The design specification for learning finance proposed in NDTYI (see Exhibit 5)
served as the basis for selecting Sauk Valley Community College (SVCC) located
in Dixon, Illinois, as the site for this study. The financial process at Sauk
Valley was found to be particularly responsive to the following NDTYI design
specifications:
- Supports Reengineering and Innovative Options: The learning finance
process at SVCC encourages the flexibility, autonomy, and courage to experiment
with and redesign institutional processes.
- Allocates Resources Based on Value-Added: Learning finance at SVCC
ensures that resources get to the places in the institution which add the most
value in terms of learning signature and outcomes.
- Stabilizes Funding Patterns: At SVCC, learning finance provides a
continuous and dependable flow of resources with both a short- and long-term
view.
Exhibit 5
Design Specifications for Learning Finance
|
| *
| Aligns with Learning Context, Signature, Outcomes, Process, Organization,
Partnerships, Staff, and Environment: Learning finance pays close attention
to the design specifications for previous design elements.
|
| *
| Integrates Local, State, National, and International Goals, Planning, and
Resources: Learning finance brings together multiple sources of funds and
enhances flexibility in use of resources.
|
| *
| Links Risk, Responsibility, Performance, and Reward Everywhere: Learning
finance ensures constant accountability, closely relates performance to
rewards, and encourages entrepreneurship.
|
| *
| Supports Re-Engineering and Innovative Options: Learning finance
encourages the flexibility, autonomy, and courage to experiment with and
redesign institutional processes.
|
| *
| Uses Partnerships as a Standard Way of Doing Business: Learning finance
constantly reminds and reinforces attention to controlling costs and enhancing
revenues through partnerships.
|
| *
| Allocates Resources Based on Value-Added: Learning finance ensures that
resources get to the places in the institution which add the most value in
terms of learning signature and outcomes.
|
| *
| Stabilizes Funding Patterns: Learning finance provides a continuous and
dependable flow of resources with both a short- and long-term view.
|
|
In using these specifications as a guide to benchmarking TYIs, it is important
to take account of existing financial management standards and practices. Site
selection was a matter of combining the NDTYI design specifications with
published financial indicators as outlined below.
Recently, KPMG Peat Marwick LLP (1996) was engaged by the U.S. Department of
Education to conduct a financial ratio analysis project, the purpose of which
was to develop a methodology to be used as an initial screening device to
identify financially troubled colleges. The methodology that they developed
takes into account an institution's financial condition, its organizational
structure and mission, and the accounting and reporting requirements to which
it is subject. Their final recommendation was to use three ratios to assess a
college's financial position. For the purposes of this study, I calculated two
of these ratios for small, public two-year colleges throughout the country in
order to identify those colleges that appear to be the most financially viable.
The ratios that I calculated were the primary reserve ratio, which measures
fund balance as a percentage of total expenditures, and the net income ratio,
which measures net income as a percentage of total revenue. Accumulated net
income, or fund balance, provides additional resources that allow an
organization to maintain a stable funding pattern--one of the NDTYI design
specifications for learning finance. I did not calculate the viability ratio
because it involves the measurement of plant indebtedness, which many of the
colleges do not have. One of the weaknesses of Peat Marwick's financial
analysis ratio project is that it does not take into account expenditures per
student, which is often negatively correlated with the fund balance of a
college. Based on the value of the above ratios, a threshold factor determined
by Peat Marwick was assigned to each college, which was then weighted 90% to
the primary reserve ratio and 10% to the net income ratio, to arrive at a
product, the sum of which was used to assign each college to a category, with
category I being the most financially sound and category IV being the least
financially sound institutions. I obtained the financial information necessary
to compute these ratios from the most recent Integrated Postsecondary Education
Data System (IPEDS) report available from the U.S. Department of Education
(1994).
The following case study is based on information obtained during an interview
with Jami Bradley, Vice President of Administrative Services of SVCC, on August
7, 1997. SVCC was built during the late 1960s and the first classes were held
during the 1970-1971 academic year. It was built without an administrative
wing, with the intention to add it at a later date. This wing has not been
built and there have been no major building projects at the college since its
original construction.
The State of Illinois has a Board of Higher Education, the IBHE, which
oversees both two- and four-year institutions. In addition, Illinois also has a
Community College Board, the ICCB, which is involved only with TYIs. Illinois
is divided into 39 districts, each served by a community college, although some
colleges have more than one campus. Students are assigned to districts based on
their place of residence. As a result, there is little competition for
students. If students would like to enroll in a program that is not offered at
the college located in their district, they are allowed to attend another
college, however, the college in their district is required to reimburse the
college in which they are enrolled. Illinois community colleges cannot own and
operate dormitories; however, some colleges have built dormitories on adjacent
land that are managed by a third party.
SVCC's closest four-year competitors are Northern Illinois University located
in DeKalb and Western Illinois University located in Macomb. There are also
private four-year institutions located in Rockford and Galesburg. A number of
area students also attend Southern Illinois University or institutions located
in Chicago, which is approximately two hours from Dixon.
The college has had three presidents. The current president has been in his
position for ten years. There are three vice presidents, one each in the areas
of instructional services, student services, and administrative services, with
directors of each functional area. This structure has remained fairly stable
over the last several years. The only exception is that academic programs had
historically been led by faculty who served as chairpersons, but are currently
being led by deans who function solely in an administrative capacity.
The college has approximately 20 full-time and four part-time administrators;
60 full-time and 30 part-time faculty; and 60 full-time and 15 part-time
professional, clerical, and maintenance staff. Only the faculty are unionized.
The college has auxiliary bookstore and childcare operations. Its food service
is operated by an independent contractor. It has a credit-based unit of
instruction and is organized on a semester basis with two summer sessions, one
intensive two-week session, and a regular ten-week session. There is an
increasing amount of interest in year-round instruction due to welfare
reform.
There are approximately 15,000 full-time equivalent students enrolled at the
college with a headcount of approximately 2,700 and 45,000 credit hours. SVCC
is one of the smallest community colleges in the state. Enrollment has been
fairly stable. It spiked in 1993-1994 with the economic recession, but has now
returned to normal. One recent change which affected enrollment was the break
in the relationship between the college and the state correctional facility
located in Dixon, which occurred the year prior to the change in the federal
law which caused inmates to be ineligible for Pell grants.
Illinois community colleges are required to participate in a program review
process by the IBHE and ICCB (Sauk Valley Community College, 1997). Each
department within each college is evaluated on a revolving five-year basis. The
financial process used by the college needs to support reaching a positive
response to the following review criteria:
| 1. | |
| Occupational Instructional Programs
|
- Is there a need for the program area based on trends in enrollments,
completions, job placement, and labor market demand?
- Is the program cost effective? How was this determined?
- List strengths of the program.
- List weaknesses of the program.
- List quality improvements recommended for the program as a result of the
review.
- (Optional) Describe any unique innovations recently implemented for this
program area.
- Provide the prefix and number of each curricula within this CIP and indicate
its status: (1) continued with minor improvements, (2) significantly modified,
(3) discontinued, or (4) scheduled for further review in the coming year.
- Is there a need for the discipline based on trends in enrollments and
retention? Please explain any adverse trends.
- Is the program cost effective? How was this determined?
- Are all courses in the discipline articulated to satisfy general education or
major field requirements? Explain exceptions.
- List quality improvements recommended for the discipline as a result of the
review.
- (Optional) Describe any unique innovations recently implemented for this
discipline.
- Based on the program review, will the college (1) continue the discipline
with minor improvements, (2) continue the discipline with major modifications,
(3) discontinue the discipline as of a certain date, or (4) other (explain)?
| 3. | |
| Academic and Support Programs
|
- Based on student participation, is there demand for the programs listed
above? Please explain any low participation trends.
- Are the units cost effective? How was this determined?
- List quality improvements recommended for these programs as a result of the
review.
- (Optional) Describe any unique innovations recently implemented for these
program areas.
| 4. | |
| Overall Academic Productivity
|
- Did the college examine its scope of offerings in relation to institutional
size, mission, and available resources? If so, what conclusions were
reached?
- Did the college examine the use of staffing patterns and instructor teaching
qualifications in regard to program cost and quality? If so, what conclusions
were reached?
- Did the college examine faculty workloads? What conclusions were reached?
- Did the college examine its academic calendar in relation to the effective
use of students and faculty time, facilities, and institutional resources? What
conclusions were reached?
- Did the college evaluate its faculty development policies to ensure that they
effectively and efficiently support scholarship and faculty renewal goals? What
conclusions were reached?
- Did the college examine trends in resource commitments to academic support
functions and technologies? What conclusions were reached?
- Has the college examined its organizational structure and processes to ensure
that resource sharing is being accomplished? What conclusions were reached?
| 5. | |
| Administrative Productivity
|
- Are all administrative units and functions central to the college's mission?
If not, please explain.
- If administrative expenditures per student are significantly above or below
the peer group average, please provide a brief analysis of the reasons.
- Is there redundancy of functions within or across administrative or academic
units? If so, please identify the areas.
- Summarize the steps the college will take to improve the efficiency of
operations.
| 6. | |
| Public Service Productivity
|
- Has the college evaluated its public service offerings in light of its
overall mission and institutional, regional, and statewide priorities? If so,
what changes, if any, are being made as a result?
- Are all of the college's public service functions self-supporting? If not,
please explain.
- Is there redundancy of public service functions within the college and/or
community? Please identify the areas.
- Has the college examined the quality of its public service offerings? If so,
are any being eliminated as a result?
| 7. | |
| Each new initiative identified as a result of this process is summarized,
along with the current year and the projected five-year dollars and the source
of the funds that must be invested in order to accomplish the stated goal. If
initiatives are being eliminated, the current year and projected five-year
dollars and the area to which those funds will be reallocated must be
stated.
|
| 8. | |
| The Productivity Quality Process (PQP) also requires a special focus for
Occupational Program Reviews which encompass the following:
|
- Colleges with programs in which the number of graduate respondents exceeds
10, the average unemployment rate is more than the state average (5.1%), and
over one-fourth of the graduates are employed in an unrelated field should
closely examine these programs through the program review process, develop
relevant recommendations, and take appropriate actions to either strengthen or
discontinue them.
- Programs in which more than one-third of Associate in Applied Science
graduates are enrolled for further study in a related field should examine the
extent of articulation currently existing and assess whether efforts are
sufficient. Findings should be indicated as either a strength or a
recommendation in summary reports.
- Colleges with programs in which graduates' overall program component
satisfaction rates were less than 3.9 on a five-point scale are asked to review
the results of the graduate ratings to see if there are particular components
that may be problematic as they perform their fiscal year program reviews.
Findings should be reflected in recommendations for program improvements in
summary reports.
- Colleges with occupational survey response rates of less than 50% are asked
to give special attention to increasing these rates for the coming year. These
colleges should provide a brief update on their efforts to increase response
rates in their program review reports.
Priority statements based on the college's strategic plan must be annually
updated in the PQP and a plan to strengthen the linkages and to integrate
planning, budgeting, program approval, and program review around collegewide
priorities must be detailed.
In addition, faculty roles and responsibilities, to include faculty
development, reward and incentive systems, and the breadth of faculty
contributions; and enhancements in the use of educational technology, to
include enabling activities, delivery and instruction enhancements, and
community partnerships, is described. The PQP also contains an Executive
Summary which includes the processes followed, the level of involvement, the
priorities addressed, and the key decisions made during the year. It is
concluded with a review of the key improvements in undergraduate education made
at SVCC during the last five years and the plans that will be implemented
within the next year to enhance undergraduate education.
In addition to the comprehensive document described above, each division of
the college (i.e., instructional services, student services, and administrative
services) prepares an annual report which details the accomplishments and
activities of its component departments.
The following design features stand out in characterizing learning finance at
SVCC:
Stable Funding
Tuition is determined by each community college in Illinois, with a minimum
rate set by the IBHE. For the 1997-1998 academic year, tuition at SVCC is $44
per semester credit, which includes a $3 activity fee used for such activities
as student government, the student newspaper, fine arts activities such as
theater and choir, and athletics (five men's and women's athletic activities),
and a $2 technology fee. Revenue from the technology fee can be carried over
from year to year.
Before the tuition rate is set each year, the Vice President of Administrative
Services surveys other community colleges in the state. Statewide, the proposed
1997-1998 tuition rates range from $31 to $54 per semester credit, with an
average of $42. This includes fees that range from zero to $7.50.
Since 1967, tuition has increased from $10 per semester credit to its current
$44. The average increase per year was 5.2%, although there were many years
without any increases and a few with very large increases, for example, 25% in
1983 and 27.6% in 1993. The current Vice President of Administrative Services
favors small incremental tuition increases each year rather than very large
periodic increases.
In Illinois, community college districts levy property taxes. The general
guideline is that colleges should be funded approximately one-third each by
local taxes, state grants, and tuition and fees. In 1997-1998, SVCC plans to
receive 37% of its funding from local taxes, 33% from state grants, 28% from
tuition and fees, and the remaining 2% from sources such as facility rental and
investment revenue. The college receives a small amount of federal funds such
as Perkins funds, which are included as part of state funds since they flow
through the state educational agency. IBHE is also beginning to implement a
system of performance-based funding. At the current time, approximately 2% of
each college's state funding is determined by its performance measured against
predetermined goals.
The college has traditionally maintained a large fund balance, due in part to
its conservative administration and governing board. The fund balance is viewed
as a reserve that can be used in times of fiscal crisis and as an alternative
funding source due to the revenue that is earned from its investment. In 1995,
the operating fund balance was as high as $2.2 million, at which time the
governing board approved the college's request to "spend it down" on
technology-related expenditures. The 1997 unaudited fund balance is $1.1
million. The Vice President of Administrative Services anticipates that it will
level off at this point and stated that the board would not allow it to fall
below $1.0 million. Other recent changes which have affected the college's fund
balance are the decisions to become self-insured, which has saved an estimated
$1.2 million per year, and to install a generator to produce electricity for
the campus. In addition, the college has had turnover in its Chief Financial
Officer position. The individual who held this position since the college's
inception left in 1991 and was replaced by an individual who remained for only
three years. In 1994, the current CFO was promoted from her position as
Business Manager.
Alternative Funding Sources
SVCC is currently in the process of hiring a Director of Grants, Planning,
and Institutional Research. This individual will be responsible for pursuing
alternative sources of funding. In addition, the college has a Corporate and
Community Services department, encompassing contract training and community
education, which is active in soliciting new business.
SVCC has an active foundation that provides money for scholarships and
equipment. It has a separate governing board and is led by the Director of
College Relations. It participates in annual fundraising activities and has
recently undertaken two successful endowment challenge grants.
Accountability in Financial Management
In March of each year, the Vice President of Administrative Services
distributes documentation that must be completed by the Deans or Directors and
channeled through the Vice Presidents for initial budget requests. These
requests are accumulated and combined for initial review by the Vice President
of Administrative Services, who then returns them to the departments with
guidelines for modification. When they are returned, the Vice President of
Administrative Services makes the final adjustments with input from the
President and other Vice Presidents. The final budget is presented to the Board
of Trustees by the President for two "readings" before it is adopted, usually
in June or July of each year.
Requests for expenditures are approved by the Deans or Directors and Vice
Presidents, who are held accountable for the budgets in their respective areas
of authority. There is some flexibility in that overexpenditures in one
department may be offset by underexpenditures in another, as long as the total
expenditures remain within the approved budget. Each grant obtained by the
college has its own administrator, who is responsible for the financial
management of the grant. The Vice President of Administrative Services is
responsible only for expenditures in her area of authority (i.e., the business
office, personnel services, building and grounds, and the bookstore). However,
she is informed of all equipment purchases in excess of $500 so that those
purchases are included in the fixed assets of the college. Purchases over
$10,000 must be approved by the Board of Trustees.
All computer-related purchases are approved by the Information Systems
department in order to maintain an integrated, compatible information
management system. To date, the college has purchased its computers rather than
leasing them. Since the college leases its telephone system and its copiers,
the decision to purchase its computers has been made in an effort to equalize
its lease payments with its equipment purchases.
Each college in Illinois has its own information system for financial
reporting; however, each must provide a detailed report to the IBHE on a
quarterly basis using a centrally determined chart of accounts. In addition,
each college must provide program reviews and salary and unit cost studies to
the IBHE on an annual basis. Unit cost studies report costs and enrollments by
area and are used to determine statewide average unit costs which, in turn, are
used in the allocation process.
Recognize Value of Human Resources
Salaries and fringe benefits comprise approximately 75% of the college's
total budget and are determined prior to the budget being developed. As stated
previously, only the faculty are unionized; however, they take the lead in
determining salary increases and changes in fringe benefits. All employees of
the college receive the same percentage increase each year. Leave policies are
very liberal with 13 paid holidays, 11 sick days, 3 personal days, and vacation
which increases each year to a maximum of four weeks per year.
The college has a competitive fringe benefit package; however, only full-time
employees are eligible to participate. In 1995, for the first time, employees
were required to pay for a portion (25%) of their dependent health care
premium. There is a three-tiered premium, with different rates for single
coverage, single plus one coverage, and family coverage. There is also a $200
deductible per year with an out-of-pocket maximum of $1,700. Dental insurance
is not offered. Life insurance equal to the employee's annual salary and
short-term disability insurance are provided at no cost to the employee and
employees have an option to purchase additional life and long-term disability
insurance.
The college offers a tuition reimbursement program in which employees and
their dependents may take courses at SVCC at no cost. Full-time employees and
their dependents may take courses at other institutions and have tuition of up
to $150 per credit waived up to a maximum of 12 credits per year. In addition,
the college offers a computer purchase program in which it purchases computers
for its employees' personal use and allows the employee to reimburse the
college over a period of two years with no interest through payroll deduction.
Partnerships
The college has many shared programs with other two-year colleges. It is a
member of a distance learning network that includes approximately ten
institutions and is headquartered at Western Illinois University in Macomb.
Western Illinois University also offers a Board of Governors program at SVCC,
which is an individualized program that allows students to earn a four-year
degree. Mount St. Clair and National Lewis, which are private colleges, also
offer four-year degrees on the SVCC campus. Illinois is currently in the
process of developing a statewide articulation agreement to facilitate the
transfer of credits between institutions.
The college also partners with area school districts in such areas as distance
learning, Tech Prep, and School-to-Work initiatives. It participates in an
Honors Credit in Escrow program as well. This program provides an opportunity
for academically talented high school juniors to earn one full semester of
college credit before their freshman year in college. It consists of five
general education courses starting in the summer after the student's junior
year in high school and continuing through the summer following the student's
senior year. Fifteen credits are earned and are guaranteed to transfer to
four-year colleges. The credits are held "in escrow" for the student until he
or she graduates from high school, at which time they are transferred to a
four-year institution or applied toward a degree at SVCC.
SVCC has formed a partnership with General Electric in which faculty travel to
General Electric and provide training to its employees. General Electric
provides the college with some equipment in exchange for training for their
employees. Through its Corporate and Community Services department, the college
has established many relationships with business and industry.
The effective design of SVCC's financial structure is evident not only in its
strong financial ratios, but also in more visible features. Upon approaching
SVCC, you are struck by the immenseness of its grounds and its
impeccably-maintained facilities. A walk through the building provides evidence
of the college's recent and significant investments in technology. Computer and
scientific laboratories are numerous, equipment is current and well-maintained,
and interactive television (ITV) classrooms are prevalent.
SVCC also has an effective program review process which ensures that resources
are allocated in areas that add the most value to the college. For example,
occupational programs in which the average unemployment rate is greater than
the state average and in which over one-fourth of the graduates are employed in
an unrelated field must be carefully scrutinized and appropriate action taken
to either strengthen or discontinue them. If they are discontinued, the areas
to which the funds from those programs are reallocated must be delineated in
the program review report. The resources provided from this reallocation of
funds support re-engineering and innovation in an environment of continuous
improvement.
SVCC will be confronting a number of challenges in the near future, including
the following:
Change in Funding Sources
At the state level, there will be a number of legislative changes related
to taxation. Illinois currently has a 3% income tax. The remainder of the
state's education budget is funded through property taxes. There is going to be
a shift away from reliance on property taxes to a greater emphasis on income
taxes. There is currently a cap of 5% on the increase in the amount of revenue
that a district can receive from property tax revenues from year to year.
Building Construction
At the college level, there is an increasing need for more sections of
classes with fewer students in each in order to meet the demand for flexible
scheduling. A number of classrooms have been converted to computer labs and
distance learning classrooms, creating the need for additional classrooms. In
addition, an increasing number of contract training and community education
classes has created the need for additional classroom space. When combined with
a desire to complete the planned administrative wing, it is likely that a
building project will be considered in the near future.
There are a number of factors in the Illinois system of higher education which
affect the fund balances of its colleges. One is its use of districts, which
assigns students based on their place of residence and greatly reduces
competition among colleges. Another is its combination of centralized and
decentralized governance structures. One example is the IBHE, which is
decentralized by the ICCB. Tuition is determined by each college, but must be
within guidelines set by the state. Still another example is the ability of
each college to use its own management information system with a requirement
for detailed quarterly reporting using a centralized chart of accounts
structure.
At the college level, SVCC also has a number of characteristics that affect
its individual fund balance. The most pervasive characteristic is the
conservative nature of its governing board and administration, although it
appears that these individuals are not adverse to change or risk as illustrated
by their decision to become self-insured. One of the criticisms inherent with
an unusually large fund balance is that, in order to build such a fund balance,
it is often necessary to restrict expenditures per student. SVCC has made a
conscious decision to spend its fund balance down to a predetermined level in
order to increase its level of technology, which will directly impact its
students. The college utilizes a participative budgeting process and holds its
administrators accountable for financial decisions. Intensive planning and
review processes are also undertaken by college constituents in an effort to
enhance its productivity and efficiency. The college does not appear to
actively solicit alternative sources of funding or to enter into partnerships,
possibly because it does not feel a need to do so. However, if there are
significant changes in the tax structure in Illinois and/or if the college
undertakes a building project in order to increase classroom and administrative
space as predicted, these sources of funding will become increasingly
important.
In summary, it is apparent that SVCC's financial strength is not an accident.
It is a result of a number of factors which have interacted to create a
uniquely successful, financially strong two-year institution of higher education.
Study Author
|
Kathy Hefty, Business Manager, Pine Technical College, 1000 4th Street, Pine City, MN
|
| | 55063, (320) 629-6764
|
Site Contact
|
Jani Bradley, Vice President of Administrative Services, Sauk Valley Community College,
|
| | | |
173 Illinois Route 2, Dixon, IL 61021, (815) 288-5511
|
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