Regents pull from higher ed rainy day fund as board looks to cover massive budget shortfall triggered by coronavirus
Amid the most drastic hit to state revenues since the Great Recession, the Board of Regents voted unanimously Friday to inject a one-time $50 million rainy-day payment into the budget for fiscal year 2021. The money will add to a wide-ranging slate of budget cuts meant to cover an additional 5 percent cut requested by the governor's office early this month.
In total, the system is planning on cutting nearly $160 million dollars between the 2020 and 2021 fiscal years, including cutting 19 percent of the budget in 2021 alone. It comes as the state government scrambles to cover $900 million in lost revenue for 2020 and a likely $1.3 billion loss in 2021.
The new money will come from a mix of the higher education system's so-called "market fluctuation" account — a fund that, in the past, has been used to boost funding to deferred maintenance or special project — as well as the system's operating reserves.
System Chief Financial Officer Andrew Clinger said those funds combined for roughly $99 million as of May 30, though they did not function as a "traditional" rainy day fund. Instead, they remain tied to financial markets — and are therefore vulnerable to any volatile market swings that may occur over the next fiscal year.
As the stock market collapsed in February and March, Clinger said the accounts in question collectively lost about $80 million, leaving just $46 million.
"I think given the circumstances and given the dire situation that we're facing and other state agencies are facing, that the option to utilize these funds, at this time, in my opinion, makes sense," Clinger said. "We do have sufficient reserves left in the operating fund to absorb normal changes in the market. If, obviously, we see February and March again — we won't."
Regents had approved initial budget cuts amounting to 4 percent in 2020 and 14 percent in 2021 in April, instituting a system-wide hiring freeze, slashing operating budgets and planning wide-ranging furloughs in the process.
But as the state's revenue holes became clear — and worse than initially expected — over the last month, Gov. Steve Sisolak requested additional cuts of 5 percent in fiscal year 2021 for all state agencies.
Complicating matters were lingering questions over the availability of federal relief through the CARES Act, the sweeping coronavirus economic relief package passed by Congress in March. In April, NSHE was allocated more than $60 million in federal coronavirus relief, including $30 million that has been allocated to the system itself.
But Clinger said the system has yet to receive specific instructions from the Department of Education on how, exactly, those funds may be used, and that future budget decisions may not be able to use the $30 million in federal money already allocated as part of the April budget decision.
Friday's vote did not zero out either the market or the operating accounts, instead leaving roughly $49 million to continue monthly operating payments to individual institutions.
But some regents raised concerns that the $50 million "isn't cash in the bank account" and that continued market volatility — much like the sudden plunge markets took just a day before — could erase existing reserves without warning and leave individual institutions out to dry in the process.
"There's just too many unknowns, about the governor's response to what we're doing and how he wants us to proceed," Regent Laura Perkins said. "So I would feel more comfortable waiting until we had just a little bit more clarification on the governor's instructions, on the CARES Act, and on the other things that are going to influence this dispersion."
Still, Chancellor Thom Reilly told regents that there was no way for the board to wait to take action on the budget, and that regardless of specific direction from state leaders, the board had to find a way to comply with the governor's additional 5 percent cut.
"We have received very clear direction from the governor on the additional 5 percent," Reilly said. "So, I don't see it as an option not to do that."
Budget documents shared with regents also showed massive revenue losses totaling roughly $120 million across Nevada's eight higher education institutions.
Those losses include a cut of $25 million in state money meant to buoy the construction of a long-awaited medical educational building for UNLV, as well as millions in lost business and additional employee compensations.
Though regents have so-far made cuts with the aim of blunting furloughs and outright avoiding layoffs or the wholesale cutting of programs, there remained a sense among some regents that the cuts could grow worse.
"I think we have to start looking strategically and seeing if there are things that we can consolidate and eliminate some duplication and programs where that makes sense, perhaps maybe more online offerings where different institutions can take advantage of those things," Regent Patrick Carter said. "But I think we've reached the point where we have to have that conversation."