Administrative Policies and Procedures Manual - Policy 7000: Budgets and Reserves
Date Originally Issued: 07-01-2006
Revised: 07-01-2010, 07-01-2011, 02-01-2013, 04-21-2017
Authorized by RPM 7.20 ("Budgets and Fund Balances")
Process Owners: Office of Planning, Budget, and Analysis and Health Sciences Center Budget Office
This policy applies to budget management and use of reserves for Current Unrestricted funds with special emphasis on Instruction & General funds. Budgeting involves all segments of the University and is a continuous process designed to ensure the best use of available funding. Budget management requires short-term and long-range planning, and involves setting up program priorities, requesting funding, allocating available funds to various programs and projects, preparing and maintaining the budget, and reporting on the use of funds and intended use of any unexpended funds.
2. Reporting and Review of Current Unrestricted Reserves
RPM 7.20 ("Budgets and Fund Balances") requires that all departments responsible for Current Unrestricted funds categorize their reserves and submit categorization of reserves reports to their dean or director at the end of each fiscal year. The categorization of reserves reports can be completed using Categorization System Reports and should include carry forward, reserves commitments, dedications, and net discretionary reserves for the fiscal year just started. The definitions for committed, dedicated, and discretionary are as follows:
Include reserves in this category if a formal, written commitment has been made for the funds. These are essentially costs the University would incur even if operations were discontinued. Examples include signed offer letters for start-up funds, documented cost share requirements, direct state appropriations for a special project, and institutional bond debt service payments.
Include reserves in this category that have a clear, focused purpose with a documented description, and identify the entity or individual making the dedication. Dedicated items must be approved and signed off by an executive vice president, vice president, or dean. Examples include a Facilities & Administrative reserve that has been dedicated by a dean to fund a lab renovation, a non-endowed gift amount that has been dedicated by a chair for faculty travel, and student paid course fees that are being accumulated and dedicated by a dean to fund the purchase of equipment.
The remaining reserve after accounting for all committed and dedicated funds.
These reports will be submitted to the cognizant dean or director after fiscal year end, in accordance with the schedule issued by the Office of Planning, Budget, and Analysis and the HSC Budget Office. Deans and directors will review the reports and submit them to the cognizant vice president. Main campus vice presidents will review the reports and submit them to the Office of Planning, Budget, and Analysis or the HSC Budget Office. The Office of Planning, Budget, and Analysis and the HSC Budget Office will submit comprehensive reports on annual savings and reserves to the Board of Regents at its October meeting. This information will be reported University-wide for Instruction & General, Student Social and Cultural Development, Research, Public Service, Financial Aid, Auxiliary Enterprises, Athletics, and Independent Operations.
3. Partial Allocation of Instruction & General Annual Savings
It is critical to the fiscal integrity of the University that adequate central reserves be available to address unexpected and critical needs of the University. The State of New Mexico considers central reserves ranging from 3% to 5% of the University's Instruction & General expense budget to be a prudent amount for the University to maintain. In order to ensure adequate central reserves are available for unexpected and critical needs, the Board of Regents will review unexpended funds at the end of each fiscal year to determine if some portion of annual savings in Instruction & General reserves should be transferred to the central fund. Annual savings are defined as the difference between revenues and expenditures for the year just ended and do not include prior year carry forwards. The portion transferred will not normally exceed 25% of annual savings for the previous fiscal year and will be done only when necessary for the fiscal health of the University, which in turn benefits all aspects of the University. Departments should reserve 25% of annual savings until after the allocation decision is made by the Board of Regents at its October meeting.
The University understands the need for both short-term and long-range planning and therefore will look only to annual savings and will not deduct from reserves departments have built in previous years to address long-range programmatic needs. This process provides an incentive for budgetary units to build reserves for future use, while also recognizing that cost savings throughout the University need to be available to address institutional priorities. An exception to this allocation may be granted if a department submits a plan for use of its annual savings such as faculty start-up or capital expenditures to the cognizant vice president for approval. If approved by the cognizant vice president, the plan must then be submitted to the Board of Regents for final approval.
In years when the Regents decide it is necessary to allocate some portion of annual savings to the University's central fund, the required amount will be calculated at the vice president level. Vice presidents will have the opportunity to work with deans and directors to review departmental requests for exemption from the allocation and present a proposal to the Executive Vice President for Administration or the Chancellor for the Health Sciences Center as to which accounts should be used to generate the necessary allocation. The Executive Vice President for Administration or the Chancellor for the Health Sciences Center will make the final decisions on the sources of allocation.
4. Deficit Balances
4.1. Deficit Balances Existing on or Before June 30, 2005
Until the deficit is eliminated, every department with a negative fund balance that existed on or before June 30, 2005, must submit follow-up annual reports to its dean or director after fiscal year end, in accordance with the schedule distributed by the Office of Planning, Budget, and Analysis or the HSC Budget Office showing the progress being made to reduce the deficit and discussing any variances from the original deficit reduction proposal. Deans and directors will review the reports and submit them to their vice president. Main campus vice presidents will review the reports and submit them to the Office of Planning, Budget, and Analysis. If a department is unable to meet its original deficit reduction proposal, it must submit a revised proposal for review and approval by the cognizant vice president with a copy to the Office of Planning, Budget, and Analysis or the HSC Budget Office.
4.2 Year-End Deficits
If departments anticipate a year-end deficit, the department heads must notify their dean or director of the estimated deficit as soon as they are aware of the projected deficit. The dean or director must identify funds to cover the deficit or the department's next fiscal year budget will be reduced by an amount sufficient to cover the prior year's deficit; in the event of a large departmental deficit, a multi-year deficit payoff plan may be implemented with the approval of an executive vice president. The department head must also submit a plan for resolving the causes of the deficit.
5. Responsible Fiscal Management
The University has limited funds and department heads are responsible for ensuring the most effective, efficient use of those funds. Budgets are valuable tools for measuring performance because they reflect planned activities. Department heads should review their budgets regularly to identify positive and negative variances between expected expenditures and actual costs. These variances will help the department head determine if goals and objectives are being met and if unanticipated events are negatively impacting the department's ability to meet its goals and objectives.
The Office of Planning, Budget, and Analysis or the HSC Budget Office is responsible for monitoring budgets and reports on the use of reserves, and intended use of any unexpended reserves, for compliance with this policy.