How is it possible that our community colleges are sitting on $1.1 billion in reserve funds? Connecticut Bureau State Budget guru Keith Phaneuf is here to help us with the math.
Last year, students in the Connecticut College and University System had to deal with an 11% tuition hike, and on several occasions, we've reported that administrators would say that certain classes could be canceled if the state didn't add more funding to their budget.
So how is it possible that our community colleges are sitting on $1.1 billion in reserve funds? Connecticut Bureau State Budget guru Keith Phaneuf is here to help us with the math.
Mike Hydeck: Keith, really a billion dollars? How is that possible?
Keith Phaneuf: Well, I want to clarify a couple things. The community colleges and the regional state universities are sitting on about $611 million. The rest of the money that brings us up to a billion is the University of Connecticut. That's still, don't misunderstand me, a very large surplus, and part of it is you mentioned that tuition at the community colleges this fall was up 11% over where it was two years earlier. The regional state universities were up 7%. How we got there is kind of complicated, Mike. I think the short answer is everybody got a little nervous, because we have been propping up higher education with temporary money. The federal pandemic grants we got. When we've had surpluses, the big state surpluses in recent years, we've tossed a lot of that money. So think of it as you're funding, maybe about 1/7 of your operations with money that could go away overnight. When it gets that bad, the Connecticut State College and Universities System had built up a reserve equal to 51% of their operating budget. Don't misunderstand me, as far as the legislators are concerned, that's still too high. But that's that's sort of what drove them to sock away that much cash.
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Mike Hydeck: 51% percent. Do any of us have 50% of our operating expenses in the bank? Most people don't. Yet tuition still went up. Should they spend that money down to keep tuition either level or even get reduced? Are there any state or federal restrictions on how that money could be spent? Is that why it wasn't used?
Keith Phaneuf: Well there really are not a lot of restrictions on that. I think what happened was, I just also want to explain the timing, and I also want to answer your question of, will it get spent down. The colleges have to show their cards first. They have to set tuition, and this is the case for CSCU and for UConn. They've got to have everything wrapped up by at the latest, December. They don't learn, and that's for the coming academic year, they don't learn until May or June what they're going to get from Governor Lamont and the General Assembly. So they have to guess. And yes, did they guess too high on tuition? Absolutely, and the General Assembly is probably going to put pressure on them for at least the next two, maybe even three, fiscal years to start spending that down. When you ask how big of a reserve. Keep in mind, the state only allows itself for the entire state budget to keep an 18% reserve, and it's only recently been raised. For a long time, we had capped it at 10%. I think you're going to see pressure, like I said, at least two or three years to keep that down. And one last thing to keep in mind, Mike, we just had, the legislature just had a big fight with Governor Lamont. They went 15 rounds over whether or not they could carve out $40 million to give K-12 districts to offset rising special education costs. The community colleges and regional universities were sitting on a reserve 15 times the size of that disputed money.
Mike Hydeck: Is there on the books now, to your knowledge, a limit on how much can be saved? Could that go up to 60% of their operating budget, or 70 or 80 if no one says anything?
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Keith Phaneuf: No, and I think it's not not that anyone would fight a limit, but the bottom line is, it simply comes down to the legislature has to do a better job, and I think they've acknowledged that. Keeping track of these things throughout my career, I've seen different times when different groups within state government have socked away big reserves. I'm going back, showing my age here, but during Governor Rowland's administration in the 90s, in the early 2000s, some of our quasi public economic development groups would be sitting on a lot of cash, albeit not as much as the CSCU system. But they also didn't have as big a budget. But if state government doesn't pay attention, groups will try to set aside cash, especially though, when they're put in a situation where they stand to lose a lot right away. It's generally the best way to avoid big reserves is, don't prop up ongoing costs with temporary money.
Mike Hydeck: And that's going to be the biggest challenge moving forward, because despite having this $1.1 billion reserve, they continue to ask the state for more money, and even the governor said, 'look, it's time to start spending this down.' Do you foresee that happening in the coming weeks before the budget is finalized?
Keith Phaneuf: I think you might see if they have any deficits to close this fiscal year. Yes, I think you'll absolutely see it before the budget, as you said, for the next two fiscal years is done, they'll be forced to spend that down. One last thing to keep in mind, it never takes that long to wipe out reserves. State government had at the time in 2008 a record-setting reserve and what economists called the Great Recession tore through that like tissue paper, and it was gone in less than 12 months. So even even big reserves can get wiped out pretty quickly.
Mike Hydeck: Lots keep an eye on here. Keith Phaneuf, budget guru for Connecticut Mirror. Four decades of following the money here in Connecticut. We appreciate your expertise.
