1999-2001 LEGISLATIVE APPROPRIATION AND 1999-00 OREGON UNIVERSITY SYSTEM OPERATING BUDGET

The Oregon University System (OUS) 1999-2001 biennial budget as set by the legislature is summarized below, including background information on the Governor's Recommended 1999-2001 Budget. Following this summary, the 1999-00 annual operating budget is proposed for Board consideration and approval.

SUMMARY OF LEGISLATIVE ACTION 1999-2001 BIENNIAL BUDGET

In accordance with legislative final action, the 1999-2001 biennial budget for operations, debt service, compensation adjustments, and capital construction totals $2,731,225,120, including $755,535,118 in state General Fund appropriations; $774,926,518 in Other Funds Limited; $1,195,877,393 in Non-Limited Other Funds; and $4,886,091 in state Sports Action Lottery Funds. (Refer to Attachment A detailed breakdown of: All Sources, state General Fund, Other Funds Limited, Non-Limited Other Funds, and state Sports Action Lottery Funds. (These documents are on file in the Board's office.)

State General Fund: $755,535,118 BIENNIAL

Attachment A lists the state General Fund appropriations that will be made available for the 1999-2001 biennium for OUS operations, debt service, compensation adjustments, and capital construction. Overall, including $15,866,476 in state General Fund for capital repair and construction (HB 5021), the 70th Legislative Session resulted in a total state General Fund appropriation of $755,535,118 for OUS, an increase of $111,955,761 or 17.4 percent over the 1999-2001 current service level (CSL) of $643,579,357. Compared to the 1997-1999 legislatively adopted state General Fund budget for OUS, including $22,451,705 in Emergency Board appropriations, the OUS budget for 1999-2001 includes a state General Fund increase of $149,594,425 or nearly 25 percent.

Other Funds Limited: $774,926,518 BIENNIAL

Summary: The OUS Budget for 1999-2001, as adopted by the 1999 Legislative Assembly, includes an increase of $143,907,733 or 22.8 percent over the 1999-2001 CSL for Other Funds Limited. This increase is primarily due to budget treatment of capital construction in the CSL and does not equate to an increase in this area of the 1999-00 OUS budget. (For more details on the capital construction budget, please see the 1999-00 OUS Budget Report Summary.)

Continuing Education: Additionally, as part of OUS operations, an increase of $17,211,535 is included over the 1999-2001 CSL and is due primarily to a shift of $19,850,000 in tuition fees income from Non-Limited Other Funds to Other Funds Limited representing tuition revenue for continuing education courses. Under the new budget allocation model, credit-generating enrollments through continuing education will receive state General Fund revenue.

Available Expenditure Limitation: It is important to note that, of the total indicated for Other Funds Limited, an amount is included as unallocated OUS Expenditure Limitation. This unallocated Expenditure Limitation is set aside as a Systemwide reserve at the Chancellor's Office and would be made available to institutions upon Chancellor's Office approval of campus budget increase requests requiring additional Other Funds Limited expenditure limitation. If, under the new budget allocation model, campuses were to exceed projected enrollment and thereby generate additional tuition and fee revenue beyond initial operating budget levels, it would become necessary to use this set-aside expenditure limitation.

Non-Limited Other Funds: $ 825,324,663 BIENNIAL (Gifts, Grants, Contracts, Federal Direct Student Loans, and Debt Service)

Reported revenue for 1999-2001 was set by the legislature in HB 5061 at $825,324,663 (almost 87 percent above the 1999-2001 CSL of $442,327,421). This increase in the amount of Non-Limited Other Funds is driven by the following changes: 1) as recently required by Governmental Accounting Standards Board, $400 million representing income from the Federal Direct Student Loan Program is included for the first time in the OUS operating budget; 2) an additional $2,992,555 is included to reflect increased costs for Certificates of Participation (COPS); 3) a reduction of $145,313 for changes in State Treasurer and Attorney General assessments; and, finally, 4) a decrease of $19.85 million to reflect a shift of fundable tuition revenue from continuing education courses. This revenue is shifted from Non-Limited Other Funds to Other Funds Limited.

Non-Limited Other Funds: $370,552,730 BIENNIAL (Self-support Activities)

Revenue from self-support activities for 1999-2001 was set by the legislature in HB 5061 at $370,552,730, or at the 1999-2001 CSL. Note: While the legislature sets an initial amount during the appropriations process, Non-Limited Other Funds revenue increases (for both self-support activities; and gifts, grants, contract, federal direct loans, and debt service purposes) are not subject to budget limitation by the legislature.

State Lottery Funds (Sports Action): $4,886,091 BIENNIAL

An additional amount of $4,886,091 is appropriated from state lottery funds proceeds for 1999-2001, identical to the 1999-2001 CSL. Compared to the OUS 1997-1999 legislatively approved budget, the 1999-2001 appropriation reflects a decrease of $2,557,909 or 34 percent in state lottery funds proceeds appropriated to OUS.

Background ­ Biennial Budget

For the 1999-2001 Biennial Budget, OUS sought a significant increase in state support for its new budget allocation model. For full implementation of the new model in a single biennium, OUS requested $116 million in new state General Fund dollars over the 1999-2001 CSL (CSL). In addition, OUS requested $32 million, three percent per annum in July of each year, in state General Fund for classified and unclassified compensation and benefits increases. An increase of $17 million above the CSL for the Statewide Public Services in the form of a Policy Option package was also requested. The Governor recommended a two-biennia phase-in for the new budget model, beginning with a 1999-2001 state General Fund increase of $73 million for Education and General. The Senate leadership of the 1999 Legislative Assembly responded with its own recommendation for a $100 million increase above the 1999-2001 CSL. In supporting the recommendations of the Ways and Means Committee, the full legislature passed a $110.4 million state General Fund increase for OUS (including a $99.5 million state General Fund increase for operations, Statewide Public Services, debt service, and capital construction due to the passage of HB 5061 and HB 5021, and an additional $11.4 million designated for OUS from SB 5543 for state employee compensation). These appropriations are contingent upon certain provisions and understandings: 1) OUS must fully implement the new budget allocation model within the 1999-2001 biennium at this level of funding; 2) this funding level serves all eligible Oregonian undergraduates; and 3) OUS continues the freeze on resident undergraduate tuition for the 1999-2001 biennium.

The legislature adopted increased funding for Statewide Public Services (SWPS) in HB 5061 for the Agricultural Experiment Station, an increase of $7,978,295 or nearly 18 percent in state General Fund above the 1999-2001 CSL; the Extension Service, an increase of $3,494,304 or nearly 11 percent in state General Fund; and the Forest Research Laboratory, an increase of $978,749 or 24.3 percent in state General Fund.

Included in the $99.5 million (15.8 percent) increase in state General Fund for operations, SWPS, debt service, and capital construction noted above, three Legislative Emergency Board (E-Board) appropriations, totaling $7,360,000 in state General Fund, were also authorized in HB 5061 for the 1999-2001 biennium: $1,630,000 for the Oregon Wide-Area Education Network (OWEN); $5,000,000 for the Oregon Engineering Education Investment Fund (OEEIF) and $730,000 in 1999-00 annual performance funds, an incentive element of the new budget allocation model, to be awarded to campuses on a retrospective basis after the close of the fiscal year 1999-00.

As indicated above, $11.4 million in state General Fund has been designated by the Department of Administrative Services (DAS) for OUS in SB 5543 for state employee compensation.

ANNUAL OPERATING BUDGET FOR 1999-00

Principles and Legislative Directives

The recommended fiscal year 1999-00 initial distributions have been developed following the principles of the new budget model and related policies and general directions of the Board Budget and Finance Committee. The new budget model was recommended by the Governor and endorsed and funded by the 70th Legislative Assembly. Fiscal year 1999-00 will be the initial year of operations following these guidelines:

In approving appropriations to OUS for the 1999-2001 biennium, the legislature noted that adequate funds are included to:

Further, HB 5061 contains the following Budget Notes:

Budget Note #1:
Accommodation of All Academically Qualified Resident Undergraduate Students
"The approved budget shall finance all academically qualified resident undergraduate students who seek enrollment in the institutions of the Oregon University System. The Oregon University System shall distribute state General Fund dollars to the System's institutions in a manner to assure that this is the case. The institutions of the Oregon University System may, however, limit enrollments in particular programs when such limitations are warranted by limited demand for the graduates of those programs, or when existing facilities, very high costs, or accreditation requirements limit the number of students that can be effectively served."

Budget Note #2:
Full Implementation of Model in 1999-2001; CSL Roll-up Provisions for Succeeding Biennium

"The Department of Higher Education shall fully implement its new budget model within the funding provided in this bill and with other appropriations that may be made to the Department in other bills this legislative session. It is the Legislature's intent that this funding not be considered part of a multi-biennium phase-in of funding for the new budget model. As such, the agency shall not request in the agency's 2001-2003 biennium CSL, any amount that includes phased-in costs or roll-ups designed to complete the implementation of the new model. This does not preclude the inclusion in CSL of cost changes as allowed generally for other state agencies, and does not preclude the recommendation of new policy packages or of adjustments to the budget model if requested in the form of policy changes."

Budget Note #3:
State General Fund Support for OWEN; Emergency Board Approval Required for Allocation of Funds

"The Subcommittee noted that the Department of Higher Education budget includes $1,630,000 of General Fund in direct support of the Oregon Wide Area Network (OWEN) project, and noted that revenue for OWEN may also be available to the Department from the Public Access Account established under SB 622. The Subcommittee removed $1,630,000 of General Fund from the Department's budget and transferred this amount to a special purpose appropriation to the Emergency Board. The Department of Higher Education may request an allocation of these funds from the Emergency Board in the event that projected 1999-2001 biennium revenues for OWEN from the Public Access Account are less than $1,630,000. The amount of the request shall not exceed the difference between the amount of the projection and $1,630,000. Any portion of the special purpose appropriation that remains unallocated on November 1, 2000 will become available to the Emergency Board for any purpose for which the Emergency Board may lawfully allocate funds."

STATE GENERAL FUND: $377.7 MILLION ANNUAL

As previously noted, Attachment A lists the 1999-2001 biennial state General Fund appropriation for operations, debt service, compensation adjustments, and capital construction ($755.5 million). For fiscal year 1999-00, approximately $377.7 million of this amount will be allocated, leaving approximately $377.8 million to be allocated in fiscal year 2000-01. This split between fiscal years reflects the assumption that the majority of state General Fund for capital construction will be expended in the first year of the biennium.

As indicated, several state General Fund appropriation items are directed to specific purposes including the Agricultural Experiment Station, Extension Service, Forest Research Laboratory, and several items requiring Emergency Board review and approval prior to allocation of funds (OWEN, Oregon Engineering Education Investment Fund, and 1999-00 Performance Awards).

1999-00 INITIAL DISTRIBUTIONS OF STATE GENERAL FUND

1999-00 OUS Budget Report Summary

The 1999-00 BRS addended to this document includes specific and detailed information related to initial 1999-00 distribution of state General Fund under the new resource allocation model. The 1999-00 BRS is a reference document intended for use by campus and Chancellor's Office staff and may be updated from time to time.

1999-00 Total State General Fund Distribution

The chart below summarizes proposed state General Fund distributions for fiscal year 1999-00 as detailed in Charts A and B below.

PROPOSED 1999-00 STATE GENERAL FUND DISTRIBUTIONS

Method of Distribution:
Total Proposed
Fiscal Year Distribution:
(in millions)
Distributed to Institutions via Cells (Chart A) $ 241.4
Distributed to Institutions via Targeted Programs (Chart A) 34.8
Balance for Remaining Targeted Programs and Other Distributions (Chart B) 101.5
Total 1999-00 Distributions $377.7

The chart below (Chart A) summarizes on a campus-by-campus basis initial state General Fund allocations for both enrollment and Targeted Programs. Additional detailed information concerning Targeted Programs is included in the 1999-00 BRS.

CHART A
1999-00 Initial Distributions of State General Fund
(Including Distribution via Cells based on Fundable Student Enrollments
and Targeted Programs)


Annual FTE Enrollment Based
1999-00 State General Fund
Distribution
(Subject to Settle-up Process)
Targeted Programs Distribution Total State General Fund 1999-00 Initial Distribution
Targeted Subject to a
Settle-up Process
Other Targeted* Total Targeted

A

B

C

D

A+D
EOU $8,217,137 $64,184 $3,997,957 $4,062,141 $12,279,278
OIT 9,522,524 114,271 6,109,884 6,224,155 15,746,679
OSU** 72,235,368 511,477 11,246,144 11,757,621 83,992,989
PSU 57,379,955 224,263 3,923,029 4,147,292 61,527,247
SOU 14,332,860 501,620 2,507,868 3,009,488 17,342,348
UO 64,092,968 362,124 4,288,914 4,651,038 68,744,006
WOU 15,578,175 131,125 848,255 979,380 16,557,555
Total $241,358,986 $1,909,064 $32,922,051 $34,831,114 $276,190,101

* Includes Legislative Emergency Board appropriation of $2.5 million for 1999-00 for engineering programs, subject to E-Board approval and allocation. Differences in some totals due to rounding.
** Excludes $46,968,806 for Statewide Public Service Programs (AES, ES, FRL); please refer to Chart B.

Initial Distributions of State General Fund Based on Fundable Student Enrollments: $241,358,986 (see Chart A)

State General Fund is allocated to campuses on a per-capita cell-by-cell basis using OUS Institutional Research Services enrollment projections as of May 1999. The May 1999 enrollment projections include trends identified in fall 1998 enrollment data, mid-year enrollments, and new applications activity as of the end of April 1999. (The details of the May 1999 enrollment projections are included in the 1999-00 BRS.) In future cycles, including 2000-01, the Chancellor's Office will allocate state General Fund based on enrollment projections developed each February. A display of the cells and cell values is included in the 1999-00 BRS. The following are adjustments that have been made to the cell values:

Funding for the following items is included in the $241,358,986 to be distributed through the cell values in 1999-00 (please refer to Chart A):

The 1999-00 BRS 1) sets out the initial 1999-00 allocations of state General Fund based on May 1999 student enrollment projections; 2) sets out the annual FTE student enrollment numbers based on May 1999 three-term average FTE enrollment projections adjusted for continuing education and summer session (extended enrollment); and 3) to summarize all settle up policies related to 1999-00 distributions through the cell values. (Chart D in this document compares 1999-00 to 1998-99 total annual FTE, both fundable and non-fundable, as used in the model, including summer session and continuing education.)

State General Fund Support of Targeted Programs Subject to Initial Distribution to Campuses in 1999-00 Operating Budgets: $34,831,114 (see Chart A)

Chart A in this document summarizes the initial state General Fund amounts to be distributed to campuses under Targeted Programs ($34,831,114). Please note that some targeted programs contain elements that are enrollment driven and, as such, are subject to a settle up process ($1,909,064). The 1999-00 BRS includes a complete listing and detailed explanations of the types of Targeted Programs supported by state General Fund appropriations for 1999-00.

A Board Reserve of $2.3 million is set aside to address unanticipated System needs in accordance with provisions outlined in the 1999-00 BRS.

Balance of State General Fund Distributions: $101,481,171 (see Chart B)

As shown in Chart A, it is proposed that $276,190,101 ($276.2 million) of the $377.7 million of state General Fund available for 1999-00 be distributed on an initial basis to institutions through the enrollment-driven component of the model and through specific Targeted Programs. The remaining amount of approximately $101.5 million for 1999-00 is to be distributed as follows:

CHART B
1999-00 Balance of State General Fund Distributions

Operating budget
STATE GENERAL FUND
Comments
Remaining Targeted Programs:
Agricultural Experiment Station (AES) $26,429,907 HB 5061 and SB 5543*
Extension Services (ES) 18,023,764 HB 5061 and SB 5543
Forest Research Laboratory (FRL) 2,515,135 HB 5061 and SB 5543
New Community College Partnerships-TBA 439,613
Collaborative Programs-To Be Allocated 530,173 $250,000 designated increase for COUC (HB 5061)
OHSU Education Assistance 300,000
Central Services Systemwide Expense includes NET II subsidy, statewide assessments, WICHE, ADA assistance, and COP expenses; Faculty Diversity and Joint Schools of Business programs.
Chancellor's Office 12,546,218
OCECS /OCATE 4,995,128
Systemwide Expense (allocated and to be allocated) 6,922,442
WUE unallocated 25,112
Other State General Fund Distributions:
Legislative Emergency Board Appropriation 815,000 OWEN Network 1999-00 only
Board Reserve 2,300,000 Unanticipated system needs
Debt Service Requirement 9,772,204
Capital Construction 15,866,476

TOTAL

$101,481,171

* An amount is included for compensation adjustments as provided by SB 5543 (state employee compensation). Please see Attachment A detailing appropriations in HB 5061.

Chart B lists Remaining Targeted Program amounts and Other State General Fund Distributions for 1999-00. The targeted program amounts include 1) amounts that remain to be allocated such as for the new Community College Partnerships and Collaborative Programs; 2) operating budgets for the Statewide Public Service Programs and for Central Service entities including the Chancellor's Office, the Oregon College of Engineering and Computer Sciences (OCECS); Systemwide Expenses (NET II subsidy, WICHE, PASS/Pew grant match, endowment match, statewide assessments, ADA assistance, COP expenses, Faculty Diversity Initiatives, and Joint Schools of Business). Further program details are included in the 1999-00 BRS.

Other state General Fund distributions for 1999-00 listed in Chart B include the Legislative Emergency Board appropriation for the OWEN; and additional amounts for the Board Reserve, debt service requirements, and capital construction. Also included are designated amounts for the OHSU Education Assistance program and the WUE program.

Items Not Included:  Please note that the Legislative Emergency Board amount of $730,000 appropriated for the 1999-2001 biennium for performance awards is not included in the 1999-00 operating budget since this amount will be budgeted in 2000-01 to cover 1999-00 campus performance. Additionally, please note that the Emergency Board appropriation amount for year one (or $2.5 million of the $5 million biennial appropriation) for the Oregon Engineering Education Investment Fund (OEEIF) is included in Chart A based on the Engineering and Technology Industry Council's (ETICs) proposed distribution of these funds. As noted previously, the distribution of these funds remains subject to Board approval and Legislative Emergency Board release. (A copy of the most recent ETIC proposal is included in the 1999-00 BRS.)

1999-00 OTHER FUNDS LIMITED $384,357,187 (See All Sources Summary Chart C--this chart is on file in the Board's office.)

(Tuition and fees revenue, indirect cost recovery and special fees)

Other Funds Limited for 1999-00 includes estimated campus tuition and fees (based on May 1999 enrollment projections), indirect cost recovery and special fees (e.g., resource fees, technology fees, laboratory fees, etc.).

Under the former Budget Allocation Model (BAS), the majority of tuition revenue and state General Fund dollars were pooled and then allocated to campuses and central services. Under the new resource allocation model, tuition revenue follows students by remaining with the campus generating this revenue. For campus-approved 1999-00 tuition and fee estimates, please see the 1999-00 BRS.

1999-00 Non-Limited Other Funds: $657,582,368 (See All Sources Summary Chart C)

Campus Non-Limited Other Funds revenue includes sponsored programs, gifts, grants, and contracts; designated operations (e.g., community workshops and other self-sustaining public service and education activities); and auxiliary activities such as student housing, food service, parking, athletics, and incidental fee activities. Details of campus approved Non-Limited Other Funds estimates are included in the 1999-00 BRS.

1999-00 State Sports Action Lottery Funds: $2,443,046 (See All Sources Summary Chart C)

For 1999-00, the Chancellor's Office will distribute state Sports Action Lottery Funds in accordance with established Board policy. The biennial total amount for Sports Action Lottery Funds is $4,866,092.

1999-00 OREGON UNIVERSITY SYSTEM ALL SOURCES OPERATING BUDGET

Chart C below summarizes the 1999-00 operating budget for all campuses and central services. (As noted above, this Chart is on file in the Board's office.)

COMPARISON OF 1999-00 ANNUAL FTE ENROLLMENT TO 1998-99 ANNUAL FTE ENROLLMENT

The chart below presents a comparison of total annual FTE (fundable and non-fundable) as used in the new resource allocation model, including summer session and continuing education estimates. For the purposes of inclusion in the new resource allocation model, enrollment projections of fall base headcount and three-term average FTE enrollments are developed by the Chancellor's Office/Institutional Research Services in cooperation with campuses. These projections are then converted for use in the model (45 credit hours for undergraduate, 36 credit hours for master's, and 27 credit hours for doctoral students). (A breakdown of fundable vs. non-fundable OUS FTE is included in the 1999-00 BRS in connection with enrollment-driven state General Fund allocations.)

CHART D
OUS Comparative Annual FTE Enrollment
Total Annual FTE Enrollment Including Fundable and Non-Fundable FTE




By Institution
Estimated 1998-99 Projected 1999-00

Annual FTE Change



Percent Change
Annual FTE May 1999
Annual FTE
Eastern Oregon University 1,913 2,046 133 7.0%
Oregon Institute of Technology 2,044 2,210 166 8.1%
Oregon State University 14,624 15,427 803 5.5%
Portland State University 13,035 13,679 644 4.9%
Southern Oregon University 4,390 4,410 20 0.4%
University of Oregon 17,213 17,527 314 1.8%
Western Oregon University 3,993 4,284 291 7.3%
Total Annual FTE 57,212 59,583 2,371 4.1%

TRAVEL REIMBURSEMENTS

The Board of Higher Education approves the travel reimbursement rates for employees, as well as nonemployees serving OUS campuses. Attachment B (on file in the Board's office) provides travel reimbursement rates as recommended for 1999-00 to be effective the first day of the month following Board approval.

STAFF RECOMMENDATION TO THE BOARD

The staff recommends that the Board of Higher Education (1) adopt a rule governing the new model and relating to all previous budget allocations of state General Fund and/or Other Resources indicating that only those items specifically identified as part of the 1999-00 Targeted Programs will be covered in year one of implementation and added targeted program items may only be included by Board consideration and resolution, (2) approve the budget recommendations and allocations for 1999-00 as discussed above and as summarized in the addended 1999-00 OUS Budget Report Summary (1999-00 BRS), (3) delegate authority to the Chancellor to make adjustments to the OUS Annual Operating Budget for 1999-00 as required for implementation of the new resource allocation model, (4) as required by HB 5061, approve the recommendation of the Engineering and Technology Industry Council (ETIC) for distribution of the Oregon Engineering Education Investment Fund in the amount of $5.0 million for the 1999-2001 biennium and authorize the Chancellor to request state Emergency Board approval for release of these funds in accordance with the proposed ETIC distribution, and authorize the Chancellor to request state Emergency Board approval for release of funds up to $1.63 million for the OWEN for the 1999-2001 biennium, and (5) approve the proposed 1999-00 travel reimbursement rates as summarized in Attachment B.

BOARD ACTION:

ACADEMIC YEAR FEE BOOK 1999-00, TUITION & OTHER FEE POLICIES

Staff Report to the Board

Report of Public Hearing on Academic Year Fee Book

On July 16, 1999, the Board adopted the 1999-00 Academic Year Fee Book as a temporary rule. This was done in consideration of the fact that the 1999 legislative action, which included a freeze on resident undergraduate tuition, had not yet been approved and signed by the Governor. Approval of the 1999-2001 budget has now been secured with the tuition freeze funded. Following appropriate notification and an additional public hearing on the rule, the annual tuition and fee rates and policies are submitted for the Board's final approval. There have been no changes to the tuition and fee rates or policies since the Board's action in July.

Summary of Testimony Received

A public hearing on the 1999-00 Academic Year Fee Book was conducted on Tuesday, August 17, 1999, from 10 a.m. to 11 a.m., in Room 121 of Susan Campbell Hall, on the University of Oregon campus. No one presented testimony at the public hearing.

Staff Recommendation to the Board

Staff recommends that the Board amend OAR 580-40-040 as follows:

OAR 580-040-0040 Academic Year Fee Book

The document entitled Academic Year Fee Book, dated July 16, 1999, is hereby amended by reference as a permanent rule. All prior adoptions of academic year fee documents are hereby repealed except as to rights and obligations previously acquired or incurred thereunder.

Through the amendment, the Board adopts the document entitled Academic Year Fee Book 1999-00, memos of attachment amending the draft document, and other amendments and attached schedules noted in this agenda item.

BOARD ACTION: (Roll call vote required)