Winter Symposium 2012 January 19, 2012 SMSU Ballroom Roy Koch, Provost and Vice President for Academic Affairs Kevin Reynolds, Vice Provost for Fiscal Strategies and Planning Monica Rimai, Vice President for Finance and Administration PSU External Context and History Continuing reduction in state support Measure 5 Increased obligations on state budget (e.g. K-12, prisons) Recent protracted economic downturn Increasing demand for higher education Concern over cost of higher education PSU Reactions Increase tuition to offset loss of state funding Annual reaction to budget shortfalls LTIFS Long term planning Strategic Enrollment Management New budget allocation model Financial Futures New budget allocation model “Take away” messages from last year The present doesn’t look like the past – and neither will the future We are largely “tuition driven” We have considerable control over our revenue We must use our resources wisely Imperatives for our continued development Enhance our revenue Use the revenue efficiently to achieve our multiple objectives Develop an effective budget allocation model for this new context How can we grow our revenue? Strategic enrollment management (SEM) Enrollment Tuition rates Student retention Student mix – resident vs. non-resident Funded Research Philanthropy Budget Allocation Model Directly connects budget allocation and the activities that generate revenue Clarifies unit-level budget allocation and the potential for generating additional revenue Promotes efficient use of resources Based on an understanding that not all mission-critical activities generate adequate revenue and must be supported by those activities that are revenue producing Plan for the day Brief presentations Context and general motivations for a new budget allocation model Characteristics of RCM-type budget allocation models • Revenue generating units • Revenue supporting units Experiences and timeline for development Group Q&A Table discussion and report out of positive aspects of a new budget allocation process Table discussions and report out of concerns regarding a new budget allocation process Summary and next steps The List Continues to Grow. . . RCM/RCB In Use or In Development: IUPUI Indiana University Bloomington University of Illinois, Urbana Champaign Southern Illinois University Marquette University American University University of Toledo Clemson University Harvard University Washington University of St. Louis Mercer University CalTech University Vanderbilt University Duke University Auburn University USC University of Cincinnati University of Washington University of Iowa Clarkson University University of Oregon Temple University University of Toronto West Chester University (PA) Central Michigan University University of Alaska McGill University Florida International University Cornell Claremont Graduate University University of Illinois Rensselaer Polytechnic Institute University of Denver UCLA University of Virginia University of New Hampshire Typical Timeline from Initiation to Implementation Process Concept – Design – Implementation – Monitoring Timeline to Implementation University of Virginia 2011-2014 University of Minnesota 1996 (4 year process) University of Florida 2011 (3 year process) University of New Hampshire 2000 (3 year review) Monitoring and adjusting Oversight committee Changes have to be made, but only periodically Principles and Reasons for Change Support, not determine, university mission and goals Provide incentive for positive behaviors, innovation, and operational efficiencies Transparency As simple as possible to understand, administer, and implement Principles and Reasons for Change Assign revenues to the units responsible for the activity that generates them Clearly identify cross subsidization Recognize the importance of maintaining current funding levels or phasing‐in funding reductions Source: University of Washington Activity Based Budgeting (2013 implementation) Generalized Model for Flow of E&G Resources Net Tuition State Appropriations Allocated based on SCH, enrollment, degrees, targeted funds.. College 1 College 2 Revenue Supporters (“fully” funded) College 3 1. Estimate E&G funds 2. Distribute Funds 3. Academic Crosssubsidization 4. Tax. Based on revenue, expenses or costs (space and headcounts) Revenue Supporters (partial funding) Revenue Allocation Invariably to school/college level (not departmental) Student Tuition generated by unit Net Tuition (gross tuition less remissions) Aggregate tuition rate or more granular (differential tuition, residency). Revenue Allocation State Funding Some institutions use this for cross subsidies or to pay for revenue supporting units. Allocate using resident students enrollment and cell values (resource allocation model) of the classes they take. Any targeted funding treated separately Moving PSU to a Single Model for Revenue Allocation Principle: model should be simple, transparent and predictable Single system to allocate tuition and state funds to academic units. Summer Session Centralized In Load PSU Self Support New Budget Model Decentralized Revenue Distribution Factors – Simple and Predictable Generally a ratio of SCH and Majors (ratios vary dramatically- no magic formula) Degrees granted (student success) OUS productivity measure and current basis for incentive funding Used by UO and planned by U of W In addition to, or instead of majors Sponsored Research (in addition to F&A costs) Not a net revenue generator, incentive Component of state funds and OUS expectation Cross Subsidies Between Colleges – almost invariably necessary Institutional decision Transparent Examined, revisited, and could be a fixed dollar rather than % Within a college Dean-level decision – input from the departments Allocation Model and Strategic Priorities ONLY a budget allocation methodology How funds are spent should be aligned with institutional priorities (student success, educational opportunity, civic leadership, global excellence, effective resource utilization) Funds follow students Allocation Model and Strategic Priorities Performance-based budget models lead to a greater focus on students (recruitment, retention, and graduation) More effective utilization of resources (local and direct impact from changes) Next Steps Working group to develop and share current status of resource allocation, i.e. revenue net of all costs to produce revenue Two categories of costs Direct Costs The direct cost of producing revenue: all expenditures directly tied to “revenue generators” Examples: Faculty salaries School or college administrative support Indirect Costs The indirect cost of producing revenue: all expenditures directly tied to “revenue supporters” Examples: President’s Office Library Space Relationship to IPEDS Data Academic Support, Institutional Support, Instruction, Public Service, Research, Student Services, Unassigned IPEDS format is objective, validated and known Lessons Learned Keep it simple How many outcomes can we incentivize in a budget model? Let the model evolve Be data driven Good to push and pull on the Working Group regarding data validity, but in the end, let’s be transformed by the facts Be transparent Commitment to iterative process Getting comfortable with sharing data broadly General Timeline 2011-2012: Model Development Cost accounting, methodology Cross subsidy analysis Merge various models (Extended Studies, Summer Session) Establish Revenue and SCH targets Development of revenue sharing plan (i.e. what we incentivize) 2012-2013: Run Parallel/Shadow model Refine model based on results 2013-2014: Implementation Relationship Between Steering Committee and Working Group Working Group Steering Committee Winter Symposium 2012 Smith Memorial Student Union Ballroom Planning for a New Budget Model First Break Out Session What positive outcomes of the new budget model are you anticipating the most? (List 1-3) Why? Anticipated Outcome Why? Winter Symposium 2012 Smith Memorial Student Union Ballroom Planning for a New Budget Model Second Break Out Session What concerns do you have regarding the new budget model? (List 1-3) How can your concerns be allayed? Concern? How can your concern be allayed?