The University of Houston System universities derive much of their revenue from state-financed enrollment-driven formula funding. In fiscal year 2005 (FY05), total state support represents 34% of revenues. Tuition and fees represent 36% of this year's budgeted revenues. Public universities cannot set their budgets until the state legislature has made its decisions about funding.

The legislature meets every other year in general session and appropriates money for the following two fiscal years. The general appropriations bill contains an appropriation for each public college and university. Other provisions restrict how it can be spent.

The Legislature convenes on the second Tuesday in January of odd-numbered years and sits for 140 days. Before it does, many recommendations about higher education funding have been made. These include:

The construction of the enrollment-based formulas by which most state dollars to Texas colleges and universities are allocated are based on budget recommendations from the Legislative Budget Board (LBB). The LBB is chaired by the Lieutenant Governor and the Speaker of the House is vice chair. Four Senators and four House members also serve.

LBB staff works from Legislative Appropriations Requests submitted by each agency. The LBB also receives the formula recommendations from the Coordinating Board. Using these numbers and estimates about future revenues, the LBB drafts a budget.

The Governor's Office of Budget, Planning, and Policy which also receives copies of the LARs, may draft a separate budget for the Governor to submit. Whether it does so is at the discretion of the Governor.

Formula funding

More than two-thirds of state appropriations to Texas colleges and universities comes as enrollment-driven formula. In FY05 formula funding constituted 81% of state appropriations to the University of Houston, 84% to UH-Clear Lake, 75% to UH-Downtown, and 68% to UH-Victoria.

The formulas try to assess the cost of delivering a semester credit hour to a student. Many variables influence the costs of educating a given student, so in Texas the formulas are highly differentiated by the type of credit hours delivered.

Some variables include the area of study, the level of study (e.g. doctoral) and the cost of serving students (e.g. instructional support, library, building maintenance).

About two years before the legislative session, the commissioner of the Texas Higher Education Coordinating Board appoints faculty, administrators, and public members to a Formula Advisory Committee and its study groups. The Formula Advisory Committee makes recommendations to the Coordinating Board, which makes recommendations to the LBB.

Each institution's student enrollment and physical plant parameters are factored into the formulas to determine its funding. The enrollment is based on the summer and fall terms immediately preceding the legislative session and the spring term when the session is held. Only students enrolled for credit are counted, and for most Formula variables, the number used is student credit hours not student headcount.

In general, if an institution loses enrollment, its formula funding will decrease; if enrollment expands, formula funding will grow. This may vary substantially if the enrollment mix changes. If undergraduate enrollment declines but graduate enrollment expands, it is possible for an institution's funding to remain stable.

The formulas do not determine how much money the legislature appropriates to higher education, but they do determine how the funding is allocated among institutions.

Each institution of higher education drafts a Legislative Appropriations Request (LAR) which forms the basis for the funding items which it wants to be considered. Included are requests for debt service on approved construction and special items, which are usually major research initiatives.

In recent years, universities and other agencies were told that they could request for the upcoming biennium no more than a certain percentage of what they had received in the current biennium. However, any university can seek additional funds by including "exceptional item requests" in the LAR or by presenting its case directly to members of the Legislature.

The general appropriations bill is divided into articles that group agencies by functional areas. Education is funded in Article III.

Article IX contains provisions proscribing how agencies spend money, including travel reimbursements levels, restrictions on publishing and disseminating reports, and prohibitions on lobbying expenditures. Some of its provisions, commonly called riders, can reduce an institution's state funding below the amount it seems slated to receive in Article III.

In addition to the funds appropriated to institutions by name in Article III, the bill appropriates other funds that support higher education, including:

• Health benefits through the Employees Retirement System appropriation.
• Retirement benefits through the Teacher Retirement System appropriation.
• Competitive research grants distributed by the Coordinating Board.
• Higher Education Assistance Fund (HEAF) money for construction and equipment.
• Funds to promote increased research capacity and to develop institutional excellence through the Texas Excellence Fund created in 2001.
• Scholarship funding through the Texas Grant program

The Senate Finance Committee and House Appropriations Committee work concurrently on similar general appropriations bills, meeting daily and often nightly. They may authorize subcommittees to conduct public hearings and leave debate of the details to the full committee.

Agency hearings begin as soon as committees are appointed by the Speaker and Lieutenant Governor in January or early February. At this time, the committees or their higher education subcommittees ask institutions to testify on provisions of the bill that concern them and answer questions.

Both the House and Senate committees try to complete mark-up on their respective bills by early April and pass a bill by late April. Differences between the two versions are worked out in conference committee with a target date in mid-May. Generally, final consideration of the appropriations bill by both houses is delayed until the waning days of the session.

The Comptroller must certify that revenues will be available to support the appropriations. Then the bill is sent to the governor, who has line item veto authority.

When the legislature is not in session, the Governor and the LBB have authority-through a process called budget execution-to transfer appropriations from one state agency to another or within a single agency.

An institution must adopt an operating budget for each fiscal year, which runs from September 1 through August 31. The UH System Board of Regents approves the budgets of each UH System university and the system administration.

In short, state funding for universities is largely determined by the semester credit hours generated by that institution. This flows through the formulas. The Legislature can decide to fund formulas at a greater or lesser level, and that affects total funds for all institutions. A greater investment in higher education is the number one priority for the UH System.

In recent years, the Legislature has granted more flexibility to university systems to set their tuition and fee rates. A major objective of universities has been to prevent decisions to raise fees and tuition from reducing the institution's state appropriation.

State of Texas
Texas Senate
Texas House of Representatives
LBB
Comptroller Office
Texas Higher Education Coordinating Board