A student is budgeting for the next school year. They plan on having $1000 once the semester started, with their parents contributing money as needed to that fund. When the parents balanced their checkbook, they realized that they didn’t have as much money to give, and instead they had the student reduce their spending plan to $900.
The same thing is happening to the money invested by the University of Alaska.
A memo from statewide was sent to all the campuses last November, asking them to reserve eight percent of their unexpended fund balances, or carry forward, for the 2008-09 fiscal year according to Kate Ripley, director of public affairs for the UA system. The money, which consists of unspent general funds, is invested in the stock market. Last year’s investments did not return as expected. They have shrunk as a result of the worldwide financial market crash.
In essence, the campuses have eight percent less reserve spending than before.
“We’re really at a point now where the international financial crisis is affecting the University of Alaska,” Ripley said.
In total, the three main campuses, UAA, UAF and UAS, will end up not being able to spend about $4 million. UAA’s loss is $1.5 million according to Joan Harings, UAA director of budget.
Things were looking a lot different in July 2008, the beginning of the current fiscal year, than what they did this fall Ripley said. The November memo asked the campuses to reserve eight percent due to anticipated losses on the stock market and that adjustments might have to be made.
Ripley said that they had hoped the market losses would improve, but they have only become worse.
Harings, who has worked at UAA for over 20 years, said it had been the first time that statewide has made a request like this.
The statewide office has investment managers who do all the investing for the University system. In a typical year, a portion of the earnings are returned to the campuses for expenditure. Ripley said that investments are conservative to minimize losses.
This has not been a typical year. The UA investments have been losing money, just like most other investments have, including the Permanent Fund Dividend and 401 K plans.
The eight percent figure was chosen because statewide believed it was a responsible figure based on what they thought they would lose. While Ripley said the investments losses go deeper than the eight percent, the UA system has lost less than other universities.
“It’s something that were really going to have to sort through in the months ahead,” Ripley said. “We really try to insulate the campuses from this kind of thing happening.”
The money is not actual cash that the University has on hand, but instead, a budget authority that the university and departments have for spending.
Stuart Roberts, UAF’s associate vice chancellor of financial services, said that having the unexpended funds available is a good thing, since it allows the campuses to make purchases in a more effective manner by being able to hold the money over and plan to use it next year. With the investments not returning, however it’s money that’s no longer available.
“It’s just gone. The money didn’t go anywhere; it just doesn’t exist. It was part of the invested funds that simply evaporated,” Roberts said. “It wasn’t distributed as cash, it wasn’t pulled back as cash, it was just part of the invested funds that simply evaporated because of the investment climate.”
Roberts said the sad part of the situation is that it hurts the university’s overall mission.
“If it had been the other way, if the investments were OK, they would have said, go ahead and spend that,” Roberts said.