Board Action Item
Approval of MnSCU Allocation Model
BACKGROUND
When the Minnesota State Colleges and Universities developed its first budget as a newly merged system (1995-1997), each of the former systems (community colleges, state universities, and technical colleges) agreed to use their former allocation formulas for distribution of state appropriation and tuition. These formulas have grown in complexity over time and do not provide the flexibility needed for MnSCU colleges and universities to drive change. They also work against the vision of MnSCU as a single, interconnected system of institutions working together to serve Minnesota.
In spring 1996, the chancellor appointed a committee of college and university presidents assisted by fiscal staff from the system office and several MnSCU institutions to develop a new allocation model for the system. Aided by external consultants, this committee recommended an allocation model that was subsequently approved by the Council of Presidents and forwarded to the chancellor.
Several core principles guided the presidents and the chancellor in development of the new allocation model.
- a single model should be implemented to replace the three models that have been in place for years;
- the model should be initiated with minimum disruptiveness to MnSCU institutions; and
- the model should put into place a framework for systematic progress toward performance-based funding and increased accountability for MnSCU.
The model takes the next step toward system integration by instituting a single, blended allocation process for the three former systems. Stability at the institutions is ensured by providing a means for recognizing a range of weighted student credit hour costs. The model drives change by
- ensuring that institutions that exceed 110 percent of the average of student credit hour costs for two-or four-year institutions will not receive additional base appropriation;
- providing a "reallocation fund" to bring institutions that are less than 90 percent of average costs up to the average over a multi-year period; and
- providing for institutions to keep tuition revenue to encourage additional entrepreneurship at the college or university.
The proposed allocation model provides for distribution of state appropriation for all MnSCU institutions. Institutional costs to deliver education are described by "weighted student credit hours." This is calculated by applying regionally benchmarked program cost data to the student credit hours generated by each institution. This initial calculation provides the baseline from which subsequent state appropriations can be passed on to colleges and universities.
The chancellor has proposed that the model serve as the means of distributing approximately 93% of the estimated available state appropriation for MnSCU colleges and universities. In addition the Chancellor has recommended the creation of the following performance based pools:
- 1% for System wide Strategic Goals and Initiatives
- 1% for Institutional Innovation and Change
and a special pool for aiding certain institutions:
- 1% for Re-allocation in support of the institutions below 90% on the model
The advisory group of presidents and the chancellor has also identified certain programs and activities presently funded by special formulae. These programs, which represent approximately 4% of the estimated available resources, will be distributed to institutions using methods other than the principle allocation model proposed here.
The model also supports the chancellor and board's commitment to performance based educational leadership. The commitment includes strengthening performance based resource allocation, identifying and rewarding efficiency and productivity and driving change throughout the MnSCU system. The chancellor's System wide Strategic Initiative in concert with the Continuous Improvement Fund will provide the overall framework for identifying and advancing educational leadership with the allocation model providing a prudent resource allocation environment. The chancellor, in consultation with the Council of Presidents, will continuously monitor the implementation of the allocation model.
RECOMMENDATION
The Board of Trustees approves the allocation model recommended by the chancellor and attached as Exhibit A. The Board further directs that the chancellor return to the Board in September 1997 with a FY1999-2003 plan developed with the following principles:
- the plan will distribute state appropriation only, tuition revenues will remain with the institutions;
- the plan will calculate institutional costs on the basis of dollars per weighted student credit hour calculated with state appropriation only;
- the plan will include provisions to move all institutions offering more than 50,000 weighted student credit hours within +/- 5 percent of the state wide average;
- the plan will include provisions to move all institutions with less than 50,000 weighted student credit hours within +/-10 percent of the state wide average;
- bench marking information will be collected which allows comparable institutions to be compared on the basis of cost;
- bench marking information will allow examination and annual adjustment of the weighting factors used in the model based on actual experience; and finally
- the plan will provide for an increase in the performance based and re-allocation pools from 3 percent to 6 percent in FY1999. It is the Board's intention to review the allocation model annually.
Date of Adoption: December 18, 1996,
Model Design Elements
Performance and Re-allocation features are included in the model.
Five year Implementation Plan for modification of the model.
Initial model design includes the following features:
- Discipline group weights that range from 1.0 to 3.0, with lower division high cost weighting of 2.5
- Placement on the range for determination of the statewide average cost per weighted credit hour is calculated on state appropriation plus tuition revenues
- Statewide averages are calculated after grouping similarly sized institutions
Model Financial Elements
Allocation Pools are implemented as follows:
- 93% of the estimated available state appropriation for MnSCU colleges and universities will be distributed through the allocation model.
In addition, four other Pools are created:
- 1% for System wide Strategic Goals and Initiatives
- 1% for Institutional Innovation and Change
- 1% for Re-allocation in support of the institutions below 90% on the model
- 4% by means other than the allocation model. The advisory group of presidents and the chancellor have identified certain programs and activities presently funded by special formulae. These programs, which represent approximately 4% of the estimated available resources, will be distributed to institutions using methods other than the principle allocation model described above.
