in June of 2019 to $3.3 million in July of 2019.

From the operating budget (concerned with the day-to-day activities of the university), the biggest hit was auxiliary enterprises. These include “housing and food services operations, parking revenue and commercial property rental income,” and the closing of campus imposed a heavy hit on the sector.

Auxiliary enterprises brought in over $108 million in fiscal year 2019, but this number decreased to around $89 million—a difference of $18 million. The university was able to cut costs somewhat (for example, dining workers were furloughed back in March), but it was not enough to make up the gap. Expenses for auxiliary enterprises fell only $8 million, which left around a $10 million shortfall. The drop in auxiliary enterprises and a $9 million drop in contributions were the biggest drags on the operating budget, but tuition and fees saw a $13 million increase.

In terms of the endowment, donor-unrestricted money saw a slight decrease of 2.4 percent from $490 million in June of 2019 to $483 million in June of 2020. Donor-restricted money on the other hand saw a relative increase of about 1.5 percent, from $215 million in June of 2019 to $218 million in June of 2020. All in all, the endowment suffered a net loss of about $3.7 million.

The ongoing pandemic and recession are projected to impact the university's finances well into the future. President Burwell previously announced that American could see “$100 million in lost revenue and increased costs for fiscal year 2021,” and the Board of Trustees discussed these impacts at their November meeting. However, there is reason to feel optimistic about American’s finances. President Burwell announced in September that the university’s financial shortfall was within projections, and the accounting statement identifies a “Board Designated fund” with $382 million that can be used to “support operations.” While ambiguous, this may be the Enrollment Contingency Fund mentioned by the President in June. With a serious amount of liquidity on-hand, American University should be able to weather COVID-19 intact.

This article was written by Editor-in-Chief Mark Lu, a senior majoring in Political Science and Economics, and Deputy Editor for Economics Kevin Sciackitano, a junior majoring in Economics and CLEG.

Image courtesy Annie Lyon, Creative Commons