UW System's reserves fair to middling, system president says

The late Al McGuire parlayed his 1977 national championship as Marquette University's basketball coach into a lucrative speaking and broadcasting career. Asked at one point if he had enough money, McGuire playfully boasted: "I have so much now, I don't even count it. I weigh it."

Nice.

Satisfied smiles were harder to find in April 2013 when it was reported that the University of Wisconsin System, after years of tuition hikes, had accumulated reserves of $648 million.

Incensed state lawmakers, primarily Republicans, suggested the system was so fat with cash, it needed a belt and suspenders to keep its breeches up.

Not so, countered UW System president Kevin Reilly.

Defending his institution to lawmakers April 23, 2013, four days after release of the state report that revealed the $648 million, Reilly asserted that the reserve is in the "mid- to low-range" of what comparable public university systems have.

In other words, it didn't weigh as much as the critics claimed.

Let’s see if he’s right.

The system

The UW System describes itself as one of the largest systems of public higher education in the country, serving more than 181,000 students. It is made up of 13 four-year universities, including the flagship UW-Madison, 13 two-year campuses and the statewide UW Extension.

The system’s total reserve revealed by the state report was $1 billion as of June 30, 2012 (a figure that has since been projected to grow by $150 million by the end of June 2013).

Of the $1 billion, $648 million is unrestricted. That’s the reserve figure that has received the most focus. The state report said the $648 million -- up 13 percent from one year earlier -- represents about one-fourth of the UW System’s unrestricted budget.

In the wake of the lawmakers’ furor over the funds, the Chronicle of Higher Education cited data from Moody’s Investors Service saying the median amount of cash that university systems keep on hand is in that range -- 23 percent of their operation budgets.

But when we asked the UW System for evidence to back Reilly’s claim, spokesman David Giroux provided data from a different calculation, saying it allowed for a better comparison of state university systems.

Reilly’s evidence

That data compared the UW System’s "primary reserve ratio" to the ratios at five state university systems that are among the institutions the UW System considers to be its peers.

The UW System said its 25 percent primary reserve ratio, as of June 30, 2012, equals $1.13 billion in expendable net assets divided by $4.5 billion in total expenses.

That put Wisconsin in the mid- to low range in the UW System’s comparison of primary reserve ratios -- although Giroux acknowledged that the list of five institutions cited by the UW was not an exhaustive comparison, but rather utilized financial reports that were available online.

Here’s how they ranked:

1. Texas: 95 percent

2. Illinois: 34 percent

3. Minnesota: 29 percent

4. Wisconsin: 25 percent

5. California: 21 percent

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6. Georgia: -5 percent

We asked three experts about those figures:

• Eastern Michigan University accounting professor Howard Bunsis, whose specialties include governmental accounting

• Susan Menditto, director of accounting policy at the National Association of College and University Business Officers, which represents business and financial officers of more than 2,500 colleges, universities and university systems

• Certified public accountant Larry Goldstein, president of Campus Strategies LLC, a Virginia management consulting firm that serves higher education agencies and institutions, including the University of Wisconsin-Milwaukee

Some of the experts calculated different primary reserve ratios for some of the institutions; Bunsis, for example, calculated Georgia’s ratio to be 18 percent, not -5 percent.

Nevertheless, the experts’ 1-to-6 rankings were the same as the rankings put out by the UW System.  

That would appear to back Reilly’s claim that the UW System is in the middle to low range among its peers in terms of cash reserves.

But let’s take a closer look at the measure the UW System used. And let’s do a broader comparison.

Primary reserve ratio

All three experts agreed the primary reserve ratio is an important and commonly used ratio for determining a university system’s financial strength.

They said Wisconsin’s ratio of 25 percent indicates that, if the UW System’s income were cut off, it would have enough reserves or "expendable assets" to meet its expenses for three months -- three months being 25 percent of one year.

(What is an appropriate level of cash reserves, of course, is in the eye of the beholder and doesn’t relate to the Reilly claim we’re fact checking. But we’ll note that Bunsis said a primary reserve ratio of 15 to 20 percent is considered prudent, 40 percent "very solid" and anything over 50 percent high. Menditto cited a consultant’s report that said 40 percent is advisable.)

"Peer institutions"

The question of which university systems the UW System should be compared to is trickier.

Unfortunately, the experts told us, there is no large compilation of university systems’ primary reserve ratios. And there are other issues: the experts didn’t necessarily agree that the Illinois, Minnesota, California and Texas state systems, because of their makeup, were truly peers of Wisconsin; and some systems that could be comparable, such as Ohio and North Carolina, produce consolidated financial statements at the campus level, but not the system level.

We were able, however, to find primary reserve ratios for three other state systems that can be compared to Wisconsin’s.

Goldstein, the Virginia consultant, said Maryland, though a smaller state university system, is a peer of Wisconsin; and indeed the UW System considers it a peer, Giroux told us. Goldstein said Maryland’s primary reserve ratio is 37 percent.

The UW System also has long considered the State University of New York system as being a peer and Goldstein agreed. Goldstein told us that, like Georgia, SUNY has a negative primary reserve ratio -16 percent.

And while the UW System doesn’t consider the Nebraska state system as among its peers, Nebraska system considers Wisconsin as one of its peers. Goldstein said Nebraska’s primary reserve ratio is 67 percent.

So, here’s how that list looks:

1. Nebraska: 67 percent

2. Maryland: 37 percent

3. Wisconsin: 25 percent

4. SUNY: -16 percent

Our rating

Reilly said UW System's reserves are in the "mid- to low-range" of comparable university systems, as though that fact has been clearly established.

Using a key measure, Wisconsin’s level of reserves is below that of some of its peers. But there is debate about whether some of the state systems the UW System considers to be peers are in fact peers. And figures simply aren’t available for other peer systems.

With the evidence available, we find Reilly’s statement partially accurate but missing important details -- our definition of Half True.