Alumni Association | UA Foundation

AdvoCATS Update

Apr-May, 2009

VARIABLES AFFECTING UNIVERSITY BUDGET DECISIONS

 

When asked about the impact of differing aspects of the budget on the Universities, our answers have been vague and even confused. There are legitimate reasons for the murkiness. There are many things affecting budget decisions that will affect the Universities as well as other State entities. In some cases, these are things that will be known shortly – as soon as data is compiled and some calculations are completed. In other cases, decisions and the knowledge dependent on those decisions are not likely to be known for months or longer. To clarify the murkiness, below is an attempt to document some of those variables.

 

• State revenues – Although Arizona can track shortfalls through the current month, anything beyond the present is a guesstimate. Annual budgets are based on those guesstimates of future revenues though, so when ‘real numbers’ are less than those that were projected, a shortfall occurs. With a national recession still underway, and Arizona being one of the states leading in shortfalls, it has been impossible to predict exactly what the revenue numbers for the remainder of the year will be. Yet the State’s budget must be balanced, so adjustments will likely continue through the end of the fiscal year. How those adjustments will affect the University depends on the amount of the shortfall, if any, applied to us as well as other factors listed below.
  
  

• Federal Stimulus package – A huge sum of money has been directed to Arizona to aid us in managing the deficits the State faces. Although the total amount is known, how, where and when it will be applied remains to be determined.

 

There are areas that must be funded first, floors to funding that must be met and even timelines when the federal funds can be applied. But until all these components are determined, it’s impossible to tell what the amount of the backfill or ‘cuts’ will be to any entity. And last, but possibly most important, the Stimulus money is one-time. Cuts that have been and will be imposed are likely to be permanent ones that the State and the entities that have been cut will have to deal with when the funding is gone.

• The State Constitution – Amendments to the State constitution have been passed by voters: that protect from legislative cuts those areas that have been prescribed by the voters unless certain policies are adhered to; and that make raising taxes fairly difficult, requiring a supermajority to pass legislation that would do so.
  
  

• Some Options and Politics – The Governor, her staff and numerous others are certain that cuts alone cannot balance the State’s budget. Not because areas can’t be cut to the extent needed to balance the budget, but because cuts to those areas that are not restricted (see above) would need to be so severe as to nearly destroy those budget units (including the Universities) and would leave many of the State’s populations at risk. The Governor has offered – and is encouraging – consideration of numerous other options, including a small temporary tax increase and temporary suspension of the protection passed by voters (see above). These changes would have to be approved by voters though. And in order to get the proposals to voters, the Legislature would have to pass a resolution that would bring the matter to a special election for a vote by the people.
  
  

• More politics – Many legislators have signed a no-tax pledge and/or campaigned on a no-new-tax platform. Whether they decide that the budget situation is drastic enough to warrant amending that position remains to be seen. By referring the decision to the voters, some believe that they can adhere to their pledge, by allowing the voters to decide.
  
  

• Referendum – A special election to determine the changes mentioned above would take place either at the end of this fiscal year or the beginning of the next fiscal year. There are multiple uncertainties with this.
  
  

  What changes are proposed and where does support for any change come from? While some entities may be helped by changes – i.e. through increased revenues due to tax increases or expanding the areas that can be cut by temporary suspension of the protected budgetary areas, those same populations may be negatively impacted by the changes as well.
  
  

  Where does the money come from for a campaign to support the changes to the Constitution?
  
  

  What if the measure fails? What budget will have to be imposed then? And what mandate to cut will legislators feel they have if the measures are defeated?
  
  

  If it passes, when do revenues flow adequately to address the underlying problem?

  
  

• Other budget options – Some at the Legislature are looking are other options to balance the budget. These include:

Selling State properties and then leasing them back when necessary. The downside of this option is the additional expenditure for lease payments it would add to the State budget in outlying years.

Roll-overs are another option being considered. This is delaying payments (like payroll) until the beginning of the next fiscal year. The downside of this is the burden it puts on the following years as well. There is no need to ‘fix’ the adjustment immediately, but it has been applied twice to K-12 payments, so cannot be used again. And rollovers, as with property sales, puts an additional burden on out years, though not to the same extent.

And finally, fund sweeps, where the State takes funds that have been held by State entities for a specific future use. The problem with this option was that during the earlier ‘09 adjustment inadequate information was used to determine which funds were really available to the State and which were encumbered. The Legislature had to revise that ‘09 budget to put back money that should not have been swept. And, the same problem exists to some extent with funds, including University funds, being identified for future cuts as well. And since these cuts permanently sweep money in the funds, the programs or intended use of the funds are negatively impacted.

• Application of cuts – Although the Universities and other State entities have been cut already (in the case of the Universities, to the tune of 13%), since those cuts occurred late in the fiscal year when student enrollment and employee contracts were in place, funds to deal with the cuts have had to come, to a great extent, from one-time funds. Decisions on how to permanentize the cuts without impacting the core missions of the University are being made and will continue until the University has balanced its budget with permanent funds. However, until the total financial impact is known, the extent of the cuts and their impact will be uncertain.
  
  

• Revenue streams – Historically, funding for the University comes from several areas: tuition, grants, gifts and State funds. Grants and gifts tend to be restricted in their use and application, offering little or no flexibility to address areas impacted by State cuts.

 

When State funds decline, tuition remains the one area that can be increased to fill some of the gaps the cuts leave. And to the extent that the University’s mission can be impacted by the State’s cuts, it makes sense to use tuition dollars to shore up funding in those areas, at least and until State funding is reinstated.

 

Additionally, the University uses some of those tuition dollars for financial aid. This ensures that the cuts imposed by the State and the tuition increase those cuts necessitate don’t prevent qualified students from investing in their future. This investment benefits the student and the State in both quality of life and economic ways.

 

This lengthy description of the relevant issues doesn’t begin to do justice to the complexity of the problem. However, it offers a description of the components at this time to make tracking the process a little easier and makes understanding why answers aren’t easily or readily available more obvious.

Thank you,

Charlene