1. CACUBO Winter Workshop, February 19, 2014

2.  What is budgeting and why is it important?  Academic planning  Budget development  Primary architectures of budgeting  Major sources of revenues  Major components of expenditures  Forecasting and ownership  Capital budgets – integration with operational budgets  Budget cuts CACUBO Winter Workshop, February 19, 2014

3.  Plans: expectations of deliverables expressed in financial terms › Allocation of Resources - Revenues spent to achieve specific purpose  Commitments: › Enrollments › Research funds › Services › Faculty/Employees › Capital – Systems, Buildings, Equipment  Controls › Mechanisms to authorize revenues and expenditures CACUBO Winter Workshop, February 19, 2014

4.  Budgets are fiduciary enablers: assurances to boards of trustees and/or state authorities that revenues and expenditures will be kept in balance  Performance measurement › Expected deliverables – academic or administrative CACUBO Winter Workshop, February 19, 2014

5.  More diverse faculty › Sometimes different faculty for emerging academic field  More diverse student body  More facilities or upgraded facilities  Increased reputation and quality CACUBO Winter Workshop, February 19, 2014

6.  Plans should become strategic › Could be constrained by resources › Prioritization will be important  Plans can influence revenues › Shift to focus on research › Quality initiative can decrease enrollment  Reallocation of expenditure budgets to achieve academic priorities CACUBO Winter Workshop, February 19, 2014

7.  Planning and budgeting should be dynamic  Budgets enable plans  Both are a snapshot in time  Both must be adaptable to change  Plans can and should influence budget  Unfortunately, budget can influence plans CACUBO Winter Workshop, February 19, 2014

8.  Operating budgets › Forecast of revenues and expenses › For an operating period – typically 1 year › Authorizes spending › Basis for performance measurements  Capital budgets › Major outlays › Longer timeframes CACUBO Winter Workshop, February 19, 2014

9.  Incremental Budgeting › Annual awarding of increments to prior year budget › Presupposition that the priorities remain the same › Adjustments should be made to refine to ensure prioritization CACUBO Winter Workshop, February 19, 2014

10.  Zero-based Budgeting › Start at $0 and build up based on needs › The overall package of all activities represents the budget › Requires priority ranking of the activities › Puts everything up for grabs › Zero-based budgeting is rare in practice › It assumes courage to implement fundamental changes CACUBO Winter Workshop, February 19, 2014

11.  Begins with estimating annual revenues  Identifying spending priorities › Examine programs funded in prior years › Propose increases (decreases) for upcoming year  Ends with balancing expenditures to expected revenues CACUBO Winter Workshop, February 19, 2014

12.  Tuition Revenue › Enrollments  Freshmen  Upper Class (Retention and Transfers) › Setting tuition price  Undergraduate rates tend to be set at institutional level  Public schools:  have state restraints  have instate and out of state student considerations  might have caps on increases CACUBO Winter Workshop, February 19, 2014

13.  Student fees other than tuition › Special fees related to a program › Fees directly associated with a class, i.e. lab fees › At many schools these fees are controlled by the school › Can be directly allocated to the program/school › Are significant at many institutions CACUBO Winter Workshop, February 19, 2014

14.  Gifts › Include to the extent gifts provide support to operations › Capital campaigns – less predictable › Have to match restricted gifts with uses › Some gifts are controlled by specific schools, departments and even faculty members  Requires coordination between multiple people CACUBO Winter Workshop, February 19, 2014

15.  Endowment › Contingent on restrictions, realized endowment returns and earnings can be available for budget support › Endowment spending rate usually established and monitored by institution › Schools might have policy on appropriate use for operations CACUBO Winter Workshop, February 19, 2014

16.  Investment Income › Generated from short and long term investments › Modeling the cash flow is important – think about what has recently happened with the economy  Research Dollars › Indirect cost revenue › Freeing up of unrestricted dollars › Budgets are done at proposal stage  Other › Sales and services  Conferences and seminars (plus expenditures)  Clinical income (internal or private practice plans) › Rents CACUBO Winter Workshop, February 19, 2014

17.  Auxiliary Enterprise Revenues › Look and feel of for profit › Gross sales revenues should cover total operating costs › Net operating income should cover debt service › Campus (cash) subsidies should be budgeted › Indirect subsidies should be understood  Like facilities, utilities, administrative costs › Financial structure is complex and should be enhanced with strong financial reporting CACUBO Winter Workshop, February 19, 2014

18.  Salaries › Develop policies for annual adjustments › Turnover savings can be available for other uses › Position control › Policies related to use of salary savings and vacant positions  Benefits › Not always easy to forecast › Multiple ways of handling the charges CACUBO Winter Workshop, February 19, 2014

19.  Financial Aid  Materials, Services and Supplies › Items such as paper, toner and software › Internal sales usually a contra expense (inc) › Cost of goods sold (auxiliaries)  Travel  Capital Equipment › Should capital outlays be budgeted? › Depreciation should be budgeted for auxiliaries CACUBO Winter Workshop, February 19, 2014

20.  What should be budgeted? Only operating (current funds)?  Should net income be budgeted?  What about use of cash – non base budget dollars?  Should revenue not intended to be used be budgeted?  Should the budget balance? CACUBO Winter Workshop, February 19, 2014

21.  Governing boards should own variances  Role of: › President › Provost › CFO  Delegation to Deans and Directors  Who owns surpluses and deficits  Excessive negative variances over time CACUBO Winter Workshop, February 19, 2014

22.  Budget to actual variances with estimated projections through fiscal year  How often? › Depends on the revenue sources  Tuition and Fees known after first month  Other sources can be variable › Minimum of quarterly › Monthly at end of fiscal year  Review for internal controls and decision making with leadership CACUBO Winter Workshop, February 19, 2014

23.  Require long planning lead times  Implemented over multiple budget cycles  Capital budgets should include: › Equipment › Enterprise Software › Renovations › New Facilities › Infrastructure CACUBO Winter Workshop, February 19, 2014

24.  Three budget designs › Centralized unrestricted budgeting › All funds budgeting › Revenue responsibility budgeting CACUBO Winter Workshop, February 19, 2014

25.  Centralized unrestricted budgeting › Central owns unrestricted revenues › Goal is to divide these revenues appropriately among the expenditure budgets of the units › Central estimates and identifies  Revenues  Expenditure inflation factors  Priorities › Discussions are exclusively on expenditures › Negotiation is the behavioral modality › Restricted endowment and gifts are off the table CACUBO Winter Workshop, February 10, 2011

26.  All-funds Budgeting › Central owns unrestricted revenues › Designated and restricted gifts are on the table with unrestricted revenues › Deans strive to maximize their share of the pie › Provosts requests are against the same incremental resources › Administrative fees can play a role in funding some activities CACUBO Winter Workshop, February 10, 2011

27.  Revenue Responsibility Budgeting › Based on local ownership of revenues  Tuition earned by unit stays in unit  Research recoveries stay in unit where generated › Local ownership of expenses  Facility expenses  Administrative services › Deans develop feasible revenue and expenditure budgets  Central can still play roll in establishing guidelines and priorities CACUBO Winter Workshop, February 19, 2014

28.  Revenue Responsibility Budgeting, cont › Budget variances stay in the unit, whether positive or negative  Positive: allows for large multi-year projects at unit level  Negative: school’s must develop recovery plans when deficits occur › Pressures are put on keeping down administrative fees › Deans become very powerful › Forces the issue of fiscal responsibility to the school/department level CACUBO Winter Workshop, February 19, 2014

29.  Fiscal year beginning cuts  Mid year cuts  Base budget vs. cash  Possibilities › Salaries  Slow down in hiring  Freezes  Reduction in force › Travel › Identification of non-mandatory services › Other deferrals CACUBO Winter Workshop, February 19, 2014