7-10-98 TRUSTEES APPROVE BUDGET FOR FISCAL YEAR COLUMBUS -- The Ohio State University Board of Trustees on Friday (7/10) approved the university's current funds budget for fiscal year 1998-99. The board also authorized spending $10 million for continued implementation of the university's human resources and financial computer systems, and examined university investment policies. Trustees approve fiscal year 1999 current funds budget Trustees approved an operating budget for the 1998-99 fiscal year, which began July 1, that focuses funding to enhance the quality of the education and campus experience for students. William J. Shkurti, vice president for finance, told trustees that the three cornerstones of the budget are continuing to improve the quality of academic programs, improving the quality of the student experience inside and outside the classroom, and strengthening the university's financial position and promoting revenue growth. The total university current funds budget -- which includes general funds, earnings operations and restricted funding -- is projected to increase by 6.4 percent from $1.64 billion to $1.75 billion. The general funds operating budget is projected to increase 3.7 percent to $670 million, including a 2.6 percent increase, to $305.5 million, in the state's instructional subsidy and a 4.8 percent increase, to $280.8 million, in student fees, which have been adjusted slightly downward for enrollment declines partially attributable to the impact of the economic crisis on the university's Asian students. The budget plans a reserve of $1 million to ameliorate the impact of enrollment fluctuations. The operating budget includes a $1.5 million reduction in state subsidy from previously appropriated levels. Even so, the budget represents the fourth consecutive year of budget stability since achieving budget equilibrium in fiscal year 1995. "During this period, significant funding increases have been provided to support academic priorities," Shkurti said. "This has been achieved in an environment where undergraduate tuition has been capped by the state, federal funding interrupted and enrollment, as planned, has continued to decline." In addition to the subsidy cut and uncertainty about the impact of the Asian economic crisis on enrollments, issues that could present financial challenges to the university during the coming year include uncertainty about primary and secondary school funding in Ohio, growing market pressure to remain competitive on faculty and staff salaries, and the university's aggressive list of unmet needs and continuing commitments. In accepting the budget, trustees approved a 2 percent increase in general and instructional fees for resident undergraduates on top of the 4 percent hike that was approved at the June 5 meeting. State law requires that two votes take place on tuition increases greater than 4 percent. In keeping with past university practice, a portion of the tuition increase will be set aside for student priorities, including $500,000 in one-time funding for ResNet, a project giving every student in every residence hall room (where 85 percent of new freshmen live) access to high-speed Internet service. An additional $770,000 in continuing funding will be spent on other student initiatives. General fund expenses also will increase 3.7 percent to $670 million, including a 5.1 percent hike to $80.5 million, in the amount of money that is returned to students in the form of financial aid directly from the university. Unit budgets will increase 3.7 percent to $501.9 million, which includes faculty, staff and student salaries and benefits. Trustees approved in May a 3.5 percent increase to the salary pool. Spending on support of research will increase by an inflationary 4 percent to $26.1 million and spending on new buildings and reducing deferred maintenance of university assets will increase 4.6 percent to $41.1 million. Nearly $30 million in continuing funds and more than $10 million in one-time money will be spent on the university's strategic priorities. During the fiscal year, a new $6.5 million will be spent to directly improve academic quality, including library acquisitions, research support, student recruitment, the university's academic excellence, selective investment and summer enrollment initiatives, and seeding an initiative in public policy. More than $7 million in new funding will go toward improving the student experience, including increasing financial aid, reducing the number of closed courses, adding new programming from the Office of Student Affairs and improving retention, student safety and technology. A total $26 million will be spent on efforts that protect the university's assets and improve its revenue growth. These efforts include maintaining compensation levels, funding supplies and services, improving the physical environment, complying with state and federal mandates, improving administrative computing, developing distance education programs and supporting development efforts to increase corporate and individual giving to the university. "Resources alone will not improve outcomes, but comparisons with our benchmark institutions show that Ohio State needs to strengthen and diversify its revenue base," Shkurti said. "The key to financial growth is a quality academic program, an energized research agenda and an improved student experience, so that the recruitment and retention objectives that support a strong enrollment base can be met." Trustees OK spending on computing systems Trustees authorized the expenditure of $10 million for ongoing implementation of the Administrative Resources Management System for human resources, general ledger and procurement systems. Although the ARMS human resources installation in August 1997 did not roll out as smoothly as hoped, many of the goals set for the past year have been met, Larry Lewellen, acting vice president for human resources, told trustees. They include fine-tuning and implementation of a year-end payroll accounting system, design and implementation of systems for benefits open enrollment and annual salary budgeting, and investigating opportunities to improve college and department processes. "The first year of implementation of any new system requires an extraordinary amount of effort by everyone involved to work out various conversion issues," Lewellen said. "Benefits are not likely to be readily apparent until at least the second year of operation." During the next year, the Office of Human Resources will continue to improve workflow and reporting functions for colleges and departments, Lewellen said. Other areas for improvements include timekeeping and re-evaluation of centralized and decentralized system functions, he said. Satisfaction with the ARMS software is mixed, said John Ellinger, ARMS project director. "We've made some of our customers' requested changes and we're making progress, but we haven't been as successful for users as we wanted to be. It's not a small task and we're continuing to work on it." Ellinger said one aspect of the project benefiting the university is that successful implementation of the human resources and financial systems will address Year 2000 problems for those areas. Goals for financial systems -- procurement and general ledger -- are on schedule, said William J. Shkurti, vice president for finance. Both systems are still in the implementation and training stages, with plans for procurement to be up by January 1999 and general ledger in July 1999, a more phased in approach that was suggested based on lessons learned from the human resources implementation. Some central staff will begin testing the financial systems this summer as a shadow system to their current accounting methods. User training on both systems will begin full scale during autumn quarter. "At this point in the fiscal systems, we're incorportating lessons we've learned from the human resources implementation into the process," Ellinger said, including adjustments to time lines, training and the method of implementing the systems. "Delaying the implementation to the 1999 dates will cost the university about $10 million but should result in more effective implementation," Shkurti said. "Successful implementation will continue to require major investment of staff and senior leadership time during the next two years." ARMS for procurement will replace the systems for purchasing, accounts payable, equipment inventory and stores and receiving with one system. The general ledger will replace the FAS, the financial accounting system that has been the official accounting record of the university since 1977. One task for the coming year is to move toward integrating the procurement system with University Hospital and Research Foundation procurement systems, Shkurti said. Goals for the general ledger system include resolving issues concerning electronic workflow, reporting and usage, as well as integrating with University Hospitals, Shkurti said. User satisfaction is a priority for all the systems, Ellinger said. "Our goal is to deliver a system with necessary changes recommended by users to make a system that closely meets the university's requirements," he said. Other priorities include the degree to which work is decentralized, the amount of customization of the systems, security, training, archiving and identifying areas for savings and funding continuing operating costs, Shkurti said. The ongoing process will require funding for operating costs, including software upgrades, even after systems are up and running. "We need to continue to make improvements to reflect the needs of users and the university," Ellinger said. "We do not want to install a system and let it sit. As we move forward, we need to keep these systems current to the university." The project will continue to work through setbacks, including personnel shortages. The high demand for skilled computer programmers in Columbus' private sector has resulted in difficulty in retaining technical personnel, which has cost nearly $1.1 million above the original project budget. Highly competitive salaries in the private sector have resulted in approximately 30 percent turnover of the technical and support staff who have taken private sector jobs. Trustees hear reports and address investment issues The university's endowment has reached an all-time high, James L. Nichols, university treasurer, told trustees. The endowment ended the 1998 fiscal year on June 30 at $927.8 million, up from $767.7 million a year ago. And that increase has trustees and university officials smiling. "The endowment should hit $1 billion by the end of this fiscal year on June 30, 1999 -- a full year before the end of the Affirm Thy Friendship capital campaign," Nichols said. "With just a modest 8 percent increase -- not even counting all the new gifts -- and we're there at $1 billion." Nichols also discussed with trustees a proposed investment policy that would allow the university to invest in equities and bonds approximately $300 million in eligible operating funds in order to enhance returns. Eligible funds would include deferred gifts, self-insurance funds and budgets for auxiliary units that are not needed for day-to-day operations. Trustees will vote on the proposal in September. Trustees also voted to approve the sale of commercial paper to fund construction projects, making Ohio State the first university in the state, public or private, to utilize the funding mechanism. Commercial paper is sold much like short-term notes. Bonds are sold when the funding needs for construction meet a critical mass. # Contacts: William J. Shkurti, vice president for finance, 614-292-9232 James L. Nichols, university treasurer, 614-292-6261 Written by David Bhaerman, 614-292-8422, and Susan Wittstock, 614-292-8419, University Communications.