June 24, 2024 / Modified jun 24, 2024 11:49 a.m.

UA leadership talks budget cuts, seeks organizational restructure of athletic department

New budget structure reduces $177 million deficit to $52 million

John Arnold ABOR 6/20/24 Newly appointed University of Arizona Chief Operating Officer, Chief Financial Officer, and Senior Vice President John Arnold (left) discusses the university's budget during the June 20, 2024 ABOR meeting.
ABOR Livestream

University of Arizona (UA) leadership addressed budget cuts and the athletic department’s deficit at Thursday’s Arizona Board of Regents (ABOR) meeting.

President Robert Robbins said that the UA is working aggressively to address the $177 million structural deficit affecting the school’s cash reserves.

Robbins highlighted the implementation of “efficiencies” such as the centralization of IT and HR departments and focusing on marketing, business operations, and fundraising across all units.

The budget cuts include a 3.7% reduction for academic units and 12%-15% for administrative units.

The school is also considering reducing merit aid and has eliminated the four-year tuition guarantee plan, which has been discussed for the past seven years, Robbins said, noting that these measures will be beneficial in the future.

FY 2025 Highlights

Despite the cuts, the school aims to grow its revenue.

An independent assessment completed by the consulting firm, Ernst & Young suggested ways the athletic department, the school’s department with the largest deficit, could increase its revenue.

“With all of the changes in college athletics, if we’re going to continue to have a Power 4 athletics program at the University of Arizona, we’re going to have to look at ways to cost shift and eliminate some costs such as security costs, facilities costs, more tuition waivers for students that take online courses as well as enroll in the spring and summer courses,” Robbins said.

John Arnold, senior vice president and chief financial officer announced a shift from activity-informed budgeting (AIB) which allocates revenues to operating units of the university, to a cost-budget structure, which removes the incentive pieces that have been in prior budget models.

“We’re reducing the deficit from the $177 down to $52 million,” Arnold said.

State budget cuts for FY 2025, include $6.6 million for the main campus, $1.5 million for UA Health Sciences, $4 million for the Arizona Promise Program, a guaranteed scholarship program for in-state students, and $1.5 million for the Arizona Teachers Academy (ATA), a program for in-state students enrolled in the Educator Preparation Program (EPP).

“The state built into their budget another reduction next year of $14.7 million that is already pre-baked in for fiscal 26,” Arnold said.

That money is actively funding programs in UA Cooperative Extension, AZ Healthy Tomorrow, a plan that looks to grow the state’s healthcare workforce, and a cancer-engineering project.

“We’re talking with those units about winding those investments down,” Arnold said.

Regent Larry Penley highlighted the misconception of significant state support for public universities, revealing the state provides only 13 cents per dollar to the UA.

“We depend upon out-of-state and international student revenue, tuition revenue from Arizona residents, although we’ve substantially as President Crow noted a moment ago, increased financial aid out of the budgets that we have,” Penley said.

UA still plans investments into the Eller College of Management, School of Information (iSchool), College of Nursing, international recruitment efforts, as well as capital investments which include the Arizona State Museum, the Paul and Alice Baker Center for Public Media, and the Center for Advanced Molecular & Immunological Therapies (CAMI).

The budget reserves funds for general deferred maintenance on campus, security improvements, refurbishment of the Shantz building on the main campus, and relocating the Hydrology and Atmospheric Sciences department.

The current outstanding debt is $1.339 billion but UA leadership remains hopeful and forecasts that the university will end FY 2024 with 73 days cash on hand if two upcoming “major cash events” go well and drop to 67 days by FY 2025.

“Take us from about $550 million in cash reserves to $500 million in cash reserves,” Arnold said.

In July, the university promised to publish a detailed budget book that will expand on specific budgets and revenue sources for each budget unit, however budgets for administrative units will be published before then, Arnold said.

“We’re still working through the recommendations that came through the Ernst & Young process and that will impact UAGC’s budget into this upcoming year,” Arnold said.

UAGC has been incorporated into a preliminary budget, expected to be $300,000 accretive to the FY 25 budget.

Arizona Athletics

Arnold discussed the Ernst & Young assessment of the athletics department, revealing a $33.6 million deficit with $95.2 million in revenues and$128 million in expenses for FY 2024.

The assessment suggested that operational changes could reduce the deficit to $1.7 million in FY 2025, by making $16 million to $24 million in operating improvements over the next three to five years.

The department forecasts a $9.1 million new revenue stream through ticket and parking, better development, and conference revenues, but also a $9.3 million revenue loss due to changes such as transitioning to the Big 12 conference and a new media rights contract.

“A big chunk of that is a one-time revenue that we sold our head football coach to the University of Washington,” Arnold said.

Potential operating cuts of $2.5 million include “expense transfers” of security, facilities costs, and the marching band budget to the College of Fine Arts.

An administrative service charge, not unique to athletics, which made up $7.1 million from charges to the colleges, will also be eliminated campus-wide.

The assessment revealed that the athletic department lacked established protocols and procedures in human resources, including hiring practices, compensation, bonus processes and merit increases, and budget procedures.

“The organizational structure hadn’t been looked at for a very, very long time,” Arnold said. “Several of the departments noted they didn’t know what their budget was and there seemed to be limited accountability, tracking or communication around [the] budget.”

Issues were also found in purchasing, particularly with travel expenses like lodging, meals, and the widespread use of corporate credit cards (P-cards).

The department was also underperforming in fundraising, ticket sales, and parking.

Athletics’ debt is divided into two parts: $171 million in outstanding principal for capital improvements to university facilities and $95.7 million in internal loans from the university over the last three years to cover operating deficits.

“At this time, we are not planning to forgive these debts, but we’re planning to change the debt service schedule that athletics owes back to the university and base it around net revenue instead of a set debt service schedule,” Arnold said.

5-Point Plan

The independent assessment led to the development of the 5-Point Plan, to address the department’s shortfall and improve operational and financial accountability.

1. Streamlined Organizational Structure

“We have to design and implement a refined organizational structure, including peer benchmarking, analysis, and alignment with departmental priorities,” said Desiree Reed-Francois, the new UA athletic director.

The department committed to reducing $500,000 in administrative leadership personnel costs and implementing transparent hiring compensation practices.

AZPM asked the athletic director about layoffs and Reed-Francois said, “We are working through our organizational structure and that process methodically continues.”

Two new positions were created: Tony Daniels as the senior associate athletic director for revenue generation (chief revenue officer) and Rachel Blunt, as the chief operating officer. The department is also looking to hire an associate athletic director of contract negotiation and management.

2. Implementation of New Processes and Culture

Reed-Francois emphasized the need to reinforce accountability saying, “It can’t be cost creep any longer, it has to be cost-leadership.”

This step includes monitoring key performance indicators and realizing operational savings.

3. Priority Budgeting

This step, which will be implemented in the fall, involves using financial forecasting and analytics to optimize revenue generation.

4. Revenue Generation

Focus areas include fundraising, development strategies, the fan experience, and establishing in-house corporate sponsorship.

Reed-Francois announced the creation of Arizona Sports Enterprises (ASE), a nonprofit to manage multimedia rights agreements and operations.

That program is already beginning.

“We feel that this best meets the changing landscapes of intercollegiate athletics and it captures the full value and optimizes coordination,” Reed-Francois said.

5. Adaptation, Preparation, and Continued Learning

The department contributes about $265 million in economic impact to the state but still faces challenges.

This step looks at the possibility of revenue-sharing with student-athletes and remains at the forefront of the department’s planning process.

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