APSCUF-funded study alledges 14 state universities hide debt, mismanage budgets; PASSHE says not true

A faculty union-funded study claims 14 state-owned universities have mismanaged their budgets by hiding debt. The PASSHE Chancellor responded that this statement could not be further from the truth.

'In fact, our budget process is thorough, transparent and professional. We believe the findings in the report demonstrate a clear misunderstanding of our procedures by Boyer & Ritter,' said PASSHE Chancellor Frank T. Brogan in a statement.

Although the report was not shared directly with PASSHE, Brogan said they did have the opportunity to review the report he said has obvious errors.

'I wanted to correct the record, not only on the report's content, but also on the unsubstantiated statements and mischaracterizations contained in the news release issued by APSCUF leadership in relation to the report,' said Brogan.

The Association of Pennsylvania State College and University Faculties (APSCUF) released a report Dec. 3 that the Pennsylvania State System of Higher Education (PASSHE)alledgedly has been allowing the 14 state-owned universities 'to mismanage their budgets by hiding debt in affiliated corporations, funding new construction based on questionable assumptions, and misleading the public about their financial difficulties,' according to an APSCUF release.

'We are extremely troubled by the findings. The universities and the State System are mismanaging public dollars,' said APSCUF PresidentDr. Steve Hicks in the release. 'Every university is using a scheme to transfer debt to 'component units,' including the university foundations and student housing associations. Money that the public believes is dedicated to academics is instead going to these affiliates to pay for buildings.'

APSCUF commissioned Boyer & Ritter, a Harrisburg-area accounting firm, to study the finances of the seven universities that claimed they needed to lay off faculty to balance their budgets: Cheyney, Clarion, East Stroudsburg, Edinboro, Kutztown, Mansfield, and Slippery Rock, according to the release.

'In every case, the accounting firm discovered that the university created affiliated entities or used foundations to take on debt for new construction,' according to the APSCUF release.The APSCUF President alledges that 'Tuition, fees, and state support monies are regularly being transferred to these entities, both directly and indirectly.'

'The universities and the State System must be good stewards of the public dollar. Instead, their poor budgetary decisions are forcing students to double pay because universities are using both their tuition dollars and their fees to pay off debt on buildings. Our students, their families, and the public deserve to know how their money is actually being spent,'Hicks stated in the release.

Brogan responded to the allegation of PASSHE 'hiding debt in affiliated corporations.'

'There is no data nor narrative in the report to support this claim,' said Brogan. 'The information APSCUF claims is being hidden is, in fact, included in the report, which is based on financial records provided by PASSHE. The information, which is related to the financing of the construction of student housing, is included in each of the university's annual financial statements and is routinely shared with all of the credit-rating agencies that regularly review PASSHE finances. This information has always been publicly available.'

Only 3 percent of the PASSHE academic operating budget goes toward debt service while 72 percent goes toward salaries and benefits, said Brogan.

'Although APSCUF leadership has participated in briefings in which it has been clearly explained that the construction, operation and maintenance of student residence halls are funded by student housing fees, APSCUF continues to incorrectly state that these facilities are supported by university operating funds and that this affects the academic budgets of the universities,' said Brogan. 'That simply is not true. Tuition dollars and PASSHE's annual state appropriation are not used to fund student housing, nor any other auxiliary operation.'

Hicks said that in terms of faculty layoffs, 'Boyer & Ritter make it clear that the university budgets are just that – plural – and, therefore, it is hard to give credence to their budgetary claims. There are pages full of charts showing the wide divergence between the universities' budgets and their actual collections and expenditures.'

Brogan said, 'It is hard to believe that the APSCUF-funded report fails to include the impact of either the salary or benefit increases incurred by the System primarily as the result of new collective bargaining agreements finalized within the last year. Also not considered were the higher costs of pensions. These increases are only partially offset by the 3 percent tuition increase the Board of Governors approved for the current academic year, requiring the universities to manage an overall deficit of more than $50 million.'

The APSCUF release notes that the independent analysis also concluded there is a lack of oversight in State System budgeting practices.

From the APSCUF release, the report states: 'there appears to be minimal accountability for budgeting at the University level with the PASSHE Board of Governors' and 'a demonstrable lack of quality budgeting: 'in common practice once an oversight board…approves a budget, changes are not made without further oversight approval. Throughout…we noted various budget versions being utilized by each University.'

'There are no common statewide budgeting practices among the universities,' said Hicks.

'Our universities continue to be in dire need of additional state funds, and it is clear that cuts to the system have led to some very bad decisions at universities,' Hicks commented. 'We are concerned that PASSHE, the State System Board of Governors, and the individual universities' Councils of Trustees have not exercised the fiduciary responsibility to oversee how the universities spend money.'

Brogan counters these allegations.

'It cannot be overemphasized how seriously PASSHE leadership-which includes the Chancellor, Board of Governors, university presidents and the members of the individual university councils of trustees-takes its responsibility to be good stewards of all of the taxpayer-supported funds we receive from the Commonwealth as well as those derived from student tuition and fees,' said Brogan.

Brogan explained that each October, the PASSHE Board of Governors reviews and approves the State System's annual appropriations request, then submits to the governor's budget office. This forms the core of PASSHE's annual budget proposal and includes System priorities presented to the House and Senate Appropriations Committees during annual budget hearings. Once the Commonwealth's budget is adopted, the Board approves a final budget for PASSHE, reflecting both state appropriation and new tuition rates. Brogan notes that it is well documented, including in APSCUF report, that for the past two years the amount of state funding PASSHE has received has remained flat, while expenses have continued to rise.

'By its very nature, this [budget] process is fluid, which results in several different budget adjustments being made throughout the year,' said Brogan. 'The university presidents have the statutory responsibility to prepare their respective institution's individual budget, which is then submitted to the Board for approval.'

Each university budget also must be approved by its individual council of trustees. Mid-year budget updates are submitted in March and necessary revisions are made based on actual student enrollments and revenue. At the end of each fiscal year, the overall System budget and each university's budget are audited by an outside, independent auditing firm, according to Brogan.

'If the assertions made in the APSCUF report had any validity, they also would apply to every school district, state agency and virtually any other entity that receives financial support from the Commonwealth,' said Brogan.

On the positive side, Brogan said the report clearly demonstrates support for what PASSHE has been saying for several years: that students seek new courses and programs and enrollments in some of the more traditional fields are dropping.

'In order to remain relevant, and to best serve students and the Commonwealth, the PASSHE universities need to continually update and realign their academic offerings,' said Brogan.

Also, he said, 'APSCUF does acknowledge that the report was commissioned to address faculty realignment on several PASSHE campuses. A little less than 1 percent of our faculty complement did receive letters notifying them of possible furlough, an action made necessary to help ensure the relevancy and long-term viability of our universities.'

'Unequivocally, the university presidents, the individual councils of trustees, the Board of Governors and the chancellor are committed to sound financial management practices as they seek to ensure students receive high-quality educational experiences even as the State System and its leaders address a myriad of challenges resulting in part from level state funding, minimal tuition increases and rising personnel costs,' said Brogan.

APSCUF has commissioned Boyer & Ritter to look at the financial statements for the other seven universities, as well.

The state-owned universities are Bloomsburg, California, Cheyney, Clarion, East Stroudsburg, Edinboro, Indiana, Kutztown, Lock Haven, Mansfield, Millersville, Shippensburg, Slippery Rock and West Chester Universities of Pennsylvania. PASSHE also operates branch campuses in Clearfield, Freeport, Oil City and Punxsutawney and several regional centers, including the Dixon University Center in Harrisburg and the Philadelphia Multi University Center in Philadelphia.

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