1. Business Practices Seminar Current Trends in Higher Education M. Dwight Shelton, Jr. April 9, 2015

2. Overview  State Budget Environment  State Reviews of Higher Education  Cost Containment  Opportunities for Virginia Tech

3. State Budget Environment

4. Virginia Revenue Growth As of April 2015 Historically slow 4

5. 2015-16 Budget Environment Revenue Outlook  State Revenue has been improving steadily in FY15  On a YTD basis, total collections through December rose 6.8%, well above the forecast of 3.1% growth.  National economic signals are positive.  February revenue reforecast added $474 million to biennial revenue total. 5

6. Share of State Budget Allocated to Higher Education 6

7. State Funding Historical Trend 7

8. University Division Instructional Budget Fund Split 8

9. General Fund Per Resident Student at Virginia Tech 9

10. Executive and Conference Committee Budget As of February 27 th, 2015 Incremental General Fund $ in millions ExecutiveConference University Division E&G (Agency 208) September Budget Reduction$ (6.1) Faculty Salary Increase-1.65 Enrollment Growth- 1.65 Targeted Institutional Research-0.3 Transfer to Agency 229 to Cover a Portion of the Central Fund Shortfall( 0.1) Subtotal University Division E&G$ (6.2)$ (2.6) Brain Disorder Research-1.25 Financial Aid 0.1 Equipment Trust Fund1.5 Total University Division$ (4.6)$ 0.3 2015-16 Budget Process Totals exclude state share of the staff compensation proposals. 10

11. 2015-16 Budget Process Executive and Conference Committee Budget As of February 27 th, 2015 Incremental General Fund $ in millions ExecutiveConference CE/AES Division (Agency 229) Faculty Salary Increase-$ 0.5 Transfer from Agency 208 to Cover a Portion of the Central Fund Shortfall0.1 Additional Funding to Address Shortfall for State Health Care Cost Increases-0.3 Subtotal CE/AES-$ 0.9 University Total (both agencies)$ (4.5)$ 1.2 Totals exclude state share of the staff compensation proposals. 11

12. Compensation Program Summary The General Assembly proposes compensation enhancements for state employees that are contingent upon the state meeting 2014-15 revenue projections. ExecutiveConference Committee T&R Faculty Salaries- 2%, may be merit based Up to 2.5% additional through reallocation A/P Faculty Salaries- 2%, may be merit-based Staff Salaries  Classified (C) - 2% across-the-board $65/ year of service for employees with 5 or more years (max 30).  University (U) - 2%, may be merit-based Effective Date-8/10/2015 NGF Resource Requirement:  University Division (Agency 208) is expected to share approximately 59% of the cost in E&G programs, and 100% of the cost in Auxiliary and Sponsored Programs.  CE/AES (Agency 229) is expected to share approximately 5% of the cost in E&G programs. 2015-16 Budget Process 12

13. Capital Projects Funding Summary Proposed Funding Criteria:  Project is planned  Qualifies as a renovation; not new space ExecutiveConference Renew/Renovate Academic Buildings - $ 30.6 Kentland Farms Phase II- 7.6 Total- $ 38.2 Proposed General Fund Support $ in Millions 2015-16 Budget Process 13

14. Incremental General Fund per Resident FTE  Though the university received some incremental state support in the 2015 General Assembly, those gains were outweighed by the September 2014 budget reduction.  Combined, Virginia Tech lost $118 in General Fund support per FTE for 2015-16. Institution Budget Reduction per FTE New E&G per FTE Overall Impact University of Mary Washington $ (162)306144 UVA's College at Wise (74)200126 Old Dominion University (123)17754 Norfolk State University (107)15245 VA State University (160)19636 Radford University (122)1286 George Mason University (218)2246 Longwood University (119)1245 Christopher Newport University (123)1230 James Madison University (215)180(35) VMI (391)313(78) VA Commonwealth University (231)141(90) Virginia Tech (287)169(118) College of William & Mary (467)265(202) University of Virginia (604)219(385) 14

15. State Reviews of Higher Education

16. JLARC Study: Overview The 2012 General Assembly directed the Joint Legislative Audit and Review Commission (JLARC) to:  conduct a study on cost efficiency of the Virginia public higher education institutions  identify opportunities to reduce the cost of public higher education in Virginia 16

17. The resolution identified 14 areas to consider including:  academic factors: teaching load and faculty productivity, impact of faculty research on tuition, incentives created by existing faculty compensation models, etc.  non-academic factors: administrative staffing and costs, operation of enterprise activities, etc.  Study completed in November 2014 17 JLARC Study: Overview

18. 18 ReportIssue Date 1. Trends in Higher Education Funding, Enrollment, and Student Costs June 10, 2013 (Issued) 2. Review of Non-Academic Services and CostsSeptember 9, 2013 (Issued) 3. Review of Academic Costs and Efficiency December 9, 2013 (Issued) 4. Review of Support Costs and StaffingOctober 14, 2014 (Issued) 5. Addressing the Cost of Public Higher Education in Virginia November 10, 2014 (Issued) JLARC Study: Reports

19. JLARC Reports Highlights  Virginia Tech has fared well in multiple arenas in the JLARC reports. Some noted items include:  VT is among the lowest spenders on support functions when compared to its public Carnegie group  Tenure and tenure-track faculty are teaching an average of 10% more student credit hours  VT cited for transparency in providing detailed listing of mandatory fees, including athletic fees, through our website and on student invoices  VT Dining Centers have the highest % of student voluntarily purchasing dining plans compared to other Virginia institutions; average per-meal cost is below statewide average  JLARC identified certain areas for improvement such as organizational structure including narrow spans of control; further standardization of procurement 19

20. Final Report Summary  Report combines the work conducted in the previous four reports with new research and makes a comprehensive set of recommendations.  Final report has 16 recommendations and 7 options to address the cost of higher education in Virginia:  Recommendations made to the General Assembly as potential action items to address the cost of higher education in Virginia.  Options are potential policy changes with broad range of implications. 20

21. Basis of Recommendations Source: JLARC report on Addressing the Cost of Public Higher Education in Virginia 21

22. Key Recommendations Some of the key recommendations made to the General Assembly in the final report include:  Require annual training by SCHEV for the BOV members who serve on finance and facilities subcommittees.  Impose a limit on athletic fees charged to students as a proportion of total tuition and mandatory fees that can be collected for intercollegiate athletics.  Establish caps or limitations on the growth of non-E&G fees other than intercollegiate athletics.  Direct SCHEV to modify its capital prioritization process.  Direct SCHEV to identify metrics on capital spending, debt, and other data of value to the capital review process.  Revise formula for State’s maintenance reserve funds allocation. 22

23. JLARC Recommendations Passed by General Assembly  The approved budget passed by the General Assembly includes language addressing a subset of the 17 recommendations supported by the Council of Presidents and finance officers.  This language requires actions by several groups or entities, including:  The Boards of Visitors,  State Council of Higher Education of Virginia,  Department of Planning and Budget, and  The Auditor of Public Accounts. 23

24. Actions Directed to the Boards of Visitors For items directed to the Boards of Visitors, the language indicates that the Boards shall, to the extent practicable, take actions regarding seven items :  List athletic fees on the university’s website and consider including major components of all mandatory fees.  Virginia Tech lists all mandatory fees, including athletic fees on the university website and on the student tuition bill.  Assess the feasibility of raising revenue through public use of campus recreation and fitness enterprises to reduce reliance on mandatory fees. 24

25. 25  Perform comprehensive review of institution’s organization structure including spans of control and a review of staff activities and workload  Require periodic reports on average and median spans of control  Revise human resource policies to set standards on spans of control  Set and enforce policies to maximize standardization of purchases of commonly purchased goods  Consider directing staff to provide an annual report on all institutional purchases that are exceptions to the standardized purchases JLARC Recommendations passed by General Assembly

26. Future Reviews The budget passed by the General Assembly included language establishing the Joint Subcommittee on the Future Competitiveness of Higher Education in Virginia. Goals:  Review ways to maintain and improve the state’s quality of higher education  Examine impacts of competitive changes to the system  Identify best practices including shared services and accessible academic pathways  Evaluate the use of online and distance education  Review need-based financial aid programs and alternative models of affordability  Review JLARC recommendations and recommend implementation steps  Study effectiveness and value of transfer students and dual enrollment  Study effectiveness of preparing teachers to enter into the K-12 system Timeline:  Interim report due on November 1, 2016.  Final report due on November 1,2017. 26

27. Cost Containment

28. Why Focus on Cost Control?  Response to federal and state governments’ concerns about tuition and fees  The expectations of Boards of Visitors and the business world that the University will control costs and manage in a business-like manner  The Board of Visitors has requested a comprehensive analysis of Virginia Tech’s cost structure, with regular status updates on cost containment efforts 28

29. Why Focus on Cost Control?  Realization that the annual increases in costs and thus, the pressure to increase tuition and fee rates, cannot be sustained  Resources are needed to support our current operations and continue to improve the quality of our academic programs  Retaining our ability to recruit nonresidents  Cost issues raised by undergraduates and their parents 29

30. Average Cost of Education History 30

31. Comprehensive Fee History 31

32. History of Tuition Increases: Resident Undergraduate 32

33. History of Tuition Increases: Nonresident Undergraduate 33

34. History of Tuition Increases: Resident Graduate 34

35. History of Tuition Increases: Nonresident Graduate 35

36. Revisiting the 21 st Century Tuition Trend 36

37. Revisiting an Aggressive Tuition Projection ASSUMING AVERAGE INCREASE IN TUITION: 10.56%

38. Revisiting a Moderate Tuition Projection 38

39. University Administrative Costs  Virginia Tech maintains a cost conscious culture that is sensitive to administrative costs by:  Maintaining a rigorous budget process that carefully evaluates new administrative spending  Focusing resources into academic programs and strategic initiatives  Continually seeking ways to improve business processes  Leveraging technology to provide scalable delivery of service  Periodic assessments of the administrative cost structure 39

40. Administrative Costs as a Percentage of Core Expenditures 40

41. Resources Per Student  Tuition and General Fund per student combine to generate fewer resources per student than in 2000-01. 41 *Projected

42. Source: JLARC Addressing the Cost of Public Higher Education in Virginia Report  Largest portion of student charges support instruction at VT compared to other 4-year public institutions in Virginia. Cost Control & Efficiency 42

43. Opportunities for Cost Savings and Realignment of Resources  Emphasis on efficiency and effectiveness through:  Centralization and shared services  Consolidation  Improving use of assets  New technologies  New market outreach  Online education  Partnerships and collaborations  Programmatic reviews  Space utilization 43

44. Opportunities for Virginia Tech

45. Enrollment Growth 45

46. Enrollment Growth 46

47. High-Demand Graduates  Virginia Tech produces 25 percent of the Commonwealth’s four- year public institution STEM degrees.  In 2014, 51.4 percent of Virginia Tech’s graduates earned a STEM degree. 47

48. Enrollment Growth Initiative  The university is experiencing a significant increase in demand for a Virginia Tech education.  Applications reached a new high for fall 2015; this reflects an increase of 7.6% as compared to the previous year.  Demand is broad-based and includes several areas where Virginia Tech is in a strong or unique position to provide additional access to qualified students.  To meet demand for undergraduate enrollment, particularly in the STEM-H disciplines, the university plans to expand Freshman enrollment for 2015-16 by 500 students.  This growth will allow Virginia Tech to better serve the needs of the Commonwealth in the global economy (students, employers).  Additional enrollment supports the commonwealth’s goals of access and high-demand degree offerings. 48

49. Student Financial Aid Issues Facing the State and its Colleges and Universities In an environment of sensitivity to student loan debt :  How can we successfully increase enrollment, while students seem reluctant to enroll and take on increasing levels of debt?  Can we continue to increase tuition and fees, which is a driver for the increase in student loan 49

50. Trends in Student Indebtedness Class of:20092010201120122013 VT $$ 22,070$ 23,100$ 24,320$ 25,579$26,925 %52% 54% *55% National Average $$ 24,000$ 25,250$ 26,600$27,850$28,400 %65%66% 68%69% Data from the Project on Student Loan Debt, an aggregator of Common Data Set submissions. www.projectonstudentdebt.orgwww.projectonstudentdebt.org Percentage of Students Graduating with Debt and Average Debt per Borrower * In 2012, 54% is 3,004 graduates. 50

51. Undergraduate Financial Aid Funds For the Future  Shelters returning students from tuition increases based upon income.  Ensures that students with the most need are not priced out due to tuition increases.  For 2015-16, income levels are expanded, providing coverage for 100% of tuition increases for low- and middle-income families with income up to $49,999.  Previously, 100% coverage was available to families with income from $0-29,999.  Protection for families with $50,000-$99,999 income is also enhanced for 2015-16. Family Income (AGI) Tuition & Fee Increase Protection Example Impact of FFF Protection for Undergraduate Student Tuition & E&G Fee Increase Net Impact $0 - $49,999100%3.9%0% $50,000 - 74,99950%3.9%2.0% $75,000 - 99,99925%3.9%2.9% 51

52. Undergraduate Scholarships Institutional Support 52

53.  Current Endowment value: $796.4 million  Dr. Sands:  “we must focus on philanthropy to provide access to students who would not otherwise be able to experience Virginia Tech.”  “…at least double our 800 million dollar endowment by 2022. Indeed, we should be challenged to realize the bolder goal of two billion dollars by twenty-twenty-two.” Growing the Endowment 53

54. Education Advisory Board Afternoon Session on Bending the Labor Cost Curve

55. Questions?