Update on UWM budget balances

Dear UWM Alumni & Friends,

In recent days, there has been a great deal of attention focused on the budgeting practices of University of Wisconsin System institutions and the reported billion dollar cash balance. Because each campus is different, I can only address the situation here at the University of Wisconsin-Milwaukee.

I want to make it clear that at UWM we do NOT have a large, uncommitted cash balance-what the media has called a “surplus” and what is often referred to internally at UWM as a “carry-forward balance.” Rather, we have invested our current cash balances into strategic priorities that we have openly discussed and made transparent to our campus constituents, the public and the State of Wisconsin.

At UWM, our cash balances held centrally as well as in the divisions and schools and colleges are largely committed to a number of important academic initiatives that will enhance student success, support research and expand economic development within the State. Specifically, a large portion of our centrally held cash balances have been invested in financing the costs of research, teaching and other programming that will take place in the new facilities being constructed as part of the Milwaukee Initiative. The Milwaukee Initiative is the $240 million capital construction program approved by the State Legislature within the 2009-2011 state budget. It also includes the investment we have made in the faculty, staff and equipment associated with the new Zilber School of Public Health and School of Freshwater Sciences.

It is important to note that, while the state approved the funding to build and acquire new research facilities and also approved the creation of the two new schools, it was left to our university to commit to financing the hiring of new faculty and funding the actual operations within those buildings. The additional projected five-year funding needs (through fiscal year 2017) for the operation of the Milwaukee Initiative projects alone total more than $72 million in new and continuing university spending over this period.

The major costs within the $72 million in spending for fiscal 2012-2017 include:

• $21.4 million at the Northwest Quadrant (the former Columbia St. Mary’s Hospital campus) for renovations and operations;
• $15.5 million at the Zilber School of Public Health for faculty and staff, equipment acquisition and operating costs;
• $10.5 million at the Kenwood Interdisciplinary Research Complex for equipment and operating costs;
• $8.1 million at School of Freshwater Sciences for faculty and staff, purchase of new lab equipment and operating costs;
• $5.1 million at the Innovation Campus Business Accelerator Building for equipment acquisition, lease payments and operating costs; and
• $3.5 million at the Global Water Center, a partnership with The Water Council, that includes lease payments, equipment acquisition and operating costs.

Once these new or expanded facilities come on line, UWM will use the large majority of its cash balances to better serve our students and expand our academic research to support economic growth in the region and state. The result will be a better-educated workforce and stronger local economy because of the close partnerships UWM has with businesses and nonprofit organizations throughout the region.

In addition to funding the Milwaukee Initiative operations, UWM has made – through its schools, colleges and divisions – other significant commitments that will result in the use of the majority of the remaining cash balances over the next five years. These commitments include:

• Proactive efforts to retain our best and brightest faculty and staff, many of whom are being recruited to universities in other states;
• Enhanced recruitment and retention initiatives focused on enrolling at UWM more students, particularly those from oversees and other states;
• Investments in academic initiatives that strengthen business and industry partnerships and align with the future workforce needs of the state; and
• Additional funding to expand and enhance information technology infrastructure to support student success and research growth.

It is anticipated that, over time, all of these investments will allow UWM to increase research funding and student enrollment. This will, in turn, contribute to funding future operating costs. We have acted with transparency and good judgment in managing our financial situation. Our agenda of educating more students and building our capacity as a major research university is ambitious, and we are making progress in meeting our goals. I am confident that, working together with shared governance, we have a plan that matches a responsible use of cash balances with our strategic investment program to ensure our sound fiscal future.

It is also extremely important to note that cash balances are essential for the fiscal health of an institution. In fact, for an institution of higher education to maintain accreditation, it must certify that its resource base supports current educational programs and its plans for maintaining and strengthening the quality of its programs in the future. If UWM did not have the balances it currently has, in light of its planned initiatives, UWM’s accreditation, and its ability to carry out strategic initiatives, would be jeopardized.

UWM cash balances
Cash balances at UWM as of June 30, 2012, totaled $92 million, representing 13% of the university’s total revenue for fiscal year 2011-12. By comparison, the National Association of College and University Business Officers (NACUBO), a membership organization whose mission is to advance the economic viability and business practices of higher education institutions, recommends a balance level of 40%. Because the NACUBO recommendation also covers private universities, a smaller balance may be appropriate for a public university. Nevertheless, no professional body that we are aware of has recommended a balance level less than 17%.

Based on the commitments UWM has already made to the State of Wisconsin, UWM’s cash balances are anticipated to decline over the next several years, as they are invested in the new projects, including the infrastructure and projects committed as a part of the Milwaukee Initiative. (See the following charts “UWM Projected Program Revenue Cash Balance” and “UWM Projected Program Revenue Cash Balances as Percentage of Total Revenues.”) This strategic leveraging of our cash balance will serve the state by enrolling and graduating more students and expanding economic development initiatives that critically support the vitality of the state.

The Milwaukee Journal Sentinel previously published figures showing UW System and UW-Madison’s “primary reserve ratio.” Although slightly different than the “program revenue appropriations figures” also reported and used by the Wisconsin Legislative Fiscal Bureau, the primary reserve ratio is a metric commonly used by universities to measure fiscal health. It is based on total available assets (cash) divided by total expenditures. UWM’s primary reserve ratio is quite low relative to its peers.

Primary Reserve Ratio, UWM Compared to Peers

*FY 2011, all others are FY 2012

A few closing thoughts
I hope this information helps to explain budgeting practices at our university and the fact that we do not have what others have called a “surplus.” We do have cash balances that have been targeted to support projects vital to the future of our university over the next several years.

As you may recall, a few years ago, the Goldwater Institute, Phoenix, AZ, released a policy report about spending at 198 leading universities in the United States. The report showed UWM spending to be extremely lean and quantified what all of us already knew: UWM faculty and staff are very frugal with the resources with which we are entrusted. I thank all faculty and staff for being excellent stewards of the state’s resources, for continuing to serve the university and for accomplishing great things despite significant fiscal constraints. As I said earlier, I am confident that, working together with shared governance, the University of Wisconsin-Milwaukee has a plan that matches a responsible use of cash balances with our strategic investment program to ensure our sound fiscal future.

Best,
Michael R. Lovell
Chancellor
University of Wisconsin-Milwaukee

P.S. – If you have been asked by friends, colleagues or family members about media reports concerning university budgeting practices, I encourage you to share this information with them to create a clearer picture of practices at the University of Wisconsin-Milwaukee.