To: Chancellor’s Joint Cabinet, Campus Unit Finance Leads
From: Nate Knuffman, Vice Chancellor for Finance and Operations; Christopher Clemens, Provost
Thank you for your engagement and feedback on the allocation model over the last several months. The primary goals of this work were to provide more predictability and transparency around resource allocation to academic units and to create a more direct link between revenue generation and distribution. The new model outlined in this memo is a significant step toward achieving these goals.
As is often the case when implementing changes in a large and complex organization, there are still additional details to work through and questions to answer as we work towards implementation. While we heard from your feedback that there is a desire for additional transparency around resource allocation more broadly, we also heard that it is generally agreed that the model should move forward.
We anticipate implementation of this model will distribute significant resources directly to academic units in the first year. We also anticipate that it will likely require some adjustment in how funding is managed and budgeted. To help facilitate this change, we expect to continue to explore the appropriate balance of flexibility and accountability in how funds are used.
With that in mind, we expect the model outlined below will need further refinement over time and availability of data around funding and relevant revenue and expense drivers will be increasingly important.
Beginning in fiscal year 2025, the following direct funding distribution (allocation model) will be implemented on an incremental basis. This means that the current base budget will be used as a starting point and future funding allocations will be based on year-to-year changes in enrollment and tuition rates.
Undergraduate students will be funded on an incremental basis at the following rates:
- The equivalent of 75% of the in-state tuition rate multiplied by the change in full-time equivalent (FTE) undergraduate enrollment. In the first year, funding will be allocated to the home of the student’s primary major (unit of record). An allocation based on all majors is under consideration for subsequent years.
- The instructional portion of the appropriation per credit hour rate, as established by the UNC System Office, will be allocated to the academic unit of instruction.
- 25% of the tuition revenue and the overhead portion of the appropriation per credit hour rate ($136 per credit hour) will be distributed for university administration and academic administration respectively.
- Remaining undergraduate tuition revenue will be allocated to a strategic reserve that will be used to fund the following:
- Support for allocation model implementation in the first year.
- Academic units that are experiencing enrollment declines.
- Strategic investments to support academic units.
Graduate students will be funded on an incremental basis at the following rates:
- 75% of the incremental change in tuition revenue, as impacted by both enrollment and tuition rate changes, will be allocated to the unit that administers the primary academic program.
- The instructional portion of the appropriation per credit hour rate, as established by the UNC System Office, will be allocated to the academic unit of instruction. In alignment with the funding criteria established by the UNC System Office, nonresidents, off-model programs, and the DDS, MD and PharmD programs are excluded.
- 25% of the tuition revenue and the overhead portion of the appropriation per credit hour rate ($136 per credit hour) will be distributed for university administration and academic administration respectively.
All funding will be distributed based on the fiscal year it is received by the University. As such, incremental tuition revenue will be based on the difference in the current and prior fiscal year. Appropriation is received from the state based on the prior two calendar years and will be distributed in the fiscal year that it is appropriated. Applicable rates for fiscal year 2025 can be found here. Rather than all funding being distributed in arrears, a blend of funding that is distributed based on current and prior enrollment change will allow for support for new and growing programs while also phasing reductions in revenue over a number of years if enrollment declines. An ongoing priority during implementation and beyond will be to ensure there is adequate information available for units to plan in advance of the funding distribution. We expect this will be an area that will need close review over the first few years that the model is in place, and the timing of distribution can be revisited if necessary.
As outlined above, the allocation model will be implemented on an incremental basis. This necessitates a decision about the point in time in which it will be effective. In order to recognize that implementation in fiscal year 2025 will be advantageous for some but not others, the first year of instructional funding will be based on the higher of:
- Funding that, absent any implementation considerations, would be distributed for fiscal year 2025 (based on the credit hour change in calendar year 2022 and calendar year 2023).
- The three-year average of what would have been distributed prior to fiscal year 2025 (based on the credit hour change in calendar year 2019 and calendar year 2022).
In recognition that receipt-supported (off-model) programs receive no state support and are priced to cover only the cost of the program with no campus-based tuition component, existing receipt-supported programs may be excluded from the allocation model. A list of these programs can be found here. Executive education and non-credit instruction will also be excluded. Any new receipt-supported academic programs and any programs that transition from being “off-model” to “on-model” will be subject to the allocation model, and tuition rates should be set accordingly.
This initial framework will be supplemented with additional detail over the next few months as we work towards an implementation date of July 1, 2024. There will be an opportunity to continue to refine the details of the model over time as we monitor how well it is serving our needs as a campus. We are committed to providing transparency and accountability related to how the University is using and distributing state funds.
We believe that the results of this process are positive, and we look forward to further collaboration to build upon this progress together.