1. Texas Higher Education Coordinating Board Texas Higher Education Finance and the Formulas Committee on Affordability, Accountability and Planning March 30, 2016

2. Texas law requires the THECB to develop funding formulas for all institutions of higher education In carrying out these duties, the THECB is required to employ an ongoing process of committee review Three advisory committees are established each summer of odd-numbered years to prepare recommendations to the Board The Commissioner is required to solicit recommendations for the committees’ membership from the chancellor of each university system and from the president of institutions that are not part of a system The Board is required to appoint representatives of a cross- section of institutions representing each of the institutional groupings under the accountability system Institutions Develop Formula Funding Recommendations

3. Formula Advisory Committees (FACs) draft recommendations (August 2015-February 2016) FAC chairs present committee recommendations to Commissioner (February 2016) FAC chairs present committee recommendations and Commissioner presents his recommendations to CAAP (March 2016) Board adopts formula recommendations (April 2016) Staff forwards formula recommendations to LBB and Governor’s Office (by June 1st, 2016) Appropriations Process and Timeline 3

4. LBB runs formulas using spring, summer, and fall 2016 (Nov-Dec 2016) 85 th Texas Legislature convenes and HB1/SB1 are filed (January 2017) New formulas are run using base year numbers (certified summer and fall 2016 and error-free spring 2017) (March 2017) Legislature passes General Appropriations Act (May 2017) Governor signs General Appropriations Act (June 2017) Appropriations Process and Timeline 4

5. Enrollment is the major driver for all sectors except TSTCs Formulas are a means to equitably distribute funds among institutions Higher education institutions receive lump sum appropriations, which gives them flexibility in how they spend their funds Not all appropriations are through the formulas Some funds, e.g., designated tuition, are outside the appropriations process In addition to formula funding, institutions receive appropriations for special items Similarities Among Formula Models 5

6. Methodologies to determine funding levels Community college formula is 100% general revenue All others include general revenue (GR) and general revenue – dedicated (GR-D) GR-D consists primarily of appropriated tuition and fees Differences Among Sectors 6

7. Overview of Community and Technical Colleges (CTC) Formula Funding 7

8. Formula Funding is a Small Piece of the Revenue Pie for Community Colleges 8 Note: Federal revenues includes Pell and Perkins grants.

9. Instruction Departmental operating expense Academic support (includes library) Student services Institutional support Community college formula funding may be used for… 9

10. Majority of funding based on contact hours Primarily Contact Hour Funding SCH Funding for Bachelor’s of Applied Technology (BAT) Core funding Student Success Points Community college formula funding has four components… 10

11. Student Success Point Funding Supports 60x30TX Developmental Education Completion of development education course Math-1 point Reading-0.5 pts Writing-0.5 pts Gateway Course Completion of first college level course with a “C” or better Math-1 point Reading-0.5 pts Writing-0.5 pts College Credit Attainment Completion of first 15 college credits and first 30 college credits 1 point each Credentials Awarded Completion of an associate degree, certificate, or bachelor’s degree (where offered) 2 points each 2.25 for STEM credentials Transfer to a General Academic Institution Transfer to a general academic institution after completing 15 SCH 2 points 11

12. Contact hours296,358,505 Average funding rate per contact hourX $5.49 Funding level per year$1,602,749,012 Example of the community college Contact Hour formula The THECB makes its recommendation The Legislature decides how much to appropriate The formula allocates the funds appropriated equitably Each institution’s funding would be proportional to its share of statewide contact hours. For example, if an institution has 5% of the contact hours, it would get 5% of the Contact Hour funding. 12

13. Academic and Vocational/Technical Education Community College Contact Hour Formula Education and General (E&G) Space Support General Academic Institution Formula Small Institution Supplement General Academic Institution Formula at half the rate 13 State college formula funding has three components…

14. Instruction and Administration (Returned-Value) Education and General (E&G) Space Support General Academic Institution Formula Small Institution Supplement General Academic Institution Formula at half the rate 14 Current TSTC formula funding has three components…

15. 15 TSTC Returned-Value Funding Model Student Attends TSTC – completes at least 9 SCH and THECB Captures ID and data Student leaves TSTC and enters Workforce – THECB captures earnings from TWC THECB compares earnings to minimum wage in Texas, surplus is “value-added” by TSTC Current-Value discounting is applied for each quarters’ wages to make dollars current Standard tax- rate and economic multiplier is applied to the “value-added” to determine return value to the state Instruction and administration formula Funds allocated on a percentage of the student’s returned-value Returned-Value estimated using workforce data

16. Texas Higher Education Coordinating Board Community and Technical Colleges Formula Advisory Committee (FAC) Recommendation Dr. Dusty Johnston President, Vernon College March 30, 2016

17. Increases for projected growth Increases for an inflation rate of 2.3 percent for the biennium Focus on successful student completions Commissioner’s Recommendations for CTCs Support 60x30TX 17

18. Commissioner Recommends a 9.1% Increase for the Community Colleges Formula Advisory Committee's Recommendations Commissioner's Recommendations In MillionsFunding% ChangeFunding% Change 2016-17 Appropriations: Excluding Core Operations$1,693.8 2016-17 Appropriations: Core Operations50.0 Increase for Core Operations25.01.4%25.01.4% Increase for Projected Growth Less $25M Transferred to Core Operations 53.23.1%53.23.1% Rate Increase: 2.3% Inflation 40.82.3% Rate Increase: Contact & Semester Credit Hours109.36.3% Rate Increase: Student Success Points13.00.7%39.82.3% 2018-19 RECOMMENDATION$1,944.311.5%$1,902.69.1%  Transfers $25 million from Contact Hour Funding to Core Operations, which will help small colleges  Increases the rate per student success point from $173 to $215 18

19. Commissioner Recommends a 5.4% Increase for the State Colleges Formula Advisory Committee's Recommendations Commissioner's Recommendations In MillionsFunding% ChangeFunding% Change 2016-17 Appropriations$42.9 Increase for Projected Growth0.40.9%0.40.9% Increase for 60x30TX Completion 0.92.1% Rate Increase: 2.3% Inflation for E&G Space Support0.10.2% Rate Increase: 2.3% Inflation for All Formulas 1.02.4% Rate Increase1.94.4% 2018-19 RECOMMENDATION $45.35.6%$45.25.4% 19

20. Commissioner Recommends an 11.3% Increase for the Technical Colleges Formula Advisory Committee's Recommendations Commissioner's Recommendations In MillionsFunding% ChangeFunding% Change 2016-17 Appropriations$140.7 Increase for Projected Growth12.48.8%12.48.8% Rate Increase: 2.3% Inflation 3.52.5% Rate Increase3.62.6% 2018-19 RECOMMENDATION$156.711.4%$156.611.3%  Projected growth includes an additional $1.5 million for the Small Institution Supplement, because the Legislature has authorized two new campuses  Incorporates E&G Space Support funding in Instruction and Administration, using the returned-value formula 20

21. Competency-Based Education (CBE) Advisory Committee – Funding for students who are enrolled in a CBE course/module on the census date Commissioner – Funding upon completion of a CBE course, with a 10 percent formula adjustment Critical Need Fields Advisory Committee – Maintain the current critical need fields and request that the THECB review statewide critical needs and make recommendations to be considered in 2017 Commissioner – Concurs Commissioner Recommends Increased Support for CBE and Updated Critical Need Fields 21

22. CAAP Committee Discussion of CTC Funding 22

23. Overview of General Academic Institutions (GAI) Formula Funding 23

24. Formula Funding is a Small Piece of the Revenue Pie for the GAIs All Funds Formula 24

25. May be used for… Faculty Salaries Department Operating Expense Library Instructional Administration Student Services Institutional Support Research Enhancement Infrastructure Support May not be used for… Auxiliary Enterprises Student Housing, Parking Facilities, Food Service, Intercollegiate Athletics Certain Fringe Benefits New Construction and Major Repair and Renovation of Facilities Debt Service on Tuition Revenue Bonds GAI Formula Funding Covers Many, but Not All, Uses 25

26. Majority of funding based on weighted semester credit hours (WSCH) Operations Support (includes teaching experience supplement) Education and General (E&G) Space Support Small Institution Supplement Current GAI funding model (2016-2017 biennium) 26

27. Weighted Semester Credit Hours (WSCH)36,953,718 Funding rate per WSCHX $56.67 Funding level per year$4,188,057,698 Example of How the Formulas are Used GAI Operations Support Formula The THECB makes its recommendation The Legislature decides how much to appropriate The formula allocates the funds appropriated equitably Each institution’s funding would be proportional to its share of statewide weighted semester credit hours. For example, if an institution has 5% of the WSCHs, it would get 5% of the Operations Support funding. 27

28. GENERAL ACADEMIC INSTITUTIONS FORMULA ADVISORY COMMITTEE FY 2018-2019 BIENNIAL APPROPRIATIONS REPORT ON THE COMMISSIONER’S CHARGES Dana G. Hoyt President Sam Houston State University March 30, 2016

29. CHARGE 1: STUDY AND MAKE RECOMMENDATIONS FOR THE APPROPRIATE FUNDING LEVELS FOR THE OPERATIONS SUPPORT AND SPACE SUPPORT FORMULAS AND THE PERCENT SPLIT BETWEEN THE “UTILITIES” AND “OPERATIONS AND MAINTENANCE” (O&M) COMPONENTS OF THE SPACE SUPPORT FORMULA. Return formula funding to the 2010-11 biennium appropriated rates ($62.19 for Operations Support and $6.21 for Space Support) over the next three biennia 2018-19 Biennium Funding Recommendations  Fund approximately $5,146 million to the formulas  Assumes 3.9% increase for growth in weighted semester credit hour (WSCH)  Operations Support and Teaching Experience Supplement at a rate of $58.99 per WSCH  Increase of $3.60 or 6.5%

30. CHARGE 1 (CONTINUED): STUDY AND MAKE RECOMMENDATIONS FOR THE APPROPRIATE FUNDING LEVELS FOR THE OPERATIONS SUPPORT AND SPACE SUPPORT FORMULAS AND THE PERCENT SPLIT BETWEEN THE “UTILITIES” AND “OPERATIONS AND MAINTENANCE” (O&M) COMPONENTS OF THE SPACE SUPPORT FORMULA. 2018-19 Biennium (continued)  Space Support at a rate of $5.86 per square foot  Increase of $0.31 or 5.6%  Small Institution Supplement at a rate of $750,000 annually for institutions with fewer than 5,000 headcount and incrementally reduce this supplement as institutions’ headcount approaches 10,000.  Funds required of $18.2 million or a decrease of $700,000 (3.7%)

31. CHARGE 2: STUDY AND MAKE RECOMMENDATIONS FOR ALTERNATIVE APPROACHES TO INCORPORATING UNDERGRADUATE STUDENT SUCCESS MEASURES INTO THE FUNDING FORMULAS AND COMPARE THE EFFECTS OF FUNDING THE SUCCESS MEASURES WITHIN THE FORMULA VERSUS APPLYING THE SUCCESS MEASURES AS A SEPARATE FORMULA. Fund $200 million to new Graduation Bonus for advising, tutoring and other interventions many students need to earn a degree by funding the three-year average of the following:  $600 for bachelor’s degrees awarded to students who are not at risk  $1,200 for bachelor’s degrees awarded to students who are at risk

32. CHARGE 3: STUDY AND MAKE RECOMMENDATIONS ON THE TREATMENT OF COMPETENCY-BASED COURSES IN FORMULA ALLOCATIONS. Fund competency-based education courses (not modules) using the existing formula calculation and updated expenditure-based weights for the 2018-19 biennium. Expenditure data from the Texas A&M University-Commerce program was insufficient in determining the appropriate funding formula for competency-based education.

33. CHARGE 4: STUDY AND MAKE RECOMMENDATIONS ON THE TREATMENT OF PHARMACY HOURS FOR PROFESSIONAL PRACTICE PHARMACY COURSES. Update the pharmacy funding policy to fund pharmacy courses with pharmacy expenditure-based weights and the standard enrollment adjustment methodology. Weight pharmacy undergraduate semester credit hours using pharmacy undergraduate course expenditures and hours. Remove directions to use science weights. Adjust Pharm-D program course enrollments in the same manner as enrollments for all other programs.  Weight hours for graduate level students (master’s, doctoral, and professional-practice) enrolled in pharmacy professional practice courses at the pharmacy professional practice weight.

34. CHARGE 5: STUDY AND MAKE RECOMMENDATIONS ON CHANGES TO THE FUNDING MODEL THAT WILL ENABLE INSTITUTIONS TO MEET THE GOALS OF 60X30TX. State funding is an essential resource for institutions to meet the 60x30TX goals. Over the course of the 15 years during the Closing the Gaps plan, general academic institutions increased enrollments 45 percent and increased graduation rates over 11 percentage points (from 49.5 to 60.5 percent). These strides require quality faculty and staff motivated to reaching a higher standard of education for our students and our state. Since fiscal year 2000, these same institutions received decreasing amounts in state support on a per full-time student equivalent basis – a trend that must be reversed if the state intends to educate 3 out of 5 citizens, nearly double the annual graduates, and increase students’ awareness of their marketable skills, all while keeping student debt levels from rising.

35. Increases for projected growth Increases for an inflation rate of 2.3 percent for the biennium Focus on successful student completions by funding the Graduation Bonus Commissioner’s Recommendations for the GAIs Support 60x30TX 35

36. Commissioner Recommends a 9.0% Increase for the GAIs Formula Advisory Committee's Recommendations Commissioner's Recommendations In MillionsFunding% ChangeFunding% Change 2016-17 Appropriations$4,676.3 Increase for Projected Growth162.23.5%162.23.5% Rate Increase: 2.3% Inflation116.02.5%110.92.4% Graduation Bonus200.04.3%150.03.2% Rate Increase: 1/3 Back to 2010-11191.14.1% 2018-19 RECOMMENDATION $5,345.614.3%$5,099.49.0% 36

37. To reach the completion goal of 550,000 degrees and awards in 2030, more low-income students and more students who are academically at risk will need to graduate These students require more services The Operations Support formula provides more money for high cost programs, but not for high cost students The new formula will provide funding for advising, tutoring, and the other interventions many students need to earn a degree Graduation Bonus 37

38. Two metrics, based on a three-year average: Bachelor’s degrees awarded to students who are not at risk Bachelor’s degrees awarded to at-risk students For this model, an at-risk student is someone who is eligible to receive a Pell grant or whose SAT/ACT score was below the national average for the year taken Graduation Bonus 38

39. Graduation Bonus Advisory Committee Commissioner $200 million $150 million $600 per graduate who is not at risk and $1,200 per graduate who is at risk $500 per graduate who is not at risk and $1,000 per graduate who is at risk The first priority is to fully fund the Operations Support formula in support of basic operations The decision about whether to prioritize Operations Support or student outcomes should be left to the Legislature to determine based on the larger budget picture 39

40. Competency-Based Education (CBE) Advisory Committee – Funding upon completion of a course Commissioner – Funding upon completion of a course, with a 10 percent formula adjustment. This is consistent with his recommendation for the community and technical colleges. Pharmacy Funding Advisory Committee – Update the pharmacy funding policy to fund pharmacy courses with pharmacy expenditure-based weights, and use the standard enrollment adjustment methodology Commissioner – Concurs Commissioner Recommends Increased Support for CBE and Concurs with FAC’s Pharmacy Funding Recommendation 40

41. CAAP Committee Discussion of GAI Funding 41

42. Overview of Health-Related Institutions (HRI) Formula Funding 42

43. Formula Funding is a Small Piece of the Revenue Pie for the HRIs 43

44. Majority of Funding based on Full-Time Student Equivalent (FTSE) Enrollment for Allied Health, Nursing, and Medical Students Instruction and Operations (I&O) Education and General Space Support (E&G) Research Enhancement Mission Specific Graduate Medical Education (GME) HRI Funding Model 44

45. Texas Health Related Institutions Formula Advisory Committee Funding Recommendations for FY 2018-19 John A. Harman, MBA, CPA, CGMA, CMPE Committee Chair March 30, 2016

46. HRI Challenges and State Workforce Needs 2015 U.S. Census: Texas has fastest growing population HRIs produce majority of Texas healthcare professionals Texas ranks 43 rd in active physicians per 100,000 population Nearly 60% retention of physicians trained in Texas Workforce shortages persist in healthcare professions/communities Two new medical schools will eventually help ease the shortage Funding for students, space, research and residents is still significantly below the levels from 15 years ago HRIs are challenged to meet state workforce needs, maintain program quality and meet goals of the 60x30TX Higher Ed. Strategic Plan

47. Cost Containment and Improved Efficiencies Electronic libraries Online learning strategies and programs Energy savings contracts and sustainability projects Buildings construction and Leed certification Group purchasing and supply chain alliances Increased credit hour productivity per FTE faculty Student Centers to support Academic Performance/Success Administrative efficiencies

48. HRIs are Committed to 60x30TX Goals Programs to ease the transition from undergraduate to graduate studies, health professions Explore accelerated programs and expanded on-line course offerings to appeal to broader spectrum of students Enrollment growth continues in most programs because of valuable and marketable skills acquired HRIs remain sensitive to growing student debt loads upon graduation when developing tuition strategies Student support and assistance programs to ensure student success and program completion

49. HRI FAC FY 2018-19 Formula Funding Goals Fund increase in formula rates Fund growth Enrollment Space Research GME Fund two new medical schools

50. FY 2018-19 Formula Funding Recommendations (including two new medical schools) Increase Instruction and Operations formula rate 5.3% to $10,347 (currently $9829) Increase Infrastructure formula rate 23.6% to $7.73 for UTMDACC and UTHSCT (currently $6.65) 22.7% to $8.16 for all other HRIs (currently $6.26) Increase Research formula rate 44.0% to 1.77% (currently 1.23%) Increase GME rate 34.8% to $8444 (currently $6266) Increase Mission Specific Support- UTMDACC and UTHSCT In accordance with Article III, Section 28, Special Provisions, Paragraph 9, Mission Specific- Increase by average growth in funding recommended for the I&O formula No change in weights and no additional formulas

51. Summary Recommended FY 2018-19 Funding (includes Two New Medical Schools) Per Unit Growth Existing HRIs Per Unit Growth w/ New Schools FY 2016-17 Appropriations FY 2018-19 Requested $ Change% Change Existing HRIs Instruction & Operations Formula3.82%4.22% $ 1,170,698,696 $ 1,277,059,010 $ 106,360,314 9.09% Infrastructure Formula4.21%7.45% 265,414,098 339,849,056 74,434,958 28.04% Research Enhancement Formula1.26%2.08% 74,562,294 95,638,296 21,076,002 28.27% Total $1,510,675,088 $ 1,712,546,362 $ 201,871,274 13.36% Mission Specific3.82%4.22% $ 323,162,046 $ 355,236,952 32,074,906 9.93% Graduate Medical Education3.20% 66,539,954 92,549,282 26,009,328 39.09% Total- All Formulas HRIs $ 1,900,377,088 $ 2,160,332,596 $ 259,955,508 13.68% New Medical Schools Instruction & Operations Formula $ - $ 9,835,416 Infrastructure Formula - 10,715,646 Research Enhancement Formula - 6,195,782 Total $ - $ 26,746,844 Mission Specific $ - - Graduate Medical Education3.20% 3,709,194 5,151,010 1,441,816 38.87% Total- All Formulas 2 New Medical Schools $ 3,709,194 $ 31,897,854 $ 28,188,660 Total- All Formulas (HRIs & 2 New Medical Schools) $1,904,086,282 $ 2,192,230,450 $ 288,144,168 15.13%

52. Questions

53. Increases for projected growth Increases for an inflation rate of 2.3 percent for the biennium Increases for two new medical schools Dell Medical School at UT Austin UT Rio Grande Valley Medical School Increases for GME General Overview of the Commissioner’s Recommendations for HRI 53

54. Commissioner Recommends an 8.5% Increase for the HRIs Formula Advisory Committee's Recommendations Commissioner's Recommendations In MillionsFunding% ChangeFunding% Change 2016-17 Appropriations$1,904.1 Increase for Projected Growth (Existing HRIs)71.03.7%71.03.7% Increase for Projected GME Growth2.20.1%2.20.1% Additional GME Funding 18.00.9% New Schools24.11.3%24.51.3% Rate Increase: 2.3% Inflation 43.62.3% Rate Increase: 2.3% Inflation – GME 2.10.1% Rate Increase: 1/3 Back to 2000-01190.810.0% 2018-19 RECOMMENDATION $2,192.215.1%$2,065.58.5% 54

55. CAAP Committee Discussion of HRI Funding 55

56. Advisory CommitteesCommissioner Projected Growth All Inflation at 2.3% State Colleges (E&G Space Support only) & GAIs All Rate Increase AllNone (see Student Success Point increase below) 60x30TX/Student Outcomes GAIs (Graduation Bonus), Community Colleges (Student Success Points), TSTCs (Returned Value) GAIs (Graduation Bonus), Community Colleges (Student Success Points), TSTCs (Returned Value), State Colleges (60x30TX) Additional GME Funding NoneHRIs Overview of the Advisory Committees’ and the Commissioner’s Recommendations 56