Budget update: Jan. 15, 2020
January 15, 2020
— by Dan White, chancellor
In past budget columns, I’ve mentioned strategies for bridging FY21 funding gaps,
using unallocated Unreserved Fund Balances (UFB) and one-time funding. In this week’s
column, I’d like to dive into that strategy and provide more information about the
process and our management principles.
My direction this past fall was to plan for a general fund reduction of 15% to my
vice chancellors. Some VCs gave this direction evenly to their units, others chose
to pass on lesser proposed reductions to some units than others. However, a 15% reduction
alone does not cover the budget gap. We are using the following one-time measures
to provide time for more thoughtful and strategic reductions.
For UAF, we will need to cover a gap of approximately $18M for FY21 in addition to
any reductions not committed to base from FY20. UFB refers to funds unallocated during
a financial year which are transferred to the budget for the following year on a one-time
basis. This is also referred to as “carryforward”. UAF Financial Services sets guidance
that units carry a 2-4% UFB each fiscal year. A reasonable amount of annual UFB is
prudent and all units are expected to end each fiscal year with a positive balance.
Each year, we distribute UFB generated by the units to their respective Provost and
Vice Chancellors. These leaders then pass this funding on to the units from which
it came or use these funds for reallocation of resources within the current fiscal
year, bridge operating funding gaps as permanent reductions may take time to produce
savings, or direct UFB to jumpstart priority initiatives. Sometimes timing is a factor
in making commitments, resulting in higher or lower levels of UFB. Awareness and management
of this rolling balance helps unit leadership also plan ahead, when there are needs
that exist that do not align with fiscal year end timing. Another way to think of
it, is that UAF manages a central “bank”. Financial Services works with units who
are over or under their UFB targets to ensure strategies can cross fiscal boundaries.
The oversight of red and black balances on the quarterly management reports also allows
for units to take loans from the central office for new initiatives, when in alignment
with strategic goals and objectives.
UAF has a strategic reserve for the defined purpose of ensuring fixed cost and debt
service obligations will be met annually. Each year UAF contributes to this account
so that the subsequent year’s obligations will be met and so that we have some ability
to cover unexpected large maintenance items. This is a fiscally conservative and prudent
approach. For FY20 and part of FY21, we have the funds allocated to pay the debt requirements.
However, we will use some of what would be put away for next year to bridge FY20.
We will use a similar strategy in FY21. Using this reserve is a one-time strategy
built slowly over many years and one we can use while academic and administrative
review play out. It is also giving us time to take steps to generate other revenues
through sales and leases and to reduce maintenance costs.
We are making significant progress in reducing our lease costs, exploring ways to
increase our lease revenues, downsizing footprint to reduce deferred maintenance,
and selling property. The sale of the Administrative Services Center (ASC) is in progress
and is expected to close shortly. We are also working with Milan Shipka and his team
to explore revenue generation strategies at the vlog Experiment Farm and Matanuska
Experiment Farm & Extension Center, including lease/public-private-partnership (P3)
options, all while ensuring UAF fulfills the land-grant mission that is a critical
part of our history as a University that was created on mining and agriculture.
These bridging strategies are part of a three-year budget strategy that has been evolving
as the budget outlook has ebbed and flowed. Our goal is to ensure a sustainable financial
future for UAF. It is vital that our decisions are well thought out and informed by
our strategic plan. One-time funding allows us the time needed to evaluate our needs
as an institution, monetize our assets, grow our shared services and complete our
administrative and academic reviews. It also will allow us to grow enrollment and
revenue, something we are already seeing progress on. Remember, we are all in the
enrollment business.
Thank you for choosing UAF.