THE MISSISSIPPI LEGISLATURE

The Joint Committee on

Performance Evaluation and Expenditure Review

Report # 516

An Analysis of the Allocation of FY 2009 State Support Funds to Mississippi’s Institutions of Higher Learning

Executive Summary

Introduction

In FY 2004, IHL adopted a new formula for allocating state support funds to the state’s eight public universities. PEER conducted this review to determine the changes in the allocation process that resulted in decreases in funding to five universities for FY 2009 and whether the method of calculating allocations to the universities was fair.

To assess the fairness of IHL’s funding formula and to identify areas of needed improvement, PEER determined:

the amount of IHL’s total operating budgets for FY 2009 that was allocated through the funding formula;
the amount of funds that each university received for FY 2008 and FY 2009;
how the formula works, including a review of the four cost components driving the formula; and,
how IHL has implemented the formula, including the calculations that determine the formulated needs of the universities and the calculations that determine the allocations to the universities.

Background

Mississippi’s System of Higher Education and Its Funding

The Board of Trustees of State Institutions of Higher Learning (IHL) is a constitutionally created agency of Mississippi state government charged with the responsibility of managing and controlling the state’s public institutions of higher learning.

Section 213-A, MISSISSIPPI CONSTITUTION OF 1890, empowers the IHL Board of Trustees to manage the eight four-year institutions of higher learning:

Alcorn State University;
Delta State University;
Jackson State University;
Mississippi State University;
Mississippi University for Women;
Mississippi Valley State University;
University of Mississippi, including its Medical Center1; and,
University of Southern Mississippi.

The state’s institutions of higher learning receive revenues from a variety of sources, including state funds (primarily state general funds), special funds (primarily revenues from tuition and hospital revenues/patient fees collected by the University of Mississippi Medical Center), restricted and auxiliary/enterprise funds, and funds from university foundations, including athletic foundations. Approximately two-thirds of IHL funding, excluding funding from foundations, is appropriated by the Legislature, while the remaining third flows directly to the universities outside of the appropriation process.

The general disbursement authority of IHL found at MISS. CODE ANN. Section 37-101-15 (a) (1972) is sufficiently broad to empower it to devise methods for the disbursement of state funds that are not specifically appropriated to a particular institution or purpose. Pursuant to this authority, IHL has historically adopted formulas for allocating such funds to the state’s institutions of higher learning.

Changes in IHL’s Funding Formula

Effective for FY 2005, IHL adopted a new funding formula primarily based on instructional costs by discipline and level of instruction (e. g., undergraduate, master’s, and doctoral). IHL based this funding formula on a formula being utilized by Texas to fund its public universities.

In an attempt to avoid the immediate impact of significant changes to university funding levels as a result of adoption of the funding formula, IHL chose to implement its FY 2005 formula gradually. From FY 2005 to FY 2008, IHL applied the FY 2005 funding formula only to the amount of state support funds for IHL (less legislative mandates and board initiatives) that exceeded the amount of state support funds from the appropriation for IHL that was received the previous fiscal year. Because IHL only applied the funding formula to a relatively small amount of the universities’ general fund support during these years, the equity problems continued.

In FY 2009, IHL began to apply the funding formula to the full amount of the general fund support allocated to the universities (less any legislative mandates and board initiatives). However, because full implementation of the funding formula would have resulted in significant immediate funding reductions to five of the state’s eight universities, IHL made the decision to phase in the funding adjustments over a six-year period in order to give the universities more time to react to the changes in funding. The following section addresses the impact of IHL’s implementation of the funding formula for FY 2009.

The Impact of Implementation of IHL’s Funding Formula on Individual Universities from FY 2008 to FY 2009

How much of IHL’s total operating budgets for FY 2009 was allocated through the funding formula?

IHL’s operating budgets for FY 2009 total $3,018,798,316. Of the total operating budgets, $788,720,129 is from state support.

Of that amount, state support for separately budgeted units ($367,500,272 for FY 2009) was not allocated through the funding formula. In addition, state support for legislative mandates ($32,719,279 for FY 2009) and for board initiatives ($2,627,174 for FY 2009) was not allocated through the funding formula.2

The remaining $385,873,404 in state support funds was allocated to institutions through the funding formula for FY 2009, representing approximately 13% of IHL’s FY 2009 total operating budget.

How much did each university receive for FY 2009?

The amount each university received for FY 2009 ranged from $15,624,113 at Mississippi University for Women to $99,031,766 at Mississippi State University. (See Exhibit A, below.)

**Exhibit A: University Allocations for FY 2009**
University	Allocation
Alcorn State University (ASU)	$20,199,142
Delta State University (DSU)	22,984,671
Jackson State University (JSU)	40,580,608
Mississippi State University (MSU)	99,031,766
Mississippi University for Women (MUW)	15,624,113
Mississippi Valley State University (MVSU)	15,770,305
University of Mississippi (UM)	81,928,876
University of Southern Mississippi (USM)	89,753,923
Amount allocated through formula and rebalancing process	$385,873,404

SOURCE: IHL staff presentation “Rebalancing State Appropriations” to Board of Trustees, April 16, 2008.

How did the amount that each university received for FY 2009 differ from the amount that each university received for FY 2008?

Five of the state’s eight public universities received lower allocations for FY 2009 than for FY 2008:

Alcorn State University;
Delta State University;
Mississippi University for Women;
Mississippi Valley State University; and,
University of Southern Mississippi.

The differences ranged from $10,129 less at Mississippi Valley State University to $175,886 less at Delta State University. Two universities received the same amount for FY 2009 as for FY 2008 and one university, University of Mississippi, received $1,881,140 more for FY 2009. Exhibit B below shows a comparison of institutions’ FY 2008 and FY 2009 allocations.

**Exhibit B: FY 2008/FY 2009 Comparisons of Institutions’ Allocations**
	A	B	C
University	FY 2008 Allocation	FY 2009 Approved Allocation	Difference
ASU	$20,274,580	$20,199,142	($75,438)
DSU	23,160,557	22,984,671	(175,886)
JSU	40,580,608	40,580,608	0
MSU	99,031,766	99,031,766	0
MUW	15,760,396	15,624,113	(136,283)
MVSU	15,780,434	15,770,305	(10,129)
UM	80,047,736	81,928,876	1,881,140
USM	89,870,168	89,753,923	(116,245)
Total	$384,506,245	$385,873,404	$1,367,159

Column C = Column A - Column B

SOURCE: IHL staff presentation “Rebalancing State Appropriations” to Board of Trustees, April 16, 2008.

How the IHL Funding Formula Works

The funding formula is comprised of four components:

Instruction and Administration;
Predicted Space;
Capital Renewal; and,
Small School Supplement.

IHL determines the amount of each component for a university. The sum of these components is that university’s formulated need. Because the appropriated amount is often less than the eight universities’ formulated need, the formula distributes the appropriated amount on a pro-rata basis reflecting each university’s percentage of the universities’ formulated need.

As previously noted, the allocations required by the formula for FY 2009 would have been dramatically less than the allocations received for FY 2008 for some universities; therefore, IHL decided to rebalance funds over a six-year period to reduce the initial impact to these universities.

Exhibit C summarizes how IHL determined the components of each university’s formulated need for FY 2009 and each university’s actual allocation and refers to relevant sections and exhibits in the report.

Pages 12 through 40 of the report provide a detailed explanation of the funding formula, using as an illustration the calculation of Mississippi State University’s FY 2009 allocation from the formula.

Effects of IHL’s Implementation of the Funding Formula for FY 2009

Beginning in FY 2005, IHL moved from a method that established funding percentages based on the relative sizes of the universities’ enrollments at one point in time to a method that captures changes in enrollments over time and that reflects the differing missions and associated costs of the universities. The funding formula now takes such cost differences into consideration. Because of this, the funding formula has the potential to be a fairer method for funding the state’s eight public universities than the method used prior to FY 2005.

Generally, the universities are also treated fairly in that the same formula with the same variables applies to all eight universities. The only differences are the dollar values and values of the variables, such as the number of students, the number of student credit hours, the number of faculty, or the number of majors. Each of these variables is specific to each university and each will change over time. But the formula uses the same variables for all eight universities.

However, concerns of fairness regarding IHL’s current implementation of the formula include the use of:

weights (for weighted student credit hours) and allowances (for Predicted Space components) that have not been validated for Mississippi;
a higher dollar value for weighted student credit hours at the Research universities than at the Regional universities;
a method for predicting needed library space that regularly overestimates space; and,
a method for predicting needed research space that allows two options with significantly different results, which suggests the need for more reliable criteria.

Also, while IHL’s current funding formula is based on the principle of funding per weighted student credit hour rather than funding per full-time equivalent student, which was the basis of IHL’s pre-2005 funding formula, IHL’s method of determining the Small School Supplement component retains the per full-time equivalent basis. For FY 2009, the result of this was that the state’s public university with the lowest number of full-time equivalent students (Mississippi University for Women) did not receive the Small School Supplement.

Finally, IHL’s lack of uniformity in defining an “underfunded” university for the rebalancing process creates confusion and results in the potentially contradictory requirement of having “underfunded” universities yield resources to other universities.

Recommendations

Using existing resources, IHL should perform a cost study by January 1, 2010, to validate the weights it uses to determine the weighted student credit hours for the Instruction and Administration component of the funding formula and to validate the space allowances used. In the future, IHL should perform additional cost studies at periodic intervals to capture increasing or decreasing costs associated with different disciplines and levels of instruction.

Until this cost study has been performed, the Legislature should not consider any future IHL budget requests based on formulated need as implemented in FY 2009. Until the formula is based on weights and allowances that have been validated for Mississippi and until IHL has developed a definition of an underfunded university that takes into consideration the full range of funding available to a university (e. g., tuition, restricted funds), IHL should, at a minimum, return each university that received a reduction for FY 2009 to its funding level for FY 2008.
IHL should determine a uniform dollar value for weighted student credit hours. This dollar value should be used for the weighted student credit hours for all of the universities in the system and not just for some subset, such as Regional universities or Research universities.
IHL should utilize the actual number of library users (as determined by library administrators) during peak times of use when predicting the amount of needed library space for universities for the Predicted Space component of the funding formula. Also, in predicting the amount of needed research space for universities, IHL should first determine the amounts of space used for different types of research that would more closely approximate actual need.
IHL should discontinue making comparisons between appropriations per full-time equivalent student when determining eligibility for the Small School Supplement. Instead, IHL should consider using some sort of phase-out when a university’s enrollment increases above 5,000 students.

1 The University of Mississippi Medical Center is a separately budgeted unit. For FY 2009, state support for the medical center was included in SB 3117, 2008 Regular Session.

2 Pages 8 and 9 of the report and Appendices C, D, and E of the report, pages 52 through 54, provide additional information on separately budgeted units, legislative mandates, and board initiatives as they relate to the IHL funding formula.

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