‘Flying blind:’ In budget crisis, KU leaders lack basic financial data most businesses take for granted
photo by: Chris Conde/Journal-World File Photo
It is one thing as a dean at the University of Kansas to be asked to make sweeping cuts to your department to help the overall university deal with frightening budget shortfalls. It is another thing to be asked to do so without the benefit of some of the most basic financial statements for your department.
One is like the pressure of a particularly tough final exam. The other is like the pressure of a particularly tough final exam — for a class you never took notes in.
As the Journal-World has delved into the finances of KU, university leaders have acknowledged that deans and other high-ranking leaders aren’t given access to financial documents that show basic information like the department’s revenues and expenses during the course of the year.
The lack of information doesn’t appear to be an attempt by KU to hide key financial data from its leaders. Rather, the university simply doesn’t regularly produce many of the common financial statements that businesspeople the world over largely take for granted. For instance, during the course of its fiscal year, KU does not routinely produce monthly or quarterly reports that show how much revenue the university has received year-to-date versus how much the university has expended.
While the data is available in the ledgers and bookkeeping apparatuses of the university, KU’s new chief financial officer confirmed that it wasn’t being regularly compiled and delivered to the chancellor, the provost or other leaders who are making decisions about budgets.
“In terms of reports, no there is not,” Jeff DeWitt, the new CFO who began with KU in March, said of any regular system of reporting on year-to-date financial information at KU. “You can go on the website and look, as I’m sure you have and I did too when I was interviewing. It is just not something that is out there that provides a consolidated look.”
A separate open records request to KU confirmed that the university from July through December hadn’t produced a single financial statement showing revenues and expenses year-to-date compared to the same period a year ago. The Journal-World requested such documents but was told none existed.
As university leaders have announced projected budget shortfalls ranging from about $40 million to $120 million at various points in the pandemic, faculty and staff members have become eager to see hard financial numbers from the university. As day by day goes by without those numbers, questions about the university’s commitment to transparency grow.
University leaders, though, say they aren’t trying to hide anything. A spokesman pointed to roughly two dozen events, blogs, and other presentations that leaders such as Chancellor Douglas Girod and Provost Barbara Bichelmeyer had given on KU’s finances in recent months. In fact, the chancellor bluntly addressed some of those transparency issues in a recent video blog.
“You can’t share information that you don’t have,” he told the audience.
Such an explanation hasn’t eased a lot of minds. Before, the question largely was whether the public could see enough financial information to determine whether to trust the decisions being made by university leaders. Now, the question centers on whether university leaders even have enough information to be making good decisions.
“I think they are flying blind, and no one can see the speedometer,” Sanjay Mishra, president of KU’s University Senate, said of the financial decision-making process of university administrators.
If you want to spend a few bucks on buying stock in a publicly traded company, you can get tons of financial information about that business with just a few clicks on your computer. But if you are thinking of spending $30,000 to $40,000 a year on a college education, chances are you could spend fruitless day after fruitless day looking for up-to-date financial information on the college of your choice.
Federal regulators require publicly traded companies to produce, at a minimum, an updated financial statement every quarter that shows year-to-date revenues, expenses and a variety of other financial data. There is no such requirement for public universities, which often get hundreds of millions of dollars a year in state funding.
Given the financial crisis at the university, the Journal-World last month set out to produce an article updating KU’s financial picture as of Dec. 31, which marked the halfway point in the university’s fiscal year.
The goal simply was to get one of the more basic financial statements most organizations have — a statement that shows how much revenue the university has taken in year-to-date, broken down by various sources, such as tuition, state funding, research grants and other such categories. The statement also would show how much the university had spent overall and in various areas, such as instruction, research activities, administration and other similar categories. Such statements also show how those revenue and expenditure numbers compare to the same period a year ago.
A search of KU’s website produced no report, so the newspaper requested the document through KU’s media relations division. KU originally didn’t provide any financial statements, but did note that the university publishes its audited financial statements from the previous year. Those statements show financial information for the year ending June 30, 2020, and usually are published about six months after the fiscal year has ended. However, they do nothing to show what is happening in the current year.
The Journal-World checked with the Kansas Board of Regents about financial statements for the university, and learned that KU in fact had recently delivered a mandated six-month report to a committee of the Regents. The Board of Regents provided that report to the Journal-World, and shortly thereafter, KU also sent a copy to the newspaper. While it contained significant amounts of data about the university, it did not include a traditional financial statement showing revenues and expenses compared to a year ago. Late Friday, the Journal-World was notified that its open records request seeking either monthly, quarterly or semi-annual financial statements for the 2021 fiscal year could not be fulfilled because KU “possesses no records responsive to this request.”
It is not always this difficult to get basic financial information about a public entity. The city of Lawrence, for instance, has a section on its website where it posts quarterly financial statements for the city. Douglas County is required by law to publish similar financial information in the legal notices section of a newspaper once a quarter.
DeWitt, KU’s new CFO, said it someday would be easier at KU too. DeWitt comes from an environment where financial transparency was a given. After years of serving as CFO for the city of Phoenix, DeWitt most recently was the CFO for Washington, D.C. In the District of Columbia, he oversaw a budget nearly 10 times larger than KU’s, and making sure financial data was easily available to everybody from D.C. residents to members of Congress was a big part of the job.
DeWitt said KU leaders already had recognized the need for new types of financial systems before his hiring. But he said he hoped to take some of the ideas to an even higher level. He said traditional quarterly financial reports were in the process of being developed, and he expected them to be made publicly available on the university’s website. But he said an even more important tool would be a five-year financial plan. That will involve creating five years of budgets all at once. DeWitt said it is a best practice, especially for organizations that are facing structural problems. KU falls into that category with both enrollment and state funding stagnant or declining in most years.
DeWitt said the document would show “here’s what we are doing, here is what it costs, here is where the revenue is coming, here’s what we have to do to make this happen. That will open up transparency where people can’t say they don’t know or can’t say they can’t see it.”
Why it matters
In one regard, there are about 263 million reasons why the specific financial numbers at KU matter. KU ended its 2020 fiscal year with $263 million in cash — an increase of more than $8 million from the same period a year earlier. KU’s audited financial statements show that number.
But without quarterly updates, it is difficult for the public to know how much cash remains at KU in this fiscal year. There are some practical reasons why some would want to know.
“Do they have money in the bank to pay my salary next year? Next week?” Mishra, the University Senate president, asked.
The answer is yes on both accounts. DeWitt said he has already reviewed KU’s cash position and believes it is solid for this fiscal year. He was complimentary of how his predecessor and Girod handled the financial crisis during the pandemic.
But despite that review, DeWitt can’t provide a number that represents how much cash KU has in reserves to get through emergencies. That’s different than the city of Lawrence, for instance. Its quarterly report shows available “fund balances” for numerous types of funds the city maintains. The city also has a policy that defines how much money it wants to keep in various fund balances, which are a bit like a savings account that can be drawn upon during down times. DeWitt said he has learned that KU does not have any formal policy on how much money it wants to keep in such balances. But, he said he thought the university probably did need to have such a policy.
“That is something I’m definitely going to be deeply digging into,” DeWitt said.
For Mishra — who said he was excited and optimistic about the hiring of DeWitt — the current financial systems are creating issues of trust between the university community and its leaders. For instance, without solid numbers on reserve funds, how can faculty and staff be assured that all the cuts KU has instituted have been necessary?
“There is no trust,” Mishra said. “How can trust happen if you don’t know what is happening on the other side?”
Lua Kamal Yuille, president of KU’s Faculty Senate, agreed that rebuilding trust related to financial matters was critical.
“For KU, right now, in April 2021, financial transparency is among the two or three building blocks that will be indispensable in creating a community of trust,” Yuille said.
But she noted that such trust building doesn’t always happen voluntarily. For instance, publicly traded companies don’t produce public financial statements voluntarily. Federal regulators require it. Yuille said greater disclosure of KU’s finances “really should be mandated from above.”
That could take the form of the Kansas Board of Regents requiring more financial reporting that is available to the public. At the moment, the Regents haven’t given any indication they are inclined to add new requirements.
In a statement to the Journal-World, Regents President Blake Flanders at one point called financial reporting by the state’s universities “robust” and said it “aligns with nationwide standards for higher education.”
That may be true in some regards. Preston Cooper is a research fellow for the Foundation for Research on Equal Opportunity. He specializes in the economics of higher education. He said most of the data he uses is at least two years old.
He said students and their parents probably wouldn’t pore over financial statements of prospective universities if they were more readily available. They are a bit dry reading. But he said researchers and journalists would make good use of the information, which then would become information students and families might use.
But he also said universities might not always want to be judged by their financial standing. Financial statements might shine extra light on some initiatives that haven’t worked, and if prospective students see the makings of a future financial crisis at a school, they might look to attend elsewhere.
Yuille agrees that universities might face some risks by disclosing more about their finances. The problem, though, isn’t transparency, but rather that too many people expect universities to play a corporate role and then criticize when that doesn’t always happen. The antidote to those concerns, she said, would be “a world where public education were properly valued, funded and appreciated.”
In his statement to the Journal-World, Flanders didn’t rule out a time when the Regents might require more financial reporting from the state’s universities. He said he appreciated the transparency KU’s chancellor and provost had demonstrated so far during the pandemic, but also said “the regents and the state universities are committed to continually improving and refining the financial data and reporting available to decision makers and to campus communities.”
Cooper would add one more group to that list when talking about public universities: taxpayers. KU, after all, still does receive more than $200 million a year in state funds.
“These are publicly supported taxpayer institutions,” Cooper said. “Basically, I think all of their information should be easy to access.”