Todd Lee

Assistant Chancellor

Budget & Planning

April, 2014

CLASS OVERVIEWThis class will not show you how to develop a budget for your department.

This class will help you better understand the issues, complexity, and constraints of the UCSB budget. 2

TOPICSPermanent Budget vs. General

LedgerFunding Streams – UCOP

AllocationsRebenchingUCSB Fund Source ReviewBudget Process – Big PictureCampus Budget PlanningLooking Ahead to FY 2014-15 3

KEY CONCEPT TO TAKE AWAYUniversity budgeting is not a

single process.

It consists of a number of processes that have evolved separately and which occur with varying degrees of coordination.

Enrollment is the key factor in developing the budget – drives both revenues and expenditures. 4

PERMANENT BUDGET

VS.

GENERAL LEDGER

5

PERMANENT BUDGET

Reflects “resources” assumed to be available on an ongoing (year-to-year) basis

Feeds into General Ledger on July 1 of each year

Typically adjusted through Transfer of Funds which makes changes in both General Ledger and Permanent Budget files

Result of incremental budget changes over many years.

6

GENERAL LEDGER

Official accounting record of the campus

Includes permanent budget plus: Carry-forward from previous years Allocations/funding changes after July 1 of any

year Contract and grant awards Current year gifts Distribution of endowment income from

Foundation

At year-end UCEN and Associated Students included.

7

PERMANENT BUDGET – GENERAL LEDGER

Description Perm. Budge

t

General Ledger

Accounts 771 5,420

Account-Fund 1,367 22,186

Account-Fund-Sub 2,627 58,012

AFS-Object Code ---- 117,891

Transactions (Est.) 11,308 1,046.582

Over 300 different control points making decisions 8

COMPARISON CON’T

Description Amount

July 1, 2012 Permanent Budget $536 Million

FY 2012-13 General Ledger Expenses*

$872 Million

Numbers above reflect operating expenses only. Campus also spends approximately $150 million annually on capital program.

* Before GASB adjustments which reclassify some expenses.

9

EXPENDITURE TRENDS

10

11

• Increase in Salary & Benefits expense account for 52.1% of the 11 year cost increase.

• Salaries & Benefits, along with Financial Aid, account for 94% of the increase in core funded expenditures.

• All other expenses, including utilities, have increased core funded expenses by only 10.4 million, or 6% of the total increase.

Expense Increases by Major Expense Category: Core Funds

Category 2001-02 Change 2012-13 % Change% of Total Increase

ACADEMIC SALARIES 101.9 34.8 136.7 34.1% 20.0%

OTHER SALARIES:

Research 6.4 3.5 9.9 53.9% 2.0%

Auxiliary Enterprises 0.2 0.1 0.4 58.7% 0.1%

Student Services 16.9 2.9 19.8 17.5% 1.7%

All Other Functional Areas 67.8 3.6 71.4 5.3% 2.1%

Subtotal, Other Salaries 91.3 10.1 101.4 11.1% 5.8%

BENEFITS 37.4 45.6 83.0 122.1% 26.3%

FINANCIAL AID 20.3 72.8 93.1 358.4% 41.9%

UTILITIES 8.0 0.4 8.4 4.7% 0.2%

ALL OTHER EXPENSES 51.5 10.0 61.5 19.4% 5.8%

TOTAL 310.5 173.7 484.2 56.0% 100.0%

12

Expense Increases by Program: Non-Core Funds

Category 2001-02 Change 2012-13 % Change% of Total Increase

ACADEMIC SALARIES 0.3 0.4 0.7 124.1% 0.2%

OTHER SALARIES:

Research 43.3 27.2 70.5 62.7% 15.3%

Auxiliary Enterprises 19.9 14.2 34.1 71.6% 8.0%

Student Services 5.3 11.9 17.3 222.9% 6.7%

All Other Functional Areas 16.9 11.6 28.5 68.3% 6.5%

Subtotal, Other Salaries 85.5 64.9 150.4 75.9% 36.5%

BENEFITS 17.5 33.9 51.4 194.0% 19.1%

FINANCIAL AID 26.6 24.2 50.8 90.8% 13.6%

UTILITIES 2.3 2.5 4.8 111.2% 1.4%

ALL OTHER EXPENSES 72.1 51.6 123.7 71.5% 29.1%

TOTAL 204.3 177.5 381.9 86.9% 100.0% 13

Expenditures by CategoryFY 2012-13

Category Core FundsNon-Core

Funds Total % Core

ACADEMIC SALARIES 136.7

0.7

137.4 99.5%

OTHER SALARIES:

Research 9.9

70.5

80.4 12.3%

Auxiliary Enterprises 0.4

34.1

34.5 1.1%

Student Services 19.8

17.3

37.1 53.4%

All Other Functions 71.4

28.5

99.9 71.5%

Subtotal, Other Salaries 101.4

150.4

251.8 40.3%

BENEFITS 83.0

51.4

134.4 61.7%

FINANCIAL AID 93.1

50.8

143.9 64.7%

UTILITIES 8.4

4.8

13.3 63.5%

ALL OTHER EXPENSES 61.5

123.7

185.2 33.2%

TOTAL 484.2

381.9

866.0 55.9%

15

Expense by Function: Core Funds

Functional Area 2001-02 2012-13 Increase % Increase% of Total Increase

University Mission Functions

Instruction 153.0 213.3 60.3 39.4% 34.7%

Academic Support 36.8 46.5 9.7 26.4% 5.6%

Research 13.5 21.0 7.5 55.6% 4.3%

Public Service 4.4 2.5 (1.9) -43.1% -1.1%

Subtotal 207.6 283.2 75.6 36.4% 43.5%

Student Access - Financial Aid 20.3 93.1 72.8 358.4% 41.9%

Mission Support Functions

Auxiliary Enterprises 0.3 0.7 0.4 114.2% 0.2%

Student Services 25.8 37.3 11.5 44.4% 6.6%

Institutional Support 30.0 37.4 7.3 24.4% 4.2%

Operation & Maintenance 26.3 32.5 6.2 23.4% 3.6%

Subtotal 82.5 107.9 25.3 30.7% 14.6%

TOTAL 310.5 484.2 173.7 56.0% 100.0% 16

Expense by Function: Non-Core Funds

Functional Area 2001-02 2012-13 Increase % Increase% of Total Increase

University Mission Functions

Instruction 11.7 14.2 2.5 21.7% 1.4%

Academic Support 4.1 7.2 3.0 72.6% 1.7%

Research 90.1 159.8 69.7 77.3% 39.2%

Public Service 2.7 5.5 2.8 105.5% 1.6%

Subtotal 108.6 186.6 78.0 71.8% 44.0%

Student Access - Financial Aid 26.6 50.8 24.2 90.8% 13.6%

Mission Support Functions

Auxiliary Enterprises 48.9 88.2 39.3 80.4% 22.1%

Student Services 14.9 42.3 27.4 183.5% 15.4%

Institutional Support 3.1 11.4 8.3 264.8% 4.7%

Operation & Maintenance 2.2 2.5 0.3 15.3% 0.2%

Subtotal 69.1 144.5 75.3 109.0% 42.4%

TOTAL 204.3 381.9 177.5 86.9% 100.0% 17

18

UCSB Current Fund Expenditures by Fund GroupFY 2002-03 vs. FY 2012-13

(Excludes GASB Reporting Adjustments)

Fund Group FY 2002-03 FY 2012-13 ChangePercentage

Change Core Funds State Operating Appropriations 200,215,879 193,472,878 (6,743,000) -3.4% Mandatory Student Fees, ICR, Other Core 127,510,142 290,717,371 163,207,229 128.0% Subtotal, Core Funds 327,726,021 484,190,250 156,464,229 47.7% Non-Core Funds Contracts & Grants 112,870,826 182,731,831 69,861,005 61.9% Income and Other Funds 77,024,551 138,467,541 61,442,990 79.8% Gifts & Endowment Income 14,992,321 29,910,304 14,917,983 99.5% Non-Core Student Fees 12,025,204 30,742,315 18,717,111 155.6% Subtotal, Non-Core Funds 216,912,901 381,851,991 164,939,090 76.0% Total, All Funds 544,638,922 866,042,240 321,403,318 59.0% Core Funds Share of Total Expenditure…………………………………………………… 60.2% 55.9% State Appropriations Share of Core Expenditure……………. 61.1% 40.0%

19

FUNDING STREAMS

OVERVIEW&

IMPLEMENTATION

20

FUNDING STREAMS

Realignment of financial arrangements between UCOP and the campuses

Historically UCOP has taken funding “off-the-top” to pay fund their operating expenses

Under the new arrangement “funds generated by the campus remain on the campus” this includes: Student Fees Indirect Cost Recover Interest on invested funds

UCOP will be funded from an “assessment/tax” on each campus.

21

FUNDING STREAMS CON’T

The assessment is based on total current fund expenditures from all fund sources.

The assessment is calculated as follows: UCOP expenses Divided by total of campus current fund expenses Equals assessment rate

Assessment was supposed to be revenue neutral to the campuses – revenue returned equals assessment collected

Actual assessment exceeded the amount return resulting in another cut to campus resources 22

FUNDING STREAMS CON’T

The UCSB assessment equals $12,059,000. The effective tax rate is 1.83%

The assessment has been distributed to the Chancellor and Vice Chancellor Control Points based on their share of total expenses – essentially the same process used by UCOP to calculate campus assessments

Credits associated with general funds, mandatory student fees, and indirect cost recovery were distributed to each control point 23

FUNDING STREAMS CON’T

The credits covered approximately 74% of the assessment.

The remaining 26% ($3.1 million) was distributed to control points and is their responsibility to pay

Control points do need to take into account any agreements or commitments associated with the use of any individual fund and have broad discretion on how to implement the assessment

For FY 2013-14 the assessment payment cannot use any campus based fee funds as a source

24

25

REBENCHING

CHANGES IN THE DISTRIBUTION OF

STATE FUNDS

26

REBENCHING IS ….

The aligning of State General funds to attain equal State General dollars per student at each of the campuses

Why is it necessary?

27

REBENCHING BACKGROUND

Overtime, significant difference in State funds per student have developed

Campuses with fewer dollars per student identified the variance as an issue that needed to be addressed

As part of the Funding Streams effort a “Rebenching Committee” was formed to look at the issue 28

29

System-wide Median

Source: UCSC 200929

IMPACT ON UCSB

Substantial increase in our state general funds per student

Initial projections of additional funding have been in the $40 million range when fully implemented – permanent additional funding

Rebenching started in FY 2012-13 and the “additional revenue” is part of the plan to address unfunded campus budget issues.

30

REBENCHING EXAMPLE

Funding to be Allocated $37.0M UCSB’s Share Under Rebenching 24.6% UCSB’s Allocation $ 9.1M

UCSB’s Share Workload 9.1% UCSB’s Allocation $ 3.4M

Over 6 years UCSB will receive approximately $40 million more than under previous allocation formulas

31

UCSB

FUND SOURCE REVIEW

32

33

34

FUND SOURCE CATEGORY #1

Core Funds State General Funds UC General Funds Mandatory Student Fees Indirect Cost Recovery (Overhead) Other State

Typically considered the “base” when dealing with budget cuts

35

FUND SOURCE CATEGORY #2

Non-Core Budgeted Funds Sales and Services Revenue Auxiliary Revenue Student Fees (Campus & Student Approved) Budgeted Endowments

Typically part of base for various campus imposed taxes and assessments

36

FUND SOURCE CATEGORY #3

Extramural Funds State and Local Contracts & Grants Federal Contracts & Grants Private Gifts and Endowments

Typically not budgeted, but are assessed overhead or up-front gift fees

Use is normally restricted for a particular purpose

37

GENERAL FUNDS

Category includes: State Appropriations Portion of Federal Indirect Cost Recovery Non-Resident Tuition Variety of Miscellaneous Fees

Primary Source to Fund Instruction (93% of total expenses)

Approximately 75% of all general fund revenue used to support instructional program

Amount subject to state budget 38

STUDENT FEES Mandatory Fees – Tuition and Student Services

Fees established by the Regents Tuition Fee ($11,220) used to support Student Financial Aid

and general operations of the University Student Services Fee ($972) used to provide a supportive

and enriched learning environment for students Campus Based Fees (UG - $1,555; Grad - $800)

Approved by student vote for specific purposes Summer Session Fees

Per unit charge based on Mandatory Fees Extension (Self-Supporting Program)

Fee levels established to cover cost of program Course Material Fees

Used to enhance educational experience for students39

CONTRACTS AND GRANTS

Federal and Non-Federal Awards $182.7 million in expenses in FY 2012-13

$141.2 million in Research (net of Sub Y/ICR) $32.7 million in Pell Grants

Uses are restricted for specific uses Indirect cost is assessed against direct

expenses Expenses in this category have increased by

15.8% ($24.9 million) since FY 2008-09.

40

INDIRECT COST RECOVERY (ICR)

Overhead on federal and private contact and grants – amount recovered is a function of ICR rate and grant activity

Complicated distribution formula with portion becoming General Funds and remainder becoming unique fund sources

Represents the most flexible funding the campus has as it can be used for both operating and capital expenditures

Under funding streams campus retains all ICR

Budget Office

41

GIFTS AND ENDOWMENTS Includes payout from endowments, as well as

current year gifts. Annual giving amounts typically fall into the $40 to $80 million range

Vast majority of gifts restricted for a particular use – capital project, endowed chair, student financial aid, etc.

Funded approximately $29.9 million (3.5%) of operating expenses in FY 2012-13

Budget Office

42

GIFTS AND ENDOWMENTS CON’T June 2013 endowment value at $226 million

(Foundation at $124 million, Regents at $192 million)

Annual endowment payout of approximately 4.75% ($10.7 million)

Only about $1.8 million of annual gifts are unrestricted

Up-front gift fee assessment to increase from 2% to 6% in July, 2011with a maximum fee of $180,000 on any gift.

43

INCOME & OTHER FUNDS User charges for campus provided services Fees established by departments with

campus review Examples include:

Student housing Parking

Funded about $133.3 million of FY 2011-12 operating expenses, 15.9% of total

Increased NSFAS (overhead tax) on these funds from 1% to 4% to 6% to 7% over the last few years

Change tax from revenue to expense based

Budget Office

44

BUDGET PROCESS

THE BIG PICTURE

45

STATE FUNDS

Funding less and less of the annual campus operating expenses: FY 1990-91 51.8% $157 million FY 2000-01 45.8% $216 million FY 2010-11 26.2% $181 million FY 2011-12 14.1% $117 million

Still the driving force behind the UC budget planning. Drive decisions on: Enrollment Student Fee Levels Salary Programs Capital Program

46

BUDGET PROCESS

Preparation of Regents Budget – Takes into account: Enrollment Plans Changes in Salaries

Faculty Staff

Represented Unrepresented

Inflation on various cost categories such as: Utilities Services Benefits

Program Enhancements and Improvements 47

BUDGET PROCESS CON’T

Costs are estimated and a system-wide budget plan developed

Regents typically review initial budget concepts in July and September and approve a plan in November

UC Budget Plan submitted to Department of Finance for consideration by the Governor

In January of each year the Governor releases a State Budget.

48

BUDGET PROCESS CON’T

The higher education component of the budget may or may not be consistent with the Regents Budget Plan

UC works with Department of Finance, as well as with Assembly and Senate leaders, during the spring to incorporate our priorities into the budget

In May Governor releases a “Revised Budget Plan” that takes into account additional information on both revenue and expense trends

49

BUDGET PROCESS CON’T

After “May Revise” the Assembly and Senate continue the process of developing a budget agreement

The requirement is that a budget will be approved before the end of the fiscal year

Once a State budget is approved then additional actions may be required by the Regents in order to address the actions contained in the budget

Bottom line – campus normally does not know the full impact of the budget until well into the fiscal year so we need to plan accordingly 50

UCSB

CAMPUS BUDGET PLANNING

51

BUDGET PLANNING FRAMEWORK

• Strategic Academic Plan• Long Range Development Plan• 2010 LRDP Mitigation Implementation

and Settlement Agreement• Coordinating Committee on Budget

Strategy• Budget Planning Principles• Budget Allocation Framework

STRATEGIC ACADEMIC PLAN

• Adopted in 2007 to update campus vision for academic program and guide future growth

• Provides a framework for campus resource allocations

• Outlines a managed-growth approach to future campus development

LONG RANGE DEVELOPMENT PLAN (LRDP)

• Provides physical planning parameters to attain the Strategic Academic Plan goals

• Grow enrollment by 5,000 students by 2025

• Identifies capacity for 1.8M ASF for Instruction, Research, and Support space

• 5,000 new student bed spaces• 1,874 new faculty and staff housing units• 5-8 acres of additional recreation space• 3,650 additional parking spaces

2010 LRDP AGREEMENT

• Mitigation Implementation and Settlement Agreement negotiated with the County of Santa Barbara and the City of Goleta

• Includes campus growth-related commitments in area of Enrollment Management, Housing, Traffic Impacts, and Public Safety Impacts

• Ties enrollment growth to the provision of new student housing development on campus land

COORDINATING COMMITTEE ON BUDGET STRATEGY

• Advisory committee to the Chancellor on budget issues

• Committee charge: “Develop strategies designed to protect academic quality, as well as student access, that we have strived so hard to achieve.”

• Responsible for in-depth study and analysis of budget issues and potential solutions/actions

• Developed and recommended actions for budget reductions, program assessments, and distribution of resources

BUDGET PLANNING PRINCIPLES

• Strategic Solutions • Priorities • Revenue Considerations • Recruitment and Retention• Strategic Initiatives• Efficiencies• Minimize Staffing Lay-Offs• Self Supporting Departments Also

Participate

BUDGET ALLOCATION FRAMEWORK

• Required cost increases• Formula allocations based on

enrollment growth• Funding for ongoing commitments• Workload and cost increases• Program Improvements• Other

CAMPUS ALLOCATION DECISIONS

Based on: Enrollment Changes Systemwide programs (Salary & Benefit) Funding formulas Campus consultation Campus priorities Fund source restrictions Control point decisions

59

CAMPUS BUDGET ISSUES – PARTIAL Graduate Student Support Faculty Recruitment Sub 0 Annual Shortfall Purchased Utilities Deferred Maintenance Technology Investments Equipment Replacement Classroom Renovation Salary & Benefit Cost Increases Departmental Support Budgets Funding for Capital Projects/Debt Capacity

No Specific Order

60

THE PROCESS

Coordinating Committee on Budget Strategy Planning Principles Budget Review Topics Budget Allocation Framework

61

CAMPUS PLANNING

CCBS - Coordinating Committee on Budget StrategyOriginally created in January 2003 to help

guide the cuts earlier this decade.Reactivated in March 2008 Includes Administrators, Academic Senate,

Faculty, Staff, and StudentsDevelop strategies designed to protect

academic quality and student access while facing the challenge of budget reductions.

62

COORDINATING COMMITTEE ON BUDGET STRATEGY

Develop principles and priorities to guide budget reduction process

Protect academic quality and student access

Achieve short term budget reductions Establish framework for long term

stability Interact with groups and committees

to develop and share information, and provide opportunity for feedback

Budget Office

63

PLANNING PRINCIPLES Strategic Solutions

Budget reductions should be implemented strategically, not across the board, in a manner that will maintain focus on the campus academic mission.

Priorities The campus should attempt to minimize the impact

of cuts on higher priority programs and services Revenue Considerations

Decisions about cost reductions need to consider the impact on revenue generation, as well as long-term capital and operating cost impacts.

64

PLANNING PRINCIPLES

Recruitment and Retention Strategies should protect our ability to recruit,

develop, and retain a diverse and highly qualified faculty, staff, and student body

Strategic Investments Strategic investments will continue to be made.

These investments may require slightly larger budget cuts.

Efficiencies Current processes and procedures should be

streamlined to eliminate any duplicated or unnecessary services.

Budget Office

65

PLANNING PRINCIPLES Staffing Layoffs

Every effort should be made to avoid layoffs or furloughs by taking advantage of normal attrition, planned retirements, and voluntary reductions.

Self-Supporting Departments Recharge and income generating units are not

exempt from the budget reduction process.

66

CCBS DISCUSSION TOPICS Revenue Generation and Redistribution

Indirect Cost Recovery Non-State Funded Administrative Support Service Agreements Recharges Payroll Assessments Campus Assessments/Taxes

Are programs covering their “fair share” of overhead and direct costs

67

CCBS DISCUSSION TOPICS - EXAMPLES

Base BudgetFund categories subject to discussionExclusions for budget cutsAllocations of new funds

Regents Actions Increases in student fees

UCOP Actions Funding Streams Rebenching 68

BUDGET ALLOCATION FRAMEWORKNEW REVENUES

Required Cost Increases – Implementation of Systemwide Programs ($20.1M) Salary Changes Benefit Cost Increases (Retirement, Health, etc.) UCOP Assessment Extraordinary Expenses

Formula Allocations Enrollment Changes ($4.5M) Increase in Faculty and Teaching Assistant FTE Increase in OMP for New Space Long Range Development Plan (public safety, etc.) Financial Aid 69

Budget Allocation FrameworkNew Revenues Con’t

Funding for Long-Term Commitments ($11.6M) Faculty Recruitment Graduate Student Support Research Sustainability

Workload & Cost Increases ($1.2M) Enrollment Driven (OISS, Admissions, etc.) Administrative Support (Compliance & Process

Driven) Changing Student Population (Non-Resident

Students)

Purchased Utilities (Rate & Usage Changes)

70

Budget Allocation FrameworkNew Revenues Con’t

Program Improvements ($1.6M) Technology (Infrastructure, Equipment, & Systems) Deferred Maintenance Classroom Renovation Equipment Replacement

Other Issues Department Support Budgets Debt

71

BUDGET ALLOCATION FRAMEWORKEXAMPLE

Total New Expenses Per Plan $ 47.6M

Total Estimated New Revenues $ 45.0M

Surplus (Shortfall) ($ 2.6M)

Plan needs to be adjusted to reduce current year allocations.

72

LOOKING AHEAD

PLANNING FOR FY 2014-15

73

UC BUDGET PLAN REVENUEASSUMPTIONS $383.1 MILLION

Base budget, General Funds $146.2 million

Additional General Funds $120.9 million

UC General Funds $ 26.0 million

Alternative Revenues $ 90.0 million

74

UC BUDGET PLANEXPENDITURE PROPOSALS - $383.1 MILLION

Mandatory Costs $168.1 million

High-Priority Costs $165.0 million

Academic Quality $ 50.0 million

75

Governor’s UC Budget Proposal

Second year of Governor’s multi-year plan for UC Funding

Base budget adjustment of 5%, or $142.2 million

$50 million for competitive innovative awards to incentivize UC, CSU, and CCCs to increase degree completion

No other funding adjustments for UC No general tuition increase in 2014-15

76

Governor’s Budget Proposal Does Not Cover’s Mandatory Cost Increases

With no tuition increase, fully one-half of UC’s budget has no identified source of funds to support mandatory cost increases ($168 million)

77

State’s SurplusOpportunity for More Funds?

Additional ongoing funding could be used for:

State share of 2014-15 UCRP costs ($64.1 million)

1% enrollment growth ($21.8 million)

Reinvestment in academic quality

78

State’s SurplusOpportunity for More Funds?

“One-Time” funding could be used for:

Paydown of UCRP Liability ($150 million)

Capital Facilities – Life Safety & Enrollment Growth

Deferred Maintenance ($50 million)

Instructional Equipment ($35 million) and Library Materials ($35 million)

Faculty Start-Up Packages ($30 million)

79

LOOKING AHEAD

State budget scheduled to be adopted late June, 2014

Between now and June, UC will be working to secure additional funding to meet needs associated with mandatory cost increases, high priority programs, and improving academic quality

Good news – state revenues continue to be above the projections.

80

QUESTIONS&

DISCUSSION81