Skorton’s Financial Transperancy Townhall: University in Deficit for Next Five Years

At a town hall meeting on Monday afternoon, President David Skorton spoke at length about the University’s finances and his recommendations for restoring “financial flexibility” and soundness.

The major bombshell from the presentation was the admission that under the standard accrual accounting basis for audited financial statements, the University is operating at a loss. Skorton, however, did not specify the exact amount.

According to a request for clarification from University Vice President for Finance and Chief Financial Officer Joanne DeStefano, Cornell has operated at a yearly operating loss since 2008 and is projected to continue so until 2020. Only in the years of 2012 and 2014 did the University stay in the black thanks to high levels of gifts, but removing those gifts would have resulted in a $49 million operating loss in fiscal year 2014, according to DeStefano.

The slide from the presentation explaining this point indicates “not covering our [Cornell’s] depreciation expense, yielding insufficient deferred maintenance” and “accrual of expenses not yet incurred” as reasons for the operating loss. Essentially, this means the University since fiscal year 2008 has made enough revenue to cover non-cash expenditures like depreciation and accrued expenses that do factor into the bottom line of audited financial statements. (See here for an explanation of the difference between cash and accrual basis accounting.)

The presentation did not specify the exact amount the University is in deficit. A review of Cornell’s most recent financial statements shows an $88.7 million operating activity deficit in fiscal year 2014 for unrestricted funds, but a $131.7 million surplus for unrestricted and temporarily restricted funds combined. Temporarily restricted funds are normally gifts and distributed endowment returns that are categorized for expenditure at a certain time in the current year and for certain purposes, like a scholarship or a professorship.

DeStefano clarified in an email saying that in fiscal year 2014 the University did run a surplus because of high amounts of temporarily restricted giving.

“The reason to note these years [2012 and 2014] is that pledges mask the underlying financial operations – if we eliminated the fiscal year 2014 pledges, we would have an operating loss of $49 million.  Additionally, please be aware that a [New York City] tech campus pledge is prohibited from being used for Ithaca campus operations,” wrote DeStefano.

On the cash accounting basis for which the University uses for internal budgeting, the university-wide operating budget is balanced, with a projected margin of $9.4 million out of a $3.8 billion budget, or about 0.25%, as indicated by Skorton and his presentation slides. The Ithaca campus will contribute about $3.5 million to that margin, with revenues of $2.192 billion and expenditures of $2.189 billion, according to the presentation.

The event, entitled the “Financial Transparency Town Hall Meeting,” consisted of Skorton speaking for about forty minutes along with a PowerPoint presentation showing various charts, breakdowns, and financial statement summaries which, in sum, served to corroborate his main point that Cornell’s current finances are precarious but not are not yet at a dangerously unstable level.

Those interested in Skorton’s entire discussion may refer to the presentation slides here.

Skorton also noted throughout the presentation his belief that students, faculty, staff, and administrators should all play a role in deciding how to expand revenues and cut costs. Skorton stressed the importance of shared governance groups, which he claimed “have taken somewhat of a beating past few years.”

Indeed, following the health care fee debacle students have levied criticism not just upon the administration but also upon the Student Assembly (SA). Initially, many in the SA complied with the administration regarding the health fee, failing to leak information about it to campus media because they agreed to a gag order handed down by the administration. They then rallied with the upset masses of students and vowed to fight back as soon as political survival necessitated it.

So , as is normally the case during SA elections, debate regarding the institution’s correct role on campus becomes popular, only to quiet down as soon as complacent incumbents are re-elected. At the end of the day, student shared governance groups filled by mostly non-business majors will not play a role in securing the financial future of the University–only seasoned financial professionals working with those with intimate knowledge of the University can, and hopefully, will.

The town hall was most likely organized in response to widespread criticism aimed at Skorton and the administration for the unexpected roll-out of the $350 student health fee, the 3.9% increase in tuition for next academic year, and the recently-announced 5-year reoccurring $55 million deficits in the Office of the Provost which the University will eliminate using increased tuition and $27.5 million in budget cuts across all colleges. Accordingly, students and faculty have called for greater financial transparency from the University.

“It is true, and I want to take personal responsibility, that I’ve been sluggish about bringing that area of more detail,” Skorton said towards the beginning of the presentation. “Today is an attempt to move forward with broader transparency.”