Monday, January 16, 2012

Michigan's public universities see 24% increase in 'unrestricted' net assets

(Detroit Free Press) Michigan's public universities increased the amount of money listed on their books as "unrestricted" net assets to about $4.2 billion, or by 24% over the previous fiscal year, a Free Press review of financial documents shows. That fact is likely to renew frustrations among students, faculty and universities' staffs with recent tuition increases, wage freezes and layoffs approved at some schools to meet operating budgets.

Some parents and university students say officials should tap at least some of the money in the reserve accounts to lower tuition rates, which universities have increased as they work to cover cuts to state aid.

But officials at several of Michigan's state universities said using that money -- generally meant for special one-time projects -- would have negative long-term effects.
The money is listed in university documents as "unrestricted," which means it can be used however governing boards wish. Though that is technically true, universities say the money is spoken for and that they should not follow the state's example of tapping reserves to cover recurring costs.

"MSU has chosen not to shortchange long-term needs in order to ease near-term fiscal challenges," said spokesman Kent Cassella.

Michigan State University increased the assets by about 24% to $789 million from the fiscal year ending June 30, 2010, to June 30, 2011. Oakland University increased the assets by about 20% to $145.8 million during that time.

At the University of Michigan, unrestricted net assets climbed about 42%, the biggest one-year gain among the 12 schools reporting numbers. U-M has $2.6 billion among its three campuses and health system. Wayne State University is on a different fiscal year, and its new numbers are not yet available.

The Free Press reported in May on the increasing amount of unrestricted assets as rising tuition and fees were squeezing students.

Spending of funds at Michigan's state universities questioned
Eastern Michigan University's $42-million renovation of its oldest classroom building, Pray-Harrold, this past school year touched just about every part of the building.

EMU installed a coffee shop, added study areas, changed the mechanical system and refurbished faculty offices.

It cost EMU $10.5 million, and the state picked up the rest of the bill. EMU administrators used money from funds classified in financial records as "unrestricted" net assets.

EMU officials, and administrators at other Michigan public universities, say using the funds for that type of renovation is how the assets are supposed to be spent. Financial officers salt the money away and then spend it on one-time efforts to benefit students and improve the campus.

However, some parents and students said they want to see the universities spend the money with more flexibility.

They cite descriptions from experts and university financial audits that say unrestricted net assets are free to be used however administrations and governing boards wish.

EMU was the only one of the state's 13 public universities to spend down its unrestricted net assets at the end of the 2010-11 fiscal year when compared with the previous fiscal year.

The state's public universities increased their unrestricted net assets by about 24% or to $4.2 billion at the end of the fiscal year that ended June 30, 2011, from about $3.4 billion the previous fiscal year, a Free Press review of financial documents shows.

That total doesn't include Wayne State University's information. WSU operates under a fiscal year that ends later than the other schools and its final number is not yet ready, WSU officials said.

University officials said it is technically true that the money could be diverted for other purposes, but they stress that boards and management have already designated most of it for specific projects, such as construction.

"All of the designated purposes ultimately benefit students through scholarship support, capital improvement, faculty support and student service improvements," said Oakland University Chief Financial Officer John Beaghan.

But the key defining characteristic of unrestricted net assets is that they are unrestricted by external conditions.

"It's good to have money for new buildings, but what if no one can afford to go to them?" said Mike Clancy of Lansing, whose daughter is a sophomore at Grand Valley State University.

Tuition increases averaging 6.5% coming into this school year on top of hikes in previous years have students and parents complaining, especially when they see money they think could be spent to hold their costs down.

"Universities are pricing themselves way too high," said WSU student Tyrese McMillan of Detroit. "I don't understand why they can't use some of that money to give us a tuition break. They just keep sitting on piles of money that keep getting bigger every year."

Unrestricted net assets aren't just set aside for buildings. They are also ticketed to cover other items, such as insurance claims that might have to be paid out, or other one-time costs.

The money is different from endowments, which are made up mostly of gifts from people, businesses and foundations mandated for specific expenditures, like building a certain laboratory or paying for a faculty member.

The University of Michigan increased its assets to $2.6 billion from $1.8 billion. U-M posted the highest amount and one-year increase among the 12 Michigan public universities that reported. More than 70% of that total resides in the U-M health system.

Michigan State University increased its unrestricted net assets to $789 million from $638 million, a one-year increase of 24%.

MSU spokesman Kent Cassella said that number is misleading because only $8 million isn't already targeted for special projects, including rebuilding its 100-year-old steam tunnel system. He argues that such a large amount of money has to be set aside to cover capital improvements the State of Michigan used to help pay for. The state still helps with capital projects but has shrunk its contributions over the last decade for operating costs and capital projects.

Squirreling away the unrestricted assets is the right thing to do, university officials say, comparing it with how a person slices up a paycheck.

The financially prudent thing for a person to do is to use some of the money to cover their bills, university officials said, and then take the rest and set it aside for a new roof, a vacation or to have in case of a job dismissal.

"There are no external rules that restrict how we spend that paycheck," U-M spokesman Rick Fitzgerald said. "But that does not mean we don't have obligations to meet with that paycheck. Prudent management means we don't have to stop buying groceries when something unexpected happens. ... That's comparable to how the university commits its unrestricted (net) assets."

Not everyone buys that explanation. They say in family budgeting when times are tough, the basics have to get covered first. And university priorities should be keeping tuition down and not laying off employees to cover operating budgets.

1 comment:

  1. The reason college tuition grows higher, even as wages fall, is because there are government grants, scholarships and loans which guarentee that the tuition will continue to be paid. If education was unmoored from artificial means of funding, colleges would have no choice but to lower prices in order to encourage enrollment.

    An added bonus would be that the value of the college education would rise and the artificial requirement of "a degree" for many jobs which neither require them nor use them, would have to decline.

    Like it or not, ever spiraling tuition costs are directly related to the ideal that everyone ought to have a college education. The fact the very goal makes itself unreachable by its own implementation is ironically lost on those who articulate it.