(This legislative update is produced by the UH System Office of Governmental Relations and the UH Division of University Advancement as a service to the UH System community, our alumni, and our friends.)
Report on Five Key Legislative Issues and Their Impact on UH System Universities
Anyone with an interest in politics knew that the 78th Texas Legislative Session was going to be a difficult process, probably the most challenging in the past five decades.
A new Lt. Governor and Speaker of the House led Republican majorities in both houses for the first time since Reconstruction, while a projected budget shortfall of almost $10 billion overshadowed other major issues such as public school finance, tort reform, the crisis in homeowner's insurance, lottery sunset, and a new ethics statute.
That the Legislature ultimately reached closure on all of these issues, with the exception of public school finance (which is apparently scheduled for a late fall special session), is extraordinary.
"While the UH System prepared for the worst, it seems that we—and higher education—have fared better than anticipated," said UH System Chancellor and UH President Arthur K. Smith. "We are indeed grateful for the successful resolution of five major issues this session—Tier One excellence funding, base funding, tuition flexibility, Tropical Storm Allison recovery funding, and retention of indirect cost reimbursements.
"The continued support and leadership provided by the Upper Gulf Coast legislative delegation and other legislators from throughout the state who support higher education," Smith continued, "was essential and is very much appreciated."
Below is a preliminary report on the five key issues cited by Smith:
Tier One Excellence Funding
Six years ago, the University of Houston initiated the discussion about the need to support the establishment of additional public Tier One research universities in Texas besides the University of Texas at Austin and Texas A&M University at College Station. UT and A&M had achieved national competitiveness by accessing excellence funding outside of base formula funding through the Permanent University Fund
During the 77th Legislative Session in 2001, legislators responded by establishing two funds, the Texas Excellence Fund and the University Research Fund, to support and develop additional major research universities in Texas. However, while the two funds were equal in dollars—approximately $35 million for the biennium—there were inherent inequities, since one fund supported three times as many universities, with three times the enrollment, and twice the research funding as the other fund.
HB 3526 by Rep. Peggy Hamric and Sen. Robert Duncan, with the strong co-sponsorship and support of area legislators, successfully resolved this contentious issue by establishing, effective in FY06, a single fund, called Research Development Fund, to be equitably distributed based on a university's three-year average of federal restricted research.
"Texas will be the long-term beneficiary of this landmark legislation," Smith said. "The development of additional Tier One research universities—including UH—will lead to the creation and commercialization of new technologies, the formation of spin-off companies, enhancement of the workforce, and the creation of new jobs in the state.
"In particular I want to thank CATS, the Cougar Advocates for Texas, and all those who participated in UH System Day in Austin, for bringing the 'One Goal, One Research Fund' message to our legislators. Our gratitude also goes to all the students, faculty, staff, alumni, and friends who wrote letters and made phone calls to their legislators during the session"
Base Funding
Next biennium's base funding for all of higher education was initially reduced by 12.5% from current levels. This represented a reduction of $36.8 million in general revenue for the four UH System universities. Ultimately, the House/Senate conference committee for the general appropriations bill was able to identify an additional $600 million for all of higher education, including general academics, health institutions, and community colleges.
System-wide, UH System institutions will see a reduction of $8.6 million (-2.2%) in general revenue funding for the next biennium. Formula funding was increased by 3.3%, and all special items were reduced by 12.5%. From these appropriations and from increases in designated tuition, institutions will have to cover continued enrollment growth and a funding shortfall for debt service of $7.9 million for the UH System.
Even though general revenue funding was reduced, several positive funding initiatives were resolved this session, including Tropical Storm Allison recovery funding and retention of indirect cost reimbursements, which will help the UH System and especially UH.
Tropical Storm Allison Recovery Funding
The University of Houston suffered massive losses of some $103 million in June 2001 as a result of Tropical Storm Allison. Ultimately, insurance and FEMA covered all but $25 million of the recovery expenditures. Sen. Rodney Ellis and Rep. John Davis introduced legislation authorizing UH to issue $25 million in tuition revenue bonds to cover this shortfall. This authority was ultimately included in HB 1941 by Rep. Beverly Woolley, which awaits the Governor's signature.
Retention of Indirect Cost Reimbursements
"Prior to this session," Smith said, "Texas was one of few states in the nation that did not allow universities to keep 100 percent of monies received to cover overhead costs related to federal research grants. Until now, Texas universities were allowed to retain only 50 percent."
HB 1887 by Rep. Geanie Morrison and Sen. Bill Ratliff will resolve that longstanding inequity by allowing public universities in Texas to retain and reinvest 100 percent of these funds. For UH, it will result in an additional $3.3 million annually, with lesser amounts for UH-Clear Lake, UH-Downtown, and UH-Victoria, since federal research grants to these three universities are much smaller. This legislation, in conjunction with HB 3526 establishing the Research Development Fund, will provide the platform for the University of Houston to achieve its goal of becoming a Tier One research university.
Tuition Flexibility
As a result of the state's fiscal crisis, revision of the state's tuition statutes was brought to the legislative forefront. The UH System developed three basic objectives for review of the various proposals submitted:
Several proposals met these objectives, including the legislation that first passed the House and Senate, and ultimately, the conference committee recommendation approved by both houses. This legislation will allow complete deregulation of all designated tuition effective in the spring semester 2004.
"While we expect fairly modest increases in designated tuition rates at our universities next spring," Smith said, "we are unable, at this time, to estimate the range.
"The UH System is grateful to the Legislature for providing access to additional and necessary resources, and is mindful of the new fiduciary responsibility with which it has been entrusted."
A complete review and analysis of the appropriations bill and other legislation, and of the existing budget and operations, will be conducted in the coming weeks before Smith makes his final recommendations on tuition increase to the Board of Regents in August. Student input will be sought as part of the review.
Conclusion
"The UH System recognizes the extraordinary fiscal constraints currently facing Texas and the many difficult funding decisions members of the Legislature had to make this session," Smith said. "Especially considering funding levels as they were projected in January, we are pleased with the resources provide for the next biennium. The bottom line is that we came out considerably better than the dark picture that was painted back in January.
"The UH System is very pleased with the support received from the Governor, Lt. Governor, Speaker of the House, and our legislative delegation. We look forward to a productive interim and a healthier economic forecast for the future of Texas."
(Editor's note: Laura Calfee, Grover Campbell, Oscar Gutiérrez, and Chris Stanich collaborated on this report)