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. Designated balances and reserves are not used to fund recurring expenses such as salary increases. The use of one-time monies to pay recurring, permanent expenses can lead to structural deficits.
Reserves for Economic Uncertainty
| $530,605,000
|
Designated for Catastrophic Events
| $31,486,000
|
Designated for Capital
| $326,814,000
|
Designated for Short-Term Obligations
| $1,110,267,000
|
The CSU has prudently managed designated balances and reserves to meet certain strategic goals, one of which was to be prepared to respond during economic uncertainty. During the first several months of the pandemic, the CSU drew upon these reserves on a one-time basis to maintain operations in programs impacted by COVID-19. More specifically and early in the pandemic, an estimated 45 percent of all operating fund reserves for economic uncertainties were expected to be used in 2020-21 to cover COVID-related losses and expenses. The fortunate reality was that over the past 18 months with subsequent rounds of federal legislation, campuses used one-time federal funds in lieu of operating fund reserves for COVID-related losses and expenses. The CSU no longer anticipates a use of reserves for COVID-related purposes over the next several years because the economy and state budget have rebounded sooner than expected.
As of June 30, 2021, designated balances and reserves in the operating fund totaled $2 billion, accumulated primarily from tuition, fees and other revenues in excess of annual expenses. They are held for economic uncertainty, catastrophic events, capital needs and short-term obligations.
Reserves for Economic Uncertainty
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 as a one-time supplement, which allows the CSU time to adjust operating budgets appropriately to balance reductions and to minimize disruptions to students’ education as much as possible. As of June 30, 2021, reserves for economic uncertainty totaled $531 million and represent about 27 days of operations for all 23 campuses and the Chancellor’s Office. This is well below the need to maintain three to six months of operating expenses.
Designated for Catastrophic Events
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 $31 million.
Designated for Capital
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 multi-year capital plan. With over $16.8 billion of academic facility and infrastructure needs identified in the 2021-22 through 2025-26 multi-year capital program, over $1.6 billion is required. Balances designated for capital totaled $327 million.
Designated for Short-Term Obligations
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 $1.1 billion at the end of last year, which are sufficient to cover expected needs and are typically paid in the following fiscal year.