University System Cuts While Reserve Fund Grows to $177 Million

Thursday, April 25, 2013

Four years ago, when the University of Maine System was cutting programs to save money, officials were criticized for not instead making up the shortfall by taking money from system reserves.

At the time, officials said they needed all $88 million in the reserve account as a contingency for the unexpected and other expenses.

Now the system says it is again under financial pressure — Gov. Paul LePage’s budget proposal for the two years starting July 1 calls for no funding increase for the university system.

The first campus to feel the pinch is the University of Southern Maine, based in Portland, which plans to cut expenses $5 million, mostly by faculty and staff reductions.

Meanwhile, university system reserves have doubled in those four years — to $177 million. Over a 12-year period, the reserves are up more than 300 percent.

During the same period, the cost of running the system has gone up only 41 percent.

Experts on university finance, faculty and students are saying that the system — which oversees the seven state universities — would be better served by using some of that growth in reserves to offset the cuts.

But the response from system officials is the same: All of that money — termed “unrestricted net assets” — is needed for emergencies, capital projects and unexpected expenses.

System Chancellor James Page said the term “doesn’t mean that there’s a giant bank account with $177 million in it … the overwhelming amount of that money is allocated now towards a whole host of functions and services.”

But Page also acknowledged that the government accounting standards the system follows would allow the trustees to switch part of the reserve fund to other uses.

At the end of each fiscal year, budgeted funds that are not spent accumulate in the reserve fund, which also increases (or decreases) from investment results. Most of that money originated from taxpayers through the state’s annual allocation and from tuition and fees paid by students and their parents.

Page gave an example of where a portion of the reserve fund is allocated — about $18 million is in a “benefits carryover pool” that ensures the system, which is self insured, could meet a run in medical claims.

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