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Posted December 15, 2005

The Restructured Higher Education Financial And Administrative Operations Act (HB 2866 and SB 1327)

In its 2005 Session, the Virginia General Assembly, with the support of the Warner Administration and Virginia's institutions of higher education, adopted legislation to make Virginia's public colleges and universities more efficient, more competitive, more accessible to Virginia students, and more accountable to tuition-paying parents and taxpayers. The legislation establishes a framework by which unnecessary bureaucratic red tape will be reduced and Virginia's public institutions of higher education will have enhanced ability to plan for the future and manage their operations more efficiently, all of which will benefit students, parents and taxpayers. The legislation grants institutions additional authority over financial and administrative operations, but only after they make certain commitments to the State and only with appropriate accountability.

  • All institutions, not just a select few, are eligible for additional authority.
  • All institutions will remain public institutions, and their employees will remain state employees.
  • All institutions will continue to be governed by the current processes administered by the State Council of Higher Education for Virginia ("SCHEV") for determining student enrollment projections and educational policy (e.g., new programs).
  • SB 1327 and HB 2866, which became effective July 1, 2005, establish the framework for granting this additional authority. Actual authorities are embedded in a "management agreement" approved by the governor and the General Assembly. The governor approved management agreements for Virginia Tech, the University of Virginia, and the College of William and Mary to the General Assembly for its consideration during the 2006 session.

Recognizing that our public institutions of higher education have different capabilities and resources, the amount of additional authority to be granted will be based on each institution's ability to manage itself. This additional authority falls into three levels:

Level 1

This additional authority is available to all institutions.

  • The authority may be exercised as soon as the Board of Visitors of an institution adopts a Resolution agreeing to make certain commitments to the State with regard to such issues as student access, affordability, a broad range of high-quality academic offerings (including those in high need disciplines), appropriate student progress toward their degree, transfer agreements with uniform application to the community college system, assistance to underperforming elementary and secondary schools, university-based support for economic development efforts, and an increase in externally funded research. Virginia Tech qualifies for this authority.
    • Performance criteria for measuring whether an institution is meeting these commitments have been developed by SCHEV, with input from the Administration, the General Assembly, and the institutions, and are part of the Governor's introduced 2006-08 budget bill.
    • Following an evaluation period, institutions that successfully meet their commitments also will receive certain financial incentives, including receiving the interest on their tuition and fees that are deposited with the State.
  • In addition, an institution wishing to be granted this additional authority must submit a Six-Year Institutional Plan, to be updated every two years, addressing its academic, financial, and student enrollment plans for that six-year period. This is a new requirement that is critical to proper planning for the State, the institutions, and parents and students.
  • Institutions will continue to exercise the authority to set their tuition and fees, as they do now under current law. But so the State, parents, students and the institutions can better plan for the future, institutions must include anticipated tuition and fee increases in their six-year institutional plans, and take them into account in their financial aid programs. In addition, they must discuss the impact of potential increases with the Virginia College Savings Plan (the State's prepaid tuition plan) so that future contracts can be priced appropriately.
  • The additional authority available to institutions that meet these eligibility criteria includes additional authority to dispose of surplus property, to acquire and grant easements, to enter into certain leases, to exercise additional authority regarding nongeneral fund capital projects (available only to certain institutions that currently have an agreement in place with the State), and to use a locality's building official, rather than a state official, for certain capital project inspections and certifications, an exemption from certain fees related to sole source procurements, and an exemption from certain reporting requirements regarding information technology equipment and procurements.

Level 2

Each institution is authorized to apply to the Administration to enter into a "Memorandum of Understanding" ("MOU") that would grant the institution additional operational authority based on criteria developed and approved as described above.

  • The purpose of the MOU process is to relieve institutions of certain bureaucratic red tape and oversight to the extent they can demonstrate the ability to manage themselves on a "post-audit" accountability basis rather than the current "pre-approval" basis.
  • This MOU process will be similar to the "decentralization" programs and "pilot projects" that have been available for up to a decade to certain selected institutions. MOUs will be developed on an institution-by-institution basis and will depend on an institution's ability to demonstrate the capacity to exercise additional operational authority.

Level 3

Institutions that meet certain eligibility requirements will be permitted to enter into a negotiated Management Agreement with the Commonwealth "to assume full responsibility for management of the institution" in the areas of financial operations, capital projects (except the pre-appropriation process for general fund capital projects), leases, procurement, and human resources, and to "be fully accountable" for meeting all the requirements of the Management Agreement and Virginia law.

  • To participate, an institution must meet all the obligations described above for Level 1 and either (i) have at least a AA- bond rating (and therefore have demonstrated to an outside third-party its management ability and financial stability) or (ii) meet certain performance criteria that are to be developed and approved as described above and that demonstrate the institution's financial and operational ability to be fully responsible for the management of the institution.
  • As they do now under current law, Level 3 institutions, like all other institutions, will continue to set their tuition and fees. They also will be subject to the same conditions set forth above for all other institutions, including the requirement for a Six-Year Institutional Plan that includes anticipated tuition and fee increases. That Six-Year Institutional Plan becomes part of the Management Agreement to be negotiated with the Executive Branch and approved by the General Assembly as described above.
    • In addition, each Level 3 institution must include its "commitment to meet all remaining financial need above the level that the Commonwealth has stated as its goal [for State funding] in § 4-5.01 of the appropriations act" (currently 50% of remaining need).
  • If the Governor determines that an institution is not in substantial compliance with its Management Agreement or Virginia law, he must give the institution an opportunity to take corrective action according to a plan that is satisfactory to the Governor and has been shared with the General Assembly. If after a reasonable period of time he determines that the institution is not yet in substantial compliance, the Governor may void the Agreement.