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ED 16
Increase Accountability for Higher Education Funds

Summary

Higher education institutions must estimate their local funding for each upcoming biennium. General revenue appropriations for each institution are calculated by subtracting this estimate from the appropriations indicated under the state’s funding formulas. If the institutions overestimate receipts, they must live with the shortfall; if they underestimate receipts, they may keep the difference. General revenue appropriations to these institutions should be adjusted based on the difference between their estimated and actual income.

Background

The Legislature funds Texas’ 35 public general academic colleges and universities through formulas developed by the Texas Higher Education Coordinating Board. A major component of these funding formulas are educational and general (E&G) funds. E&G funds include tuition (minus deductions allowed by statute, such as tuition exemptions and refunds), lab fees, student teaching fees, organized activity fees, proceeds from the sale of educational and general equipment and other student fees.

The Legislative Budget Board (LBB), as part of the state’s budget process, requires colleges and universities to estimate their E&G income for each upcoming biennium. The LBB relies primarily on the institutions’ own estimate. General revenue appropriations for each institution are calculated by subtracting the E&G income each institution estimates that it will collect during the biennium from the appropriations to which it is entitled under the prescribed formulas. Institutions’ E&G estimates, therefore, are important in determining their general revenue appropriations.

The LBB prepares estimates for each biennial General Appropriations Act about nine months before the act is adopted. For instance, the Legislature probably will adopt the budget for the 2004-05 biennium in May 2003, based on estimates prepared before October 2002. To prepare their budget requests, then, institutions must forecast their E&G income two to three years in advance.

If the institutions obtain more E&G revenue than their estimates, they can spend it; by the same token, they must live with their state funding even if actual E&G income falls below their estimate.

Recommendation

State law should be amended to require the Legislative Budget Board to adjust general revenue appropriations to each general academic institution based on the difference between an institution’s estimated educational & general (E&G) income, as calculated during the previous biennial budget process, and its actual E&G income for the period.

The LBB would make this adjustment in the succeeding biennium after the Legislature has determined an agency’s biennial appropriation. The adjustment would be based on the actual difference between actual and projected E&G receipts.

Fiscal Impact

The estimate is based on the amount of E&G underestimated ($17,100,800) less the amount overestimated ($13,629,700) in fiscal 2000.

To realize these savings, the estimate assumes that the Legislature would reduce appropriations to the institutions in the amount underestimated in each year of the preceding biennium.

Fiscal Year Savings to General Revenue
2004 $3,471,000
2005 $3,471,000
2006 $3,471,000
2007 $3,471,000
2008 $3,471,000