1. An Update on Restructuring: An Update on Restructuring: Overview of Implementation of the Restructured Higher Education Financial and Administrative Operations Act FOCUS Fall 2005 November 17, 2005 by M. Dwight Shelton, Jr. VP for Budget and Financial Management Virginia Tech

2. Overview Background and Legislation Activities to Date Major Components of Restructuring Act Level 1, 2, and 3 Authorities Management Agreements Implementation Timeline

3. Background on the Restructuring Act Initiative Concepts arose during 2002-04 budget reductions Economic Environment and Forecast Higher education is a competitor for scarce state resources Projected increase in enrollments for Virginia undergraduates A history of fluctuating, unstable changes in tuition rates

4. Virginia’s Commitment to Higher Education

5. Higher Education Environment Enrollment pressure for Virginia undergraduates Fixed costs, such as health care and energy costs, predicted to increase sharply Institutions face a significant shortfall in Base Budget Adequacy funding Tuition revenue see as an alternative revenue stream

6. State Support Reductions Result in Tuition Increases

7. Status in November 2004 Charter University Initiative was active and attracting attention Major goals were to: Restructure the institution’s relationship with the state Provide tuition rate authority to BOV Expand operational autonomy Vest Additional authority for the University with the Board of Visitors

8. The 2005 General Assembly Session Goal identified to expand the proposed autonomy benefits to the wider higher education community Charter legislation set aside to develop new legislative proposal Resulted in the Restructured Higher Education Financial and Administrative Operations Act

9. Highlights of the Restructuring Act More competitive, entrepreneurial institutions Institutions plan and manage themselves Tuition rate establishment assigned to BOV Greater funding predictability Three levels of managerial flexibility Increased focus on post-audit review

10. Highlights of the Restructuring Act (continued) Increased affordability and predictability for students and parents Six-Year Academic, Enrollment, and Financial Plans Expansion of student financial aid programs, increasing access for all Streamlined process for transfer students

11. Highlights of Restructuring Act (continued) Benefits to Virginians Increased enrollments of Virginia students Academic accountability Streamlined process for transfer students Support for economic development and K-12 education Increased accountability through established performance measures and benchmarks

12. Level One Authority Level One applies to all institutions Provides tuition revenue establishment authority Institutions must commit to achieve eleven state asks/goals Institutions receive specific financial benefits based on satisfactory performance

13. Level Two Authority Act provides the opportunity for institutions to obtain expanded authority in one or more specific elements of the financial and administrative operations Level Two status achieved through development of a Memorandum of Understanding with the state Appropriation Act to identify areas where opportunities for increased autonomy are available through the Level Two process

14. Level Three Authority Provides the highest level of autonomy Increased authority available for capital outlay, leases, information technology, human resources, procurement, and finance and accounting Establishes a Management Agreement between the institution and the Commonwealth Management Agreement elements determined based on negotiations between the institution and the Administration

15. The Management Agreement Agreement consists of : –Management Agreement –Policy Statements for each area of additional autonomy –Supplemental MOUs or agreements –Application for Level Three status –BOV resolution approving the Application Management Agreement has characteristics similar to a contract Policy Statements describe how the institution will operate, at a high level.

16. Seeking Level Three Authority – A Cooperative Effort UVa, W&M and VT decided to join forces in the effort to obtain Level Three status Established teams to complete various portions of the work, e.g., a steering team, a management agreement template team, policy development teams, communications team. Through this process, the Universities worked cooperatively to identify goals and objectives and to help each other think through the opportunities and challenges in a Level Three environment

17. Management Agreement Development Working through these teams, the three institutions developed or completed several documents and plans, including: An application for Level Three Authority A draft management agreement template Six policy statements Performance measures related to each policy statement A procurement “rules” document A Memorandum of Agreement regarding how VT and UVa would integrate their procurement efforts with eVA A Memorandum of Understanding regarding reporting of human resources management data

18. Capital Outlay Policy Statement Additional Authorities include: Existing decentralization made permanent Extended all prior decentralization post-appropriation authority to all GF projects. Ability to designate a Building Official and establish an internal code review unit Board of Visitors (“BOV”) is authorized to establish NGF projects Require bid bonds and performance and payment bonds for all contracts of $1,000,000 or more.

19. Leases Policy Statement Additional Authorities include: Existing decentralization made permanent Authority to enter into capital leases Authority to grant and acquire easements

20. Human Resources Policy Statement Additional Authorities include: Existing decentralization made permanent Develop and implement a new human resources system, including classification and compensation plans, new performance and evaluation processes, leave policies Develop severance policies for employees in the new University system Establish new definitions for Administrative and Professional Faculty Elimination of reporting into state human resources systems; institutions commit to management reports through memorandum of understanding

21. Information Technology Policy Statement Additional Authorities include: Provides an exemption from VITA and ITIB provisions of Code of Virginia regarding specific activities, such as strategic planning, expenditure reporting, budgeting, project management, security, and audits. Management commits to post audit review versus upfront approval in exempted areas VITA has review and comment authority in some areas Procure IT goods and services through most cost effective means; includes optional use of state contracts except for telecommunications services

22. Procurement Policy Statement Additional Authorities include: Existing decentralization made permanent Exempt from VPPA, but establishes a “rules” document that closely parallels the VPPA. Small purchases authorization increases to $50,000 Streamlines RFP process Exemptions from competition provided in some transaction categories where competitive procurement is not effective Exemption from mandatory purchases from VIB Authority for disposition of surplus personal property

23. Finance and Accounting Policy Statement Additional Authorities include: Existing decentralization made permanent Authority to create and implement financial policies, including disbursement policies; State Comptroller provides review and comment Ability to control and manage NGF revenues and resources; implementation phased in. Establish tuition and fees and other charges Set estimated sum sufficient appropriations for NGF

24. Finance and Accounting Policy Statement (continued) Create and implement new accounts receivable management and collection policies Create debt management policies Authority to issue bonds and other debt obligations that do not constitute State Tax Supported Debt Provide summary reports as needed instead of using CARS or subsequent financial systems.

25. Level Three Additional Commitments Management Agreement specifies that institutions will make additional commitments regarding: Provision of student financial aid to needy students Increased number of transfer students Matching institutional investments for any state GF investments in research Institutional support for economically depressed area(s) of the state

26. Finalized Management Agreements Review and approval by BOVs Review and approval by administration Submission to required parties on November 15, 2005

27. Timeline for Next Steps in Restructuring Process December 16, 2005 – Budget documents include additional administrative and financial management standards and identifies where MOUs for additional authority can be negotiated and reference management agreements April 2006 – General Assembly and Governor finalize 2006-08 budgets July 1, 2006 – approved management agreements become effective July 1, 2006 – institutions can enter into Level Two MOU with state June 2007 – SCHEV certifies institutional achievement of performance benchmarks August 2007 – Institutions receive Level One financial benefits

28. Questions?