Todd Lee Assistant Chancellor Budget & Planning May 2015

1. Budget Overview Todd Lee Assistant Chancellor Budget & Planning May 2015

2. Class Overview • This class will not show you how to develop a budget for your department. • This class will help you better understand the issues, complexity, and constraints of the UCSB budget.

3. Key Concepts To Take Away • University budgeting is not a single process. • It consists of a number of processes that have evolved separately and which occur with varying degrees of coordination. • Enrollment is the key factor in developing the budget – drives both revenues and expenditures.

4. TOPICS • Permanent Budget vs. General Ledger • Campus Expenditure Review • Funding Streams • Rebenching • Fund Source Review • Budget Process – Big Picture • Campus Budget Planning • Capital Funding Overview

5. PERMANENT BUDGET VS. GENERAL LEDGER

6. COMPARISON Numbers above reflect operating expenses only. Campus also spends approximately $150 million annually on capital program. * Increased to $576 million at June 30, 2014. ** Before GASB adjustments which reclassify some expenses.

7. PERMANENT BUDGET • Reflects “resources” assumed to be available on an ongoing (year-to-year) basis • Feeds into General Ledger on July 1 of each year • Typically adjusted through Transfer of Funds which makes changes in both General Ledger and Permanent Budget files • Result of incremental budget changes over many years.

8. GENERAL LEDGER • Official accounting record of the campus • Includes permanent budget plus: • Carry-forward from previous years • Allocations/funding changes after July 1 of any year • Contract and grant awards • Current year gifts • Distribution of endowment income from Foundation • At year-end UCEN and Associated Students included.

9. PERMANENT BUDGET – GENERAL LEDGER Over 300 different control points making decisions

10. EXPENDITURES

15. FUNDING STREAMS OVERVIEW & IMPLEMENTATION

16. FUNDING STREAMS • Realignment of financial arrangements between UCOP and the campuses • Historically UCOP has taken funding “off-the-top” to pay fund their operating expenses • Under the new arrangement “funds generated by the campus remain on the campus”this includes: • Student Fees • Indirect Cost Recover • Interest on invested funds • UCOP will be funded from an “assessment/tax” on each campus

17. FUNDING STREAMS CON’T • The assessment is based on total current fund expenditures from all fund sources • The assessment takes into account total costs, number of students, and number of faculty/staff at each campus • Assessment was supposed to be revenue neutral to the campuses – revenue returned equals assessment collected • Actual assessment exceeded the amount return resulting in another cut to campus resources

18. FUNDING STREAMS CON’T • The UCSB assessment equals $17.7 million. The effective tax rate is 1.98% of campus expenditures • The assessment is distributed to the Chancellor and Vice Chancellor Control Points based on their share of total expenses • Credits associated with general funds, mandatory student fees, and indirect cost recovery are distributed to each control point

19. FUNDING STREAMS CON’T • The credits covered approximately 82% of the assessment • The remaining 18% ($3.2 million) is distributed to control points and is their responsibility to pay • Control points do need to take into account any agreements or commitments associated with the use of any individual fund and have broad discretion on how to implement the assessment • The assessment payment cannot use any campus based fee funds as a source

20. REBENCHING CHANGES IN THE DISTRIBUTION OF STATE FUNDS

21. REBENCHING IS …. The aligning of State General funds to attain equal State General dollars per student at each of the campuses Why is it necessary?

22. General Campus Funding Per Student (est.) System-wide Median Source: UCSC 2009 22

23. REBENCHING BACKGROUND • Overtime, significant difference in State funds per student have developed • Campuses with fewer dollars per student identified the variance as an issue that needed to be addressed • As part of the Funding Streams effort a “Rebenching Committee” was formed to look at the issue

24. IMPACT ON UCSB • Substantial increase in our state general funds per student • Initial projections of additional funding have been in the $40 million range when fully implemented – permanent additional funding • Rebenching started in FY 2012-13 and the “additional revenue” is part of the plan to address unfunded campus budget issues

25. Rebenching Example • Funding to be Allocated $37.0M • UCSB’s Share Under Rebenching 24.6% • UCSB’s Allocation $ 9.1M • UCSB’s Historical Share of 8.0% Workload • UCSB’s Allocation $ 3.0M • Over 6 years UCSB will receive approximately $40 million more than under previous allocation formulas

26. UCSB FUND SOURCE REVIEW

29. FUND SOURCE CATEGORY #1 • Core Funds • State General Funds • UC General Funds • Mandatory Student Fees • Indirect Cost Recovery (Overhead) • Other State • Typically considered the “base” when dealing with budget cuts

30. FUND SOURCE CATEGORY #2 • Non-Core Budgeted Funds • Sales and Services Revenue • Auxiliary Revenue • Student Fees (Campus & Student Approved) • Budgeted Endowments • Typically part of base for various campus imposed taxes and assessments

31. FUND SOURCE CATEGORY #3 • Extramural Funds • State and Local Contracts & Grants • Federal Contracts & Grants • Private Gifts and Endowments • Typically not budgeted, but are assessed overhead or up-front gift fees • Use is normally restricted for a particular purpose

32. GENERAL FUNDS • Category includes: • State Appropriations • Portion of Federal Indirect Cost Recovery • Non-Resident Tuition • Variety of Miscellaneous Fees • Primary Source to Fund Instruction (93% of total expenses) • Approximately 75% of all general fund revenue used to support instructional program • Amount subject to state budget

33. STUDENT FEES • Mandatory Fees – Tuition and Student Services • Fees established by the Regents • Tuition Fee ($11,220) used to support Student Financial Aid and general operations of the University • Student Services Fee ($972) used to provide a supportive and enriched learning environment for students • Campus Based Fees (UG - $1,668; Grad - $923) • Approved by student vote for specific purposes • Summer Session Fees • Per unit charge based on Mandatory Fees • Extension (Self-Supporting Program) • Fee levels established to cover cost of program • Course Material Fees • Used to enhance educational experience for students

34. CONTRACTS AND GRANTS • Federal and Non-Federal Awards • $176 million in expenses in FY 2013-14 • $132.8 million in Research (net of Sub Y/ICR) • $34.1 million in Pell Grants (fund 23483) • Uses are restricted for specific uses • Indirect cost is assessed against direct expenses

35. INDIRECT COST RECOVERY (ICR) • Overhead on federal and private contact and grants – amount recovered is a function of ICR rate and grant activity • Complicated distribution formula with portion becoming General Funds and remainder becoming unique fund sources • Represents the most flexible funding the campus has as it can be used for both operating and capital expenditures • Under funding streams campus retains all ICR

36. Federal Indirect Cost Recovery

37. Gifts and Endowments • Includes payout from endowments, as well as current year gifts. Annual giving amounts typically fall into the $40 to $80 million range • Doesn’t mean this much is available as much of the annual fund raising goes into endowments • Vast majority of gifts restricted for a particular use – capital project, endowed chair, student financial aid, etc. • Funded approximately $34.0 million (3.8%) of operating expenses in FY 2013-14

38. GIFTS AND ENDOWMENTS CON’T • June 2014 endowment value at $258 million (Foundation at $139.6 million, Regents at $118.4 million) • Increase of approximately 14% since June 30, 2013 • Annual endowment payout of approximately $12 million • Only about $1.6 to $1.8 million of annual gifts are unrestricted • Up-front gift fee assessment to increase from 2% to 6% in July, 2011with a maximum fee of $180,000 on any gift.

39. Income & Other Funds • User charges for campus provided services • Fees established by departments with campus review • Examples include: • Student housing • Parking • Funded about $134.8 million of FY 2013-14 operating expenses, 14.9% of total • Increased NSFAS (overhead tax) on these funds from 1% to 4% to 6% to 7% over the last few years to help with state budget cuts • Change tax from revenue to expense based

40. BUDGET PROCESS THE BIG PICTURE

41. Schedule – Budget Process July – Budget Tables & Information Requests September to October –Review of Proposed Budget November – Regents’ Approve Budget Proposal & Submit to Governor January – Governor’s Budget Released January to May – Budget hearings, responses to information requests, lobbying May – Governor’s May Budget Revise Released June – State Budget Approved July to September – Campus Allocations from UCOP

42. STATE FUNDS • Funding less and less of the annual campus operating expenses: • FY 1990-91 51.8% $157 million • FY 2000-01 45.8% $216 million • FY 2010-11 26.2% $181 million • FY 2011-12 14.1% $117 million • FY 2013-14 17.1% $154.7 million • Still the driving force behind the UC budget planning. Drive decisions on: • Enrollment • Student Fee Levels • Salary Programs • Capital Program

43. UCSB CAMPUS BUDGET PLANNING

44. Budget Planning • Strategic Academic Plan • Long Range Development Plan • 2010 LRDP Mitigation Implementation and Settlement Agreement • Coordinating Committee on Budget Strategy • Budget Planning Principles • Budget Allocation Framework

45. Strategic Academic Plan • Adopted in 2007 to update campus vision for academic program and guide future growth • Provides a framework for campus resource allocations • Outlines a managed-growth approach to future campus development

46. Long Range Development Plan (LRDP) • Provides physical planning parameters to attain the Strategic Academic Plan goals • Grow enrollment by 5,000 students by 2025 • Identifies capacity for 1.8M ASF for Instruction, Research, and Support space • 5,000 new student bed spaces • 1,874 new faculty and staff housing units • 5-8 acres of additional recreation space • 3,650 additional parking spaces

47. 2010 LRDP Agreement • Mitigation Implementation and Settlement Agreement negotiated with the County of Santa Barbara and the City of Goleta • Includes campus growth-related commitments in area of Enrollment Management, Housing, Traffic Impacts, and Public Safety Impacts • Ties enrollment growth to the provision of new student housing development on campus land

48. Coordinating Committee on Budget Strategy • Advisory committee to the Chancellor on budget issues • Committee charge: “Develop strategies designed to protect academic quality, as well as student access, that we have strived so hard to achieve.” • Responsible for in-depth study and analysis of budget issues and potential solutions/actions • Developed and recommended actions for budget reductions, program assessments, and distribution of resources

49. Budget Planning Principles • Strategic Solutions • Priorities • Revenue Considerations • Recruitment and Retention • Strategic Initiatives • Efficiencies • Minimize Staffing Lay-Offs (when budgets are cut) • Self Supporting Departments Also Participate

50. Budget Allocation Framework • Required cost increases • Formula allocations based on enrollment growth • Funding for ongoing commitments • Workload and cost increases • Program Improvements • Other