The CSU’s operating fund designated balances and reserves pay for nonrecurring expenses to manage short-term obligations and commitments, provide funding for capital infrastructure repairs and maintenance and help ensure that operating costs can be paid during times of catastrophic events and economic and budgetary uncertainty. The CSU’s reserve policy encourages campuses to accumulate a minimum of one-quarter to a maximum of one-half of the annual operating budget. The policy also requires designation and reserve amounts to be established and reported annually by the campuses and the Chancellor’s Office. These amounts are published on the CSU’s financial transparency portal and reported annually to the Board of Trustees.
The CSU has prudently grown designated balances and reserves to meet certain strategic goals, one of which has been to prepare for possible economic uncertainty. The CSU has already drawn upon these reserves on a one-time basis to maintain operations in programs affected by COVID-19. Campuses began 2020-21 with plans to use $180.4 million of these balances and reserves during the fiscal year. It is anticipated that a measured use of reserves over the next several years will be necessary until the economy and state budget rebound.
On June 30, 2020, designated balances and reserves in the operating fund totaled $1.7 billion, accumulated primarily from tuition, fees and other revenues in excess of annual expenses. Operating fund balances for short-term obligations, capital projects and catastrophic events as well as reserves for economic uncertainty are displayed in the chart.
Balances designated for short-term obligations are for open contracts and purchase orders, near-term debt service payments, financial aid obligations and programs that are in development. Balances designated for short-term obligations totaled $949 million at the end of last year, which are sufficient to cover expected needs and are typically used in the following fiscal year.
Balances designated for capital are for new capital projects and repair of current buildings, as well as planning costs and equipment acquisition associated with those buildings. Capital reserves fall well short of the expected need, which is at least 10 percent of the cost of academic projects approved in the most recent five-year capital plan. Over $805 million is required for academic projects approved in the 2020-21 through 2024-25 five-year capital program. Balances designated for capital totaled $318 million.
Balances are held to be used in the event of a natural disaster or other catastrophic event. Typically, these balances are used to pay for costs not covered by insurance. Balances designated for catastrophic events are sufficient to cover expected needs, which totaled $23 million.
Reserves for economic uncertainty are held for costs that may occur due to short-term recessionary cycles or state budget fluctuations. Reserves are part of the university’s prudent fiscal strategy and are intended to be used in the future as a one-time supplement to help manage a rapid decline in state resources. This allows the CSU time to adjust operating budgets appropriately to balance reductions and to minimize disruptions to students’ education as much as possible. Reserves for economic uncertainty totaled $400 million and are less than one month of operating fund expenses, well below the need to maintain three to six months of operating expenses.