USF’s unrestricted assets: $240 million in 2007
On the very last afternoon of the legislative session (May 2), I received an analysis of USF’s last five audited financial statements, and the general picture is that USF is financially healthy, among the healthiest of Florida’s public universities. State support for higher education in Florida is falling, but different colleges and universities have a broad range of abilities to absorb the cuts this year. USF is relatively well-positioned to insulate the central academic mission. As a result, USF’s administration and Trustees have a choice of whether to put the university on a glide path towards a different revenues structure or to let the academics crash.
What is the total size of USF’s usable (unrestricted) assets, and how do those assets compare to other university assets and operating expenses?
I am focusing here on unrestricted assets. According to USF’s 2006-07 financial statement (PDF), “Unrestricted net assets are available to the University for any lawful purpose of the University†(p. 8). The figure below shows the unrestricted assets reported in the last five years of audited financial statements (from the list of all SUS audited financial statements). The financial statements break down the assets into what is the university’s and what belongs to the “component units†of the university: the USF Foundation, the Research Foundation, the Alumni Association, the Sun Dome, the USF Financing Corporation, the USF Property Corporation, the USF Medical Services Support Corporation, and UMSA (University Medical Service Association). (You can click on any figure to see it full-size.)
The unrestricted asset figure is impressive, with most of it in the university rather than the component units. Furthermore, if one excluded the component units, the unrestricted assets of the university approximately doubled over the last five years. But what happened to the proportion of unrestricted assets to total university assets? That’s also impressive:
The figure above only discusses assets does not compare the assets to the burdens of USF. Below is a simple disaggregation of reported operating expenses (excluding component units) by three categories: all compensation, everything that isn’t compensation or depreciation, and depreciation. (Depreciation is a paper expense that has to be reported in financial statements, and breaking it out allows us to look at compensation vs. every other real expense.)
With those expenses, we can now compare the unrestricted asset growth to the growth of expenses as well as total assets:
The general picture is that the university’s unrestricted assets have grown as a proportion of these relevant financial indicators
How liquid are the unrestricted assets?
Of all USF’s assets at the end of 2006-07, $359,096,143 were held in the State Treasury Special Purpose Investment Account. According to the state’s description of the fund:
SPIA funds are invested in the same portfolio as Treasury funds, so the pool of funds has a stable base of funds not needed for immediate disbursement. These funds are invested in a combination of short-term liquid instruments and intermediate term fixed income securities. This “barbell†investment strategy, along with incremental income produced by securities lending, has the ability to return higher yields than a typical money market funds as seen in the charts to the right.
Less obtusely, in the state Department of the Treasury annual report from 2007:
The asset structure of the pool is designed to provide strong liquidity using short term investments and additional investment income provided by a substantial commitment to intermediate investments.
In other words, the fund’s “barbell” investment profile is designed to have a sizable chunk available to participating public agencies, while the rest is designed to be held for longer terms to balance out the lower interest that comes with liquidity. (This fund is not the local investment pool that was at the heart of a state scandal in the last year.)
Isn’t this year creating an immediate crisis at USF?
According to the USF CFO’s Quarter 2 report to the Board of Trustees’ Audit and Financial Workgroup meeting April 17, USF was expecting to have a net operating balance of $8.3 million at the end of this fiscal year (p. 4, at the bottom of the “Current Year Projected” column), and a $406 million cash position at the end of the year (p. 5, bottom of “Current Year Projected” column).
How do USF’s unrestricted assets compare to other public universities in Florida?
The following data come from a comparison of 2006-07 audited financial statements from the entire State University System. Because different universities have different structures of foundations, etc., I restricted the comparison to the universities and excluded so-called component units. (This changes the relative standing of the University of Florida, and that point is discussed later.) Let’s start with the ratio of unrestricted assets to expenses (excluding depreciation).
Here, USF looks in pretty good shape: FSU has the highest ratio of unrestricted assets to university expenses, with New College, USF, and the University of North Florida bunched closely. Next, look at the ratio of unrestricted assets to compensation (salaries and benefits):
Again, FSU is well ahead of the rest of the SUS, with USF bunched in a second tier. That picture changes when one moves away from the operating budget and compares the unrestricted assets to state appropriations. Here, it is clear that USF is much closer to FSU in having a substantial reserve when compared to state appropriations:
Finally, one can look at the total asset distribution and the proportion of university assets that are in the unrestricted category. Here, USF’s advantage is overwhelming:
By any of these measures, USF is in relatively healthy financial shape when comparing unrestricted assets to expenses, state appropriations, and total assets.
What about the University of Florida?
The comparisons above excluded component units, and for UF, the component units include their Health Sciences Center and the Shandy medical complex as well as the UF Foundation. For UF, the vast majority of unrestricted assets are held in the component units. This is different from USF and FSU, where the bulk of unrestricted assets are held by the university. Were all the component units included, UF would immediately jump to the head of every category, but USF’s relative financial health would remain. And if one includes the component-unit assets, USF has approximately $330 million in unrestricted assets.
What about other public universities, such as in the Big East?
The other three publics in the Big East are the University of Connecticut, Rutgers University, and the University of Cincinnati. When looking at unrestricted assets in these universities’ 2006-07 financial statements, USF is in the same financial league as UConn and Rutgers and much better than Cincinnati (which had a negative unrestricted assets balance at the end of 2006-07). First, USF starts this budget crisis with a greater proportion of the operating budget coming from state appropriations:
USF’s proportions will certainly drop for 2007-08 and following years.When comparing unrestricted assets to both the total operating budget and state appropriations, USF’s financial health is between UConn’s and Rutgers’s:
The last figure, below, compares unrestricted assets to total university assets, the operating budget for 2006-07 after subtracting depreciation, and compensation (Rutgers reported expenses by functional categories such as Instruction, Research, etc.):
Could USF use its reserve of unrestricted assets to absorb all of the lost state funding?
Some of the unrestricted assets are liquid, but others are not. I do not know the amount USF could draw down over a single year. But it could use some of those unrestricted assets, and it can certainly be public about how much of those assets are liquid and usable over the next year. The university can also be much more open about the purpose of the growing unrestricted assets over the past half-decade.
Beyond the liquidity of the unrestricted assets, there is the question of values and priorities: why should students, faculty, and staff suffer the brunt of the legislature’s decisions when USF has resources that could be used to buffer academics from the worst of the state budget cuts? The choice of the administration today is which takes priority, the academic mission or the reserve pool of unrestricted assets.
Spreadsheet with data for figures in this blog entry (Excel file)
