Finance and Planning

Finance and Planning

TO: Financial Officers

FROM: David Woodward

DATE: November 19, 2012

SUBJECT:FY14-FY16Budget Manual

The budget manual reviews the university’s policies, procedures and forms for the entire operating budget development process. The process revolves around three meetings of the university’s Board of Trustees. In November, the Board discusses preliminary strategic planning assumptions such as tuition growth rates, enrollment, salary merit increases, deferred maintenance and endowment distributions. In February, the Board reviews the financial situation and issues for the upcoming fiscal year based upon “pro-forma” budgets submitted by schools. The Board endorses undergraduate tuition rates and enrollment targets as well. In May, the Board approves the final university budget.

There are three major milestones for school fiscal officers:

1. Pro-forma Budgets (due December 4 to 12 depending on school)
2. Final Budgets (due February 28)
3. PeopleSoft Upload(dueMay 31)

The attached manual is organized around these three milestones (pages 4, 6, and 9, respectively).

A complete calendar for the budget process is provided at the beginning of this manual. Please plan accordingly. Your cooperation will help us meet critical dates and facilitate the decision-making process with the President, his senior staff, and the Trustees. Please do not hesitate to contact Rock Rottler (x73715) or me (x76068) if you need assistance or have any questions. Thank you for providing complete, accurate and timely submissions.

UNIVERSITY BUDGET MANUAL

TABLE OF CONTENTS

BUDGET PROCESS

1. Calendar...... 3
2. Pro-forma Budgets...... 4
3. Final Budgets...... 7
4. Budget Upload to PeopleSoft...... 8

POLICIES AND PROCEDURES BY LINE ITEM

1. Revenues...... 8
2. Expenses...... 9

III. Transfers...... 11

APPENDIX

A. Budget Assumptions

B. Budget Upload Format

BUDGET PROCESS

I. Calendar for FY14-FY16 Budgets

Between November and May, the Office of Finance & Planning (F&P) works with school and central office administrators to prepare budgets for the Trustees and for entry into PeopleSoft. Major milestones throughout the planning process are listed below. Critical submission dates for schools appear in boldface.

Nov 2A&F Trustee Committee reviews preliminary planning assumptions

Nov 19F&P budget manual (O&M, Central Assessment, DM, Endow, Merit/Fringe)

Nov 20Fiscal Officer meeting / Executive Budget Committee meeting

Nov 20Central departments submit final budgets to F&P

Nov 27–Dec5Preliminary meetings for schools, EVP, VP Finance, and F&P staff

Dec 4-12Schools submit FY14-FY16 pro-forma budgets (based on meeting date)

Jan 4Operations submits revised FY14–FY16 budget package

Jan 11Executive administration reviews central (including operations) budgets

Jan 18Schools submit December projections

Jan 25Mailing to A&F Trustee Committee (budget perspectives/summary analysis)

Feb 8A&F Trustee meeting (endorse AS&Etotal student charges)

Feb 8Final operations, endowment, bad debt/salary accrual budgets available

Feb 25Fiscal Officer meeting (tentative date)

Feb 28Schools submit proposed final budgets to F&P

Mar 25–Mar 29Deans, President and executive administration review budgets

Apr 10–Apr 19F&P prepares University package for executive administration review

Apr 17Schools submit March projections

Apr 22-Apr 26Executive administration approves budget

May 3Mailing to A&F Trustee Committee

May 17A&F Trustee Committee approves budgets, tuition rates, enrollments

May 28Fiscal Officer meeting

May 31Schools submit budget uploads for PeopleSoft

BUDGET PROCESS

II. Pro-forma Budgets

Pro-forma budgets enable executive leadership to discuss a preliminary university budget with Trustees in February. Peer-tuition comparisons are discussed as well. Given the significance of undergraduate tuition revenue and the entering class admissions process, Trustees are asked to endorse AS&E’s undergraduate total-student-charges increase and enrollmentfor the upcoming fiscal year.

Pro-forma budgets are due one week after each school’s preliminary budget meeting with the Executive Vice President, the Vice President for Finance, and staff from Finance & Planning. Preliminary budget meeting and pro-forma due dates are shown below.

SchoolPreliminary Budget MeetingPro-Forma Due Date

TischNovember 27December 4

FriedmanNovember 28December 5

EngineeringNovember 28December 5

A&SNovember 30December 7

DentalDecember 4December 11

FletcherDecember 4December 11

HNRCADecember 4December 11

MedicalDecember 5December 12

CummingsDecember 5December 12

Pro-forma budgetsubmissionshave six components:

• financial officer narrative
• operating statement (with supporting budget detail)
• profile data
• peer data
• carry forward budgets
• clinical and other educational activities (if applicable)

A folder in each school’s shared drive budget directory contains a “master” excel file with separate tabs for the operating statement/budget detail, profile, peer, and clinic schedules. Each of the sixcomponents of the pro-forma budget is described below.

A. Fiscal Officer Narrative

Each fiscal officer submits a narrative that provides a general description of the school’s plans, initiatives,andchallenges along with explanations of significant changes inline items of revenue, expense and transfers. FY 2012 actuals and approved FY 2013 budgets should be included for comparison. Assumptions for major categories such as tuition, enrollment, and research should be listed and any issues that are critical to the proposed three-year budget should be discussed. The pro-forma narrative should serve as an early draft for the final fiscal officer narrative that will accompany the final budget submission in February.

B. Pro-forma Operating Statement (with supporting budget detail)

Each school will find in its shared drive a file titled “(school name) Master File 2014 – 2016.” The tab in this file labeled “Budget Detail” is provided to help you develop the FY 2014 budget. Data in the “Budget Detail” tab will automatically populate the “Operating Statement” tab. For your December submission, please complete the “Budget Detail” tab and confirm that the “Operating Statement” tab has the total revenue, expense, and transfer amounts you intend. Instructions for completing the “Budget Detail” tab are as follows:

FY14 Program Change

Using your three year plan for FY14-FY16, enter the dollar impact of all FY14 program changes in column 4 by line item of income or expense. Column 4 should contain not only the dollar impact of program additions or deletions, but also adjustments to the FY13 base budget reflecting realignments since the budget was approved by the Trustees in May, 2012. These adjustments should reference any ongoing changes represented in the FY12 year-end actuals that were not budgeted. Any figures (income or expense) contained in columns 4 must be explained in column 8.

FY14 Economic Change

Economic changes (column 5 below) should measure only the dollar impact of non-compensation inflation, merit increases, and fringe-benefit-rate changes. Changes to line items that vary from the university’s budget assumptions (see Appendix A) must be explained in column 8.

FY15 and FY16 Budgets

The FY15 and FY16 budgets (columns 9 and 10 below) are estimates of costs (including inflation) to provide planned programs in those fiscal years. Any adjustments that differ from the budget assumptions in Appendix A must be explained in column 11.

C. Profile Data

Using the “Profile Data” tab in your school’smaster excel file, please provide the following data for FY12actuals, FY13approved budget, and FY14-FY16pro-forma budgets as available:

• tuition rates (by program) and percentage increases
• other fees such as room, board, application, etc.
• planned enrollment by program
• selectivity and yield admissions statistics (see University Fact Book)
• undergraduate financial aid as a percent of total student charges
• percent of students receiving aid and average award for those students
• indebtedness upon graduation
• faculty and non-faculty FTE
• faculty salary increase pools with equity funding pools, if budgeted
• student / faculty ratio
• endowment market value per student

Please ensure the data are consistent with data provided to the Office of Institutional Research & Evaluation and with past approved budget years.

D. Peer Data

Using the “Comparative Data” tab in your school’s master excel file, please provide key competitive information, measured for the current year and one year ago.

Tuition and Fees

Display tuition and fees per student and, if available, the percent of students receiving financial aid and the average aid award for those students. Display mean and median of selected peers as well. Please footnote pertinent detailsor explanations of any unusual data or trends.

Test Scores

These data measure incoming grade point average or other appropriate test scores. Include the mean and median of comparative institutions.

Admissions

These tables display data on competitor institutions whereapplicants to your school also applied and were accepted, along with selectivity and yield statistics.

Outcome Data

If available, outgoing test scores or other outcome data are tabled here for your school and key competitors. Examples may include: LSAT, GRE, board scores for health professionals, employment placement rates upon graduation.

E. Carry Forward Budget

Schools are asked to provide a budget for all carry forward deptids. Using the carry forward report, budget anticipated changes to revenue, expense (including financial aid), and final balances. Details should be summarized to match each line on the operating statement.

F. Clinical and Other Educational Activities

If applicable, update the clinical activities tab in the master budget file with department detail. The tab supports any clinical and other activities revenue and expense budgets and should reconcile to the operating statement totals for revenue and expense for FY12 actuals through the FY16 budget.

CAPITAL BUDGETS

This year, the timetable for the capital budgeting process was modified to include additional updates and reviews during the summer and fall. The capital plans presented to the Provost and Executive Vice President this fall are now undergoing further analysis in order to arrive at a university-wide plan through FY 2017. To ensure that the capital and operating budgets are properly integrated, fiscal officers need to identify projects that impact operations, include the impact in the pro-forma submission, and identify the project and amount of impact in the fiscal officer narrative. If you have any questions please contact Ann Hunt at x73061.

BUDGET PROCESS

III. Final Budgets

The Office of Finance Planning uses each school’s final budget to develop the university’s total budget for Trustee approval in May. Complete budgets are due on or before February 28, 2013. The final budget package should include an update to each of the six components of the pro-forma submission and add the following two components:

• Dean’s narrative
• roster of budgeted positions

These componentsare described below.

G. Dean’s (or HNRCA Director’s) Narrative

The Dean’s narrative is a summary of the school’s strengths, weaknesses, opportunities, threats and strategic plan for FY 2014 through FY 2016. The narrative should include references to critical budget factors such as capital projects, new programs or initiatives, tuition and fees, enrollments, financial aid, admissions statistics, other primary revenue sources, strategic faculty hires, staff additions or changes, faculty merit increases, and other support. As a guideline, the narrative should be about 3-5 pages in length.

H. Roster of Budgeted Positions and Merit Analysis

Rosters provide compensation budgets by individual position and by the various pools (e.g., equity, merit, adjunct faculty, student, overtime, fringe benefit) that may be used to manage compensation. Please note, this year a new account code, 5030 “Vacancy Savings,” is available to schools if you choose to budget as a credit any anticipated vacancy savings. Please budget all approved positions and use the vacancy savings code if you anticipate savings from unfilled positions. The total of the roster budget should equal thetotal of all compensation account codes (50xx) that will be uploaded to PeopleSoft in June. Roster data should include the following:

The Office of Finance & Planning is committed to working with each school to develop a roster in the format above by February 28th.

BUDGET PROCESS

IV. Budget Upload to PeopleSoft

The final step in the budget development process is to upload the budget into PeopleSoft. Each school should submit the budget upload file to Finance and Planning no later thanMay 31st(see Appendix Bfor instructions) and notify Mary Beth McHugh (x76836 or ) once your submission is complete. If you require new deptids for FY14, please submit a deptidcreate form to Mary Beth before submitting the upload file containing the budget for the new deptid. This will ensure that the budget will be accepted into PeopleSoft. Also, if you are responsible for anyallocationsorrecurring entries,you should contact Mary Beth torevise, create or deleteas necessary before the start of the new fiscal year.

UNIVERSITY BUDGET POLICIES AND PROCEDURES

This section provides guidance for budgeting individual line items for revenues, expenses, and transfers. Significant deviations from these guidelines should be identified in your school’s narrative.

I. Revenues

Tuition and Fees

Schools should consider the following factors when budgeting tuition and fees:

• the program’s position in the marketplace
• national applicant pool trends, school applicant acceptance and matriculation trends
• changes in or newly added degree, summer or other programs
• extraordinary programmatic needs
• level of student financial aid required

Grants and Contracts

Schools should apply the following guidelines when budgeting grants and contracts.

• work with principal investigators and their grant managers to determine a realistic level of external funding (including the private grants that are discussed below)
• request input from Grants & Contracts Administration and Sponsored Program Accounting to determine new and changing funding of grants and contracts
• confirm that the budget for sponsored income equals the sum of sponsored direct expense (total revenue = total expense + financial aid)
• apply indirect cost rates developed by Finance Planning(see Appendix A) where appropriate and adjust for grants that are not able to fund the authorized rates
• budget through FY16use-allowance at the rates of 16.6% for the Medford campus and 15.5% for the Health Sciences campus
• the narrative should identify the sponsors, grants in hand as a portion of budget, and recent trends regarding the percent of proposals that have been successful.

Clinical, Other Educational Activities, or Auxiliary Enterprises

Clinical and other activities include revenues derived from the sale of goods or services that are produced in conjunction with the school’s mission of instruction, researchand public service. Auxiliary activities include revenues derived from the sale of such ancillary services as dining, dormitories, conferences, bookstores, and health services. Eachoperateswithin the following guidelines.

• each activity should at least break-even unless directly associated with the success of the academic program or other strategic purpose
• activities will be fully costed, including O&M, debt service, and deferred maintenance

Contributions

In conjunction with Advancement, each school will define itsindividual annual and capital fundraising goals. Gift categories are divided intounrestricted (annual fund) and restricted gifts (carry forwards). Advancement willprovide proposed annual fund goals for the FY14-FY16 timeframe. Revenue from temporarilyrestricted funds (“Release from Temp Restricted Contributions”)should fund anequal amount of expense (including financial aid).

Endowment Spending Policy

Endowment spending, or payout, policy is developed by the Investment Committee of the Board ofTrusteesand approved by the full Board on a periodic basis. The current policy increasesspendingby 3% per year, with adjustment ifthe rate is not within 4.5% to 5.5% of the average endowment market value onDecember 31st andJanuary 31stof the prior fiscal year. Endowments whose market values are less than their book values are consideredto be “underwater.” Payouts fromunderwater endowmentsarereduced by an amount that depends on thedegree to which the fund is underwater per the university’s tiered spending policy. Karen Pepper (x72201) will provide endowment estimates for FY13-FY16 to each school inFebruary.

II. Expenses

Faculty Merit Increase - CONFIDENTIAL

Each school competes for faculty in its own regional and national markets and will recommend to the President and administration appropriate salary pools. Along with annual merit, faculty budgets should include anticipated expenses for retention, equity and other adjustments.

NonFaculty Merit Increase - CONFIDENTIAL

In early October, the Human Resources Office developed estimates for the non-faculty merit increase pools based on market and employment data. The preliminary recommendation for FY14 is a university-wide annual merit pool average of 2.5%. The preliminary assumption for both FY15 and FY16 is also 2.5%. An additional 0.5% should be budgeted for other salary adjustments. If schools do not budget the 0.5% discretely, fiscal officers should explain how these expenses will be funded in the narrative.

Employee Fringe Benefits

University policy is to remain competitive in our total compensation package. The preliminary unrestricted fringe benefit rates for full-time employees will be 28.75% in FY14, 29.50% in FY15 and 30.50% in FY16. The part-time rate will be 8.3% from FY14 to FY16. We continue to monitor the changes in the health care industry to ensure appropriate levels of funding. The budget assumptions (see Appendix A) contain both the unrestricted and restricted rates.

Institutional Support (or central assessment)

The central assessment approximates the costs the university incurs for central departments (e.g., Human Resources, Finance, UIT, Advancement) net of central revenue (e.g., investment income). Beginning FY14 and phased-in over five years, a new methodology has been adopted for budgeting central assessment. Former multiple assessments (e.g., technology, excess assessment, structural deficit) have been consolidated into a single central assessment that is allocated to schools based on each school’s share of the university’s trailing three-year actual gross operating revenue (ending fiscal FY12). Each school’s pro-forma central assessments, excluding an adjustment for excess assessment,appears below assuming a central assessment annual increase of 5.0%. Schools will be notified if this preliminary rate increasechanges.