UConn taps reserves to close budget shortfall

UConnUniversity of Connecticut officials plan to significantly draw down the system’s emergency reserves this fiscal year to close a $30.8 million budget gap.

“This is the first time we have had to deplete this fund to this extent… It’s a sign of the times,” said Lysa Teal, UConn’s vice president of finance and budget.

This move to use one-time revenue to cover nearly 3 percent of the college system’s budget is unusual -- but necessary, said Teal.

“It’s a gap that we haven’t been able to close another way.”

The state’s flagship university ended last fiscal year on June 30 with $71.8 million in reserves. The reserve fund has not dipped below $40 million since 2004, when the system's budget was two-thirds the size it is now. The plan to use $30.8 million this year will likely leave the fund at an historically low level.

Teal said officials historically have resisted using this fund to balance budgets and instead have used it to pay for long-term projects and cover minor budget shortfalls.

“We really don’t like to use it… This is certainly a bump in the road,” said Teal.

The budget the system’s governing board adopted last month initially used $18.7 million from the reserves to balance the budget, but officials had to look to the fund again for more money after state officials boosted the amount UConn and the state's other public college system has to pay to cover current and retired employees’ health and pension benefits.

In the fiscal year ending June 30, UConn was required to put aside 46 percent of its payroll to cover these costs. This year, the university must set aside 54.7 percent. This means for each $1,000 in salary and wages, UConn last year had to pay another $460 for fringes, and this year that rose to $547.

Officials at the Connecticut State Colleges & Universities, operated separately from UConn, have not yet determined how much this change puts their budget in the red or how they plan to close the deficit.

“The Board of Regents is currently reviewing the impact of the higher than anticipated fringe benefit rates,” said James Howarth, interim chief financial officer for ConnSCU.

This increase is primarily the result of a long history of the state's underfunding its pension obligations. Union employees are slated to get a 5 percent pay raise and non-union staff 3 percent next year, which will also contribute to increases in required pension contributions.

Teal said that UConn is working now to figure out a way to adjust the system's budget so that this fund does not need to be used again next year.

Options to balance the budget include cutting programs and staffing, getting more money from the state or raising the cost students pay to attend UConn. If tuition and fees are turned to alone to make up the $28.5 million gap, revenue from those accounts would need to increase by 7.2 percent.

The odds of getting money from Hartford in the future will be difficult. The $37.6 billion, two-year budget Gov. Dannel P. Malloy and his fellow Democrats in the legislature's majority approved to cover this fiscal year and next leaves state finances on pace for a $712 million operating deficit in the first fiscal year after the November 2014 gubernatorial election. That represents a gap of about 4 percent in the annual operating budget for the 2015-16 fiscal year.

Since UConn borrows millions of dollars each year for various construction projects, its fiscal health and the size of its reserves plays an important role in what interest rates the system will have to pay.

"We want to make sure our buyers are confident," Teal said, adding that the use of these reserves should have no noticeable impact on students or faculty.

 

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