April 1, 2005

RICHMOND – Governor Mark R. Warner today highlighted key elements of the substitute bill he is offering on SB 1327 and HB 2866, the Restructured Higher Education Financial and Administrative Operations Act. The legislation sets forth enabling legislation for the restructuring of Virginia’s public institutions of higher education that will extend them autonomy in areas such as capital building projects, procurement, and personnel. The autonomy would come with state oversight and with articulated state goals for the institutions to meet.

Under the bill, three levels of autonomy will be available to all public institutions of higher education, with the level of autonomy depending on each institution's financial strength and ability to manage day-to-day operations. The bill requires the institutions to develop six-year academic, financial and enrollment plans that outline tuition and fee estimates as well as enrollment projections, to develop detailed plans for meeting statewide objectives, and to accept a number of accountability measures, including meeting benchmarks related to accessibility and affordability. Financial incentives will be available to schools which meet state objectives.

“This bill is the most sweeping change in our outstanding system of public higher education in decades,” said Governor Warner. “In the effort to provide colleges and universities with more predictability and flexibility, we have worked to ensure that Virginians see tangible benefits, like improved access, affordability, and quality. And in return for additional autonomy from the state, the institutions must remain committed to enterprise-wide government reforms, especially helping the state leverage its purchasing power and manage information technology in the most cost-efficient way.”

“My amendments also focus particularly on personnel issues,” said the Governor. “We worked to make sure all employees are treated the same in areas like retirement and health insurance, and that existing employees have an initial choice -- and then regular opportunities -- to enter a new university personnel system.”

The Legislation Ties Autonomy to State Goals

The legislation as enrolled at the end of the Regular Session of the 2005 General Assembly reflected the priorities Governor Warner had articulated in a series of regional meetings on the future of higher education last fall. The Governor and legislators agreed during the session to focus the autonomy discussions on achieving measurable outcomes instead of simply changing processes. Toward that end, as part of the enrolled bill that came to the Governor at the end of the session, institutions will have to commit themselves formally to meeting basic state policy objectives:

• Access to higher education, including meeting enrollment demand
• Affordability, regardless of income
• Provide a broad range of academic programs
• Maintain high academic standards
• Improve student retention and progress toward timely graduation
• Develop uniform articulation agreements with community colleges
• Stimulate economic development, and for those seeking further autonomy, assume additional responsibility for economic development in distressed areas
• Where appropriate, increase externally funded research and improve technology transfer
• Work actively with K-12 to improve student achievement
• Prepare a six-year financial plan
• Meet financial and administrative management standards.

In return for committing themselves to meet these objectives, schools will receive some additional operational autonomy in areas like procurement, personnel, and capital outlay (Level I).

The State Council on Higher Education in Virginia (SCHEV) will develop performance indicators to measure whether the institutions are meeting the state’s objectives. The Governor will develop performance indicators for financial and administrative management. All indicators will be included in the next budget bill, for legislative review.

Institutions which are certified as meeting the state’s objective will receive financial incentives:

• Interest earnings on tuition and fees
• Mandatory re-appropriation of unexpended balances
• A rebate on purchases made through the small purchase charge card
• A rebate on sole source procurements made through that state’s automated procurement system for which they have paid fees

Institutions seeking additional operational freedom may seek an MOU in areas to be identified by the Governor in the next budget bill (Level II).

Institutions with at least a AA- bond rating may seek additional autonomy through a management agreement which must be negotiated with executive officials designated by the Governor, and then be formally approved by the General Assembly. The management agreement defines the authority an institution may exercise. The management agreement can affect:

•Financial operations
• Capital Outlay
• Procurement
• Information technology
• Personnel and human resources

Key Amendments Offered by the Governor

The Governor’s substitute retains the basic framework of the enrolled bill.

• Strengthens legislative oversight by requiring all management agreements – not just new agreements – to be approved by the General Assembly.

• Clarifies language surrounding higher education’s commitment to access, research, economic development, K-12 student achievement, and management efficiencies.

• More directly links individual institutional performance to overall statewide goals through the SCHEV strategic planning process.

• Further defines areas in which institutions can have operational flexibility with reasonable legislative and gubernatorial oversight.

• Codifies the Commission on Higher Education Board Appointments established at the outset of Governor’s Warner’s term, to continue to review and recommend qualified candidates for college and university governing boards.

• Grants current employees of a covered institution (level III) the choice to remain in the existing state classified personnel system or to move to a new personnel system, and requires a covered institution to conduct a periodic salary and benefits comparison.

• Strengthens a covered institution’s commitment to cost-containment and to meeting the financial aid needs of lower- and middle-income students through explicit provisions of a management agreement.

• Makes clarifying and technical changes that conform the bill with legislative intent and existing law.

Personnel Changes

The Governor’s amendments in the area of personnel are the most extensive of the amendments.

Classified employees on staff as of the effective date of the initial management agreement will get at least 90 days to choose whether to remain classified employees -- with all policies and benefits -- or opt into a new university personnel system.

At least every two years from the initial effective date of the management agreement, classified employees will get that same choice again.

All staff employed after the effective date of the initial management agreement will fall under the new university personnel system. Generally speaking, this system could make changes in policies like:

• classification and pay practices;
• leave; and
• benefits other than retirement, health insurance, and worker’s comp.
• (Health insurance, retirement, worker’s comp, and the existing grievance procedure could not be altered.)

All employees, regardless of personnel system, remain under: the existing worker’s compensation program; the existing retirement system (VRS); and under the health insurance program now provided.

After a period of time, each institution is required to conduct a comparability assessment on compensation, to determine how different classes of employees have been compensated as classified versus university employees. The results will be communicated to all employees.

The bill strengthens existing provisions which require a covered institution to compensate the Commonwealth for any increased costs that are attributable to the institution's exercise of any restructured financial or operational authority set forth Level III (such as the cost of adverse selection).

The bill eliminates the definition and all references to “grandfathered” and “non-grandfathered” employees.