Transcript Fundamentals of University Resources Financing Texas Higher Education Background  TX System of public higher education serves 90% of the 1.2 million students enrolled.

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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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)
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.
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
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)
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.
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
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
82.9%*
• 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)
17.1%*
*of total made available to fund the formula
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.
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 Hours
Per 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.
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
Formula Funding Weights Reflect the
Variable Costs by Discipline and Level
Liberal Arts
Science
Fine Arts
Business
Engineering
Teacher Ed
Lower
Division
Upper
Division
1.00
1.67
1.50
1.18
2.46
1.33
1.77
2.93
2.51
1.68
3.51
1.79
Masters Doctoral
4.01
7.29
5.65
3.70
7.39
2.68
9.94
20.05
9.78
19.08
17.05
7.70
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
State Appropriation as a % of Total
Revenue has Declined
$450,000,000
$400,000,000
$350,000,000
$300,000,000
State Appropriations
$250,000,000
$200,000,000
Total Revenues
$150,000,000
$100,000,000
$50,000,000
$FY 02
41%
FY 03
40%
FY 04
33%
FY 05
27%
FY 06
30%
FY 07
27%
FY 08
28%
State Funding Variance by UT Campus
State Appropriations
Per Full-Time Equivalent Student (1), Real Dollars
UT Academic Institutions
FY
2001
Arlington
$ 5,400
Austin
6,200
Brownsville (2)
2,700
Dallas
6,100
El Paso
5,600
Pan American
4,700
Permian Basin
9,100
San Antonio
4,800
Tyler
7,900
2002
$ 5,700
6,300
2,900
6,100
5,400
4,700
8,300
4,900
9,000
2003
$ 4,900
5,900
3,200
5,700
5,200
4,500
7,400
4,400
7,600
2004
$ 4,600
6,000
2,900
5,700
4,800
4,200
6,500
3,900
6,900
2005
$ 4,600
6,200
3,100
5,500
4,800
4,000
6,200
3,800
6,000
2006
$ 4,900
6,500
3,000
6,100
5,200
4,400
6,300
4,400
6,500
(1) Full-Time Equiv alent students = 30 undergraduate semester credit hours (SCH) or 24 master's or
professional SCHs or 18 doctoral SCHs.
(2) Brow nsv ille operating rev enues from local community college tax district are not included.
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
State Funds
14-accounts
Other E&G: General Revenue-Dedicated – (“estimated”)
funds ~29% of the formulae & TPEG
Designated
 Designated Tuition & Fees, Misc. Revenue
Funds
19-accounts
 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)
UTSA FY 2008 Operating Budget
All Revenue Sources - $404,292,502
Restricted: Gifts
$6.5M
(2%)
Restricted: Financial
Aid $29.8M / Grants
& Contracts $32.5M
Total = $62.3M (15%)
State Appropriations
$114.6M
(28%)
Statutory Tuition &
Fees $40.7M
(10%)
THECB-Tx Grant
Pgm, CWS &
TARP/TATP
$6.3M (2%)
Auxiliary Enterprise:
Designated Funds:
Athletics Fee, University
Ctr Fee, Parking,
Housing, Food Service,
UTSA Card, Child
Designated Tuition,
Misc. Fees including
F&A/Indirect Cost
Recovery
Dvlpmt, ITC Store
$28.7M (7%)
$145.1M (36%)
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.
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.
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.
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.
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Facilities component includes plant operation and
maintenance, depreciation, library expenses.
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Administrative component includes general administration
and general expenses, sponsored projects administration.
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
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).
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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.
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OMB A-21 also provides for exclusions of other items of cost
where necessary to avoid a serious inequity in the distribution of
costs.
Facilities and Administrative (F&A)
Revenue Allocations
 Budgeted recovery is estimated at $6 million.
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Will grow as research expenditures increase and as
effective rate increases.
 F&A Revenue is shared internally per MOU:
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Principal Investigator
College, Center or Institute
Debt Service
Bldg Mtnc/Capital Imprvmts
Academic Affairs
Research
Business Affairs
10.0%
10.0%
40.5%
4.5%
12.0%
15.0%
8.0%
100.0%
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
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Bookstore – outsourced management contract (Follett)
Food Services - outsourced management contract (Chartwells)
Parking
Housing
University Center
Athletics
UTSA Card
Capital Improvement Funding
System authorized methods of debt financing:
1.
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
BSE
Main
Downtown, Phase III
$74,250,000
22,950,000
15,000,000
35,000,000
Capital Improvement Funding
2.
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.
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STARS –Faculty Start-up funds
UTSA has received $6.6M over the past 3 years
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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)
Available Sources of Capital Funding
3. 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.
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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.
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.