Board of Regents Policy Fund Balances Policy

In higher education finance, fund balances are synonymous with reserves - they represent the accumulated net position of funds that institutions rely on to ensure fiscal stability, manage risk, and support strategic initiatives. This policy establishes a consistent framework across the Connecticut State Colleges and Universities (CSCU) System for reporting, maintaining and replenishing fund balances. By defining reserve requirements and governance protocols, the policy aims to promote transparent financial stewardship and accountability surrounding an institution’s long-term sustainability plan.

Fund balances are reported annually in the college or university’s audited financial statements and are disaggregated into the following three (3) major categories: Unrestricted, Restricted and Net Investment in Capital Assets. Subcategories are shown in the graphic and defined in the next section.

Unrestricted Funds

• Current Unrestricted Funds
• Designated Funds
• Plant Funds

Restricted Funds

• Non-Expendable Restricted
• Expendable Restricted

Net Investment in Capital Assets

• Capital Assets & Related Liabilities

Unrestricted Funds are resources received by a college or university that have no limitations or stipulations placed on their use by external agencies or donors. These funds are often deemed the most desirable resources for an institution, since they offer the most flexibility in how they can be spent. Tuition, fees, and legislative appropriations are typical examples of revenue sources received as unrestricted current funds.

• Current unrestricted funds are a subset of unrestricted funds that are available within the current operating period and are not subject to external restrictions nor have been designated by management for use on special projects.
• Designated funds result from internal designations placed on resources by the governing board or institutional management and constitute an allocation of current unrestricted funds. These designations can change at any time. Any unrestricted resources designated to specific fund groups (plant, loan, or quasi-endowment) are included in such fund groups by a transfer, which can be either mandatory or non-mandatory, depending on the circumstances.
• Plant Funds are also designated by management and consist of non-capital/non-bonded monies for the payment of interest and/or principal on plant-related debt, funds for approved plant construction or acquisition, renewal and replacement of facilities (including maintenance of plant), and equipment replacement or acquisition.

Restricted funds are resources provided to a college or university that have externally established limitations or stipulations placed on their use. Such restriction can be broad or specific, but these balances are not governed by this policy.

• Restricted Non-expendable Funds are resources subject to donor or external restrictions that must be maintained in perpetuity. The principal cannot be spent, but investment earnings may be used in accordance with the specified purpose. These are typically associated with endowments.
• Restricted Expendable Funds are resources received with external stipulations that limit their use to specific purposes, programs, or time periods. While the principal can be spent, expenditures must comply with the donor or grantor’s conditions.

Net investment in capital assets represent capital assets, net of accumulated depreciation and amortization, reduced by outstanding principal balances of bonds, notes, lease and subscription liabilities, other liabilities, and deferred inflows and outflows related to the acquisition, construction or improvement of those assets.

General Provisions

In general, fund balances must be sufficient to:

1. Finance open commitments including multi-year projects not structured on a fiscal year basis, such as implementation of large information systems;
2. Provide funds designated for major expenditures that may require more funds than would be available for the specific purpose in a single year or for a future project; and
3. Provide sufficient funds to ensure financial stability in the event of unfavorable economic conditions and/or permit operation of the college or university for a reasonable length of time in case of emergency.

Each college or university shall maintain a current unrestricted fund balance within the range of 30 to 90 business days of the college’s or university’s total operational expenditures based on the most recent audited financial statements.

The System Office shall maintain a Systemwide unrestricted fund balance equal to one year’s worth of debt service payments, including for principal, interest, and required amounts to maintain the Special Capital Reserve Fund (SCRF) to required levels. 

If an institution is planning to utilize unrestricted funds, this amount should be included in the institution’s spending plan for approval by the BOR at the beginning of the fiscal year. If an institution needs to utilize unrestricted funds in the amount of $500,000 or greater that was not part of the approved spending plan, such amounts shall be approved by the Chancellor and subsequently by the Board of Regents. Ordinarily this approval will take place at the regularly scheduled meeting of the Board of Regents to approve the next spending plan; however, in urgent cases, the Chancellor may approve the use of fund balances. In these instances, the action will be brought to the next scheduled meeting of the Finance Committee for ratification, followed by ratification by the Board of Regents at their next scheduled meeting.

Other unrestricted funds, such as those resulting from entrepreneurial activities or university self-supporting units in addition to endowment, loan, and annuity/life income fund groups may also have unrestricted fund balances. Fund balances for these types of activities will vary depending upon the scope of the activity and will remain with the activity or unit during its lifetime. Should an activity find its fiscal viability threatened, the President will decide as to the continued existence of the activity.

Reports and Monitoring 

Due to the timing of reserves balances being finalized within the audited financial statements, each institution will annually report on its fund balances as part of the mid-year reporting cycle in January. In addition to the budgetary update required in the mid-year reporting cycle, the report will include a breakdown of both unrestricted and restricted funds including the sub-categories defined above. Additionally, this breakdown will include the calculation of benchmark reserves required along with all unrestricted current operating funds transferred or intended to be transferred into the plant fund in that year.

This reporting requirement will ensure this policy is monitored and enforced through the financial reporting actions of the college, university, and system chief financial officers.

Enforcement

Should the college or university’s current unrestricted fund balance fall below the 30-day threshold, the President of the college or university will develop an action plan to restore the unrestricted fund balance to this minimum level within a reasonable time.

Should the Systemwide current unrestricted fund balance fall below the required level, the Chancellor will develop an action plan to restore the unrestricted fund balance to the designated level within a reasonable time.

Should the college or university’s current unrestricted fund balance fall above the 90-day threshold, the President of the college or university will develop an action plan for the utilization of such excess reserves.

Whether from the Chancellor or a President, the action plans referenced in this section shall be presented for approval at the next Finance and Infrastructure Committee meeting and ratified by the Board of Regents at its next meeting. These plans should:

1. Define the time-period and contingencies for which fund balances will be used;
2. Describe how the college or university’s expenditure will be adjusted to address the economic circumstance that led to the use of fund balance as a financing bridge; and
3. Describe the time-period over which the fund balance will be replenished and how they will be replenished.