Foundation Strategies
Effective Resource Development, Allocation, and Management
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Introduction
The university has five major sources of funds to manage its operations: state appropriations, tuition and fees, grants and contracts, auxiliary enterprises, and gifts and investments. During 2002-04, the university experienced a decrease in state General Fund appropriations of 26 percent, or $72 million, due to statewide budget reductions. Although the university experienced a brief slippage in some areas due to accelerated retirements of some senior faculty, it managed to keep growing its overall research expenditures, in stark contrast to what happened during the budget reductions of the mid-1990s. Further, the market decline in early 2000 affected the endowment performance, but significant improvements have been experienced over the past two years.
State Funding
Goal I. Work with the governor, legislators, General Assembly staff, and SCHEV to increase state funding.
The Appropriation Act states that it is the intent of the General Assembly to fund 67 percent of the cost of educating Virginia residents; however, Virginia Tech is currently funded at 55 percent (2005-2006). Further, the current funding proposal for the next biennium would continue this percentage at 55 percent through 2007-08. The commonwealth’s Joint Subcommittee on Higher Education Funding Policies developed the Base Budget Adequacy Model. The funding shortfall for Virginia Tech as computed by the State Council of Higher Education for Virginia (SCHEV) utilizing the joint subcommittee’s model is $25 million for 2005-06, and the shortfall is projected to increase to $30 million during 2006-08. This translates into 2,200 unfunded in-state students. In addition to the Base Budget Adequacy support, the university continues to emphasize increased support for its Agricultural Experiment Station and Cooperative Extension Service as well as additional capital project support.
Strategies:
- Continue to seek full funding of the Base Budget Adequacy Model.
- Increase support for Cooperative Extension Service and Agricultural Experiment Stations.
- Increase support for capital projects.
Private and Other Fund Sources
Goal II. Increase funding from private and other fund sources.
The university previously adopted the goal to significantly grow its endowment by 2013. Based on current projections, the ongoing capital campaign will add about $240 million to that objective. While it is recognized that private fundraising will be critical to achieving the university’s goals, other opportunities to enhance university revenue sources, such as more effective use of the university’s real estate portfolio and a more aggressive approach to marketing intellectual property and service, may yield additional revenue.
Virginia Tech has fared relatively well in recent years in attracting additional federal research funding. For example, federal grants and contracts increased from $71.1 million in 2000 to $112.4 million in 2005. However, all indications are that the competition for federal funds is going to become even more intense for the foreseeable future. The budget proposed by President Bush for fiscal year 2007 gives a strong indication of what is in store for the next few years at least. A primary reason for this outlook, of course, is the large federal deficit. As noted in The Chronicle of Higher Education, “Education and research programs continue to be part of the only section of the federal budget really up for debate. Roughly 84 cents of every dollar the government spends is eaten up by interest on the federal debt, defense and homeland security, and entitlement programs like Social Security.”
Strategies:
- Initiate public phase of capital campaign.
- Enhance foundation and corporate relations initiatives.
- Strengthen governmental relations and federal relations support to generate additional growth in research support.
- Expand and diversify university funding sources.
- Engage and cultivate more alumni through on- and off-campus programs offered by the Alumni Association, colleges, and other constituencies.
Tuition and Fees
Goal III. Establish affordable tuition and fees to ensure accessibility.
As part of its land-grant mission, the university has historically maintained affordable tuition and fees to ensure access to all. The average cost of instruction increased from $7,457 in 1989-90 to $11,826 in 2005-06 at an annual rate of increase of less than 3 percent. In 2005-06, in-state undergraduate students paid 45 percent ($5,297) of the cost of instruction through tuition and mandatory fees; out-of-state undergraduate students paid 141 percent ($16,636) of the cost of instruction. The cost of higher education as a percentage of family income has risen nationally over the past decade, especially for low-income families.
Among public institutions in Virginia, the university provides the lowest total cost, including tuition, mandatory fees, and room and board, for in-state undergraduate students. The in-state student total cost for 2005-06 was $10,834, and the out-of-state total cost was $22,293. Using the same data set, the university is ranked sixth for its total out-of-state undergraduate cost, offering a lower total package cost than the University of Virginia, the College of William and Mary, Virginia Commonwealth University, and George Mason University. The university also provides affordable rates for its graduate students and is ranked fourth for the in-state graduate student total cost and tenth for the out-of-state graduate student total cost.
Increasing student access and affordability to the institution is at the heart of Virginia Tech's “Funds for the Future” program. Virginia Tech’s endowment is currently at $408 million; however, only a relatively small portion of the endowment is directed to the support of unrestricted student financial aid programs. As a result, the “Funds for the Future” program obtains a significant portion of its incremental resources through new state General Fund financial aid allocations, assessing higher tuition rates to all students, redirecting a portion of the resulting revenue to students demonstrating financial need, and using other non-state fund sources. This strategy places increasing pressure on tuition and fees for all students without contributing to the overall quality of the instructional and research programs. Increasing private support for financial aid programs is a significant issue for Virginia Tech.
Strategies:
- Set tuition and fee rates that are competitive relative to other Virginia institutions and Virginia Tech’s peers.
- Continue to support the “Funds for the Future” financial aid program for students.
- Encourage private giving to support financial aid.
- Effectively manage institutional enrollment plans.
Debt Management
Goal IV. Ensure effective debt management.
In order to maintain its Management Agreement Level status (under the Higher Education Restructuring Act), the university is expected to demonstrate management competency as evidenced by either a bond rating in the “AA” range or a two-year history of competency in the areas of finance and capital outlay. At some point in the future, these two goals may become conflicting goals as the issuance of too much debt would result in a lower bond rating. The university’s current Moody’s bond rating is Aa3, with the next lower rating being an A1, which is below the “AA” range.
Strategies:
- Initiate a review of the debt capacity for both the university and the Virginia Tech Foundation.
- Maintain or enhance the university’s double-A bond rating.
- Develop a comprehensive Debt and Risk Management Policy for both the university and the Virginia Tech Foundation.
Performance Metrics
Performance Metrics per the Higher Education Restructuring Act
- Stability of tuition and fee increases over time that measures the percentage of increases from 1990-2005 compared to percentage increases over the six-year planning period.
- Bond rating from rating agencies of double-A or better.
- Annualized investment returns earned on operating cash balances invested by the institution over a rolling three-year period.
- University debt burden ratio that is equal to or less than 7 percent.
- Write-off of bad debts from tuition, fees, room, and board charges that is less than or equal to 1 percent of prior year’s operating revenues over a three-year rolling period.
- Percentage of recovery of delinquent accounts receivable sent to outside collection agencies or litigation that is less than or equal to 10 percent of dollar value of the accounts referred to collection agencies averaged over the past three years.
- Amount of need-based financial aid for undergraduate Virginia students with the trend data being calculated against a 2005-06 baseline.
- Amount of need-based grants for undergraduate Virginia students with the trend data being calculated against a 2005-06 baseline.