Following a public meeting of the PHEAA board, Rock the Capital requested clarification and financial disclosure on several agenda items. Specifically, we inquired regarding outstanding expense increases, outsourcing agreements, and personnel expense savings, in addition to other matters.
As always, Rock the Capital seeks to keep our government accountable, and this includes a position of requiring full financial disclosure. Our questions and the received answers follow in their entirety.
Request 1: Please provide a copy of the Power Point on the Financial Statement.
Slides attached.
Outstanding Expenses: $7.3 increases.
• Request 2: Favorable OPEB and Pension Benefit Valuation: $16 million. Please describe the favorable valuation that created additional revenues.
Overall the Commonwealth’s Other Post Employment Benefits valuation saw a decrease which resulted in PHEAA’s share of liability and expense decreasing. From page 15 of the March 31, 2020 Quarterly Financial Statements:
For the three months ended March 31, 2020, OPEB expense was a negative $15.5 million, a 22% change from a negative $12.7 million in 2019. For the nine months ended March 31, 2020, OPEB expense was a negative $15.5 million, a 384% change from a negative $3.2 million in 2019. Based on the most recent valuation received from the Commonwealth, the Commonwealth’s Retired Employees Health Plan (REHP) experienced lower claims costs, which resulted from rebidding the medical plans and prescription plans.
You can find PHEAA’s Quarterly Financial Statements and Annual Financial Statements at https://www.pheaa.org/about/investor-information/financial-reports.shtml
Additionally, PHEAA’s proportionate share of Pension expense, which is derived from the Commonwealth’s most recent valuation in 2019, is currently lower as we have accrued at a lower expense level. PHEAA includes a table on page 15 of our quarterly financial statements that shows the resulting dollar expense decrease for the first 9 months of the year
• Request 3: Backoffice outsourcing: Please identify the amount and reasons for the increases.
As part of our professional services, we include a brief discussion on page 16 of the March 31, 2020 Quarterly Financial Statements, which includes our outsourcing and as well as our recent data center move:
For the three months ended March 31, 2020, professional services were $28.0 million, a 7% increase from $26.2 million in 2019. For the nine months ended March 31, 2020, professional services were $81.3 million, a 10% increase from $74.1 million in 2019. These increases were mainly due to an increase in the scope and volume of work being performed by outsourced vendors and professional fees due to a data center mitigation project.
PHEAA’s records management vendor had a full nine months of expense in the current fiscal year, whereas in the prior year they had only begun work in October, thus only six months of related expenses would have been recorded. Additionally, our Tampa call center has been fully staffed during the current year.
• Request 4: Increase in professional services due to move from Annex to Iron Machine: Please identify the amount and reasons for the increases.
PHEAA moved its data center from the annex building to a more secure facility at Iron Mountain in 2020. We discussed the increases on page 16 of the March 31, 2020 Quarterly Financial Statements:
For the three months ended March 31, 2020, professional services were $28.0 million, a 7% increase from $26.2 million in 2019. For the nine months ended March 31, 2020, professional services were $81.3 million, a 10% increase from $74.1 million in 2019. These increases were mainly due to an increase in the scope and volume of work being performed by outsourced vendors and professional fees due to a data center mitigation project.
• Request 5: DTS transformational efforts: Please identify the amount and reasons for the increases.
Overall professional services were up 10%, with DTS transformation efforts this primarily relates to our efforts to move our systems to the cloud and the increased effort related to having that infrastructure set up.
• Request 6: Please describe personnel expenses savings due to OPFB at 21.00.
Overall the Commonwealth’s valuation saw a decrease which resulted in PHEAA’s share of OPEB expense decreasing. From page 15 of the March 31, 2020 Quarterly Financial Statements:
For the three months ended March 31, 2020, OPEB expense was a negative $15.5 million, a 22% change from a negative $12.7 million in 2019. For the nine months ended March 31, 2020, OPEB expense was a negative $15.5 million, a 384% change from a negative $3.2 million in 2019. Based on the most recent valuation received from the Commonwealth, the Commonwealth’s Retired Employees Health Plan (REHP) experienced lower claims costs, which resulted from rebidding the medical plans and prescription plans.
PHEAA had budgeted for a higher expense, but the valuation received in early 2020 was better than expected.
• Request 7: Unrestricted net position (23:50): How much was transferred?
The transfer referenced at 23:50 is PHEAA moving $15 million of unrestricted funds to the PA State Grant Program, a restricted fund. Page 3 and 4 of the March 31, 2020 Quarterly Financial Statements provides an update on the public service benefits and grant programs for the first 9 months of the year.