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 

3 comments:

  1. AnonymousMay 03, 2011

    Let me expand upon Dr. Rosenman's comments. In the sciences, "start up" packages are negotiated with any new hire (and often in retention negotiations as well). Reserves are set aside to meet these commitments and moneys are often payed out over years. These would technically be "unrestricted reserves" but ethically (and perhaps legally) the university would be treading on difficult ground to not fulfill hiring agreements. We often receive commitments to purchase equipment conditional upon external grant funding. While these funds are not legally "restricted", successful execution of funded projects often depends up on the availability of equipment promised. There are also reserves effectively held by auxiliary units, such as housing and dining, meant to be used for repairs and maintenance. Should the university take moneys intended for those purposes, they would eventually have to be replaced (or housing residents would face an effective tax going forward in the form of higher costs).

    The more troublesome issue, in my mind, is that Dr. Bunsis is proposing that we use one-time reserves to meet a permanent reduction in WSU state support. To do this would (a) negatively impact our bond ratings and potentially add to our debt service costs; and (b) leave WSU in a very vulnerable financial position going forward. If state revenues come flooding into Pullman two years from now, perhaps we could climb out of that financial hole, but what if state funding doesn't bounce back? Where would we find the resources to pay for the 2-3 years it often takes to "teach out" discontinued programs?

    David Brown
    Assoc. Professor of Crop and Soil Sciences

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  2. David Brown’s comment that the university has ongoing commitments for start-up funds for newly-hired researchers is well taken. In my own unit in the sciences, for example, start-up packages for experimentalists have been recently in the range $300k to $500k. But if the faculty is to have an accurate picture of university finances, the Adminstration must give an accounting of commitments such as these. Otherwise, it can all seem like smoke and mirrors to critical observers.

    Gary S. Collins
    Professor of Physics

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  3. AnonymousMay 03, 2011

    Would it be reasonably possible for the WSU administration to describe all "effective" restrictions and obligations applicable to $70 million in "unrestricted reserves" for an institution with over $800 million in annual expenditures?

    From where I sit in Crop and Soils, the WSU financial situation looks precarious. Our department is effectively carrying a deficit into the next budget cycle, "borrowing" funds from individual PI's to both pay the bills through June and give back a large lump of cash to the college. Department-level indirect cost returns that are normally used to maintain research infrastructure are now fully committed to support basic departmental functions. The college, which used to have a healthy reserve is now so tapped out that should all oustanding commitments be claimed the college "bank" would fail. The college has developed a new framework to share support staff across departments in order to cover for vacancies that can't be filled. Many administrative functions that used to be performed centrally have now been passed down to a depleted and stressed corps of department-level support staff. I see acute financial distress everywhere I look.

    I suppose it is possible that our central administration is sitting on a huge pile of cash while colleges and departments are stretched to the limit. But this scenario seems rather unlikely.

    From where I sit, WSU will have to make some painful decisions going forward, decisions that for the most part have been put off for several years (perhaps in the hope of a quick fiscal rebound that hasn't arrived.) Should this come to pass, the AAUP and Faculty Senate have an important and constructive role to play in advocating for those on the front lines. A leaner and meaner WSU should be more focused on core activities: teaching and research. That is a message that will resonate with faculty, students, legislators and the general public.

    David Brown
    Assoc. Professor of Crop & Soils

    ReplyDelete

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