Auxiliary Financial Principles

(Cost, Charges, and Profit Utilization)

We are often asked how the fees for Auxiliary Services, e.g. meal plans, retail food prices, copier charges, and book prices, are established, and furthermore how profits from these enterprises are utilized.

Costs

It is the goal of all the auxiliary units to serve the needs of the campus while recovering all costs associated with the operations by charging for the services provided. These costs would include: 

• All applicable operating expenses (including but not limited to labor, supplies and materials, services, maintenance, and utilities, fixed charges and rentals, capital outlays and related charges, and management and administrative fees);
• Prorated share of organizational administrative overhead and contract monitoring and management costs;
• Prorated contributions to debt service and reserve requirements (principle and interest, maintenance, and required operating) on self-liquidating facilities;
• Retention for reserves to provide working capital, replacement of facilities and equipment, and other purposes to support the continuing and orderly operation of the self supporting operation, including disruptions to service, planned or unplanned contract transition, business continuity, and conversion to self-operation if desired or necessary.  

Within these parameters each auxiliary is operated as an individual cost center with the assignment of all related expenses and revenues.  It is the goal to cover all costs incurred to provide the service, but to charge no more than necessary to accomplish such.

Charges

Requests for changes to service rates and retail prices for all services are reviewed annually based on proposals from the contract providers or the managers of self-operated services.  All rate increases are first reviewed by the Contract Administrator in conjunction with the service provider and advisory committees.  These proposals must then in turn be reviewed and approved by the Associate Vice Chancellor for Business Services, the Vice Chancellor for Business Affairs, and then Chancellor.  All increases to mandatory student fees must also be reviewed by the Chancellor’s Executive Staff, the Chancellor, the Board of Governors for the University of North Carolina at Charlotte, the UNC General Administration, The UNC Board of Governors, and ultimately be approved by the NC Legislature.  

Increases in fees are initially reviewed by the contract administrator according to the following criteria: 

• Provisions in the contract specifications regulating increases in rates and prices.  All term contracts regulate increases.  Normally, services’ fees and pricing are either fixed for the length of the contract term or tied to applicable inflationary indices for supplies and labor.
• Zero based budgeting comparing actual expenses against actual revenue.  Increases requested are based on what is needed to breakeven after considering all operating and capital requirements. 
• Market basket survey of service rates and retail pricing of comparable providers of comparable services in the local market.
• Inflationary increases in applicable CPI (supply, labor, and service) indices for this geographic region (South, urban).
• Extraordinary circumstances impacting on the market, e.g. inadequate labor supply, external factors creating major changes in the economy, etc.
• A combination of all of the above.

Profit/Loss

It is the goal, both individually and collectively, for auxiliaries to annually operate on a breakeven basis, and to maintain all financial reserve requirements as established by bond covenants.   Revenues will first and primarily be utilized to cover all operating expenses, prorated share of overhead, appropriate contributions to debt and reserve requirements, and retention for reserves for capital investments related to operation of the self-supporting service operation, and supplemental support of other auxiliaries.  Profit (net proceeds) as defined by the Board of Governors of the University of North Carolina (previously referenced in The Code of the Board of Governors) will be used as prescribed by that code.  These “Trust funds or the investment income there from shall not take the place of State appropriations or any part thereof, but any portion of these funds available for general institutional purposes shall be used to supplement State appropriations to the end that the institution may improve and increase its functions, may enlarge its areas of service, and may become more useful to a greater number of people.”  Scholarships and other direct financial aid programs will be supported from the net proceeds of the campus store as prescribed by state statute.  (http://www.ncga.state.nc.us/gascripts/statutes/statutelookup.pl?ChapNum=66).