Four years ago, when the University of Maine System was cutting programs, officials were criticized for not making up the shortfall by taking money from reserves. Officials said they needed all the $88 million reserve as a contingency for the unexpected.

With Gov. Paul LePage’s biennial budget proposal requesting no new funding for the System this year, the University of Southern Maine plans to cut $5 million, mostly from faculty and staff.

Meanwhile, reserves doubled — to $177 million. Over a 12-year period, as the cost of running the System rose 41 percent, reserves more than tripled.

Experts on university finance, faculty and students say the System — which oversees the seven state universities — would be well served using some of the growth in reserves to offset cuts.

But the response from System officials is the same: All of that money — termed “unrestricted net assets” — is needed for emergencies, capital projects and unexpected expenses.

System Chancellor James Page said the term “doesn’t mean that there’s a giant bank account with $177 million in it … the overwhelming amount of that money is allocated now towards a whole host of functions and services.”

Page acknowledged that government accounting standards would allow trustees to switch part of the reserve fund to other uses.

At the end of each fiscal year, budgeted funds that are not spent accumulate in the reserve fund, which also increases or decreases from investment results. Most of that money came, originally, from taxpayers, through the state’s annual allocation, and from tuition and fees paid by students and their parents.

“One can argue, in certain instances, ‘Are they properly allocated?’” Page said.

They’re not, said Ed Collom, a USM sociology professor and president of the union that represents faculty.

The $5 million USM budget cut “could be easily absorbed by the System reserves,” he said.

“They’re essentially decimating the university,” he said, citing 22 positions to be eliminated or discontinued and 25 courses canceled.

Two scholars in university finance who have reviewed the System’s financial reports agree with that view.

Rudy Fichtenbaum, an author and professor of economics at Wright State University in Dayton, Ohio, said the System is “in very good financial condition and could use some of those reserves to deal with any budget shortfalls.”

Howard Bunsis, a professor of accounting at Eastern Michigan University, said, “The reserves are there for a rainy day. When things aren’t going so well, instead of laying people off, you use the reserves … so you don’t hurt the mission of the university.”

Fichtenbaum said a formula used by Moody’s credit rating service measures university finances on a scale of one to five, five being the top rating. “Maine,” he said, “would be closer to five than four.”

He said there are two reserve accounts the System could dip into in the short term, to reduce cuts to academics: One is the $177 million unrestricted fund; the other is the “expendable restricted assets” of $92 million.

That’s a combined $269 million in what is called “primary reserves.”

One of the key measures of a university’s fiscal health is the ratio of the primary reserves to the annual cost of running a university or university system. In Maine, the ratio is just shy of .4, meaning that if the System were suddenly out of money, the reserves could keep the campuses running for 40 percent of the year, based on its annual operating expenses of $680 million, including interest payments, according to both professors.

The System’s own budget document supports that number.

Bunsis said that level of reserves “certainly puts them at the top of nonprofit organizations … if they dipped into them to preserve their mission, they would still have plenty left” to meet unexpected expenses.

Need ‘haywire’ money

Page counters that, except for $10 million allocated “in case something goes haywire,” the balance of the $177 million unrestricted reserves is earmarked for “ongoing and critical functions.”

Ryan Low, the System’s lobbyist and formerly chief financial officer at the University of Maine at Farmington, said campuses use some share of the reserves to build up a capital fund for new construction projects.

“The reality is, 75 percent of (the reserves) are at the campus,” said Low, who was the state’s chief budget officer under Gov. John Baldacci. “When you’re trying to run a campus and the physical plant, there have not been a lot of state bonds to address campus facilities.”

Page said while the trustees could change how the reserves are allocated, “that would require undoing some things … you would either have to stop or undo capital projects central to campus activities.”

Fichtenbaum disagrees, saying “there is no legal reason why the administration or the board cannot redesignate the use of unrestricted net assets to support the core mission of the institution — teaching and research.”

Echoes of 2009

The debate over the use of the System’s reserves echoes a public disagreement from 2009 — when state support to the System was cut, salaries were frozen and tuition increased.

The reserve fund that year stood at $88 million — double what it had been in 2001.

The apparent discrepancy between a growing reserve and the System’s budget cuts prompted the student senate at the University of Southern Maine to commission a study of System finances.

Bunsis concluded that the $88 million in reserves indicated the System was financially healthy and could use some of the reserves to offset cuts.

But students and faculty lost that fight — the cuts were made.

“I’m reminded of what passed for logic in Vietnam: ‘We had to destroy the village in order to save it,’” said Susan Feiner, a doctor of economics and USM faculty member since 1995 as professor of women and gender studies and economics. “Given the many outside confirmations of the UMaine System’s financial health, there is no rational explanation for the ruthless, ill-timed, destructive gutting of the core academic mission.”

Page disputes that view: “We take any change in academic programs very seriously,” he said, explaining that the budget reviews include “looking at savings in administration.”

“In general,” he said, “we’re going to be reallocating from both sides to make sure we have the best programs for the students and the most affordable.”

THE MAINE CENTER for Public Interest Reporting is a nonpartisan, nonprofit news service in Hallowell.