* Budget Overview May 2016 *

TOPICS Permanent Budget vs. General Ledger Campus Expenditure Review Rebenching Fund Source Review Budget Process – Big Picture Campus Budget Planning Capital Funding Overview

* Class Overview This class will not show you how to develop a budget for your department. This class will help you better understand the issues, complexity, and constraints of the UCSB budget. *

Key Concepts To Take Away * Key Concepts To Take Away University budgeting is not a single process. It consists of a number of processes that have evolved separately and which occur with varying degrees of coordination. Enrollment is the key factor in developing the budget – drives both revenues and expenditures. *

PERMANENT BUDGET VS. GENERAL LEDGER

COMPARISON Description Amount July 1, 2013 Permanent Budget $576 Million FY 2013-14 General Ledger Expenses* $946 Million Numbers above reflect operating expenses only. Campus also spends approximately $150 million annually on capital program. . * Before GASB adjustments which reclassify some expenses. Represents an increase of $40 million or 4.4% from previous year.

PERMANENT BUDGET Reflects “resources” assumed to be available on an ongoing (year-to-year) basis Feeds into General Ledger on July 1 of each year Typically adjusted through Transfer of Funds which makes changes in both General Ledger and Permanent Budget files Result of incremental budget changes over many years.

GENERAL LEDGER Official accounting record of the campus Includes permanent budget plus: Carry-forward from previous years Allocations/funding changes after July 1 of any year Contract and grant awards Current year gifts Distribution of endowment income from Foundation At year-end UCEN and Associated Students included.

PERMANENT BUDGET – GENERAL LEDGER Description Perm. Budget General Ledger Accounts 787 5,467 Account-Fund 1,401 22,373 Account-Fund-Sub 2,790 56,600 AFS-Object Code ---- 103,324 Transactions (Est.) 11,072 1,191,044 Over 300 different control points making decisions

EXPENDITURES

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CHANGES IN THE DISTRIBUTION OF STATE FUNDS REBENCHING CHANGES IN THE DISTRIBUTION OF STATE FUNDS

REBENCHING IS …. The aligning of State General funds to attain equal State General dollars per student at each of the campuses Why is it necessary?

General Campus Funding Per Student (est.) System-wide Median Source: UCSC 2009 17

REBENCHING BACKGROUND Overtime, significant difference in State funds per student have developed Campuses with fewer dollars per student identified the variance as an issue that needed to be addressed UCOP implemented multi-year program to eliminate the per student funding differences

IMPACT ON UCSB Substantial increase in our state general funds per student Initial projections of additional funding have been in the $40 million range when fully implemented – permanent additional funding Rebenching started in FY 2012-13 and the “additional revenue” is part of the plan to address unfunded campus budget issues

Rebenching Example Funding to be Allocated $37.0M UCSB’s Share Under Rebenching 24.6% UCSB’s Allocation $ 9.1M UCSB’s Historical Share of 8.0% Workload UCSB’s Allocation $ 3.0M Over 6 years UCSB will receive approximately $40 million more than under previous allocation formulas

UCSB FUND SOURCE REVIEW

FUND SOURCE CATEGORY #1 Core Funds State General Funds UC General Funds Mandatory Student Fees Indirect Cost Recovery (Overhead) Other State Typically considered the “base” when dealing with budget cuts

FUND SOURCE CATEGORY #2 Non-Core Budgeted Funds Sales and Services Revenue Auxiliary Revenue Student Fees (Campus & Student Approved) Budgeted Endowments Typically part of base for various campus imposed taxes and assessments

FUND SOURCE CATEGORY #3 Extramural Funds Contracts & Grants Private Gifts and Endowments Typically not budgeted, but are assessed overhead or up-front gift fees Use is normally restricted for a particular purpose

GENERAL FUNDS Category includes: State Appropriations Portion of Federal Indirect Cost Recovery Non-Resident Tuition Variety of Miscellaneous Fees Primary Source to Fund Instruction (93% of total expenses) Approximately 75% of all general fund revenue used to support instructional program Amount subject to state budget

STUDENT FEES Mandatory Fees – Tuition and Student Services Fees established by the Regents Tuition Fee used to support Student Financial Aid and general operations of the University Student Services Fee used to provide a supportive and enriched learning environment for students Fee policy requires a 1/3rd return to aid for undergraduates and 50% return to aid for graduate students. $241.9 million from tuition revenues in FY 2014-15 and another $21.2 million from the student services fee. Non-Resident Supplemental Tuition (NRST) Approximately $49.5 million in NRST up from $22 million eight years ago.

Student Fees – Campus Based Approved by student vote for specific purposes – restricted use. Fees can pay for operations, debt, or both. Newer fees have a financial aid component. Examples of operational funding include – Disabled students, child care, MTD bus services, recreation, CLAS, multi-cultural center. Examples of debt funding include – ICA, recreation, University Center, and Student Resources buildings

Student Fees - Other Summer Session Fees Per unit charge based on Mandatory Fees Campus based fees amount charged at a flat amount regardless of the number of units taken Technology Course Material Fee of $2.50 per unit also charged Example: 4 units costs $1,559.79 (undergraduate) 8 units costs $2,657.79 (undergraduate) Extension (Self-Supporting Program Fee levels established to cover cost of program Course Material Fees Enhanced educational experience for students

Student Fees

CONTRACTS AND GRANTS Federal and Non-Federal Awards $174.3 million in expenses in FY 2014-15 $129.5 million in Research (net of Sub Y/ICR) $36.4 million in Pell Grants (fund 23483) Uses are restricted for specific uses Indirect cost is assessed against direct expenses

INDIRECT COST RECOVERY (ICR) * INDIRECT COST RECOVERY (ICR) Overhead on federal and private contact and grants – amount recovered is a function of ICR rate and grant activity Complicated distribution formula with portion becoming General Funds and remainder becoming unique fund sources Represents the most flexible funding the campus has as it can be used for both operating and capital expenditures *

Federal Indirect Cost Recovery * Federal Indirect Cost Recovery FY 2013-14 Federal Indirect Cost Recovery - $26,486,377 Less Garamendi - $6,159,900 Equals Net ICR - $20,326,477 Off-the-Top (69759) – 19.90% - $4,044,969 Supports administration of contract & grant program Opportunity Fund (07427) – 36.05% - $7,326,679 Used to fund both operating and capital program, along with debt General Fund (19933) – 44.05% - $8,954,829 Becomes part of 19900 used to fund salaries, benefits, etc *

* Gifts and Endowments Includes payout from endowments, as well as current year gifts. Annual giving amounts typically fall into the $40 to $100 million range Doesn’t mean this much is available as much of the annual fund raising goes into endowments Vast majority of gifts restricted for a particular use – capital project, endowed chair, student financial aid, etc. Funded approximately $33.1 million (3.5%) of operating expenses in FY 2014-15 *

GIFTS AND ENDOWMENTS CON’T Current endowment value at $275 million (Foundation at $155.5 million, Regents at $119.5 million) Annual endowment payout of approximately $12 million Only about $1.6 to $1.8 million of annual gifts are unrestricted Up-front gift fee assessment to increase from 2% to 6% in July, 2011with a maximum fee of $180,000 on any gift.

Income & Other Funds User charges for campus provided services * Income & Other Funds User charges for campus provided services Fees established by departments with campus review Examples include: Student housing Parking Funded about $144 million of FY 2014-15 operating expenses, 15.2% of total *

Assessments (Taxes) UCOP Assessment Annual tax used to fund services provided by UCOP Takes into account expenses, number of students, and number of faculty/staff at each campus UC Path assessment is calculated separately based on payroll information FY 2015-16 assessment is $21.8 million and the corresponding tax rate is 2.66% of campus operating expenditures. Financial Aid is except from the assessment as are most campus based fees. Approximately 79% of the assessment is funded centrally with the remainder assessed to Vice Chancellor control points.

Assessments Con’t Non-State Administrative Support (NSFAS) A campus assessment on income areas designed to recover cost associated with provided administrative support services The assessment on these funds is currently 7% of expenses and generates about $8 million annual Enterprise Technology Services (ETS) The ETS assessment is relatively new and is used to fund operations, maintenance, system development, and debt associated with central technology services. The current assessment rate is 1.95% of expenses and generates $13.8 million per year. Approximately 76% of the assessment is funded centrally with the remainder being the responsibility of Vice Chancellor control points.

Recharges Defined as the cost charged by one department for specific goods or services by another department Rate proposals reviewed by the Income and Recharge Committee and approved by the Executive Vice Chancellor or Chancellor $83.2 million in campus recharges in FY 2014-15 Approximately 9.2% of total expenses are recharge related. Examples include: automobile rentals, use of research equipment, design and construction services, and furniture services

BUDGET PROCESS THE BIG PICTURE

SCHEDULE – BUDGET PROCESS * SCHEDULE – BUDGET PROCESS July – Budget Tables & Information Requests September to October –UC Review of Budget Proposal November – Regents’ Approve Budget Proposal & Submit to Governor January – Governor’s Budget Released January to May – Budget hearings, responses to information requests, lobbying May – Governor’s May Budget Revise Released June – State Budget Approved July to September – Campus Allocations from UCOP *

STATE FUNDS Funding less of the annual campus operating expenses: FY 1990-91 51.8% $157 million FY 2000-01 45.8% $216 million FY 2010-11 26.2% $181 million FY 2011-12 14.1% $117 million FY 2013-14 17.1% $154.7 million FY 2014-15 19.6% $185.4 million Still the driving force behind the UC budget planning. Drive decisions on: Enrollment Student Fee Levels Salary Programs Capital Program

CAMPUS BUDGET PLANNING UCSB CAMPUS BUDGET PLANNING

Budget Planning Strategic Academic Plan Long Range Development Plan * Budget Planning Strategic Academic Plan Long Range Development Plan 2010 LRDP Mitigation Implementation and Settlement Agreement Coordinating Committee on Budget Strategy Budget Allocation Framework *

Strategic Academic Plan * Strategic Academic Plan Adopted in 2007 to update campus vision for academic program and guide future growth Provides a framework for campus resource allocations Outlines a managed-growth approach to future campus development Guided development of the Long Range Development Plan (LRDP) *

Long Range Development Plan (LRDP) * Long Range Development Plan (LRDP) Provides physical planning parameters to attain the Strategic Academic Plan goals Grow enrollment by 5,000 students by 2025 Identifies capacity for 1.8M ASF for Instruction, Research, and Support space 5,000 new student bed spaces 1,874 new faculty and staff housing units 5-8 acres of additional recreation space 3,650 additional parking spaces *

2010 LRDP Agreements Mitigation Implementation and Settlement Agreement negotiated with the County of Santa Barbara and the City of Goleta Includes campus growth-related commitments in area of Enrollment Management, Housing, Traffic Impacts, and Public Safety Impacts Ties enrollment growth to the provision of new student housing development on campus land

Coordinating Committee on Budget Strategy Advisory committee to the Chancellor on budget issues Committee charge: “Develop strategies designed to protect academic quality, as well as student access, that we have strived so hard to achieve.” Responsible for in-depth study and analysis of budget issues and potential solutions/actions Developed and recommended actions for budget reductions, program assessments, and distribution of resources

Campus Allocation Decisions * Campus Allocation Decisions Based on: Systemwide programs (Salaries & Benefits) Enrollment Changes Funding formulas Campus consultation Campus priorities Fund source restrictions Control point decisions *

Budget Allocation Framework Helps guide discussions and decisions regarding distribution of new funding. Examples include: Required cost increases Formula allocations based on enrollment growth Funding for ongoing commitments Workload and cost increases Program Improvements Other

CAMPUS BUDGET ISSUES – PARTIAL * CAMPUS BUDGET ISSUES – PARTIAL Faculty Recruitment Graduate Student Support Deferred Maintenance Technology Investments Student Academic Success Purchased Utilities Equipment Replacement Classroom Renovation Public Safety Salary & Benefit Cost Increases Departmental Support Budgets Funding for Capital Projects/Debt Capacity No Specific Order *

Budget Allocation Framework New Revenues Required Cost Increases – Implementation of Systemwide Programs ($20.1M) Salary Changes Benefit Cost Increases (Retirement, Health, etc.) UCOP Assessment Extraordinary Expenses Formula Allocations Enrollment Changes ($4.5M) Increase in Faculty and Teaching Assistant FTE Increase in OMP for New Space Long Range Development Plan (public safety, etc.) Financial Aid

Budget Allocation Framework New Revenues Con’t Funding for Long-Term Commitments ($11.6M) Faculty Recruitment Graduate Student Support Research Sustainability Workload & Cost Increases ($1.2M) Enrollment Driven (OISS, Admissions, etc.) Administrative Support (Compliance & Process Driven) Changing Student Population (Non-Resident Students) Purchased Utilities (Rate & Usage Changes)

Budget Allocation Framework New Revenues Con’t Program Improvements ($1.6M) Technology (Infrastructure, Equipment, & Systems) Deferred Maintenance Classroom Renovation Equipment Replacement Other Issues Department Support Budgets Debt

Budget Allocation Framework Example Total New Expenses Per Plan $ 47.6M Total Estimated New Revenues $ 45.0M Surplus (Shortfall) ($ 2.6M) Plan needs to be adjusted to reduce current year allocations.

CAPITAL FUNDING OVERVIEW CPC Presentation January, 2015 *

Fund Sources to be Reviewed State Funding Opportunity Funds Garamendi Auxiliaries (User Fees) Campus Based Fees Donor/Gift Funds

Current Campus Debt Profile Current campus debt is approximately $700 million, increasing to $1 billion in next two years State General Obligation Bonds and Refinanced Lease Revenue Bonds (22%) Approximately 47% of debt is associated with the student housing program Indirect Cost Recovery 16%; Student Services 9%; Parking 5%; Energy Program 1% Current debt is approximately $49 million annually and going to $70 million in next two years

State Funds Targets are provided by UCOP to campus Projects included in the State Five Year Capital Program Funding requires approval of bond financing General Obligation (voter approval – last G.O. Bond approval was November, 2006) Lease Revenue (budget process) – No longer *

STATE FUNDS CON’T CHANGE - Funding for utility and maintenance costs associated with new space is now a campus obligation, not a separate allocation as in the past Approximately $10.25 per MGSF – Needs to be funded from campus workload allocation when new eligible space brought on-line *

STATE FUNDS CON’T Typical State eligible projects: Instructional buildings for enrollment growth Life Safety Renewal and Renovation Infrastructure Life safety projects tend to have highest priority followed by renewal and renovation *

STATE FUNDS – AB 94 (GFF) Amends the California Education Code, including expenses related to capital projects Transferred General Obligation and Lease Revenue Bond debt payments to UC Concurrently increased the General Fund support appropriation by an amount equal to debt obligations

AB 94 CON’T Allows University to pledge up to 15% of the General Fund monies, less the amount required to fund GO and LRB debt obligations, toward debt payment for capital projects If UC reduces debt obligation by defeasing or retiring debt the accumulated savings shall be pledged to the UCRS unfunded liability

AB 94 CON’T Net effect is that an “unknown amount” of funding may be available for the UC capital program UCSB has benefited with funding for BioEngineering, Infrastructure Phase 1B, and the Campbell Hall Replacement Building in 2015-16 Campuses struggling to understand the process being used by UCOP and how much funding may be available on an annual basis

Opportunity Fund Component of Federal ICR Funds First 19.9% is know as “Off-the-Top” and cannot be used as a source of debt payment. The remaining 80.1% is split as follows: 55% is part of University General Funds 45% is allocated as Opportunity Fund *

OPPORTUNITY FUNDS CON’T Essentially 36% of Federal ICR becomes “Opportunity Funds” These funds can be used for operating and capital expenses, as well as debt The pledge of Opportunity Funds for debt is subject to two tests: *

OPPORTUNITY FUNDS CON’T Pledge Test The ratio of debt pledged cannot exceed 65% of the campus allocation Payment Test The ratio of debt service paid cannot exceed 33% of the campus allocation The campus must be in compliance with both tests or seek a waiver from UCOP Additional debt capacity results from debt being paid off and increases in grant activity *

OPPORTUNITY FUNDS CON’T New space funded from this source needs to take into account ongoing utility and maintenance costs Typical uses of this fund: Allocations to Research Control Points Recruitment Expenses Minor Capital Projects (equity) Surge Space Capital Project Cost Overruns *

Garamendi Projects Funding for research projects using Federal ICR Requires increase in indirect cost recovery sufficient to cover both debt and OMP (maintenance/utility) costs of the project Also part of pledge and payment tests as Opportunity Funds except test includes both debt and OMP costs *

GARAMENDI CON’T Program started in 1990 and UCSB has 5 Garamendi Projects: KITP MRL (Utilities & Maintenance Only) MSRB CNSI Bioengineering Currently 23% of federal ICR going towards Garamendi projects. *

Garamendi Example (New Project)

Auxiliaries Self-supporting enterprises, such as: Student Housing Parking Bookstores Can pledge enterprise revenues as source of repayment for debt Often contribute equity to projects from reserves *

AUXILIARIES CON’T Need to demonstrate sufficient net revenue to cover: New program related costs OMP (Maintenance & Utilities) Debt payment Required reserve (25% of debt payment) Projects normally require increases in user fees *

Campus Based Fees Requires student approval via vote Fee revenue must be sufficient to cover: Debt service Debt coverage requirements (25% of debt) Operations & maintenance of space Program Support, if included on ballot Required financial aid Fee level based on above considerations and enrollment projections *

CAMPUS BASED FEES CON’T

CAMPUS BASED FEES CON’T

Donor/Gift Funds Cash is supposed to be the primary source used for donor funded projects Two types of financing are used for help support gift funded projects: Standby Financing - associated with pledges received Interim Financing - associated with pledges yet to be raised *

DONOR/GIFT FUNDS CON’T Standby Financing Used to bridge the timing difference between project expenditures and receipt of gift funds OP requires 50% of donor funds in cash or pledges Generally will not exceed 5 to 7 years Requires back-up source for repayment; but doesn’t count against debt capacity *

DONOR/GIFT FUNDS CON’T Interim Financing Used to temporarily replace funding yet to be raised for project Duration of 5 to 7 years for financing Requires back-up source for repayment Counted against debt capacity If gift funds not raised campus can request long-term financing using back-up source - this isn’t something campus wants to do *

Third Party Typically housing projects – developer responsible for financing, construction, sale or rental of housing Campus has not been successful on third party projects Tried both for-sale and for-rent projects and for a variety of reasons have not been able to come to agreements with third party

Planning Considerations Impact of projects on user fees Required debt ratios & debt capacity Uncertainty with state funding Ongoing utility and maintenance funding Need for a business case analysis for each capital project

QUESTIONS & DISCUSSION