Fiscal Health Policy (T18-026, as amended)

Fiscal Health Policy (T18-026, as amended)

Doc. T18-026, as amended
Passed by the Board of Trustees on September 19, 2018 (as Reserves Policy & Presidential Standards)
Latest revision: June 2, 2026

Purpose

The purpose of this Fiscal Health Policy ("Policy") is to manage financial risk to ensure the fiscal health of the University of Massachusetts ("University"), including the establishment and use of reserves, fiscal health metrics, and associated reporting requirements.

I. Introduction

The ability of the University to fulfill its mission to provide affordable, accessible, high-quality education and conduct leading-edge research is highly dependent upon fiscal health, including the maintenance of adequate University reserves, manageable debt levels, and strong operating performance. This policy provides the framework for managing financial risk by establishing, maintaining and using reserves, which are essential to ensuring the University’s capacity to maintain fiscal health, strong credit ratings and financial sustainability. Additionally, this policy should be read and applied in conjunction with the University’s Debt Policy (T09-050), Capital Planning, Land and Facilities Use Policy (T93-122) and Quasi-Endowment Policy (T07-018).

II. Definitions

The University's Fiscal Health Metrics are defined as follows:

  1. Debt Service Coverage Ratio: Measures the ability of the University to make debt service payments from annual operations. Higher ratios indicate capacity for new capital investments, flexibility during economic downturns, and lower risk to lenders.
  2. Operating Margin: Measures whether and by how much the University’s annual operating revenues cover its annual operating expenses. Operating Margin is the annual surplus or deficit as a percentage of operating revenue. Consistent positive operating margins support fiscal health.
  3. Total Cash and Investments to Adjusted Debt Ratio: Measures the University’s coverage of adjusted debt against assets that generate investment return. The ratio highlights the University’s ability to repay debt and other debt-like obligations, such as P3 debt/equity and pensions, from wealth that can be accessed over time or for a specific purpose. Higher ratios support borrowing capacity.
  4. Total Cash and Investments to Operations Ratio: Measures the size of the University’s financial resources and liquidity relative to its annual operating expenses, indicating how many months or years of operations the University could fund using its available cash and investments without relying on new revenue. Higher ratios mitigate short-term volatility or unexpected revenue and/or expense challenges.

III. Policy

  1. The University shall establish targets for Fiscal Health Metrics to ensure responsible, long-term fiscal management and resiliency and mitigate current and future risks to the University’s financial sustainability.
  2. The University shall build, maintain, use, and replenish reserves in accordance with this Policy and individual campus strategic plans.
  3. The University shall account for, and campuses shall report unrestricted net position in appropriate designations to enable the University to distinguish between reserves that have been internally designated for a specific use. Appropriate designations shall be defined in this Policy’s Administrative Standards.
  4. The University President’s Office shall maintain a Stabilization Fund, as defined in this Policy’s Administrative Standards, to support University system operations in the event of an unanticipated disruption in planned funding or catastrophic event. The Stabilization Fund shall be held centrally at the President’s Office. The President shall have the authority to establish and amend standards that specify the size, the funding source and the use of the Stabilization Fund.

  5. The University shall strategically use debt to fund capital projects. In recognition of limited debt capacity, the University shall maintain manageable debt levels relative to the size of its cash and investments.

  6. Fiscal Health Metrics and Targets

    1. The Fiscal Health Metrics established in this Policy are intended to signal to the University when there is increased financial risk for the University. Some metrics align with credit agency ratios as credit rating agencies apply these methodologies to assess an entity’s financial risk; as such, these recognized metrics are being leveraged to measure the University’s risk, and not solely to maintain the University’s credit rating.

    2. Each campus and the University shall manage to appropriate Fiscal Health Metrics as defined in this Policy. Each campus and the University shall maintain each target Fiscal Health Metric annually based on year-end actual results as calculated using the University’s annual financial statements, which include:

      1. Debt Service Coverage Ratio
        1. Calculation: The University shall calculate Debt Service Coverage Ratio consistent with Moody’s Investor Service methodology as provided in the Standards.
        2. Target: Each campus and the University shall maintain a ratio of not less than 2.0x.
      2. Operating Margin
        1. Calculation: The University shall calculate in accordance with its established methodology as provided in the Standards.
        2. Target: Each campus and the University shall maintain an Operating Margin percentage of not less than 2%
      3. Total Cash and Investments to Adjusted Debt Ratio
        1. Calculation: The University shall calculate Total Cash and Investments to Adjusted Debt consistent with Moody’s Investor Service methodology as provided in the Standards.
        2. Target: Each campus and the University shall maintain a ratio of not less than 0.7x
      4. Total Cash and Investments to Operations Ratio
        1. Calculation: The University shall calculate Total Cash and Investments to Operations consistent with Moody’s Investor Service methodology as provided in the Standards.
        2. Target: Each campus and the University shall maintain a ratio of not less than 0.7x
    3. An individual campus may be granted a planned exception from a specific target when all of the following provisions are met:
      1. The campus must submit a plan to the Board of Trustees. The plan must be for a specific project, investment or deliberate response to an unanticipated disruption in planned funding or catastrophic event and include a defined duration, funding plan and other supporting documentation as needed.
      2. The Board of Trustees must vote to approve the exception for the specific project or investment.
      3. Board of Trustees approved exceptions shall be reported annually to the Committee on Administration and Finance when the University’s annual Financial Statements are approved.
  7. Compliance and Reporting

    1. The President or the Senior Vice President for Administration & Finance and Treasurer or a designee shall annually review compliance with this Policy with the Committee on Administration & Finance.

    2. Beginning upon the release of the University’s FY27 Annual Financial Report, the Senior Vice President of Administration and Finance and Treasurer will provide the Board of Trustees a report regarding the University’s fiscal health, including but not limited to, the current Fiscal Health Metrics detailed in this Policy.

    3. The President or the Senior Vice President for Administration & Finance and Treasurer shall review the Fiscal Health Metrics and associated targets set forth in this Policy and the Administrative Standards, not less than every five years; provided, however, that the Senior Vice President for Administration & Finance may recommend updates to the Board of Trustees as needed due to changes in accounting practices and principles utilized by the University or a relevant third party, including but not limited to, changes to law, rules, or regulations.

IV. Responsibilities

  1. The President and Chancellors shall implement and manage to the Policy and Administrative Standards.

V. Administrative Standards

The President, in consultation with the Senior Vice President for Administration & Finance and Treasurer and Chancellors, shall promulgate Administrative Standards to define: calculations for each Fiscal Health Metric; reserve targets; funding sources; designations; and to otherwise implement this Policy.

VI. Related Policies and Reports

This Policy should be implemented in conjunction with, and any proposed changes should be reviewed along with, the following University policies and reports:

  1. University Debt Policy – T09-050
  2. Capital Planning, Land and Facility Use Policy – T93-122
  3. Quasi-Endowment Policy – T07-018
  4. Report – 5-year Financial Forecast
  5. Report – University’s Annual Operating Budget
  6. Report – University’s Annual Audited Financial Statements
Book Category
Board Policy: Fiscal & General Administrative