1. Welcome

   Mr. Ed Flippen, Commission Chairman, welcomed members of the Commission to their second meeting of the Commission and introduced Dr. Alan Merten, President of George Mason University. Dr. Merten also welcomed the Commission and expressed his appreciation for the opportunity to host the meeting on the GMU campus.

2. Tuition & Fees, and Expenditures during the 1980s and 1990s

   Mr. Lockridge, Section Chief - Department of Planning and Budget, began his presentation by responding to the Commission's previous request to reconcile the "apparent discrepancy" between the figures presented by Mr. Sullivan, President of the College of William and Mary, and Ms. Phyllis Palmireo, Education Section Chief in the Department of Planning and Budget. Mr. Lockridge stated that both presenters used figures from the same data base. Mr. Sullivan used a subset of the data and focused on the period referred to as the "recession years." Ms. Palmireo, on the other hand, displayed the entire 25 year data set. Mr. Lockridge indicated that the charts appeared to be in conflict only because of the timeframe selected.

   Mr. Lockridge reviewed "where the money comes from and where it goes" by defining various revenue sources and the corresponding program expenditures. He also identified the seven typical subprograms within the Education and General (E&G) Program. These are instruction, academic support, institutional support, student services, operation and maintenance of plant, public service, and research.

   Mr. Lockridge reviewed a number of charts that displayed the general fund (GF) appropriations per student over a 25 year period. The data show that GF appropriations per student declined during the recession years (1990-1994) by 13% at four-year institutions and by 11% at two-year colleges. Nongeneral funds (NGF), that is tuition and student fees increased during that same time period to compensate for the loss in state funding. Nongeneral funds increased by 56% at Virginia's senior institutions and by 90% at Virginia's two year colleges. Since the recession, nongeneral fund appropriations have leveled-off. Most of this increase has resulted from increase in fees charged to out-of-state students and the creation of a technology fee for all students.

   When GF and NGF are combined, the data shown that Total Appropriations per student increased despite the recession. Mr. Lockridge concluded that there was no overall funding loss to Virginia's colleges since parents and students made up the difference in reduced state funding.

   Because of tuition caps and freezes imposed by Governors Allen and Gilmore and the General Assembly, tuition has climbed 9.2% for all institutions from the period 1994-1999. This compares with a 50.4% increase for all institutions for the period 1990-1994.

   As a result of the changes in funding policy, the mix between general and nongeneral fund appropriations has changed. In FY1990 the split between general fund and nongeneral funds was 66%-34%. For FY2000, the split will be 54%-46%.

   On the expenditure side, Mr. Lockridge reviewed the spending patterns in higher education using 1983 and 1998 for purposes of comparison. He concluded that E&G spending for instruction has remained stable and that spending on operation and maintenance of plant has shown a slight decrease. He suggested that this change may be attributable to restructuring and privatization.

   He concluded his presentation by making the following observations:

   • Although institutions of higher education lost general fund support during the early 1990s, they closed the gap with increases in tuition and mandatory E&G fees.

   • Since the mid-1990s, general fund support as a percent of total funding for higher education has been increasing in part due to the cap and freeze on tuition and mandatory fees.

   • In general, over the past 15 years, there has been little change among the seven E&G subprograms when expressed as a percent of the total E&G expenditures.

    

3. Overview of Higher Education Budgeting at Virginia Commonwealth University
   
   Mr. Timmreck, Vice President for Finance at VCU, began his presentation by stating that college and university budgeting was the most complex part of state finance. He then reviewed the structure of VCU's operating budget, the sources and uses of funds, major variables affecting the budget, and revenues and expenditures by major program.

   Commission members were interested in the effects of restructuring and knowing if funds really had been shifted from administration to instruction. One Commission member suggested that categories typically being displayed didn't really show that view. The Commission member asked if the data could be broken out cleanly into administrative costs vs. instructional costs. Mr.Timmreck indicated that expenditures could be displayed to better illustrate these categories.

   Mr. Timmreck also reviewed the university's plan to implement a "base budget review." He described this review as a comprehensive budget analysis at the school level with detailed information at the department level. The review includes administrative units and examines credit hours, headcount majors, degrees awarded, expenditures by fund group, staffing by position classification, academic staffing and expenditure ratios. Mr. Timmreck explained that determining the cost of the degree awarded in nominal and constant dollars would allow everyone to ask better questions about the institution's priorities and effectiveness. The Commission members expressed a great deal of interest in this process.

   In response to a question by a Commission member, Mr. Timmreck stated that faculty response to the base budget review process had been very positive.

   Mr. Timmreck was asked about flexibility in the budgeting process. He said that he found sufficient flexibility and emphasized the ability to carryover balances as an extremely important budgetary incentive.

4. An Economic Analysis of Restructuring in Virginia
   
   Dr. Mangum, from the State Council of Higher Education, reviewed the development of the restructuring process as it pertains to institutions of higher education in Virginia. He identified five major initiatives that have grown out of this process and discussed each in turn. These initiatives were (a) post-tenure review, (b) academic program review, (c) reduction of degree credit hours, (d) technology and, (e) privatization.

   He reported that the estimated savings from this process, once the plans are completed, will be $111,633,354 given the data collected from 1997. Almost 58% of these savings come from reductions in administration and other support, while the remaining savings of 39% come from instruction. Another 3% is saved through an annual reallocation.

   Dr. Mangum concluded his remarks by stating that:

   Five major initiatives have grown out of the restructuring process.

   • Institutions estimate $111.6 million in annual savings as a result of restructuring

   • $52.7 million will be saved annually in foregone enrollment growth by 1999-2000

   • Per FTE expenditures in senior institutions declined pre to post restructuring in administration and increased in instruction/library

   • Per FTE expenditures in the community colleges increased pre to post restructuring in administration and in instruction/library.

5. GMU's Restructuring Efforts and Cost Savings

   Dr. Merten began his presentation with a brief overview of George Mason University's operation and budget. He described George Mason in terms of a changing marketplace and reviewed restructuring at George Mason in the academic and administrative environment. The effects of restructuring at GMU were illustrated in the following manner:

   • GMU has downsized support staff by 10% (1994-1996)

   • GMU has reduced the number of vice president and vice provost positions by 33% since 1992

   • GMU, a leader in privatization, has contracted four support services since 1995

   • GMU has over $50 million of contract services, almost 400 full-time contract employees, and 30 major outsourcing partners

   Dr. Merten said he was pleased with the progress made on benchmarking at George Mason University and suggested to the Commission that, "What gets measured and rewarded, gets better."

6. Financial Control Issues

   Mr. Landsidle, Comptroller for Virginia, began his presentation on Financial Control Issues by reviewing the financial reporting relationship of Virginia's public colleges and universities. While they operate within the financial control structure of the state, they are distinct in several ways.

   He suggested that the Commission provide guidance on two policy issues. First, the future of decentralization. Second, the role of "local funds."

   Mr. Landsidle suggested that all state agencies engage in budget/expenditure monitoring, payroll certification, expenditure authorization, fixed asset security, and financial reporting. Through decentralization, selected colleges and universities have assumed greater responsibility for these functions. These decentralized agencies remain subject to appropriation and cash controls but at highly summarized levels.

   Decentralization began in 1994. There are nine colleges operating as pilots (UVA, VPI, JMU, ODU, VCU, W&M, VMI, GMU - payroll only, RU - non-payroll only). This process is available to all colleges with approval. No requests are pending.

   The 1998-2000 Appropriation Act directs the Secretary to consider continuation of these programs and to propose necessary legislation. Mr. Landsidle, speaking for the Secretary of Finance, considers the views of the Commission on the topic of decentralization as critical to any legislation proposed.

   The results of the empirical research were reported as follows:

   • There is little evidence that material cost savings have been achieved.

   • Colleges have been able to design and implement more integrated administrative information systems

   • There have been no management shortcomings or control breakdowns

   • Complaints or request for additional flexibility revolve around "business rules."

   Mr. Landsidle suggested that future legislation is needed to institutionalize the pilots. He recommended that any such legislation include conditions for continuation and gubernatorial authority to revoke the privilege. It should also include statements on Board of Visitor involvement and identify performance standards for decision making.

   With respect to the use of local funds in local accounts, Mr. Landsidle reported on a study requested by the General Assembly. The purpose was to discover the reasons for local accounts and the amount of money (excluding endowment) held by colleges outside of the State Treasury. The results of the study found 1200 accounts totaling $138 million in FY97. Seventy-eight percent of these accounts were associated with auxiliary enterprises. Thousands of small accounts are maintained locally. Some involve conference receipts, student organizational dues, etc.

   Mr. Landsidle said that given the current Code, auxiliary funds are clearly state funds and should be deposited in the Treasury. Conference receipts are also state funds. Funds held by colleges for students and other campus organizations appear not to be state funds - but Code clarification may be needed.

   Mr. Landsidle concluded his remarks by requesting that the Commission provide guidance on the topics of decentralization and local funds.

7. Other Items
   

   Mr. Flippen reminded Commission members that the next meeting of the Commission would be held on December 10, 1998 on the campus of Mary Washington College. He noted that he would place access, tenure, community colleges, and private higher education in Virginia on future agenda, at the request of individual Commission members. Finally, the Commission discussed the need for some type of open hearing where stakeholder groups might be able to address the Commission.
   

8. Final Note
   
   Each of the presentations included visual materials in the form of an outline and/or charts. Copies of these presentations are available in the office of Steve Janosik (sjanosik@vt.edu) 306 E. Eggleston Hall, Virginia Tech, Blacksburg, Virginia 24061.

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Posted: October 29, 1998
By The Educational Policy Institute of Virginia Tech
sjanosik@vt.edu