In 2023, the University of Arizona revealed a miscalculation in the amount of cash on hand; it was short by $240 million in available funds. This accounting error translated into a $177 million budget deficit once the university’s obligations and spending commitments were fully accounted for.
By 2024, the university had trimmed its deficit to $63 million, according to the Unrestricted Funds Operating Budget for Fiscal Year 2025, a turnaround led by the school’s new chief financial officer and senior vice president for business affairs.
The university’s finances have shifted dramatically in less than 2 years. Under the leadership of President Suresh Garimella, the university has erased its deficit and balanced its budget without raising tuition for resident undergraduates and while granting raises to faculty and staff.
What led to the deficit, how was it reversed and what lessons does UA’s recovery offer about managing public university finances?
In an interview, the deficit reflected the university “spending more money than it was generating,” said Preeti Choudhary, an accounting professor at the university’s Eller College of Management.
She explained that the $177 million shortfall was significant because total revenue influences decision making or materiality. “A common benchmark for materiality is about half a percent of revenue,” Choudhary said. In 2024, the university was looking at roughly 20 times that according to her.
She compared the situation to a company running a big loss. Where this was a result of “a faulty process of budgeting and allocating revenue, maybe double-counting, incorrect expectations of what was coming in and ultimately, overspending caused by several overlapping factors.” Choudhary said.
This year, the university reported a balanced budget. But because it’s a nonprofit institution, Choudhary noted, balanced is closer to breaking even than restructuring for profit.
“Solvency has improved a bit and the cash position looks slightly better, though not by much,” Choudhary said. “It’ll be interesting to see what the 2025 numbers show. The fiscal year ends June 30, but nonprofits often take longer to report. It looks as if the independent auditor’s report usually comes out around November [or] December.”
When asked what Garimella meant by “careful financial management,” a phrase that referenced debt refinancing and limited capital spending, Choudhary broke it down in simpler terms.
“Debt refinancing, hopefully, means they were able to get better terms on their debt, a lower interest rate, which gives them more cash on hand,” Choudhary said. “And limiting capital expenditures just means they’re cutting back on big investments or purchases for now.”
Hilmi Songur, senior lecturer in finance, stated that the deficit was a structural imbalance between revenues and expenditures that had been building for years rather than a sudden shock.
“Declining state support since 2008 forced universities to rely more heavily on tuition and auxiliary revenues,” Songur said. “It’s similar to a corporation operating at a loss, though universities have less flexibility to adjust prices or cut core services quickly.”
According to Songur, higher education institutions balancing the budget means aligning recurring revenues and expenditures, similarly to breaking even in the corporate world but with greater emphasis on sustainability than profit generation.
Then adding that Garimella’s strategy of refinancing debt and pausing large purchases “is like a family refinancing their mortgage at a lower rate and holding off on major expenses to stabilize their finances.” Songur said.
Revenue growth is essential for any organization, and for a university, tuition and fees are the primary sources of revenue. Last year, the university reported a net revenue increase of more than $47 million. According to Choudhary when reviewing the 2024 budget, roughly 50% of university revenue comes from student tuition, 35% from contracts and 25% from federal sources. However, she noted that under the current administration, securing federal grants has become increasingly difficult.
“For universities, sustainable revenue growth involves expanding enrollment, research funding, philanthropy and endowment income,” Songur said. “The challenge is ensuring those streams are recurring, not one-time inflows that create a temporary boost.”
The Trump administration sent UA, along with eight other universities, a request to sign a pledge in exchange for better access to federal funds on Wednesday, Oct. 1.
The UA formally declined to sign the Trump administration’s Compact for Academic Excellence as written on Oct. 20. However, the administration has not officially denied participation in some version of the compact, a significant decision considering that around 25% of the university’s funding is provided by the federal government.
The risks of running a deficit this large poses a threat to the university’s long-term financial health. Fiscal constraint often means delaying salary increases or cutting academic programs, which can raise turnover and drive-up costs.
“Running a deficit of this magnitude erodes reserves, weakens liquidity ratios and can negatively affect the university’s creditworthiness, much like how persistent losses impact a firm’s balance sheet and investor confidence,” Songur said.
Although the UA received national attention for its bad finances, the university isn’t alone.
Across higher education, running a deficit has become increasingly common. A recent article in the Wall Street Journal highlighted this trend, pointing to the University of Chicago, which ran budget deficits for 14 years straight.
According to the Wall Street Journal, low interest rates before the pandemic, which made borrowing cheap and fueled a wave of construction on campuses nationwide. New York University is issuing billions in debt, USC is running a deficit and Swarthmore College, a private liberal arts college in Pennsylvania, is in danger of losing its AAA rating from S&P.
Widespread financial mismanagement in higher education has become a national issue. At Arizona, faculty say the lesson is clear: lasting recovery depends on financial discipline and accountability.
Choudhary and Songur agreed that the key to avoiding another deficit lies in strengthening financial discipline and oversight.
“Preventing future deficits requires internal controls, multi-year forecasting and transparency, the same practices corporations use in strategic budgeting and performance accountability,” Songur said.
