University of Arizona transferred $70 million in endowment money under its direct control

The University of Arizona has transferred $70 million from its endowment to the school’s direct control. The move happened on Tuesday, the last day of the fiscal year.

That’s also the day when the university’s days cash on hand is calculated — that refers to the number of days the school can operate with the money it has at that time.

At the same time, the UA has issued $75 million worth of new bonds for the construction of its new medical research building in Phoenix.

Caitlin Schmidt, editor and publisher of Tucson Spotlight, has written a about this and joined The Show to talk about it.

Full conversation

MARK BRODIE: Caitlin, good morning.

CAITLIN SCHMIDT: Hi.

MARK BRODIE: So why exactly did the U of A move this endowment money, which came directly from donors, into its control?

CAITLIN SCHMIDT: So, the university told me that it’s about efficiency and visibility. But in the letter that the foundation sent to donors, it specifically said that the change will help the UA meet the days of cash on hand targets set by the Board of Regents and the bond rating agencies.

MARK BRODIE: So it’s mostly about making sure that the university is able to continue operating, and also, I would imagine, there are some optics there if they’re issuing bonds, if their borrowing costs might go up, right, if it looks like they don’t have enough days of cash on hand.

CAITLIN SCHMIDT: Yes, I mean, that could happen. So the university has said that these two things are not connected. The timing is certainly interesting given how all of this happened. But even if they aren’t connected, this project is really just kind of an example of the things that will not be funded if the university doesn’t have enough days cash on hand to operate or to be issued bonds or improve that credit rating.

Their credit rating was improved from negative to positive outlook in January. But the bond agency said that that could change should the U of A’s situation change. Back in June, CFO John Arnold reported to regents that their cash on hand had improved from 78 to 84 days, but that still is well below the 140-day target set by regents.

MARK BRODIE: So how, how many days, I guess, does this $70 million buy the university in terms of cash on hand?

CAITLIN SCHMIDT: We’ve been told that it’s about 10 days. So not, you know, I mean, it’s it’s definitely not getting it to that number that it needs to be at, but it sounds like at this point, every little bit helps.

MARK BRODIE: And have, like, what have donors said about this? Like, are they, does it seem like they’re OK with having the money that they thought was going to one place, in fact, going somewhere else?

CAITLIN SCHMIDT: You know, I mean, I’ve seen, I’ve seen some chatter from donors on social media who were either not informed because their endowment does not meet the the specific type that was included in this, and I know that the Arizona Daily Star heard from some donors who were included in this roundup that were not happy about it and had asked, told the university that they wanted to opt out. There was an opt-out option, but again, you know, this was a letter. It’s summertime, people are traveling, so it’s if you didn’t get the letter and you didn’t opt out, you were included in this in this washout.

MARK BRODIE: Right, but it sounds like what you’re saying is this is not the university’s entire endowment.

CAITLIN SCHMIDT: No, not at all. This is just the the payout that they received. So there’s an annual payout at about 4% that comes that is distributed to each department or school that they are supposed to be using as the donor has indicated. And in previous years, the schools were given the opportunity to reinvest that money should they want to in order to continue to grow capital. It’s unclear if they’ll be able to do that. The university told us that they will be allowed to when appropriate, but they didn’t respond to any follow-up questions about what appropriate means.

MARK BRODIE: OK. So, Caitlin, can you tell us a little bit about the building that that the university issued the $75 million worth of bonds for? It’s a medical building here in the Valley, right?

CAITLIN SCHMIDT: Yes, it is a medical building in Phoenix, and it was originally, it’s now called the Medical Innovation Building. It was originally called the Center for Advanced Molecular and Immunological Therapies. So last November, regents approved this $75 million bond to help finance the building. And then in February, the board pretty much doubled a state research fund allocation to the university from $20 [million] to almost $40 million.

And in the board documents, they said that this was to backstop the project’s construction. So as of last September, they had reported no gifts for this project, so it sounds like they were struggling to kind of make ends meet on it.

MARK BRODIE: Yeah, is it surprising that there have been no gifts for it?

CAITLIN SCHMIDT: You know, it’s tough, it’s tough to say. This was a Robert C. Robbins project that started back in 2023.

MARK BRODIE: Former president of the U of A.

CAITLIN SCHMIDT: Former president, yes. He was awarded a bonus tied to fundraising in 2023. Not the full bonus, so he didn’t achieve the full amount. But he did raise some capital towards it. It’s just unclear how much of that was, you know, state funds or federal funds or or gift funds.

MARK BRODIE: And as you as you reported, as you mentioned just a moment ago, the the U of A is saying that the two, even though $70 [million] and $75 million are not that far apart in in value and the timing was fairly similar, these two are not related to each other?

CAITLIN SCHMIDT: Yes, they said that they are not related to each other. You know, they didn’t answer specific questions again about, you know, I’m not, we’re nobody’s suggesting that they are using this donor funds to fund this project, but it certainly does help secure a bond for this project if they’re able to show that they have increased their days of cash on hand. And whether it’s this project or another project, improving that number just helps them to continue to build or finance or fund whatever they’re trying to do to grow their mission.

MARK BRODIE: So maybe a more indirect relationship than a direct one.

CAITLIN SCHMIDT: Definitely.

MARK BRODIE: And does it seem as though the university will eventually end up with the money it needs to to build the medical building?

CAITLIN SCHMIDT: I, you know, again they are not answering more questions than they are answering. So it’s it’s tough to say. They told me that they had they would have secured the funding by this summer to continue and complete construction. Again, you know, if their credit rating improves and they get this bond, that would do it, but they’re saying that they’re going to meet the goal.

MARK BRODIE: All right, we’ll have to see what happens. That is Caitlin Schmidt, editor and publisher of Tucson Spotlight. Caitlin, thanks as always, I appreciate it.

CAITLIN SCHMIDT: Thank you.