1. The Oklahoma State Regents for Higher Education Allocation Process Regents Education Program Annual Conference September 27, 2006

2. Appropriations History, FY97 to FY07

3. Distribution of FY-07 Appropriations By Subcommittee Total Appropriations = $6,639,329,152 Excludes supplemental appropriations Includes capital and onetime expenditures

4. Distribution of FY07 Appropriations Twelve Largest Agencies Represent 90.6% of Total

5. History of Percentage of State Appropriations, FY96 to FY07

6. Higher Education Appropriation Sources, FY06 / FY07 FY06 FY07

7. Educational and &General Budget The Educational and General (E&G) Operating Budget of an institution consists of two (2) sources of revenue : State Appropriations – funds appropriated by the Legislature to the State Regents who, in turn, allocate to each institution. These funds constitute 39.4% (TCC) to 71.7% (Connors) of the institution’s primary educational operating budget. Revolving Funds – funds collected by the institution that consist primarily of student fees, sales and services of educational departments, indirect cost reimbursement from sponsored grants and contracts and other sources of miscellaneous income that support the educational and general functions of the institution. These funds constitute on average 50% of the E&G operating budget, with student tuition and fees being the largest component of the revolving funds

8. Percent of E&G Primary Budgets Funded from State Appropriations and Revolving Funds

9. The FY07 Principles included strong support to cover mandatory costs, encouraging restraint in setting tuition rates; allocation of a significant increase in appropriations for basic operating costs; and increases in funding for OHLAP, Academic Scholars and high school senior concurrent enrollment. Specific Guidelines were also adopted which included modest tuition increases, administrative efficiency and accountability in use of special fees and financial reporting. State Regents Budget Principles

10. T he allocation of appropriations to the Institutions of Higher Education is based upon several factors encompassing the needs and costs of providing higher education services to the State. The determination of how funds are allocated is made through analysis of hard data provided by the Institutions, examination of peer institution activities and consideration of compelling special needs. State Regents Allocation Process

11. The allocation of appropriations to Institutions takes several forms; the basic ‘funding formula’, base adjustments, and Section 13 Offset. In past years, funding was also provided for the cost of new facilities coming into service. The State Regents utilize formulas for each of these forms. Specific formulae can also be developed for specific State Regents priorities as well.

12. Scholarship Programs - Most notably OHLAP, but also OTAG, Academic Scholars, and others Growth in other OSRHE priority programs, - such as Brain Gain, Section 13 Offset Debt service Special items - Legislative initiatives, Office of Accountability, OSF Core fees, etc. Factors Affecting Allocation Levels Besides the allocations made to the Institutions, increased need for some programs are considered and funded “off the top” of the Legislative appropriations:

13. Basic Funding Formula The Basic Funding Formula is the method used by the State Regents to allocate the majority of appropriations to Institutions’ E&G Budgets.

14. The funding formula has been developed to achieve two goals : Peer Funding Parity – students at Oklahoma’s colleges and universities should be funded at the average level of per-student funding provided to students at peer institutions. Funding Parity for Institutions Within Each Tier – within each institutional tier (research universities, four-year universities, two-year colleges, technical branches), institutions should be funded at approximately the same per-student funding level from state appropriations for like-type programs/courses Basic Funding Formula

15. Process I – Compare per Student Funding at Peers to per Student Funding at OK Colleges; Calculate Peer Factor Process II – Development of Program Cost Base Process III – Calculation of Budget Need to Each College Based upon Program Cost & Productivity, Peer Factor & Ratio of Student Funding to Total Funding Process IV – Allocation of State Dollars Based upon Budget Need Basic Funding Formula

16. Process I – Compare Per Student Funding for Peer Institutions to Per Student Funding at Like-Type Oklahoma Institutions & Calculate Peer Factor Using most recent IPEDS data Determine average FTE funding at peer institutions Determine average FTE funding at OK institutions Calculate peer factor EXAMPLE:  Peer Funding per FTE $12,285  Oklahoma Regional Universities - Small FTE Funding per FTE $9,317  Peer Factor Calculation: 12,285/9,317 = 1.32

17. The “peer factor” is the ratio of the per student appropriations at peer institutions divided by the per student appropriations in Oklahoma. The resulting factor is the multiplier needed to match Oklahoma program funding with peer institutions. Basic Funding Formula

18. Process II – Development of Program Cost Base; Budget Need To arrive at the budget need for each institution, the State Regents use “program budgeting” that focuses at the program level, i.e., calculating the costs of offering courses in each academic program at each institution. The cost base allocated to all courses is actual expenditures of appropriations, tuition and fees. The cost of programs is calculated for courses with methodologies for apportioning direct and indirect costs. Direct CostsIndirect Costs Faculty salaries General Admin. Other salaries, Libraries, supplies and materials, Operations and travel, equipment, etc. Maintenance, etc Basic Funding Formula

19. For each Institution there is determined a budget need for each field of study (program) that equals the sum of: The standard cost of each program for the tier Multiplied by the number of students enrolled in each program, Multiplied by the percentage of state appropriations to the total of state appropriations plus tuition and fee revenue, Multiplied by the peer factor. Thus, budget needs are determined by how much institutions spend for programs adjusted by the “peer factor”. Basic Funding Formula

20. The sum of the budget needs for the offered fields of study at an institution equals the total budget need for the institution. Thus, the budget need of each institution is determined by the mix of programs and their costs. The sum of all the institutional budget needs equals the system budget need. Basic Funding Formula

21. Process III – Allocation of Budget Need to Each Institution Based on Program Cost & FTE Productivity & Adjusted for Peer Factor & Ratio of State Funding to Total NWOSU $17,770,256 x 1.32 x 59.2% = $13,880,650 / 1,870 FTE = $7,423 Budget Need per FTE Langston $25,730,408 x 1.32 x 59.2% = $20,098,461 / 2,668 FTE = $7,533 Budget Need per FTE USAO $11,670,399 x 1.32 x 59.2% = $9,115,948 / 1,182 FTE = $7,712 Budget Need per FTE OPSU $10,288,897 x 1.32 x 59.2% = $8,036,833 / 1,121 FTE = $7,169 Budget Need per FTE Rogers $22,332,246 x 1.32 x 59.2% = $17,444,098 / 2,696 FTE = $6,470 Budget Need per FTE Basic Funding Formula

22. Process IV – Allocation of State Dollars Based on Budget Need Allocation of increased State dollars is based on each institution’s need as a percentage of the total system need for institution. Appropriation Need% of State Need % New Funds NWOSU$13,880,650 1.23% 1.23% Langston$20,098,461 1.79% 1.79% USAO$ 9,115,948 0.81% 0.81% Panhandle$ 8,036,833 0.71% 0.71% Rogers$17,444,098 1.55% 1.55% Total Need $1,125,839,353 100.00% Basic Funding Formula

23. The ultimate allocation of funds to institutions through the formula is based upon each institution’s budget need as a proportion of the total budget need of all institutions within the appropriated funds available for the E&G budgets of all institutions.

24. Observations on Formula All Oklahoma state system institutions are under-funded compared to peers. The formula process provides some degree of budget base continuity— a requirement for effective management of the higher education enterprise. The formula is applied only to new annual appropriations and state funds are not reallocated from one institution to another. Regents have assured institutions that reductions in course and program offerings as part of the systemwide initiative on academic planning and resource allocation (APRA) would not effect their state allocation.

25. Influences on Formula Peer institutions selected Peer funding per student for each tier of institutions Ratio of state appropriations to total of student fees and state appropriations Credit hour production by academic field of study Cost of high/medium/low cost fields of study Deviation of each actual field of study cost from the standard cost

26. Limitations of Basic Formula does not directly account for quality of education does not enable incentives for priority actions such as implementing new programs or raising private funds, does not penalize institutions for decreasing enrollment nor rapidly reward institutions for increasing enrollment, does not penalize institutions for high cost of programs, and does not include the total amount of funding for an institution, such as revolving funds or sources of funding through other formula.

27. Allows State Regents to address system wide funding issues outside the basic formula. For example, institutions that have had significant enrollment increases, with little or no increase in state support, could fall in the category needing a base adjustment. Also, if Legislature creates a new branch campus a base adjustment is warranted. For FY07, base adjustment were given to resolve differences in per student funding among several institutions that had experienced rapid and significant enrollment growth. The funding levels in the formula had not been able to keep pace with the demand upon these institutions. Base Adjustments

28. Those Receiving A Base Adjustment for FY07: Univ. Central Ok. $2,535,678 OKC CC 2,253,936 Northern Ok. 736,980 OSU – OKC 563,484 Rogers State 422,613 Carl Albert SC 338,091 Murray SC 309,916 Redlands CC 309,916 Seminole SC 309,916 Northwestern OSU 281,742 Western Ok. SC 225,916 Connors SC 169,045

29. Breakdown of FY07Allocation of Increased State Appropriations

30. FY07 Allocation of State Appropriations

31. FY07 Allocation of State Appropriations (Percent of Total)

32. Questions and Answers Contact Information: Greg Sawyer Associate Vice Chancellor for Budget and Finance Oklahoma State Regents for Higher Education 405-522-9425 gsawyer@osrhe.edu GS:gs/allprcssrep092706