University Policy:
Policy Category:
Business and Finance
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(Adopted by the Oregon State Board of Higher Education, Meeting #734, June 4, 2004, pp. 244-245; Amended by the Board, Meeting #738, September 10, 2004.)

Background

Responsible fiscal management requires adequate reserves, or fund balances, to mitigate current and future risks. Adequate fund balances are essential to offsetting cyclical variations in revenues and expenditures and to protect against 1) catastrophic events, 2) unforeseen revenue declines and expenditure gaps, 3) unexpected legal obligations, and 4) failures and health/safety/code issues in infrastructure or major business systems.

The focus of this policy is fund balances within the budgeted operations funds, which are the primary operating funds through which all basic instruction and institution administration occur. Budgeted operations funds include state General Funds and Other Funds Limited, made up principally of student tuition and fees and also including educational department sales and services, indirect cost recovery, and other operating revenues.

For the purpose of gauging their relative value, budgeted operations fund balances can be expressed either as a percentage of annual budgeted operating revenues or as operating expenditures sufficient to fund a specified period. The Government Finance Officers Association, for example, recommends that fund balances be maintained at a level that represents 5 to 15 percent of operating revenues, or is sufficient to fund no less than one to two months of operating expenditures.

Obviously, the level of budgeted operations fund balance should be related to the likelihood of need. Given the timing of tuition assessments, revenue cycles at OUS institutions tend to spike quarterly while expenditures remain relatively flat. When combined with the volatility of state funding over the past several biennia— as well as fluctuations in enrollment and tuition dollars— the need to maintain fund balances sufficient to stabilize the operating revenue stream for short periods is clearly imperative. The institutions, for example, are particularly vulnerable to shortfalls in revenue collections during the first quarter of each biennium.

Responsible fiscal policy, then, suggests that the institutions should maintain ending biennial budgeted operations fund balances sufficient to stabilize the operating revenue stream and cover unforeseen contingencies equal to approximately one month's operating expenditures, or about 10 percent of their annual budgeted operations revenues.

At the same time, because of the funding mix of state General Funds and student tuition and fees, any excess balances could be interpreted to represent unwarranted tuition and fee rates.

Consequently, ending biennial budgeted operations fund balances should not exceed approximately two months of budgeted operations expenditures, or about 15 percent of annual budgeted operations revenues.

Fund Balance Defined

Fund balance is defined as the difference between the assets and liabilities of a fund. Given this definition, fund balance can be described as the available resources of the fund, which can be significantly different than cash balances due to accrual accounting. For instance, at June 30 of each fiscal year, campuses have received payments for summer session tuition and fees. Since summer session activity occurs predominantly in July, these receipts are recorded as a liability (deferred revenue) at June 30 to comport with accounting rules. As a result, cash balances may be higher than fund balances.

As noted above, fund balance is the difference between the assets and liabilities of a fund. Generally Accepted Accounting Principles (GAAP), promulgated by independent standards- setting groups, set forth rules for the proper recording and valuation of assets and liabilities. Each OU5 institution is required to follow GAAP. Therefore, fund balance is defined consistently across all OUS institutions.

Budgeted Operations Fund Balances at June 30, 2004:

OREGON UNIVERSITY SYSTEM SUMMARY OF OPERATING RESULTS

EDUCATION AND GENERAL FUNDS (including SWPS) For the Year Ended June 30, 2004

in thousands of dollars

 

EOU

OIT

OSU

PSU

SOU

UO

WOU

CO1

Total

2003-04 Beginning Fund Balance

3,900

2,480

28,725

19,790

4,104

18,208

10,282

13,164

100,653

Revenues

24,566

24,972

280,781

154,390

35,621

214,573

33,972

20,566

789,411

Expenditures and Transfers

(24,914)

(24,739)

(270,983

(151,671)

(36,467)

(214,974)

(34,862)

(21,534)

(780,144)

2003-04 Ending Fund Balance

3,552

2,713

38,523

22,509

3,258

17,807

9,392

12,196

109,950

Est. Comp. Absences Liability Adj.

(574)2

(654)

-

683

(994)

-

149

-

(1,390)

Adjusted 2003-04 Ending Fund Balance

2,978

2,059

38,523

23,192

2,264

17,807

9,541

12,196

108,560

Adjusted EFB as a Percent of Revenues

12%

8%

14%

15%

6%

8%

28%

59%

14%

1 Chancellors Office ending balance includes operating balances of $7.9 million. OCECS balance of $d 1 million, and Capital Support balance of $0.2 million.

2 Needed to complete transition to recording compensated absences liability based on employee's official station by the end of the biennium

NOTE: Our annual financial audit is currently underway and may result In adjustments to the amounts presented above

Institution Fund Balance Commitments Defined

Higher education institutions operate in a fiscal environment and on a business cycle that does not tightly correlate with the biennial budget process. As a result institution management may make certain internal budgetary commitments against their fund balances. Among other reasons,

these internal budgetary commitments are necessary in order to help maintain continuity of programs and provide funds for entrepreneurial activities and/or to provide incentives for certain desired outcomes. Examples of these budgetary commitments include, but are not limited to, commitments to maintain balances for certain departments, commitments to fund certain future actions, or contractual commitments to provide funding for program startup. Generally Accepted Accounting Principles do not call for such commitments to be recorded in the accounting records and, therefore, they do not impact fund balance.

In the event of an emergency these internal budgetary commitments could be funded from future resources (revenue increases or expenditure decreases), modified, or eliminated in order to meet the short-term need. Therefore, internal fund balance commitments support a balance within the policy range, but do not reduce the fund balance.

The Chancellor's Office requested each institution to provide detail of their internal budgetary commitments against their Education and General funds. Staff summarized the institution information in the schedule provided below.

Institution Commitments Against Fund Balance:

(amounts in thousands of dollars)

OREGON UNIVERSITY SYSTEM

Schedule of Institutional Commitments Against Fund Balances Education and General Funds (including SWPS)

June 30. 2004

 

EOU

OIT

OSU

PSU

SOU

UO

WOU

CO

Total

Distance Education Expansion

 

354

           

354

Faculty, Adjunct

   

1,719

885

   

$    92

 

2,696

Faculty, Bridge Funding

   

850

         

850

Instructional Course Development/Program Support

   

2,291

236

402

9,142

   

12,071

Student Services Support

     

480

102

 

31

 

613

Renovation and Remodeling of Classrooms/Offices

     

2383

   

1,605

 

3,988

Engineering Expansion

 

506

 

1,000

74

     

1,580

Library/Equipment/Technology   Acquisitions

 

140

10,216

400

219

 

877

 

11,852

Accreditation Needs & Special Studies

   

672

     

71

 

743

Departmental Research

   

1,044

750

 

8,665

   

10,459

Faculty Recruitment, Retention and Development

   

5,013

6,088

       

11,101

Research Infrastructure

   

3,079

         

3,079

Cost Sharing and Matching Requirements

   

822

 

280

 

98

 

1,200

Building Maintenance and Upgrades

 

51

4,854

2,943

   

1,360

1,620

10,828

Institutional and Administrative Support Services

   

658

77

179

 

25

 

939

Future Contractual Obligations

 

210

5,099

2,480

52

 

2,008

40

9,889

Transition Costs & Fund Shifts to Campuses

             

3,626

3,626

One-Time and Recurring CO Expenses

             

2,687

2,687

                 

 

Enrollment Contingency/Emergency Reserves

2,978

798

2,206

5,470

956

 

3,374

4,223

20,005

                   

Total

$2,978

$2,059

$38,523

$23,192

$2,264

$17,807

$9,541

$12,196

$108,560

Budgeted Operations Fund Balances Policy Proposal

OUS institutions shall develop budgets that target an ending biennial budgeted operations fund balance of approximately 10 percent of annual budgeted operations revenues. For purposes of this policy, budgeted operations funds are defined as all funds included in Fund Type 11 (Education and General) in the Oregon University System accounting records. Budget operations fund balances will be monitored as part of the quarterly projections included in the Managerial

Reports provided to the Board; and institution presidents shall advise the Board in the event projected or actual ending balances for the biennium either fall below 5 percent or rise above 15 percent of revenues. Included in the information provided by the presidents will be an explanation for the variance and a plan to rebalance the budgeted operations fund balances over time to approximately 10 percent of annual budgeted operations revenues.