Non-Lapsing Balances USHE Response

Interim Commissioner

David L. Buhler

January 23, 2008

Guiding Principles

• Auditor General’s 1997 Audit of Higher Education Non-Lapsing Balances (Report #97-03)– Uses of such non-lapsing funds “are one-time in

nature and reasonable.”– “Explanations for growth in fund balances are

reasonable....from just under 5 percent to just over 6 percent.”

– A widely-used indicator for appropriateness of fund balances suggests USHE’s non-lapsing balances are “reasonably low” compared to the standard.

Guiding Principles

• KPMG-Peat Marwick and the National Association of College and University Professionals (NACUBO) cite that institutions with a ratio of 2.4 to 6 months of reserves should be considered in good financial condition– The USHE recommended 5 to 7 percent

represents less than 1 month (.6 to .8 of a month)

Guiding Principles

Two Basic Reasons for

Carry Forward Balances• Working Capital

– Vulnerable to budget cuts in economic downturns, but also to revenue losses from tuition – comprised one-third of budgets on average

• Earmarked for large projects

Guiding Principles

• Legislature recognizes need for carry forward balances, for example:– Utah’s Rainy Day Fund represents

approximately 7 percent of the State’s operating budget – with a portion of the State surplus allocated annually into the fund

• $187 million, General Fund• $227 million, Education Fund

Guiding Principles

• October 2007, Commissioner Kendell communicated to the Executive Appropriations Committee that:– Working capital accounts of 5 to7 percent of total

operating budgets represent good financial management

– The size, mission, and funding of institutions vary– Increases in non-lapsing funds are consistent with

increases in overall budgets

Guiding Principles

• Commissioner Kendell, continued:– Retaining funds for more than one budget year is

a tool for large budget items that cannot be financed in a single year (e.g., Furniture, Fixtures & Equipment for new buildings)

– Extenuating circumstances for institutions with earmarked dollars for institutional priorities and partnerships

Institutional Perspective

FY 2006 Non-LapsingBalance % of Budget

FY 2007 Non-LapsingBalance % of Budget

Proposed ReallocationNon-Lapsing Balance

% of BudgetUU 8.0% 6.5% 4.8%USU 11.2% 10.5% 8.0%WSU 9.4% 5.6% 4.4%SUU 7.2% 8.1% 6.0%SNOW 5.6% 4.2% 3.2%DSC 22.8% 21.9% 16.3%CEU 0.5% 1.4% 1.0%UVSC 11.4% 11.2% 8.6%SLCC 8.0% 7.5% 5.8%SBR 5.5% 4.4% 3.9%

Implications

• If proposal is adopted, the funding implications for USHE would include:– Loss of earmarked funds for specific

projects– Institutions (at least 4) dropping below the

5 to 7 percent “reasonable” range• U of U (4.8%), WSU (4.4%), Snow (3.2%), CEU

(1.0%),

– Penalized for good fiscal management?

State Board of Regents Line Item Response

• FY 06 Non-Lapsing Balance $1,357,719

• FY 07 Non-Lapsing Balance $1,138,397

• Non-Lapsing balance has decreased $213,322 (1%)

State Board of Regents Line Item Response

• Planned uses of current, non-lapsing balance ($1,138,397) :– Outstanding purchase orders and contracts

• $640,609

– Legislative priorities (TH Bell, Jobs Now)• $306,190

– Working Capital Account• $191,598

– Represents 6.4% of the SBR administration budget