STATUS UPDATE 3/12/2010 Proposed Changes to RCM

Goals Align RCM incentives with institutional goals Identify source of central strategic funds Simplify RCM as much as possible Develop greater financial accountability for all RC units including central service units Establish criteria and process for subventions Implement strong incentives for net revenue growth

Status FY08 and FY09 models have been built Initial recommendations developed Follow-up meetings with constituent groups are almost complete

Initial Recommendations General Assessment 1. Eliminate revenue/personnel general assessment and fund central administration from a direct % of undergraduate net tuition, F&A recovery, net mandatory fee, room and board revenue and state appropriations.  20% of net undergraduate tuition revenue (UNHD) and 5% of UNHM undergraduate net tuition revenue  20% of F&A revenue  5% of PAU state appropriation  5% of Mandatory Fees Room and Board revenues  5% of Continuing Ed and Graduate net tuition revenue 2. Central administration funding to be limited to President approved level (after central budget committee deliberation). 3. Any revenue collected over and above approved central administration budget will go to University Subvention fund. Undergraduate Net Tuition 1. Adjust credit hour weighting to reflect cost to generate undergraduate credit hour  COLSA – 1.15, COLA -.8, CEPS – 1.55, WSBE – 1.0, CHHS – 1.0  No course level based weighting for any tuition allocation  Continue two year averaging for undergraduate net tuition  100% of undergraduate net tuition to unit of instruction 2. 20% of UNHD and 5% of UNHM undergraduate net tuition to central admin 3. $15,000,000 of state funding to resident institutional financial aid

Recommendations, cont. Graduate Net Tuition 1. Allocate grad net tuition to unit of matriculation including CGPS program revenue 2. 5% of net graduate allocated to Central Administration Continuing Education Net Tuition 1. Allocate continuing education net tuition (including summer and January Term) on a weighted credit hour taught basis 2. 5% allocated to Central Administration F&A Recovery 1. 70% to RC unit, 20% to Central administration, 10% to PI 2. Default home/host splits: Provost’s council discussion State Appropriation 1. PAU revenue allocated to RC unit where PAU resides 2. 5% of PAU revenue to central administration 3. Allocate state ACE funding to institutional fund to offset financial aid costs 4. $15 million to financial aid to cover resident financial aid costs in year 1 and incremental amounts in future years 5. Remainder to subvention fund – max subvention fund $3 million 6. Changes in state funding (increases, rescissions) required to be discussed by CBC with recommendations to the President on how to allocate

Recommendations, cont. Mandatory Fee, Room and Board Revenue 1. 5% of mandatory fee, room and board revenue net of debt service allocated to central administration Other Revenue % to unit where it is generated Facilities Services 1. Keep existing facilities services allocation structure above 2. Keep phasing in of new space costs Reserves 1. Allow units to spend up to 20% of their reserves without additional approval as long as minimum reserve balance is met on an all funds basis

FY09 Model Inputs

Recommendations, cont. Subvention Funds 1. Reserve approximately $3 million of state appropriation for subvention funds to be allocated by the President. 2. Allocate subvention funds on a temporary, unit by unit basis, not to exceed 3 years. 3. Allocations will be based on unit achievement of University goals. 4. Subventions may be renewed by the President Strategic Initiative Funds 1. Strategic initiative funds will be funded from the following sources:  Unallocated subvention funds  Contribution of “off the top” revenues above what is necessary to fund central administration  Unrestricted gifts  1/3 of Ecoline reserve 2. Fund level - $5 million to $15 million

Recommendations, cont. Implement in FY12 and run parallel model in FY11.  Provides for year of planning and adjustment  Further analysis of credit hour weight values Formal review in FY17 Central Budget Committee serves as the oversight group for central administration and facility funding levels, changes in state funding allocations and any RCM formula adjustments. Financial accountability for all units  Mitigation process for units in deficit  Units must maintain minimum reserve level

Recommendations, cont Central Administration budget review and approval CBC would assign 1-2 members to work with individual central admin units to understand operations and budgets resulting in a written budget request submitted to the CBC. Central admin units are: AA – Library, AA – Research AA – Student and Academic Services, AA – All other, VPFA – Facilities, VPFA – IT, VPFA – All other, Advancement, President – Athletics, President – All other, Institutional Each unit would present on a 3 year basis and receive a 3 year budget commitment Units would provide a budget request in the form of a report to the CBC with an accompanying presentation describing scope of work, budget history and forecast, HR trends and forecast, strategic initiatives, customer feedback, benchmark information

How Does the Proposed Model Address Goals? Align RCM incentives with institutional goals 1. Incentives for revenue growth, particularly in the areas of graduate studies, continuing education, gift revenue, research, technology transfer 2. No disincentives for interdisclipinary activity Identify source of central strategic funds 1. Subvention funds 2. Unrestricted gifts 3. Excess “off the top” revenues Simplify RCM as much as possible 1. Elimination of revenue/expense based general assessment 2. Elimination of targeted allocations to central administration units 3. Elimination course based credit hour weighting 4. Elimination of state appropriation allocation based on weighted faculty salaries Develop greater financial accountability for all RC units including central service units 1. Tie subvention allocations to performance 2. Minimum reserve policy 3. Strong deficit mitigation process 4. CBC review of administrative budgets Establish criteria and process for subventions 1. University goal - based allocations Implement strong incentives for net revenue growth 1. Incentives to generate revenue – unit keeps majority 2. Low tax on graduate, continuing ed, grant, gift and all “other” revenues 3. Revised reserve policy

Questions Remain What are the specific subvention criteria? Financial aid sharing between schools/colleges and auxiliaries Split of home/host unit F&A allocation Final credit hour weights

What Next? Meet with remaining constituent groups – GSO, Student Senate and staff councils Refine model and recommendations based on constituent group feedback Present final model and recommendations to President Huddleston by March 31.

FY11 Work Answer remaining questions Develop FY10 Model Work with each unit to develop transition plan and fully understand impact of new model on each unit Develop policies and procedures (reserves, CBC role and process, subventions, mitigation process, etc) Finalize credit hour weights and F&A splits Finalize revenue assessment rates Develop subvention criteria and process Develop financial performance metrics