Administrative Cost Ratio Presentation to the Financial Area Representatives November 18, 2009

1. Administrative Cost Ratio Presentation to the Financial Area Representatives November 18, 2009

2. What is the Administrative Cost Ratio ? • Institutional Support Expenditures divided by Total Operating Expense • According to the Legislative Budget Board: “provides an indicator of the proportion of operating budget being spent on administrative costs.”

3. NACUBO Program Codes • Institutional Support is a functional category defined by NACUBO (National Association College & University Business Officers) used to allocate costs between higher education activities.

4. What is counted as Institutional Support? Institutional Support includes: • Executive Management – President, VPs & their staff including operations related to planning & legal • Fiscal Operations – should not include bad debt expense • General Administration– HR, Purchasing, etc. • Administrative Information Technology • Public Relations/Development

5. Other NACUBO Functional Programs • Instruction– costs directly related to instructional mission (includes department chairs). • Academic Support – includes dean’s offices & library, museums, academic computing & advising. • Research– includes expenses for activities specifically organized to produce research whether internal or externally funded. • Public Service – non instructional activities to external groups. Includes conferences, institutes, consulting & general advisory services.

6. Other NACUBO Functional Programs • Student Services – costs that have the primary purpose of contributing to students’ emotional and physical well being and intellectual, cultural & social development (outside the context of the formal instructional program.) Includes admissions & records, student IT, student health, counseling & career guidance, financial aid administration. Does not include intercollegiate athletics programs as those must be identified as an Auxiliary Enterprise by Texas law.

7. NACUBO Functional Programs • Operation & Maintenance of Plant – includes administrative costs, building maintenance, custodial, utilities, landscape / grounds, repair & renovation, security & safety (police, disaster preparedness, environmental health & safety, etc.), logistical services (central receiving, stores) and facilities related IT. • Scholarships & Fellowships • Auxiliary Enterprises– self supporting entities to furnish goods or services to students, faculty, staff or incidentally to the general public; includes all related administrative expenses.

8. How is the Administrative Cost Ratio computed? Institutional Support Expenditures Total Operating Expense (FY09 Annual Financial Report)

9. UTSA 5 Year Administrative Cost Trend FY96 (10.4%) FY97 (11.6%) FY03 (11.2%) FY04 (11.7%)

10. ComparativeAdministrative Cost Trends A small institution will usually have a higher institutional support percent of program expense than a large comprehensive institution.

11. 5 Yr Comparison by Program

12. Why is this important? • Higher education is under scrutiny for spending and considered to be inefficient. • Governor Perry has ordered a review of higher-education spending • executive order calls for a comprehensive review of cost-efficiency in the state's public higher-education system. The order lists a dozen areas to be considered, including faculty workload, basing state spending on student course-completion rates, and consolidating or eliminating academic programs. • To demonstrate a goal of lowering administrative costs is important when we are asking students to increase tuition rates over the next 2 years.

13. Strategies to Reduce (Improve) UTSA’s Administrative Cost Ratio UTSA’s LAR performance goal was 10%. We exceeded that by 1.2% What can we do to lower our ACR? • Assure we are using the account that correctly represents the functional NACUBO program for ALL expenditures.

14. Strategies to Reduce (Improve) UTSA’s Administrative Cost Ratio • Fill vacant faculty positions & improve the ratio of T/TT to NTT • Allocate administrative costs to Auxiliary Enterprises • Increase extramural funding – sponsored programs & gifts

15. Legislative Issues

16. Higher Education Cost Efficiency Executive Order • Governor Perry’s Executive Order RP73 on Higher Education Cost Efficiency http://governor.state.tx.us/news/executive-order/13573/ • Directs Coordinating Board to review and offer recommendations for cost efficiencies in higher education

17. Higher Education Cost Efficiency Executive Order • Included in the review: • State funding based on student course completion • Restructuring financial aid to improve efficiencies & to provide aid to students who work hard to academically prepare for college • Academic program consolidation & elimination of programs that produce few graduates

18. Higher Education Cost Efficiency Executive Order • Included in the review, continued: • Faculty Workload • Articulation agreements between 2 and 4 yr institutions • Distance Learning • Alternatives to creating new campuses • Course redesign to improve quality & reduce instructional costs for more courses

19. Higher Education Cost Efficiency Executive Order • Included in the review, continued: • Cooperative, cross-system contracting & purchasing • Space utilization • Energy use • Cost of instructional materials • Review of cost efficiencies in other states & nations

20. Higher Education Cost Efficiency Executive Order • Executive Vice Chancellor Scott Kelley for Business Affairs at UT System is the sole UT Representative: http://www.utsystem.edu/BUS/vice_chancellor.htm • Report to be submitted to Governor, Legislature & institutions by November 1, 2010 • Assumed to supplant HB4149 report: http://www.legis.state.tx.us/tlodocs/81R/senateamend/pdf/HB04149A.pdf

21. What Lies Ahead? • Continued scrutiny of tuition increases • Formula Advisory Committee work • Interim House & Senate committee studies • 2010 Elections & Consequences

22. What Awaits - Next Legislative Session January 2011 • State economic & budget condition • Stimulus funds not available ($338M for Higher Ed) For UTSA this means: $3.53M Formula Funding ($1.76M – 1 yr impact) $1.87M Higher Ed Incentive Funds $4M SALSI $0.5M P-16 Council • Structural deficit continues to grow ($12-15B) • Sales Tax Receipts down double digits (-12.8% Sept 09 as compared to Sept 08)

23. What Awaits - Next Legislative Session January 2011 • Rainy Day fund • May have $5B against the projected $12-15B deficit? • Repeat of 2003 or worse? • Some discussion about a mid biennium budget cut • Expenditure reductions of 10%? • Impacts to Budget Planning

24. What Awaits - Next Legislative Session January 2011 • Higher Education Funding Needs • Maintain formula funding (backed with ARRA money in the prior biennium) • TRBs or some form of capital construction support • Funding for UT Austin • Continuation of National Research University Initiative

25. Guiding Principles in Developing the FY 2011 Budget

26. Guiding Principles for Budget Development The Chancellor, under the direction of the Board of Regents, is encouraging each President to redirect resources towards: • High priority mission activities • Strategic competitive investments; and • Reserves in preparation for potential future financial shortfalls

27. 16 Proposed Guiding Principles for Budget Development • Consider Scope and Mission – less effective activities may need to be reduced or eliminated • Understand the Rationale– reasons should be soundly developed and communicated widely • Transparency – decisions and actions must be clear and communicated widely • Examine the entire budget rather than budgeting at the margin

28. 16 Proposed Guiding Principles for Budget Development 5. Focus – separate the budget not available for redistribution; while resources from other areas of the budget may not be redistributed, any subsidies to those activities should be identified and discussed. 6. Prioritization

29. 16 Proposed Guiding Principles for Budget Development 7. Revenue – new revenue opportunities are less predictable (and won’t necessarily result in additional discretionary income) 8. Tracking & Measurement 9. External Benchmarks 10. Flexibility 11. Decision Level

30. 16 Proposed Guiding Principles for Budget Development 12. Real v. Theoretical Reallocations – make identification of reallocation strategies reality versus an exercise. 13. Administrative & Academic Overhead – thorough review of non-mission specific activities & expenditures. Targeted reduction in admin OH which do not impede critical mission activities should be identified & communicated.

31. 16 Proposed Guiding Principles for Budget Development 14. Efficiency & Productivity 15. Reallocation Targets – customized to each unit and not across the board; unit should understand the need and amount required; unit should benefit in some way from the reallocation. 16. Multi-year Plan