University’s emergency finance fund halved

Regents convene to discuss financial concerns.

When the once-powerful financial giant Washington Mutual crumbled under the weight of the economic crisis, it took a little bit of the University of Minnesota with it. ThatâÄôs because the University had nearly $10 million invested in the bank âÄî money that was lost when WAMU went bankrupt, Chief Finance Officer Richard Pfutzenreuter said. The University accounted for the loss by dipping into its central reserves, an emergency fund not allocated to any specific area of the University, but held in a central account and used under extreme circumstances. âÄúGiven the economic uncertainty that weâÄôre in and the situation that the state is in, itâÄôs not a very big cushion,âÄù Steven Hunter, chair of the Board of RegentsâÄô Finance and Operations committee, said. Board of Regents policy requires that the central reserves remain at 4 percent of state allocations or $25 million âÄî whichever is greater âÄî and cannot be used unless the expenditure meets a set of specific criteria. The current economic situation, however, has forced University leaders to tap into the reserve, bringing its revenue down to 1.9 percent, or about $14 million, less than half of the required amount. While a $10 million loss might not sound like a lot to a University with billions of dollars in investments, the reserves are unique to other University funds in that they can be tapped during an economic catastrophe without affecting specific programs, scholarships or tuition. Although the University was not forced to dip into the reserve when Gov. Tim Pawlenty dealt it his $20 million âÄòunallotmentâÄô in January, it will probably need to after the next budget forecast, Hunter said. âÄúThose reserves are very critical,âÄù he said. âÄúThat theyâÄôre dwindling is a concern.âÄù Board of Regents vice chair Clyde Allen said that while the University has fared well with lower than desired central reserves in the past, he thinks it will be more noticeable given the current economic situation. Each fiscal year, the central reserves are accounted for in the administrationâÄôs budget. If allocating the required amount of money to the reserves means cutting other areas, the reserves get put on the back-burner. For this reason, regents expect it to take a couple years to restore the reserves to 4 percent. Nonetheless, both Allen and Hunter agree that the reserves should be larger than 4 percent âÄî Allen even suggested doubling it âÄî after accomplishing the short-term goal of bringing it back to normal. On Friday, the Board of Regents will hold a seminar presented by Provost Tom Sullivan and Vice Provost Bob McMaster to explain the measures students take in order to finance their college educations. Afterward, the full board will meet to discuss, among other things, debt management, the central reserves budget and the status of the Enterprise Financial System implementation.