Creating a budget to propel our success

Greetings from French Administration! I hope you had a restful time away from the University with family and friends during the Thanksgiving holiday. Noel and I enjoyed spending a few days with our two sons and daughter-in-law in both New Mexico and the Palouse. We experienced a first this year—our children prepared a traditional Thanksgiving meal for us. All we had to do was show up and eat!

In my May letter to campus, I noted several key financial issues that needed immediate attention:

• Reinstitution of a formal university budget development process
• Creation of a comprehensive funding plan for each new building in advance of its construction (eliminating use of the University’s financial reserves to cover funds not clearly identified from other sources)
• Development of a robust financial analysis to accompany all proposals presented to the Board of Regents
• Implementation of a plan to reduce our athletics budget deficit

We have made progress the last several months on several of these items. This past month—thanks to the fine work of Joan King, Olivia Yang, our deans, and unit level finance officers—we completed the first comprehensive set of budget reviews at WSU in nearly a decade. I believe this effort provides a much clearer view of our budget than was available previously. The review also identified several key points that I want to share:

We need to rebuild and maintain adequate cash and reserve funds

Universities similar to our size, scope, budget and debt levels maintain average cash and reserve levels of 60 percent of annual operating expenses. Going forward, we can no longer use our reserves to support deficit spending by campus units. If we don’t take action this fiscal year, our current spending projections suggest that we will reduce institutional reserves to the point we cannot respond to needed initiatives and opportunities.

We must invest in system-wide infrastructure improvements

WSU has delayed several system-wide infrastructure improvements—particularly in our IT area and in our financial software (Enterprise Management System)—for decades. We have reached the point where we must invest in these areas to support our institutional growth. The upgrades will be costly, but they are investments that will benefit all WSU faculty, staff, and students. As we develop budgets during the next several years, funding these initiatives will be a priority.

We must balance unit budgets

Several campus academic units overspent their annual budgets last year by $1 million to $3 million, with the total reaching about $17 million. This is in addition to our athletics deficit.

To address the $17 million deficit, we have directed each unit that overspent its budget to develop a recovery plan for achieving a balanced budget over a multiyear period. It also is important to note several mitigating factors regarding this deficit:

• Much of the spending was invested in research startup funds, new faculty hires, and the creation of much needed academic infrastructure. In some cases, deficits accrued because we hired new faculty and staff members knowing that the retirement of other faculty and staff was imminent. In short, none of these funds were spent frivolously or recklessly.
• Our current financial management systems have not helped leaders manage complex budgets. Financial staff throughout the University have had to implement additional measures to ensure accurate tracking of unit-level budgets. A more robust, user-friendly financial management system will provide leaders with better information to make decisions at the department, college, and campus levels.
• Several units on campus have accumulated large positive balances. There is always a concern that central administration will “sweep” positive fund balances from accounts built up with the intent to invest them in future academic or campus initiatives. Sweeping unit accounts is not part of our financial management plan moving forward.
• No deficits will be forgiven. Units that overspent will pay back those funds, which will be used to replenish our reserves.

We need to increase the University’s revenues

We cannot cut our way to achieve recognition as a Top 25 public research university, so we are looking at ways to enhance revenues at the university level. More specifically, we are examining modification of our tuition waiver programs, enrollment growth, and other measures to create additional revenues. As our plans become clearer, I will keep you informed in future campus letters.

What does all of this mean? In short, we need to be very mindful of our spending patterns across all units—and we must end deficit spending across the board as soon as is practically possible. This doesn’t mean that we stop hiring exceptional faculty and staff or compromise our instructional mission. Instead, we need to invest in our infrastructure, eliminate deficit spending institutionally, and work together during the next several years to improve our overall financial health.

As I have reiterated since my arrival, I want to be as transparent as possible with our financial operations, so I will provide regular budget updates. I remain strongly committed to creating a budget process that is fiscally responsible, but one that also provides the needed flexibility to respond to key initiatives and priorities as they arise.

If you have any questions, please do not hesitate to reach out to me at any time.