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

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