03 May 2011

Another View of WSU's Financial Situation

Dr. Robert Rosenman responded to Professor Bunsis' slides before his talk on April 21st in a e-mail to his fellow faculty senators.  Since we are attempting to encourage a dialog, he has given us permission to post that e-mail here.  Given the opportunity to add to his comments here,  he chose not to.
As Chair of the Faculty Senate Budget Committee I would like to thank Gary for sharing the slides that will be the basis of the talk Howard Bunsis will give tomorrow.  They are informative and very comprehensive.  I believe they give a good review of the economic and political situation that has led to the dire circumstances facing WSU over the past few years, and likely continuing into the future. His analysis was especially useful in showing how a significant portion of the cuts from state appropriations are offset by tuition increases, assuming, of course, that the administration and regents choose to impose the full burden of allowed tuition increases on the students.  The crux of his arguments are summarized very clearly in the first bullet on slide 90:

Is there really a financial crisis at WSU? No, as WSU has solid reserves, revenues exceeding expenses, strong cash flows, and manageable debt. This conclusion is confirmed by the strong credit ratings of WSU.

Bunsis insists that WSU has room to cut administrative expenses more, possibly sparing any core academic units.  Moreover, he suggests that WSU use its reserves to balance the budget rather than further cuts, and that three are sufficient unrestricted reserves to do so .  The first point is certainly debatable, but I believe while the second point may be legally true, it may not be so in terms of implied contracts and promises made to faculty and staff who were responsible for generating much of those reserves.

The reserve situation is summarized in Slide 39:
  • Expendable net assets are the numerical sum of restricted expendable net assets and unrestricted net assets.
  • Restricted non-expendable have restrictions that prevent spending, such as contractual or donor-imposed (permanent restrictions imposed by donors)
  • Restricted expendable net assets are those that are externally imposed by creditors, grantors, contributors or laws, so that the money must be spent on that purpose. However, it is an indication of financial flexibility and freedom (money has been set aside to pay off principle).
  •  Unrestricted net assets represent the greatest financial flexibility and freedom for WSU, though the administration will claim these funds are “spoken for.” However, they are not firmly committed; if they were, the external auditors would not put them in the unrestricted category.
 My primary point of contention is whether WSU should expend the unrestricted net assets to cover any shortfall in state appropriations.  While legally the administration has the right to spend these funds in the manner suggested by Bunsis, most of these fund, I believe, face internally imposed restrictions based on promises made by the administration to the faculty and staff who were responsible for generating these reserves.  For example, I have some reserves the control of which has been promised to me by my dean because these reserves were generated by external grants I procured.  These funds will be used in the future to support my research and teaching.  There is an implied contract between me and WSU that these funds will be there for me.  While I doubt there is a legally binding agreement, there is, in my opinion, an ethically binding agreement. The dean of my college often tells me that my department, and even some individuals within my department, control more reserves than he does.  This situation exists only because he agrees to abide by promises made earlier.

Notice, please, that most of what I say here has been modified by terms like “my opinion” and “I believe” because there are no absolutes.  Like anything else, there are tradeoffs between different promises made – to me to have control over the reserves I generate, to others for continued employment, to students to try to keep tuition low.  Any choice from among the alternatives, or some compromise, has consequences for the future of WSU, and there is no easy solution.  People losing jobs is dire, but so is abrogating promises that could adversely impact incentives and productivity at WSU in the future, or raising tuition so that a college education moves beyond the ability of middle class students.  I do, however, believe that it is misleading to say that all reserves that are legally fungible can easily be spent to cover any deficit.  I see the situation as much more complex than Bunsis concludes.  The students, staff, faculty and administration at WSU deserve better, and need to work together to arrive what is best for WSU in the long run, even as we acknowledge that some individuals will be hurt.

Robert Rosenman
Professor of Economics
Chair, Faculty Senate Budget Committee 

02 May 2011

Editorial in Today's Daily Evergreen

Judy Meuth, president of the WSU-AAUP, wrote an editorial that appeared in today's Daily Evergreen:

Floyd refuses to hear AAUP claims

The WSU chapter of the American Association of University Professors agrees with President Floyd’s timeline of postponing the announcement of a budget cutting plan until fall, when faculty and students are on campus to give input to the plan. At the same time, AAUP considers the proposed budget cutting process flawed in consideration of shared governance, which is the standard procedure for universities where faculty and administrators work together to make decisions about educational operation.
At last Monday’s budget forum, Floyd stated that the university is a place for free speech and exchange of ideas. However, he refused to have a discussion of WSU financial information and alternative views on how to deal with cutbacks in state funding. He particularly rejected information from AAUP’s recent speaker Howard Bunsis, an Eastern Michigan University accounting professor and expert in higher education budgets. The president’s comment that he does not like someone from outside stirring up faculty and students ignores the fact that faculty and students have been stirred up and questioning the administration’s priorities and actions for some time. The comment also denies that the university community is fully capable of critically examining and evaluating differing information and philosophies. Varying points of view and analyses are vital in furthering discussion, critique and understanding of the full picture of WSU’s financial status, budget cuts and educational priorities. Concern about budget questions includes why the administration has made cuts to the core educational mission of the university before cutting senior administration positions. Moreover, inaccurate claims made by the administration obscure the priorities behind such decisions and exacerbate faculty and student concerns about finances. A case in point is the comment credited to Floyd in last week’s Daily Evergreen on the elimination of the Department of Theatre and Dance (4/27/11): “The reality is, my budget has been reduced, currently, a little over 30 percent in that last four years.” This statement clearly misrepresents the financial situation of WSU, because 30 percent has not been cut from the total WSU income stream, but only from the state contribution, which accounts for only one quarter of the total income stream. Therefore, the actual reduction is 30 percent of one quarter of WSU’s income. In addition to discouraging financial discussion, the administration offered no information when questioned at Monday’s forum on how it will proceed with the reorganizations of instructional units that it says will occur in its budget cutting. Curricular questions are the purview of the faculty, but what careful review by faculty will occur prior to reorganizations, realignments and relocations, potentially all of which will affect curriculum? We need a procedure by which such proposed reorganizations get a fair and open review by the Academic Affairs Committee of the Faculty Senate.
By refusing to openly discuss Bunsis’ analysis of WSU’s financial status and to make ‘transparent’ significant WSU financial information, as well as to address questions of priorities and reorganization, Floyd is obstructing shared governance. WSU-AAUP calls for an open discussion of these issues between the university community and the administration early in the fall semester. If the president believes in shared governance, as he says he does, why not promote and expand this discussion with the university community, so we can together discuss and weigh alternatives regarding curricular implications of WSU’s financial situation?