Montana University System

Montana University System

Allocation Model Redevelopment Retreat

Report of Progressfor

Board of RegentsNovember 16, 2005

Review of Process

Direction provided by BOR – Sept. 2005 meeting

Schedule retreat to discuss and develop a new allocation model

Finalize retreat objectives – Campus Advisory meeting – October 20, 2005

Retreat – November 10 & 11 - 20 participants- all campus units CFO’s participated- Dennis Jones provided his national expertise- Bob Kelly (Great Falls businessman) served as

an independent observer of the process

Retreat Objectives

MUS finance officers draft a conceptual proposal

MUS finance officers agree to the conceptual proposal

Develop future action plan of tasks, assignments and necessary reviews

Report on progress and outcomes at the November BOR meeting

Dennis Jones’ “First Principles” forthe MUS Allocation Model

1. The model should focus on financing the state system of higher education – not the more narrow issues of allocating state funds to campuses.

2. Any model should be transparent as to the policy choices to be made by

a. The Board of Regents, andb. The Legislature & Executive Branch.

3. The model should provide a framework for simultaneously dealing with

a. Allocation of state revenues to institutions,b. Tuition revenues and rates, andc. Student financial aid (in Montana, including

mandatory fee waivers).

First Principles (cont’d)

4. The model should have a specific component a. Dedicated to furthering the Regents’

strategic priorities b. Allocated by the Regents to campuses for

these purposes.

5. The model should reward – not punish – institutions for aggressively seeking revenues from sources other than

a. Students, or b. State.

First Principles (cont’d)

6. The model should protect institutional viability a. By not creating conditions under which

institutions have to adjust quickly to substantial changes in funding,

b. Buffering the effects of enrollment changes (especially decreases), but not avoiding those effects.

7. Ideally, the model should provide incentives for institutions to collaborate as units within a system, rather than compete as free-standing entities.

Desired Features / Functions of Model

Development process should involve all CFOs, at all stages, as well as the OCHE, OBPP and LFD.

Concepts and calculations should be simple and understandable.

Model assumptions, decisions and calculations should be based upon a rich array of generally available, regularly updated, data.

Montana students should be provided a fair share of State support for their cost of education.

Features / Functions (cont’d)

Each campus should be provided a reasonable opportunity to sustain its vitality, at a Mission and organizational scale appropriate to its level of enrollment, but not at the expense of another.

Each campus should be provided a level of funding sufficient to support its minimum necessary Base of fixed costs.

Model should establish an appropriate Total revenue level (target) for each campus, as well as an appropriate State Support level (target), based upon peer data.

Features / Functions (cont’d)

Model should provide some way for Regents to reward performance and/or support their priorities.

Application of Model, by OCHE and Regents, should be “Persistently Consistent.”

Model will be developed by the entire Model Team, or by smaller Work Groups (reporting back to the Team).

The Team will review and agree on each element of the Model before submittal for Regent approval.

The “Conceptual” Model

The foundation of the new Model Concept developed by the Model Team is:

the establishment of Targets for Total Net Revenue, State Support, and Student Contribution for each campus; and,

the creation of an Enrollment Corridor, which protects each campus from an abrupt loss of State funding due to enrollment decline – and deemphasizes the importance (and reward for) each new student FTE added to an institution’s enrollment.

Concept Illustration

Total Net Revenues(peer average)

Peer percentage Campus Actuals Maximum FTE forof State support current State $

Current Campus

Enrollment Fixed level of

Peer percentage State supportof Student Minimum FTE for

contribution current State $

Establishment of Individualized Campus Targets Individual Campus Corridors

Model Concepts

The “beginning point” of State support for each campus will be set in FY08, by adjusting each FY06/07 level for enrollment changes and new biennium current level adjustments.

A Work Group must codify the Current Level Adjustment definitions within the Regents budget process.

An independent consultant will perform a peer analysis (for each individual campus) to establish the suggested Campus Targets for Total Net Revenues, State Support and Student Contribution.

Model Concepts (cont’d)

Peer data must be selected to reflect such individualized characteristics as institutional classification, program mix & levels, enrollment and geography.

The Regents adoption of campus targets for Total Revenues, State Support and Student Contribution will, in effect, establish long term differential tuition plans.

A Phase-In plan for pursuing the targets will establish Priorities among the campuses.

Model Concepts (cont’d)

A Work Group must also develop suggested Enrollment Corridors for each campus, possibly through statistical analysis of when an enrollment decline would put State $/FTE above peer averages.

Enrollment Corridors will also reflect Regent priorities for protecting campuses in the event of an abrupt enrollment decline - as well as the incentive for expanding current enrollment levels.

A Work Team must also develop a set of suggestions for establishing specific goals, measurable objectives, and a funding source / level for a Regents’ Incentive Program.

Board of Regents Policy Issues

Approval of Peer comparators.

Adopt revenue “targets” from the peer comparators as a guide to reallocate funds within the Montana University System as the method for establishing revised “base” funding for all institutions.

Adopt a timeline to reach the new base funding targets.

Policy Issues (cont’d)

Determine the appropriate state/tuition funding ratios, by institution type, as a means to implement differential tuition.

Adopt a timeline to reach the differential tuition targets.

Determine how much funding should be in the Regent’s Initiative/Incentive Pool.

Establish the width of the “enrollment corridors” by institution.

Policy Issues (cont’d)

Develop a policy to address the situation when one or more institutions are unable to maintain their enrollments within their approved corridor.

Develop a policy on how to fund mandatory waivers.

Adopt common definitions of what constitutes “Current Level” adjustments.

Develop a one time appropriation request to provide additional base funding to the two year campuses as a means of right sizing their base funding.

Development Process Timeline

November 2005:Approval to proceed, approval to hire NCHEMS (Dennis Jones) to develop peer comparator data and provide ongoing assistance as the model is revised

January 2006:Adoption of peer comparators, initial revenue targets, establish enrollment corridors

February 2006:Conduct simulations to fine tune/adjust the model

Process Timeline (cont’d)

March 2006:Present a list of policy decisions to the Board that need to be made to finalize the model

April 2006:Budget Committee conducts a full dress rehearsal of the new model

May 2006:Present the new model to the full Board