1. Manoa Budget Committee Update Kathy CutshawFebruary 18, 2015

2. Current Budget Allocation Methodology General Funds Allocated based on historical/incremental – legislative intent Tuition Regular Tuition Allocated based on historical /incremental All admin, instruction & research units have both a general fund & tuition fund component Summer Tuition Formula based allocation – 67% to Colleges, 30% Outreach expenses, 3% VCAA Outreach-Credit Formula based allocation – 70% to Colleges, 27% Outreach, 3% Chancellor Professional Programs Formula based allocation based on agreements with the respective college – typically 85% to Professional Program, 15% Manoa Fees 100% back to the program Course Fees (Natural Science, Art, CTAHR, Music, MBA programs) Professional Fees (Nursing, Dental Hygiene, Architecture, Shidler) RTRF Formula based allocation based on prior year extramural expenditures – 25/25/50

3. Budget Committee Chancellor’s Charge Chancellor created a Budget Committee to recommend a new and transparent budget allocation methodology which more closely equates revenues with teaching Minimize initial disruption Membership – co-chaired by Reed Dasenbrock & Kathy Cutshaw Faculty (4)and student representation (ASUH and GSO) Deans and Directors of academic and research units (5) Vice Chancellors (4) Timeline - Recommendation to the Chancellor by the committee by end of 2014

4. Budget Model Values Quality education to students Importance of multiple missions: instruction, research, community service/extension Transparency of revenues, expenses, allocations, and decision making Accountability to the public and stewardship of public funds

5. Budget Model Principles Allocations should be adjusted based on the performance of units Philosophy of the allocation should be evident in the structure of the allocation model Central reserves are necessary to fund cross disciplinary and new initiatives Recognizing and preserving legislative intent Allocation mechanism should aim for administrative simplicity

6. Budget Methodologies Evaluated The committee looked at many different budgeting models currently being used in higher education and decided to focus on the following: Responsibility Centered Management Budgeting Revenue Based Budgeting Activity Based Budgeting A sub-committee was assigned to each model and charged with evaluating the method for strengths, challenges and ease of implementation in consideration of our culture and institutional character.

7. Responsibility Centered Management Budgeting Delegation of operational authority and responsibility to the units to prioritize their mission Each unit is credited with all of their revenue Each unit pays their share of overhead costs either by Fixed costs off the top Taxed

8. Revenue Based Budgeting Budgets are based on the amount of revenue generated from all sources Attributes all revenue back to the earning unit Central support functions and campus discretionary activities are either taken off the top of the net revenue available or proportionally assessed.

9. Activity Based Budgeting Allocates resources to activities based on their contribution to the University’s mission and goals. Recognizes that not all activities done by the university are necessarily attributed to a revenue stream. Measures used for this model tied to the campus and system strategic plan Units that are most effective at strategic activities receive a significant share of those revenues. Rewards the units that are the most productive and efficient

10. Budget Committee Discussion Outcomes After review of all of the models the Budget Committee felt that adopting a pure RCM model was not feasible for Manoa at this time. Can lead to competition between units Is resource intensive to gather and analyze data Is a poor fit with Hawaii organizational constraints

11. Hybrid Model Budget Committee will be recommending a hybrid model using revenue based budgeting as the foundation, incorporating certain aspects of the activity based model and ensuring transparency of overhead costs. Revenue Based % of revenues allocated back to the unit based on output metrics (i.e. SSH, majors, degrees awarded). % revenue taken off the top to fund central services and strategic initiatives Overhead costs are clearly identified for transparency (central services, utilities) Appropriate costs would be directly attributable to units Activity Based Allows for activities of the campus to be evaluated and rewarded Quality and effectiveness in achieving the strategic mission Efficiency measures (faculty/staff ratios per degree; space utilization; time to degree)

12. Implementation Considerations Budget Committee recognizes that the budgeting concepts being discussed could present a radical change in the way we allocate budgets. The following things need to be considered: Identify revenue sources Agree on metrics & % weights (i.e. SSH, degrees awarded, declared majors) Agree on activity measures There should be factors encouraging collaboration Model should not disincentivize units from good behavior Linkage to strategic plan Identify cost centers and methodology for allocating/attributing costs Ensure data systems are designed to obtain information readily and timely May require realignment of administrative responsibility and budget authority Human capital expertise to analyze data Recognition that new methodology would be easier to implement in a period of growing resources Final recommendation submitted to Chancellor: June 2015 Implementation: Starting July 2016

13. Proposed Transition Phase Currently 38% of net tuition is returned to instructional units historical distribution - not based on metrics Proposed realignment of current instructional unit allocations Total base budget (G + S) does not change Proportion of G & S change. Aligns tuition with SSH production Going forward: A portion of the increase in tuition revenue will be allocated based on the following: SSH Taught Degrees awarded Majors Implementation: July 1, 2015