1. Todd Lee Assistant Chancellor Budget & Planning April, 2014

2. C LASS O VERVIEW 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. 2

3. TOPICS Permanent Budget vs. General Ledger Funding Streams – UCOP Allocations Rebenching UCSB Fund Source Review Budget Process – Big Picture Campus Budget Planning Looking Ahead to FY 2014-15 3

4. K EY C ONCEPT T O T AKE A WAY 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. 4

5. PERMANENT BUDGET VS. GENERAL LEDGER 5

6. 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. 6

7. 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. 7

8. PERMANENT BUDGET – GENERAL LEDGER DescriptionPerm. Budget General Ledger Accounts7715,420 Account-Fund1,36722,186 Account-Fund-Sub2,62758,012 AFS-Object Code----117,891 Transactions (Est.)11,3081,046.582 Over 300 different control points making decisions 8

9. COMPARISON CON’T DescriptionAmount July 1, 2012 Permanent Budget$536 Million FY 2012-13 General Ledger Expenses*$872 Million Numbers above reflect operating expenses only. Campus also spends approximately $150 million annually on capital program. * Before GASB adjustments which reclassify some expenses. 9

10. EXPENDITURE TRENDS 10

11. 11

12. Increase in Salary & Benefits expense account for 52.1% of the 11 year cost increase. Salaries & Benefits, along with Financial Aid, account for 94% of the increase in core funded expenditures. All other expenses, including utilities, have increased core funded expenses by only 10.4 million, or 6% of the total increase. Expense Increases by Major Expense Category: Core Funds Category2001-02Change2012-13% Change % of Total Increase ACADEMIC SALARIES 101.9 34.8 136.734.1%20.0% OTHER SALARIES: Research 6.4 3.5 9.9 53.9%2.0% Auxiliary Enterprises 0.2 0.1 0.4 58.7%0.1% Student Services 16.9 2.9 19.8 17.5%1.7% All Other Functional Areas 67.8 3.6 71.4 5.3%2.1% Subtotal, Other Salaries 91.3 10.1 101.411.1%5.8% BENEFITS 37.4 45.6 83.0122.1%26.3% FINANCIAL AID 20.3 72.8 93.1358.4%41.9% UTILITIES 8.0 0.4 8.44.7%0.2% ALL OTHER EXPENSES 51.5 10.0 61.519.4%5.8% TOTAL 310.5 173.7 484.256.0%100.0% 12

13. Expense Increases by Program: Non-Core Funds Category2001-02Change2012-13% Change % of Total Increase ACADEMIC SALARIES 0.3 0.4 0.7124.1%0.2% OTHER SALARIES: Research 43.3 27.2 70.562.7%15.3% Auxiliary Enterprises 19.9 14.2 34.171.6%8.0% Student Services 5.3 11.9 17.3222.9%6.7% All Other Functional Areas 16.9 11.6 28.568.3%6.5% Subtotal, Other Salaries 85.5 64.9 150.475.9%36.5% BENEFITS 17.5 33.9 51.4194.0%19.1% FINANCIAL AID 26.6 24.2 50.890.8%13.6% UTILITIES 2.3 2.5 4.8111.2%1.4% ALL OTHER EXPENSES 72.1 51.6 123.771.5%29.1% TOTAL 204.3 177.5 381.986.9%100.0% 13

14. Expenditures by Category FY 2012-13 CategoryCore Funds Non-Core FundsTotal% Core ACADEMIC SALARIES 136.7 0.7 137.499.5% OTHER SALARIES: Research 9.9 70.5 80.412.3% Auxiliary Enterprises 0.4 34.1 34.51.1% Student Services 19.8 17.3 37.153.4% All Other Functions 71.4 28.5 99.971.5% Subtotal, Other Salaries 101.4 150.4 251.840.3% BENEFITS 83.0 51.4 134.461.7% FINANCIAL AID 93.1 50.8 143.964.7% UTILITIES 8.4 4.8 13.363.5% ALL OTHER EXPENSES 61.5 123.7 185.233.2% TOTAL 484.2 381.9 866.055.9%

15. 15

16. Expense by Function: Core Funds Functional Area2001-022012-13Increase% Increase % of Total Increase University Mission Functions Instruction 153.0 213.3 60.339.4%34.7% Academic Support 36.8 46.5 9.726.4%5.6% Research 13.5 21.0 7.555.6%4.3% Public Service 4.4 2.5 (1.9)-43.1%-1.1% Subtotal 207.6 283.2 75.636.4%43.5% Student Access - Financial Aid 20.3 93.1 72.8358.4%41.9% Mission Support Functions Auxiliary Enterprises 0.3 0.7 0.4114.2%0.2% Student Services 25.8 37.3 11.544.4%6.6% Institutional Support 30.0 37.4 7.324.4%4.2% Operation & Maintenance 26.3 32.5 6.223.4%3.6% Subtotal 82.5 107.9 25.330.7%14.6% TOTAL 310.5 484.2 173.756.0%100.0% 16

17. Expense by Function: Non-Core Funds Functional Area2001-022012-13Increase% Increase % of Total Increase University Mission Functions Instruction 11.7 14.2 2.521.7%1.4% Academic Support 4.1 7.2 3.072.6%1.7% Research 90.1 159.8 69.777.3%39.2% Public Service 2.7 5.5 2.8105.5%1.6% Subtotal 108.6 186.6 78.071.8%44.0% Student Access - Financial Aid 26.6 50.8 24.290.8%13.6% Mission Support Functions Auxiliary Enterprises 48.9 88.2 39.380.4%22.1% Student Services 14.9 42.3 27.4183.5%15.4% Institutional Support 3.1 11.4 8.3264.8%4.7% Operation & Maintenance 2.2 2.5 0.315.3%0.2% Subtotal 69.1 144.5 75.3109.0%42.4% TOTAL 204.3 381.9 177.586.9%100.0% 17

18. 18

19. UCSB Current Fund Expenditures by Fund Group FY 2002-03 vs. FY 2012-13 (Excludes GASB Reporting Adjustments) Fund GroupFY 2002-03FY 2012-13 Change Percentage Change Core Funds State Operating Appropriations 200,215,879 193,472,878 (6,743,000)-3.4% Mandatory Student Fees, ICR, Other Core 127,510,142 290,717,371 163,207,229128.0% Subtotal, Core Funds 327,726,021 484,190,250 156,464,22947.7% Non-Core Funds Contracts & Grants 112,870,826 182,731,831 69,861,00561.9% Income and Other Funds 77,024,551 138,467,541 61,442,99079.8% Gifts & Endowment Income 14,992,321 29,910,304 14,917,98399.5% Non-Core Student Fees 12,025,204 30,742,315 18,717,111155.6% Subtotal, Non-Core Funds 216,912,901 381,851,991 164,939,09076.0% Total, All Funds 544,638,922 866,042,240 321,403,31859.0% Core Funds Share of Total Expenditure……………………………………………………60.2%55.9% State Appropriations Share of Core Expenditure…………….61.1%40.0% 19

20. FUNDING STREAMS OVERVIEW & IMPLEMENTATION 20

21. FUNDING STREAMS Realignment of financial arrangements between UCOP and the campuses Historically UCOP has taken funding “off-the- top” to pay fund their operating expenses Under the new arrangement “funds generated by the campus remain on the campus” this includes: Student Fees Indirect Cost Recover Interest on invested funds UCOP will be funded from an “assessment/tax” on each campus. 21

22. FUNDING STREAMS CON’T The assessment is based on total current fund expenditures from all fund sources. The assessment is calculated as follows: UCOP expenses Divided by total of campus current fund expenses Equals assessment rate Assessment was supposed to be revenue neutral to the campuses – revenue returned equals assessment collected Actual assessment exceeded the amount return resulting in another cut to campus resources 22

23. FUNDING STREAMS CON’T The UCSB assessment equals $12,059,000. The effective tax rate is 1.83% The assessment has been distributed to the Chancellor and Vice Chancellor Control Points based on their share of total expenses – essentially the same process used by UCOP to calculate campus assessments Credits associated with general funds, mandatory student fees, and indirect cost recovery were distributed to each control point 23

24. FUNDING STREAMS CON’T The credits covered approximately 74% of the assessment. The remaining 26% ($3.1 million) was distributed to control points and is their responsibility to pay Control points do need to take into account any agreements or commitments associated with the use of any individual fund and have broad discretion on how to implement the assessment For FY 2013-14 the assessment payment cannot use any campus based fee funds as a source 24

25. 25

26. REBENCHING CHANGES IN THE DISTRIBUTION OF STATE FUNDS 26

27. 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? 27

28. 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 As part of the Funding Streams effort a “Rebenching Committee” was formed to look at the issue 28

29. 29 System-wide Median Source: UCSC 2009 29

30. 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. 30

31. R EBENCHING E XAMPLE Funding to be Allocated$37.0M UCSB’s Share Under Rebenching 24.6% UCSB’s Allocation$ 9.1M UCSB’s Share Workload 9.1% UCSB’s Allocation$ 3.4M Over 6 years UCSB will receive approximately $40 million more than under previous allocation formulas 31

32. UCSB FUND SOURCE REVIEW 32

33. 33

34. 34

35. 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 35

36. 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 36

37. FUND SOURCE CATEGORY #3 Extramural Funds State and Local Contracts & Grants Federal 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 37

38. 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 38

39. STUDENT FEES Mandatory Fees – Tuition and Student Services Fees established by the Regents Tuition Fee ($11,220) used to support Student Financial Aid and general operations of the University Student Services Fee ($972) used to provide a supportive and enriched learning environment for students Campus Based Fees (UG - $1,555; Grad - $800) Approved by student vote for specific purposes Summer Session Fees Per unit charge based on Mandatory Fees Extension (Self-Supporting Program) Fee levels established to cover cost of program Course Material Fees Used to enhance educational experience for students 39

40. CONTRACTS AND GRANTS Federal and Non-Federal Awards $182.7 million in expenses in FY 2012-13 $141.2 million in Research (net of Sub Y/ICR) $32.7 million in Pell Grants Uses are restricted for specific uses Indirect cost is assessed against direct expenses Expenses in this category have increased by 15.8% ($24.9 million) since FY 2008-09. 40

41. 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 Under funding streams campus retains all ICR Budget Office 41

42. G IFTS AND E NDOWMENTS Includes payout from endowments, as well as current year gifts. Annual giving amounts typically fall into the $40 to $80 million range Vast majority of gifts restricted for a particular use – capital project, endowed chair, student financial aid, etc. Funded approximately $29.9 million (3.5%) of operating expenses in FY 2012-13 Budget Office 42

43. GIFTS AND ENDOWMENTS CON’T June 2013 endowment value at $226 million (Foundation at $124 million, Regents at $192 million) Annual endowment payout of approximately 4.75% ($10.7 million) Only about $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. 43

44. I NCOME & O THER F UNDS User charges for campus provided services Fees established by departments with campus review Examples include: Student housing Parking Funded about $133.3 million of FY 2011-12 operating expenses, 15.9% of total Increased NSFAS (overhead tax) on these funds from 1% to 4% to 6% to 7% over the last few years Change tax from revenue to expense based Budget Office 44

45. BUDGET PROCESS THE BIG PICTURE 45

46. STATE FUNDS Funding less and less of the annual campus operating expenses: FY 1990-9151.8%$157 million FY 2000-0145.8%$216 million FY 2010-1126.2%$181 million FY 2011-1214.1%$117 million Still the driving force behind the UC budget planning. Drive decisions on: Enrollment Student Fee Levels Salary Programs Capital Program 46

47. BUDGET PROCESS Preparation of Regents Budget – Takes into account: Enrollment Plans Changes in Salaries Faculty Staff Represented Unrepresented Inflation on various cost categories such as: Utilities Services Benefits Program Enhancements and Improvements 47

48. BUDGET PROCESS CON’T Costs are estimated and a system-wide budget plan developed Regents typically review initial budget concepts in July and September and approve a plan in November UC Budget Plan submitted to Department of Finance for consideration by the Governor In January of each year the Governor releases a State Budget. 48

49. BUDGET PROCESS CON’T The higher education component of the budget may or may not be consistent with the Regents Budget Plan UC works with Department of Finance, as well as with Assembly and Senate leaders, during the spring to incorporate our priorities into the budget In May Governor releases a “Revised Budget Plan” that takes into account additional information on both revenue and expense trends 49

50. BUDGET PROCESS CON’T After “May Revise” the Assembly and Senate continue the process of developing a budget agreement The requirement is that a budget will be approved before the end of the fiscal year Once a State budget is approved then additional actions may be required by the Regents in order to address the actions contained in the budget Bottom line – campus normally does not know the full impact of the budget until well into the fiscal year so we need to plan accordingly 50

51. UCSB CAMPUS BUDGET PLANNING 51

52. B UDGET P LANNING F RAMEWORK Strategic Academic Plan Long Range Development Plan 2010 LRDP Mitigation Implementation and Settlement Agreement Coordinating Committee on Budget Strategy Budget Planning Principles Budget Allocation Framework

53. S TRATEGIC A CADEMIC P LAN 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

54. L ONG R ANGE D EVELOPMENT P LAN (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

55. 2010 LRDP A GREEMENT 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

56. C OORDINATING C OMMITTEE ON B UDGET S TRATEGY 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

57. B UDGET P LANNING P RINCIPLES Strategic Solutions Priorities Revenue Considerations Recruitment and Retention Strategic Initiatives Efficiencies Minimize Staffing Lay-Offs Self Supporting Departments Also Participate

58. B UDGET A LLOCATION F RAMEWORK Required cost increases Formula allocations based on enrollment growth Funding for ongoing commitments Workload and cost increases Program Improvements Other

59. C AMPUS A LLOCATION D ECISIONS Based on: Enrollment Changes Systemwide programs (Salary & Benefit) Funding formulas Campus consultation Campus priorities Fund source restrictions Control point decisions 59

60. CAMPUS BUDGET ISSUES – PARTIAL Graduate Student Support Faculty Recruitment Sub 0 Annual Shortfall Purchased Utilities Deferred Maintenance Technology Investments Equipment Replacement Classroom Renovation Salary & Benefit Cost Increases Departmental Support Budgets Funding for Capital Projects/Debt Capacity No Specific Order 60

61. T HE P ROCESS Coordinating Committee on Budget Strategy Planning Principles Budget Review Topics Budget Allocation Framework 61

62. C AMPUS P LANNING CCBS - Coordinating Committee on Budget Strategy Originally created in January 2003 to help guide the cuts earlier this decade. Reactivated in March 2008 Includes Administrators, Academic Senate, Faculty, Staff, and Students Develop strategies designed to protect academic quality and student access while facing the challenge of budget reductions. 62

63. C OORDINATING C OMMITTEE ON B UDGET S TRATEGY Develop principles and priorities to guide budget reduction process Protect academic quality and student access Achieve short term budget reductions Establish framework for long term stability Interact with groups and committees to develop and share information, and provide opportunity for feedback Budget Office 63

64. P LANNING P RINCIPLES Strategic Solutions Budget reductions should be implemented strategically, not across the board, in a manner that will maintain focus on the campus academic mission. Priorities The campus should attempt to minimize the impact of cuts on higher priority programs and services Revenue Considerations Decisions about cost reductions need to consider the impact on revenue generation, as well as long-term capital and operating cost impacts. 64

65. P LANNING P RINCIPLES Recruitment and Retention Strategies should protect our ability to recruit, develop, and retain a diverse and highly qualified faculty, staff, and student body Strategic Investments Strategic investments will continue to be made. These investments may require slightly larger budget cuts. Efficiencies Current processes and procedures should be streamlined to eliminate any duplicated or unnecessary services. Budget Office 65

66. PLANNING PRINCIPLES Staffing Layoffs Every effort should be made to avoid layoffs or furloughs by taking advantage of normal attrition, planned retirements, and voluntary reductions. Self-Supporting Departments Recharge and income generating units are not exempt from the budget reduction process. 66

67. CCBS D ISCUSSION T OPICS Revenue Generation and Redistribution Indirect Cost Recovery Non-State Funded Administrative Support Service Agreements Recharges Payroll Assessments Campus Assessments/Taxes Are programs covering their “fair share” of overhead and direct costs 67

68. CCBS D ISCUSSION T OPICS - E XAMPLES Base Budget Fund categories subject to discussion Exclusions for budget cuts Allocations of new funds Regents Actions Increases in student fees UCOP Actions Funding Streams Rebenching 68

69. B UDGET A LLOCATION F RAMEWORK N EW R EVENUES 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 69

70. 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 ) 70

71. 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 71

72. B UDGET A LLOCATION F RAMEWORK E XAMPLE 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. 72

73. LOOKING AHEAD PLANNING FOR FY 2014-15 73

74. UC B UDGET P LAN R EVENUE A SSUMPTIONS $383.1 MILLION Base budget, General Funds$146.2 million Additional General Funds$120.9 million UC General Funds$ 26.0 million Alternative Revenues$ 90.0 million 74

75. UC B UDGET P LAN E XPENDITURE P ROPOSALS - $383.1 MILLION Mandatory Costs$168.1 million High-Priority Costs$165.0 million Academic Quality$ 50.0 million 75

76. Governor’s UC Budget Proposal Second year of Governor’s multi-year plan for UC Funding Base budget adjustment of 5%, or $142.2 million $50 million for competitive innovative awards to incentivize UC, CSU, and CCCs to increase degree completion No other funding adjustments for UC No general tuition increase in 2014-15 76

77. Governor’s Budget Proposal Does Not Cover’s Mandatory Cost Increases With no tuition increase, fully one-half of UC’s budget has no identified source of funds to support mandatory cost increases ($168 million) 77

78. State’s Surplus Opportunity for More Funds? Additional ongoing funding could be used for: State share of 2014-15 UCRP costs ($64.1 million) 1% enrollment growth ($21.8 million) Reinvestment in academic quality 78

79. State’s Surplus Opportunity for More Funds? “One-Time” funding could be used for: Paydown of UCRP Liability ($150 million) Capital Facilities – Life Safety & Enrollment Growth Deferred Maintenance ($50 million) Instructional Equipment ($35 million) and Library Materials ($35 million) Faculty Start-Up Packages ($30 million) 79

80. L OOKING A HEAD State budget scheduled to be adopted late June, 2014 Between now and June, UC will be working to secure additional funding to meet needs associated with mandatory cost increases, high priority programs, and improving academic quality Good news – state revenues continue to be above the projections. 80

81. QUESTIONS & DISCUSSION 81