Auxiliary & Self Supporting Activities (ASSA) – Administrative Assessment Update to HSSAL May 12, 2016

Background Sales and services enterprise is a significant and growing component Comprised of auxiliary and self supporting activities: Housing and dining, parking, bookstore, Extension, space rentals, conferences, athletic events, lab service agreements, the medical center, the clinical practice, etc Expected to set market based rates that recover direct and indirect costs to “fully self-support” without institutional subsidy Campus charges an ASSA assessment so that: The institution does not subsidize these activities They contribute back to core mission Assessment includes overhead costs incurred by the campus: Institutional oversight by Chancellor and VC offices, computing services, human resources, business & financial services, payroll, budget, capital planning, facilities, development, diversity, legal council, etc Currently, there are 2 rates based on prior year adjusted expenses (MTDC): 4.1% for auxiliaries and other self supporting activities. Calculated in 2009/10 by dividing applicable institutional support expenses by total campus expenses (has remained unchanged) by dividing. .7% for Medical Center. Calculated annually based on agreed level of administrative services provided by the campus

Issue Current methodology is viewed as too complex and not understood by the units being assessed The assessment is structured as a cost recovery but the perception is that there is not sufficient accounting of services rendered The Federal Facilities and Administrative (F&A) methodology used for calculating research overhead, and used for setting the ASSA rate appears to be insufficient basis for some activities View is that some activities would opt out if given an option which is not a realistic option

Alternative Proposal Shift current methodology from a complex adjusted expenditure base (MTDC) to a simplified assessment rate as a percent of revenues Activities be grouped into three self-supporting categories to better distinguish the nature of the business income: Academic/Educational Auxiliaries Health Care (Medical Center and Clinical Practice) Impact: Rate shifts from 4.1% on MTDC to 3.4% of Academic/Educational and Auxiliaries’ revenues Health Care remains at .7% of revenues Academic/Educational and Health Care activities contribute less Auxiliaries contribute more (generally have higher margins than educational activities and should be able to absorb the increase)

Benefits of Proposed Alternative Simpler to explain and understand Improves units’ ability to plan and project annual assessment Allows for ability to assess in the year revenue is earned versus the current method that assesses on prior year expenses Increases efficiency by allowing automated assessments on revenues Corrects questionable behavior to avoid or lower assessment (misclassifying activities and expenses or seeking exclusions/waivers) Ability to assess differential rates to three self-supporting categories

Next Steps Discuss with the Vice Chancellor unit’s Financial Officers - Done Integrate into 2016/2017 budget discussion – In progress Communicate policy decision to impacted units – In progress Coordinate with ITS on automation – FY 2017/18 roll out

2015/16 ASSA Administrative Overhead Comparison ($000s) Modeling based on 2015/16 Assessment Campus Unit Current Method based on Expense/MTDC1 Med Practice to Med Ctr w/ all others one rate and based on % of Revenues 2 Change to current   Educational/Academics $ 6,312 $ 5,501 $ (810) UCSD Extension 1,280 1,510 230 Clinical Service Agreements 690 782 93 Rady School of Management 356 399 43 Patent Income 300 665 365 Patient Consult/Witness Agreements 218 364 146 Aquarium Museum 177 156 (21) OCME/CFM Dept Course Inc 115 84 (31) Other 3,177 1,543 (1,634) Auxiliaries 4,339 6,684 2,345 Clinical Practice - Integrated with Primary Care - Housing and Dining 3,573 5,057 1,484 Parking 274 734 460 Bookstore 166 615 448 Daycare Center 125 91 (34) 201 188 (13) Primary Care 13,001 11,467 (1,534) Medical Center 9,804 Clinical Practice 3,197 1,663 Total $ 23,652 $ (0) 1. Current assessments based on 2014/15 adjusted expenses/MTDC. 4.1% for Auxiliaries, Educational/Academics, Medical Clinical Practice and approximately .8% for Medical Ctr. 2. Medical Center and Med Practice integrated and held at .7% rate and all others at a single rate of 3.4%. Redistributes differential amount of contribution to Auxiliaries.