Budget Mysteries
by Silence Dogood

On Wednesday, October 22, 2014, SCSU’s FY2015 budget was publically unveiled at a Budget Advisory Group (BAG) Meeting. The document released is reproduced below:

Despite all of the information on this sheet, this document is incomplete because it only shows the general fund budget. It does not show any information about the other revenue funds. Why this is important will become evident shortly.

If you look at the bottom of the column “FY14 YTD”, it appears that in FY14, SCSU had a one-year operating loss of $708,000. At the last Town Hall Budget Meeting, President Potter publically stated that because of the extremely cold weather last year the heating expenses for FY14 were $700,000 over what was budgeted. If the winter weather had been ‘average,’ the university would have suffered only an $8,000 loss. You can’t do a better job of budgeting than that. Truly amazing!

Through April 2014, the table below represented what the Office of Finance and Administration had on its website for the university’s budget:

In this document, although showing much less detail than the budget released on October 22, 2014, you can see a prediction of revenue of $146,116,203 and expenses of $146,116,203 for the general fund—thus projecting a balanced budget for the general fund. These numbers are both slightly smaller than those reported in the budget presented on October 22, 2014, where for FY14 the revenue was listed as $148,454,000 and the expenses listed as 149,162,000, which is the origin of the $708,000 deficit in the general fund budget. But, all in all, the agreement is not too bad!

In addition to showing the general fund budget, this abbreviated budget document clearly shows a column labeled “Other Funds”. For FY14, the budget for these “Other Funds” shows an expected income of $64,121,985 and expected expenses of $64,121,985 thus projecting a balanced budget for these “Other Funds.”

It is important to recognize that the total operating budget is the sum of the general fund budget and the revenue fund budget (i.e., the “Other Funds”). For FY14, this document projected a balanced budget for the total operating budget.

As previously mentioned, a deficit of $708,000 out of a general fund budget of nearly $150,000,000 is truly amazing budgeting/accounting. Additionally, a deficit like this is exactly what reserve accounts are intended to cover. MnSCU requires each university to carry a minimum 5% reserve. On a total operating budget of $210,000,000 this amounts to a reserve of $10,500,000. Clearly, a $708,000 loss will not greatly affect the required reserve for the university.

In the abbreviated budget document, it also shows that for FY13 that there was a surplus of $4,456,154 in the general fund. Additionally, the “Other Funds” budget shows a surplus of $100,615. Combined, the total of all funds in FY 13 show revenues of $184,415,920 against expenses of $179,859,151 for a net surplus of $4,556,769. With an FY13 surplus of $4,556,769 and a $10,500,000 reserve, the $708,000 shortfall for FY14 should not create any financial hardship going into FY15.

In the budget presented October 22, 2014, the eye-popping projected deficit for FY15 of $9,542,000 resulted in the requirement by MnSCU that Vice President of Finance and Administration Tammy McGee develop a plan to bring SCSU’s budget back into balance. On January 8, 2015, Vice President McGee provided the BAG the shell document for planning the budget for FY16 and beyond, which is reproduced below:

In looking at this document, it shows that there was a Net Operating Income loss of $11,555,000 for FY14. It is important to note that this document shows that this loss results from the sum of the general fund and revenue fund. In the original budget document (for the “SCSU General Fund”), the loss shown for FY14 is $708,000—in this budget document information about the “Other Funds” was omitted. In the abbreviated budget document showing both the general fund and the revenue fund, it showed a zero difference between revenues and expenses. How can there now be a loss of $11,555,000?

Looking back at the abbreviated budget, it showed projected revenues and expenses of $210,238,188. This latest document shows revenues of $225,749,000 and expenses of $233,152,000. As a result, the revenue prediction was $15,510,812 low and the expense prediction was $22,913,812 low. The difference between the revenue and expenses shows a deficit of $7,403,000. When added to the expenses for capitol appropriations of $4,152,000, the deficit for FY14 grows to $11,555,000. While it seemed impressive that on a budget of $150,000,000 there was only a deficit of $708,000, we now find that on the total operating budget of $225,749,000, there is actually a deficit of $11,555,000. Oops!!!

So, just where does the university come up with $11,555,000?

In looking through the audit reports from FY08 through FY14, the following figure shows the amount of “Unrestricted Cash.” This is cash that can be spent for just about any purpose:

Clearly, from FY13 to FY14 there is a drop in the Unrestricted Cash of $13,000,000, which would cover the Net Operating Income loss of $11,555,000 for FY’14 with $1,440,000 left over for a couple trips to China. The part about the trips to China is only partly joking because no explanation has ever been offered of where the additional $1,400,000 went and President Potter seems to enjoy travelling to China. In fact, this is the first time the administration has publically distributed a document showing that the FY14 deficit was bigger than $708,000.

The January 8th document shows that for FY’14, when incorporating the revenue fund budget, the deficit jumped by $10,847,000 (from $708,000 to $11,555,000). At this point, what is missing from the information presented to date is a direct means to compare apples to apples. Unfortunately, President Potter continues to talk about FY14 like it is not a big deal focusing on a $708,000 deficit in the general fund when the total operational budget deficit appears to be $11,555,000. This sounds an awful lot like Nero playing the fiddle as Rome burned. In a sense, there really is no problem if there is money in the Unrestricted Cash to cover the deficit. However, there is a deficit and it certainly appears to be much larger than $708,000!

Having to cover the deficit for FY14 from the Unrestricted Cash and seeing these kinds of eye-popping deficit numbers for FY15 has created a renewed sense of urgency on the part of the administration. President Potter, in his Spring Convocation address, even said: “We face some challenges ahead.”

If the budget projection from the October 22, 2014 document for FY15 of a deficit of $9,542,000 in the general fund is accurate (note that this document does not disclose the revenue fund account budget), without making spending cuts, this would leave the Unrestricted Cash with a balance of only $5,758,000, which is far less than the minimum reserve required by MnSCU, which, as noted before, is in the range of $10,500,000. However, without budget information about the “Other Funds,” it is impossible to know anything precisely about the true financial condition of SCSU.

What’s really scary is that for FY14 the projected deficit was $0 and it ended up being $11,555,000. Now with an acknowledged projected deficit of $9,542,000, if they are off by as much as they were in FY14, will there be any of the Unrestricted Cash left to cover the deficit?

Clearly, there are financial problems at SCSU but it remains a mystery how big the problem is and why there are so many discrepancies in the numbers that have been reported. In the realm of religion an explanation that the foundation for a belief is simple a mystery to be taken by faith may work for believers, but in the realm of finance and budget cutting relying on a mystery just does not cut it.

One Response to “SCSU’s budget mysteries”

  • Diana says:

    One thing that should be pointed out is that St Cloud State receives over $6 million more in state appropriation than Mankato State does even though Mankato State has 2,000 more student FYE enrollment. St Cloud State’s financial picture would be even more dire if the MnSCU system allocation model didn’t reward schools that had declining enrollment and punish schools with growing or stable enrollment. Look it up. You won’t believe the inequity in state appropriation funding that exists because of the broken allocation model that the MnSCU system office uses.

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