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Institutional Subsidies

Directive Statement

A Fee-for-Service Educational Activity (FSEA) may choose to provide a service at a subsidized rate, but it must not affect the rate calculation.  The billing rate must be calculated for all users based on total expenses and total units of output.  Subsidies are applied after the total rates are calculated.

Subsidizing billing rates should only be considered when both of the following conditions exist:

  1. The new FSEA furthers the accomplishment of a primary university mission.
  2. The goods or services provided either are not available from sources outside of UF, or cannot be provided from external sources in a more cost effective or efficient manner.

Reason for Directive

The University may elect to subsidize an operation of an FSEA to offset general or specifically identified expenses or to reduce the rate charged for a product or service.  For example, a department may subsidize the operation of a chemical storeroom, because it benefits research activities by making sure that commonly used chemicals, available elsewhere at a lower cost, are readily available.

Normally, FSEA’s should be able to cover operating expenses through non-subsidized billing rates.  Continuously subsidizing inefficient or non-competitive units directs vital university resources away from activities that could further the accomplishment of the University’s primary missions.  Therefore, before developing a billing rate that includes a user-fee subsidy, management should carefully evaluate whether to commence or continue operation of such a facility.

Types of Subsidies

If subsidizing is determined to be the best option, a FSEA may have two types of subsidies: entire customer base or user specific.

Billing Rate Subsidy (Entire Customer Base)

When all users are charged less than the total cost of the goods or services provided (e.g., a facility receives an appropriation from the college to defray costs not included in the billing rate).

The service center would develop the budget accounting for direct allowable costs.  The total estimated costs would then be reduced by the agreed upon subsidy amount.  The adjusted total costs (total estimated cost – subsidy) would be used to develop the rate (the numerator) for all customers.

When all users are subsidized, the fee-for-service educational activity/department must then choose how to cover the loss.  Options for covering Subsidy Losses:

  • The FSEA may receive funding in an appropriate non-Auxiliary Accounting fund and then record expenses in that fund and ChartField
  • Transfer funds from a separate allowable ChartField to the FSEA ChartField using an ONL cash transfer journal entry

User Subsidy (Specific to Certain Users)

When certain users are not charged for the cost of the goods or services provided (e.g., a department does not bill students for the use of a service facility).  The department must transfer funds to the FSEA ChartField to cover the cost of providing the service to students.

The service center would develop the budget, accounting for direct allowable costs.  The rate is then developed based on the total costs (numerator).  The subsidy amount is recorded on the invoice and then applied to each individual/group that is eligible for the subsidy.  The subsidy must be transferred into the FSEA ChartField.

How to Record a Unit Subsidy

If a FSEA management elects to subsidize its operations, all costs attributed to the unit, and the sources of funds to undertake the operations of unit’s activities, they need to be clearly identified and factored into the rates for each activity.  The detail costs of subsidies need to be reported at the time of Rate Review.

Subsidies should be minimized to the extent possible, however, if a subsidy is desired:

  • All costs must be included when developing rates
  • It must be documented
  • It must be recorded in the same Department ID as the established FSEA
  • No other activity should be processed through the same ChartField
  • Cross subsidization of services is not allowed (i.e. one service line cannot subsidize another)

Subsidies are normally intended to support work with internal users.  However, in rare circumstances, the department may consider extending subsidies from an unrestricted funding source to external users.  For example, when the University may want to foster collaboration with peer institution.  An approval must be received from the department Dean/Chair and Senior Vice President and Chief Financial Officer.

Last Reviewed

Last reviewed on 03/20/2024


Fee-for-Service Educational Activity Rate Principles

Developing a Usage Rate


UF HR Toolkit – Journal Entry


Auxiliary Accounting: (352) 294-7236

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