Montana University System

1. Montana University System Allocation Model Redevelopment Retreat Report of Progress for Board of Regents November 16, 2005

2. Review of Process • Direction provided by BOR – Sept. 2005 meeting • Schedule retreat to discuss and develop a new • allocation model • Finalize retreat objectives – Campus Advisory meeting – October 20, 2005 • Retreat – November 10 & 11 - 20 participants - all campus units CFO’s participated - Dennis Jones provided his national expertise - Bob Kelly (Great Falls businessman) served as an independent observer of the process

3. Retreat Objectives • MUS finance officers draft a conceptual proposal • MUS finance officers agree to the conceptual proposal • Develop future action plan of tasks, assignments and necessary reviews • Report on progress and outcomes at the November BOR meeting

4. Dennis Jones’ “First Principles” for the MUS Allocation Model • The model should focus on financing the state • system of higher education – not the more narrow • issues of allocating state funds to campuses. • Any model should be transparent as to the policy • choices to be made by • a. The Board of Regents, and • b. The Legislature & Executive Branch. • The model should provide a framework for • simultaneously dealing with • a. Allocation of state revenues to institutions, • b. Tuition revenues and rates, and • c. Student financial aid (in Montana, including • mandatory fee waivers).

5. First Principles (cont’d) • 4. The model should have a specific component • a. Dedicated to furthering the Regents’ • strategic priorities • b. Allocated by the Regents to campuses for • these purposes. • The model should reward – not punish – • institutions for aggressively seeking revenues • from sources other than • a. Students, or • b. State.

6. First Principles (cont’d) • 6. The model should protect institutional viability • a. By not creating conditions under which • institutions have to adjust quickly to • substantial changes in funding, • b. Buffering the effects of enrollment changes • (especially decreases), but not avoiding • those effects. • 7. Ideally, the model should provide incentives for • institutions to collaborate as units within a • system, rather than compete as free-standing • entities.

7. Desired Features / Functions of Model • Development process should involve all CFOs, at all stages, as well as the OCHE, OBPP and LFD. • Concepts and calculations should be simple and understandable. • Model assumptions, decisions and calculations should be based upon a rich array of generally available, regularly updated, data. • Montana students should be provided a fair share of State support for their cost of education.

8. Features / Functions (cont’d) • Each campus should be provided a reasonable opportunity to sustain its vitality, at a Mission and organizational scale appropriate to its level of enrollment, but not at the expense of another. • Each campus should be provided a level of funding sufficient to support its minimum necessary Base of fixed costs. • Model should establish an appropriate Total revenue level (target) for each campus, as well as an appropriate State Support level (target), based upon peer data.

9. Features / Functions (cont’d) • Model should provide some way for Regents to reward performance and/or support their priorities. • Application of Model, by OCHE and Regents, should be “Persistently Consistent.” • Model will be developed by the entire Model Team, or by smaller Work Groups (reporting back to the Team). • The Team will review and agree on each element of the Model before submittal for Regent approval.

10. The “Conceptual” Model • The foundation of the new Model Concept developed by the Model Team is: • the establishment of Targets for Total Net Revenue, State Support, and Student Contribution for each campus; and, • the creation of an Enrollment Corridor, which protects each campus from an abrupt loss of State funding due to enrollment decline – and deemphasizes the importance (and reward for) each new student FTE added to an institution’s enrollment.

11. Concept Illustration

12. Model Concepts • The “beginning point” of State support for each campus will be set in FY08, by adjusting each FY06/07 level for enrollment changes and new biennium current level adjustments. • A Work Group must codify the Current Level Adjustment definitions within the Regents budget process. • An independent consultant will perform a peer analysis (for each individual campus) to establish the suggested Campus Targets for Total Net Revenues, State Support and Student Contribution.

13. Model Concepts (cont’d) • Peer data must be selected to reflect such individualized characteristics as institutional classification, program mix & levels, enrollment and geography. • The Regents adoption of campus targets for Total Revenues, State Support and Student Contribution will, in effect, establish long term differential tuition plans. • A Phase-In plan for pursuing the targets will establish Priorities among the campuses.

14. Model Concepts (cont’d) • A Work Group must also develop suggested Enrollment Corridors for each campus, possibly through statistical analysis of when an enrollment decline would put State $/FTE above peer averages. • Enrollment Corridors will also reflect Regent priorities for protecting campuses in the event of an abrupt enrollment decline - as well as the incentive for expanding current enrollment levels. • A Work Team must also develop a set of suggestions for establishing specific goals, measurable objectives, and a funding source / level for a Regents’ Incentive Program.

15. Board of Regents Policy Issues • Approval of Peer comparators. • Adopt revenue “targets” from the peer comparators as a guide to reallocate funds within the Montana University System as the method for establishing revised “base” funding for all institutions. • Adopt a timeline to reach the new base funding targets.

16. Policy Issues (cont’d) • Determine the appropriate state/tuition funding ratios, by institution type, as a means to implement differential tuition. • Adopt a timeline to reach the differential tuition targets. • Determine how much funding should be in the Regent’s Initiative/Incentive Pool. • Establish the width of the “enrollment corridors” by institution.

17. Policy Issues (cont’d) • Develop a policy to address the situation when one or more institutions are unable to maintain their enrollments within their approved corridor. • Develop a policy on how to fund mandatory waivers. • Adopt common definitions of what constitutes • “Current Level” adjustments. • Develop a one time appropriation request to provide additional base funding to the two year campuses as a means of right sizing their base funding.

18. Development Process Timeline November 2005: Approval to proceed, approval to hire NCHEMS (Dennis Jones) to develop peer comparator data and provide ongoing assistance as the model is revised January 2006: Adoption of peer comparators, initial revenue targets, establish enrollment corridors February 2006: Conduct simulations to fine tune/adjust the model

19. Process Timeline (cont’d) March 2006: Present a list of policy decisions to the Board that need to be made to finalize the model April 2006: Budget Committee conducts a full dress rehearsal of the new model May 2006: Present the new model to the full Board