University of Arizona shortfall reduced to $52M, CFO Arnold tells Regents

After months of financial wrangling, the University of Arizona faces a $52 million deficit—down from a $177 million estimated hole in January—said John Arnold, the UA’s interim chief during a meeting with the Arizona Board of Regents.

On the UA campus Thursday, Arnold presented a new budget forecast that included sharp cuts to administration, a moderate cut to the UA’s Research Innovation and Impact, and continued consolidation of the IT and human resources departments.

Arnold said the UA would continue working on the budget through June.

In an early-morning email to students and staff, UA President Robert Robbins called the shift “encouraging news” adding that “at this point in the budget planning process, I am pleased to announce the university is projecting that the FY 2025 budget deficit will be reduced from $162 million down to $52 million.”

“This anticipated improvement of $110 million in the university’s deficit is preliminary, but marks considerable progress in the implementation of our financial action plan,” Robbins wrote.

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“While central administration, divisions and colleges all are part of
the solution, the largest portion of the budget savings will come from
reductions in administrative expenses,” Robbins wrote. “As a result of
our budget decisions, the university will be in a position to allocate
sufficient funds to ensure no college starts FY 2025 in a budget
deficit.”

“This is the result of concerted
efforts by deans and leaders across the University who worked diligently
on their budget plans to address spending trends and to significantly
reduce the deficit,” Robbins said.

Robbins, embroiled in a series of controversies related
to the college’s budget and governance, said April 2 that he will leave
his post at the end of his current contract, or when a new president is
hired.

ABOR quickly moved to begin a national search for his replacement.

Robbins,
UA’s president since 2017, has a contract that runs through June 30,
2026, but is likely to not be in charge of the university’s
administration that long.

In an email to faculty and staff, Robbins said there “are significant structural budget deficits and real challenges that must be addressed. Fixing these challenges will require timely, strategic and sometimes difficult decisions.”

“We are not in imminent financial jeopardy, but we must make significant changes to avoid such danger,” he wrote to UA employees. “We face our financial challenges due to decades-long budgeting practices, decentralized budget and operations models, lower-than-expected revenues, investment in strategic priorities, and increasing costs in athletics, as well as external factors including the COVID-19 pandemic and rising inflation.”

“In addition, our revenues have not kept pace with rising costs in part due to tuition discounts to attract and retain exceptional students. It is important to note that the majority of spending across the university has been focused on strategic investments that benefit our students, faculty and staff,” he wrote.

ABOR includes Arizona Gov. Katie Hobbs, who has expressed a lack of confidence in Robbins.

In January, Hobbs sharply criticized Robbins’ leadership and pushed for an independent audit of the university’s finances.

“To say the situation demonstrates that there is significant work ahead to restore the university’s financial health would be an understatement,” Hobbs wrote in a letter posted to Twitter. “This is no longer just about finances, this is about a lack of accountability, transparency, and at the end of the day, leadership.”

She said she “no longer trusts the process” at the UA and pushed for an independent external audit, arguing that leaving it to UA officials would be akin “the fox guarding the henhouse.”

There is “no coherent vision, let alone even an agreement on the severity of the problem,” around the UA’s finance, Hobbs said. She also questioned the appointment of Arnold to serve as the interim chief financial officer, arguing his tenure at the UA could be a conflict of interest because he also serves at ABOR which “plays a critical role in providing governance and oversight at the institutions.”

The
UA has been operating with financial reserves far below those mandated
by ABOR policy — a situation that was finally revealed to the public in
November.

The university faces as much as a $177 million
structural deficit, and over the next 18 to 36 months the school will
pursue consolidations and layoffs throughout its administration, as well
as across-the-board budget cuts of 5 to 15 percent, Robbins said in
January.

Robbins recently attempted to mollify critics by saying
he was volunteering to accept a 10-percent reduction in salary. Despite
the balance sheet, the school still has months of operating expenses in
reserve, amounting to tens of millions of dollars.

The shortfall
had been earlier reported by UA officials to be as much as $240 million.
CFO Arnold said in January that 61 of the 81 “reporting units”—or 75
percent—faced projected budget overruns. 

At the beginning of the
2023 fiscal year, the UA had $845 million in hand. The UA has an annual
budget of around $2.7 billion and as a “result of accelerated spending”
from fiscal years 2022 to 2023, the UA’s funds declined $140 million.

This
occurred because of additional costs—including a $32 million loan to
the UA Athletics Department—as well as an additional payroll period that
cost another $35 million. The UA also had to send $18 million to the
federal government after a CARES Act payroll tax deferment expired, the
interim CFO said.

Arnold said UA’s Global Campus—an often
criticized attempt to expand the school’s distance learning
programs—added $47 million to their balance sheet. At the end of 2023,
the UA had $705 million on hand.

Earlier this month, during a meeting on April 4, Arnold and Ronald Marx, the interim provost, told the
regents as a result of “immediate actions” across the university, the
budget shortfall decreased by $15 million—from $177 million to
$162 million. And, they said UAGC is
“no longer projecting a loss, but a small gain of $110,000.”

Arnold to ABOR:’Every number that I’m about to show you is wrong’

Arnold began his presentation of the projected 2025 fiscal year budget by warning that “I just have to start by saying every number that I’m about to show you is wrong,” Arnold said. “A budget by nature is a projection and projections are wrong.” 

“We think these are pretty good numbers, but we’re also very nervous about putting them out this early in the cycle,” he said, adding there are still “a number of unknowns in the budget.”

Arnold said while the university was facing cuts, goals laid out five years ago as part of the UA’s strategic plan would remain on track, even if “we’re going to have to move some resources around and it’s going to be harder to attain some of these goals.”

This includes improving student attendance rates, student retention, and graduation rates, as well as enrollment, student achievement and “post-university success.” 

“We are not backing on on any of those goals,” Arnold told the regents, adding administrators would also push hard on the “Fuel Wonder” campaign, which seeks to raise $3 billion for the UA.

Arnold said the UA began the year with a “$177 million problem,” but temporary spending limits and cuts returned nearly $15 million. He said the UA would seek to cut another $71 million from the budget, and seek to raise $18 million in new funding.

In a broad outline, Arnold told the regents the Office of the
President would take the steepest cut across the university, losing 28.2
percent of its $17.4 million budget. This includes $3.9 million in
“administrative reductions” and another $1 million from the closed
Strategic Initiatives office.

The UA’s Research Innovation and Impact office will face a 7.8 percent cut, losing $6.7 million from its $85.5 million budget.

Overall the administration and provost offices will lose $30.1 million, decreasing the departments’ budgets by 6.3 percent, Arnold said.

UA Health Sciences will lose $19.4 million, a decrease of 6.2 percent. Earlier this week, the UA said it was shuttering Campus Health pharmacy services in June, the Tucson Agenda reported. The UA said it made the decision “in response to the changing landscape of retail pharmacy in recent years” and would stop filling prescriptions telling student and staff they have that several nearby options, including pharmacies within walking distance and online vendors that offer delivery.

The UA colleges will lose $26.1 million, a decrease of 3.6 percent.

Meanwhile, facilities and utilities will see a slight increase of $2.9 million, and the UA Police Department will receive $1.3 million more, a 9.2 percent increase, as the university seeks to hire additional police officers to fill vacancies in the department, Arnold said.

He said the UA moved to centralize the IT departments as well as human resources, and “restructured” the facilities department with new rules on how the new capital projects will be improved on campus. He added the UA would review how on-campus buildings are used noting that the university has not reviewed how offices are other spaces are used since before the COVID-19 pandemic.

“We want to make sure we’re being as efficient as possible in our space use. We have a number of leases that are off campus and we’ll be reviewing as part of that and see if we can save money,” he said.

He
said UA divisions were asked to “find savings” and cut their budgets by
at least 5 percent,  though some were asked to cut 10 to 15 percent of
their budget. “We’re not going to do an across the board cut, and we did not do it across the board,” he said. “We tried to weigh those carefully,” he said.

Arnold
added that beginning in 2025, every college will start with a balance
budget, and administrators will push every college to end the year with a
balanced budget, which will include new protocols to manage the budget
and “frequent budget check-ins.”

He added there were several parts of the budget that needed work, including how the Arizona Legislature would fund the state’s three universities, as well as the UA’s troubled Athletics Department and UA Global Campus’s performance. 

“A lot of those items we’re gonna have to address in June,” he said. 

‘This is a big miscalculation’

In November, then-Chief Financial Officer Lisa Rulney told the Board of Regents the university faced a “financial crisis” and its model of cash on hand was off by around $240 million, under-projecting total operating expenses by around $155 million.

Robbins later warned of “draconian” cuts, telling the Faculty Senate that there were just 97 days of cash on hand, far shorter than the 156 days it expected by the end of the fiscal year in June. ABOR’s mandated buffer is 140 days.

“I did know we were spending money, but I thought we had reserves to spend money on. But this is a big miscalculation,” Robbins said last year.

After discovering the shortfalls, UA officials announced several immediate actions to “slow spending and to help change the budget trajectory.”

This included a hiring freeze and a halt on raises for UA employees, as well as restrictions on travel and hard limits on purchases.

Robbins later announced Rulney resigned from her position—though reporters later found Rulney remains on the UA payroll at the behest of Arnold. Weeks later, Robbins sacked UA Athletics Director Dave Heeke and replaced him with former softball coach Mike Candrea.

After Arnold finished, Lyndel Manson, ABOR treasurer, said the progress “made in a relatively short period of time is stunning. And I appreciate the time and effort and relationships that you made.”

Robbins thanked Arnold and the team for working on the FY2025 budget. “I’m incredibly grateful to all the deans and faculty members, students and staff who’ve been involved in these discussions.” 

“This is not easy. It’s certainly angst ridden for everyone involved,” Robbin said. “But I think it is related to this incredible work and a short amount of time and there’s more work to do.”