Just as I was getting interested in higher education finance, I saw an article in the Chronicle of Higher Education's newsletter that caught my eye. It covered a fiscal crisis at the University of Connecticut. The system announced that it was projecting a $70 million budget deficit for 2025 and that they'd have to cut budgets by 15% over five years to stay out of the red. This led to a faculty open letter detailing the havoc these cuts will wreak and widespread concern.
Generally I'm wondering about the financial architecture in and around this budget hole. The Chronicle article mentions a reduction in state aid in the wake of federal covid funding drying up--which is surely a thing, even in K-12--but what's the context of that state reduction? And what else is happening with the university budget? What questions would I ask?
Ledgers
The first announcement of the cuts was a line on a powerpoint presentation that said that a "~15% permanent 2-Ledger reduction required with selective reinvestment" was required. This language was echoed in a campus newspaper article on the faculty response: "a 15% reduction in the permanent two-ledger budget." What's a permanent two-ledger budget? Are there other budgets?
According to a UCONN budget fundamentals document there are multiple subfunds of the main operating fund and the 2-ledger permanent fund is only one of eleven different funds, six of which are unrestricted. The 2-two ledger unrestricted budget is for "state/tuition funded 2-ledger accounts," which makes me think there are multiple of these 2-ledger accounts. Sure enough, there are.
According to a transfer guidance document from 2016, there are at least two kinds of 2-ledger funds: permanent and one-time. In their presentation announcing the original cuts, they do say they're going to have to dip into the one-time funds to cover budget holes in the permanent fund. It looks like this 2-ledger permanent budget fund is the main artery of state monies and tuition, which I look at a little bit later.
But what about these other accounts from the chart before? What's a six ledger budget? five? etc? Can we see those maybe? What's up with the money in "sponsored programs" fiscal and project accounts, and the "non-state tuition" project and fiscal accounts (is this federal, eg)? What's the difference between project and fiscal accounts? I'd like to see the budgets for those. If they're unrestricted, then couldn't they be mobilized?
Funds
Thinking generally about state monies, when we look at the governor's budget we can see the university headed into the red, you can see in the Operating Fund line the parentheses indicating negative beginning balances and ending balances, popping up like little terrible poisonous weeds, the numbers getting bigger:
I have questions though. What's up with the "University of Connecticut Research Foundation"? It's pretty flush with a beginning balance that's more than two-thirds the operating fund. It's money is going up actually!
When we look at the university's quarterly reporting from Q1 of 2024, here are the percentages of revenues and expenditures.
It's interesting to me that state appropriation is 14%, tuition is 50.7%. That's a sizable chunk but it's not everything. What about that auxiliary and "other" revenues? Is that all covid funds, or is it something else? Are state reductions the whole story? Like, oh, would you look at that: capital projects/debt payments is 108% of the quarterly budget? Let's look at a bond statement to check that out.
Underrighting
The most recent statement is an amendment to a refunding bond series from 2023. One thing I see right off the bat is a pretty sizable underwriter's discount from these bonds, which combined from 2023 adds up to over a million dollars. Why is the discount for the original series almost twice that of the refunding series?
But also look where the money is going. $240 million is going to the construction account and $142.3 million is going to the "Deposit to Redemption Fund." I wonder what's happening with that DRF? Is it like a sinking fund?
The construction account pays for projects in the UConn 2000 Infrastructure Improvement Program. Starting in 1997, that's an ongoing $4.6 billion project to improve the university's infrastructure. The legislation that jumpstarted the infrastructure program enabled the university to sell its own bonds. As of 2023, the University owes about $1.4 billion in principal on general obligation bonds in this program (some of which is paid by the state I think), which it's been taking out since the program started. Add to that $271.5 million in principal owed on special obligation bonds that are paid from "certain pledged funds" including student fees. I wonder those are the funds in the other accounts above?
The Board of Trustees approves all these bonds, but do the faculty have a say? What're all the project that are going to be funded? Do they really need them at this moment of budget crunching?
There's a lot here, but I'd at least start by asking these questions. If you have any insight into them let me know! Meanwhile, I'll keep digging.