Two Questions in Search of Answers
We concluded last week’s blog post with two tantalizing questions:
1. Where did all that money come from? And,
2. Where did all that money go?
Both questions arise from looking at official PASSHE data on the fund balances (a.k.a., “unrestricted net assets,” or “net positions”) of the fourteen PASSHE universities together with the PASSHE central office in Harrisburg—designated in Act 188 of 1982 as the “Office of the Chancellor plus the PASSHE Board of Governors (OOC+BOG).” The official PASSHE data in question was presented in Documents #1¹ and #2.²
The fourteen PASSHE universities include Bloomsburg, California, Cheyney, Clarion, East Stroudsburg, Edinboro, Indiana, Kutztown, Lock Haven, Mansfield, Millersville, Shippensburg, Slippery Rock and West Chester Universities.
Document
#3: Highlighted OOC+BOG Fund Balances - FY 1993 to FY 2013
Document #3³ is a highlighted version of Document #2 and focuses attention on the following five fiscal years of official PASSHE data: 1998 and 2003 through 2006.
As shown in Document #3, those five years stand out
from the other 16 years of data because the “operating margins” of the OOC+BOG for
those years are larger than 100% of total annual revenue!
Recall that the term “operating margin” refers to the percentage of total annual revenue which is not spent in a given fiscal year because total expenses for that year came in lower than total revenue, thereby creating a one-time dollar surplus that can then be deposited to build the institution’s “fund balance.”
Operating margins in the real world tend to be quite small and typically range between 2% and 4% of annual revenue. As seen in Document #3, for example, the 21-year average operating margin for the entity known as PASSHE—defined as the fourteen PASSHE universities plus OOC+BOG—is 1.7%.
However, the average operating margin for OOC+BOG itself over those 21 years is 29.3%, which raises questions about how PASSHE’s central office in Harrisburg has been operating, financially speaking.
Document #3 shows that, in addition to the OOC+BOG having a 21-year average operating margin of 29.3%, there were 5 fiscal years where OOC+BOG recorded operating margins greater than 100%!
Question:
Are Operating Margins Greater than 100% Really Possible?
· Answer #1: No, not if deposits to fund balance come only from surpluses of annual revenues over annual expenditures—the premise on which PASSHE fund balances are supposedly based.
·
Answer#2:
Yes, but only if deposits to fund balance come from sources other than
surpluses of annual revenues over annual expenditures, that then get transferred
directly into OOC+BOG’s fund balance.
OOC+BOG
Data for FY 1998
According to Document #1:
·
The maximum
revenue to OOC+BOG for that year (from the ½ of one percent limit imposed by
Act 188) was $4,992,449.
·
Its
“Total Expenditures and Transfers” for that year were $4,548,637, which yields a
difference between Revenues and Expenditures of $443,812, corresponding to an
operating margin of 8.9%.
·
OOC+BOG
had 56.25 FTE (full-time equivalent) employees on its payroll that year, and
its total personnel costs were $3,997,229, accounting for 88% of its expenses,
with the other 12% of total expenses covering “Services, Supplies and
Capital/Transfers.”
·
An operating
margin of 8.9% means that 91.1% (100%-8.9%) of the annual revenue was
spent. But,
According to Document #3:
·
OOC+BOG
added $5,423,054 dollars to its fund balance in 1998, which is $430,605 more
than its total annual revenue ($4,992,449) in 1998, thus producing its 108.6%
operating margin for that year.
Document #1 says that the operating margin for OOC+BOG in 1998 was 8.9%; Document #3 says it was 108.6%.
Since they can’t both be right, we need to dig a
little deeper to discover which one—if either—is correct.
OOC+BOG
Data for FY 2003 - FY 2006
According to Document #3, three deposits totaling $49,470,781 entered the OOC+BOG fund balance: $27,748,674 in 2003; $10,798,364 in 2004; and $10,923,743 in 2005. OOC+BOG’s total revenue for those three years was only $19,611,246.
Where did that nearly $50 million in deposits come from?
There is no way that some $20 million in revenues could have generated nearly $50 million in deposits to OOC+BOG’s fund balance—while also paying for huge personnel and other mandatory expenses.
That $50 million in deposits had to have come from another account which OOC+BOG also controlled!
But recall that, according to Act 188, the annual revenues to OOC+BOG are limited to ½ of one percent of total PASSHE revenue—a provision that would prohibit OOC+BOG from receiving any additional revenue.
Note that the “other shoe” drops in 2006 as the OOC+BOG fund balance suddenly declines by $35,154,154 as those funds are either spent and/or been transferred to some other OOC+BOG controlled account.
"If
it exists, it's possible."
John P.
Grier
Earlier we posed the following question: “Are Operating Margins Greater than 100% Really Possible?”
They are not only possible, they already exist in
PASSHE’s OOC+BOG, as evidenced by PASSHE’s official data in Document #3 for
fiscal years 1998 and 2003 to 2006.
But operating margins greater than 100% can only exist if revenue accounts aside from OOC+BOG’s fund balance account are available to provide large deposits to fund balance, as seen in FY1998 & FY2003-FY2005.
From FY2006 data, we see the other side of the coin in which large withdrawals are taken from the OOC+BOG fund balance, which could only mean one thing: OOC+BOG spent some or all of the $35 million in question and transferred all or some of the $35 million to a different account they also controlled.
To be continued.
² https://www.keepandshare.com/doc/7770603/passhe-ooc-bog-annual-additions-and-subtractions-from-fund-balance-fy1993-to-fy2013-january.
³ https://www.keepandshare.com/doc/7781132/passhe-ooc-bog-highlighted-annual-additions-and-subtractions-from-fund-balance-fy1993-to-fy201.
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