Western’s Board of Governors has affirmed unanimous support of the university’s annual operating reserve being maintained at a minimum of $2.5 million.
Following a highly debated university budget, a suggestion the university go below its $2.5-million reserve and run a deficit was put forward several times at a pair of town hall meetings.
But Western President Paul Davenport said he stands firm that the current policy represents a sound business practice.
“My strong support for this continues. I believe in it,” he says, adding the operating reserve policy should be understood as important to the university’s future financial stability, given the significant liabilities and obligations which the institution carries.
“It allows for a lot of flexibility for administration, but there is, and has to be, a bottom line and we need to be continually focused on this, which requires discipline on behalf of the board.
In 1984, the board approved that the budget model should include a provision for maintaining the year-end unappropriated operating reserve at a level of between one and two per cent of operating revenues.
The purpose of the reserve was two-fold: to cushion the impact on the institution of unforeseen downturns in revenue or unforeseen expenses, and to allow the university to develop financial plans that extend over a number of fiscal years without being restricted by a requirement that revenues must balance expenses in each year of the plan.
By 1999, the figure resulting from the one-per-cent minimum reserve level had reached $2.5 million and, since then, annual budgets brought to the board for approval have included $2.5 million as the operating reserve figure rather than a figure that fluctuates annually.
Although the Board has approved this figure each year by virtue of approving the budget, it has not passed a resolution formally establishing the annual operating reserve as a set $2.5 million rather than a figure based on a percentage of revenues. The board passed this resolution.
Had the board continued with the one-per-cent minimum reserve level, the required set aside in the 2009-10 budget would be about $5.25 million.
Overall, the university is projecting operating revenues of $526.4 million in 2009-10 and expenditures of $539.7 million, leaving the university with an in-year deficit of $13.3 million.
With a 2010-11 projected deficit of $12.4 million, shortfalls will be made up from the operating reserve, which will be reduced to the board-mandated $2.5 million at the end of the four-year planning period.
Board of Governors chair Michele Noble says for the 2011-12 budget process, the board may way to revisit the policy as to what the minimum reserve might need to be.