2. Non-Lapsing Balances USHE Response Interim Commissioner David L. Buhler January 23, 2008

3. Guiding Principles Auditor General’s 1997 Audit of Higher Education Non-Lapsing Balances (Report #97-03) –Uses of such non-lapsing funds “are one-time in nature and reasonable.” –“Explanations for growth in fund balances are reasonable....from just under 5 percent to just over 6 percent.” –A widely-used indicator for appropriateness of fund balances suggests USHE’s non-lapsing balances are “reasonably low” compared to the standard.

4. Guiding Principles KPMG-Peat Marwick and the National Association of College and University Professionals (NACUBO) cite that institutions with a ratio of 2.4 to 6 months of reserves should be considered in good financial condition –The USHE recommended 5 to 7 percent represents less than 1 month (.6 to.8 of a month)

5. Guiding Principles Two Basic Reasons for Carry Forward Balances Working Capital –Vulnerable to budget cuts in economic downturns, but also to revenue losses from tuition – comprised one-third of budgets on average Earmarked for large projects

6. Guiding Principles Legislature recognizes need for carry forward balances, for example: –Utah’s Rainy Day Fund represents approximately 7 percent of the State’s operating budget – with a portion of the State surplus allocated annually into the fund $187 million, General Fund $227 million, Education Fund

7. Guiding Principles October 2007, Commissioner Kendell communicated to the Executive Appropriations Committee that: –Working capital accounts of 5 to7 percent of total operating budgets represent good financial management –The size, mission, and funding of institutions vary –Increases in non-lapsing funds are consistent with increases in overall budgets

8. Guiding Principles Commissioner Kendell, continued: –Retaining funds for more than one budget year is a tool for large budget items that cannot be financed in a single year (e.g., Furniture, Fixtures & Equipment for new buildings) –Extenuating circumstances for institutions with earmarked dollars for institutional priorities and partnerships

9. Institutional Perspective

10. Implications If proposal is adopted, the funding implications for USHE would include: –Loss of earmarked funds for specific projects –Institutions (at least 4) dropping below the 5 to 7 percent “reasonable” range U of U (4.8%), WSU (4.4%), Snow (3.2%), CEU (1.0%), –Penalized for good fiscal management?

11. State Board of Regents Line Item Response FY 06 Non-Lapsing Balance $1,357,719 FY 07 Non-Lapsing Balance $1,138,397 Non-Lapsing balance has decreased $213,322 (1%)

12. State Board of Regents Line Item Response Planned uses of current, non-lapsing balance ($1,138,397) : –Outstanding purchase orders and contracts $640,609 –Legislative priorities (TH Bell, Jobs Now) $306,190 –Working Capital Account $191,598 –Represents 6.4% of the SBR administration budget