You asked for a summary of Virginia’s new law restructuring its higher education system.

SUMMARY

Virginia’s Restructured Higher Education Financial and Administrative Operations Act (ch. 933, 2005) gives the state’s public colleges and universities more operational autonomy in return for their commitment to meet state higher education policy goals and performance measures. It took effect on July 1, 2005. The act requires all institutions to develop six-year academic, financial, and enrollment plans to meet the state’s goals. It creates a three-tiered system that ties each institution’s level of autonomy to its administrative and financial capacity and ability to meet the state’s policy goals.

The new law began as a proposal from the University of Virginia, the College of William and Mary, and Virginia Tech in 2004 for the legislature to give them “charter” status. The schools’ proposal was prompted by what they perceived as chronic underfunding and overly prescriptive state control over their operations. They offered to accept less state financial support in return for freedom to set tuition and conduct their own affairs. Under their proposal, they would remain public institutions and be accountable to the state through performance standards spelled out in state-granted charters. And, while they would no longer be state agencies, they would still be subject to many state education laws and their staffs would remain public employees.

STATE HIGHER EDUCATION GOALS

The restructuring law allows all public colleges and universities in Virginia to achieve some level of autonomy if they agreed, by August 1, 2005, to meet the following state policy goals:

• provide access to higher education for all Virginia residents, including underrepresented populations,

• ensure that higher education remains affordable regardless of family income,

• offer a broad range of programs that address Virginia’s needs for sufficient graduates in particular shortage areas,

• maintain high academic standards,

• improve student retention and raise graduation rates,

• allow smooth transition for students moving from two-year to four-year institutions,

• contribute to efforts to stimulate the state’s economic development,

• increase externally funded research and facilitate technology transfer to the private sector,

• help elementary and secondary schools improve student achievement,

• prepare six-year financial plans for submission to the state,

• increase financial and administrative management standards.

The State Council of Higher Education for Virginia (SCHEV, Virginia’s counterpart to Connecticut’s Board of Governors of Higher Education) must develop a statewide strategic plan reflecting these goals and revise it every six years.

PLANNING AND PERFORMANCE MEASUREMENT REQUIREMENTS

Institutional Plans

Under the new law, every two years beginning October 1, 2005 each institution must develop detailed six-year academic, financial, and enrollment plans that address the state’s goals. The financial plans must provide alternate projections assuming (1) no increase in general fund support for the next biennial budget cycles and (2) incremental increases based on current general fund support for in-state student costs. The plans must also include the anticipated tuition and fees needed to generate sufficient nongeneral fund revenues and the institution's strategies for providing enough financial aid to offset the effect of tuition an fee increases on students and their families.

SCHEV must annually review the institutions’ plans and assess the degree to which the public higher education system is meeting the state’s goals, as identified in the council’s strategic plan. If it detects any gaps between the plans and the goals, the council must make recommendations to the institutions for revising their plans.

Performance Measures

The law requires SCHEV to develop performance indicators to measure whether institutions are meeting the state’s goals and, beginning June 1, 2007, annually certify whether they are doing so. SCHEV issued the indicators on September 30, 2005. Most goals have multiple indicators. For example, the access goal indicators measure meeting targets for total enrollment, underrepresented populations enrollment, and degrees conferred. All of the measures are available at InstutionalPerformanceStandards.

SCHEV will help institutions develop base-level data against which it will measure their performance targets. Based on this data, SCHEV will develop two levels by which to gauge performance on each measure: (1) an absolute minimum standard of performance and (2) a minimum acceptable performance threshold. The former provides a standard that each institution has historically been able to maintain and should be able to continue to maintain. The latter threshold will allow a school to show progress toward a target, even if its performance lags for a particular year. Thus a school could pass a measure, even when its performance is less than that anticipated for a given year, as long as it is above the minimum acceptable threshold.

To be certified as meeting the annual performance standards, a school must successfully demonstrate:

Administrative and Financial Capacity Standards

The law requires all state colleges and universities to show that they are in substantial compliance with the state comptroller’s financial reporting, accounts payable, and receivable standards and have no significant audit deficiencies. They must also meet administrative management standards the governor sets. Schools that do not meet these standard must develop and implement corrective action plans.

AUTONOMY LEVELS

The law recognizes that the state’s public colleges and universities have different resources and capabilities. It establishes three levels of autonomy based on each institution’s ability to manage itself. Attachment 1, prepared by SCHEV, summarizes the requirements for attaining each level and the benefits of doing so.

Level 1

This level is available to all two- and four-year colleges and universities as soon as their board of visitors (trustees) adopts a resolution committing the school to the state’s higher education goals. The law required them to do this by August 1, 2005.

Schools that make this commitment receive more authority to dispose of surplus property; acquire and grant easements; enter into certain leases; and use local, rather than state, building officials for certain building inspections and certifications. They also receive exemptions from some (1) procurement-related fees and (2) information technology-related reporting requirements.

Schools that meet the planning and performance requirements outlined above obtain additional benefits. They can receive the interest earned on their tuition and fees, carry forward any unexpended state appropriations, and receive other financial benefits.

Level 2

Beginning July 1, 2006, any institution can seek additional autonomy under level 2 status. It can do this by applying to enter into a memorandum of understanding (MOU) with the state that spells out the additional authority it may assume. The law requires the governor to (1) recommend to the legislature operational areas in which extra autonomy can be granted and the functional authority that could be granted in each and (2) establish eligibility criteria for them. The areas could include financial operations, capital outlay, procurement, information technology, and personnel.

MOUs will be developed on an institution-by-institution basis. An institution’s agreement will depend on the extent to which it can demonstrate the ability to manage itself on a “post-audit” accountability basis rather than the “pre-approval” method the state currently uses.

Level 3

Level 2 schools that meet additional criteria can elect to negotiate a management agreement with the state “to assume full responsibility” for managing their financial operations, capital projects, leases, procurement, and employment. The legislature must approve each agreement and can revoke it if the school fails to meet its performance targets or the agreement’s requirements. The governor can also void an agreement for the same reasons, but he must first give the school a chance to take corrective action.

To receive level 3 designation, a school’s board of visitors must pass a resolution seeking that autonomy by an absolute two-thirds majority. And, the school must have a minimum AA- bond rating or have demonstrated management competency in (1) a decentralized finance and capital outlay pilot program (which the state established as a precursor to restructuring) and (2) at least one level 2 autonomy area for at least two years. Only the University of Virginia, Virginia Tech, and William and Mary currently have an AA- bond rating.

The management agreements could (1) exempt Level 3 schools from state information technology requirements; (2) allow them to issue their own bonds and borrow money from state quasi-public agencies; (3) set and keep tuition, fee, rental, and other charges; and (4) establish their own personnel systems. If they do the latter, they must allow classified staff who are employed when the management agreement takes effect to choose to remain state employees, and they cannot change retirement, health insurance, or workers’ compensation benefits or the grievance system.

The full text of the Restructured Higher Education Financial and Administrative Operations Act is available at CH 933.

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