University Operating Fund Reserve

Contingency: An ongoing, base budgeted source of funding that is set aside annually, yet is not committed for a specific purpose. The contingency may be used on an exception basis, as approved by the president, to cover unexpected costs or revenue decreases within a given year. Unspent contingency at year-end will be allocated to reserves. (Note: The Contingency is part of the annual operating budget and is not covered within the Reserve Policy.)

Designated Reserves: An accumulation of unrestricted funds set aside for economic uncertainties, unexpected, expenses, losses, and cash flow shortages. Reserves are a one-time source of funding. Once reserves are spent, they are gone, unless replenished from an alternate funding source.

Designated reserves in the following area need to be addressed:

• Operating Reserve for Economic Uncertainty
   

Designated Balances: An accumulation of unrestricted funds set aside for large repair or renovation projects, the acquisition and development of new facilities, and/or future planning purposes. Similar to designated reserves, designated balances are a one-time source of funding. Once designated balances are spent, they are gone, unless replenished from an alternate funding source.

Designated balances in the following areas need to be addressed:

• Designated Balance for Facilities Maintenance and Repairs
• Designated Balance for Capital Improvement/Construction
• Designated Balance for Equipment Acquisition
   

• Building designated balances and reserves is an important component of long-term, strategic planning to meet the University’s objectives.
• Designated balances and reserves used to make up for unexpected revenue shortfalls or unforeseen costs should be accompanied by a near-term plan to increase revenue or reduce expenditures to replenish the reserve.
• While it is appropriate to use designated balances and reserves to resolve timing problems, designated balances and reserves should be used only to provide a bridge to a solution rather than as a means to delay addressing a structural issue.
   

1. Operating Reserve for Economic Uncertainty
   The Operating Reserve for Economic Uncertainty provides flexibility to take mission-related risks and to absorb or respond to temporary changes in environment or circumstances. Without adequate designated reserves the University can suffer cash flow stress and become distracted from good long-term decision making. The Operating Reserve for Economic Uncertainty may also be used on a short-term basis to fund strategic initiatives. Any spending out of the Operating Reserve for Economic Uncertainty must be accompanied by a plan to replenish the reserve fund.
   • CSU Designated Balances and Reserves Policy (Reserve for Economic Uncertainty): A target minimum of three months (25%) and maximum of six months (50%) of budgeted operating costs
   • Operating Reserve for Economic Uncertainty Target: 25% of Base Budget Expenditures
2. Designated Balance for Facilities Maintenance and Repairs
   The Designated Balance for Facilities Maintenance and Repairs provides protection against unforeseen facilities and infrastructure issues and emergencies that may arise during the year, such as a roof leak or a boiler that stops operating effectively. The Designated Balance for Facilities Maintenance and Repairs is not intended to be a sustained resource for planned deferred maintenance projects. A separate, ongoing deferred maintenance budget shall be established to address ongoing deferred maintenance and capital renewal needs. While the primary purpose of the Designated Balance for Facilities Maintenance and Repairs is to mitigate extraordinary events that have their roots in deferred maintenance issues, under special circumstances it may also be leveraged to support capital projects as long as the documented use of reserves is accompanied by a reserve replenishment plan.
   • CSU Designated Balances and Reserves Policy: No system-imposed ceiling – Association of Physical Plant Administrators (APPA) recommends a reserve level for capital and maintenance between 1% and 3% of the Current Replacement Value (CRV) of University facilities.
   • Designated Balance for Facilities Maintenance and Repairs Target: 1% of CRV
3. Designated Balance for Capital Improvement/Construction
   Beginning in 2014-15, the CSU capital funding framework was changed to require the CSU to self-fund future capital projects, which dictates the need for Sonoma State to maintain a Designated Balance for Capital Improvement/Construction. The Designated Balances for Capital Improvement/Construction provides the funding necessary for the University to acquire, develop, and/or renovate University facilities.
   • CSU Designated Balances and Reserves Policy: No system-imposed ceiling – the proposed CSU debt policy “requires campuses to set aside reserves to fund future projects costs for university facilities and infrastructure” (CSU Legal Manual Chapter 15 – Capital Projects – Funding for University Facilities). Campuses are expected to cover the costs of planning, working drawings, and equipment associated with each project, which are estimated at about 10% of the total project cost.
   • Designated Balance for Capital Improvement/Construction Target: 10% of the cost of all capital projects included in the CSU Five-Year Capital Improvement Plan.
4. Designated Balance for Capitalized Equipment Acquisition
   The Designated Balance for Capitalized Equipment Acquisition provides funding for any necessary equipment that may need to be purchased, outside of a department’s regular operations. Examples of this may include IT network infrastructure, large equipment, bleachers, etc.
   • CSU Designated Balances and Reserves Policy: No system imposed ceiling –Designation for Equipment Acquisition, per ICSUAM 2001.00.
   • Designated Balance for Equipment Acquisition Target: 10% of Current Replacement Value (CRV) of capitalized equipment.