SB3250 HD1

SECTION 1. The legislature finds that the University of Hawaii is accountable to the legislature and should be accountable for its funds in a manner that is consistent across the campuses and understandable by the legislature and the public. This necessitates that the goals of the system's strategic plan shall be stated in measurable terms that relate to fiscal allocations. The overall purpose of this Act is to delineate a budgeting system for the University of Hawaii.

The University of Hawaii has been developing a long-term financial plan pursuant to a request from the legislature under Senate Concurrent Resolution No. 137, adopted in 2007. Additionally, Senate Concurrent Resolution No. 79, also adopted in 2007, requested the University of Hawaii to report on the linking of funding for individual campuses and performance goals, which would require the University of Hawaii to develop a budgeting system that reflects achievements, challenges, and needs.

Presently, the University of Hawaii's operational funding is determined each fiscal biennium based on specific program and personnel requests. In addition, supplemental budget requests are prepared for the second year of each fiscal biennium to address unforeseen issues and funding deficiencies that have arisen after the biennial budget has been approved and funds allocated. State appropriations for the University of Hawaii fluctuate based on current spending needs and state general revenue levels.

As a guide, the University of Hawaii system strategic plan was prepared in 2002 as a means for the university to chart its course through 2010. The strategic plan outlined the University of Hawaii's vision, mission, commitments and core values, and planning imperatives. The plan identified the following key strategic goals for the university as a means of advancing its strategic imperatives, including developing:

(1) Educational effectiveness and student success;

(2) A learning, research, and service network;

(3) A model local, regional, and global university;

(4) Faculty, staff, students, and their environment; and

(5) Resources and stewardship.

During fiscal year 2007-2008, the University of Hawaii reexamined its strategic plan to update it for the next eight years. As the only public higher education institution in the state, the University of Hawaii is largely responsible for helping the state meet its higher education needs that include:

(1) Increasing the educational capital of the state;

(2) Expanding workforce development initiatives;

(3) Assisting in diversifying the economy; and

(4) Addressing underserved regions and populations of the state, particularly native Hawaiians.

These goals are being incorporated into the strategic plan that will guide the university through 2015.

The next step is to develop a financial plan to reach the strategic goals. The objective is to develop an educational compact that would define long-term goals to address Hawaii's major economic challenges and align the University of Hawaii with the achievement of these goals. The university would be accountable for meeting performance standards. In turn, the legislature will seek to provide increased flexibility and stability of funding to the university. The higher education compact would be used to clearly link funding for the university with specific goals and performance measures.

Developing the educational compact requires delineating a financial plan that would link the strategic plan goals to accompanying funding. Thus, there will be a long-term component to the financial plan that will indicate the long-term costs of achieving the strategic goals and provide long-term funding targets for each institution within the University of Hawaii system. There will also be a medium-term component to the financial plan that will cover three biennial periods, starting with the 2009-2011 biennial budget and extending to 2015 to cover the same period as the strategic plan. The financial plan will outline the financial costs to achieve the strategic plan and will be based on measurable goals.

The long-term component will include the following:

(1) Base operating funds--the ongoing fiscal obligations that need to be adjusted for inflation and obligations such as collective bargaining;

(2) Capital improvement funding--annual and deferred maintenance obligations; and

(3) Incentive and performance outcome funding--funds provided as a result of achieving specific performance goals.

The purpose of this Act is to require the University of Hawaii to develop an incentive and performance outcome funding component for the long-range financial plan. This requirement shall attempt to accomplish the following:

(1) Increase legislative and public support for higher education;

(2) Allocate funds through a dual approach of incentives and performance-based funding;

(3) Monitor the general condition of the University of Hawaii system;

(4) Identify potential sources of problems or areas for improvement;

(5) Improve the effectiveness and efficiency of colleges and universities within the University of Hawaii system;

(6) Focus college, campus, department, and university efforts on state priorities and goals;

(7) Assess progress on state priorities and goals to improve graduate and undergraduate education; and

(8) Improve consumer information on higher education.

SECTION 2. (a) The University of Hawaii shall prepare and provide to the legislature an annual incentive and performance report in November of each year, beginning with a pilot report in 2009, that reflects the success of the University of Hawaii's performance in its strategic outcome performance measures. The purpose of the annual incentive and performance report is to assist the legislature in appropriating up to two per cent of the University of Hawaii's annual budget to facilitate the university's strategic plan and related state goals; provided that:

(1) During the 2009-2011 fiscal biennium, the focus shall be on developing incentive plans that have measurable performance outcomes; and

(2) The allocation of funds shall be based on the annual incentive and performance annual report.

(b) The University of Hawaii shall include within its strategic plan, measurable goals and performance-based outcome data.

(c) The University of Hawaii shall collect and maintain benchmark data in keeping with section 304A-2001, Hawaii Revised Statutes.

(d) The annual performance and incentive report shall describe the success of previous incentive and performance plans by analyzing the outcome performance measures in relation to plan goals. The report also shall propose the following year's incentive plan, including identifying the goals, performance outcome measures, and sources of funding, that may include new general fund appropriations, reallocated existing general fund appropriations, and other sources of funding available to the university. Data appropriate to the individual performance measures shall be provided in the annual report.

The proposed incentive and performance plan for the following years shall include descriptions of proposals to be carried out at the program, departmental, campus, or system level. The incentive plan proposals shall be distributed across all levels and funding shall go back to those levels if plans are successful as demonstrated by their outcome performance measures. The plan shall include a summary of what amount or percentage of up to two per cent of the overall incentive and performance plan budget shall be allocated to each program, department, college, campus, or system level.

SECTION 3. This Act shall take effect upon its approval.

THE SENATE	S.B. NO.	3250
TWENTY-FOURTH LEGISLATURE, 2008		S.D. 2
STATE OF HAWAII		H.D. 1