RESERVES
Policy on Current Fund Reserves
(Revised 8/01)
Introduction
Current Fund Reserves are defined for this purpose as funds generated by general and auxiliary activities and "banked" for future use.* RC units are expected to assume full, active responsibility across a fairly wide range of short-term and long-term financial issues. If a unit is to fulfill its financial responsibilities, it must have the capacity to adapt to unforeseen events and to plan in advance for anticipated large expenditures. Adaptability and planning are served by the concept of reserve "ownership", which provides incentives for efficiency and allows resources to follow opportunity. Thus, any unspent funds at the end of a given fiscal year are added to RC unit reserve balances for use in accordance with the policies discussed below.
*Note: Internally Designated funds are not included in this definition as they are funds designated for a particular purpose. The assumption is that all money in non-current funds -- plant, restricted gift, endowment -- has been appropriately designated for other purposes and is not available for general operations
Reserve Management - RC Unit Level
As part of the annual budget and the strategic planning process, the Central Budget Committee will approve unit financial plans. In this context, each RC unit's reserve balance will be evaluated relative to an agreed upon target, as will any planned uses of Current Fund Reserves. Particular attention will be given to units with balances that are projected to fall below the target level.
Minimum Current Fund Reserve Target
The appropriate minimum reserve target of a RC unit is dependent upon that unit's size, revenue mix, and ability to predict revenue and expense accurately, but shall not normally be less than one percent (1%) of that RC unit's prior year current fund expenditures and transfers (including RCM assessments). During the planning process, the RC unit and VPFA office will work together to determine when the appropriate reserve minimum for a unit should exceed 1% and, if so, by what amount. Any use of Current Fund Reserves that would take the balance below the minimum would need to be approved either through the unit's strategic planning process or by the appropriate Vice President, in consultation with the Vice President for Finance and Administration. The University of New Hampshire and the majority of RC units are under capitalized. Five to seven percent (5-7%) of total expenditures and transfers is an appropriate level of capitalization for the University and all of its units. This being the goal, in future years, the 1% unit reserve minimum may slowly increase to achieve the desired capitalization.
Use of Current Fund Reserves
Current Fund Reserves may be used to:
1) Cover operating losses, in which case the use must be accompanied by a mitigation plan subject to the approval of the appropriate Vice President, the Vice President for Finance and Administration and President.
See attached summary for Units in Financial Difficulty.
2) Cover program enhancements, such as investments in equipment or start-up costs for faculty or new programs. These uses of reserves may be approved through: (a) the strategic planning process, or (b) the approval of the RC unit head (up to 1/3 of the Current Fund Reserve balance).
Specific operational aspects:
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The RC unit head may utilize up to one-third (1/3) of the unit's beginning reserve balance without any additional approval during the fiscal year.
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The appropriate Vice President and the Vice President for Finance and Administration must be notified within 30 days of any use of reserves to monitor the overall reserve balances for compliance with USNH Policy (see next section).
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Any use of reserves above 1/3 of the beginning reserve balance requires the approval of the appropriate Vice President and the Vice President for Finance and Administration, as they may need to seek approval of the UNH President, USNH Chancellor and USNH BOT in accordance with USNH policy (see next section).
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In order to utilize reserves, a revenue budget line (Reserve source code R698 - use of reserves) and an expenditure budget line with accompanying appropriation transaction must be created by the RC unit. This action will give the unit the appropriate spending authority.
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Units should budget any anticipated uses of reserves for the coming year during the budget process. Budgeted use of reserves in the original budget counts toward the 1/3 authorized use for the coming year requiring RC unit head approval.
USNH Policy on General Fund Reserve Access
UNH has the authority to use campus reserves in any one year in an amount up to .5% of prior year expenditures and transfers, including financial aid, if the reserve level is in excess of the minimum. Use of overall General Fund Reserves between the .5% and 1% levels may be approved by the Chancellor. Use of General Fund Reserves above 1% requires Board approval.
The minimum target for General Fund Reserves is 3% of prior year expenditures and transfers. The UNH Budget Office is responsible for monitoring overall reserve use within USNH limits and flagging for the President any need to obtain System or Board approvals.
Appendix
Opening Current Fund Reserve Balance
UNH decentralized a portion of the current Campus Reserve to provide a starting current fund reserve balance or to enhance existing reserve balances for each academic unit. Specifically, the five Durham schools/colleges received 45% of the Campus Reserve, as of 6/30/99 on a pro rata basis:
COLSA $294,000
COLA $474,000
CEPS $329,000
WSBE $131,000
SHHS $168,000
The rationale for distributing these funds only to the schools and colleges is that research units have long had the ability to accumulate reserve balances, and administrative units do not bear the direct risk of enrollment or research fluctuation.
