I recently read the April 8th article, “PLU’s budget: some hard facts, some soft ones” with a certain amount of bewilderment. While I applaud the effort to understand the university’s complex budget and operations, the article is riddled with inaccuracies and quite frankly, some statements that are simply false. And as the chief financial officer for PLU, I was surprised that no one from The Mast has asked me, or my colleagues, for an interview. Fortunately, The Mast also ran a banner directly below the article asking for feedback from “an expert on the PLU budget.” I am an expert on the PLU budget, and I would like to provide the following clarity on a number of points put forth in the article.
In the opening statement, the reporter notes that she looked into the “sale of KPLU and other assets to be sold soon.” While the sale of KPLU continues, we have no plans to sell any other assets.
The article states that the PLU budget is made up of three major parts: “cash and money… assets and debts.” In fact, what the reporter is describing is the university’s balance sheet. The PLU budget is made up of operating revenues and expenses, with tuition revenue being the largest component of revenues, and faculty and staff salaries being the largest component of expenses. Anyone interested in learning more is welcome to join me over the coming weeks at a series of ASPLU-sponsored conversations focused on understanding the PLU budget and how tuition dollars are spent. The first two events will take place Friday April 22nd and Monday April 25th at 10:30 am in AUC 201.
The article mentions that PLU has “about $5.3M in cash.” This figure was taken directly from the year-end financial statement, and it requires some context. PLU’s primary bank account typically ranges in balance from a high of more than $50 million to a low of $4 or $5 million during any given school year.
That range occurs because tuition monies are received in large amounts each semester, and the cash is used to pay expenses throughout the year. As a result, the cash balance is always lowest around the end of the fiscal year in May. As of the end of February, our cash on hand in the operating checking account was more than $20 million. It is worth noting that while many universities actually borrow on a short- term basis at the end of the school year to pay expenses, PLU has not. Ending the year with more than $5 million in the checking account is actually a sign of financial strength.
Another important part of the asset equation is the value and importance of the PLU endowment. At the same time our cash account held $5.3 million, the endowment was valued at more than $85 million, and contributes more than $3 million annually toward scholarships and endowed faculty positions across campus.
The implication of the article, it seems, is that cash is not sufficient given the amount of debt PLU carries. Yes, PLU has $63 million in debt used to finance construction and remodeling of campus facilities. It would be highly unusual for a private university to not have issued debt as part of its capital raising. If asked, I would have shared that PLU has the lowest debt per enrolled student of any of the independent colleges of Washington (including the likes of Gonzaga, University of Puget Sound and Seattle University).
The article also included a false conclusion when it states that, “many students and staff believed that PLU was selling KPLU to get out of debt;” that the $7 million cash sales price might be used to pay debt. In fact, the administration and Board of Regents have committed to placing that $7 million directly into the endowment to earn money in support of student scholarships.
That PLU might default on its debt is simply not true. It is true that PLU did not meet a loan covenant requirement for liquidity, and anytime you violate a loan covenant, you are considered potentially in default until the covenant is cured, or a waiver is obtained. The explanation of the debt covenant violation is lengthy, but please know that PLU obtained the waiver in December. The bottom line is that PLU is nowhere near defaulting on its debt. In fact, our debt service coverage (the ability to pay the current year debt costs) is considered very strong at more than 1.6 times the debt amount, and it far exceeds our covenant requirement of 1.1 times.
It’s also worth noting that a number of financial institutions have been competing for the right to refinance our debt over the past few months. In the last two weeks, PLU was provided a commitment letter from a regional bank to refinance the entirety of our 2006 bonds totaling $52 million. While they fully recognize the enrollment challenges faced by all private universities, they also recognize PLU’s sound financial position and ability to easily service our debt. As a result, PLU will save a minimum of $800,000 annually through 2037 on our debt service costs.
The statement that “PLU has actually been deferring its bond payments” is also incorrect. PLU has never missed or delayed a bond payment, and in fact we maintain a separate cash balance with another financial institution in excess of the required annual debt payment at all times as a debt service reserve. That amount is currently greater than $3.8 million, and yes, that is a cash asset above and beyond the amount in our operating checking account.
The statement “PLU actually owes KPLU $2 million in cash” shows a lack of understanding of basic accounting principles and of PLU’s structure. The first thing to know, which may come as a surprise to many, is that KPLU doesn’t exist as a separate legal entity. KPLU is a department of PLU. Take a moment to search for KPLU on the Secretary of State’s charities web site and you will see that PLU is the only legal entity, and that KPLU is a DBA, or “doing business as” name used to support the station. Like any other department on campus we use the accounting term “due to” or conversely, “due from” to indicate how much of our total cash on hand is associated with any given fund or project. Since there is only one PLU there will never be a need to “fork over the money.” The University of Washington recognized this fact in the purchase agreement, which states that no cash or deposits on hand at PLU are included in the purchase.
You might also be interested to know that PLU provides more than $1.5 million annually in in-kind support to the station, including technology infrastructure, accounting systems, human resources, audit and legal services, and many other costs that are direct expenses paid by the university. Should the Friends of 88.5 community group succeed in purchasing the station, these are real costs that the new station will have to raise annually to operate on a stand-alone basis.
Finally the article states that, “PLU is consolidating, streamlining and trimming the fat around campus.” PLU is certainly being much smarter about our finances, and proactively taking steps to stop wasting money that could be used to better support our students. Yes, the bookstore loses money. Yes, we are looking for smarter options. Yes, students have indicated they would prefer the bookstore be more conveniently located on campus. We aren’t pursuing options, as the reporter suggests, because the budget might not be in fine shape, although that would be a logical reason to stop losing money on any venture. We do it because we strive to invest more wisely in our shared future at PLU, and it simply doesn’t make sense in this age of online shopping to support a 15,000-square-foot operation that is more than twice the size of bookstores at similarly sized campuses.
The article concludes with the question, “Did you know PLU currently has $5 million tied up in construction in progress?” If asked, I would share that the $5.0 million represented the work being done on Ordal last summer and was funded with bond financing so it didn’t ‘tie up’ any funds that could have been used for other purposes. I would also share that the project is complete and that there is no longer $5.0 million in construction in progress.
I hope that The Mast reporters will ask questions directly of PLU staff and administrators who can shed light on budget matters before publishing more articles on the subject. My door is open, and I welcome your thoughtful questions.
Allan Belton, VP for Finance & Administration 🅼