U of A cost trajectory 'alarming' but fixable, interim CFO tells regents

The University of Arizona’s cost trajectory is “alarming” but fixable, Interim Chief Financial Officer John Arnold told the Arizona Board of Regents Thursday.

Arnold said the solutions he and his team are working on will take about 18-36 months to implement.

He also said the UA athletics department was “only” responsible for about $35 million of a $140 million gap last fiscal year that led to the university’s financial issues; and that the acquisition of the University of Arizona Global Campus, formerly Ashford University, isn’t to blame for UA’s financial troubles.

The restrictions the university has placed on hiring, raises, financial aid and construction projects will “slow spending over the next six months,” Arnold said. He added that those savings will “give us a little time to really dig in and define the scope and nature of the problem that the university is facing.”

“We’re going to be very, very careful about this and really go through a careful process to really define the scope and nature of the problem that we’re facing,” Arnold told the board. “We’re in that process right now. And I think in the next few days, we’ll be in a position to really talk about the issues we’re facing and immediate steps.”

It was the first financial update Arnold has given since taking over as UA’s interim CFO and vice president of business affairs on Dec. 13. He is also executive director of ABOR, which oversees the state’s three public universities.

ABOR Chair Fred DuVal said it is “clear” the cost curve at the UA is “unsustainable.”

“We must act, and we’re going to make changes to the University of Arizona that will be far reaching,” DuVal said at Thursday’s regents meeting in Tempe.

Arnold took over as interim CFO after UA President Robert C. Robbins told the board Dec. 13 he had accepted the resignation of CFO Lisa Rulney. Rulney is now serving as a senior UA advisor for business affairs through the end of June and has retained her $500,000 salary.

Robbins and Rulney revealed to the board in November that a $240 million miscalculation in cash reserves had led to a financial crisis, which also includes a budget deficit.

The solutions in Robbins’ financial action plan presented to the regents in December include a hiring and compensation freeze, an overhaul of the university budgeting model, a reduction in financial aid programs and a halt of nonessential capital projects.

Robbins was at Thursday’s meeting, watching Arnold give the presentation and nodding throughout.

Athletics

The problem “is not just athletics,” Arnold told the regents repeatedly in his presentation.

Many, especially those in the UA Faculty Senate, have blamed athletics for the financial crisis after Robbins confirmed the university had loaned the athletics department $86 million in recent years.

Just this week, Robbins announced that Vice President and Director of Athletics Dave Heeke is suddenly leaving the program, though he will retain his salary until his contract is up in 2025.

Arnold told the regents athletics is operating at about a $30 million loss this year.

“We’re of course looking hard at athletics and what we can do to modernize that department but ultimately the national model around college athletics has changed over the last five years,” he said. “As we modernize the University of Arizona’s athletics department, I think there’s going to have to be a broad community discussion.”

“What do we want out of the (UA) athletics?” he asked the board to consider. “What do we want out of the experience? What products do we want to provide?”

Arnold added that the board needed to be “realistic” about revenue generation and “the cost of having a full-blown athletic department.”

UA Global Campus

As for the University of Arizona Global Campus, “We believe that (the acquisition) will have a positive impact on the university as we continue to realize savings through the merger process,” Arnold said.

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UAGC became an asset of the UA on June 30, 2023, meaning all the expenditures of Global Campus had no impact on the miscalculation leading to the current financial crisis, he reported.

He also stated the university has been able to “eliminate positions” that overlap between the main UA campus and the UAGC program.

Arnold repeatedly stated that “the media” made mistakes in reporting on UAGC and on the financial crisis at the university.

He claimed that media outlets reported on the crisis as if it was a “mystical event” with fairies.

DuVal, in his opening remarks, also spoke about “urban legends” and hit back against unspecified articles he said were “simply wrong.”

“Disconnect”

Arnold said he has observed a “disconnect between the actual cost of operating a school and the resources that are being allocated to that school.”

Slowing down the spending right now will allow Arnold and his team to take their time to “put in a more predictive model,” he said.

“I think it’s going to take us a few months to really understand the incentives we want to pursue and design a system that people are comfortable with,” he said.

Arnold blamed decentralization, a model he said is “common” in universities, for perpetuating financial issues.

“We’re going to have to go in and change that structure and that’s going to take some time to really get our arms around,” he said. “Luckily the university is in a financial position where we have the time.”

DuVal echoed Arnold’s statements.

“We must centralize budgeting and every department on campus must be accountable for a budget,” he said, adding later that the issues were “mostly stemming from a decentralized and unaccountable budget unit process.”

The UA used Responsibility Centered Management, also known as RCM, until switching a couple years ago to Accountability Informed Budgeting, also known as AIB. Both have been unpopular with faculty members, and Robbins has committed to implementing a new budgeting model.

Regent Lyndel Manson was concerned about the timing of implementing the new model, which, according to Arnold’s estimates, would begin in 2025. She said she wanted to make sure the university was not operating in a “business as usual” sense.

Thanking Robbins

Arnold did not present much about what his plan will be going forward but told the board he looks forward to speaking again. He also thanked Robbins and said he enjoyed “being down on campus very, very much.”

“It’s been welcoming and 100% cooperative,” he said. “Everyone there that I’ve encountered so far from the president on down recognizes that there are issues there, but they want the university to address and fix these issues as quickly as possible.”

DuVal said the university is “on the right track.”

“Today, it is a strong university with world class teaching and research and brilliant students,” he said, thanking Arnold and Robbins. “We have a bright future.”