August 2014 update

We are pleased to report that we had a very constructive meeting with the UA administration about unrestricted net assets this morning. Thank you to five of our members who dialed in and listened to the discussion. We would also like to thank President Gamble for initiating these meetings.

At our next meeting with the administration we will be discussing diversification of revenue streams to the university. We hope that lots of you will contact us ( to give suggestions for other revenue sources the university can tap into. As soon as the date and the time of the meeting is set, we will communicate this to you and hope that you will be able to dial in.

The following is a summary by us of what we discussed yesterday morning, so you know what went on if you were unable to dial in. The basic facts are correct. The administration would probably have used more precise technical accounting language if they were to write the summary.

Both administration (Ashok Roy, Donald Smith, Myron Dosch, Michelle Rizk, Wei Guo, and Terry Lyle (note taker)) and faculty (Tony Rickard, Soren Orley, Abel Bult-Ito, Matthew West (note taker)) representatives expressed their commitment to a constructive dialog to learn about the budgeting process and details, to explore potential alternatives to budget cuts, and to think outside the box.

We discussed in quite some detail the different categories of funds contained within unrestricted net assets. Auxiliaries include: housing, food service, bookstores, etc.

Working Capital Fund are funds that were set up in the 1980’s to be used for relatively small capital projects, that are not funded by bonds, through interim internal financing. The Capital Advances fund provides short-term financing from the Working Capital Fund, and therefore these two funds offset each other.

The Service Center funds include funds held by recharge centers, such as: vehicle equipment pool, printing services, copy pool, telephone, and utilities.

The Debt Service funds are reserved to service debt. The Renewal and Replacement funds for capital purposes, set aside for specific buildings, such as: housing, bookstore, and student recreational centers.

The Quasi-Endowment fund is in essence an investment account of which earnings are reflected in the Endowment Earnings fund. The Quasi-Endowment funds are predominantly non-expendable funds, while the earnings are expendable.

The Employment Benefit funds include leave, healthcare, and retirement accounts that are accrued to this account through the benefit and leave rates for UA employees. These rates are set prospectively, and therefore a variance from zero may occur. The expectation is that these net assets will come down again once the rates are adjusted. The current net assets in this account are probably predominantly due to the changes in the healthcare plan over the past three years.

The Endowment Earnings fund reflects earnings in the Land Grand Trust fund and the Quasi-Endowment fund, which are used to fund the UA Scholars Program and the Land Grant Trust Office.

The Encumbrances funds reflect purchase orders that have been placed but not yet received.

The Undesignated funds are distributed widely with the UA System, for example carry forward of a department from one fiscal year to the next is include in this category. In principle, these funds could be pulled by the dean, chancellor, or president to be used for other purposes. Although this may have happened in the past, carry forward reflects careful budgeting of the unit and for units to retain these (unrestricted) funds is preferred.

A few very important principles about unrestricted net assets were clarified:
1. Many of the unrestricted net assets do not represent cash.
2. The fiscal year $157 million unrestricted net assets are the minimum required to be in a health financial situation for the university.
3. Reallocating unrestricted net assets from hundreds of different fund accounts is not easy.
4. Some tuition funds make their way into unrestricted net assets, through departments purchasing from for example auxiliary services and service centers.
5. The MAU administrations have mechanisms to indirectly reallocate unrestricted net assets to university operation expenses. This is starting to occur during this current fiscal year. It has to be clear though that this can be done only for a limited proportion of the total unrestricted net assets.

It is our understanding that following the 2013-2014 fiscal year, the unrestricted net assets are expected to stabilize due to budget pressures that will result in the use of unrestricted net assets for operational expenses where possible.

In Solidarity,

Soren Orley
Tony Richard
Abel Bult-Ito

Additional Information:
Cost Reduction Strategies

Revenue Refill

Presentation To Audit Committee Sept. 2013