Purpose
The purpose of the University Unrestricted Strategic Reserve Fund (University Reserve Fund) is to help ensure the long-term ability of the New Jersey Institute of Technology (NJIT or University) to meet its mission. NJIT will maintain financial reserves adequate to ensure responsible fiscal management, advance University priorities, mitigate current and future risks, and preserve NJIT’s investment grade bond ratings. Building reserves is an important component of long-term strategic planning as such reserves provide operational flexibility to respond to externalities and unexpected events.
Oversight
The operation and oversight of the University Reserve Fund is delegated to the President, Senior Vice President for Finance and Chief Financial Officer, and the Audit and Finance Committee of the Board of Trustees.
Target Minimum Amount
The minimum amount to be designated for the University Reserve Fund will be established as an amount sufficient to maintain ongoing operations and programs for a period of time, measured in months. The University Reserve Fund serves a dynamic role and will be reviewed and adjusted in response to internal and external changes.
The initial target minimum amount for the University Reserve Fund is equal to three months of unrestricted operating expenses on average. The target minimum amount of the University Reserve Fund utilizing average FY22 unrestricted operating expenses is $70.0 million.
The calculation of average unrestricted operating expenses includes all recurring, predictable expenses such as salaries and benefits, equipment, travel, debt service, and ongoing professional services. Depreciation, in-kind, State paid fringe benefits, student financial aid, and other noncash expenses are not included in the calculation.
Funding Reserves
To establish the University Reserve Fund, NJIT’s Board of Trustees has designated approximately $30.0 million as the beginning balance of the fund. Achieving the target minimum amount will be accomplished through funding strategies incorporated into budget planning.
The amount of the annual University Reserve Fund target will be calculated each year as part of the annual budgeting process. The amount to be contributed to the University Reserve Fund, if any, will be funded as a separately stated expense in NJIT’s annual operating budget. The 2 University Reserve Fund status will be reported in the regular financial reports prepared for the Audit and Finance Committee of the Board of Trustees. The President of NJIT or the Senior Vice President for Finance and Chief Financial Officer may from time to time direct that a specific source of revenue or expense savings be set aside for the University Reserve Fund. In addition, year-end unrestricted operating surplus may be transferred to the University Reserve Fund upon the recommendation of the Senior Vice President for Finance and Chief Financial Officer and approved by the President. The Senior Vice President for Finance and Chief Financial Officer will notify the Chair of the Audit and Finance Committee of the Board of Trustees upon transfer of funds to the University Reserve Fund.
Investing and Accounting for Reserves
The University Reserve Fund will be funded and available in cash and cash equivalents funds, in accordance with the risk preferences, liquidity needs, and investment objectives of NJIT. The University Reserve Fund will be commingled with the general University cash accounts but segregated in the financial reporting system in a current unrestricted strategic reserve fund. The status of the University Reserve Fund will be reported in the financial reports provided to the Audit and Finance Committee of the Board of Trustees.
Using Reserves
The Senior Vice President for Finance and Chief Financial Officer, in consultation with the appropriate area Vice President, will identify reasons for accessing the reserve funds and confirm that the use is consistent with the purpose of the reserves as described in this Policy. As part of this process, the Senior Vice President for Finance and Chief Financial Officer will:
- Analyze the reason for the needed funds;
- Assess the availability of any other resources before using reserves;
- Evaluate the time period that the funds will be required; and
- Evaluate the plan for replenishing the fund
The Senior Vice President for Finance and Chief Financial Officer will submit a request to the President, which will include an analysis and determination of the use of funds and plans for replenishment. The President will approve or modify the request, in writing, and authorize transfer from the fund. Email is an acceptable form of notification and acknowledgement. The Senior Vice President for Finance and Chief Financial Officer will notify the Chair of the Audit and Finance Committee of the Board of Trustees before funds are drawn from the University Reserve Fund. Prior Board of Trustees approval is required when a draw from the Reserve Fund equals or exceeds the current threshold for expenditures requiring Board approval.
Any funds borrowed from the University Reserve Fund for longer than six months will be paid back and/or replenished through a prescribed repayment schedule. The Senior Vice President for Finance and Chief Financial Officer is responsible for ensuring that the University Reserve Fund is maintained and used only as described in this Policy. Upon approval for the use of the University 3 Reserve Fund, the Senior Vice President for Finance and Chief Financial Officer will maintain records of the use of funds and plan for replenishment.
Review of Policy
This policy will be reviewed every three years by the Senior Vice President for Finance and Chief Financial Officer in accordance with the procedures outlined in subsection B of section IV of the University’s Policy on the Development of University Policies. However, the policy may be revised sooner if warranted by internal or external events or changes. Recommended changes to the policy will be communicated to the President and the Audit and Finance Committee of the Board of Trustees for review and to the Board of Trustees for approval.