Make General Revenue Appropriations for Higher Education Available in Monthly Installments

The state should make general revenue appropriations for higher education available in monthly installments rather than in a lump sum at the beginning of the fiscal year.

Institutions of higher education are funded through a number of sources, including the state s General Revenue Fund. Currently, the entire annual general revenue a ppropriation for higher education institutions and state agencies (except community colleges) is available for expenditure on the first day of the fiscal year. Th is allows higher education institutions flexibility to use their state general revenue appropriation before other sources of funding.

Universities are unique among state agencies because a significant portion of their revenues are generated locally. In addition to appropriations from the General Revenue Fund and revenue from tuition and fees, universities receive funds from selling goods and services to students and may receive funding from the Available University Fund. In addition, medical and health sci ence centers receive substantial revenues from hospital sales and services and professional fees charged by doctors. Currently, universities are allowed to retain their local balances in bank accounts or special funds that earn interest in the Treasury as state general revenue is spent first.

The chart below shows how the ten largest general academic higher education institutions and the Texas State Technical Colleges (TSTC) spent general revenue appropriations and education and general funds (titled E an d G on the chart below) during fiscal 1991. Also, the timing of revenue deposited to the other education and general accounts held in the Treasury is included below. Clearly, the universities take advantage of their ability to spend state general revenue f unds during the first seven months of the fiscal year rather than spending from their local funds. During this period, the universities local funds are accumulating interest while the General Revenue Fund is being tapped and its ability to generate interest reduced.

Ten Largest General Academic Institutions and TSTC Expenditures
and Education and General Revenue: Fiscal 1991
Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug

Increasingly, states are moving away from lump-sum appropriations. For example, Massachusetts and Missouri both provide monthly allotments to their state university systems. 1~ As a matter of good financial management, many states limit the appropriations available to the institutions for spending, since the universities have substantial revenue sources beyond the state appropriations.

A. One-twelfth of the general revenue annual appropriation that universities receive should be made available to them on the last day of each month, except for the first month of the fiscal year (September), when the one-twelfth payment should be available on the first day of the month. Further, the one-twelfth allocation that would be available in the last month of the 1994-95 biennium should instead be made available for expenditure on the first day of the 1996-97 biennium.

Instead of making the entire annual general appropriation available for expenditure on the first day of the fiscal year for universities, the state should make one-twelfth of the annual appropriation available for expenditure on the last day of each month of the fiscal year, except for September of each year, and the last month of the biennium. This would be similar to the process by which the Foundation School Program (FSP) funds are allocated. The ann ual FSP entitlement is allocated in ten or twelve annual payments, and the distribution schedule varies by district wealth.

In cases where universities face dire need for their general revenue appropriations, the Comptroller may grant special authority to individual institutions to access these funds. Higher Education Assistance Fund appropriations would not be affected by thi s recommendation.

B. The Legislature should amend the statutes to require the allocation of appropriations for higher education in the pattern recommended above. This allocation should be made into a special account in the General Revenue Fund.

While the universities would not receive a lump sum payment each month, the funds would be available for expenditure in a predictable pattern. It is anticipated that reimbursements for expenditures previously paid from local funds would be made against th ese monthly allotments as well as other operating expenditures. Shifting the availability of the last month of the 1994-95 biennium s alloc ation into the 1996-97 biennium would allow the Comptroller to predict with certainty that the expenditure of these funds would be outside the 1994-95 biennium, thus increasing the funds available for certification by $171.6 million. The legislature could consider use of this added amount to increase higher education funding or other essential state government services.

This approach would allow a smoother utilization of general revenue versus other resources by the institutions, and it would increase the state s interest income.

This proposal may require universities to spend more of their locally generated funds earlier than they have in previous years. Universities may temporarily experience a decline in local balance reserves as they adjust to the new schedule.

The first monthly allotment for the fiscal year would be made available on the first day of the month of the new fiscal year (September) to allow universities to draw on their general revenue appropriation for expenditures require d early in the fiscal year. Tuition and fee revenue for the fall semester would continue to support the universities during the first months of the fiscal year.

Fiscal Impact
This proposal would yield $214.5 million for the General Revenue Fund over five years.

Fiscal Savings to the Change
Year General Revenue Fund 001 in FTEs

1994 $ 8,575,000 0
1995 180,175,000 0
1996 8,575,000 0
1997 8,575,000 0
1998 8,575,000 0

1 Limited state survey by Robin Jenkins, National Association of State Budget Officers (NASBO) (Washington, D.C., December 14, 1992).