Commentaries
Flexibility May Hamstring UNC Capital Needs

Legislation may divert funds from capital requests

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August 18, 2000

Legislation enacted last year to increase budget flexibility for UNC System schools may be diverting funds from capital needs to UNC operating budgets just as UNC officials say they face a building crisis.

The legislation, an amendment to NC General Statute 116-30.3, allows universities to carry forward into the next budget year unspent funds totaling up to 2.5 percent of their total budgets instead of having that money revert back to the state's General Fund. Under the old system, such reverted funds were spent on capital needs. Now, however, universities have the flexibility to put that money toward "faculty and staff salary increases, retirement benefits, medical insurance, operating expenses...all of the things it takes to run a business on a regular basis," said James Smith, associate vice president of finance for UNC. "Now these funds are more formally budgeted instead of waiting to see how much funds are reverted, " added Smith. "There's now more of an up-front approach to budgeting."

That approach to budgeting likely means less money for capital and a less visible process for appropriating unspent funds.

"We use the reversions for nonrecurring expenditures, so we use them for capital expenditures," said State Budget Director Marvin Dorman. "Now that universities retain up to two and one-half percent, the amount that went into the credit balance is no longer there. There's less money in the credit balance for capital expenditures [because] universities are keeping two and one-half percent and using it for other things."

Dorman said he didn't know how much of the money campuses were putting toward capital improvements, but he said the amount may be significant. How campuses plan to use the money will be known on August 31, when all UNC System schools are required to submit to the UNC General Administration a report on how they intend to spend the carry-forwards.

The legislation may also mean blurring the distinction between reverting and non-reverting funds, which not only allows the universities more flexibility in how to spend funds, but also gives them automatic access to more funds than other state agencies get.

"One could say that universities are retaining money they asked for," instead of giving that money back to the state, Dorman explained. That was part of the goal of the legislation, added Smith. Universities wanted to have zero reversions and unrestricted access to all appropriated funds.

But not everyone sees the change as positive.

"It seems that the universities were spared from a role in balancing the budget once again," said Dan Gerlach, director of the N.C. Budget and Tax Center. "You always want to appropriate more than you want to spend S [but] with this kind of flexibility you have [university] cops watching wide-screen T.V.s."

As reported on August 17 in carolinajournal.com, most of last fiscal year's $151.5 million budget shortfall - $125 million - was covered from reversions by state agencies. While most state agencies returned hundreds of thousands of dollars, including $46 million from the Department of Public Instruction, the universities returned virtually nothing (UNC-Asheville returned six cents, the North Carolina School of the Arts one cent, East Carolina University $1.34, Appalachian State forty-two cents). The amount the universities would have returned to the General Assembly - $28.1 million - will carry forward from 1999-2000 to 2000-200.

Steve Keto, N.C. State Associate Vice Chancellor for Financial Affairs, is confident that, at least at N.C. State, much of the carry-forward will address capital needs. "I think a healthy share does get put toward facilities. I'm guessing that if we didn't have flexibility that we'd be worse off."

 


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