Budget Overview

1. Budget Overview COO Employee Council February 16, 2012

2. Budget Overview • Current Budget & Methodology • New Internal Financial Model • Capital Budget • Questions

3. UVa’s 2011-12 Operating Budget(in millions) Academic Division $ 1,344.6 Medical Center $ 1,108.1 College at Wise $ 34.3 Total $ 2,487.0

4. 2011-12 Major Funding Sources Academic Division - $1.36 Billion

5. 2011-12 Major Spending AreasAcademic Division - $1.34 Billion By Activity By Expenditure Category

6. Current Budget Methodology A Hybrid of Three Approaches: • Targeted Budgets • Sales and Services Budgets • Summary Budgets

7. Targeted Budgets • State general (SG), state restricted (SR), local general (LG), F&A institutional (FI), endowment institutional (EI), and gift institutional (DI) • University Budget Office (UBO) provides budget target and modifies it for salary increases, fringe benefit changes, addenda, and budget reductions • Central covers costs for facilities and central administration • Unit manages internal allocation of budget, hiring, carryforward, and operational decisions • Central oversight is by UBO, managed on a year-to-date basis • Required to be funded and budgeted in the Integrated System (IS)

8. Sales & Services Budgets • State sales and services (SS), state auxiliaries (SA), local sales and services (LS), local auxiliaries (LA), and local other (LO) • Revenue-generating, self-supporting unit approach • Unit manages revenues and direct expenses (salary and fringe changes) • Cost for facilities and central administration responsibility varies: • 100% facilities and indirect costs paid by auxiliaries • 100% facilities and 10% revenue tax assessed to self-sufficient • 10%-15% revenue tax assessed to some self-supporting units • No facilities or indirect costs assessed to other sales and services units • Central oversight is by UBO; managed on a year-to-date basis • Required to be funded and budgeted in the IS

9. Summary Budgets • Endowments (ER, EU, EF), gifts (DR, DU), F&A (FA), grants (G*, Z*), and intellectual property (IP) • Unit manages direct expenses (salary and fringe changes) • Central covers cost of facilities and central administration, with the exception of grants (reimbursed by federal gov’t) • Allocations and central oversight are by Comptroller’s Office, Gift Accounting, Sponsored Programs, and the VP for Research; managed on a project-to-date basis; not required to be funded and budgeted in the Integrated System • Summary budgets are submitted to the UBO for purposes of developing a total budget, but they are not uploaded to the IS

10. Budget Overview • Current Budget & Methodology • New Internal Financial Model • Capital Budget • Questions

11. Identified Concerns with Current Model • Historically based, with minimal re-alignment for activity changes • Absence of incentives for innovation, creativity, and revenue generation • Does not consider all available funds • Does not link resources and uses; inconsistent allocation of revenue and expenses • Desire by deans for a more open decision-making process • Difficulty in developing multi-year budgets to align with programmatic planning

12. Work to Date • Collected and reviewed data from peers; developed potential schematic and identified possible methods of allocating revenues and central expenses • Drafted a sources and uses report to represent operational cash flows by major revenue center • Reviewed funding across units to consider a more consistent approach to record resource-sharing • Developed a Statement of Purpose and preliminary timeline • Identified Executive Co-Chairs and engaged senior administration in Steering Committee • Conducted a needs analysis survey for financial reporting in academic and administrative units • Completed preliminary groundwork to understand major revenue and service centers • Launched a website: http://www.virginia.edu/resourcingthemission/

13. New Internal Financial Model Steering Committee Co-Chairs: John Simon, Michael Strine Steering Committee Task Forces Financial Reporting, System Preparedness and Training Communi-cation and Change Management Revenue & Incentives Cost and Service Level Architecture Governance, Policy Review and Oversight • Ensure that systems support new model and that people can make the most of new methodologies • System architecture, assessment, and recommendations • Reporting requirements • Report development • Design, develop, and test • Implementation Plan • Training plan / schedule • Monitor operations • Ensure that University community is prepared for the new model and that change process is well managed • Roles & Responsibilities • Redesign budget process • Communication • Change management • Transition planning • Implementation preparedness • Monitoring outcomes • Develop methodologies for revenue flows and for incentivizing innovation and increased productivity • Revenue attribution • Tuition allocation • Alternatives for other funding (IFP, F&A, general funds, etc.) • Build model • Incentives for productivity • Incentives for growing revenue and innovation • Develop methodologies for cost allocations, service levels and cost containment • Cost Allocations • Categories for expenditures • Level of costs for central services • Benchmarking • Strategy for reserves • Build model • Incentives for effective, efficient, quality service • Incentives for stewardship of University resources • Ensure that policies support the new model and ongoing governance & stewardship of University mission and resources • Inventory current policies • Create/revise policies as necessary • Monitor outcomes • Adjust model and/or policies to ensure proper stewardship of University mission & resources James Hilton, Lead Bob Pianta, Lead Bob Bruner, Lead Paul Mahoney, Lead Kim Tanzer, Lead

14. DRAFT Input from Phase 1 1. Reconciled Actual to Budget Data 2. Design Principles High Level Task Force Timeline Implementation Monitor Development Jan-Feb-Mar Apr-May-Jun-Jul-Aug-Sept Oct 2012 - Jun 2013 FY2013-14 Monitor & Adjust Communication, Change Mgmt, & Transition Planning Communication & Change Mgmt Education / Change Management / Implementation Monitor & Adjust Test Train / Implement Financial Reporting, System Preparedness & Training System Architecture, Reporting Assessment / Re-quirements, & Training Plan Short Term: System Architecture Changes & Report Development Long Term: System Architecture Changes & Report Development Revenue & Incentives Revenue Modeling: Revenue Attribution, Bench-marking, Tuition allocation, Revenue Incentives Design Principles & Decision Mapping Test Train / Implement Monitor & Adjust Cost & Service Level Architecture Cost Modeling: Cost allocations, Level of costs for services, Benchmarking, Strategy for Reserves Expense Incentives Current Policy Inventory Monitor & Adjust Governance, Policy Review and Oversight Create / Revise Policies Approve Policies Train / Implement Major Steering Committee Report Outs

15. Resources on Budget Model Transitions Websites of Peer Institutions • University of Florida – Responsibility Center Management, http://www.hr.ufl.edu/training/rcm/index.html • Indiana University – Responsibility Center Management, http://weathertop.bry.indiana.edu/mas/rcm/ • University of Iowa – Task Force on Strategic Budgeting, http://provost.uiowa.edu/work/strategic-initiatives/tf-budget.htm • Iowa State University – Resource Management Model, http://www.public.iastate.edu/~budgetmodel/overview/background.shtml • University of Michigan – University Budget Model, http://www.provost.umich.edu/budgeting/ub_model.pdf • University of New Hampshire – Responsibility Center Management, http://www.unh.edu/rcm/rcmmanual/manualtoc.htm • University of Pennsylvania – Responsibility Center Management, http://www.budget.upenn.edu/rcm/index.shtml • Ohio State, Resource – Centered Budgeting, http://www.rpia.ohio-state.edu/br/archive.html • Syracuse University – Responsibility Center Management, http://budplan.syr.edu/BudPlan/display.cfm?content_ID=%23%28%28%2D%2C%0A Books • Responsibility Center Budgeting – An Approach to Decentralized Management for Institutions of Higher Education, by Edward Whalen.  • Responsibility Center Management – Lessons from 25 years of Decentralized Management, by Jon C. Strauss and John R. Curry Articles • NACUBO Business Officer, April 2009:  The Case for Decentralized Financial Management by Scott Scarborough, at http://www.nacubo.org/Business_Officer_Magazine/Magazine_Archives/April_2009/The_Case_for_Decentralized_Financial__Management.html

16. Budget Overview • Current Budget & Methodology • New Internal Financial Model • Capital Budget • Questions

17. Major Capital Projects ProgramCurrently Approved – by Status(in 000s) (updated Jun 2011)

18. Major Capital Projects ProgramNear Term Proposed Through 2014 - By Funding(in 000s) (updated Jun 2011)

19. Major Capital Projects ProgramLong Term Proposed (2015 - 2022) - By Funding(in 000s) (updated Jun 2011)

20. Questions?

21. Types of Endowments • True restricted endowment – written donor agreement establishes original gift as an endowment and restrict how distribution can be spent • True unrestricted endowment - written donor agreement establishes original gift as an endowment but does not restrict spending • Quasi restricted endowment – funds are designated (or undesignated) as an endowment by the Board; written donor agreement establishes spending restrictions • Quasi unrestricted endowment - funds are designated (or undesignated) as an endowment by the Board; there are no spending restrictions

22. Size of the University’s Endowment(in millions) $1,328 R&V’s AcadDiv True Restricted Endow $ 6 R&V’s AcadDivTrue Unrestricted Endow $ 652 R&V’s AcadDivQuasi Restricted Endow $ 728 R&V’s AcadDiv Quasi Unrestricted Endow $ 403 R&V’s Medical Center Endow $ 41 R&V’s Wise Endow $1,112 Affiliated foundations’ funds at UVIMCO $ 168 Other affiliated foundations’ funds $4,438

23. Distribution Policy • Spending policy has two objectives: • to provide reliable, predictable distributions to support programs • to preserve purchasing power of endowment principal to fund programs in perpetuity • Differing methods are employed; the Board revisits its approach every few years. • In general, goal is to spend between 4% and 6% of the market value.