Follow the Money
Last week we looked at “Document #1:
OOC+BOG - Budget Request Summary - FY 1993 to FY 2013,” and saw that PASSHE
changed its reporting format¹ for annual revenues and expenses associated with OOC+BOG—which
is the combination of the PASSHE Office of the Chancellor and Board of
Governors.
The OOC+BOG central office oversees the fourteen PASSHE universities
which include Bloomsburg, California, Cheyney,
Clarion, East Stroudsburg, Edinboro, Indiana, Kutztown, Lock Haven, Mansfield,
Millersville, Shippensburg, Slippery Rock and West Chester Universities.
As Document #1 reveals, the sudden change in reporting format had the effect of hiding whether annual revenue exceeded, or fell short of, annual expenses for 12 out of 21 years. And the accounting ploy used to hide that information involved adding “other revenues” and/or “other expenses” to the reports to make sure that the “total revenues” and “total expenses” figures would be exactly equal to each other.
Recall that PASSHE’s initial concept of “fund balance” (a.k.a., “unrestricted net assets” or “net position”) was that these funds would be generated from annual budgets in which surpluses in any year would be added to the fund balance, and deficits in any year would be taken from the fund balance.
Document
#2: OOC+BOG Fund Balances - FY1993 to FY 2013
Document #2 is a spreadsheet² that I prepared in which the data entries are taken from official PASSHE responses to Right to Know (RTK) requests emailed to me on September 22, 2013 and August 25, 2014.
PASSHE’s Total Fund Balance
Transactions
Column 1 in Document #2 lists the twenty-one fiscal years between 1993 and 2013.
Column 2 lists PASSHE’s total fund balance for those years and includes the fund balances of the fourteen PASSHE universities together with the fund balance of OOC+BOG, PASSHE’s central office in Harrisburg.
PASSHE’s total fund balances grew by 242% from $174,497,737 in 1993 to $597,598,844 in 2013, with an average of $302,834,368 over those twenty-one years. That annual rate of growth is 6.35%/year.
Column 3 (Plus/Minus) lists the annual changes in PASSHE’s total fund balance and ranges from $20,759,571 in 1994 to $13,155,055 in 2013, with an average annual change of $21,155,055.
But PASSHE’s total fund balance history shows great volatility and includes enormous annual increases as well as an occasional equally large annual decrease. For example PASSHE’s total fund balance showed the following annual increases larger than $40 million: $44 million in 2001; $50 million in 2002; $41 million in 2005; $90 million in 2011; and $73 million in 2012.
In 1995, PASSHE’s total fund balance saw a one-year decline of $88,537,416! As one of the fourteen PASSHE presidents between 1992 and 2012, I recall that the presidents whose universities were sitting on the largest fund balances were pressured that year to spend down some of their fund balances.
OOC+BOG’s Fund Balance Transactions
Column 4 lists the fund balances for OOC+BOG. Note: The OOC+BOG Fund balance grew by 910% from $3,307,514 in 1993 to $33,412,369 in 2013 with an average of $26,383,249 over the twenty-one years.
That rate of increase corresponds to compound annual growth of 12.26%
per year!
Column 5 (Plus/Minus) lists the annual changes in the OOC+BOG fund balance and ranges from a positive $148,815 in 1994 to a negative $3,709,568 in 2013, with an average annual change of $1,505,243.
Column 6 lists the annual revenue to OOC+BOG which is limited to one-half of one percent of PASSHE’s total annual revenue (as defined by Act 188).
Column 7 lists PASSHE’s total revenue as defined by Act 188.
And Column 8 lists the annual Operating Margins for OOC+BOG.
Follow the Leader
For anyone who may have been shocked to learn that PASSHE’s total fund balance grew by 242% (from $174 million to $597 million) between 1993 and 2013, it is important to note that the fourteen universities were apparently trying to follow the leader but were actually falling well behind OOC+BOG.
While PASSHE’s total fund balance was growing at 6.35% per year over twenty years, and was equal to 38% of annual revenue by 2013, the OOC+BOG fund balance was growing at 12.26% per year over twenty years and by 2013 had reached 363% of its annual revenue ($33,412,369/$9,197,567).
From Shocking to Inexplicable
While PASSHE’s total fund balance story may be seen as shocking, OOC+BOG’s fund balance story goes beyond shocking to inexplicable—for the following reasons:
1. Fund balances are ostensibly generated by occasional annual budget surpluses that are offset by occasional annual budget deficits;
2.
In a world of 2% to 4% operating margins, it
would take 25 years of consecutive 4% operating margins, and 50 years of consecutive
2% operating margins to get a fund balance equal to one year of revenue.
3.
Between 1993 and 2013, PASSHE’s total fund
balance grew to 38% of its annual revenue by recording average annual operating
margins of about 1.7% of revenue.
4.
But at the same time, the fund balance of
OOC+BOG grew to 363% of annual revenue by recording average annual operating
margins of 29.3% of revenue!
5.
As inexplicable as an average annual operating
margin of 29.3% over twenty years might seem, there are specific years that are
even more inexplicable. For example, by
comparing Columns 5 and 6, we find four fiscal years (1998, 2003, 2004 &
2005) in which the amount of money OOC+BOG put into its fund balance exceeded 100%
of its total revenue for those same years!
And in those four fiscal years, the average annual revenue ranged from
$5.0 million to $8.3 million, but the amounts transferred into OOC+BOG’s fund
balance were $5.4 million, $27.7 million, $10.8 million, $10.9 million!
6.
Where did all that money come from?
7.
And then in 2006, OOC+BOG transferred
$35,154,154 out of its fund balance!
8.
Where did all that money go?
To be continued.
² https://www.keepandshare.com/doc/7770603/passhe-ooc-bog-annual-additions-and-subtractions-from-fund-balance-fy1993-to-fy2013-january.
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