The UNC System Board of Governors approved a new concept for a performance-weighted funding model at its meeting Thursday at Western Carolina University. The change, in part, is to better align system and campus goals with the money schools receive from the state.
“This board has wisely revisited a decades-old funding model to better emphasize the core responsibility of undergraduate education and to reward performance: student outcomes,” UNC System President Peter Hans said.
Compensation for the system president and university chancellors already is tied to metrics like reducing student debt and increasing on-time graduation. Now, the campuses themselves will have a similar model.
“Students and families should expect that any good faith encounter with our institutions will leave them better off than when they started,” Hans said.
He said funding model aims to help make that happen.
The board also discussed its “solid financial position” and approved additional money it’s asking for from the state legislature during the short session.
PERFORMANCE-BASED FUNDING
The new model calculates the amount of money allocated by the state based on how well institutions meet state, system and campus policy goals and metrics instead of enrollment growth. Campuses will get more equitable funding for similar instruction.
State money will be allocated per credit hour and only go toward in-state students. Tuition will cover the costs of out-of-state students. The revised model recognizes that credit hours are more valuable to the state if student outcomes are improving.
Schools will also now receive funding for summer courses for resident students.
Chair Randy Ramsey has said the “outdated” funding model incentivized enrollment growth over graduation rates, which contradicts the system’s priority of student success.
One of the problems with the previous model is that research and baccalaureate institutions were funded in the same way, ignoring schools’ distinct roles and identities. The old model also used tuition as a factor, which led to inconsistent state subsidy rates. Schools faced pressure to prioritize graduate over undergraduate education programs.
The way many states fund universities effectively encourages campuses to create graduate programs that generate revenue regardless of workforce or public service needs, Hans said at the meeting.
“We need to stay focused on the goals outlined in our strategic plan like bolstering socioeconomic mobility and meeting critical state needs in fields like teaching, allied health and data science,” Hans said.
The new performance-based model allows campuses to generate revenue by improving performance. It takes tuition out of the equation, which incentivizes campuses to keep costs low for students and their families.
Money has already been allocated from the state in the most recent budget. So for fiscal year 2023, institutions will be funded based on whichever model delivers a higher dollar amount. All campuses will be funded based on the new model starting in fiscal year 2024.
Board member Jim Holmes said the board will continue to review and revise its funding model.
“We consider this to be a beginning, not an end,” Holmes said.
'A SOLID FINANCIAL POSITION'
The 2021 fiscal year was “one of the most challenging” in the UNC System’s history, but it emerged from the pandemic in a solid financial position, Jennifer Haygood said while presenting the latest consolidated financial report. She is the senior vice president for finance and administration/chief financial officer for the UNC System.
The system brought in $12.3 billion in revenue, up 20 percent from fiscal year 2020. The revenue from sales and services was smaller, while gifts, investment income and endowments made up a larger portion thanks to historic market returns. Most campuses use the UNC Investment Fund, which last year had a 43 percent return, according to Haygood.
Expenditures were down overall, and each campus saw increases in net operating revenue.
However, Haygood’s report noted that the revenue streams that drove this financial growth are temporary. Money came from federal and state aid related to COVID‐19, large non-capital contributions and unusually robust investment returns. That emphasizes the importance of maintaining sufficient and flexible reserves for future years, especially as things continue to be impacted by COVID‐19.
ADDITIONAL CAPITAL PROJECTS
The board will finance new construction projects not included in the state budget, including a parking deck for the Holmes Convocation Center at Appalachian State University, a residence hall at Elizabeth City State University and the integrative sciences STEM building at N.C. State University.
The board also allocated $75 million of remaining state funds to cover maintenance repairs and renovations of campus residence halls, academic buildings and roads.
The board approved six new capital projects and authorized increased spending on six existing projects that will be all funded by the individual institutions. The money will allow schools to repair and renovate campus facilities, including the basketball locker room renovation at Western Carolina, Taylor Theatre at UNC Greensboro and the new community and urban food complex at N.C. A&T.
LEGISLATIVE SHORT SESSION PRIORITIES
As the state General Assembly considers adjustments to the recently enacted budget during its short session, the UNC System is advocating for about $57 million of additional funding. That money would go toward enrollment funding, building maintenance, UNC’s K-12 schools and security funding at historically minority-serving institutions after recent bomb threats.
If additional resources are available, the system offers one suggestion for each campus that the legislature could invest in. Those projects include UNC-CH’s School of Data Science, ECSU’s aviation program, research lab equipment at UNCW and a funding match for NCSU’s partnership with the National Institute for Innovation in Manufacturing Biopharmaceuticals.
The report also noted that pressure from inflation is a top concern. Chancellors Randy Woodson of NCSU and Kevin Guskiewicz of UNC-Chapel Hill explained that construction costs and bids are 15 percent to 20 percent more than expected and their buying power is down tens of millions of dollars. They also explained the need for additional salary increases for employees and how the housing market is making it difficult to make competitive offers for top talent.
The board’s next meeting is May 26 at the system office in Chapel Hill.
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