February 2, 2006
To: Ben Ferrell, ACFB laison
From: Hunter Ellinger
Re: Board policy provisions suitable for ACFB policy-compliance check
One of the items that the Board placed on the ACFB agenda for 2006 was a review of compliance with ACC Board policies on financial and budgeting matters. A preliminary list of potential areas for such a check was distributed to staff and committee members in December and discussed at the January 27 ACFB meeting. It was decided to adopt that list, with minor changes incorporated below, as the basis for this ACFB request to staff for policy-compliance information.
If feasible, we would like to consider the initial staff response to this information request at the planned March 24 ACFB meeting. The provided information at that point need not be organized as a report – we will subsequently develop our report to the Board on this topic, which will incorporate a staff response wherever that is desired. We anticipate that for many of the provisions (e.g., cash reserve levels), it will be straightforward to demonstrate compliance from standard operational reports.
POLICY PROVISIONS FOR WHICH COMPLIANCE INFORMATION IS REQUESTED
A-4 (Tuition Rates)
[3] – The further per-credit-hour differential in tuition rates for students who do not qualify as Texas residents shall be no less than the ratio of all revenues from state government to total credit hours by in-state students.
Comment: FY06 state revenue averages $63 per in-state credit-hour (SCH), and FY06 property taxes average $117 per in-district SCH. This implies that out-of-state tuition should be at least $180 more than the in-district tuition of $39/SCH -- $219/SCH or more. The actual FY06 out-of-state tuition is $189/SCH, $30/SCH below the value indicated by this policy provision.
[4] The
President may adopt rules waiving all or part of the tuition and/or other
charges for senior citizens or students enrolled under a joint-credit agreement
with a school district, with an annual report to the Board on the nature and
extent of such waivers.
Comment: While the Board has clearly been kept fully aware of what tuition is being charged to Early College Start students, the actual policy language seems to authorize waivers for only the narrower joint-credit program, which would exclude courses for which high-school credit was not also being given. Either the policy language or the allocation of waivers should be changed.
[5] The President shall set charges
for non-credit and continuing-education classes that at least cover
operational, indirect, and overhead costs, except where specific programs have
been exempted from these criteria by Board approval.
Comment: Continuing education is shown in the FY06 budget as having $3.5 million of revenue. It is not clear whether this refers to all activities listed in the budget expense detail under the continuing-education dean (with $3.5 million total expense listed), or only to the part listed there as “Continuing Education” ($1.5 million expense listed). It is also possible that other activities (such as sales and services or ABE classes) are included in this department. Since the listed expenses do not include any allocation for overhead or for use of college-owned facilities, more data will be needed to determine if this policy provision is being complied with.
A-5 (Service Area
Responsibilities)
Local tax funds shall not be used to subsidize out-of-district
activities. … The President shall
report to the Board annually the extent and financial results of
out-of-district activities, including an appropriate allocation of fixed and
indirect program costs.
Comment: What is needed here is a copy of the most recent
report, extended if necessary to include the overhead costs referred to in this
policy.
E-2 (Provision of Facilities)
[3] … The facilities
plan shall describe methods and plans to ensure that use of College space is
highly efficient.
[4] The College shall
develop analyses, based mainly on data from exemplary comparable institutions,
to estimate the amount, type, and distribution of facilities appropriate for
current and projected enrollments, program mix, and staffing levels.
[5] As part of the
annual facilities plan, the Board shall be provided a report updating these
analyses, comparing current College facilities usage with desired patterns, and
recommending priorities for facilities development.
[6] The administration
shall provide reasonable estimates, suitable for use in economic analyses of
programs, of the typical annual costs of the various types of facility space
used in College operations, including both operating costs and appropriate
amortization of capital costs.
Comment: The Board received a report on compliance with this
policy at its 1/23/06 meeting, but that report acknowledged failure to provide
much of the mandated information. The
ACFB might focus on recommending priorities for development of the information
asked for (much of which is needed for a full economic model). Implicit in such a prioritization is
identification of any parts of the current policy requirements that are seen as
superfluous.
E-3 (Economic
Analyses) –
[Analyses mandated for large expenditures, must include indirect and
capital costs.]
Comment: What is needed is a list of recent $500,000-or-more
expenditures subject to this policy, with copies of their respective analysis
reports if such reports were produced.
E-5 (Review of Instructional Programs)
Program reviews shall include the following analyses …
[g] comparison of program performance, price,
and enrollment with that of alternate local suppliers, and
[h] direct and indirect program-related
revenues and costs to the College.
Comment: What is needed for the ACFB
are copies of the portions of recent reviews addressing these finance-related
research and reporting requirements.
G-1 (College Budget), especially:
[2] Describes all expected fiscal activity of the District in an integrated form consistent with generally accepted accounting practices, showing what values are predicted for the main financial statements for the budget year based on the proposed budget targets and the most recent estimates for current-year performance.
Comment: For this, a copy of the summary from the FY06 budget
is needed, as well as a copy of the FY05 annual audited financial report
(available in January). Verification
should be straightforward.
[4] Distributes resources primarily on objective criteria based on student enrollment and program needs, and provides a justification or plan for correction of any substantial disparities in the resources supplied to serve students in similar programs at different campuses.
Comment: This is one of the main
areas of policy-compliance interest expressed by trustees, since it touches on
the important management question of how much ACC budgeting is driven by
program needs as distinct from history or favoritism. The first step for the ACFB should be to determine how the ACC
administration currently assesses compliance with this provision, but several
simple analytical approaches are feasible.
Because the departmental-finances spreadsheet already supplied in
support of the economic-modeling effort includes both enrollment and expense
data, it can be used to provide an overview of departmental allocations. Campus allocations can be assessed by
combining enrollment or staffing data with the budget allocations. One informative mechanism would be scatter
plots showing allocations on one axis and an appropriate objective need measure
(such as enrollment) on the other.
Departments with similar needs should fall along straight lines in such
graphs.
[6] Budgets total revenue from recurring sources at least equal to total budgeted expense, including appropriate capital-asset depreciation …
Comment: This also can be verified from the FY06 budget
summary. There is a relevant exception
for transient tuition-revenue losses due to annexation.
[7] Budgets appropriate capital-equipment purchases and facilities … in amounts at least equal to projected depreciation.
Comment: Budgeted FY06 depreciation is listed as $7
million. Budgeted capital equipment is
listed as $5.2 million. Facilities
improvements are listed as $3.0 million, but it is not clear if this is all
capital expense. If it is, the budget
is in compliance with this provision.
Another approach to compliance verification would be to use the audited
FY05 financial statements, in which capital and non-capital items are clearly
stated – these should be available in January.
[8] Provides a recent history and (to the extent feasible) a three-year plan for tuition/fee levels, enrollment, overall revenues and expenses, principal and interest payments, capital-asset expenditures, net-asset levels, and minimum unrestricted-cash levels, with a description of planning assumptions and significant changes.
Comment: The budget summary (or the Master Plan update that
is considered at the same time) should include plans of this kind.
G-4 (Capitalization and Depreciation) – [calls for component-based facilities depreciation]
Comment: The policy revisions developed by the ACFB and
adopted by the Board last year included a mandate that facilities be
depreciated by their various components (which best matches actual economic
costs) rather than as an entire facility over the same period. Has this change been made? If not, why not? If it is not feasible, that should be reported to the Board so
that they can consider appropriate amendment of the policy, which might be
changed to include some other mechanism to promote appropriate patterns of
reinvestment.
G-5 (Implementation of Fees)
[Cost/revenue estimates required for each fee; no fees in
non-subsidized programs.]
Comment: The ACFB should receive a copy of the report on this
topic. It might also point out that
there are few if any non-subsidized programs once overhead is properly taken
into account.
G-6 (Cash Reserves)
[Budget projection for cash reserves minimum during the year must be at least 8% of annual expenses plus accounts payable at that time.]
Comment: The budget should include this projection. Performance in this area could be checked
from monthly operational reports. The
low point of ACC’s annual cash cycle is about December 1.
===
FULL TEXT OF THE POLICIES FROM WHICH EXTRACTS ARE SHOWN ABOVE ===
A-4. TUITION RATES
• The Board of Trustees values ACC’s role as the first point of access to
higher education for many students.
• Consequently, the Board is committed to ACC’s
tuition being the lowest among other local higher education institutions.
• Tuition is intended to cover operational
costs of the district which are not subsidized by State appropriations and
local taxes.
• While tuition, like other operating costs
will rise over time, ACC shall strive to make for minimal increases only
when necessary to support the District operations, to announce increases prior
to the beginning of new academic years, and to remain the lowest-cost local
provider of higher education.
[1] The tuition rates for
in-district college-credit students shall be set by the Board. Except when the
Board explicitly directs otherwise, tuition rates for other students shall be
set by the President in accordance with this policy. To the extent feasible,
general charges shall be assessed as tuition.
[2] To maintain a tuition
differential that is fair both to ACC taxpayers and to Texas-resident ACC
students who live outside the taxing district, the credit-hour differential for
such students shall reflect the local tax effort in support of in-district
students. It shall thus be the ratio of annual property-tax revenues to annual
in-district credit hours. If out-of-district
tuition must be raised to reach this level, the Board may phase in the increase
over time to avoid an unduly harsh impact on out-of-district students.
While financial circumstances may necessitate consideration of tuition
increases, the College will assist students in anticipating increases by
generally approving them only once per year as part of development/approval of
the next year’s annual operating budget. The President is authorized and
encouraged to use any available method to lessen the impact of this tuition
differential on economically-disadvantaged students.
[3] The further
per-credit-hour differential in tuition rates for students who do not qualify
as Texas residents shall be no less than the ratio of all revenues from state
government to total credit hours by in-state students.
[4] The President may adopt
rules waiving all or part of the tuition and/or other charges for senior
citizens or students enrolled under a joint-credit agreement with a school
district, with an annual report to the Board on the nature and extent of such
waivers.
[5] The President shall set
charges for non-credit and continuing-education classes that at least cover
operational, indirect, and overhead costs, except where specific programs have
been exempted from these criteria by Board approval.
A-5. SERVICE-AREA RESPONSIBILITIES
Value Statements
• As a regional institution of
higher education, ACC will monitor regional demographics and respond, to the
extent possible, to the education and workforce development needs of the
communities it serves.
• The College will encourage
out-of-district residents to join it as in-district tax payers to secure the
benefits of lower tuition, increased access to education and training, and more
comprehensive instructional and support programs; in-district tax payers will
have broader access to programs, and services, by virtue of supporting college
operations through local tax support.
The College shall provide programs and services to
residents of its service area, with priority given to sites within the taxing
district. Local tax funds shall not be used to subsidize out-of-district
activities.
All legally-eligible communities are invited to
voluntarily join the College’s taxing district and gain the advantages of
in-district tuition for their students and participation in election of the
Board of Trustees. Except when approved by Board vote, no specific commitments
of facilities or services shall be made to communities considering annexation.
Any such commitments are subject to review and modification by later Boards as
part of district-wide master planning.
The President shall report to the Board annually the
extent and financial results of out-of-district activities, including an
appropriate allocation of fixed and indirect program costs.
E-2. PROVISION OF COLLEGE
FACILITIES
· Facilities planning will be integrated
into the College Master Plan, to ensure alignment with college initiatives and
operations.
· The College is committed to
ensuring that planning for construction, adequate operational support, maintenance, and capital improvements is integrated into
resource planning and allocation.
The President, in the
context of a multi-year facilities plan updated and submitted for Board
approval annually as part of the Master Plan called for in Policy E-1, shall
ensure that facilities are provided and allocated to support effective
instruction, reflect community needs and declared College priorities, and
maximize long-term economic value.
[1] Facilities
planning and allocation shall be driven by regional growth, economic
considerations and responsiveness to the educational needs of students and of
College employees engaged in providing services to students, who shall be
consulted extensively during planning for facilities they will use. In
addition to full provision for needed classrooms, laboratories, and learning
resources, adequate space shall be provided for faculty offices, student
activities, and administrative functions.
[2] The
facilities plan shall discuss the extent of unsatisfied demand due to
facilities limitations, especially when related to programs or functions
previously identified as College priorities, and any geographic demand/supply
imbalances.
[3] Facilities
shall be built and maintained to give good long-term economic value. Care
shall be taken to avoid practices (e.g., short-lived components, undersized
classrooms) in which reduced initial construction costs are more than offset
by increased operational costs. The facilities plan shall describe
methods and plans to ensure that use of College space is highly efficient.
[4] The College
shall develop analyses, based mainly on data from exemplary comparable
institutions, to estimate the amount, type, and distribution of facilities
appropriate for current and projected enrollments, program mix, and staffing
levels.
[5] As part of
the annual facilities plan, the Board shall be provided a report updating these
analyses, comparing current College facilities usage with desired patterns, and
recommending priorities for facilities development.
[6] The
administration shall provide reasonable estimates, suitable for use in economic
analyses of programs, of the typical annual costs of the various types of
facility space used in College operations, including both operating costs and
appropriate amortization of capital costs.
[7] College
facilities-development activities shall be conducted so as to respect other
community priorities, including environmental protection the City of
[8] Fundraising
for facilities by the College and/or in conjunction with the ACC Foundation
shall be for projects including maintenance and renovations that have received
Board approval. Board approval is required to name facilities.
E-3. ECONOMIC ANALYSES
ACC's
decisions are fundamentally driven by pursuit of its mission of community
service rather than of financial gain for itself. Many of its activities of
great value to the community do not generate a net profit to the College, and
many others are close enough to breakeven that their finances have little
strategic impact. But careful attention to the financial implications of
College operations is still necessary to identify possibilities for improvement
and expansion, to ensure allocation of limited resources in accordance with
planned priorities, and to avoid waste. Accordingly:
[1] The President shall ensure that the economic
analyses needed for planning and evaluation are conducted according to
reasonable, clearly-stated principles that are applied in a consistent manner.
[2] These principles shall make appropriate
provision for matching costs with revenues, for recognition and allocation of
indirect and capital costs, and for using appropriate methodologies for
valuation and projection of cost and revenue elements in long term business
analyses.
[3] The level of detail and sophistication of
analyses may be adapted to the size and economic sensitivity of the topics.
[4] Analyses or projections provided to the Board
shall report the sources of the information and the assumptions on which the
analysis is based.
[5] Economic analyses are required for items
involving total expenditures of $500,000 or more, or where otherwise specified
in policy.
E-5. REVIEW OF INSTRUCTIONAL PROGRAMS
Value Statements
• Diversity of instructional
programs, as directed by State mandate, will
respond to multiple needs within the College’s Service Area.
• The challenge of providing
programs which balance the needs of a diverse community within the realities of
limited college resources will be taken seriously.
The President shall implement a comprehensive system
that reviews the effectiveness and efficiency of instructional programs in
light of the College's mission according to an announced schedule. The purpose
of such reviews is to systematically and regularly gather and analyze both
qualitative and quantitative data in order to facilitate the continuous
improvement of each program, to guide resource allocation, and to assist the
administration and Board in making decisions about programs.
Program reviews shall include the following
analyses, as well as any further information needed to meet accreditation or
regulatory requirements:
[a]
relevance of the program to College mission and intended outcomes as declared
by policy,
[b] responsiveness
to community needs and satisfaction of community demand,
[c] accessibility
to students, with identification of unnecessary barriers,
[d] student
outcomes, including participation and successful-completion rates
[e] measures
of program quality and educational value added,
[f] adequacy
of program resources and efficiency of resource use,
[g] comparison of program
performance, price, and enrollment with that of alternate local suppliers, and
[h] direct
and indirect program-related revenues and costs to the College.
Based on the above analyses, the President shall
provide a summary recommendation on program status to the Board, whose approval
is required to initiate or discontinue a program, to substantially change its
scope, or to change it between college-credit and non-college-credit status.
Such approvals shall be primarily based on the extent to which the
recommendation is found to be consistent with principles and goals established
by policy, and the Board will update and clarify its policies as needed so that
they provide a predictable and consistent basis for such decisions.
Copies of reports on program reviews shall be
provided to the Board, faculty, and interested community members.
G-1. COLLEGE BUDGET
Value Statement – The College will budget
limited public funds in an effective manner which is aligned with the mission
of the College.
The President shall, no later than the end of May each
year, develop and submit to the Board and for public review a proposed
comprehensive annual budget, with the intent to have an adopted budget by the
first Board meeting in July, such that it:
1. Demonstrates compliance with all existing
budget-related policy provisions and with debt obligations.
2. Describes all expected fiscal activity of
the District in an integrated form consistent with generally accepted
accounting practices, showing what values are predicted for the main financial
statements for the budget year based on the proposed budget targets and the
most recent estimates for current-year performance.
3. Provides adequate support for the
educational programs of the College, based on efficient operation of both
direct and support services.
4. Distributes resources primarily on objective
criteria based on student enrollment and program needs, and provides a
justification or plan for correction of any substantial disparities in the
resources supplied to serve students in similar programs at different campuses.
5. Budgets revenues and expenses for each
category listed in the budget summary based on actual expected performance,
with comparisons to both budget and current estimates for the previous
year. When there is substantial uncertainty about performance in an area,
the associated budget projection should be moderately conservative; in such
cases, the administration should describe its targets for the area and the
budget effects of the range of plausible outcomes.
6. Budgets total revenue from recurring sources
at least equal to total budgeted expense, including appropriate capital-asset
depreciation, except that transient revenue shortfalls due to annexation may be
funded from reserves, and the amount funded from reserves restored upon receipt
of tax revenues from the annexation. Nonrecurring expenses may be
budgeted to be funded from prior-year surpluses to the extent that the ratio of
net assets to total expenses exceeds the standard declared in the current
master plan (or the prior-five-year average if no standard has been declared).
7. Budgets appropriate capital-equipment
purchases and facilities development for the year, consistent with a multi-year
master plan developed in compliance with policy E-1 on Master Planning, in
amounts at least equal to projected depreciation.
8. Provides a recent history and (to the extent
feasible) a three-year plan for tuition/fee levels, enrollment, overall
revenues and expenses, principal and interest payments, capital-asset
expenditures, net-asset levels, and minimum unrestricted-cash levels, with a
description of planning assumptions and significant changes.
When deemed appropriate by the administration,
capital items in an annual budget may be purchased during the period after
budget approval but prior to the start of the fiscal year.
The President shall inform the Board whenever the
actual performance of the College differs significantly from the approved
budget, and shall propose corrective budget amendments if projected performance
differs from the budget target for increase in net assets by more than ½% of
total revenues.
The President shall provide
the Board a monthly financial report detailing year-to-date expenditures and
revenues against the budget and a monthly revised fiscal-year projection of
revenues, expenses, capital transactions, and cash levels. The external
auditor shall annually review the availability of timely data under the
reporting system and make any recommendations to the President and Board of any
improvement in the monthly reporting system that may be necessary. The
format of monthly statements shall include reports that match that of the
annual budget and the audited annual statement to the extent feasible.
G-4. CAPITALIZATION AND DEPRECIATION
Capitalization and depreciation practices shall
comply with generally accepted accounting practices, and shall provide
information about the useful lives of physical assets for use in financial
planning. Appropriate bond financing shall be used to approximately match
depreciation to reinvestment.
All assets with useful lives of more than one year
and cost more than $500 shall be capitalized. Assets shall be depreciated
over their estimated useful lives using the straight-line method.
Facilities shall be depreciated based on industry-recognized major categories
of building components, rather than by the facility as a whole.
G-5. IMPLEMENTATION OF FEES
[1] Student fees must be approved annually by the
Board, with justifications, revenue/cost estimates, and proposed changes listed
during budget deliberations.
[2] The implementation of a fee shall be guided by a
different principle than tuition. In particular fees shall be assessed to cover
identified costs, not to generate revenue.
(a) No course fee for credit classes shall be
imposed unless it can be clearly linked to materials, laboratories, services,
equipment, or specialized non-classroom-based one-to-one instruction that are
unique to that course. These are completely or partially consumed or used by an
individual student during the semester. Moreover, consumption or use must be in
such a manner that re-use by future students would be adversely impacted or not
possible because of their nature or that requires frequent replacement because
of such use or consumption.
(b) In addition to the reason outlined in 2(a)
above, no course fee shall be imposed unless it can also be demonstrated that
without such a fee, the course would require a subsidy of general revenue
funds. A fee may also be imposed for a credit course for which the college does
not receive state reimbursement
[3] The administration shall provide to the board a
justification based upon these principles prior to the imposition of any new
fee.
G-6. CASH RESERVES
Austin Community College annual budgets shall seek
to maintain, throughout each fiscal year, unrestricted and unallocated cash
levels of at least 8% of budgeted total annual expenses plus total accounts
payable. If unrestricted cash falls below this level, the President shall
present a corrective plan to the Board of Trustees that will fully correct the
shortfall within one year.