University of Maine System ‘rainy day’ money well short of $177 million, most already assigned to campus projects, officials say
BANGOR, Maine — University of Maine System campuses have plans for their shares of the system’s $177 million in reserves that include upgrading aging infrastructure to lay the groundwork for the future of higher education, according to system officials. Pulling money away from those projects to close current budget shortfalls would be a temporary solution to long-term problems, they say.
The Maine Center for Public Interest Reporting reported Wednesday on the system’s unrestricted net asset fund, which totals nearly $177 million. Faculty union representatives expressed frustration that the system wasn’t using this money to offset budget shortfalls that were resulting in cuts and layoffs at campuses.
“Unrestricted does not mean unallocated,” system Chancellor James Page said Thursday. “It doesn’t mean that it’s there in a checking account waiting to be used however we want it.”
“Unrestricted net assets” is an accounting term for assets that aren’t legally bound to imposed restrictions. Examples of restricted net assets would include grants, contracts, bonds and endowments, which can only be used for an expressed purpose. The system and its universities have $92.9 million in restricted assets.
Of the $177 million, about $133 million has been allocated to the system’s seven campuses for a wide range of purposes and projects, ranging from construction and repairs to scholarships, according to system financial records.
The University of Maine in Orono, the system’s flagship campus, holds the largest share of the unrestricted assets — totalling $89.5 million. The University of Southern Maine holds the next largest amount, with $18.2 million. The University of Maine at Fort Kent and the University of Maine at Machias have negative unrestricted asset totals of $540,000 and $693,000, respectively, meaning they owe the system or other universities money for past loans.
There are a dozen categories of unrestricted net assets, each with its own purpose. “Education and general” is typically the largest. That’s where money for classroom and laboratory projects, as well as money to cover potential emergencies or fuel shortages, is stored. If there is a surplus at a campus at the end of the year, that money goes into its education and general account, according to Rebecca Wyke, the system’s vice chancellor for finance and administration. Those funds are then distributed to other categories to pay for information technology initiatives, capital projects or scholarships.
If campuses are saving up for large projects, they typically store surpluses in education and general until enough funding accumulates, Wyke said.
“Auxiliary enterprises” funds renovations and projects in residence halls, bookstores and bathrooms. The system has $2.9 million under “risk management,” which is money paid to the system by universities to cover insurance deductibles. UMaine and USM have $23.5 million and $9.5 million, respectively, in “facility projects and capital planning,” an account geared toward bricks-and-mortar projects and large capital equipment purchases.
UMaine is using the funding to convert a former Stewart Dining Commons into a $9.3 million new media center and art complex, as well as to pay for $3.8 million in renovations and improvements at Nutting Hall. Fogler Library and numerous other campus buildings also were slated for work. Energy infrastructure and the campus’ heating plant boiler also will be overhauled. University spokeswoman Margaret Nagle said most of those projects have already been completed or are in finishing stages.
Some of those projects would have been covered under a $9.5 million bond approved by Maine voters in 2010 to cover energy and infrastructure upgrades at the university. But Gov. Paul LePage announced in the summer of 2012 that he would withhold several bonds until the state’s fiscal situation improved.
When that bond was withheld, the university delayed several smaller projects that would have been funded through reserves and put the money toward the Nutting and new media projects. These funds allowed the university to move ahead with the projects in spite of the withheld bond money, according university officials.
Auxiliary funds will be spent over the summer to upgrade dining facilities and equipment on campus and in residence halls in preparation for the upcoming academic year.
“We have 18 residential halls with more than 3,600 beds, numerous bathrooms and dining spaces, and four major dining facilities that experience heavy volume use during the year,” Nagle said. “[They] require safety and capital improvement upgrades, and equipment replacement routinely. These funds are insufficient to meet all our capital needs.”
Another example is the University of Maine at Farmington’s Emery Community Arts Center, a $6.5 million facility that opened in 2011, which was funded in large part through a $5 million private donation, according to Wyke. The remaining $1.5 million, which was held in the school’s education and general account, was transferred to a “facility projects and capital planning” account and allocated toward the project.
The only portion of the reserve assets that don’t have an assigned purpose or project is $10 million held by the system office for “budget stabilization.” The system started that fund in response to the financial collapse of 2008. That money is reserved for any future economic crisis, according to Wyke, who added that she would eventually like to see the fund grow to more than $20 million.
The level of unrestricted assets is the best measure of a university’s fiscal health, according to Wyke. The system’s reserves would cover about 4 1/2 months of operating expenses. The benchmark for higher education institutions is 5 months of expenses saved.
The debate over how to appropriately use and allocate reserves is one that emerged for the university in 2009 when it defended its unrestricted net asset fund, which was $88 million at the time.
While the reserves are growing, campuses are cutting expenditures. The campus in Orono, for example, chopped $3.6 million to ensure a balanced budget, Nagle said Thursday. Of those cuts, $2.3 million came from a net total of about 15 position reductions, mostly through leaving unfilled positions vacant. The university laid off the equivalent of about two full-time employees. The balance of $1.3 million came from other expenditure areas, such as reductions in operational expenses and energy savings, Nagle said.
The University of Southern Maine, is planning to cut expenses by $5 million, mostly through faculty and staff reductions. The university announced more than 20 positions would be eliminated or discontinued.
Campuses could choose to pull funds out of allocated accounts to offset budget reductions and close gaps, “but then any of those projects stop right where they are and no new projects begin,” said Wyke.
James McClymer, vice president of the Associated Faculties of the Universities of Maine, said the system needs to reassess its priorities and begin spending its surpluses in ways that stem future shortfalls, lessening harm to campuses and employees.
“The real issue is not just the size of the reserves, it’s that the reserves keep growing,” McClymer said Friday afternoon. “It should not grow at such a huge rate when the campuses are being starved for resources.”
In 2009, the system’s unrestricted assets were $88 million. Last year, systemwide assets climbed by more than $10 million to reach their current level.
He said the board should be looking for other ways to fund campus infrastructure improvements and scholarships so it can allocate some of the increasing unrestricted funds toward changes that will support programs and faculty systemwide, rather than bricks-and-mortar projects.
“It is, in some sense, valuing hardware over people,” McClymer said.
Wyke said campuses desperately need to invest in improvements and repairs, especially to their aging infrastructure and facilities. Just 30 percent of the system’s buildings are under a quarter-century old and another 35 percent are a half-century old.
“That’s when major systems start to break down, and we’re not keeping pace,” she said.
A review of UMaine facilities conducted last year found there is a $400 million backlog of building repairs and improvements needed systemwide.
Page said using unrestricted assets to pay for ongoing expenses, such as professor salaries or raises, is possible, but by doing so the university would be plugging a hole without fixing the underlying issues causing the shortfalls. Wyke said such a move could put the system and its campuses in an “untenable situation.”
“You can use these funds, but sooner or later you’re going to run out of that $5 million and you won’t have solved the problem and you now no longer have reserves,” Page said. “They are one-time solutions,” better suited for one-time projects than ongoing expenses, the chancellor said of the reserve funds.
Wyke compared it to receiving a $1,000 gift and using it to purchase a new car. The money will cover the first three months of payments, but after it dries up you’re left with nothing to pay for the continuing costs. She said it’s important for campuses and the system as a whole to reduce ongoing expenses because state funding isn’t likely to improve. System officials said early this year that they were pleased to receive flat funding from the state for the first time in years.
“How are we going to prudently manage the resources that we have now?” Wyke said. “In most cases, that means we have to figure out where we’re going to expend them internally. And that is increasingly going to look at the academic side and those programs that are underperforming either in terms of fewer students or fewer graduates.”
University systems across the country have faced similar questions and criticisms for not dipping into reserves in recent years, especially since the financial collapse of 2008.
In Wisconsin, lawmakers and University of Wisconsin System officials are sparring over tuition hikes and pay policies after lawmakers learned the system had about $648 million in cash reserves.
The University of California System had $2.5 billion in unrestricted net assets when its reserves came under fire in 2010.
“You can have a debate about how [this money] is allocated … and that’s a lively debate we have all the time,” Page said. “But this is not money that’s sitting free.”