Notable progress in our fiscal health

August 2019

Dear Faculty and Staff:

The beginning of fall semester is such an invigorating time of the year. I hope you feel as energized as I do by the enthusiasm of our new and returning students. Best wishes to all students, faculty, and staff system-wide for a successful, rewarding semester.

One of my goals as president is to be transparent about our budget and fiscal situation. In my view, this means providing data as well as high-level summaries that provide insights about the data.

As most of you know, we have been focused on improving the University’s fiscal health since 2016. We have communicated regularly about both the challenges we have faced and the progress we have made, using a variety of communication methods to do so: websites (Fiscal Health and University Fiscal Health Advisory Committee), periodic News & Notes from the Office of the President, and town hall meetings.

While some people will want more information and some people will want less, in this letter I will summarize the current fiscal situation system-wide.

Great news: A positive operating balance

I am pleased to report that for the first time since FY13, WSU finished the fiscal year that ended June 30 with a positive operating balance. Put simply, we spent less money than we received.

The graph below provides a more detailed look at the University’s overall end of the year balance each year since fiscal year 2013.

Annual Revenue less Expense and Reserve Balance: Primary Operating Funds

(View larger version of chart)

To recap, in fiscal years 2014, 2015, 2016, and 2017, we had operating deficits ranging from $25 to $30 million annually. To address the situation, we initiated a 3-year fiscal recovery plan in FY18 that established annual targets to put us on the path to achieve a balanced budget by the end of FY20. We not only exceeded our financial goal, we did so one year earlier than targeted.

I appreciate the hard work of everyone that led to this result. All across the WSU system, Cougs rolled up their sleeves and worked together to help move the University to a more fiscally stable position compared to just 2 years ago. Each major unit (campus, college, and vice presidential) was asked to combine spending reductions and revenue increases in order to assist the fiscal recovery, and I appreciate the creativity applied to enhancing revenue and the tough decisions made in reducing expenditures.

It is also worth noting that the institution as a whole has made significant progress in several important arenas—including record research awards, exceptional donor support, and the enrollment of highly qualified undergrads—despite our financial constraints. We are well positioned to capitalize on these successes as we regain our financial equilibrium, which also provides opportunities to invest in areas that will advance the Drive to 25.

Next goal: Rebuilding University reserves

Also shown in the graph above is our overall reserve balance. Think of reserves like a savings account. The University needs to have funds set aside for things like emergencies, large equipment purchases, and new strategic initiatives, and as a financial buffer when enrollments fluctuate. With an overall system budget of about $1.2 billion annually, we should have reserves equal to 10 to 15% of our annual operating budget—somewhere between $120 and $180 million.

We were able to operate from FY14 to FY18 in part by spending down reserves to accommodate our annual deficit spending. Reserve funds exist in 2 places: at the unit level (campus, college, vice presidential) and centrally. While we have successfully increased reserves in many units across the system, we have spent or allocated essentially all of our central reserves.

The central reserves have been used or allocated to fund priorities such as maintenance and operations costs for new buildings, increased funding support for the College of Arts and Sciences, and a system-wide videoconferencing service. Because needs that require central funds will remain steady going forward, it will be important for us to replenish these monies during the next several years.

Moving ahead

Now that we are no longer dealing with an annual operating deficit, it is critical that we not return to the spending habits that put the University in a precarious fiscal position. Thus we will continue to follow our fiscal recovery plan for FY20. At the same time, Vice President for Finance and Administration Stacy Pearson is working with Provost Mitzi Montoya, deans, vice presidents, and chancellors to establish a budget process that will take into account the units’ desired spending (including the ability to spend some unit-level reserve funds). There also are several units on campus that will require multiple years before they can operate with a balanced budget—all of these units are operating based on multi-year recovery plans.

Equally important, we soon will work with leaders and campus governance groups on the buildout of a new budget model for the University. Broadly speaking, our budget allocations historically were based and built around a series of special circumstance “deals” that were not consistent or strategic across campuses, colleges, or vice-presidential areas.

Provost Montoya and Vice President Pearson will be leading efforts to develop, publicize, socialize, and implement the new budgetary model that will be developed. This effort will be supported by the launch of Workday—our new modern and robust financial system—starting next year. We will keep the community updated as work on the revised budget model progresses.

Any change to a university budget process causes some stresses. We will ensure everyone across the system has a chance to provide suggestions and feedback on any proposed new budget model prior to implementation. In short, we will need excellent ideas and critical feedback about what we do now—and creative thoughts about how to improve moving forward.

WSU Athletics: Annual deficit nearly halved

Most of you know that WSU Athletics also has been working hard to reduce its annual operating deficit. I am happy to report that effort is paying dividends.

Since FY14, when athletics ended the year with a $13.7 million deficit, the annual deficit has been nearly halved. The final projected deficit for FY19 is $7.1 million.

Athletics is on track to eliminate the annual deficit by FY24, based on a budget and multi-year recovery plan approved by the WSU Regents at their meeting in June. Following legislation approved during the 2018 state legislative session, the Regents are now required to examine and approve annual intercollegiate athletics budgets if yearly deficits occur.

It is important that athletics meets or exceeds its spending targets over the next several years as we move incrementally to balance the budget. To ensure progress and additional oversight, we will provide budget updates at each WSU Regents meeting during the 2019–2020 academic year. This represents a change from previous years when budget updates and approval of spending occurred in June of each year. Additional details about the athletics budget are available online.

In summary: Excellent progress, but work to be done

The University continues to make excellent progress on restoration of our fiscal health. While we finished the past fiscal year with a positive operating balance, we need to continue carefully monitoring our spending.

We have depleted our central reserve fund and now need to develop a plan to replenish it during the next several years. Meanwhile, WSU Athletics continues to close the gap between revenues and expenses, making notable progress in recent years to reduce its annual operating deficit.

In conclusion, we have remarkably improved our fiscal health during the last 3 years. Again, thank you to all of our students, faculty, staff, and leaders for the hard work that has gone into our recovery.

I look forward to providing additional information and answering your budget-related questions during the upcoming town halls, which Provost Montoya and I will host system-wide in September, October, and November. As always, I also am happy to answer questions that you might have via email.

Go Cougs!