Staff Policy D-504.01
Institutional Effectiveness Criterion: Operations

Financial Reserves

The Board of Trustees of Northwestern Michigan College deems the establishment of certain financial reserves to be both prudent and appropriate.  In addition to those currently in existence or those required to be in compliance with generally accepted accounting principles and State of Michigan Activities Classification Structure (ACS) requirements for community colleges, reserves will be established as follows:

  1. Insurance Runoff
    An insurance runoff reserve will be established and maintained for that duration of time that NMC self-funds its employee health and dental insurance coverage.  This reserve shall, as soon as possible following adoption of this policy, be established and maintained in an amount equal to three months (one-quarter) of the total annual budget for health and dental coverage. 

    The purpose of this policy is twofold.  The first is to ensure, in the event that the College should eventually shift to a conventional carrier, that dollars be available to pay charges incurred but not paid during the period of self-insurance.  The second is to serve as a non-general-fund source for higher-than-expected annual health and dental care costs.  Dollars from this reserve will not be expended for any other reason without separate, specific and public action of the NMC Board of Trustees.
  2. Reserve for Working Capital
    At the conclusion of each fiscal year and following annual service of the insurance runoff reserve, any unexpended general fund dollars shall by action of the Board of Trustees be transferred to the reserve for working capital.  At optimum said reserve should equal six to eight weeks of current general fund expenditures at any given point in time.

    The purpose of this reserve is to provide financial stability in times of uncertain revenue sources and, through return on investment, to provide an ongoing source of supplemental income for reserve enhancement or for annual operations.

    No expenditure of the corpus of this reserve shall occur without separate, specific and public action of the NMC Board of Trustees.
  3. Auxiliary Facilities Reserve
    This reserve is to consist of 1990-91 fund balances and annual unexpended revenues from all facilities owned by the College which are auxiliary to the instructional program.  This reserve will also include the balances of all restricted funds of the College and the NMC Foundation which, prior to the adoption of this policy, were utilized to service facilities debt.  This reserve will also include dollars pledged for the debt service of any auxiliary facilities and other non-general-fund revenues so designated by the Board of Trustees.

    The purpose of this reserve shall be to provide for the annual debt service of auxiliary facilities and for the ongoing maintenance and operation of said facilities.  Auxiliary facilities for the purpose of this policy are those which are College-owned, but the primary purpose of which is supplemental to rather than primarily for instructional purposes.

    Auxiliary facilities include, but are not limited to:  East Hall, West Hall, the Student Center, the Museum Center, student apartments and the marina.

The Vice President of Finance and Administration, in conjunction with the appropriate faculty and staff, is responsible for the development and publication of any procedures or guidelines that may be necessary to administer this policy effectively.



Initially adopted as D-111.01 December 12, 1996 
Renumbered D-504.01 December 20, 2006

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