OU housing to subsidize investment losses, athletics

Ohio University plans to shift $2.6 million raised from increased room-and-board fees to the university's fund balance to help make up for $21 million lost mainly through under-performing investments and athletics spending over the last decade, according to one of the university's top financial officials.

The university's fund balance is the account where carry-over money from grants is placed, and officials say the fund balance should be at about $65 million university-wide.

Right now, because of about $7.5 million worth of deficit spending by Intercollegiate Athletics (ICA) and an $11 million loss in an investment made at the beginning of the decade, that fund balance only stood at $49 million as of June 30, confirmed Rebecca Vazquez-Skillings, assistant vice president for budget planning and analysis.

That means if every department at the university were to cash in on their overage grant money, the university would be in big financial trouble. This variance between what should be in the fund balance and what actually is in the account is called the university's structural deficit.

"This is not necessarily something that would happen," Vazquez-Skillings said about departments cashing in on their surplus grant money. "This is about managing risk, and it's not necessarily a position you want to be in... The fund balance provides a university's flexibility with the budget, and the position we are in reduces our flexibility."

In 2001, the university's financial officials decided to remove about $11 million from the fund balance and place it in a quasi-endowment where it was invested, Vazquez-Skillings explained. At that point in 2001, the markets took a turn for the worst, and the university actually lost $12 million.

The second part of the structural deficit comes from athletics spending. Over the last few years, ICA has accumulated a $6.6 million deficit and plans to overspend its $18.7 million budget by $947,000 again this year, Vazquez-Skillings said.

The university also saw at least a $1 million deficit from spending on the OU Airport, but Vazquez-Skillings said she does not expect further debt to accrue from the airport.

Part of the university's plan in addressing this $21 million structural deficit relies on shifting $1.3 million from housing and $1.3 million from dining services over the next five years.

"The president made the decision based on a recommendation from Mr. (Bill) Decatur (vice president for finance and administration)," said Rebecca Watts, McDavis' chief of staff, of the decision to use housing and dining money to help fill the deficit. "The structural deficit is the result of a number of factors dating back a number of years, and it will require a multi-faceted approach to resolve it over a period of time."

To solve the problem of the university's structural deficit, the university must look at all funds available in the most responsible way, Watts said.

"Housing and dining revenues, like all auxiliary operations, may be used to support other university needs," Watts said. "Given the need to resolve the structural deficit, the president made the decision to, in part, address the issue with these auxiliary revenues."

The university has been raising housing and dining services fees over the last few years as part of a plan to renovate OU's aging dormitories. In April 2009, the university's Board of Trustees approved an increase of 7 percent in room rates and 3 percent in dining fees.

"This is not a position any institution or any organization wants to be in," Vazquez-Skillings acknowledged. "Nobody likes to spend revenue in a way that was not its intended purpose."

Last year, housing and dining services brought in $72.4 million in revenues and spent only $56.6 million. The extra money from housing and dining services would have gone to room and board operations and capital plans, Vazquez-Skillings said.

"At this point, there's really been no change in the plan (to renovate dorms) as a result of the $2.6 million target (money shifted from dining and housing to make up for the bad investment and ICA deficit)," Vazquez-Skillings said. "The size and scope of the renovations needed far exceeds $260,000 a year (for five years)."

Vazquez-Skillings did admit, though, that there's no minimizing the $2.6 million contribution housing and dining services will make to the structural deficit.

The university is also asking all planning units (departments, colleges, etc.) to freeze $21 million worth of carry-over balances. This will alleviate the risk to the university that everyone will cash in on all of their carry-over funds, Vazquez-Skillings said. Each planning unit also must come up with saving targets over the next five years to help resolve the deficit.

Administrators also did not budget any investment incomes for the current fiscal year, so any income gained should go toward the structural deficit, Vazquez-Skillings said. In fiscal year 2009, the university budgeted for $5.1 million in investment income but actually lost $4.9 million.

Clearing up the university's structural deficit will allow the university more flexibility, Vazquez-Skillings said.

"I'm hopeful that it will help us to move forward," she said. "It's not good to have any planning unit with a consistent deficit."