Temporary Money

Did you know there’s such a thing as temporary money?

Public-sector money is different from personal money in many ways. (Stephanie Kelton’s The Deficit Myth is a must-read on this.) But many people don’t see the difference, so they apply the logic of their personal checking accounts to institutional budgets and then get confused.

For instance, in my own state there’s a program called Chapter 12 that allocates funding for building construction or significant renovation on public college campuses. The amount is enough to matter. But it’s restricted to construction or significant renovation. That means it can’t be used for operating expenses, like salaries. It can’t be used for equipment, or furniture, or software, either. It can only be used for a specified purpose.

In good times, that doesn’t matter much. But when things get tight, it leads to some weird optics on campus. Departments that didn’t get to replace people who retired would see large construction projects going on and wonder how truthful the administration was being about the budget. “If you have money for that,” some would ask with raised eyebrows, “why don’t you have money for this? What are your priorities?” The premise of the question was false: money for construction could not be reappropriated for salaries, by law. It wasn’t fungible. The choice wasn’t whether to spend it on bricks or people; it was whether to spend it on bricks or send it back to the state unspent. Failure to understand that led to some misplaced anger. The money with which I make mortgage payments comes from the same account that I use for groceries and utilities; it’s all one pot. But that’s not how Chapter 12 funds work; the metaphor fails. Applying the wrong logic leads to some pretty basic, and inflammatory, misunderstandings.

Now with stimulus funding floating around -- CARES and CRRSSA and the ARP, for starters -- I’m seeing a similar set of misunderstandings emerge.

The various stimulus funds -- for which I say “hooray,” if anyone’s keeping score -- come with two major asterisks. The first is that a set percentage of each college’s allocation has to be given away directly to students; the colleges merely act as pass-throughs. So from an institutional budgeting perspective, that portion of the money doesn’t exist. The second, which is more subtle, is that the money comes with expiration dates; if you haven’t used it by a certain date, you lose it.

For practical purposes, that constrains its uses.

The original idea behind the stimulus money, as I understand it, was to help tide people and institutions over until more normal economic activity could resume. It was also intended to help defray direct costs of dealing with the pandemic. For example, we used some of the stimulus money to pay for an institutional Zoom license, the need for which was a direct result of the pandemic. With the more recent rounds, we’ve been able to offset some of the revenue that was lost when the pandemic hit, whether through an abrupt hit to enrollment or the forced shutdown of auxiliary services like facility rentals and campus food service.

With the money left over, though, we have to think differently than we would with normal operating funding. This money goes away soon. Using it to take on large expenses that will outlive it by decades -- such as permanent employees -- would create a structural deficit that would become obvious as soon as the temporary money goes away. For a college facing a long-term enrollment or funding issue, the best uses of temporary money would be investments that reduce long-term costs. That way, when the temporary money goes away, the money that remains has fewer claims on it.

As with Chapter 12, that can lead to some weird juxtapositions. But some of them make sense if you include time as a variable. For example, if a college typically allocates a certain amount to replacing old furniture, a sudden blast of spending on furniture could reduce that allocation in future years. We can’t keep the money for long, but we can keep furniture for many years. Investments in energy efficiency have a similar appeal, converting a short-term burst of money into long-term budgetary breathing room. Money not spent on heat or electricity can be spent on people.

The key is in moving away from the checking account metaphor. In a checking account, every dollar is the same as every other dollar. But with public sector budgets, different dollars come with different rules. It’s possible for a college to be flush in the short term while still facing a serious long-term funding challenge. The ones that handle it best will be the ones that grasp the distinction between the two.