A useful crisis: University of Arizona budget mess explained, hopefully

The more the University of Arizona tries to explain its all-of-a-sudden budget implosion, the less sense any of it makes.

They’ve got stacks of cash stashed away, but not as much as officials say they should have. UA’s spending too much in some places, but won’t pay itself back money borrowed from Wilma to pay Wilbur in others fast enough to stash away more. Professors and staff are scared their jobs are at risk because somebody forgot to carry the one, and departments were told to spend money rather than save it.

Originally, the Arizona Board of Regents slammed the UA about how it was $240 million short of operating with 140 days of cash reserves. Instead, it’s down to a mere 110 days. If on July 1 of fiscal year 2025 all the university’s tuition checks bounced, the Arizona Legislature zeroed out its entire budget for higher education and every dime of research funding disappeared, the school would “only” be able to operate for the equivalent of a semester without any budget cuts.

Now, UA administrators say there is an actual deficit of $45 million and the school has closer to just 100 days of money stockpiled.

A story in the Arizona Daily Star said the UA spent $140 million more than it took in, which should not be confused with a deficit.

The situation has raised a whole stack of questions about what’s actually going on, who’s responsible, how bad the situation is (and might become), and who knew what when and didn’t tell who. The biggest deficit to be seen is the lack of comprehensive, coherent information.

UA administrators have chosen “strategic stifle” as a communications strategy, even as UA President Robert Robbins stood in front of the Faculty Senate and complained about misinformation.  

Well, that can happen when the UA and Arizona Board of Regents decide to go quiet and hide from the media like a submarine crew under a destroyer. Very specific questions have gone unanswered, despite repeated attempts.

I’m sick of public officials complaining “there’s misinformation out there” when they act like the public has no right to know what they’re really up to. It’s kind of like how the public mutters “There’s stuff the media doesn’t want you to know,” then clicks on a story and says, “Too long. Didn’t read.”

Anyway, this is what I’m picking up as a guy who spent years of his life he’ll never get back covering the UA and many more crunching budgets at almost every level of government. The university’s budget crisis is less than clear. That’s exacerbated by silence, which is more likely a fear response than backroom masterminding.

If the UA thinks I’m full of it, then they should ask themselves how the don’t-call-back strategy is working for them.

Campus leaders are huddling this week to submit to regents a draft plan out toward “solvency.” They need it done by Friday.

The big questions are: 1) how much of the deficit is structural and recurring; 2) how long does the UA have to achieve balance and 3) what level of reserves must be reached to achieve fundamental harmony with the Arizona Board of Regents?

Moody bean counters

Let’s start with what I say is an absolutely arbitrary benchmark of 140 days of cash on hand.

The presence of a fluctuating reserve does not mean there’s an structural deficit. The city of Tucson, Pima County and most of the surrounding neighbors built up massive reserves during fiscal year 2023. The American Rescue Plan helped as Washington doled out a bunch of COVID cash. 

The town of Sahuarita has a $55 million budget. The town’s surplus fell from $53 million in fiscal year 2023 to $32 million this year. Sahuarita does not have a $21 million deficit because it spent the money on one-shot deals.

Replace a few squad cars, pay off some pension debt, buy some new laptops and the budget is fine even if expenditures exceed revenues. Start a fire department that costs money year after year and that’s a problem.

It’s completely unclear how much of UA’s deficit is prudent spending and how much is spendthrift irresponsibility.

Institutions like to say surpluses are for rainy days but a recessionary deluge quickly drowns budgets in red ink. Government likes surpluses because bond ratings agencies like surpluses. 

The university issues bonds to pay for major capital projects. Those bonds are rated based on a number of factors by companies like Moody’s Investor Service. The better the bond rating, the less interest is charged on those bonds.

Moody’s lists overall financial health as about a quarter of its assessment in a typical bond rating for a university. However, nowhere does Moody’s benchmarks for universities dictate 140 days. So why is it there?

Regents won’t say, despite repeated efforts to contact them over weeks. So it’s safe to assume they pulled it from somewhere anatomically dark. 

Face it. The biggest threat to the state’s three universities financially is that one day soon, the Legislature will wake up and decide to slash funding by half or more. A drywall contractor shouldn’t be expected to subsidize elitism in woke-a-demia, right? State aid to the universities has been on downward trajectory for decades. Research grants have surpassed the state’s general fund as the number-one source of revenue for the Tucson campus.

Moody’s knows that too.

This trend also made the university reliant on outside financing to pay for capital projects, which has left it over-leveraged compared to its peers. During a 2022 bond issuance, Moody’s nutshelled the UA’s financial position: “Modest state operating and capital support results in higher reliance on student charges from increasingly price sensitive students. In addition, a recent strategic venture with an online for-profit university carries uncertainties around reputational, execution and financial risks.”

The school’s reputation accounts for 20 percent of its bond rating criteria because parents will pay much more to send their kid to Harvard University than the Harvard on Speedway. With more esteem comes more money and ratings agencies like that.

So if the UA were to suddenly start gouging out its budget to satisfy some arbitrary benchmark out of the Board of Regents, then it risks kneecapping itself when the time comes to sell bonds. Parents won’t write big tuition checks to Slash and Burn U.

That reputation and a billion in grants don’t just happen. Universities must invest properly to make it happen. Robbins told regents this during the November meeting and regents smiled, nodded and adjourned for an after party.

Another point about the benchmark is that it involves all funds. Municipalities bond ratings are only affected by the surplus on the general fund. The city of Tucson’s fund balance policy requires a 10 percent annual ending fund balance. Pima County policy demands that it’s general fund maintains a 17 percent annual fund balance on the unrestricted general fund only. General funds pay for programs that can’t pay for themselves. Think police and parks.

The general fund needn’t include a stockpile of cash to fund the water department, which operate off revenues from bills.

It makes some sense that university reserves must be bigger because universities have limited control over their revenues. They can raise tuition but only on students who choose to come. So universities have to be somewhat cost-conscious (plus Arizona has that whole “near-as-free-as-possible” language in the state Constitution requiring affordable higher ed for residents).

Also, UA can’t just lay down tax increases on property.

The way the regents policy is presented, the university is expected to have cash on hand to cover grants cut by the National Institutes of Health and the National Science Foundation. Therefore, a $40 million grant means the UA has to find $15 million in general fund reserves. 

So of course, a research-heavy institution like the UA has more trouble reaching that 140-day benchmark than Northern Arizona University. NAU doesn’t have to pony up a reserve for OSIRIS-REx out of petty cash.

Again, the benchmark is important because it’s what the university must restore funding to in order to get out of the crisis.

I argue 140 days isn’t necessary and Moody’s says what matters is whether sudden deficits are corrected and not sustained. The firm doesn’t necessarily lower a bond rating based on a single year of deficit, let alone the size of a surplus.

What will rile ratings firms is that the UA honchos didn’t plug whatever leak exists sooner, or were suddenly surprised by it.

Why are you hitting yourself?

Now, a couple other things. 

A faculty-generated document shows the UA has gone on a binge hiring new administrators and Robbins told the Faculty Senate that he may shrink those budgets. Even that requires context. During the Great Recession, no one hired administrators to a detrimental degree.

More info is needed.

Some of the deficit appears to exist on paper alone. 

Some of it appears to be a cash deficit. One fund owes another fund money and hasn’t paid it back yet. UA’s Athletics Department owes the academic part of the school about $72 million and is repaying $12 million a year. But the bean counters still call it the UA’s “deficit” because technically that’s what it is.

Robbins calls it: a “revenue-expenditure issue.”

What it is is bull crap if the academic units suffer an iota because of financial problems with athletics. Athletics is supposed to operate as an enterprise fund, like the water department and run off revenues generated at Arizona Stadium, McKale Center and on TV.

It’s not supposed to be a burden on the English Department, like at all. So any plan to get the UA out of “deficit” must not be done before the Athletics Department repays that debt. Otherwise undergrads pay an academic price for the failures of college sports. 

I warned about this years ago, when the UA started charging fees to incoming students. There should be a wall of separation between the two insomuch as funding goes. Robbins told faculty he was a bit concerned about giving up oversight over sports but there’s no reason for that. The City Council still pulls the strings with Tucson Water.

Similarly, the university acquired an online academic program and turned it into the UA Global Campus. It’s not making money yet but could be as soon as next year. In the meantime, that’s another accounting deficit.

So if the UA has a $45 million annual shortfall and $12 million will come off the books in six years and UAGC will be solvent much sooner, why not prolong the correction so those figures can come off the books and the campus isn’t harming its brand?

Also, if administrators can renegotiate the 140 days down to something more reasonable, then the campus can further avoid self harm.

Other elements of the deficit more concerning. The university gives out merit-based financial aid to out-of-state students that incoming freshmen and transfers are jumping on that cost the university money. These are merit scholarships and not need-based scholarships.

Why is a state-funded university giving out tuition breaks to out-of-state students? It’s not part of the institution’s land-grant mission to bankroll kids from Poughkeepsie, N.Y.

However, that does appear to be Arizona’s state economic model. Import well-educated kids from states that actually spend money on K-12 education so Arizona doesn’t have to do such silliness.

Half reserved

Let’s talk about those reserves.

Half of those reserves are held by the colleges and academic “units.” So there should be 70 days worth out there.

There are not and it’s a self-inflicted wound.

The central administration taxes “excess reserves” — which encourages spending said reserves. If a department has more than 25 percent of its budget sitting in a bank account, those excess funds are reabsorbed into central administration.

As a general rule, subsidies create more and taxes create less. 

So the UA high command is basically asking departments not to build up their balances. Don’t be shocked if a college doesn’t accumulate reserves when the university punishes it for doing so.

To his credit, Robbins said he agreed this policy creates the wrong incentives and could change.

Fear, loathing & liberation 

What’s freaking the campus community out is all the not knowing. There are big cuts and big numbers flying around so teachers, students and alumni are fearing the worst.

At the last ABOR meeting, gripes were aplenty as the fears pervade the UA about what comes next and everyone’s mad.

UA Prof. Phyllis Broadly said she is set to retire next year and feels like she earned it. She expects to pay for the crisis brought on by her employer’s mismanagement. 

“I feel proud, accomplished and incredibly blessed that I have had the opportunity to do meaningful work, from my heart, work with good people — many of whom I love a great deal. But I didn’t do it for free. And neither did you,” Broadly said. “You are floating decisions that will directly collide with my 40 years of teaching in this community and that collision isn’t on me. I didn’t run the stop sign but you did. I didn’t speed but you did. I didn’t buy a car I couldn’t afford but you did.”

The students were mad.

University of Arizona Geosciences graduate student Holly Thomas told regents that administrators should pay for their mistakes, otherwise all the talk about diversity and students support are just words. 

“Where is this commitment to student support, justice, inclusion and compassion in the admin response?” Thomas said. “Rather than propose solutions that involve any sort of reduction in the responsible personnel, their salaries or even their luxurious benefits package, the ones who stand to pay are the student, faculty and staff. How do you claim to support us?”

And the socialists? The socialists were pulling out all their greatest hits. University of Arizona alum Nicholas Bruno turned it up to about 13 on the Marx-o-meter.

He was determined that the “imperial war economy,” and all it’s “war profiteering” lead to “oppressing the global working class” and that would only trigger “international solidarity” that would make the “organizationally militant” put an end to “systemic exploitation” on a campus that would do “research for social good and not private profits.”

He concluded with the winner: “Liberation is irresistible and irreversible.”

You tell ’em, Sparky… I mean Wilbur.

But this is another element of the information brown-out. In the right venue, Robbins is willing to answer questions. In general, they ain’t talking until they get their work done.

The big questions remain unanswered.

Perception is reality

What this looks like to a guy who covered the University of Arizona for a couple years, and local budgets for many more, is a somewhat warranted power play.

The world doesn’t run on conspiracies (am I allowed to say that on the Internet?). It does run on accidental opportunism.

The regents jumped all over Robbins for failing to reach reserve requirements. He was a bit taken aback.

Then it was realized – passive voice intentional – the budget woes provided realistic cover for the central administration to grab more oversight of how the colleges spend their money.

Campus administrators are always looking to get their dirty digits firmly on the collars of departments. They want to universities to adapt more quickly to changing societal demands and fiscal realities while understanding that human understanding requires elements of the academy to be free to do their own thing.

Tension pervades on the best of days. However, the power play may be warranted.

Universities are a collection of colleges and those colleges exercise the academic independence needed for scientific inquiry and research that might anger some people. That’s how human knowledge moves forward.

Pima County Attorney Laura Conover can run for office promising voters X programs but at the end of the day, her budget rests with the Board of Supervisors. The county attorney, sheriff and schools superintendent can promise a lot but the board is ultimately the one who has to raise the taxes to pay for it.

They’ve wielded appropriation power before, telling row officers “we don’t care what you were elected to do. We’re not going to let you spend that money even if we budgeted it and even if it’s a grant.”

The university cuts the colleges and departments a check and leaves it to the academic units to figure out how to spend the money. So administrators don’t always know what money is going out or who has what in reserve.

They don’t get to say “Don’t spend reserves on a new hire” that turns this year’s reserve into next year’s shortfall.

The deficit provides a pretext to at least get better situational awareness of what the hell departments are spending money on, during any given semester.

As The Man once said, never let a crisis go to waste.