John Arnold, interim University of Arizona chief financial officer and the Arizona Board of Regents’ executive director, announced 5%-15% cuts to departments across the university in addition to cuts in administration and athletics, including layoffs Monday during a presentation to university leadership about the school’s financial action plan.
Following the forum, the regents announced another meeting Thursday, Feb. 1 — the second in a week. The meeting will be available to stream but the agenda includes only five minutes of public talk before the board, Arnold and Robbins move to a private executive session for “a review of assignments” with Arnold and Robbins.
On Monday, university leaders were invited to meet with a panel consisting of Arnold, President Robert Robbins and Regent Chair Fred DuVal who spoke before a crowd that included deans and faculty senate members.
Arnold presented his update on the university’s financial plan and then the trio answered questions from audience members, many of whom asked for clarification on Arnold’s presentation.
“What I didn’t see is what values, whose values would be used to be doing this right sizing? If that’s just efficiency, that makes no sense. We have profound value in things that don’t make a lot of money that we agree we need. So whose values?” asked Joellen Russell, faculty senate member and a university distinguished professor of biogeochemical dynamics.
“And I’ll just note that the current array up front here is not particularly representative of our community,” Russell said of Arnold, DuVal and Robbins.
Last November, Lisa Rulney, the UA’s former chief financial officer revealed to the regents that the school had a significant deficit in its cash reserves, exposing that the school’s administration had been overspending with minimal oversight. Rulney publicly stepped down from her position on Dec. 13 amid public outcry for her resignation but quietly stayed in a business operations advisory role and maintained her full salary. Arnold took over as interim CFO.
Arnold told the audience Monday that the school, without intervention, is currently operating at a $177 million deficit and, while not in financial jeopardy, the university’s “spending patterns are dangerous.” He said they plan to reign it in over the next 18 to 36 months.
Arnold also announced the Arizona Board of Regents is hiring two third-party national accounting firms to audit and provide guidance to university officials as they work to address the school’s financial weaknesses.
The regents’ decision to include a third party are in line with Gov. Katie Hobbs’ requests in a Jan. 25 letter lambasting the board and university officials’ response to the financial crisis.
“She has asked us to bring an auditing firm to task and to bear, to bring third party credibility to this exercise and today, per our announcement, we have,” DuVal responded after a question at the forum about the governor’s requests. “We’re highly tuned to her directions and suggestions and appreciate them.”
Members of the university’s faculty senate were among those invited to the forum and held a meeting just hours afterward. Robbins and Arnold were in attendance to answer questions from faculty senate members.
Information from Arnold’s presentation rippled through their discussions over programs and budget allocations.
“We are in a very bad financial situation. My understanding is the colleges could take as much as a 15% cut and so I am questioning the wisdom and the sustainability of keeping on adding new programs when we’re not going to have enough money to pay for the current programs we have,” Lucy Ziurys, faculty senate member and professor of chemistry and biochemistry, said at the meeting.
Gary Rhoades — a UA professor of higher education and leader of a faculty committee helping with the university’s financial plans — said Robbins had incorporated their recommendations in their approach.
“I think what’s important is to know a number of the things that we recommended are on there. A number of things that we argued against were not on there,” Rhoades said. He also cautioned leaders on how to assess the university’s finances.
“Pay attention to the center, not only to the units. Pay attention to strategy in a way that actually encourages debate, not with the press, but amongst ourselves. What is actually the real cost of this endeavor, whether it’s UAGC or something else,” he said.
Arnold addressed a faculty senate member’s question on layoffs.
“Are there going to be layoffs? What do you think administrative restructuring consolidation means? That means people are going to lose their jobs. And that’s just the reality of it,” Arnold responded. “And do I like that? I hate it.”
“It’s really hard not to feel like I’m on a sinking ship,” Carol Brochin, faculty senate member and associate professor at the College of Education, told Robbins and Arnold. “I say that, not to be critical, but to relay why I’m here as a faculty member at a university with a mission of an HSI (Hispanic Serving Institution), of a land grab, of a Native-serving institution 60 miles from the U.S.-Mexico border.”
Brochin expressed concerns over who cuts will affect the most, referring back to the school’s personnel cuts during the pandemic.
“We saw how that impacted us in 2020. We saw a majority of cuts came to staff and programs that serve our diverse body and serve our missions,” she said.
Here’s a breakdown of Arnold’s presentation of the university’s plan and how it might impact the university community moving forward:
What is the financial status of the UA now?
The UA started fiscal year 2024 with $705 million in cash reserves or $37 million less than the start of fiscal year 2023. Without intervention, the UA is currently on track to overspend by $177 million or $37 million more than last year’s deficit of $140 million, according to Arnold.
What is the updated plan?
Central administration and the athletics department will face significant cuts. Arnold also requested that university leaders cut 5%-15% of their costs in 2024.
The board of regents will bring in a third party national accounting firm to audit the athletics department and help reset the budget but weren’t able to specify what the “reset” entails in response to questions from leadership at the panel. Cuts and reductions to athletics will target the department’s administration, not students, Arnold said.
The board of regents will also bring in a third party national accounting firm to “increase efficiency and effectiveness of UAGC,” Arnold said. The University of Arizona Global Campus, an online program that was originally acquired as for-profit Ashford University, is currently operating at a $2.5 million deficit. The projected revenue stream for 2024 is $230 million while its operating budget is $232 million resulting in the a $2.5 million projected deficit. Arnold said part of the efficiency review will be identifying and eliminating redundancies with the University of Arizona’s operations and downsizing its spending.
Arnold said university administration will face cuts and university officials will immediately begin reviewing “every single vice presidential position, and really Vice Provost associate system VPs” to see if those positions are necessary. They’re also working to improve transparency and communication so leaders in the university know what each other are doing. Arnold also said they’d reform their financial aid model.
Arnold said they plan to have a new budget model for the school by 2026.
However, Arnold reiterated that need-based aid for Arizona resident students, merit-based aid and tuition guarantees for any current or accepted students will not be affected by the school’s financial reform. There will also be no furloughs or reductions to retirement benefits.
UA spending breakdown
Arnold attributed the school’s financial woes to “decades-long budgeting practices, decentralized budget and operations models, lower-than-expected revenues, investment in strategic priorities, and increasing costs in athletics, as well as external factors including the COVID-19 pandemic and rising inflation,” in an email to university stakeholders following the Monday meeting.
Here is a breakdown of last year’s excess expenditures and how Arnold said they relate to the university’s current predicament.
Colleges and divisions – $61 million spent over budget
- Arnold said individual departments were “inspired” by central administration’s spending on strategic initiatives to spend more.
- Arnold said 61 out of 81 colleges and divisions are in a budget deficit and currently overspending by $116 million
Athletics loan – $32 million spent over budget
- Arnold noted they haven’t seen any sustainable growth in athletics for six to seven years.
Strategic Plan – $15 million spent over budget
- The school has spent about $140 million on “strategic initiatives” in the past five years.
- Since 2018 the university has been increasing the amount of tuition discounting while revenue per student has stayed the same. Students are costing more without any monetary return.
Unallocated Leases/Utilities/Institutional Costs $26 million spent over budget
- These expenses have been funded out of reserves.
Payroll – $35 million spent over budget
- Inflation-related salary increases have made personnel more expensive.
- 2023 was unusual in that there were 27 payrolls versus the normal 26. This happens once approximately every 11 years, Arnold said.
Deferred Payroll Tax (CARES Act) – $18 million
- This was a one-time expense related to COVID funding.
The University of Arizona Global Campus – $47 million gained
- Arnold said that in 2023, the university inherited $47 million in operating cash from their UAGC acquisition. Despite the extra cash last year, UAGC is currently operating at a $2.5 million deficit.
- The online campus’ operating budget is $232 million while its projected revenue stream for 2024 is only $230 million.
Why wasn’t the problem caught earlier?
Arnold said a lack of a unified structure and insufficient reporting requirements “hid the overall spending problems that the university had.” He added that COVID-relief money further camouflaged the school’s financial weaknesses.
What’s next?
Gov. Hobbs requested a detailed plan by Feb. 9 from DuVal and Arnold, outlining the major strategies and tactics “to resolve the financial issues at the university,” and a report with the “rationale and process” behind the Ashford University acquisition by Feb. 20, 2024.
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