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Monday, Sept. 22, 9:34 a.m.
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Report questions system, USM finances

New analysis confirms earlier report: Maine's universities are in good financial health

An independent analysis the University of Maine System and the University of Southern Maine are in sound financial shape has student leaders questioning why administrators are planning to cut academic programs to balance budgets.

According to the analysis of audited financial records conducted by accountant Howard Bunsis, both the system and USM have positive revenue streams, healthy cash reserves and low levels of debt.

The system office has said that cuts from the state legislature have forced them to reduce funding to its seven campuses. But according to the report, over the past five years the system office has amassed large reserves, known as unrestricted net assets, and in 2009 — the year that USM withstood $2.7 million in cuts from the system — its net assets grew by $11 million.

The analysis, paid for by the USM’s student senate with $1,000 of student activity fees, confirms the findings of another recent report conducted by New Jersey accountant Leroy Dubeck that was commissioned by AFUM, the system-wide faculty union.

The findings clash with statements from university officials, who have maintained both institutions require restructuring and cuts in order to maintain operations. “Any suggestion that the University of Maine System is broke or out of money is preposterous,” Bunsis wrote in his report.

The student senate commissioned the analysis by Bunsis to verify the findings of the Dubeck report. Both audits say the system is in good financial shape and can use their substantial reserves to offset cuts from the legislature.

The report also finds that in the past five years, USM’s total revenues exceeded total expenses every year except for 2006. USM had surpluses of $4 million in 2007 and 2008, and $14 million in 2009.

“I was really surprised to see that there was a discrepancy; that the audit suggested we don’t have a deficit,” said Maggie Guzman, USM’s student body president. “That doesn’t make sense to me. All of these things are being cut, we’re making all of these consolidations, and then there is documentation that no cuts are necessary.”

University officials say the budgetary process isn’t that simple.

While it appears USM has profits, Dick Campbell, USM’s chief financial officer, said these are tied up in other funds besides the E and G account — the main fund academic departments draw from. He did say it would be possible to move money around to avoid cuts to departments.

“Some of this seems to talk about the extent to which we have the ability to redirect some of these assets and I think that’s a subject for some conversation,” he said.

Campbell said the data and analysis in Bunsis’ report is accurate, but disagreed with the way Bunsis delivered it.

“He’s using some powerful words. I’m not going to debate some of the points and statements he’s making,” said Campbell. “I don’t find that helpful to having a reasonable discussion about what our financial situation is.”

According to its public financial statements, the system has $84 million in its reserve fund, more than double the $40.5 million it had in 2001. But Rebecca Wyke, vice chancellor of finance for the system, said that while it bettered its financial condition year after year, the reserve fund — or unrestricted net assets — is partially spoken for by each of the campuses, and some of it is set aside to back up federal grants.

“While we could draw down our reserves, I guess, to do whatever it is they would like us to do, what do we do next year?” Wyke said.

“I think that people need to have a longer view than just the immediate year in front of them,” Wyke said. “To question how is it that we would sustain that over time. Either we need to increase our resources or we need to reduce our expenditures and the reality is we really need to do both.”

“In January, our retiree health costs are going up almost $6 million beyond what we had budgeted. So instead of asking the campuses to contribute to it, that reserve will go down in order to cover that cost,” Wyke said. “A lot of the reserves reside at UMaine but almost all of it is committed to building projects.”

But according to Bunsis, unrestricted net assets, by definition, are not set aside for any one purpose.

“The accounting rules are clear: Once something is designated by the external auditors as an unrestricted net asset, that means that the governing body has the flexibility to use those net assets as they see fit,” Bunsis said in a phone interview Wednesday evening. “Claiming that those net assets have been earmarked for this or that is really a claim without any meaning.”

“From a budgetary perspective, we can’t just draw down our reserves until they’re gone and then deal with it,” said Wyke. “That would not be prudent. We have some responsibility here to make sure that a very large state-wide operation continues to operate day-to-day and that does require that we have some contingency.”

Members of the executive board of the USM’s student senate said the audit casts doubt on the integrity of USM and system administrators. Senate chair Molly Dolby said senators wanted their own analysis, after details of the Dubeck report appeared in The Free Press, USM’s student newspaper. AFUM has not released the document publicly.

“I have faith in Selma [Botman]. She’s the head of the school; I respect her,” Dolby said of the USM president. “I’m just kind of looking for answers. Are the reports based on fallacies? Are they missing a key piece? Are they looking at too small of a picture? Those are the kinds of answers I want to hear from them. I invite them to explain that [the audits are] wrong and to give a clear explanation as to how and why.”

Botman was unavailable for comment Wednesday afternoon.

“I’m not jumping to any conclusions of any misuses of money or anything like that, but I would like to know where the money went,” said Guzman.

Wyke said the system is more concerned with future budgets than past results. Last January, it identified a $42.8 million structural budget deficit over the next three years across the university system. The deficit is based on anticipated cuts by the state legislature and the recent trend of flat or declining enrollment.

The board of trustees set in motion a plan Nov. 16 to deal with the deficit by freezing faculty wages, increasing online classes and creating three year degrees.

Bunsis said the system is good shape, and those concerned should remember how things turned out the last few years.

“Budgets are just plans, and administrators always say, ‘Oh my god, look at how bad the future is going to be.’ But they’re just plans. All that matters is the actual results that are audited by an external auditor,” Bunsis said.

Bunsis’ report is a preliminary look at university finances. He plans to perform additional analysis of cash flows, liquidity and debt levels and a formal ratio analysis used by Moody’s in municipal finance. He said he expects further investigation will corroborate his initial findings.

This article was originally published in The Free Press, the student newspaper at the University of Southern Maine. Reproduced with permission.