ORIENTATION TO
BUDGET/FINANCE-RELATED ACC BOARD POLICIES
[A] Budget-related
policies need to balance the short-term focus that arises in an institution
with pressing immediate needs.
The old fund-based model of governmental
accounting aggravated this natural tendency by its omission of depreciation with
the resulting confounding of current and capital expenses. The use of long-term bonds for financing
facilities construction helps somewhat, but does not provide a dependable basis
for assessing whether net assets are being conserved in each budget. Mid-term capital investment such as computer
equipment is particularly subject to being inappropriately budgeted, since its
life matches neither the typical 15-year bond term nor the one-year
operating-budget period.
In May 2004, the ACC Board adopted policy
revisions recommended by the ACFB to address these problems. These bring college budgeting policies into
harmony with the FASB34/35 accrual-based practices required for the audited
financial statements. When implemented
(which was not found by the staff to be feasible for the FY05 budget process),
the new policies will provide for appropriate separation of current and capital
expenditures.
[B]
Policy on appropriate reserve levels needs to balance two dangers: disruption
of college operations due to cash shortfalls vis-à-vis loss of political support
and fiscal discipline if the college is seen as hoarding resources provided by
the community for educational purposes.
Reserves
policy should also take into account that ACC’s tuition rates are far below the
maximum-yield level and more revenue can thus be raised with only a few months’
lead-time (no external approval of tuition increases is required), thus
providing a financial robustness not enjoyed by school districts or even by
most colleges. This in turn implies
that an ACC reserves policy should focus on liquidity, not net worth.
The revised policy mandates a minimum cash
balance of range for cash of 8% plus the accounts-payable total throughout the
year. This figure (typically 11% of
annual expenses) is still about double the level that ACFB members felt was
necessary, but is much more reasonable than the previous fund-based reserve
level, which was equivalent to about twice that much.
[C]
Student tuition is one of the areas designated in the policy-governance model
as an area for Board decision (not just approval). The biggest issue has been how much discount to give residents of
the taxing district compared to non-residents (all Texas residents get a
substantial discount). A secondary
issue is the awarding of tuition/fee waivers to selected types of students.
Current policy provides that the surcharge for
out-of-district students be matched to the in-district tax effort, but with an
extended phase-in period. This has led
to ACC out-of-district tuition that is higher than other community colleges,
but still well below that of UT or Texas State. While the trend is inconsistent, the higher tuition may have led
to some depression of out-of-district enrollment (although not net revenue),
but is also a major talking point in encouraging surrounding communities to
join the ACC district through annexation.
Current policy authorizes waivers for current and
retired ACC employees, for senior citizens, and for dual-enrolled high school
students (including those resident outside the district). Waivers have grown substantially in recent
years. Recent legislative changes may
provide more flexibility on tuition rates.
A recommendation
on tuition policy from the FY04 ACFB is currently awaiting Board consideration. It retains the basic principles of the
existing policy but limits out-of-district tuition waivers and suggests that registration
priority be given to in-district students.
[D] The
main budget-policy issues for employee compensation are [i] which comparison
targets to use and [ii] how to reach those targets. The targets specified in current policy are local and regional
comparisons; with the pay target for adjunct-faculty the median for similar
lower-division adjuncts at Austin-area colleges rather than the average at
other Texas community colleges. The
mechanism for reaching the policy-declared targets mandates the allocation of
4% to 6% of revenues each year (or less if that is enough), with priority for
groups more than 5% below target.
II. Policy
provisions with a substantial direct impact on the annual budget
(these are summaries, not direct excerpts
– see the policy manual for exact language)
A-4
(Tuition Rates): Sets the target level for the differential between in-district
and out-of-district tuition based on the average district taxes per in-district
credit-hour, but with the annual progress toward that goal limited to
$3/credit-hour. The differential for
out-of-state students must at least match the average local-plus-state support
per credit-hour for in-state students.
A-4
(Tuition Rates) and F-9 (Employee Benefits): Authorizes tuition/fee waivers for
senior citizens, high-school students, and current and retired ACC
employees. FY2003 waivers are projected
at $2.0 million (5.4% of total tuition/fee revenue).
F-10
(Employee Compensation): Sets targets for employee compensation at the average
of a designated comparison group (which approximately reflects the hiring pool)
for each class of employee. The
comparison group for full-time faculty is similar faculty at other
metropolitan-area Texas community colleges.
The comparison group for adjunct faculty is other Austin-area
lower-division college courses taught by adjunct faculty. Other types of employee are compared to
similar local or regional positions. A
policy provision mandates that salaries not be below “living wage” rates.
The policy provides that whenever compensation is
below the targets, a budget allocation of from 4% to 6% of annual revenues (or
less if that is enough to reach all targets) will be made for raises.
G-4
(Facilities Improvement and Maintenance): Specifies that budget allocations be
made sufficient to meet debt payments and to fund the master plan for
facilities, and dedicates building-fee revenues to that purpose.
G-5
(Capital Equipment Projects): Specifies that from 4% to 6% of revenues shall be
allocated to capital-equipment purchases, with the amount in each annual budget
based on a multi-year capital-expenditure plan. The policy permits lower allocations in years in which the
projected increase in revenues is less than 4%.
G-6
(Minimum Reserve Levels): Mandates that budgets seek to maintain, throughout
the year, unallocated-cash levels of at least 8% of annual expenses plus enough
to pay all accounts payable.
G-7
(Property Taxes): Provides that local property taxes be budgeted at the legal
maximum rate while that rate is below the state average (which will be true
even when the new tax limit is reached in FY2006). The policy also sets a low regular-homestead exemption (the greater
of $5000 or 1% of value) but a high senior/disabled homestead exemption (an
additional $75,000), and includes ACC taxes in the system of
historical-landmark tax reductions. Under
current conditions, this will result in a 9-cent/$100 operations tax plus a
1-cent/$100 bond-payments tax from FY2006 onward.
III. Policy provisions that have a significant
indirect impact on the budget
A-4
(Tuition Rates): charges for non-credit and continuing-education classes are to
at least cover operational, indirect, and overhead costs, except where specific
below-cost sectors have been approved by Board vote.
A-5
(Service-Area Responsibilities): Local tax funds are not to be used to
subsidize out-of-district activities.
E-8
(Auxiliary Enterprises): Activities not primarily oriented to serving students
(e.g., a public golf course) should be operated so as to yield maximal sustained
gain for the College.
F-10
(Employee Compensation): The use of net costs for experience steps as
specified in the policy (rather than the assume-no-replacements gross costs now
used in budget projections) would substantially reduce “lapsed salaries”.
G-4
(Capitalization and Depreciation): This policy requires that capital items
subject to depreciation be depreciated according to their useful lives, which
means that some facilities subsystems (such as HVAC equipment) will be
depreciated over shorter periods than others (such as the building shell). The intention is to make depreciation a
reasonably-good approximation to replacement cost, although this will still be
somewhat understated due to inflation effects.
G-1
(College Budget) – this policy, which was substantially revised in May 2004,
is shown in full below:
COLLEGE BUDGET
The President shall,
prior to the end of June each year, develop and submit to the Board and for
public review a proposed comprehensive annual budget that:
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. 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.
(direct excerpts from the listed policies – see policy manual for
full context)
A-3
(Equal Educational Opportunity): comparative costs to students of ACC and
alternative local providers
A-4 (Tuition Rates): 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.
A-5
(Service-Area Responsibilities): the extent and financial results of
out-of-district activities, including an appropriate allocation of fixed and
indirect program costs.
D-3 (Faculty
Workloads): the recent and projected pattern of faculty courseloads, including
overloads and courseload reductions, and on the recent and
projected level of use of adjunct faculty.
This report shall describe the process by which courseload reductions
are allocated, listing the justifications and the estimated hours of extra work
beyond the standard expectation.
E-2 (Provision of
Facilities): 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. 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.
E-2
(Provision of Facilities): 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.
E-3
(Economic Analyses): 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.
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.
E-5 (Program Review): adequacy
of program resources and efficiency of resource use, comparison of program
performance, price, and enrollment with that of alternate local suppliers, and
direct and indirect program-related revenues and costs to the College.
E-7 (Resource Development): the nature and
results of College resource-development activities. This report shall include comparisons to the performance of other
institutions and shall set targets for following years.
F-10
(Employee Compensation): Projections shall
be provided with the planning/budget proposals of the funds needed for
cost-of-living adjustment, market adjustments, changes in staffing levels, and
the net cost of any experience increments.
orientation material
prepared by Hunter Ellinger – revised October 2004