Evolution from State Funds to All Funds Budgeting UC System-wide - PowerPoint PPT Presentation

Evolution from State Funds to All Funds Budgeting UC System-wide Academic Business Officer Group (ABOG) Annual Conference Teresa Costantinidis Associate Vice Chancellor – Budget and Resource Management 4/13/2015

In higher education we are faced with a somewhat compelling burning platform Think Employers Tanks Special Interest Journalists Groups Federal Parents Higher and State and Education Officials Students 2

Our stakeholders believe colleges must be held accountable and subject to more regulations . . . Completion rates are Tuition is too high unacceptable Universities refuse to control costs We fail to prepare Student debt burdens students for their are outrageous careers 3

Higher education has been likened to a commodity 4

Why are they suddenly so interested in us? It is mainly about the money 5

There are four key financial buckets where we as business officers can really make a difference O PERATIONS F INANCING I NVESTMENTS Revenues Net Position Expense Assets Liabilities Change in Net Position

We have a long list of ways to improve things Approaches § Management of working capital § Cost of instruction § Management of reserves § Gift assessments § Management of debt § Indirect cost recoveries § Change management § Budget models § System improvements § Dashboards § Reporting templates § Enterprise Resource Management § Business analytics § Leadership training § Faculty FTE management § Long-term financial planning § Cost per course § Strategic planning § Metrics § Cash investments § Enrollment management § Philanthropy 7 UCSF Financial Overview 3/12/2015

All Funds Budgeting is just another approach to looking at how we manage this thing called “Finance” Why this is happening What our history is at UC Problems with keeping a limited view What we get from moving to a new model A description of some options Challenges we might face The eventual outcomes 8

Moving to all-funds budgets is a natural response to the on-going decline in State funding for public higher education Our history § UC has been gradually moving from a State-funded institution to an institution funded by multiple sources. In the 1980’s, the University of California had almost $25,000 per student from the State General Fund. Now even though we have ~$2.5 billion state general fund budget in a $26 billion operation, state funding for students is closer to $11,000 per student and the students and their families have been asked to pay much of the difference. § A few years ago we prepared an “all-funds budget.” Though it was based upon past reality, as a “budget” it was really a fiction, put together to satisfy the interests of an individual member of our Board of Regents. § Since then, we have come to realize that we really do need to talk about and think about all the money. 9

California’s support for higher education keeps dropping UC’s Share of the State Budget, Universitywide 1966-67 to 2011-12 http://accountability.universityofcalifornia.edu/2012/index/1.4 10

Over time, most public universities have seen a steady decline in financial support 11

If you focus your budget process on just one or a limited set of funds, you can fail to see the big picture Challenges § Available discretionary fund balances are often not taken into account § It is hard to compare units to each other § Activities that are funded from other fund sources are often ignored § Other assets like Funds Functioning as Endowments are hidden § State funds need to be spent in their entirety, so there are little to no discussions of prudent reserves § Financial stakeholders are often confused and frustrated

Fund numbers are important 14

Fund type tells us where our money comes from Typical examples Tuition • Students, _______________ Appropriations • State Agencies, _____________ Research support • Federal Government, ________ Private support • Donors, _____________ Auxiliary income • Students, _____________ Sales and service • General Public, _____________ Interest income • Endowments, _____________

Pop Quiz! What institution is this?

A Gift from Aunt Mary: $10 to help pay for $100 dinner 17

If you focus only on the $10, you get a rather skewed view But remember, Aunt Mary cares a lot about her $10, and you should, too 18

All Funds Budgeting is a mechanism to help you make more strategic resource allocation decisions • Characteristics: – It ties more easily to your overarching mission, vision, goals, and objectives – As we look at large problems over the longer term, it helps us make sure we are considering all possible sources – We can achieve a greater understanding of an organization’s finance, and therefore increased engagement – Leaders are held more accountable for achieving objectives 19

Colleges and universities approach budgeting in various ways Incremental Zero Responsibility Based Center H IGHER E DUCATION B UDGET M ODELS Activity Performance Based Based Initiative

Incremental budgets are typically adjusted by a percentage C HARACTERISTICS : – base budgets are not revisited “California State University (CSU) will – assumes existing budgets are receive a General Fund augmentation appropriate of $125.1 million, equal to a five percent increase in the University of – maintains the status quo California's 2012-13 General Fund support budget.” – easy to administer —California State Governor’s Budget, 2013-14 – not linked to plans or priorities

Zero-based budgets are built from scratch each year C HARACTERISTICS : – allocations are based on total estimated need – assumes no history – identifies activities and determines total costs – promotes decision-making driven by desired outcomes – are sometimes used in limited form in higher education “. . . Because 80 percent of most universities’ budgets are dedicated to salaries for ongoing faculty lines, a broad- scale implementation of zero-based budgeting does not make sense for most, if not all, higher education institutions.” — The Use of Zero-Based Budgeting in Higher Education , University Leadership Council, April 19, 2009

Activity-based budgeting focuses on the costs of a desired outcome C HARACTERISTICS : – allocates funds to perform specific desired outcomes like teaching a course – requires detailed data for in-depth cost analysis – the overall cost of a department, and expense categories are less important – intended to drive specific accomplishments “The activity-based budget model can support a centralized management model, a decentralized one, or a combination of the two. It simply offers information about financial performance within and between academic units for the people making decisions.” —David P. Szatmary Activity-Based Budgeting in Higher Education, Continuing Higher Education Review, 2011

Initiative-based budgeting allocates funds for a special purpose C HARACTERISTICS : – funds are allocated for specific new projects and activities – often follows strategic planning and a competitive proposal process – involves one-time funds rather than on-going – has a follow-up assessment process to ensure effectiveness “Initiative-based budgeting is not a comprehensive budget model. It is a structured approach to the establishment of a resource pool for funding new initiatives or enhancing high-priority activities.” —Larry Goldstein College and University Budgeting, NACUBO: Washington DC, 2005

Responsibility-centered budgets are becoming increasingly popular C HARACTERISTICS : – individual units control the revenue they generate – increases in activities lead “Interest in responsibility center management among public to automatic flow of universities is soaring, with more resources and costs to the than 21 percent of public doctoral units that do the work institutions reporting that they use the RCM model” – in exchange they are —John R. Curry, Andrew L. Laws, and Jon C. Strauss responsible for paying for NACUBO Business Officer, January 2013 direct and indirect expenses, i.e. taxes – central cost centers are funded from those charges

Performance-based budgets provide funding based on defined outcomes C HARACTERISTICS : – increasingly legislatively mandated for public institutions “Inappropriate measures can be worse than no measures at all because they – focused on results not can incent the wrong kinds of revenue behaviors.” —Bill Gates, Technology Advisor, Microsoft – provides increased NACUBO Annual Meeting, July 2014 transparency – analysis and therefore funding commonly occurs after-the-fact

Higher education institutions often use a hybrid of several models, even in an all-funds budget environment Incremental Zero Responsibility Based Center H IGHER E DUCATION B UDGET M ODELS Activity Performance Based Based Initiative