Ferris State University Employee Leadership Development Program

1
Ferris State UniversityEmployee Leadership
Development Program

• Financial Management at FSU
• Budget Fundamentals
• Budget and Planning Overview
• December, 2008

2
Session Overview

• Budgets/Budgeting
• What is a Budget?
• Budget Management
• Public University Budget Fundamentals
• Budget Function
• Pots of Money
• FSU Budget Overview
• Planning at FSU
• Planning and Budgeting Exercise

3
Operational Budgeting

• What is a Budget?
• Who budgets?
• How are budgets developed?

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What is a Budget?

• Plan
• Roadmap for the future
• Control
• Monitored, spending curtailed when needed
• Commitment
• Promise to deliver services, employ people, etc.
• Performance Measure
• Assessing performance on deliverables

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Planning and Budgeting

• Processes are directly linked
• Plans influence budgets
• Budgets influence plans
• Dynamic activities
• Internal and external forces influence
  planning and budgeting on an ongoing basis
• Statement of businesses priorities
• Resources reallocated from low- to high-priority
  needs

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Whos Involved?

• Planning and Budgeting must be directed from the
  top
• CEO/President
• Widespread Involvement
• Major unit heads (Vice Presidents)
• Financial team
• Individual employees
• Expertise in their areas

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How are Budgets Developed?

• Past Experience used to Project the Future
• Annual financial statements
• Prior year budget compared to actual experience
• Generally incremental in nature
• Based upon Planning Assumptions
• Projected Revenues
• Sources of revenue
• Tuition/State Funding
• Anticipated changes
• Enrollment/New Initiatives/External Support

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Key Fiscal Analysis Tools

• Constant analysis of the fiscal health of an
  organization is crucial to success
• Monthly budget comparisons
• How are we performing compared to budget
• Fiscal comparison over time
• How are we performing compared to prior years?
• Competition
• How are our competitors improving their bottom
  line?
• Indicators of health and success (Assessment)

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Annual VS Strategic Budgeting

• Annual Budget
• Very specific
• Best estimate of fiscal activity for the year
• Strategic (Long-Range) Budgets
• Provided to support long-range planning
• Usually three- to five-years in length
• Allows entity to plan for the future

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Operational VS Capital Budgeting

• Operational budget is annual, recurring
  categories of revenue and expense
• Capital budget is the plan for expending large
  amounts for facility improvement/ replacement.
• Funded through cash flows or borrowing
• Michigan Universities 75 State/ 25
  institution
• Funding restricted for capital project involved

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Budget Management Policy

• What is it?
• Why have it?
• What does it do?

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What Is It?

• Institutional policy that
• Delegates authority for use of budgeted resources
• Delineates who is responsible for budgeted
  resources
• Prescribes manner in which resources can be used

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Why Have It?

• Provides common rules for use of budgeted
  resources
• Important to have written rules to avoid
  confusion
• Everyone manages from the same set of rules
• Specifies accountability for the use of budgeted
  resources
• Details who is responsible (and therefore
  accountable) for use of those resources

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What it Does

• Provides Policy Guidelines
• What resources are subject to the policy
• Who can make budget adjustments
• What happens if budgets are overspent
• Not allowed by policy managers are responsible
  to ensure that spending is held to
  approved resource levels
• What resources are not available to managers
• Those that are administered centrally, rather
  than at the unit level
• Identifies Authority
• Who has authority to amend the policy, who is
  responsible for what resources, etc.

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Budget Management Policy Overview

• Unit resources (except centrally controlled
  employee benefits) are available at the
  discretion of the vice president who has the
  ability to
• Reallocate budgets among and between units in
  that division
• Carry any unused balances at the end of the year
  over to the new year

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Carryover Decision

• Some universities do not allow for the carryover
  of unused budget amounts into the new fiscal
  year. Few allow for the total amount to be
  carried forward.
• Reasons to allow for carryover include
• Reduces volume of spending activity at the end of
  the fiscal year (units spend it rather than
  losing it)
• Allows those resources to be used in a planned
  value-added way
• Good management tool when resources are tight

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Centrally Controlled Resources

• University-wide budgets administered centrally
• Items that are more global in nature and are more
  volatile to outside economic change
• Thus administered centrally to provide greater
  flexibility in responding to unplanned change
• Employee benefits
• Utilities
• Scholarships
• Insurance

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Summary

• Policies are necessary to ensure appropriate use
  of institutional resources
• Must be updated regularly to respond to
  institutional changes
• Kendall merger
• Must be shared openly so managers have easy
  access
• Web http//www.ferris.edu/htmls/administration/bus
  polletter/bpl0001.htm

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University Budgeting Concepts
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University Models for Budget Function

• Central planning activity reporting to the
  President
• Central planning activity reporting to
  Provost or VP Business/Finance
• Non-planning activity reporting along
  traditional lines as a finance or control
  function

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The Budget Function at FSU

• Prior to the 1980s, Ferris had traditionally
  housed the budget function as a sub-component of
  the control function
• There was no planning or development focus within
  that organizational structure
• Ferris was growing steadily, without need for a
  formal fiscal planning effort

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State Funding Challenges

• In the early 1980s, the State of Michigan faced
  economic decline affecting all State units,
  including higher education
• Higher education received unplanned, in-year
  State funding cuts each year from FY 81 through
  FY 84
• The impact on Ferris was one that required
  immediate fiscal analysis and planning, an
  activity which had been given little attention
  prior to this time

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FSU Response

• Budget function better defined
• Established a budget office providing much
  greater planning for the operating budget
• More direct reporting line to the President
  established

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Defining the Budget Function

• This definition of the budget as a planning
  function identified four basic fiscal functions,
  and the appropriate administrative
  distribution of those functions
• Budget Development (Planning)
• Budget Allocation and Analysis
• Fiscal Control of the allocated resources
• Audit

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Rationale for FSU Structure

• Budget office is not a major consumer of
  resources therefore, has no vested interest in
  budget decisions
• Provides the link between short-term operational
  planning and long-term strategic planning for the
  University
• Budgetary and strategic planning both need to be
  administered at the policy level

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Ferris State University Budget Overview
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FSU Budget Fundamentals

• Ferris is a major industry
• customer base of over 13,000 students
• 1,500 full-time employees
• Annual revenue of over 230 million
• Ferris is the largest employer in Mecosta County
• Locations across the State
• Ferris has an annual payroll of over 110 million

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Where do Ferris Dollars Come From?

• State of Michigan
• FSU is a public university, supported in part
  through State budgets
• State operating appropriation
• State capital appropriation
• Students
• Tuition and Room/Board
• Books and Supplies
• Public
• Grants, Contracts, Gifts
• Consumers of products and services (golf course,
  etc.)

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FSU Operating Funds

• General Fund Primary support from State of
  Michigan and student tuition supports academic
  mission of the University
• Designated Fund Supported from gifts and grants
  for designated purposes
• Auxiliary Fund Self-supporting operations of
  the University (housing, dining, golf course,
  etc.)
• Expendable Restricted Restricted State and
  Federal Grants and Contracts

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FSU Non-Operating Funds

• Student Loan Fund
• Provides students with the means to help meet
  their financial obligations in obtaining their
  education. Major sources of revenue are private
  gifts and government grants
• Endowment Fund
• Amounts for which the donor or Board of Trustees
  has specified that the principal may not be
  expended. Interest income used to support
  operations.

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FSU Non-Operating Funds

• Plant Fund - Consists of Four Units
• Unexpended Appropriations - records assets
  available for new construction or major
  repairs/renovations
• Reserve for Maintenance and Replacement
• Reserve for Debt Service
• Physical Properties - Value of physical
  properties
• Agency Fund
• Represents funds held in custody for students and
  University related organizations.
• Ferris Professional Women
• Residence Hall Association

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Current Operating Funds Revenues - FY 2008 - 232
Million
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General Fund Detail

• Largest of the operating fund groups
• Supports the major activity of the University -
  Instruction of Students
• The State of Michigan and Student tuition are the
  primary support of the General Fund operation

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State of Michigan Budget FY 2009 - 43.9 Billion
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State of Michigan Spending9.7 Billion General
Fund/General Purpose Budget - FY 2009
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2008-2009 University Appropriations (Millions of
Dollars)
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2008-2009 1.5 B University Appropriations
59 to the Big 3 universities!
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FSU FY 08 General Fund Spending
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Ferris FY 09 General Fund Operating Budget -
172 Million
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FSU General Fund Revenue Perspective
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State Appropriation Process
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Appropriation HistoryFinancial Statement Amounts
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Appropriation Decline

• Between FY 2002 and 2009, Ferris State base
  operating appropriation was reduced by 5.3M
  (10)
• University cut budgets by over 10M
• Mid-Year FY 2007 6.1M (12.5 of the FY 07 total)
  was delayed or eliminated
• All but 844k later repaid
• FY 2008 approved at 300k less than the initial
  FY 2007 appropriation
• FY 2009 1 increase reduction pending

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State Funding and TuitionRate of Change
Inverse Relationship between State Funding and
Tuition
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Calculated Appropriation per FYES (Student)FY 01
through FY 09
Appropriation payments per student have declined
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State Appropriation per FYESFY 01 Indexed for
Inflation Compared to Amount Paid
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10-Year Tuition IncreaseResident, Undergraduate
taking 15 Credits
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Tuition and State Dollars per FYES Indexed to
Inflation
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FY 09 University Budget

• Budget reallocations of 1M
• State increase of 1
• State increase in jeopardy
• Tuition increase of 6.3

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Current State Budget Status

• State appropriation approved
• State economy not improving
• Governor has announced first wave of executive
  order budget reductions
• Higher education spared in first round
• Further reductions contingent on Federal stimulus
  package to states

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FY 2010 State Budget Requests

• Capital Outlay Request
• Priority 1 Health and Human Services facility
  (40M)
• Priority 2 College of Technology (50M)
• Operating Appropriation Request
• 4 inflationary increase
• MPSERS relief
• Emergency Preparedness
• Need-Based Scholarship Assistance
• Michigan Workforce Training
• Environmental Sustainability

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FY 2010 State Budget Issues

• Operating Budget Policy Issues
• Research and Teaching University Separation
• Higher Education Funding Formula
• Issue of new legislators learning curve
• Further Appropriation Reductions
• Tuition Restraint
• Michigan Public School Employees Retirement
  System
• Tuition Incentive Program Scholarships

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FSU Concerns

• States ability to fully fund FY 2009 approved
  State appropriation to Higher Education is
  questionable
• State economy not improving
• New taxes still being implemented
• FY 2010 will be worse fiscally than 2009

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Michigans Economy

• Michigans Recent Statistics Lowest or near
  lowest in all categories
• Personal Income Growth
• Unemployment Rate
• Employment Growth (decline for Michigan)
• Index of Economic Momentum (Population, Personal
  Income, Employment)

Source Citizens Research Council of Michigan
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State General Fund Revenues
Source Senate Fiscal Agency
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Reasons for Sluggish Growth

• Increasing senior citizen population retirement
  income not taxed and they spend less on goods
• Consumption tax is goods oriented growth will
  be in services
• Flat rate income tax
• Some revenues dont grow much (tobacco,
  gambling, alcohol)

Source Citizens Research Council of Michigan
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Michigan Beyond 2009

• Spending pressures grow 6.5 per year
• Baseline revenues grow 2.8 per year
• Revenues grow unevenly due to Earned Income Tax
  Credit and Income Tax increase phase-out
• Average revenue growth reduced to 1.5 per year
• Shortfall averages 5 per year
• Policy changes required

Source Citizens Research Council of Michigan
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Source Citizens Research Council of Michigan
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State Policy Options

• Reduce Rate of Spending
• Corrections incarceration policies reduce health
  care cost rate of increase
• Increase Revenue Growth
• Broader service tax tax retirement income
  graduated income tax
• Combination of Options

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• Ferris State Planning

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University Planning

• Strategic Plan approved by Board of Trustees on
  November 7
• Implementation
• Strategic Alignment Planning
• Align Division and College planning with
  University Plan
• Unit Level Planning
• Unit activities to support plans

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Strategic Alignment Planning

• Goals of SAP
• Assist units in setting goals and initiatives
  supporting their mission
• Assist units in evaluating and deciding on
  priorities
• Establish a record and accountability for
  progress
• Provide fiscal resources as may be needed

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Division/College Planning

• The Universitys Value, Mission, and Vision
  statements guide process
• Divisions will establish Mission statement or
  statement of purpose supporting University
• Broad (3-year) goals to guide the units in that
  division will be developed and approved
  (collaboratively)
• Colleges develop broad (2-year) goals
• Stable, multi-year goals
• Focus on collaboration

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Unit Level Planning

• Unit planning aligns with the University
  Strategic Plan and Division and College/Unit
  goals
• Goals
• Units identify long-term goals, with start and
  completion times
• Goals should be prioritized
• Action Steps
• Goals are realized through concrete action steps
  to achieve them
• Actions steps are supported by rationale,
  assessment data, program review, advisory board,
  or other recommendations
• Units should identify ways they can fund action
  steps however some action steps may receive new
  funding

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SAP Implementation

• By September 2009, all divisions and colleges
  complete review of mission statement or statement
  of purpose
• Long-term goals should be identified
• By February 1, 2010, units will complete their
  goals consistent with above
• In the 08/09 cycle, unit planning will be aligned
  with the University Strategic Plan while
  college/unit goals are being developed
• The 2010/11 planning cycle will reflect alignment
  with divisional and college goals

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FY 10 Planning

• While divisions and colleges are developing
  alignment plans, annual planning for FY 10 needs
  to also take place
• Process this year will be based on the broader
  University-wide strategies and goals while
  unit-level goals are being developed

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FY 10 Planning Timeline

• Departments forward plans to the college/unit by
  February 1
• Colleges/units forward approved plans to vice
  president by March 1
• Vice presidents forward divisional plans to the
  President by March 15
• Presidents Council reviews and makes decisions
  by April 1

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Strategic Alignment Planning and Unit Level
Planning
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Web Reference

• Presidents Office Site
• http//www.ferris.edu/htmls/administration/preside
  nt/
• Planning Information
• Budget Information
• Budget Terms and Definitions
• Budget Management Policy
• http//www.ferris.edu/htmls/administration/buspoll
  etter/bpl0001.htm

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Exercise in Fiscal Planning

• Break into groups
• Background information
• Planning and Budgeting Exercise
• Discussion of value of planning

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Thank You for your Attention!Questions?