Leaders at the University of Arkansas at Fayetteville are using a mix of one-time transfers, including some loans from within campus, to shore up a $3.1 million deficit in its Division of Advancement for the past fiscal year that ended June 30, restore cash flow and to redevelop the budget for the current fiscal year so a deficit is not repeated.
On Dec. 3, Chancellor G. David Gearhart posted a Web message to the campus community saying he had reassigned his chief fundraiser, Vice Chancellor for Advancement Brad Choate, as well as Choate’s budget officer, and that their letters of appointment for their respective jobs would not be renewedon June 30.
His announcement came about five months after Choate learned his $10 million budget had been overspent by 30 percent, after which university financial employees began an inquiry trying to reconstruct how the overspending occurred.
University officials discovered the overspending that led to the deficit in July, UA spokesman John Diamond said. By late October, university officials had closed the books on fiscal year 2012, which ended June 30, “primarily by using that $3.1 million in reserves,” he said.
Five months into the current year, the fiscal 2013 budget is still being finalized.
“The most important priority for the universityand the Advancement Division right now has been to establish the budget for the remainder of the current fiscal year,” said the university’s chief spokesman, John Diamond.
“And while this work is being done ... the Division is not taking on any new commitments of expenditures or personnel, to give the Division the most flexibility,” he said.
That means there is a hiring freeze for the Advancement Division and its six units: Development, University Relations, Alumni Association, Special Events, Constituent Relations and the Arkansas World Trade Center.
In addition, Diamond said, “Vacancies are not being filledunless they have the approval of the chancellor and information on how they are going to be supported financially.” As of this week, no staffing cuts have been made within the Advancement Division or its six units.
The key to determining spending levels will be developing new revenue.
“When all is said and done, the Advancement Division will be supported by three main revenue sources instead of two,” Diamond said.
The third and new source will be a cost-recovery fee that other universities around the country assess. It would be “a small percentage of the cash gifts that come into the university moving forward,” Diamond said, adding thatthe percentage and the types of cash gifts the assessment would apply to are still being considered.
“The purpose of that is to reinvest those funds back into the activities that support additional fundraising,” he said.
In a statement Choate released last week to the Arkansas Democrat-Gazette, he said under his leadership, the Advancement Division had “enjoyed back-to-back $100 million philanthropic years, and we are on track to extend that record this year.”
Currently, the Advancement Division’s $10 million annual budget comes primarily from about $5 million public monies - state appropriations and student’s tuition and fees - and about $4.5 million in private funds from the University of Arkansas Foundation, a University of Arkansas System entity that holds endowment accounts for theFayetteville campus and other participating universities and colleges it oversees.
“We expect to have the new FY13 budget established sometime in the middle of January,” Diamond said Thursday.
UNIVERSITY’S STEPS
The university has commenced a series of steps to shore up the $3.1 million fiscal 2012 deficit and what was expected to be a $4.5 million-$5 million deficit for the currentfiscal year without a budget overhaul.
They have arranged two significant transfers within the university so far and two more are planned, Diamond said.
Sometime in early July, one transfer occurred in which $3.1 million in university-wide reserve funds were tapped to shore up the fiscal 2012 budget.
“The $3.1 million was a one-time transfer of funds from the university’s reserves, a sort of savings account maintained by all large organizations to cover unexpected needs,” Diamond said, adding that reserves are set aside before budget allocations are made to various units across campus.
“Chancellor Gearhart believes it should be paid back,” Diamond said, adding that Gearhart wants the Advancement Division to figure out how to reimburse the reserves, and that the mechanism and timing of the repayment are still being worked out.
“Normally it would not have to be paid back,” he said of the reserve funds, which usually cover contingencies, such as unanticipated spikes in energy costs or storm damage to a campus building.
It is unusual to use reserves to remedy a significant budget deficit, Diamond said: “This isn’t the largest use of reserve funds for a purpose, but in the past it has been for, as an example, an unanticipated capital improvement, as opposed to balancing the budget of a division.”
OTHER TRANSFERS
A second transfer also occurred in the summer, a shortterm loan of $555,000 from the College of Engineering.
On Aug. 7, the college’s interim dean, Terry Martin, signed an “intra-foundation” transfer within the UA Foundation so the Advancement Division would have needed cash flow for the first quarter of the current fiscal year.
“The reason it needed that cash flow was it had already been given its share of foundation funds and had already spent it,” Diamond said. The loan was repaid to the Engineering College in early October.
Two other transfers - $1 million apiece - are planned for January 2013 as part of finalizing the current fiscal year’s budget.
One will come from reserves held solely within the Division of Finance and Administration, whose vice chancellor, Don Pederson, oversees the university-wide budget. The other will come from the office of Provost Sharon Gaber, the university’s chief academic officer, who had surplus funds on account of unanticipated enrollment growth that will be used for Advancement Division’s marketing efforts.
Diamond said of the provost’s transfer: “My understanding is it is a one-time commitment and is not a loan, but that all of those details are tentative at this point.”
“But that was an initial proposal,” he said. “And that’s recognizing that the work ofthe Advancement Division supports the work of the colleges and schools through generating donations, scholarship and faculty endowments, and other things that are essential to the academic mission of the university.”
He said he believed Pederson’s division’s was a “onetime transfer, and is not a loan, but again, like with Dr. Gaber’s, the final plan could change once it is put together.”
According to e-mails released to the Democrat-Gazette as part of an Arkansas Freedom of Information Act request, transferring the funds wasn’t always an easy solution for offices on campus.
In a Nov. 10 e-mail from Gaber, one day after the deans she oversees were informed of the budget situation, she wrote Gearhart and carboncopied Pederson after an office within the Advancement Division provided information on plans for marketing and website changes.
In it, she referred to Advancement Division’s requests and reminded the chancellor and Pederson that her current surplus funds weren’t something the university could always expect.
“I think the three of us should discuss,” she wrote. “I agree that websites could use help but not sure that they are our highest priorities.
“Also, the NPR ads are every expensive ... I know he has sought resources from various units for those but I cannot afford to participate in that indefinitely.”
Northwest Arkansas, Pages 9 on 12/14/2012