Structural Budget Deficits vs. Actual Deficits

I have heard that some faculty are a little confused by how structural budget deficits relate to actual budget deficits. So, let me share some of my understanding (albeit it could be flawed) in a bullet point format. Everything I say below, though, is subject to specific policies that may not allow for flexibility.

• Universities are mission-driven non-profit organizations more consistent with the Nature Conservancy than American Airlines. That means they are mission, not profit, driven, but expenses and revenues have to balance at the end of each year just like any business. Putting funds into reserves should be part of planned expenses, and, theoretically, reserves can be used if revenues exceed expenses.  
• Actual budget deficits are when expenses exceed revenues. No organization can do that for very long unless they have unlimited reserves.
• Structural deficits in universities occur when what is considered "permanent revenue" is less than what is considered ongoing operational expenses (e.g, staff and faculty).
• Permanent revenue in public universities has traditionally been considered to be tuition revenue and state appropriations. Those source historically were reasonably predictable and state appropriations relatively assured. That is really no longer as certain.
• Non-permanent revenue is called various things in different universities, but universities tend to think of it as one-time, not predictable revenue. Facilities and administration (F&A) reimbursement on research grants to cover research costs associated with research administration and research facilities, endowment revenue, etc are usually considered non-permanent revenue. The reality is that F&A recovery has become just as predictable as tuition revenue and state appropriations. F&A revenue can only be used to reimburse universities for the costs of research administration and facilities. But, no university recovers enough F&A to cover those costs. Thus, other revenues are used to cover those costs, so F&A can be considered real revenue because it frees up other revenue.
• Expense savings- Every university has savings every year from their permanent budgets because faculty and staff turnover or other expenses that were budgeted in the permanent budget were not made.  These are considered "one-time" savings. But, at the scale of a university, they are also reasonably predictable.
• What is the big problem? Actual budget deficits are the big problem. When "permanent revenue" , "one-time revenue" and expense savings when combined are less than expenses it can be the beginning of the end.  Reserves can be used for a little while.  Actual budget deficits are what lead to financial exigency.
• What about structural deficits? They are a problem, but not for the reasons one might think when they hear those words.  As I mentioned before they occur when "permanent revenue" (which is not so permanent anymore) is less than ongoing expenses.  But, revenue like F&A and endowment revenue are pretty predictable. And, faculty and staff turnover always results in unused permanent salaries and is predictable to a degree. At UNCG, apparently there have been structural deficits for 20 years. That is because other sources of non-permanent revenue and expense savings have allowed budgets to balance.  So, in the sense of having actual budget deficits, structural budget deficits are not necessarily a problem, especially if universities make sure make good predictions of every revenue source at the beginning of the year. A big flaw that I found when I was provost was that many latched on to the idea that only tuition and state appropriations are predictable enough to be permanent revenue. I don't think that is true. 
• When are structural deficits a problem? Structural deficits are a problem with actual budget deficits if: 1) permanent funding, other revenue like F&A and endowment revenue disappear (but this is a problem no matter what); and  2) There is no turnover in permanent positions (or other permanent expenses) leading to not having any expense savings in the "permanent budget." The other problem is that structural budget deficits limit flexibility.  In other words, any excess revenue from "one-time" sources or expense savings is not available to invest in new things. Structural budget deficits exacerbate problems if there is a sudden drop in revenues.

We seem to be in a situation at UNCG where structural budget deficits are being discussed as a problem,  but people unfamiliar with the term can hear that the structural deficit means impending financial doom through actual budget deficits.  It doesn't necessarily mean that. Structural deficits with respect to  operating expenses exceeding permanent revenue occurred in every public university where I worked, Budgets were developed using all sources of revenues, included allocation to reserves, and deans used salary savings to continually get courses taught.