It may take the University of Arizona "a decade plus" to restore cash reserves to the Arizona Board of Regents' minimum requirement, UA's Chief Financial Officer John Arnold told the board Thursday.
UA's days' worth of cash on hand has increased but is still significantly below the level mandated by the regents, who oversee the state's three universities.
The university is expected to have 76 days' worth by the end of this fiscal year, up from 67 days' worth initially projected in its FY 2025 budget.
But the ABOR minimum is 143 days, and its target range is 143 to 239 days.
Also, UA's reserves are an average of 90 days less than ASU's and NAU's, the regents were told. The number of days' worth of cash on hand projected for the end of this fiscal year by ASU stands at 160 and by NAU at 170.
“There are ways of increasing cash on hand (but) we don’t want to put perverse things in place, and so, this is going to be a longer-term strategy,” said UA President Suresh Garimella in response to a question from Regent Lee Stein on how the UA plans to deal with the issue.
John Arnold, UA CFO/COO
“Because we’re fixing a lot of things at the same time that the cash on hand has gone so low, that it doesn’t make us comfortable at all. … But we don’t want to somehow hit that number in unhealthy ways, and so, we’re thinking very carefully about it," Garimella said.
Since revealing a financial crisis a year ago, the UA has cut its projected budget deficit from $177 million to $63 million, and plans to reduce it to zero by July 1, 2025. During that crisis, the lowest UA's cash on hand fell was to 67 days.
“U of A has an uptick right now compared to what they expected at the end of last year, and in all of these circumstances, the feedback that we’re getting is that the universities have a hold on how to manage this,” said Bradley Kendrex, ABOR vice president of finance and administration.
To Stein’s question, Arnold said the UA will need to continue to exercise fiscal discipline to make sure it's allocating a portion of revenues into cash reserves. That is built into the budget moving forward, but reaching the goal could take years, he said.
The UA's priority is to restore its days' cash on hand in a way that aligns with its ongoing commitment to investing in academic programs, addressing capital needs, and supporting the faculty and staff who serve students, UA spokesperson Mitch Zak told the Star. "The idea is to take a measured approach to meet this critical objective prudently," he said.
Arnold said that he and Garimella had an "early conversation" last week, after the president joined the UA on Oct. 1, and decided they need more time to plan and think about how to increase cash reserves before having a better answer for the board.
Stein also asked if the UA's current liquidity figure hinders it from borrowing money.
Arnold said the rating agencies had put the UA on negative watch but didn’t lower their rating, so he doesn't expect it to have a significant impact unless the school's finances worsen.
However, he said it could cost the university a "couple of percentage points" and affect "our debt costs" in a minor way.
"... Our debt position is really, really strong right now. They're certainly watching us, the market's watching us, but we just did a debt refinancing — no trouble at all, our access to the markets is fine, and I don't believe we would see a downgrade unless we saw another change in our financial outlook," said Arnold. "The rating agencies have seen seen stability and a more positive outlook, and as long as we continue on that path, we'll be fine from that perspective."
The UA refinanced $116.5 million of debt at an interest rate of 3.6%, Zak told the Star.
