
GOVERNANCE MODELS: CAMPUS AUTONOMY AND CENTRALIZATION IN OUS AND NATIONWIDE
Alternative System Models
Staff Report to the Committee of the Whole: For Discussion Only
On July 19, 2001, members of the Board of Higher Education met with an AGB (Association of Governing Boards) facilitator, Terry MacTaggart, to conduct an AGB self-evaluation workshop. At the conclusion of the meeting, the Board agreed to meet with Dr. MacTaggart once again in order to better articulate its conversations relating to strategic planning. Prior to the second meeting, which convened on September 28, 2001, Director Lehmann, incoming Chair of the System Strategic Planning Committee, asked Board members and institution presidents to comment on a strategic planning agenda for 2001-02. These thoughts were subsequently provided to Dr. MacTaggart for his review and a summary of these concepts was presented to the Board by Dr. MacTaggart at its September 28 meeting.
Following a review of the Board's concepts, Dr. MacTaggart suggested that, in order for the Board to best realize its objectives, it should make clear decisions about how to accomplish the following:
In a presentation to the System Strategic Planning Committee at its meeting on October 19, 2001, members concurred with staff that the most reasonable approach in developing a basis to consider these issues was to break the process into three separate meetings. The first area, which includes determining an effective balance between centralization and autonomy in the current model and reviewing alternative system models and revenue sources, was chosen as the first item to deliberate (questions #2 and #3 will be examined at the February and April meetings, respectively).
The questions posed by Dr. MacTaggart for the Board as it contemplates these governance issues include:
Concerning the governance models, Academic Affairs staff engaged in a nationwide study of higher education governance models in order to provide Board members with a common foundation from which to start its discussions relating to governance (see supplemental materials: "Review of Alternative State-level Higher Education Governance Structures").This study included the following:
Concerning the appropriate balance of campus autonomy and centralization in the current model, based on input from the campus Presidents and Board members, the Committee will consider the following areas:
In addition, the Committee will discuss staff's work with Arthur Andersen consultants on the Fiscal Accountability Framework Project that has ramifications for further decentralization of fiscal responsibilities (see p. 4, Fiscal Accountability Framework Project Update).
Further, Finance and Administration staff prepared a document for Board review relating to other potential sources of revenue beyond tuition and state funds (see p.11, Revenue Enhancement Options for OUS institutions).
Chancellor Cox will review with Board members the comparative characteristics of the major models and discuss recent years' changes toward achieving greater procedural autonomy, public input, and accountability in the Oregon University System.
(No Board action required)
Decentralization in current model
Fiscal Accountability Framework Project: Status Report
Background
Significant changes have taken place over the past several years affecting fiscal accountability within OUS. In response to these changes, and in response to concerns expressed by the System's external auditors regarding the diminution of internal controls and fiscal accountability, the Board, in its April 20, 2001, meeting, commissioned the Chancellor's Office to undertake a project to design a Fiscal Accountability Framework consistent with fulfilling the fiduciary responsibility of the Board, Chancellor's Office, and institutions, while recognizing the increased responsibilities of the individual institutions.
Project Organization
In order to accomplish this task, a Steering Committee made up of vice presidents for Finance and Administration, provosts, directors of Business Affairs, budget officers, and Chancellor's staff was formed to advise on key components of the project, marshal resources, monitor progress, advise on policy drafts, provide policy recommendations to the Budget and Finance Committee of the Board and/or vice chancellor for Finance and Administration, and advise on implementation of policies by user communities. The Chancellor's Office contracted with Andersen's Higher Education Consulting Practice to assist in carrying out this project, provide expert advice in the development of recommendations, and assist with "best practices" research where appropriate. In addition, a Project Management Team, made up of Chancellor's Office staff and Andersen consultants, was formed to provide day-to-day project management to ensure that the project plan is carried out effectively.
To aid in the organization of the work to be performed, as well as the resulting project deliverables, the fiscal operations of OUS were divided into 17 distinct functional areas as described in College and University Business Administration published by the National Association of College and University Business Officers. An 18th area is devoted to documenting the governance and administration of OUS. Business Process Work Groups (Work Groups), made up of campus and Chancellor's Office functional experts, were formed to evaluate each of these 18 separate areas. Each of the Work Groups is charged with the following:
The results from the Work Groups have/will be reported to and reviewed by the Steering Committee, and the following inter-institutional councils and committees:
Key Deliverables
Key deliverables of this project are:
Project Status
To date, we have engaged broad representation from both the institutions and the Chancellor's Office staff on the Work Groups and/or Steering Committee. The Work Groups have provided preliminary reports documenting the current roles and responsibilities of the institutions and the Chancellor's Office, the governing statutes, rules, IMD's, and board policies, and identifying key issues impacting operations. Currently, the Work Groups are finalizing recommendations for the Steering Committee to consider in January. It is anticipated that the results of this project will be presented to the Budget and Finance Committee in February.
Potential Areas for Further Decentralization
While significant business processes that were centralized in the past have already been distributed to the institutions (e.g. vendor payments), Work Groups are analyzing several potential areas for further decentralization or streamlining of business processes in the following functional areas:
Specific recommendations are currently being finalized by the Work Groups. The Work Groups are considering the benefits and related costs of such process shifts. As a part of this analysis, the balance of responsibility and authority for a given function, as well as the internal control structure that will result, are being considered.
Project Web Site
More can be learned about this project as well as review work that has been accomplished thus far by viewing the project web site at http://www.ous.edu/cont-div/faf/index.htm.
(No Board action required)
Other Potential Sources of Revenue
Revenue Enhancement Options for OUS Institutions
I. Background - National and State Economic Picture
In December 2000, the National Association of State Budget Officers (NASBO)* reported that states expect a moderate slowdown in state revenue growth, and escalating state health care costs will cause many state budgets to tighten. These data were published before the current recession, which economists now agree started in March 2001 and has worsened by the events of September 11, 2001.
The December 2001 revenue forecast for Oregon reports an estimated $720 million shortfall from the revenue estimate that served as the basis for the 2001-2003 agency budgets approved by the legislature. Twenty-nine (29) states have also reported fiscal deterioration in state revenues. As a state agency, the OUS' budgeted portion of state General Fund is about 6.9% of total state revenues for this biennium, 2001-2003. OUS has submitted a budget reduction package reflecting reductions from 2% to 10% of the base operating budget for 2001-02 and beyond. These reductions occur at a time of unprecedented enrollment growth at Oregon's public universities.
This potent combination of strong economic and enrollment pressures makes it important for the Board to begin a discussion of how other revenues can be generated. It is likely that the economic downturn will affect other revenue sources as well. At the same time, Oregon legislative leaders have appointed a Senate Revenue Options Committee in anticipation of a Special Session to explore a number of revenue options for the state.
The next two graphs (note: for a copy of the graphs, contact the Board's office) provide a visual representation of the state General Funds in the context of a) the OUS Education and General Budget (Limited Funds only) for 2001-2003; and b) the OUS All Funds Budget (Limited and Non-limited Funds, excluding capital construction) for 2001-2003 as approved by the legislature.
*Source: NASBO "Fiscal Survey of States: December 2000"
II. Revenue Enhancement Options for E&G Budget - A Checklist for Preliminary Discussion Purposes
This list is intended to illustrate a number of revenue options that may be of interest to the Board in their preliminary discussion of the topic; it is not intended to serve as an exhaustive list of revenue possibilities.
A. State and Federal Revenue Sources:
- Direct state appropriations (see E&G revenue charts). A budget reduction package has been submitted to the Governor as requested. At the same time, Oregon legislative leaders have appointed a Senate Revenue Options Committee in anticipation of a Special Session to explore a number of revenue options for the state.
- Contract with State for funding at set percentage of state tax revenue. Higher Education's budget grows or declines proportionally to economic trends. Very successful in Maryland in recent years of economic prosperity. Questionable outcome in years of economic decline. In Oregon, very unlikely this biennium; possible in future biennia.
- In several states, lottery funds are a principal source for state scholarship programs. In Oregon, lottery funds are fully committed. The Oregon Student Assistance Commission (OSAC) gets 25% of the interest earnings of the Education Endowment Fund (which represents 15% of net lottery to State). OSAC allocates these funds to students attending OUS, community colleges, and private institutions within Oregon. Other 75% goes to K-12. OUS has an income stream for lottery bond debt service in this 2001-2003 budget ($14 million of lottery-backed bonds for capital projects approved this biennium).
- Oregon Sports Action Lottery funds are dedicated to OUS; 12% of the funds are applied to graduate student scholarships; 88% support intercollegiate athletics.
- A general mill rate property tax dedicated to higher education has been instituted in Montana and other states. This type of tax was used to finance OUS campus capital construction projects until the late 1940s when it was replaced by the Article X1-G state constitutional authority.
- Increasingly popular method among states; 13 states now have merit scholarship programs. So far, state programs have been spared the budget ax. In September 2000, Oregon's Student Assistance Commission (OSAC) concluded that student financial "unmet need" has a higher priority for the state than merit-based assistance.
- Nation's largest state scholarship program, Georgia's "Helping Outstanding Pupils Educationally" (HOPE), has cost the state $1 billion since 1998. $277 million spent in 2000-01. Lottery funded. Every student with minimum 3.0 GPA eligible for full tuition and fee coverage.
- In Oregon, it appears the scholarship programs of the OSAC may be cut by the State. Yet, Oregon ranks high on tuition charges and low on financial assistance to students in a national "report card" entitled "Measuring Up 2000," affecting college affordability.
- The State Revenue Options Committee is likely to explore such options as the use of dedicated tax funds from cigarettes, gasoline, and alcohol (aka "sin tax"), and other sources.
- Since 1997, $1,500 per student of tax credits for payment of
tuition and
fees available for first two years of college. Tax payers eligible for tax credit equal to first $1,000 of tuition
and fees, and 50% of second $1,000. Credits available for single and joint income filers up to established limits.
B. Institution-specific Income Sources:
- Tuition increases and reduced state appropriations are listed as top two college issues nationally (Chronicle of Higher Education, August 2001).
- Most common method for adding revenues during state budget shortfalls. In 2001-02, 35 out of 50 states (77%) increased tuition beyond projected cost of living.
- Nationally, tuition and fees represent about one-third of the tuition/state appropriations total for E&G. In Oregon, tuition and fees represent about 40% of this combined revenue total for E&G. This has been consistent revenue split for several years. In 2001-02, OUS institutions increased resident undergraduate tuition 4%; total tuition and fee increases range 5.5% - 9.5%.
- OUS universities will need to grow these non-limited sources of revenue in the E&G budget. Consists primarily of sponsored research financed by the federal government, private industry, and other private groups or governmental units.
- Donor funds offer an important source of operating income to OUS institutions, albeit restricted to the purposes specified by the donor. Foundation proceeds are accounted for through the "Gifts, Grants, and Contracts" group of funds. Most proceeds are directed to new construction projects and facilities renovation; however, a significant amount supports instructional and research faculty positions (endowed chairs).
- Increase offerings of high-demand, professional, and graduate programs such as the Oregon Executive MBA program. On a selected basis, universities are able to charge market rates for these programs. Some students are subsidized by their employers.
- Technology transfer agreements with private industry represent a move to retain profit from research and development within OUS institutions. This will produce revenues to the institutions but only in future years after significant development has occurred.
- OUS universities can continue to explore ways to enhance revenues from residence halls, telecommunication services, parking, and other auxiliary services.