Evolution from State Funds to
All Funds Budgeting
UC System-wide Academic Business Officer Group (ABOG) Annual Conference
Teresa Costantinidis
Associate Vice Chancellor – Budget and Resource
Management
4/13/2015
In higher education we are faced with a somewhat
compelling burning platform
Think
Tanks
Employers
Special
Interest
Groups
Journalists
Federal
and State
Officials
2
Higher
Education
Parents
and
Students
Our stakeholders believe colleges must be held
accountable and subject to more regulations . . .
Tuition is too high
Completion rates are
unacceptable
Universities refuse
to control costs
Student debt burdens
are outrageous
3
We fail to prepare
students for their
careers
Higher education has been likened to a commodity
4
Why are they suddenly so interested in us?
It is mainly about the money
5
There are four key financial buckets where we as business officers can
really make a difference
FINANCING
OPERATIONS
INVESTMENTS
Revenues
Assets
Expense
Net Position
Liabilities
Change in
Net Position
We have a long list of ways to improve things
Approaches
7
§  Management of working capital
§  Cost of instruction
§  Management of reserves
§  Gift assessments
§  Management of debt
§  Indirect cost recoveries
§  Change management
§  Budget models
§  System improvements
§  Dashboards
§  Reporting templates
§  Enterprise Resource Management
§  Business analytics
§  Leadership training
§  Faculty FTE management
§  Long-term financial planning
§  Cost per course
§  Strategic planning
§  Metrics
§  Cash investments
§  Enrollment management
§  Philanthropy
UCSF Financial Overview
3/12/2015
All Funds Budgeting is just another approach to looking
at how we manage this thing called “Finance”
Why this is happening
What our history is at UC
Problems with keeping a limited view
What we get from moving to a new model
A description of some options
Challenges we might face
The eventual outcomes
8
Moving to all-funds budgets is a natural response to the on-going
decline in State funding for public higher education
Our history
§  UC has been gradually moving from a State-funded institution to an
institution funded by multiple sources. In the 1980’s, the University of
California had almost $25,000 per student from the State General Fund.
Now even though we have ~$2.5 billion state general fund budget in a $26
billion operation, state funding for students is closer to $11,000 per student
and the students and their families have been asked to pay much of the
difference.
§  A few years ago we prepared an “all-funds budget.” Though it was
based upon past reality, as a “budget” it was really a fiction, put together to
satisfy the interests of an individual member of our Board of Regents.
§  Since then, we have come to realize that we really do need to talk about
and think about all the money.
9
California’s support for higher education keeps dropping
UC’s Share of the State Budget, Universitywide
1966-67 to 2011-12
http://accountability.universityofcalifornia.edu/2012/index/1.4
10
Over time, most public universities have seen a steady
decline in financial support
11
If you focus your budget process on just one or a limited
set of funds, you can fail to see the big picture
Challenges
§ Available discretionary fund balances are often not taken into
account
§ It is hard to compare units to each other
§ Activities that are funded from other fund sources are often
ignored
§ Other assets like Funds Functioning as Endowments are
hidden
§ State funds need to be spent in their entirety, so there are
little to no discussions of prudent reserves
§ Financial stakeholders are often confused and frustrated
Fund numbers are important
14
Fund type tells us where our money comes from
Typical examples
Tuition
•  Students, _______________
Appropriations
•  State Agencies, _____________
Research support
•  Federal Government, ________
Private support
•  Donors, _____________
Auxiliary income
•  Students, _____________
Sales and service
•  General Public, _____________
Interest income
•  Endowments, _____________
Pop Quiz! What institution is this?
A Gift from Aunt Mary: $10 to help pay for $100 dinner
17
If you focus only on the $10, you get a rather skewed
view
But remember, Aunt Mary cares a lot
about her $10, and you should, too
18
All Funds Budgeting is a mechanism to help you make
more strategic resource allocation decisions
•  Characteristics:
–  It ties more easily to your overarching mission, vision,
goals, and objectives
–  As we look at large problems over the longer term, it helps
us make sure we are considering all possible sources
–  We can achieve a greater understanding of an
organization’s finance, and therefore increased
engagement
–  Leaders are held more accountable for achieving
objectives
19
Colleges and universities approach budgeting in various ways
Incremental
Zero
Based
HIGHER
EDUCATION
BUDGET
MODELS
Performance
Based
Initiative
Responsibility
Center
Activity
Based
Incremental budgets are typically adjusted by a
percentage
CHARACTERISTICS:
–  base budgets are not revisited
–  assumes existing budgets are
appropriate
–  maintains the status quo
–  easy to administer
–  not linked to plans or priorities
“California State University (CSU) will
receive a General Fund augmentation
of $125.1 million, equal to a five
percent increase in the University of
California's 2012-13 General Fund
support budget.”
—California State Governor’s Budget, 2013-14
Zero-based budgets are built from scratch each year
CHARACTERISTICS:
– 
– 
– 
– 
– 
allocations are based on total estimated need
assumes no history
identifies activities and determines total costs
promotes decision-making driven by desired outcomes
are sometimes used in limited form in higher education
“. . . Because 80 percent of most universities’ budgets are
dedicated to salaries for ongoing faculty lines, a broadscale implementation of zero-based budgeting does not
make sense for most, if not all, higher education
institutions.”
—The Use of Zero-Based Budgeting in Higher Education,
University Leadership Council, April 19, 2009
Activity-based budgeting focuses on the costs of a
desired outcome
CHARACTERISTICS:
–  allocates funds to perform specific desired outcomes like
teaching a course
–  requires detailed data for in-depth cost analysis
–  the overall cost of a department, and expense categories
are less important
–  intended to drive specific accomplishments
“The activity-based budget model can support a centralized management model, a
decentralized one, or a combination of the two. It simply offers information about
financial performance within and between academic units for the people making
decisions.”
—David P. Szatmary
Activity-Based Budgeting in Higher Education, Continuing Higher Education Review, 2011
Initiative-based budgeting allocates funds for a special
purpose
CHARACTERISTICS:
–  funds are allocated for specific new projects and activities
–  often follows strategic planning and a competitive proposal
process
–  involves one-time funds rather than on-going
–  has a follow-up assessment process to ensure effectiveness
“Initiative-based budgeting is not a
comprehensive budget model. It is a
structured approach to the establishment of a
resource pool for funding new initiatives or
enhancing high-priority activities.”
—Larry Goldstein
College and University Budgeting, NACUBO: Washington DC,
2005
Responsibility-centered budgets are becoming
increasingly popular
CHARACTERISTICS:
–  individual units control the
revenue they generate
–  increases in activities lead
to automatic flow of
resources and costs to the
units that do the work
–  in exchange they are
responsible for paying for
direct and indirect
expenses, i.e. taxes
–  central cost centers are
funded from those charges
“Interest in responsibility center
management among public
universities is soaring, with more
than 21 percent of public doctoral
institutions reporting that they use
the RCM model”
—John R. Curry, Andrew L. Laws, and Jon C. Strauss
NACUBO Business Officer, January 2013
Performance-based budgets provide funding based on
defined outcomes
CHARACTERISTICS:
–  increasingly legislatively
mandated for public
institutions
–  focused on results not
revenue
–  provides increased
transparency
–  analysis and therefore
funding commonly occurs
after-the-fact
“Inappropriate measures can be worse
than no measures at all because they
can incent the wrong kinds of
behaviors.”
—Bill Gates, Technology Advisor, Microsoft
NACUBO Annual Meeting, July 2014
Higher education institutions often use a hybrid of several models,
even in an all-funds budget environment
Incremental
Zero
Based
HIGHER
EDUCATION
BUDGET
MODELS
Performance
Based
Initiative
Responsibility
Center
Activity
Based
Here is what UCSF leaders are asked to do in our all
funds budget process:
•  Identify key opportunities and challenges related to the teaching, research, and clinical mission
•  Identify key internal issues related to personnel, retention, and succession planning
•  Provide organizational highlights including proposed changes to programs or services,
organizational changes, and other changes from last year
•  Highlight strategic initiatives that are included in the five-year forecast. Initiatives should align
with strategic priorities and either increase revenues, decrease expenses, improve service, or
support UCSF’s mission
•  Provide an all-funds five-year financial forecast including revenues, expenses, and reserves;
the forecast should be realistic and include current activities and likely actions; include potential
upside opportunities and downside risks providing an estimate of the impact and mitigation
plans to reduce risks
•  Include potential strategies to reduce any funding gap through revenue growth or expense
reduction initiatives; provide specific information regarding required resources, timelines, and
financial impact
•  Include potential strategic initiatives not in the financial forecast but important to support
UCSF’s mission
10 year prospec,ve proforma
Dollars in 000's REVENUES: General State ICR Clinical Sales & Service Tui,on & Fees Philanthropy Sponsored Project Revenue Interest and Investment Income Other Revenue Patent 2013-­‐14 Forecast 2014-­‐15 Plan 2015-­‐16 Plan 2016-­‐17 Plan 2017-­‐18 Plan 2018-­‐19 Plan 2019-­‐20 Plan 2020-­‐21 Plan 2021-­‐22 Plan 2022-­‐23 Plan 2023-­‐24 Plan 78,830 80,407 82,015 83,655 85,328 87,035 88,776 90,551 92,362 94,210 96,094 21,236 21,588 22,079 22,811 23,709 24,713 26,124 27,780 29,672 31,987 34,742 589,791 611,011 638,336 670,823 700,620 732,035 765,252 800,131 836,037 874,171 914,220 63,483 66,142 68,788 71,539 74,401 77,377 80,472 83,691 87,038 90,520 94,141 17,384 17,384 17,384 17,384 17,732 18,086 18,448 18,817 19,194 19,577 19,969 144,343 148,666 153,129 157,725 162,459 167,336 172,358 177,531 182,860 188,348 194,001 955,610 977,903 1,005,624 1,042,933 1,082,410 1,124,971 1,169,195 1,215,161 1,262,072 1,311,843 1,364,230 17,047 17,410 17,824 18,247 18,682 19,127 19,583 20,050 20,530 21,021 21,525 45,441 46,528 47,642 48,784 49,954 51,153 52,383 53,643 54,935 56,259 57,616 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 Total Revenues 1,937,566 1,991,439 2,057,221 2,138,301 2,219,695 2,306,232 2,396,990 2,491,756 2,589,099 2,692,337 2,800,938 EXPENSES: Faculty Salaries 480,960 506,955 534,596 561,457 591,671 624,847 656,873 697,054 732,945 770,736 810,708 Non-­‐Faculty Academic Salaries 186,731 193,621 201,290 209,982 218,877 228,021 237,362 247,133 257,204 267,715 278,687 Faculty Benefits 99,080 111,589 119,972 128,573 137,790 147,962 158,303 170,815 182,844 195,979 210,108 Non-­‐Faculty Academic Benefits 31,429 34,270 36,521 39,078 41,796 44,684 47,750 51,056 54,652 58,524 62,697 Staff Salaries 294,005 301,805 309,865 320,196 330,920 342,235 355,014 368,391 382,344 396,963 412,344 Staff Benefits 110,770 122,079 128,245 135,387 143,041 151,221 160,302 169,917 180,073 190,833 202,265 Sponsored projects-­‐ subawards 133,150 133,728 134,737 136,335 137,955 139,598 140,670 141,604 142,548 143,503 144,467 Sponsored projects-­‐ F&A recovery 165,474 169,050 174,041 181,445 190,545 199,203 209,448 218,866 227,199 236,140 245,611 Occupancy & U,li,es expenses 24,848 27,093 27,906 28,743 29,605 30,493 31,408 32,350 33,321 34,321 35,350 Assessments expense 24,962 34,711 35,752 36,825 37,930 39,067 40,239 41,447 42,690 43,971 45,290 Supplies and materials 111,500 118,528 124,767 130,432 136,975 142,480 148,330 154,409 160,816 167,580 175,024 Services 176,906 185,043 191,299 197,772 204,467 211,392 218,557 225,968 233,635 241,566 249,771 Scholarship / Fellowship 24,344 24,772 25,212 25,664 26,127 26,603 27,092 27,594 28,109 28,638 29,182 Other Expenses 3,842 3,957 4,076 4,198 4,324 4,453 4,587 4,724 4,866 5,012 5,162 Total Expenses 1,868,000 1,967,199 2,048,281 2,136,086 2,232,023 2,332,259 2,435,936 2,551,330 2,663,246 2,781,480 2,906,666 Income/(Loss) before Transfers In/(Out) 69,566 24,240 8,940 2,216 (12,328) (26,027) (38,945) (59,574) (74,146) (89,144) (105,728) TRANSFERS IN/(OUT): Transfers-­‐ other 23,481 17,881 16,281 14,281 14,281 14,281 14,281 14,281 14,281 14,281 14,281 Transfers-­‐ capital outlay/equipment (8,232) (12,941) (12,413) (12,908) (13,425) (13,967) (13,344) (13,939) (14,561) (15,213) (15,804) Increase/(Decrease) in Total Fund Balances 84,815 29,181 12,808 3,589 (11,471) (25,713) (38,008) (59,231) (74,426) (90,075) (107,251) FUND BALANCES: -­‐ -­‐ -­‐ -­‐ -­‐ -­‐ -­‐ -­‐ -­‐ -­‐ -­‐ Unrestricted Fund Balances-­‐ Beginning of Year 506,274 540,812 548,730 544,172 529,824 504,859 469,351 425,484 364,982 293,242 209,459 Unrestricted Fund Balances-­‐ End of Year 540,812 548,730 544,172 529,824 504,859 469,351 425,484 364,982 293,242 209,459 112,335 Restricted Fund Balances-­‐ Beginning of Year 367,943 358,220 379,482 396,849 414,785 428,279 438,074 443,933 445,203 442,517 436,226 Restricted Fund Balances-­‐ End of Year 358,220 379,482 396,849 414,785 428,279 438,074 443,933 445,203 442,517 436,226 426,099 Total Fund Balances-­‐ End of Year 899,032 928,213 941,021 944,610 933,138 907,425 869,417 810,185 735,759 645,684 538,434 What are some of the issues and challenges?
Things to consider
•  A mix of budget models is still typical
•  It helps to strengthen your financial systems and your financial
skillsets
•  You should provide multi-year allocation estimates and planning
assumptions
•  It requires continuous education
•  Private restricted gift fund balances will continue to be a
struggle . . . just keep talking
•  Try to make a sensible budget timeline
At UCSF, even though state funds make up 3.6% of our
budget, our timeline is still driven by the state budget
Month January 13 February 10 March 10 April 14 May 12 June 9 23 July August September October November December Presentations to Leadership • UCSF Debt • Governor’s Budget Proposal • Strategic Initiative Funding • Deficit Reports and Process • Endowment Fund Balance Reports and Process • Q2 Financial Results • Real Estate Update • Indirect Cost Recovery • UC Path Costs • IT Roadmap Approval – Decision • IT Security • Capital Plan Update • Core Financial Plan Update • Q3 Financial Results • Capital Plan Approval – Decision • TBD 10 • UCOP Assessment Allocations – Decision • State Budget Update • FY Financial Results • 10-­‐Year Plan Update • Core Financial Plan Update • Q1 Financial Results • Regents Budget Update • Budget Planning Guidelines – Decision Key Budget Planning Events • Governor’s Budget Release • Chancellor’s Budget Call 23 • Campus Budget Meeting with President 15 • Funding Requests due • Governor’s Budget May Revise 8 15 24-­‐25 30 •
•
•
•
•
Review funding proposals Control Point Business Plans due Chancellor’s Executive Council Retreat Fiscal Close State Budget Act Deadline • President’s Allocations • Chancellor’s Allocations • Regents Budget Presentation What are some of the outcomes of an all-funds budget
process?
Good things
§ Budget allocation decisions are made with a view to all available
sources and uses
§ We have increased confidence that we are maximizing the utility
of all of our funds
§ Depending upon the budget process selected, you can
incentivize actions to maximize revenue and reduce costs
§ You enhance distributed accountability and improve long term
financial sustainability