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:
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.