Public universities, accustomed to much tighter state funding than they enjoyed a generation or two ago, are racing to build endowments. But those funds typically carry significant donor restrictions. As a result, many public universities have hit on another strategy to keep pace with the elite of higher education: They amass financial reserves to ride out the fiscal ups and downs inherent in the public sector and generate as much revenue as possible for high-priority projects.
The University of Virginia is the most prominent recent example. Its new $2.2 billion “Strategic Investment Fund,” built on reserves, will be scrutinized Friday in a legislative hearing in Richmond.
In the nation’s most populous state, the UC system holds about $14.7 billion in “working capital reserves” separate from its endowments. That is about half of its annual operating budget of $29 billion. UC’s in-state tuition, meanwhile, has been frozen for several years.
Nathan Brostrom, UC’s chief financial officer, said the reserves produce income enabling campuses to launch projects that otherwise might be difficult to fund. He cited deferred maintenance, student housing, startup packages for new faculty and seismic upgrades for buildings — a crucial step to protect campuses in a region prone to earthquakes. The system also has used the reserves to shore up its retirement fund, he said.
Brostrom said some analysts consider UC’s reserves to be “a little bit thin.” The system’s credit rating was downgraded two years ago — to AA2 from AA1, according to Moody’s Investor Services — which slightly increased borrowing costs. The reserves are essential, he said, because the state doesn’t provide the level of funding it once did for capital projects.
“We have such pressing needs across all of our campuses,” Brostrom said.
Moody’s Investors Service provided The Washington Post with an analysis of the amount of cash that various public universities were able to access within a month, as of June 30, 2015, a measure known as monthly liquidity. It also estimated how many days the universities could run on that cash based on an analysis of annual spending. This data, known as “monthly days of cash on hand,” is not a comprehensive picture of reserves because it does not include some funds that are accessible after a month’s time. But it does offer a good comparative snapshot of the relative financial positions of the schools and systems.
Here are the numbers from Moody’s (schools listed in alphabetical order):
- University of Pittsburgh: Liquidity of $2.3 billion, 473 days of cash on hand
- Purdue: Liquidity of $2.1 billion, 450 days of cash
- Pennsylvania State: Liquidity of $4.9 billion, 406 days of cash
- University of Virginia: Liquidity of $2.2 billion, 314 days of cash
- Texas A&M system: Liquidity of $2.8 billion, 291 days of cash
- University of Delaware: Liquidity of $602 million, 272 days of cash
- Texas Tech system: Liquidity of $1 billion, 252 days of cash
- University of Missouri system: Liquidity of $1.8 billion, 241 days of cash
- Indiana University: Monthly liquidity of $1.7 billion, equivalent to 239 days of cash
- University of Michigan: Liquidity of $4 billion, 239 days of cash
- Ohio State University: Liquidity of $2.7 billion, 205 days of cash
- Michigan State: Liquidity of $1 billion, 197 days of cash
- University of Minnesota: Liquidity of $1.5 billion, 178 days of cash
- University of North Carolina at Chapel Hill: Liquidity of $1.4 billion, 174 days of cash
- University of Nebraska: Liquidity of $899 million, 173 days of cash
- University System of Maryland: Liquidity of $2 billion, 172 days of cash
- University of Texas system: Liquidity of $6.4 billion, 165 days of cash
- Iowa State: Liquidity of $1.1 billion, 148 days of cash
- North Carolina State at Raleigh: Liquidity of $464 million, 137 days of cash
- University of Washington: Liquidity of $1.5 billion, 129 days of cash
- University of Utah: Liquidity of $1.2 billion, 123 days of cash
- Virginia Tech: Liquidity of $371 million, 115 days of cash
The Post also contacted several public universities and university systems to learn about how they handle their operating reserves. Here’s what they told us:
University of Maryland at College Park:
“With an operating budget of nearly $2 billion, we kept a fund balance of about $200 million at the end of the last fiscal year, which allows us to consistently meet the needs of our students and our campus,” spokeswoman Katie Lawson said in an email.
“As part of our yearly cycle, we might hold funds for future projects or commitments. When the fund balance is used, it’s generally for a one-time expenditure and we typically would not use it to fund recurring expenses. The cash reserve allows us to support expenses like renovation projects, an upgrade to our telecommunication network to improve cybersecurity, or the implementation of our new financial system.”
University of Michigan:
This public university has an annual budget of $7.7 billion for three campuses in Ann Arbor, Flint and Dearborn. Separate from its $10 billion endowment, it keeps a reserve of about $1.7 billion in cash and investments. “Most of this money is committed to a variety of projects, including major construction projects, the U-M health system, self-insurance commitments, etc,” spokesman Rick Fitzgerald said in an email.
Bill Sullivan, Purdue’s chief financial officer and treasurer, commented on why Purdue has a high level of cash on hand:
“Our strong financial stability, built and maintained over decades of prudent stewardship, is reflected in one of the nation’s few public university AAA credit ratings. It has also enabled us to take action to keep Purdue affordable. We’re entering the fourth year of zero tuition increase for all students and will continue our freeze for at least another year through 2017-18. In fact, our total cost of attendance is lower than it was three years ago because we’ve also been able to moderate the cost of room, board and textbooks. As far as we know, we are the only ones who are doing this.
“Affordability will continue to be a primary priority at Purdue. But even while maintaining solid reserve funds, we have embarked on a program of strategic investment in excellence. Major expansions of our world-renowned engineering and computer science programs, and the creation of our new Purdue Polytechnic Institute are prime examples. Other examples include major investments in the life sciences, both human and plant.”
University of Illinois system:
The University of Illinois system, with campuses in Urbana-Champaign, Chicago and Springfield, has an annual operating budget of about $5.6 billion. It has been cutting costs, and it held tuition flat for freshmen entering in fall 2015 and fall 2016.
Thomas Hardy, a spokesman, said the university system built its operating cash to about $2.4 billion at the end of fiscal 2015. The system used those reserves to cover a $300 million deficit in fiscal 2016. The reserve liquidity stood at $2.1 billion at the end of that fiscal year, he said.
“Operating cash includes a mix of restricted and unrestricted dollars,” Hardy said in an email. “Restricted dollars include self-insurance trust funds, hospital balances, plant funds, grants and gifts, debt service reserves, and auxiliary funds. Unrestricted balances are used to invest in new programs, retain faculty, and manage through funding delays in state receipts.”