I am pleased to have an opportunity to share my perspective of the Commonwealth's appropriation process with you at this first meeting of the Governor's Commission on Higher Education. While my comments are necessarily influenced by my experiences at the University of Virginia, where I have spent over 30 years in financial administration, I intend to share with you a view of the appropriation process that I believe also applies to other institutions of higher education in Virginia.

In my view, the appropriation process serves three primary purposes. First, it is the vehicle for identifying resource requirements in a systematic and rational way. Second, it is our means of ensuring that available resources are allocated to the state's highest priorities. Third, it is a means of communicating among all the participants, including the institutions, the State Council of Higher Education (SCHEV), the Governor, the central state offices and the General Assembly.

At the institutional level, our resource allocation and budget processes fit within the overall framework established by the Governor and legislature. Timing, content and procedures are established by the central agencies. Institutions then add to the process, set schedules and incorporate review time in a way that complies with state procedures and meets our internal management and decision making requirements. I should say at the onset, I find the state processes and expectations to be less burdensome and more effective today than at almost any time in our past.

At UVA, we are involved in four distinct processes that are linked to each other and to the state appropriation process. Those are (1) a planning process; (2) a multi-year operating and capital budget process leading to the state biennial budget submissions; (3) an annual operating budget process; and (4) an evaluation and performance measurement process. I will describe each of these in general terms. I will leave with your staff more detailed information about several of these components in case they may be useful to your future deliberations. You will note some common elements in each step - a decentralized identification of requirements, a testing of those requirements against institutional and statewide priorities, and a significant involvement of our Board of Visitors.

The planning process - The University's intermediate and long-term planning takes place within the framework of the University's state-approved mission and the Board of Visitors' and president's vision and priorities. With this information as a backdrop and guidance, our planning process builds upward from the school and administrative department level to form an institutional plan that provides focus and direction to our future. Key elements of our plans include enrollment projections which are approved by SCHEV and our board, projections of space requirements and availability of space in the context of SCHEV space guidelines, multi-year revenue projections where possible (i.e., those within the purview of the Board of Visitors), and approved program initiatives. We expect our operating units to develop their plans and continuously update them to reflect changing conditions.

A key part of our planning process is an ongoing emphasis on what we refer to as restructuring and process simplification. The objective is to continuously improve our efficiency and effectiveness and to identify existing resources that can be reallocated on an ongoing basis to higher priority purposes.

Multi-year capital and operating plans - Our capital plan can best be described as an ongoing process. The direction is given by state space planning policy and Board of Visitors' priorities. In our case, as an example, the board has formally instructed us to place priority on renovating existing structures and improving our utilization of space. The capital plan is developed on a six-year planning horizon, consistent with the state's six-year capital outlay planning process. Not only does our board approve the six-year capital plan, but it also reviews individual building projects throughout the planning and design development phases.

Multi-year operating plans are prepared to meet the state's biennial budget planning cycle. In those activities where the University has responsibility for the generation of resources, as is the case with auxiliary enterprises (e.g., Parking and Transportation and Dining Services) and sponsored programs, multi-year operating plans are developed and maintained for even longer periods of time. Indeed, in those instances where we have debt obligations and long-term facility requirements, we literally roll forward 10- and 20-year proformas of our operating plans. This is more difficult to do in educational and general programs because we are dependent on state funding and planning, which is determined on a two-year basis. I will say more about this in a moment.

Annual budget - Each year, we go through an extensive annual budget process that takes place primarily between December and June preceding the start of the fiscal year. Basically, we use an incremental budgeting approach, giving unit heads flexibility in how resources are allocated within a given target. That target may be more or less than the previous year's budget, depending on the outlook for resources and the institutional priorities. Internal participants in the process include faculty, students, deans, admissions and financial aid officers as well as the senior management of the institution.

Our ultimate objective is to deliver an annual budget to our Board of Visitors that contains no surprises. This is a reasonable objective because of the reports received and decisions made by our board during the budget development period. By the time our board is asked to act on the annual budget, it has reviewed the budget assumptions; approved tuition, fees, room and board rates; knows the appropriation decisions of the Governor and General Assembly; and has reviewed new or terminated programs that affect resource requirements. At that point, our budget simply reflects what our board has already enacted and the Governor and General Assembly have authorized in the state budget.

Evaluation and performance measurement- An important part of what we do is focused on reviewing the results of our operations. Often outside parties are involved in these assessments. Reviews involve external peer assessments of our academic programs, SCHEV and the Department of Planning and Budget (DPB) performance measures, space utilization statistics and the national rankings of colleges and universities. In addition there are numerous outside reviews of our financial and management performance by the Auditor of Public Accounts, multiple federal sponsoring and regulatory agencies and by Moody's, Standard & Poors and Fitch for bond rating purposes,. Today more than ever before, we are benchmarking our performance against others. While the state has recently initiated its own benchmarking process, a step we strongly support, UVA and many other institutions have long been involved in cooperative benchmarking efforts.

No systems are perfect and those who know me well are aware that I always try to give both sides of the story. At UVA, as in any large organization with multiple product lines and numerous constituent groups, we work hard to scrutinize existing programs on an ongoing basis. We must constantly monitor our operations to make sure we are focused on what is important, that we are building on our strengths and that we are using our resources where they will add the most value. There are always opportunities to do a better job and to improve services to customers. However, I believe we do effectively accomplish these necessary management and business practices within our planning, resource allocation and assessment processes, all of which are part of the state appropriation system.

You also have invited me to comment on areas where the appropriation process might be improved. My assessment is that the state appropriation process works pretty well. It is open and understandable. It does a good job of meeting the three criteria I stated initially. Indeed, substantial progress has been made in recent years to eliminate steps in the process that add little or no value.

There are two suggestions that I offer for your consideration. My guess is that all participants in the process, not just the institutions, would find these recommendations desirable. First, the ability of institutions to carry out long-term planning consistent with state priorities and the expectations of our customers could be enhanced if we had more consistent and predictable funding policies and practices. There are areas where the Commonwealth does a superb job in establishing and supporting policies that allow us to predict and plan expenses and revenues over multiple years. Two examples that could serve as models in other areas are the policies related to the maintenance reserve program and the state-wide funding policy that calls for achieving the 60th percentile of peer group salaries for faculty.

But in other areas, I don't think we have done that well. New construction and major renovations of existing facilities are achieved on an opportunistic basis in Virginia today. Year-end balances and occasional bond issues determine when capital work gets done. In my view, the appropriation process would be strengthened if it were possible to put more emphasis on setting policies and long-term resource objectives so that institutions could plan and make decisions that are based on a systematic and rational process of predictions and forecasts.

The second opportunity for improvement I will mention relates to the success rate of requests for funding a new initiative compared with funding needed to sustain and reinforce an existing program. The incentives are to propose new programs. They are more fun. They are often more interesting. Yet, our long-term viability is often achieved by paying attention to the basics. It is a bit like adding an addition onto a home when the foundation is cracking. I do not suggest this is a crisis. I do not suggest that we are doing this any worse than most states. But I do believe that we could do something good for higher education that in the long run will not cost us more money by thinking carefully about some of the guidelines and funding policies that we used a decade ago that placed equal importance on the core operations and legitimate and appropriate new initiatives.

Mr. Chairman, I am grateful for your time. I welcome questions and look forward to working with the Commission in the weeks ahead.

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Posted: August 27, 1998
By The Educational Policy Institute of Virginia Tech
sjanosik@vt.edu