A lot of people are asking about the University of Wisconsin System’ $648 million reserve fund.
After the initial surprise wore off, the university system and legislators have begun to wonder what the appropriate level of reserves is and what the reserves mean for the UW System’s funding in this biennial budget.
How can we improve transparency so that legislators have the full picture when making decisions about funding and tuition levels?
To start with some background, this issue came to light during a meeting regarding the state’s Comprehensive Annual Financial Report (CAFR), a report that is done annually and is separate from the budget process.
The CAFR analyzes finances based on generally accepted accounting principles (GAAP).
A group of legislators, who are certified public accountants, raised questions about the unrestricted net assets of the UW System.
These unrestricted net assets have come to be referred to as the system’s reserve funds.
The Legislative Fiscal Bureau responded to their questions and provided the information to the Joint Finance Committee.
I believe there is a need for reserves, especially for a system as large as the UW System.
Just as families have savings accounts to cover unforeseen costs, or to help with cash-flow management, many large institutions, public and private, have a reserve or savings account.
At the same time, the total amount of the UW System’s unrestricted net assets, or reserves, made many people concerned.
Legislators were frustrated for a couple of reasons.
Since the UW System is made up of many campuses, all with many departments, the money in the system’s reserves was spread out, making it difficult to easily tell how the money held in reserve was being used.
Another reason for frustration was the 62 percent growth of the cash reserve compared to the last biennium.
Finally, a lot of the frustration was over the fact that tuition had increased while the reserve was built up.
Should some of the reserve have been used to hold tuition costs steady, making a college education affordable for more people?
UW System officials appeared before a legislative committee shortly after the news broke about the reserve fund.
One of their arguments for having the reserve fund is that they cannot be certain about the level of funding they will receive from the state or how their other sources of revenue will fare in volatile economic times.
They also explained that some of the money was committed, although not yet spent, on items like student loans or popular programs like business and engineering.
They tried to reassure legislators that their reserve fund was not a secret slush fund.
Since that hearing, they have announced that they will develop a system policy regarding reserve funds and that the policy will include what an appropriate reserve fund balance is, how it will be communicated, monitored and reported to the legislature and the public.
They are in the process of sharing drafts of their proposed policy with the governor and legislators.
There are a couple of things that I believe will happen as a result of the news of the UW System reserves.
First, there have been calls on both sides of the aisle and from the governor to freeze tuition in the budget for this biennium.
Second, the Legislative Audit Bureau will probably continue to audit the UW System and may dig deeper into how their money is managed.
Third, the UW System and the legislature need to continue discussing what an appropriate reserve fund level is and how that should be monitored.
Finally, we need to develop a level of trust between the UW System, the legislature and the public by continuing to work together to provide an affordable, world class education.