Ohio University’s top financial official says one state senator’s suggestion that public universities should dip into reserve money to prevent increasing tuition is an implausible solution to university budget problems.
Ohio Sen. Chris Widener, R-10th, chairman of the state senate’s Finance Committee, questioned earlier this week whether Ohio’s public institutions are keeping too much money in reserves.
OU has the eighth-highest amount of money in reserves of Ohio’s 37 public institutions of higher education, according to the Associated Press. Reserves for Ohio institutions total $2.9 billion.
“In some cases, some could argue that (universities) are overly reserved,” Widener said.
“When the (universities) ask for additional state support and investments are doing well and enrollment is going up … everyone needs to look at the cost of tuition and ask: In these economic times, should we be lowering tuition?”
Widener said the Ohio Senate, which is considering Gov. John Kasich’s two-year budget proposal, will keep all options on the table — including scrapping the 3.5 percent tuition cap proposed by Kasich in favor of a complete tuition freeze.
But OU’s Vice President for Finance and Administration Stephen Golding said using reserve money in the place of tuition increases would hurt universities.
“It would weaken universities in the eyes of all those who review their finances,” Golding said in an email yesterday.
OU was dealt about $5.3 million in cuts in Kasich’s budget proposal, bringing the university’s total deficit for next year, including rising health care and utility prices, to about $9.6 million.
OU trustees and administrators have discussed raising tuition by 3.5 percent next year. The proposed increase would be the second one since former Gov. Ted Strickland lifted his three-year tuition freeze in 2010.
The university’s financial planners won’t submit a final budget proposal until the Board of Trustees’ June 24 meeting, but Golding cautioned against using reserves as a short-term revenue source.
“Institutions must be careful about relying on reserves as an alternative source of revenue for operating budgets as this would mean they are relying on a one-time source of funds rather than continuing revenue,” Golding stated, adding that OU is where it should be in its reserve amount.
In fiscal year 2010, OU had $106 million on reserve — about one-fifth of its $501.5 million operating budget.
That amount earned OU a 3.9 score on the Ohio Board of Regents annual financial health ratings scale, which evaluates each public university based partially on how much money it has in its reserves.
“It is prudent and fiscally responsible for universities to have a cash reserve,” said Kim Norris, a spokeswoman for the Board of Regents. “… This is money that is intentionally there for a purpose.”
Scores range from 1 to 5, and each university must sustain a score of more than 1.75 to avoid being placed on “fiscal watch,” according to the board’s website.
“We have universities in high 4s … and we expected everybody to be at about a 3,” Widener said.
Some state and national associations of college chief financial officers say that schools should keep one fiscal quarter’s worth of its annual operating expense in reserves, Widener said.
While OU kept less than a quarter of its budget in reserves last year, other universities held onto a substantially larger percentage of their total budgets.
Kent State University kept $247 million on reserve in fiscal year 2010, more than half of its $492.5 million operating budget.
Golding said these reserves, or unrestricted net assets, act as a financial cushion to protect against problems such as unanticipated state budget cuts, enrollment decline, economic downturn and legislative changes.
Universities also use reserves to gain a better bond rate to keep interest payment low on debt.
“If (universities) want to borrow money (and they) have reserves, it shows that if they have a downturn or something like that, they can still make good on their debt payment,” said John Day, associate provost for academic budgeting.
Widener, however, said it is possible for a university to keep a good credit rating even without a large amount of money in its reserves.
“The University of Cincinnati has a negative amount in their reserves … and at the same time, I talked to their (chief financial officer) yesterday, and their bond rating is a positive A1, what most of the other universities around the state have,” he said.
Ohio’s legislature must pass a state budget by July 1, and Widener said he believes other Ohio senators share his concerns. The state’s Senate and House of Representatives are now discussing Kasich’s budget bill and making amendments before taking a final vote.
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