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Analyses of university reserves and cash management issues

The Legislative Analyst’s Office has just published the following posts:

An Analysis of University Reserves

The pandemic, remote operations, economic downturn, and funding reductions have created fiscal challenges for the California State University (CSU) and the University of California (UC). To help address these challenges, the state directed CSU and UC to begin drawing down their core reserves for academic programs, The universities also are drawing down their noncore reserves for self-supporting programs (such as housing), which have been especially affected by the shift to remote operations. In this post, we describe CSU’s and UC’s reserve policies and examine their reserve levels heading into the pandemic. Importantly, though the state indirectly relied upon university reserves this year to help mitigate the impact of funding reductions, state law is silent on the level of reserves CSU and UC are to carry, the purposes of those reserves, and the interaction of those reserves with the state’s reserves. We end this post by encouraging the Legislature to set clearer expectations regarding university reserves for future economic uncertainties.

An Analysis of University Cash Management Issues

Unlike the state, CSU and UC historically have not experienced cash challenges related to the timing of their funding and expenditures. Recent events, however, have created cash challenges for them. In this post, we compare cash flow of the state and the universities, examine how the state and universities invest their cash, recap how the universities helped the state address its cash challenges during the Great Recession, and discuss the new cash challenges facing CSU and UC. In response to the new challenges, the universities have implemented or are considering internal borrowing and transfers, shifting more money into their short-term investment accounts, and issuing bonds to help them cover operating costs. We end this post by discussing the tradeoffs and risks of these actions. Given these developments, monitoring the universities’ fiscal condition over the coming years will be especially important for the Legislature.

For other education-related budget and policy analyses, please visit our website: https://lao.ca.gov/Policy-Areas?areaId=4&category=4

This article was released by the Legislative Analyst’s Office.