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Fundamentals of University Resources 2008

Fundamentals of University Resources 2008. Financing Texas Higher Education Background. TX System of public higher education serves 90% of the 1.2 million students enrolled in higher education in Texas: 35 general academic teaching institutions (including law schools)

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Fundamentals of University Resources 2008

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  1. Fundamentals of University Resources2008

  2. Financing Texas Higher EducationBackground • TX System of public higher education serves 90% of the 1.2 million students enrolled in higher education in Texas: • 35 general academic teaching institutions(including law schools) • 50 community & junior college districts • 1 technical college with 4 main campuses • 3 lower division state colleges • 9 health related institutions(7 medical schools, 3 dental schools & various health/nursing units)

  3. Texas Higher Education Coordinating Board (THECB) • Created in 1965; members appointed by the Governor for 6-year terms; started with 13, now at 6 (SB 286 – effective FY08). • Leadership and coordination to achieve excellence in higher education. • Recommends improvements; changes in the formula funding model; controls academic program duplication & unnecessary construction projects. • Oversight for state-sponsored financial aid programs.

  4. Texas State Legislative Budget Cycle • State Legislature convenes every two years for 140 days during an odd numbered calendar year beginning January 2nd: 2007 = 80th Legislative Session for FY08 and 09 Budgets 2009 = 81st Legislative Session for FY10 and 11 Budgets • State budget is allocated for two years at a time: • Appropriation is generally flat in the 2nd year with minor adjustments in earmarked/pass-through revenues. • Fiscal Year begins September 1; number reference is the trailing year: 2007-2008 = FY08

  5. General Appropriations Act (GAA) • Funds allocated each biennium are detailed in the General Appropriations Act (GAA). • Academic institutions receive direct appropriations via funding formula and non-formula appropriations. • Direct appropriations are identified in the informational strategies of each institution’s bill pattern in the GAA. • Revenue sources are referred to as the ‘method of finance:’ • General Revenue • General Revenue-Dedicated (Statutory Tuition/Certain Lab Fees)

  6. General Appropriations Act (GAA) • GAA specifies how state funds are allocated, not how they must be spent. • Institutions are not bound to spend appropriations within a specified strategy. • Exceptions: • TRB Debt service; • Research Development must be used per Ed Code §62.091. • Limitations: General Revenue can not be used to fund: • Construction; • Auxiliary purposes – e.g. Athletics, Parking, etc.

  7. Formula Funding in Texas • Tool used by the Legislature since 1950’s to allocate most of the funds for public universities. • Over time, the formula became more and more complex • Simplified in 1997 (Senator Ratliff) • Not intended as restricted budget line item • Universities may allocate to a college or department more or less than the amount ‘earned’ through the formula. • Intended to fund most Educational & General budget items: • 62% of all state appropriations for general academic institutions are allocated via 2 funding formulas and 2 supplements. Source: THECB Presentation: Introduction to the Texas Public University Funding Formula (November 2001)http://www.thecb.state.tx.us/AdvisoryCommittees/HEP/FormulaBriefingHindmanNov27.ppt

  8. State Appropriations: Formula Funding Instructional and Operations (I/O) Formula • Based on Weighted SCH (Base Year) • Teaching Experience Supplement Additional weight of 10% to undergraduate SCHs taught by tenured or tenure track faculty • Small Institution Supplement (under 5,000) Infrastructure Support Formula • Based on utility cost & square footage of E&G space for Operation & Maintenance of Plant (Facilities) 82.9%* 17.1%* *of total made available to fund the formula

  9. Funding Caps (SCHs that are not Funded) SCH are excluded from the formula funding base as for: • Doctoral Cap–doctoral hours accumulated by individual students in excess of 99 hours. • Undergraduate Hour Cap– SCH earned by a resident undergraduate student that exceeds by at least 45 hours the number of SCH required for completion of the student’s degree program. • Developmental Education Cap– developmental hours accumulated in excess of 18 SCH. • Third Time Enrollment Cap– credit hours attempted by a student for the third time.

  10. State Appropriations:Formula Funding Starting Point – funding for 35 Academic Institutions: State General Revenue + Local Funds(Statutory tuition + certain lab fees)= Funding Rate Statewide Weighted Semester Credit HoursPer WSCH $59.02 Funding for UTSA: UTSA’s WSCH * Funding Rate per WSCH (less SCH capped) = I/O Formula Funds Appropriated to UTSA Formula Strengths:cost based, emphasizes instructional mission. Formula Weaknesses:hurts growing institutions – adjustments occur every 2 years; motivates creation of graduate programs; doesn’t reward quality or student success; validity of weighting not demonstrated. In FY08-09 biennium, of the $47.4M in new formula funding, $28.4M was ‘Hold Harmless’ funding. It will be difficult for us to ever catch up.

  11. State Appropriations: Formula Funding Instructional and Operations (I&O) Formula Uses total weighted Semester Credit Hours (SCH) produced during base period: 12 months immediately preceding & including the Legislative session) • Summer 2008, Fall 2008 and Spring 2009 determine formula funding for FY2010 and 2011 (next biennium) • Weights based on SCH by: • Level of course (Lower/Upper/Masters/PhD) • Discipline

  12. Formula Funding Weights Reflect the Variable Costs by Discipline and Level Example: (SCH x Weight x Rate per weighted SCH) * Rate set by the Legislature • Liberal Arts Freshman taking 15 hrs = 15 SCH x 1.0 x $59.02 = $885.30 <less tuition>, net = $135.30 • Science Masters student taking 9 hrs = 9 SCH x 7.29 x $59.02 = $3,872.30 <less tuition>, = $2,972.30

  13. State Appropriation as a % of Total Revenue has Declined

  14. State Funding Variance by UT Campus

  15. Funding Sources of UTSA Operating Budget • State Appropriations: General Revenue – (“sum certain”) Formula Funding (~71%), Special Items, Benefit Cost Sharing • THECB Transfers: TX Grant (TPEG), Work-study, etc. • Statutory Tuition, Certain Lab Fees Other E&G: General Revenue-Dedicated – (“estimated”)funds ~29% of the formulae & TPEG • Designated Tuition & Fees, Misc. Revenue • Indirect Cost Recovery: Facilities & Admin Overhead • Auxiliary Enterprise Funds (29-accts) • Restricted Funds: Gifts (30-accts) Grants/Contracts (26-accts)Financial Aid (26-accts: not sourced from Designated Tuition or TPEG) State Funds 14-accounts Designated Funds 19-accounts

  16. UTSA FY 2008 Operating Budget All Revenue Sources - $404,292,502

  17. Statutory Tuition • Rates established by Ed Code($50/SCH since Fall 2005 for resident undergraduate students) • Same rate for all UT institutions. • Graduate students pay 2 times undergraduate rate, referred to as Graduate Incremental Tuition. ($100/SCH since Fall 2005) • Non-resident students pay rates equal to the average non-resident tuition at the 5 most populous U.S. states. Rates are determined by THECB per §54.051(d) of the Texas Ed Code • Statutory Tuition is a revenue source for the I/O formula(in an amount estimated in the General Appropriations Act.) • Institution bears impact of any over or under collection of budgeted revenue – worse for campuses who lose enrollment.

  18. Designated Tuition In 2003, the legislature ‘deregulated’ designated tuition rates to counteract declining state revenue. • Considered a local source of revenue; rates are set by by the Board of Regents & vary by institution • FY 07 = $92.25/SCH FY 08 = $101/SCH FY09 = $110 /SCH proposed • 20% of the amount collected from paid resident UG and 15% from resident GR over $46/SCH is set aside for student financial aid. • Very important revenue stream • Only discretionary source of new revenue in the 2nd year of the biennium to fund merit, mandatory cost increases, new faculty, strategic initiatives, etc.

  19. Mandatory & Incidental Fees New fees and or changes to the fee amounts are set for two years upon approval by the Board of Regents. • Proposals are considered prior to the Fall Semester of the 2nd year of the biennium. • Fee revenue must be spent in accordance with the approved purpose (justification) and per Texas Education Code stipulations. Mandatory Fees: • Required to be paid by all students. • New fees and/or fee rate changes must be approved by the Board of Regents (BoR) Incidental or Course Fees: • Fees that are assessed based on a student’s or user’s choices, or as a good/service is used; e.g. all students taking a particular course, lab or enrolled within a college. College/course fees are included in the Total Academic Cost formula.

  20. Facilities and Administrative (F&A) Indirect Cost Recovery • Facilities and Administrative (aka indirect cost recovery) from sponsored grants and contracts provides reimbursement for institutional expenses in support of extramural activities that cannot be directly charged to a specific grant or contract. • Facilities component includes plant operation and maintenance, depreciation, library expenses. • Administrative component includes general administration and general expenses, sponsored projects administration.

  21. Facilities and Administrative (F&A) Indirect Cost Recovery • F&A rate is negotiated with the federal government (DHHS) • On-campus rate: 41.5% • 44.5% rate just negotiated! for next 4 years • Off-campus rate: 26% rate • Modified Total Direct Costs (MTDC)is the base to which F&A (indirect cost) rates are applied when submitting a grant or contract, per OMB Circular A-21. http://www.whitehouse.gov/OMB/circulars/a021/a021.html

  22. Facilities and Administrative (F&A) Indirect Cost Recovery • Modified Total Direct Costs consist of "salaries and wages, fringe benefits, materials and supplies, services, travel, and subgrants and subcontracts up to the first $25,000 of each subgrant or subcontract (regardless of the period covered by the subgrant or subcontract). • Equipment, capital expenditures, charges for patient care, tuition remission, rental costs, scholarships, and fellowships as well as the portion of each subgrant and subcontract in excess of $25,000 shall be excluded from modified total direct costs." • Exclusions: some costs are excluded from Total Direct Costs (TDC) to arrive at the MTDC base to which F&A rates are applied. • OMB A-21 also provides for exclusions of other items of cost where necessary to avoid a serious inequity in the distribution of costs.

  23. Facilities and Administrative (F&A) Revenue Allocations • Budgeted recovery is estimated at $6 million. • Will grow as research expenditures increase and as effective rate increases. • F&A Revenue is shared internally per MOU: • Principal Investigator 10.0% • College, Center or Institute 10.0% • Debt Service 40.5% • Bldg Mtnc/Capital Imprvmts 4.5% • Academic Affairs 12.0% • Research 15.0% • Business Affairs 8.0% 100.0%

  24. Auxiliary Enterprises • Self-supporting activity providing goods or services to students, faculty, staff, departments, or incidentally to the general public. • Charges are directly related to, although not necessarily equal to, the cost of the goods or services. • Important aspect of campus life • UTSA’s Auxiliaries specified in the Ed Code and include • Bookstore – outsourced management contract (Follett) • Food Services - outsourced management contract (Chartwells) • Parking • Housing • University Center • Athletics • UTSA Card

  25. Capital Improvement Funding System authorized methods of debt financing: • Tuition Revenue Bonds (TRB) are approved by the Legislature to debt finance new construction.“Free money” to UTSA. General revenue appropriation covers debt service. Recent UTSA Buildings financed with TRB Engineering $74,250,000 BSE 22,950,000 Main 15,000,000 Downtown, Phase III 35,000,000

  26. Capital Improvement Funding • The Permanent University Fund (PUF) debt program funds various E&G capital needs. --PUF debt from tax-exempt bonds secured by distributions to the Available University Fund. “Free money” to UTSA. • STARS –Faculty Start-up funds UTSA has received $6.6M over the past 3 years • LERR – Library, Equipment, Repair and Rehabilitation UTSA received $2 million for FY07; $2.237M in FY08 Recent PUF Allocations to UTSA $20.25 M for Science Lab Renovations $ 8.25 M for Engineering Building $14.50 M for 1604 & Hausman Property (future site of Athletic facilities)

  27. Available Sources of Capital Funding • The Revenue Financing System (RFS) The UT System program provides low interest financing for capital needs: --available to campuses that meet bond rating agencies’ standards for The UT System to preserve its AAA rating. • Construction projects or capital equipment funded by Designated Tuition: must meet 2 of 3 financial ratios. • Projects funded by auxiliaries or fee revenue must demonstrate sustainable ability to service the debt. --100% of debt service paid by UTSA.

  28. Annual Financial Report (AFR) • UTSA has a healthy financial condition with a “Satisfactory” rating from UT System. • UTSA’s significant growth has ‘maxed out’ debt capacity to finance additional construction using designated tuition (and certain other fees) as the source for debt service.

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