The University of Missouri will develop incentives and punishments for programs that don’t meet budget goals, a Board of Curators committee was told Tuesday as it approved a $3.5 billion system budget for the year that begins July 1.

With the budget for the coming year, the university will begin measuring how closely each major division – the four campuses and University of Missouri Health Care – come to meeting targets for a net operating margin. The board will hear plans for how the system will deal with units that miss their goals at a meeting in the fall, Vice President for Finance Ryan Rapp told the board’s Finance Committee.

When units miss the goal, Rapp said, the university will start with incentives and, if the units repeatedly miss the goal, the consequences, he said.

“Now the key is we have to go execute on it and we need to have clear accountability on it,” Rapp said.

The goals are keyed to maintaining the system’s credit rating as it borrows money to build a new research center. The Translational Precision Medicine Complex, expected to cost $221 million, will be constructed with a combination of money from current fund balances, gifts and grants and debt. Groundbreaking on the building is set for June 21.

The committee met via conference call in advance of next week’s full board meeting, when the budget and the system’s request for state funding in the next fiscal year will be on the agenda.

The goals vary for each unit, with MU Health being asked for the largest annual growth, 5 percent, and biggest operating margin, 8 percent. For the Columbia campus, the goals are for annual revenue growth of 2.4 percent and an operating margin of at least 3.5 percent.

“The operating margin is really important because it allows us to invest in the things that are really important,” Rapp said.

The overall goal is to have a 5 percent annual margin of revenues over costs throughout the system.

“The expectation of our credit rating is we need to be in this range of a 5 percent operating margin,” Rapp said.

The planned budget for the coming year does not meet those goals, in large part because net tuition and fees are expected to show little growth. The campus does expect incoming freshman enrollment to grow and tuition will increase, but that will be offset by increased spending on financial aid.

The coming academic year should be the last year when the graduating class is larger than the incoming class, according to documents provided to the board. Enrollment crashed after campus protests made national news in 2015 and the new fall class is expected to be the second where enrollment has increased.

“The long-term success of the academic enterprise hinges on successful growth of net tuition and fees,” the memo on budgeting prepared for the board stated.

The system budget does not include any cost-of-living adjustments in pay but does include a 2 percent pool for pay increases based on merit.

In the budget request for fiscal 2021, the university is asking to maintain its appropriation of $426.52 million, which includes $10 million in operating funds for the new research building, and $65.1 million in new support. The additional funds request includes $28.8 million for “equity funding,” intended to make state appropriations reflect the costs incurred by the university, $8 million is for maintenance and repair needs and $20 million is for the Mo Excels program to align college offerings with workforce needs.

State community colleges received $10.4 million for equity adjustments in the budget signed this week by Gov. Mike Parson and all four-year universities except UM received a share of $18.9 million in funding for the Mo Excels program.

The budget request is only the first step in the annual state budget process, Rapp reminded the curators.

“I am not walking out of here telling you we are counting on getting $492 million in” fiscal 2021, he said.