Final Report

HIGHER EDUCATION

The Higher Education Committee was assigned, pursuant to Section 24 of 2003 House Bill No. 1003, a study of higher education to further refine the expectations of the North Dakota University System in meeting the state's needs in the 21st century, the funding methodology needed to meet those expectations and needs, and the accountability system and reporting methodology for the University System.

Committee members were Senators Ray Holmberg (Chairman), Tim Flakoll, Tony S. Grindberg, Ed Kringstad, Elroy N. Lindaas, and Dave Nething and Representatives Ole Aarsvold, Thomas Brusegaard, Bette B. Grande, Kathy Hawken, Nancy Johnson, Frank Klein, Bob Martinson, Eugene Nicholas, Darrell D. Nottestad, and Steven L. Zaiser. Representative Janet Wentz was also a member of the committee until her death on September 15, 2003.

The committee submitted this report to the Legislative Council at the biennial meeting of the Council in November 2004. The Council accepted the report for submission to the 59th Legislative Assembly.

BACKGROUND

The North Dakota University System consists of 11 institutions under the control of the State Board of Higher Education. The system served approximately 39,614 students (headcount enrollment) during the 2002-03 academic year, which represents approximately 32,107 full-time equivalent (FTE) students. Total spending provided by the 2003 Legislative Assembly for higher education institutions, including the North Dakota University System office, totaled $472,088,193, of which $361,541,418 was from the general fund, including block grant appropriations to each of the higher education institutions for operations and capital assets and $110,546,775 from special funds, including approximately $107 million for capital improvement projects. The legislative appropriations for the 11 institutions, the North Dakota University System office, and the Forest Service include funding for 2,400.38 FTE general fund positions for the 2003-05 biennium.

PREVIOUS LEGISLATIVE HIGHER EDUCATION STUDIES AND RELATED LEGISLATION

1999-2000 Study

During the 1999-2000 interim, the Higher Education Committee studied higher education funding, including the expectations of the North Dakota University System in meeting the state's needs in the 21st century, the funding methodology needed to meet these expectations and needs, and the appropriate accountability and reporting system for the North Dakota University System. The committee, through the use of a Higher Education Roundtable consisting of the 21 members of the Higher Education Committee and 40 representatives from the State Board of Higher Education, business and industry, higher education institutions, including tribal and private colleges, and the executive branch, discussed shifts, trends, and realities that impact the state of North Dakota and the North Dakota University System and developed expectations for the North Dakota University System, recommendations concerning higher education in North Dakota, and accountability measures and success indicators that correspond with the expectations for the North Dakota University System.

The committee recommended six bills for consideration by the 2001 Legislative Assembly:

Senate Bill No. 2037 (2001), which was amended into Senate Bill No. 2003 (2001), provided a continuing appropriation for all funds in higher education institutions' special revenue funds, including tuition income and local funds, and allowed institutions to carry over at the end of the biennium unspent general fund appropriations. The effective date of the legislation was changed to apply through June 30, 2003.
Senate Bill No. 2038 (2001), which was amended into Senate Bill No. 2003 (2001), required the budget request for the North Dakota University System to include budget estimates for block grants for a base funding component and for an initiative funding component and a budget estimate for an asset funding component and the requirement that the appropriation for the North Dakota University System include block grants to the State Board of Higher Education for a base funding appropriation and for an initiative funding appropriation and an appropriation for asset funding.
Senate Bill No. 2039 (2001), as passed, allowed the State Board of Higher Education to authorize campus improvements and building maintenance projects that are financed by donations, gifts, grants, and bequests if the cost of the improvement or maintenance is not more than $385,000.
Senate Bill No. 2040 (2001), which failed to pass, would have allowed the North Dakota University System to provide bonuses, cash incentive awards, and temporary salary adjustments without reporting the activity to the Office of Management and Budget as a fiscal irregularity.
Senate Bill No. 2041 (2001), as passed, included the committee's recommendation to recognize the institutions under the control of the State Board of Higher Education as the North Dakota University System and to require the University System to develop a strategic plan which defines University System goals and objectives and to provide an annual performance and accountability report regarding performance and progress toward the goals and objectives.
Senate Bill No. 2042 (2001), as passed, included the committee's recommendation to amend and repeal statutes relating to the powers of the State Board of Higher Education and the duties and responsibilities of institutions under the control of the State Board of Higher Education, which were no longer appropriate.

The committee also recommended financial and nonfinancial accountability measurements to be reported annually at the North Dakota University System level.

2001-02 Study

The Higher Education Committee during the 2001-02 interim studied the State Board of Higher Education implementation of the performance and accountability measures report. The committee, through the use of a Higher Education Roundtable consisting of the 22 members of the Higher Education Committee and 44 representatives from the State Board of Higher Education, business and industry, higher education institutions, including tribal and private colleges, and the executive branch, reviewed plans for and accomplishments relating to the recommendations of the 1999-2000 Higher Education Roundtable, reviewed the state's New Economy Initiative and its linkage to the Higher Education Roundtable cornerstones and recommendations, and developed high-priority action items concerning higher education in North Dakota. The committee also reviewed the North Dakota University System long-term financing plan and resource allocation model approved by the State Board of Higher Education and the North Dakota University System first annual performance and accountability report.

The committee recommended four bills for consideration by the 2003 Legislative Assembly:

House Bill No. 1039 (2003), which was amended into House Bill No. 1003 (2003), provided for the continuation of the continuing appropriation authority for higher education institutions' special revenue funding, including tuition. The effective date of the legislation was changed to apply through June 30, 2005.
House Bill No. 1040 (2003), which was amended into House Bill No. 1003 (2003), provided for the continuation of the North Dakota University System's authority to carry over at the end of the biennium unspent general fund appropriations. The effective date of the legislation was changed to apply through June 30, 2005.
House Bill No. 1041 (2003), which was amended into House Bill No. 1003 (2003), continued the requirement that the budget request for the North Dakota University System include budget estimates for block grants for a base funding component and for an initiative funding component and a budget estimate for an asset funding component and the requirement that the appropriation for the North Dakota University System include block grants for a base funding appropriation and for an initiative funding appropriation and an appropriation for asset funding. The effective date of the legislation was changed to apply through June 30, 2005.
House Bill No. 1042 (2003), which failed to pass, would have amended North Dakota Century Code (NDCC) Section 15-10-14.2 to require the North Dakota University System performance and accountability report to include an executive summary and specific information regarding education excellence, economic development, student access, student affordability, and financial operations. The 2003 Legislative Assembly amended House Bill No. 1003 to provide legislative intent that the North Dakota University System performance and accountability report include an executive summary and specific information regarding education excellence, economic development, student access, student affordability, and financial operations.

HIGHER EDUCATION ROUNDTABLE

A Higher Education Roundtable consisting of the 16 members of the Higher Education Committee and 45 representatives from the State Board of Higher Education, business and industry, higher education institutions, including tribal and private colleges, and the executive branch was reconvened during the 2003-04 interim to discuss higher education in North Dakota and recommendations for action by the Legislative Assembly, North Dakota University System, executive branch, and private sector. The North Dakota University System contracted with Mr. Dennis Jones, President, National Center for Higher Education Management Systems, Boulder, Colorado, for consulting services.

The Higher Education Roundtable met on October 21, 2003, to:

Review observations relating to the status of higher education in North Dakota.
Develop meaningful recommendations for enhancing the economy and other appropriate issues concerning higher education in North Dakota.

Status of Higher Education

The Higher Education Roundtable received information from Governor John Hoeven, Mr. Jones, and a representative of the Western Interstate Commission on Higher Education (WICHE) regarding the status of higher education in North Dakota. The roundtable received reports that the 2001 and 2003 Legislative Assemblies provided the North Dakota University System greater flexibility with corresponding accountability and enacted other provisions improving the state's business climate. The roundtable received testimony that the state's next steps should include the coordination of development efforts between the Department of Commerce, North Dakota University System, and private sector; the leveraging of research funding to maximize effectiveness; and the commercialization of research to create new products, services, and jobs.

The roundtable learned:

84 out of every 100 ninth graders in North Dakota graduate from high school, and 58 out of 100 ninth graders enter postsecondary education.
North Dakota "imports" approximately 800 postsecondary students each year.
44.2 percent of North Dakota's bachelor's degree students graduate within six years, as compared to the national average of 53 percent.
30.7 percent of North Dakota's associate degree students graduate within three years, as compared to the national average of 30 percent.
25.7 percent of the state's adults aged 25 to 64 have a bachelor's degree or higher, as compared to the national average of 26.5 percent.
The part-time undergraduate enrollment as a percentage of 25- to 44-year-olds is 3.6 percent, as compared to the national average of 6.2 percent.
39.8 percent of employees in North Dakota have a college degree, as compared to the national average of 36.1 percent.
The state retains approximately 46 percent of system graduates in the state one year after graduation.

The roundtable also learned WICHE's mission is to expand educational access and excellence for all the western region citizens by promoting innovation, cooperation, resource sharing, and sound public policy and thereby strengthening higher education's contributions to the region's social, economic, and civic life. North Dakota participates in WICHE's student exchange programs, including the professional student exchange program, the western undergraduate exchange program, and the western regional graduate program. North Dakota ranks low in state needs-based financial aid and high in tuition levels but ranks high in the share of low-income population participating in higher education.

Task Force Process

The Higher Education Roundtable reconvened six task forces that were similar to those formed for the 1999-2000 Higher Education Roundtable--Economic Development Connection, Education Excellence, Flexible and Responsive System, Accessible System, Funding and Rewards, and Sustaining the Vision--to develop meaningful recommendations for enhancing the economy and other appropriate issues for consideration by the interim Higher Education Committee, North Dakota University System, executive branch, and private sector.

The task forces, chaired by legislative committee members, developed by consensus the following recommendations:

Economic Development Connection

Continue the strong emphasis on the direct connections and contributions of the North Dakota University System to the economic growth and social vitality of North Dakota.
Develop a more positive image of the state of North Dakota.
Continue to assist with business development.

Education Excellence

Continue to build support for the roundtable, particularly with higher education faculty.
Recognize the importance of education excellence and that the cornerstones, although numbered 1 through 6, are not priority-ranked.
Encourage higher education institutions, departments, and programs to establish private sector advisory boards.
Improve higher education retention and graduation rates through improved college preparation and support for college students.
Revise the accountability measures relating to education excellence to be more focused.

Flexible and Responsive System

Anticipate and identify future trends in North Dakota and apply a flexible and proactive approach.
Facilitate a flexible and responsive system through an internal and external open exchange of information.
Define a successful North Dakota University System partnership arrangement.

Accessible System

Enhance the marketing efforts of the North Dakota University System with a focus on the older than average student.
Develop a seamless preschool through college system, including the review of dual credit courses and affordability.
Review student financial assistance, including state-funded, needs-based aid, and related student debt.
Review the impact of increased tuition costs on enrollment.

Funding and Rewards

Sustain the vision of the roundtable and have the State Board of Higher Education examine how the vision can be carried out through the individual and collective assets of the North Dakota University System.
Create a culture and provide funding to reward success at the institutional and unit level and to provide incentives as a means of encouraging accomplishment of roundtable objectives, including collaboration. The definition of success needs to be determined at the outset.
Support the long-term financing plan adopted by the State Board of Higher Education. Any revisions to the plan should be completed in a broader context that examines the balance between state, institutional, and student sources, including the relationship of tuition to needs-based financial aid.

Sustaining the Vision

Continue the roundtable concept by retaining the structure of the membership and having annual meetings.
Develop a clear and concise message of the roundtable which explains the goals, objectives, benefits, and impacts of the roundtable.
Expand communication of the goals, objectives, benefits, and impacts of the roundtable to the:

General public.

Legislative Assembly.

Public and private higher education faculty, staff, and students.

Kindergarten through grade 12 administration and staff.

Business community.

Professional societies.

Trade associations.

The Higher Education Roundtable also met on June 15, 2004, to:

Review the progress made, current status, and further actions needed to enhance the economic and social vitality of the state and make the state more attractive for new business and business expansion.
Review the impact of the Higher Education Roundtable on higher education in the state.
Review Higher Education Roundtable achievements and remaining challenges for the stakeholders of higher education.
Develop recommendations for action by the Legislative Assembly, North Dakota University System, executive branch, and private sector.

Progress Made and Further Actions Needed

The Higher Education Roundtable received information from representatives of the private sector regarding the progress made, current status, and further actions needed to enhance the economic and social vitality of the state and to make the state more attractive for new business and business expansion. The roundtable learned the higher education institutions should work on geographical diversity by increasing recruitment efforts outside the regional area. It is important for the private sector to have access to individuals with good "soft skills" and local access to training for those skills. The state needs to identify specific skills needed by business and industry and ensure that those skills are being taught at higher education institutions. The state should also allow businesses in small communities to utilize the statewide information technology network to receive management and other workforce training.

Impact of the Higher Education Roundtable

The Higher Education Roundtable received information from North Dakota University System higher education institution presidents regarding the impact of the Higher Education Roundtable on higher education in the state. The roundtable learned the state has a better understanding of higher education because of the Higher Education Roundtable. The roundtable has resulted in a common vision for the North Dakota University System, goals and objectives for institution presidents to accomplish, and a higher level of trust between all stakeholders.

Achievements and Remaining Challenges

The Higher Education Roundtable received information from Mr. Jones regarding roundtable achievements and remaining challenges for the stakeholders of higher education and learned:

The roundtable should have a public agenda that focuses on the future of higher education.
The state may be losing the urgency relating to the vision of the roundtable. The goals, objectives, benefits, and impacts of the roundtable should be shared with public and private higher education faculty, staff, and students; the business community; and the general public.
The state's finance policy relating to higher education should be aligned with the roundtable's public agenda.
The state's accountability mechanism relating to higher education should be aligned with the roundtable's public agenda.
The state should continue the roundtable concept by having annual meetings.
The state's higher education institutions are functioning more entrepreneurially; however, the institutions must also function as a system. The flexibility granted to institutions has resulted in the institutions being more competitive, but the institutions must also be more collaborative.

Discussion Group Process

The Higher Education Roundtable convened six discussion groups to develop recommendations for action by the Legislative Assembly, North Dakota University System, executive branch, and private sector.

The discussion groups, chaired by legislative committee members, developed by consensus the following recommendations:

Discussion Group A

Continue to provide investments in higher education.
Continue to emphasize the building of trusting relationships.
Review other states' processes for completing legislative requests for information.
Integrate the vision of the roundtable to all levels of the North Dakota University System and the general public.
Review the higher education accountability measures and make changes as necessary.

Discussion Group B

Conduct an evaluation of the higher education accountability measures to determine the usefulness of the measures in developing public policy and making campus-level management decisions.
Continue the roundtable concept by having two meetings each year with a half-day orientation session for new members.
Identify necessary "soft skills" needed by the private sector and incorporate the teaching of those skills into the curriculum for academic programs.
Increase the faculty representation on the roundtable by at least including the president of the North Dakota University System Council of College Faculties.

Discussion Group C

Provide funding to the State Board of Higher Education to encourage and reward collaboration between higher education institutions.
Provide incentives to students and faculty relating to student internships.
Continue to promote higher education centers of excellence.
Allow Work Force 2000 funding to be utilized by employers for providing "soft skills" training to employees.
Market the benefits of the roundtable to the general public.
Interface with the federal government when possible.
Identify necessary "soft skills" needed by the private sector and incorporate the teaching of those skills into the curriculum for academic programs.

Discussion Group D

Continue the roundtable concept by convening a roundtable meeting before the 2005 legislative session.
Continue the budgetary flexibility granted to the higher education institutions by the Legislative Assembly.
Review the higher education accountability measures and make changes as necessary.
Provide funding to the State Board of Higher Education to encourage and reward collaboration between higher education institutions.
Conduct a study of the remedial needs of higher education students.
Allow new or expanding businesses in small communities to access the statewide information technology network for a limited period of time and allow other businesses in small communities to access the network to receive workforce training.
Develop academic programs that respond quickly to the state's needs.
Identify necessary "soft skills" needed by the private sector and incorporate the teaching of those skills into the curriculum for academic programs.
Communicate the results of a survey being conducted by Job Service North Dakota regarding job skills needed by employees.
Provide higher education funding equal to 21 percent of the total state budget.

Discussion Group E

Provide assistance to the private sector relating to the accessing of broadband telecommunications services.
Provide higher education funding equal to 21 percent of the total state budget utilizing the long-term financing plan adopted by the State Board of Higher Education.
Develop a structured and uniform student internship program through a task force consisting of higher education and private sector members.

Discussion Group F

Identify necessary "soft skills" needed by the private sector, incorporate the teaching of those skills into the curriculum for academic programs, and inform students of the skills they should possess.
Develop a uniform student internship program that benefits both students and the private sector.
Review the higher education accountability measures and make changes as necessary.
Review the provision of distance education programs by higher education institutions, including the distribution of revenue generated by distance education programs.
Explain the goals, objectives, benefits, and impacts of the roundtable to potential beneficiaries.

PERFORMANCE AND ACCOUNTABILITY REPORT

North Dakota Century Code Section 15-10-14.2 requires the North Dakota University System to provide an annual performance and accountability report regarding performance and progress toward the goals outlined in the North Dakota University System strategic plan and related accountability measures. Section 18 of House Bill No. 1003 (2003) provides that the performance and accountability report as required by NDCC Section 15-10-14.2 is to include an executive summary and identify progress on specific performance and accountability measures in the areas of education excellence, economic development, student access, student affordability, and financial operations.

The committee learned the State Board of Higher Education adopted 12 performance and accountability measures, in addition to the 25 measures required by the 2003 Legislative Assembly, that are to provide guidance in establishing effective policy for the 11 system institutions.

The committee received the North Dakota University System's third annual performance and accountability report in March 2004. The report included information on all the performance and accountability measures required by the 2003 Legislative Assembly and adopted by the State Board of Higher Education except for employer-reported satisfaction with the preparation of recently hired graduates and employer-reported satisfaction with the system's responsiveness. The committee was informed that information regarding those measures will be included in the 2004 annual report. The committee also learned the University System has started an internal review of the performance and accountability measures and the system anticipates providing meaningful recommendations regarding changes to the performance and accountability measures to the 2005 Legislative Assembly.

The performance and accountability measures and related findings are:

Accountability Measures	Status - Findings
Economic development connection
Number of businesses and employees in the region receiving training	The number of businesses using North Dakota's workforce training system to provide training for their employees increased 188 percent between fiscal years 2000 and 2003. The number of employees who received training increased 32 percent during the same period.
Levels of satisfaction with training events as reflected in information systematically gathered from employers and employees receiving training	Businesses reported a 99.9 percent average workforce training satisfaction level for fiscal year 2003. Employees reported a satisfaction level of 98.5 percent with workforce training during the same period.
Research expenditures in proportion to the amount of revenue generated by research activity and funding received for research activity	Real dollar research has grown by more than 50 percent during the last four years with $92 million in research expenditures in fiscal year 2003. Research expenditures comprised 17.7 percent of total University System expenditures in fiscal year 2003, compared to 15.2 percent in fiscal year 2000.
Education excellence
Ratio of faculty and staff to students	The average University System student-to-faculty ratio is 15.9-to-1, ranging from 13.6-to-1 at Minot State University to an average of 16.3-to-1 at the doctoral universities. The average student-to-staff ratio is 12.9-to-1 for the University System, ranging from an average of 11.1-to-1 at the doctoral universities to an average of 19.6-to-1 at the two-year institutions.
Student performance on nationally recognized exams in their major fields compared to the national averages	University System students met or exceeded the national average on most nationally recognized exams for fiscal year 2003.
First-time licensure pass rates compared to other states	University System graduates exceeded the national first-time licensure pass rates for most professions measured for fiscal year 2003.
Student graduation and retention rates	Based on adjusted 2002 graduation rates, 46.9 percent of students who attended University System two-year institutions completed degrees within three years, and 48.2 percent of four-year students completed degrees within six years, compared to the national rates of 29.8 percent and 54 percent, respectively.
Alumni-reported and student-reported satisfaction with preparation in selected major, acquisition of specific skills, and technology knowledge and abilities	For alumni who graduated between July 1999 and June 2000, 74.1 percent reported their current jobs were highly related or moderately related to the most recent degrees they earned, and 82.4 percent reported the institution they attended prepared them at least adequately for their current jobs. Based on results of a student satisfaction inventory conducted in October 2002, University System students are generally satisfied with their college experience.
Levels of satisfaction and reasons for noncompletion as reflected in a survey of individuals who have not completed their program or degree	Based on surveys of students who left University System institutions during fall 2002, spring 2003, and fall 2003 semesters, it was determined that most students left because they wanted to attend a different college or university. Other students left because they wanted to move to a new location or because they believed the majors they wanted were not offered at the institution they were attending.
Levels and trends in the number of students achieving goals - Institution meeting the defined needs and goals as expressed by students	At two-year institutions, 49.1 percent of students indicated the intent to earn a two-year degree, and 46.9 percent completed two-year degrees within three years. At four-year institutions, 61.2 percent indicated the intent to earn four-year degrees, while 48.2 percent completed four-year degrees within six years.
Percentage of University System graduates obtaining employment appropriate to their education in the state	Approximately 70 percent of the graduates who remain in North Dakota and are employed find full-time employment related to their education or training.
Enrollment in entrepreneurship courses and the number of graduates of entrepreneurship programs	University System institutions offer 45 entrepreneurship courses, two entrepreneurship programs, and one option within a program. In the past year, 862 students enrolled in entrepreneurship courses, and six students graduated from entrepreneurship programs. An additional 425 participants attended three noncredit seminars that had an entrepreneurial focus.
Equipment expenditure ratio measuring total funds used for equipment replacement as compared to the total inventory value	For fiscal year 2003, the University System ratio of equipment replacement to total equipment inventory was 12.6 percent.
Flexible and responsive system
Levels of satisfaction with responsiveness as reflected through responses to evaluations and surveys of graduates and individuals completing programs	More than 85 percent of University System alumni reported overall satisfaction with the quality of instruction at the institution they attended, and 96 percent would recommend the institution to other individuals.
Levels of satisfaction with responsiveness as reflected through responses to evaluations and surveys of companies and employees receiving training	In fiscal year 2003, companies reported a 99.9 percent satisfaction level with responsiveness of the workforce training system in North Dakota.
Biennial report on employee satisfaction relating to the University System and local institutions	University System employees consistently expressed a higher level of employee satisfaction when compared to national survey results.
Accessible system
Levels and trends in rates of participation of: Recent high school graduates and nontraditional students Individuals pursuing graduate degrees	An increasing number of beginning freshmen and students aged 25 and older are enrolling at University System institutions. The number of students who are enrolled in graduate and professional programs has increased 36 percent during the past five years.
Student enrollment, including: Total number and trends in full-time, part-time, degree-seeking and non-degree-seeking students being served The number and trends of individuals, organizations, and agencies served through noncredit activities	University System part-time and full-time degree credit headcount enrollments continue to increase and are currently at an all-time high of 41,620 students. This is in addition to an annual total of 7,166 non-degree-seeking students and 14,904 noncredit students who were served during calendar year 2003.
Number and proportion of enrollments in courses offered by nontraditional methods	During fall 2003, the University System served 7,216 students who enrolled in courses for credit through nontraditional delivery methods. These students comprise 17 percent of the system's total headcount enrollment.
Tuition and fees on a per student basis compared to the regional average	Tuition and required fees at University System institutions for the 2002-03 school year were less than their regional and national counterparts, except at the two-year institutions.
Tuition and fees as a percentage of median North Dakota household income	Tuition and fees at University System institutions for the 2002-03 school year, as a proportion of median household income, were about the same or slightly lower than regional and national averages, except at the two-year institutions.
Levels and trends in partnerships and joint ventures between University System institutions	Institutions are working together to improve access and efficiency throughout North Dakota by creating partnerships in research, service centers, academic programs, and services. Two or more University System institutions have partnered in six centers and three research efforts. In addition to the 35 jointly offered academic programs, University System institutions have formed a collaboration to offer 13 online certificate programs, 17 online two-year programs, and 13 online four-year programs.
Proportion of residents of the state who are within a 45-minute drive of a location at which they can receive educational programs from a provider	More than 90 percent of North Dakota residents have access to higher education within 45 minutes of their homes, and almost all North Dakotans have access to higher education through distance-learning opportunities.
Funding and rewards
A status report on higher education financing as compared to the long-term financing plan	Based on data for fiscal year 2003, all institutions are funded at less than their operating benchmarks per FTE student. Ten of the 11 institutions exceed their student-share target, while the remaining institution is within .3 percent of its target. University System institutions are funded at an average of 16.1 percent of the Office of Management and Budget capital assets formula and at 5.7 percent of total capital funding needs, including outstanding deferred maintenance.
State general fund appropriation levels for University System institutions compared to peer institutions' general fund appropriation levels	Based on 2001-03 state funding levels, all University System institutions are funded at less than 100 percent of their peer comparator benchmarks and at less than 95 percent of their long-term peer benchmark targets. The institutions, as a whole, are funded at an average of 61.7 percent of their peer comparator benchmarks and 65 percent of their 95 percent benchmarks.
Incentive funding, including the allocation and use of incentive funding	Board initiative funding for the 2001-03 biennium was allocated in support of the objectives identified in the Higher Education Roundtable report.
State general fund appropriation levels and trends as compared to changes in the state's economy and total state general fund appropriations	Changes in total state general fund appropriations, state appropriations for higher education, and personal income appear to track closely to one another. However, changes in gross state product vary significantly from the other three trends.
Per capita general fund appropriations for higher education	In fiscal year 2003, per capita state general fund revenue for higher education was $307.
Cost per student in terms of general fund appropriations and total University System funding	In fiscal year 2003, funding from the state general fund comprised approximately 31 percent of the total unrestricted and restricted revenues for the University System and approximately 45 percent of the total unrestricted revenues. The remaining portion is generated by the institutions.
Administrative, instructional, and other costs per student	In fiscal year 2003, the University System spent a total of $14,914 per student from all funding sources. A majority of the funding was spent in support of instruction, research, and public service.
Percentage of total University System funding used for instruction, research, and public service	In fiscal year 2003, the University System spent 60.3 percent of its total combined revenues and state transfers on instruction, research, and public service.
Percentage of total University System funding used for academic support, student services, and scholarships and fellowships	In fiscal year 2003, the University System spent 15.5 percent of its total combined revenues and state transfers on academic support, student services, and scholarships and fellowships.
Percentage of total University System funding used for institutional support, operations, and maintenance of physical plant	In fiscal year 2003, the University System spent 15 percent of its total combined revenues and state transfers on institutional support, operations, and maintenance of physical plant.
Ratio measuring the funding derived from operating and contributed income compared to total University System funding	In fiscal year 2003, the University System generated 68.5 percent of its total revenues either internally or externally from grants or contributions.
Viability ratio measuring the amount of expendable net assets as compared to the amount of long-term debt	The University System has a debt ratio of .98-to-1 as of the end of fiscal year 2003. Reporting requirements require the University System to include the debt of a related, but separate legal entity. Excluding this debt, the University System would have a favorable debt ratio of 1.24-to-1.
Deferred maintenance ratio measuring the size of the University System's outstanding maintenance as compared to its expendable net assets	For fiscal year 2003, the University System has a favorable average deferred maintenance ratio of .65-to-1, which means the University System would be able to fund total outstanding deferred maintenance needs with total current expendable net assets and have funds remaining for other purposes.
Report on new construction and major renovation capital projects for which specific appropriations are made, including budget to actual comparison, use of third-party funding, and related debt	Of the major capital projects specifically appropriated and completed during the 2001-03 biennium, all remained within the project budget.

LONG-TERM FINANCING PLAN AND RESOURCE ALLOCATION MODEL

The committee received information regarding the North Dakota University System long-term financing plan and resource allocation model and learned the 1999-2000 Higher Education Roundtable recommended the State Board of Higher Education and the chancellor develop a long-term financing plan and a resource allocation model. As a result, the State Board of Higher Education contracted with the National Center for Higher Education Management Systems for assistance with the development of such a plan and model. The board reviewed the recommendations of the National Center for Higher Education Management Systems and adopted a long-term financing plan consisting of base operating funding, incentive funding, and capital asset funding components.

The committee learned the base operating funding component of the long-term financing plan provides funding to each higher education institution to support core campus functions, such as instruction, research, and public service. The funding for each institution is based on the institution's current state general fund appropriation with general fund appropriation increases to address parity and equity. Objectives of the base operating funding component are:

Establish peer comparator institutions for each higher education institution based on agreed-upon selection criteria, including institution type, city size, Carnegie classification code, land grant institution or medical school, total FTE students, total headcount enrollment, a percentage of part-time headcount, degrees awarded, degree program mix, and research expenditures.
Review national Integrated Postsecondary Education Data Systems (IPEDS) data on unrestricted state and local appropriations and net tuition revenues (total tuition revenue less scholarships, waivers, and discounts) on a per FTE student basis for each of the peer institutions.

Establish a base operating funding benchmark for each higher education institution based on the review of the state and local appropriations and net tuition revenues per student information. The benchmarks are to be reestablished every six years and, in the intervening years, are to be inflated by a percentage amount equivalent to the consumer price index. The base operating fund benchmarks as originally established by the State Board of Higher Education, the benchmarks as reported in the 2003 annual performance and accountability report, and fiscal year 2003 state appropriations and net tuition per FTE student are:

Institution	Original Base Operating Fund Benchmark	Current Base Operating Fund Benchmark¹	Fiscal Year 2003 State Appropriation and Net Tuition Per FTE Student	Fiscal Year 2003 State Appropriation and Net Tuition as a Percent of the Current Base Operating Fund Benchmark
Bismarck State College	$7,750	$8,560	$6,850	80.0%
Dickinson State College	$7,500	$8,290	$6,590	79.5%
Lake Region State College	$9,250	$10,220	$7,500	73.4%
Mayville State University²	$9,000	$9,940	$9,780	98.4%
Minot State University	$8,500	$9,390	$8,000	85.2%
Minot State University - Bottineau	$9,000	$9,940	$7,030	70.7%
North Dakota State University³	$10,500	$11,600	$7,450	64.2%
State College of Science	$8,500	$9,390	$9,020	96.1%
University of North Dakota⁴	$13,250	$14,640	$10,480	71.6%
Valley City State University²	$9,000	$9,940	$9,600	96.6%
Williston State College	$7,500	$8,290	$7,960	96.0%
NOTE: The State Board of Higher Education analyzes the status of the long-term financing plan by reviewing state appropriations, current base operating fund benchmarks, current FTE enrollment, and the established shared funding percentages. Therefore, the information presented above represents a portion of the items considered in analyzing the long-term financing plan.
¹The base operating fund benchmarks were originally established by the State Board of Higher Education for 1998-99 data comparisons and have been adjusted for inflation using the annual change in the consumer price index--3.7 percent for June 2000, 3.2 percent for June 2001, 1.1 percent for June 2002, and 2.1 percent for June 2003.
²Revenue collected from technology fees has been subtracted from tuition collections.
³Funding appropriated for the Higher Education Computer Network (HECN), agriculture extension and experiment, and flood-related expenditures has been deducted from the institution's state appropriation.
⁴Funding appropriated for the HECN, Interactive Video Network, and the On-line Dakota Information Network has been deducted from the institution's state appropriation.

Establish shared funding percentages to reflect that higher education funding is to be a shared responsibility among stakeholders. Thefollowing is a comparison of the shared funding percentages established by the board and fiscal year 2003 shares:

	Target Funding Shares		Fiscal Year 2003 Funding Shares
Institution	State Funding Responsibility	Student Funding Responsibility	State Funding Responsibility	Student Funding Responsibility
Bismarck State College	75.0%	25.0%	48.6%	51.4%
Dickinson State University	70.0%	30.0%	56.6%	43.4%
Lake Region State College	75.0%	25.0%	47.4%	52.6%
Mayville State University¹	70.0%	30.0%	70.3%	29.7%
Minot State University	65.0%	35.0%	57.8%	42.2%
Minot State University - Bottineau	75.0%	25.0%	64.7%	35.3%
North Dakota State University²	60.0%	40.0%	49.8%	50.2%
State College of Science	75.0%	25.0%	65.4%	34.6%
University of North Dakota³	60.0%	40.0%	54.7%	45.3%
Valley City State University¹	70.0%	30.0%	69.6%	30.4%
Williston State College	75.0%	25.0%	60.3%	39.7%
¹Revenue collected from technology fees has been subtracted from tuition collections.
²Funding appropriated for the HECN, agriculture extension and experiment, and flood-related expenditures has been deducted from the institution's state appropriation.
³Funding appropriated for the HECN, Interactive Video Network, and the On-line Dakota Information Network has been deducted from the institution's state appropriation.

Determine the recommended base operating funding levels for each institution by taking into consideration the base operating fund benchmark, enrollment, and the recommended shared funding percentages.
Develop budget requests to move institutions currently funded at less than 85 percent of peer institution funding to 85 percent by the 2007-09 biennium and all institutions to 95 percent of peer institution funding by the 2013-15 biennium.
Allocate no more than 80 percent of all new state funding to parity or inflation and no less than 20 percent of the new funds to equity. The equity funding is to be distributed on a weighted average of each institution's gap differential to its peer comparator institutions.
State general fund appropriations should not be reduced for any institution from the previous biennium until such time that the institution exceeds 105 percent of its peer benchmark or enrollment declines are sufficient to cause a reevalution of its benchmark.

BUDGET TOURS

During the interim, the Higher Education Committee functioned as a budget tour group of the Budget Section and visited Bismarck State College, Dickinson State University, Lake Region State College, Mayville State University, Minot State University, Minot State University - Bottineau, North Dakota State University, State College of Science, University of North Dakota, Valley City State University, Williston State College, Forest Service, Main Research Center, Dickinson Research Center, North Central Research Center, Williston Research Center, North Dakota Vision Services - School for the Blind, and the Mill and Elevator. The committee received reports regarding the status of the 2003-05 budget, enrollment, current buildings and land utilization; plans for and status of any plant improvements during the 2003-05 biennium and 2005-07 plant improvement needs; and plans for and accomplishments regarding the recommendations of the Higher Education Roundtable. The tour group minutes are available in the Legislative Council office and will be submitted in report form to the Appropriations Committees during the 2005 Legislative Assembly.

COMMITTEE RECOMMENDATIONS

The committee recommends:

Senate Bill No. 2034 to provide for the continuation of the continuing appropriation authority for higher education institutions' special revenue funds, including tuition, through June 30, 2007.
Senate Bill No. 2035 to continue the requirement that the budget request for the North Dakota University System include budget estimates for block grants for a base funding component and for an initiative funding component and a budget estimate for an asset funding component and the requirement that the appropriation for the North Dakota University System include block grants for a base funding appropriation and for an initiative funding appropriation and an appropriation for asset funding through June 30, 2007.
Senate Bill No. 2036 to provide for the continuation of the North Dakota University System's authority to carry over at the end of the biennium unspent general fund appropriations through June 30, 2007.
Senate Concurrent Resolution No. 4002 directing the Legislative Council to study during the 2005-06 interim, the State Board of Higher Education performance and accountability measures included in the report required by NDCC Section 15-10-14.2.