I. Purpose
The purpose of this Financial Reserve Policy is to establish clear and transparent guidelines for the creation, maintenance, and use of the University's financial reserves.This policy ensures the University's long-term financial health, stability, and its ability to meet strategic objectives, unforeseen contingencies, and debt obligations, in accordance with Section IV A1 of the Legislative Audit Commission University Guidelines requiring publicly available policies for reserves.
II. Scope
This policy applies to all financial reserves held by Illinois State University, encompassing funds established from various revenue sources, including but not limited to, tuition, state appropriations, grants, contracts, and auxiliary enterprises.
III. Definitions
For the purposes of this policy, "reserves" refer to accumulated funds set aside for specific future purposes or to mitigate financial risks. These may include, but are not limited to:
- Operating Reserves: Funds maintained to support current operations, provide liquidity, and absorb unexpected shortfalls in operating revenues or increases in operating expenses.
- Capital Reserves: Funds designated for future capital projects, facility maintenance, renovations, and equipment acquisitions.
- Debt Service Reserves: Funds held to ensure the timely payment of principal and interest on outstanding University bonds and other long-term debt, as required by bond covenants.
- Strategic Initiative Reserves: Funds allocated to support specific long-term strategic plans, investments, or initiatives approved by the Board of Trustees.
- Contingency Reserves: Funds set aside for unforeseen emergencies, natural disasters, or other critical unplanned events.
IV. Establishment and Funding of Reserves
A. Authorization: All University reserves shall be established and maintained under the authority of Vice President of Finance and Planning or his/her delegate.
B. Funding Source: Reserves may be funded through:
- Operating surpluses.
- Specific budget allocations.
- Transfers from unrestricted funds.
- As explicitly required by bond covenants or other legal agreements.
V. Use of Reserves
A. Approval: The use of any reserve funds shall require approval from the responsible Vice President over the division.
B. Conditions for Use: Reserves shall only be utilized for their designated purpose, unless use as determined by the Vice President Finance and Planning is necessary under the following conditions:
- To cover unanticipated operating deficits.
- To fund approved capital projects or deferred maintenance.
- To meet debt service obligations as per bond covenants.
- To respond to unforeseen emergencies or critical events that threaten University operations.
- To fund approved strategic initiatives that align with the University's mission and long-term plan.
C. Alignment with Bond Covenants: The establishment, maintenance, and use of reserves, particularly debt service reserves, will at all times align with the specific requirements and provisions of the University's bond covenants.
VI. Review and Reporting
Public Availability: The University is committed to transparency regarding its financial reserves. This policy will be published and made readily available on the University's official website, ensuring compliance with University Guidelines.