By Prerana Sannappanavar
The Arizona Daily Star, Tucson
(TNS)
The University of Arizona’s plan to take legal ownership of $70 million in endowment interest from the UA Foundation is an “accounting trick” to make it appear to have more cash on the books, even though much of that money must be spent for purposes earmarked by the donors, according to an outside finance expert and a donor.
In informing endowment donors of the change, which they can opt out of, UA Foundation President and CEO John-Paul Roczniak said the university proposed transferring the money from the foundation partly to help UA meet its cash-on-hand targets mandated by the Arizona Board of Regents and bond rating agencies. UA’s current 78 days’ worth of cash on hand is 65 days lower than ABOR requires it to have.
Endowments are invested private donations designed to provide permanent, long-term financial support for the university. Rather than spend the original contributions—the principal—the UA Foundation (a nonprofit 501(c)(3) corporation) invests the funds, and the UA uses a percentage of the annual earnings to pay for programs as specified by donors.
Speaking in his personal capacity, Ricky Hernández, chief financial officer of Tucson Unified School District, told the Star he believes that through the transfer from the foundation to the university, UA “can count the receivables from the residual earnings on those endowments as part of their cash metrics.”
“For example, there might be a restricted endowment that is there to pay for an eligible operating expenditure that would not be counted as part of the University’s cash on hand because they have not received the cash until the Foundation distributes those residuals to the University,” he said in an email.
He said based on general accounting principles, the UA Foundation is presented as a “discrete component unit” in UA’s financial statements, and although its function is to support the UA’s mission, the UA cannot report the cash as its own.
“By taking legal ownership of the endowments, since the endowments are being used for a restricted purpose on campus, UA is able to account for the residual income estimates as future cash on hand on their financial statements,” Hernández said.
A donor to the UA Foundation, who asked that their name not be used, said they opted out of the change because of concerns it signaled a “lack of transparency” that indicates “larger financial issues” at the UA.
“This change seems like an attempt to create the illusion of financial progress, (and) I also believe it is detrimental to the credibility of the foundation,” they said.
The donor told the Star they didn’t think it is good policy to do things that “appear to be an accounting trick or scheme” when it comes to donors or financial matters. It makes people distrust the institution, they said.
Phoenix attorney Ellis Carter, who exclusively represents nonprofit, tax-exempt and mission-based businesses, said the transfer is beneficial to the university “because having higher liquidity benefits it, makes it look stronger on its books, and (the UA) would probably face higher bond rates and borrowing rates if they have less liquidity.”
It is obviously a benefit to the university “if they’re experiencing a cash crunch,” Carter told the Star in an interview, adding that it should be an “okay use of those funds” if they’re just general endowment funds.
“What you’ll see some nonprofits do, which can be dicey and violates the rules, is when they go into financial trouble, they think, ‘Oh well, we’ll just borrow from our endowment fund.’ That can be where they start taking the principal of the endowment fund,” she added.
The UA’s plan is legally sound as long as the interest amounts are within a certain percentage of interest set by state law, Carter said.
The UA says it will spend the interest for the specific purposes earmarked by donors to endowments, when specified. To do otherwise, by spending that money for anything else at the university, would be illegal, Carter said.
She said a uniform state law called the “Uniform Prudent Management of Institutional Funds,” adopted by 49 states including Arizona, governs how nonprofit organizations like the UA Foundation, universities and charitable institutions are supposed to manage, invest and spend their donor-restricted endowment funds.
“The default rule is that charities that are holding endowment funds can spend a prudent amount each year. And the prudent amount is determined based on a number of factors, but generally you’re going to see it be between 3 and 5 (percent interest rate), maybe a little higher based on how the economy is doing,” said Carter, who has offered legal services to the UA in the past but isn’t involved in any current work for the university.
Currently, the UA Foundation distributes its endowment payout funds on a monthly basis to a separate foundation payout account at the annual interest rate of 4.25%.
Under the change that the UA intends to make starting June 30, the payouts for “all non-scholarship endowments” will be transferred to legal ownership of the UA instead of the foundation. The UA units that are the beneficiaries of specific endowments will still be able to choose to either spend the interest payments or have them reinvested along with the principal.
UA officials emphasize that the change won’t affect the endowments’ principal, which will still be under the fiduciary oversight of the Board of Trustees that oversees the UA Foundation, and that the interest amounts will continue to be used for “donor-specified purposes.”
Roczniak wrote in a May letter to some donors that the transferred $70 million will help increase the university’s cash-on-hand balances.
A day’s worth of readily available cash is generally defined as the amount needed to cover operating expenses for a day. Arizona Board of Regents policy says that the monthly days of cash on hand represent “the number of days the university can fund expenses with cash and investments that can be liquidated within one month.”
The transfer of the interest money “provides the university with more direct visibility into endowment payout funds, helping ensure donor resources are used in a timely manner and in accordance with the terms of each endowment agreement,” UA spokesperson Mitch Zak told the Star via email Monday. “This allows the university to more efficiently put philanthropic support to work for students, research and other donor-specified priorities.”
Zak, Roczniak and UA Foundation’s Chief Financial Officer Craig Barker did not respond to questions emailed by the Star Wednesday about who made the decision and was the UA Foundation’s Board of Trustees consulted; how many donors were given the option to opt out of this change; and how the UA and the foundation will make sure the funds are used for“donor-specified purposes”when they’re saying the money will boost cash on hand.
Another donor told the Star earlier this week that they were always assured in the past that their donations are separate from the university and can’t be used to help shore up its finances. They were told that even after the UA’s 2023 financial crisis of a $177 million budget deficit—which has since been eliminated—and low days of cash on hand, the donor said.
Carter said some people will donate to endowments just to benefit the university and with no specific purpose, while others might say the endowed funds are for a specific school or program. But if the endowment is earmarked for a very specific research center or a particular unit at the UA, the university cannot legally spend it for anything besides that.
In response to questions about whether the endowment interest funds could be used for the university’s operating expenses as part of its cash-on-hand balances, a UA professor with expertise in accounting and finances said there could be an overlap between uses of the two pools of money.
“A good example,” said that expert, who asked that their name not be used, is the case of tenured professors who hold endowed professorships. Part of their salary, paid through the endowment, could qualify as an operating expense.
Citing an example like this, the professor said the accounting change could be “benign,” where the UA is just trying to balance up the days of cash on hand and isn’t being deceptive.
UA officials have emphasized that the interest payouts will still be spent as donors specified. But if the university did spend the money “on something more general than the donor specified, then that is, in my opinion, a big problem, and very disruptive at the very least, and maybe not legal under the contracts,” the professor said.
Photo credit: University of Arizona/YouTube
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© 2026 The Arizona Daily Star (Tucson, Ariz.). Visit www.tucson.com. Distributed by Tribune Content Agency LLC.
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