Budget Flexibility

Executive Overview
UNCG Operating Resources
Budget Flexibility

Introduction

Budget Flexibility pertains to the administration of the State Budget and does not affect non-state budgets.

During the 1991 and several subsequent sessions of the General Assembly, additional latitude was granted to the University that enables UNCG to (1) transfer budget in ways that was not previously available without Office of State Budget & Management (OSBM) approval, (2) administer personnel classifications and properly set compensation for campus personnel and (3) purchase items at higher dollar limits without State Purchasing & Contract approval. This legislative action has been referred to as Budget Flexibility and the Board of Governors must designate a UNC institution as a “Special Responsibility Constituent Institution” (SRCI) before the institution may benefit from the legislation.

The Board of Governors established policies that specify how an institution may be designated as a Special Responsibility Constituent Institution. Further, the Board adopted broad budgetary, carryforward, personnel administration, purchasing and reporting policies.

Also, the legislation and Board of Governors require certain reporting on the institution’s use of budget flexibility. This reporting includes an annual fiscal year report that summarizes budget flexibility revisions, a fiscal year plan for the use of lapsed salaries, and a plan for funds carried forward from one year to the next. The Board’s selection criteria and detailed operating instructions for SRCIs may be found at:

http://www.northcarolina.edu/docs/finance/projects/flex_guidelines.pdf

Budget Flexibility Terminology

  • Flexibility: The authority granted by statute that allows a SRCI to utilize any funds in its state budget in any legal manner to pay costs of the programs and activities carried out by the SRCI subject to the guidelines promulgated by the Board of Governors.
  • Lapsed Salaries: Budgeted amounts for faculty, administrative, and staff positions that are not expended by filling the positions on a temporary (terminal) or permanent basis. The amount of the salary that is lapsed is the monthly amount unused over time. Lapsed salaries may be the result of unfilled positions or filling positions on a temporary basis at salary rates less than the budgeted amount.
  • Special Responsibility Constituent Institution (SRCI): a designation granted to a UNC school by the Board of Governors that allows the institution to take advantage of Budget Flexibility Legislation.

Budget Flexibility Background

Prior to Fiscal Year 1989-90:

  • Budgets were not fully funded
    • Allotment Requests were cut by the Office of State Budget and Management (OSBM)
    • Reversions (unspent appropriations reverted to the State) ranged from 2% to 6% of budgeted appropriation
  • All revisions to move budget from one purpose/object of expenditure to another required approval of OSBM
    • Example: budget move form office supplies to Educational supplies required OSBM approval
  • The establishment or abolishment of positions required OSBM approval
  • Overhead Receipts (recovery of indirect costs from contract and grants) were subject to the same rules as State funds

Budget Flexibility Legislation was enacted in the 1991 Session of the General Assembly

  • Allowed the Board of Governors (BOG) to designate campuses to which additional management authority and discretion would be delegated. These campuses are designated Special Responsibility Constituent Institutions (SRCI).
    • General Administration (now known as the Office of the President) set criteria for: Management Staffing Standards, Internal Controls and Safeguards
      • Budgeting and Accounting – possess capable staff and system of budgeting, accounting, and internal controls.
      • Personnel – possess capacity to evaluate jobs, classify positions, set compensation, and manage positions.
      • Purchasing – properly purchase equipment, supplies, and other goods and services up to $25,000.
      • Maintain financial records in a manner that there are no significant exceptions or audit findings.
  • Established a Required Reversion equal to 5-year average of historical reversion.
  • Allowed a Carryforward of up to 2.5% of unspent appropriation budget after Required Reversion.
  • Allowed movement of budget between any purpose / object to another.
  • Allowed the creation or abolishment of positions.
  • Increased the purchasing benchmark from $10,000 to $25,000 for purchases to be handled on campus.
  • Imposed requirement for each SRCI to prepare an annual report on budget flexibility.

Subsequent Legislation (1997-1999):

  • Eliminated the Required Reversion (which gave each SRCI a fully funded budget).
  • Allowed SRCIs to increase their purchasing benchmark (UNCG’s current benchmark is $150,000).
  • Moved Overhead Receipts out of a State Budget code and eliminated a required transfer to the University’s State operating budget.

Additional Oversight by the Board of Governors (2000):

  • Each Chancellor must prepare a plan for the uses of appropriations carried forward from the previous fiscal year and anticipated lapsed salary funds for the current fiscal year by July 15 of each year.
  • Chancellors may designate authority for approving departmental plans for expenditures authorized under budget flexibility, but not below the level of appropriate Vice Chancellor or Provost.
  • The Chancellors shall review an annual internal audit report on expenditures authorized under budget flexibility.

The Major Impacts of Budget Flexibility

The major impacts of Budget Flexibility allow UNCG to:

  • move its budget between objects not previously allowed without the Office of State Budget and Management (OSBM) approval using the Budget Flexibility Request form,
  • purchase items with a higher threshold without the State Purchasing Office approval,
  • carryforward unspent appropriations (with institutional limits) from one year to the next.

UNCG not only utilizes Budget Flexibility at the department level, but also at the Institutional level when the Chancellor approves an annual Reversion Plan. The Reversion Plan projects unspent resources (typically certain lapsed salaries and benefits, but may also include overrealized receipts) and matches these resources to unbudgeted institutional needs (this may include items such as utilities, worker’s compensation and unemployment expenses, overtime and mandated institutional reversions).

In order to generate adequate funds to satisfy these needs, in addition to the Board’s rules, UNCG has implemented additional rules concerning budget flexibility. These primarily restrict for direct departmental uses the use of lapsed SPA salaries and benefits on vacant SPA and EPA positions.

In consultation with the Provost and Vice Chancellors, the Chancellor approves all uses of funds carried forward from one year to the next upon the Provost or applicable Vice Chancellor’s request and justification. UNCG’s practice has been to use these funds for special initiatives and not for general needs. A statutory maximum of 2.5% of appropriations may be carried forward from one year to the next. Extenuating budget circumstances at the State level may preclude the institution from carrying forward these funds into the new year.

Guiding Principles, Policies, and Guidelines

Following are the guiding principles, policies, and guidelines under Budget Flexibility is administered at UNCG:

  • Budgets are administered in a somewhat decentralized manner
  • A budget plan referred to as the “Reversion Plan” is put in place near the beginning of each fiscal year planning for:
    • Estimated over or under realization tuition and other receipts
    • Estimated unbudgeted Requirements needs (e.g. Worker’s Compensation)
    • A contingency set aside for centralized decisions by the Chancellor
    • Estimated historical sources of funds used to cover these items
  • Departments have full use of budget flexibility (with the exception of lapsed benefits and SPA salaries) during the year, subject to the internal hierarchy of approvals
    • Approval of Flexibility Revisions is required from the appropriate Provost or Vice Chancellor for the Division
    • Budgetary review and approval by the Director of Financial Planning & Budgets (and the Associate Vice Chancellor for Finance if the transfer is a permanent use of salaries or a temporary transfer in excess of $5,000) for identification of financial problems and institutional concerns
  • From time to time the policy may change regarding Divisions’ use of lapsed SPA salaries. Usually 100% of these salaries support the Reversion Plan. However, for Fiscal years 2001 and 2002, one half of estimated SPA lapsed salaries were allocated back to the division where the funds were generated and could be used for one-time needs.
  • Flexibility Budget Revisions may be Permanent or Temporary. In either case, an explanation or justification must be provided as to what will be accomplished that otherwise would not be done and how it will benefit the students or other aspects of the University. In addition, the specific category or purpose of the management initiative must be specified (as identified in the Annual Report on Budget Flexibility):
    • Strengthen Undergraduate Instruction and graduation rates
    • Strengthen Graduate instruction and research
    • Expand Library collections and improve library services
    • Upgrade classroom laboratories, including replacing equipment
    • Enhance physical facilities (other than classrooms and laboratories)
    • Expand computing, information resources and telecommunication capabilities
    • Strengthen student support services
    • Improve administrative infrastructure
    • Enhance financial aid programs
    • Strengthen targeted program areas
  • The carryforward of funds at the end of the year is at the Institutional level, not the departmental level. The unspent budget at the end of the fiscal is available (unless restricted due to extraordinary budgetary circumstances at the state level) for the Chancellor to allocate for the next fiscal year. However, the Provost and Vice Chancellors may make requests for carryforward when there are extenuating circumstances, particularly as they relate to major purchases. These requests require justification and submission well in advance of the close of the fiscal year.