During its 2021 session, the Virginia legislature tasked the State Council of Higher Education in Virginia (SCHEV) to undertake a review of higher education costs, funding needs, appropriations, and efficiencies. The review charged SCHEV, in consultation with representatives from House Appropriations Committee, Senate Finance and Appropriations Committee, Department of Planning and Budget, Secretary of Finance, and Secretary of Education (generally referred to as the OpSix), as well as representatives of public higher education institutions to “identify and recommend:

1. methods to determine appropriate costs, including a detailed cost analysis, of Virginia public institutions of higher education and peer institutions.

2. measures of efficiency and effectiveness, including identification of opportunities for mitigating costs, increasing financial efficiencies, and incorporating current best practices employed by Virginia institutions and other institutions nationwide.

3. provisions for any new reporting requirements, including a possible periodic review of cost and strategies employed to implement efficient and effective operational practices.

4. strategies to allocate limited public resources based on outcomes that align with state needs related to affordability, access, completion, and workforce alignment, and the impact on tuition and pricing.

5. the impact of funding on underrepresented student populations; and

6. a timeline for implementation."

SCHEV, in consultation with the OpSix staff members issued a Request for Proposals (RFP) in May and subsequently awarded the contract to the National Center for Higher Education Management Systems (NCHEMS), a private, non-profit 501(c)(3) organization headquartered in Boulder, Colorado, with extensive experience in state postsecondary finance policy.

SCHEV identified four major deliverables as part of the review.

• Deliverable 1: Review of funding policies: Conduct a review of policies nationally and compare them to Virginia’s current funding model.

• Deliverable 2: Efficiency and effectiveness review: Inventory Virginia institutions’ practices and research those in other states to identify opportunities for mitigating costs and increasing efficiencies for incorporation by Virginia institutions.

• Deliverable 3: Identification of trends in costs and determination of estimated costs for higher education: Gather and analyze data on funding and costs for higher education and create benchmarks for evaluating performance among Virginia institutions.

• Deliverable 4: Recommendations for a new funding model: Create or modify a funding model or models for use in Virginia.

Three key dates specifying a schedule for submission of reports were established in the authorizing statute:

• By August 15, 2021, NCHEMS and SCHEV were obligated to submit a detailed project workplan to the Joint Subcommittee on the Future Competitiveness of Higher Education. That report was reviewed in draft form by OpSix and submitted in final form on the prescribed date.

• By December 1, 2021, the statute calls for submission of a preliminary report and any related recommendations to the Governor and the Chairmen of the House Appropriations and Senate Finance and Appropriations Committees. This document has been prepared and is submitted in response to that requirement. This report presents:

o An overview of the current context for allocation of state resources to institutions of higher education—existing policies and practices and the structures that have shaped these practices.

o Conceptual frameworks used by NCHEMS to guide the development of recommendations regarding state allocation models. These frameworks describe the major funding flows in higher education, an approach to assessing affordability to students, and a perspective on determining funding adequacy to institutions.

o Findings from a 50-state survey of funding approaches used in the states and a comparison of these approaches to Virginia’s current funding model.

o Findings regarding efficiency measures being taken in other states. These findings will be augmented in the final report by information gathered through a survey of Virginia institutions regarding efficiency initiatives they have put in place. That survey will be circulated in December. This information will be used to identify opportunities for mitigating costs and increasing efficiencies that can be implemented by Virginia institutions.

o The results of a wide variety of data analyses pertinent to an understanding of costs of providing higher education and funding institutions to carry out their missions.

o A set of principles—that have been vetted by SCHEV, OpSix, and Fac-8 (a subset of SCHEV’s Finance Advisory Council, which is comprised of finance officers from the institutions)—and will guide the design of the funding model(s) that will be the final product of the project.

o A list of parameters that will be used in the creation of the model(s). These include such things as cost-sharing targets (the shares different institutions should contribute from NGF revenues) and the likely components of the model(s) to be developed.

In most cases the material presented in this interim report will be augmented and refined in the final report.

• A final report to be submitted to the Governor and the Chairmen of the House Appropriations and Senate Finance and Appropriations Committees no later than July 1, 2022. This report will expand on the information presented in the interim report. It will include the complete findings from the review of funding policies in other states, findings from the efficiency review, and a compilation of information about trends in costs and determination of estimated costs of higher education that inform the assignment of values to the parameters utilized in the model. Most importantly, the final report will include recommendations regarding the design and implementation of a new funding model for Virginia.

The balance of this report is devoted to presenting the information described above.