Breaking down the budget: A Q&A with John Arnold

This article is the second in a series of stories based on conversations with John Arnold, senior vice president, chief operating officer and chief financial officer, to provide information and clarity on the university's finances and operations. The first story, "Understanding 'all funds': Go behind the numbers with the university's CFO," was published in February.

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In early May, the university plans to release the initial framework for its fiscal year 2026 budget. 

John Arnold, senior vice president, chief operating officer and chief financial officer, says he's grateful to the college and unit leaders who have worked with his team over the past few months to shape the spending plan. In this Q&A, Arnold provides an overview of the university's revenues and expenditures and shares insights on the progress made and potential challenges ahead as the university moves toward a balanced budget.

The university's budget for fiscal year 2025 was just under $3 billion. What are the main sources of that funding?

The No. 1 source of funding – almost a third of it – comes from grants and contracts. These are dollars we bring in through our research enterprise, and they're incredibly important to the university. For fiscal year 2025, that totaled almost $880 million. The second largest source is net tuition and fees, which account for about 27% of our revenues. After that, funds allocated by the state Legislature – state appropriations – make up about 13%. From there, the percentages get much smaller. We have revenues from the University of Arizona Global Campus; auxiliary areas like the Campus Store, Athletics, parking and residence halls; gifts and donations; financial aid and Pell Grants; and the Technology and Research Infrastructure Fund, or TRIF. In all, those sources made up the university's $2.99 billion budget for fiscal year 2025.

What is the difference between local/restricted revenues and allocated revenues and what makes up each category?

Local and restricted funds are directed to and managed at the college or unit level – and sometimes even at the individual researcher level. These dollars usually come from gifts, grants, contracts, student fees and sales of products and services – think U of A gear in the Campus Store. In fiscal year 2025, local and restricted revenues totaled about $1.72 billion.

Allocated revenues are managed centrally by the university and can be distributed across colleges and units as needed. This money comes mainly from tuition, state appropriations, facilities and administrative cost recoveries, investment income and more. Altogether, they totaled about $1.27 billion in fiscal year 2025.

How were allocated dollars distributed across the university in fiscal year 2025?

Most of the allocated dollars – about 56% – went directly to the colleges. That's over $750 million supporting the teaching and research mission across campus. About 11% went to support functions like human resources, finance and budget, and other administrative areas. Smaller portions of the budget usually go to debt service, insurance, university facilities and utilities, information technology services, student services, academic support and other institutional costs. We also dedicate money to investment funds for strategic initiatives and the university's research enterprise.

Where does the $65.1 million budget deficit come from, and what is the timeline on eliminating that deficit?

When I first arrived, we decided that deficit was too large to eliminate in just five months, so we decided to do it over 18 months. For fiscal year 2025, the amount we allocated for colleges and units is higher than the revenue we brought in, so that gap created a deficit in our allocated revenues. We expect to close this fiscal year with a $65.1 million deficit, and then in fiscal year 2026, which starts July 1 of 2025, we plan to operate with a balanced budget. That's what the "all funds" budgeting process is all about. We're working closely with deans, business officers and division leaders to set balanced budgets throughout the university. With that in place, our institutional cash reserves can stabilize and start growing again.

What outside factors could impact the university's budget moving forward?

Universities around the country are weighing the financial impacts of new federal guidance to higher education in their fiscal year 2026 budget planning. Potential changes to federal agency budgets and staffing, the rates that support facilities and administrative costs for research, grant funding and the Pell Grant program could all have an impact. We don't know what changes may happen to the state budget, which affects our funding. We also know that changing demographics and attitudes towards higher education could impact future demand for a university education. We are actively monitoring these developments and working with our state and federal partners to share the positive impact our university has on the state and the country.