An Update on Restructuring:An Update on Restructuring:Overview of Implementation of the Restructured Higher

Education Financial and Administrative Operations Act

FOCUS Fall 2005FOCUS Fall 2005

November 17, 2005

by

M. Dwight Shelton, Jr.

VP for Budget and Financial Management

Virginia Tech

Overview

• Background and Legislation• Activities to Date• Major Components of Restructuring Act• Level 1, 2, and 3 Authorities• Management Agreements• Implementation Timeline

Background on theRestructuring Act Initiative

• Concepts arose during 2002-04 budget reductions

• Economic Environment and Forecast

• Higher education is a competitor for scarce state resources

• Projected increase in enrollments for Virginia undergraduates

• A history of fluctuating, unstable changes in tuition rates

Virginia’s Commitment to Higher Education

17%($627M) 16%

($945M)13%

($925M)13%

($1,434M)

10%($1,263M)

11%($1,532M)

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

1985 1990 1995 2000 2004 2006

% of General FundBudget Allocated toHigher Education

Higher Education Environment

• Enrollment pressure for Virginia undergraduates

• Fixed costs, such as health care and energy costs, predicted to increase sharply

• Institutions face a significant shortfall in Base Budget Adequacy funding

• Tuition revenue see as an alternative revenue stream

State Support Reductions Result in Tuition Increases

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

GF 66% 59% 45% 45%

NGF 34% 41% 55% 55%

FY1991 FY2002 FY2004 FY2006

Status in November 2004

Charter University Initiative was active and attracting attention

Major goals were to:

• Restructure the institution’s relationship with the state

• Provide tuition rate authority to BOV

• Expand operational autonomy

• Vest Additional authority for the University with the Board of Visitors

The 2005 General Assembly Session

• Goal identified to expand the proposed autonomy benefits to the wider higher education community

• Charter legislation set aside to develop new legislative proposal

• Resulted in the Restructured Higher Education Financial and Administrative Operations Act

Highlights of the Restructuring Act

More competitive, entrepreneurial institutions

• Institutions plan and manage themselves• Tuition rate establishment assigned to BOV• Greater funding predictability • Three levels of managerial flexibility• Increased focus on post-audit review

Highlights of the Restructuring Act (continued)

Increased affordability and predictability for students and parents

• Six-Year Academic, Enrollment, and Financial Plans

• Expansion of student financial aid programs, increasing access for all

• Streamlined process for transfer students

Highlights of Restructuring Act (continued)

Benefits to Virginians

• Increased enrollments of Virginia students

• Academic accountability

• Streamlined process for transfer students

• Support for economic development and K-12 education

• Increased accountability through established performance measures and benchmarks

Level One Authority

• Level One applies to all institutions

• Provides tuition revenue establishment authority

• Institutions must commit to achieve eleven state asks/goals

• Institutions receive specific financial benefits based on satisfactory performance

Level Two Authority

• Act provides the opportunity for institutions to obtain expanded authority in one or more specific elements of the financial and administrative operations

• Level Two status achieved through development of a Memorandum of Understanding with the state

• Appropriation Act to identify areas where opportunities for increased autonomy are available through the Level Two process

Level Three Authority

• Provides the highest level of autonomy

• Increased authority available for capital outlay, leases, information technology, human resources, procurement, and finance and accounting

• Establishes a Management Agreement between the institution and the Commonwealth

• Management Agreement elements determined based on negotiations between the institution and the Administration

The Management Agreement

•Agreement consists of:

–Management Agreement–Policy Statements for each area of additional autonomy–Supplemental MOUs or agreements–Application for Level Three status–BOV resolution approving the Application

•Management Agreement has characteristics similar to a contract

•Policy Statements describe how the institution will operate, at a high level.

Seeking Level Three Authority – A Cooperative Effort

• UVa, W&M and VT decided to join forces in the effort to obtain Level Three status

• Established teams to complete various portions of the work, e.g., a steering team, a management agreement template team, policy development teams, communications team.

• Through this process, the Universities worked cooperatively to identify goals and objectives and to help each other think through the opportunities and challenges in a Level Three environment

Management Agreement Development

• Working through these teams, the three institutions developed or completed several documents and plans, including:

• An application for Level Three Authority• A draft management agreement template• Six policy statements• Performance measures related to each policy statement

• A procurement “rules” document

• A Memorandum of Agreement regarding how VT and UVa would integrate their procurement efforts with eVA

• A Memorandum of Understanding regarding reporting of human resources management data

Capital Outlay Policy Statement

Additional Authorities include:• Existing decentralization made permanent• Extended all prior decentralization post-appropriation

authority to all GF projects.• Ability to designate a Building Official and establish an

internal code review unit• Board of Visitors (“BOV”) is authorized to establish NGF

projects• Require bid bonds and performance and payment bonds

for all contracts of $1,000,000 or more.

Leases Policy Statement

Additional Authorities include:

• Existing decentralization made permanent• Authority to enter into capital leases• Authority to grant and acquire easements

Human Resources Policy Statement

Additional Authorities include:• Existing decentralization made permanent• Develop and implement a new human resources system,

including classification and compensation plans, new performance and evaluation processes, leave policies

• Develop severance policies for employees in the new University system

• Establish new definitions for Administrative and Professional Faculty

• Elimination of reporting into state human resources systems; institutions commit to management reports through memorandum of understanding

Information Technology Policy Statement

Additional Authorities include:

• Provides an exemption from VITA and ITIB provisions of Code of Virginia regarding specific activities, such as strategic planning, expenditure reporting, budgeting, project management, security, and audits.

• Management commits to post audit review versus upfront approval in exempted areas

• VITA has review and comment authority in some areas

• Procure IT goods and services through most cost effective means; includes optional use of state contracts except for telecommunications services

Procurement Policy Statement

Additional Authorities include:• Existing decentralization made permanent• Exempt from VPPA, but establishes a “rules” document

that closely parallels the VPPA.• Small purchases authorization increases to $50,000• Streamlines RFP process• Exemptions from competition provided in some

transaction categories where competitive procurement is not effective

• Exemption from mandatory purchases from VIB• Authority for disposition of surplus personal property

Finance and Accounting Policy Statement

Additional Authorities include:

• Existing decentralization made permanent

• Authority to create and implement financial policies, including disbursement policies; State Comptroller provides review and comment

• Ability to control and manage NGF revenues and resources; implementation phased in.

• Establish tuition and fees and other charges

• Set estimated sum sufficient appropriations for NGF

Finance and Accounting Policy Statement (continued)

• Create and implement new accounts receivable management and collection policies

• Create debt management policies

• Authority to issue bonds and other debt obligations that do not constitute State Tax Supported Debt

• Provide summary reports as needed instead of using CARS or subsequent financial systems.

Level Three Additional Commitments

Management Agreement specifies that institutions will make additional commitments regarding:

• Provision of student financial aid to needy students

• Increased number of transfer students• Matching institutional investments for any state

GF investments in research• Institutional support for economically depressed

area(s) of the state

Finalized Management Agreements

• Review and approval by BOVs

• Review and approval by administration

• Submission to required parties on November 15, 2005

Timeline for Next Steps in Restructuring Process

• December 16, 2005 – Budget documents include additional administrative and financial management standards and identifies where MOUs for additional authority can be negotiated and reference management agreements

• April 2006 – General Assembly and Governor finalize 2006-08 budgets

• July 1, 2006 – approved management agreements become effective

• July 1, 2006 – institutions can enter into Level Two MOU with state

• June 2007 – SCHEV certifies institutional achievement of performance benchmarks

• August 2007 – Institutions receive Level One financial benefits

Questions?