'Crying poverty': USC budget cuts are unjustified, third-party report says

A third-party report commissioned by a USC faculty group suggested that the university’s ongoing controversial budget cuts are unnecessary.

The analysis, completed by an accounting professor at Eastern Michigan University, is the first formal report to question the university’s claim in November that it must slash spending to ensure “long-term financial resiliency.”

USC has since cut several popular programs — including free tuition for the children of employees, select merit scholarships, and funding for the Daily Trojan newspaper — which has drawn outrage from students and employees.

“The university is crying poverty when there’s no reason to do so,” said Howard Bunsis, the accountant who completed the analysis, in a webinar last week.

USC’s chapter of the American Association of University Professors paid Bunsis for his work, a chapter spokesperson said.

The accountant has completed similar analyses at several other schools, most notably the California State University system. Previous universities subject to Bunsis’ scathing reports have described him as “a paid consultant with a pre-conceived agenda.”

A USC spokesperson did not respond to multiple requests for comment about Bunsis’ findings.

Claims of budget deficit ‘not supported’

The crux of USC’s justification for budget cuts is the fact that it ran on a $158 million operating deficit last school year, meaning it spent more than it made on core services like academic programs and the healthcare system.

That calculation, however, excludes non-operating income like investment gains and donations to the endowment. All told, USC added over $600 million to its coffers last year, audited financial statements show.

Still, even separate that income, Bunsis’ report contested the notion that drastic budget cuts are needed to avoid future operating deficits, arguing that such projections are unaudited and posed by “overly pessimistic” administrators.

“Any claims of budget ‘holes’ or ‘deficits’ or needs for budget cuts are not supported,” Bunsis wrote.

USC has blamed inflation, rising insurance costs, lowering graduate student enrollment, increasingly generous financial aid, and “the rising cost of college athletics” — among other things — for its deficit.

In its most recent financial statements, the university reported sitting on $11.7 billion of assets. It is not free to spend all its cash, though.

Three-fifths of USC’s assets are donor-restricted, which typically means the school has to wait until a designated time to spend the money. Until then, it can only draw on the interest the donation accrues.

USC’s primary reserve ratio — a key measure of financial health that, in this case, is calculated by dividing unrestricted reserves by annual expenses — suggests that if all of the university’s revenue were to abruptly dry up, it could sustain itself for 6.5 months.

The scenario is unrealistic, but it serves as a measure of financial health that Bunsis argued indicates USC is in “excellent” condition.

“I’m not claiming that reserves are a pot of cash sitting in the president’s office,” Bunsis said. But, he added, such robust reserves afford the university significant “financial freedom and flexibility.”

Bunsis’ rosy assessment of USC’s financial health is backed by strong ratings from Moody’s and S&P, two of the so-called “Big Three” credit rating agencies.

Notably, last March, Moody’s downgraded USC’s rating from its second-highest to third-highest tier, citing the university’s underperforming healthcare system. The agency still lauded USC’s “solid revenue growth across its business lines.”

USC has not cited the credit rating or healthcare revenue in any justification for its cost slashing.

Beyond contesting budget cuts, the report could serve as ammunition for faculty during future negotiations at the end of a bitter ongoing union drive. The report does not address Donald Trump’s threats to pull funding from universities that do not comply with his orders.

Check out our live layoff and budget cut tracker. Tomo Chien can be reached here.