Increase the Accountability of Institutions of Higher Education

State-funded colleges and universities should be held accountable for revenues in addition to state appropriations and for faculty workload.

Though state-funded institutions of higher education are state agencies, there are some features unique to those institutions. Perhaps the most significant distinction is that a substantial portion of universities revenues comes from sources other than state general appropriations.

The mix of revenue sources varies by institution. For all state higher education institutions, approximately 40 percent of all revenues comes from state appropriatio ns, 17 percent from tuition and fees and the rest from other sources (primarily sales of goods, services to students and revenues from medical and health science centers). State appropriations are required to be used for education and general purposes whic h support the basic infrastructure of the institution. Designated institutional funds are used for various purposes. Some student fees, for example, are pledged for debt service, facilities or scholarship funds for needy students, and some professional fee s provide salary supplements, malpractice insurance, hospital research and equipment and continuing education.

State agencies (including universities) are required to submit annual financial reports to the Comptroller of Public Accounts. While state agencies are required to follow Generally Accepted Accounting Principles (GAAP), universities are required to submit financial reports in a format prescribed by the National Association of College and University Business Officers (NACUBO). The Texas Associatio n of State Senior College and University Business Officers (TASSCUBO) is the statewide chapter of the national association.

Neither NACUBO nor TASSCUBO requires universities and colleges to report their locally generated and held fund activity at the same depth and breadth required for state appropriations. Generally, state universities operate on the assumption that the Legisl ature has delegated broad authority to Boards of Regents to budget and set spending policies for locally held funds. There are clea r examples where the Texas Legislature has chosen to allow the universities broader autonomy and flexibility in the administration of certain funds in comparison with others. The Texas Education Code provides that some funds shall be deposited and maintain ed in the State Treasury and that others shall be deposited and maintained in local depositories of the university s choosing. Also, the state s budgeting process explicitly focuses on some funds, more or less coinciding with funds required to be maintained in the Treasury, but not others, mostly coinciding with institutionally held funds.

As a consequence of the flexibility provided to higher education institutions, the programmatic and financial information available to the state is incomplete. For example, over 50 percent of the $2.4 billion appropriated through the formula-driven process for higher education in the 1992-93 biennium is provided for faculty salaries and benefits, but there is little information about the impact of these funds. There are few sources for evaluating the investment the state makes in university faculty.

Other examples of inadequate information on state higher education institutions are evident in recent events at some universities. For instance, one university has reportedly used state funds to pay for plants and flowers in administrators houses, tickets to an opera and membership in a club for one university administrator. Payments for these items were probably made from non-appropriated sources, funds for which the state h as insufficient information with which to assess the appropriateness of various expenditures.

A. A report and analysis of the finances of Texas higher education institutions should be issued every biennium by the Legislative Budget Board, in cooperation with the Governor s Budget Office.

The report should examine the financial health of the institutions and establish a historical context for the current financial status of the institutions, and include a review of the institution s reve nue sources and expenditure patterns. Administrative costs at higher education institutions should be examined as part of this review to ensure that higher education operations are efficient. The report should also serve as a benchmark for estimates of loc al education and general income for the revised formula funding process proposed in another recommendation in this report.

B. An audit of faculty workload at Texas higher education institutions should be completed by the State Auditor to provide more information on how the majority of higher education appropriations are used.

There are few occasions when faculty workload has been reviewed. Such a review of how the state-appropriated funds support faculty would provide valuable and unique insight into how the majority of higher education general revenue appropriations are used.

Universities may be required to report more information on their finances than they are currently required to report. Further, instead of just reporting financial statements submitted by universities, the Legislative Budget Office and the Governor s Budget Office would be required to analyze and review the financial data, with help from the State Auditor s Office and the Comptroller of Public Accounts.

Since the Texas Performance Review is also recommending that education and general income other than general revenue appropriations be included in the formula funding process, this annual financial report would also be valuable to validate the estimates of education and general funds other than state appropriations made for the formula funding process by the Legislative Budget Office and the colleges and universities.

The scope of the faculty workload report should be determined by the State Auditor in association with the Comptroller of Public Accounts, but should include current data and a historical context. For example, the report should include analyses of items li ke: the number of graduate and undergraduate classes tenured faculty teach by discipline, the number of classes non-tenured faculty teach by discipline, faculty to student ratios in classrooms by faculty rank and discipline. This should be published in a report and made available to the Legislature and the Higher Education Coordinating Board to help the m in their projections of funding faculty salaries.

Fiscal Impact
Colleges and universities, the Governor s office and the Legislative Budget Board would incur some additional costs in developing the information required in this recommendation. However, since the information is already developed in most cases, this burden would be minimal. The recommendation would provide the budget agencies with better information to analyze the appropriate level of higher education appropriations.