Draft
AHC Finance and Planning Committee
Report to E.
Thomas Sullivan
Senior Vice-President for Academic Affairs and
Provost
Facilities and Core Infrastructure Issues and Trends
Preamble:
The circumstances
currently surrounding higher education in Minnesota and nationwide necessitate
aggressive measures. The Academic Health Center Finance & Planning
Committee (AHCFP) believes that the current strategic planning initiative is the
first major step to better positioning the University of Minnesota. Decreased
State of Minnesota support for higher education, higher legislative demands for
accountability, increased competition from the Minnesota State College and
University System, and the need to do the same or more with fewer resources
appear to be what the University can expect. With tuition elasticity reaching
its limits, the University must make some tough choices. Across-the-board
budget reductions have had a differential financial effect on units, which does
not mirror institutional priorities. It is a critical time for the institution
to reassess and restructure before its reputation is further diminished. A lean,
highly functional, and understandable infrastructure is essential to support an
institution that can survive the challenges facing the University, The issues
listed below are the suggestions of the AHC F&P to achieve that
goal.
1. Budget Infrastructure – University of
Minnesota critical issues and trends:
The University of
Minnesota:
- Lacks a budget model that has the flexibility to adapt to the changing
economic environment
- Is having increasing difficulty obtaining consensus on how to fund common
goods (e.g. libraries)
- Units lack accurate cost detail and therefore do not understand what they
are paying for (e.g. space and central services) and are unable to assess the
value of the service compared to the amount paid
- Lacks guidelines for aligning mission-based revenues with mission-based
costs
- Lacks administrative policy on the need for and management of
“reserves” for specific functions or endeavors (e.g. faculty
start-up packages, funding being aggregated for endowed positions, etc.),
mandated operating reserves, or “rainy day” funds.
How are these issues/trends likely to affect the ability
of the University of Minnesota to maintain or enhance its quality
relative to its competition and fulfill its mission:
With
decreasing state funding, coupled with the increasing accountability for funds
in higher education, it will be imperative that the institution responds with a
transparent, understandable, and predictable budget model. In addition, it is
imperative that the institution aligns incentives to encourage the most cost
efficient management of resources. Units cannot develop plans to solve space,
human resource, or financial problems unless revenue and expenses are matched
and clearly understood both at the unit level and at the central
services/administrative level. The institution will loose credibility if it
does not address these problems. This is particularly worrisome with regard to
unit reserves and the potential perception at the legislature (and taxpayers
league) that there are some units that have extra funds and therefore the
University does not need recurring or increased state funding.
Key policy and strategic issues that the University must address,
given the above trends/issues:
- Develop specific policy on unit reserves.
- Establish a functional and understandable budget model.
- Ensure that within the model there is conscious alignment of mission based
revenue and expenses.
- Conduct a full analysis of O & M fund
deployment based on an assessment of priorities of programs, the need for their
graduates (at all levels), their role in the State of Minnesota, their
centrality to high priority institutional programs; their tuition elasticity,
and their ability to leverage funds to increase revenues.
- Define “common goods” not just as central services. Instead,
further classify them such as academic goods (e.g. libraries), space needs (e.g.
classrooms), or miscellaneous infrastructure (e.g. billing, snow removal,
general repair, human resources, etc.) and determine the degree to which these
must be supported through research dollars, tuition, service revenue (including
clinical income), etc.
2. Planning
Infrastructure University of Minnesota critical issues and
trends:
The University of Minnesota:
- Has a history of unstable capital cost projection and planning
- Has little strategic rationale for how O & M resources are DEPLOYED
across academic and central units, based more on historical actions and
across-the-board adjustments
- Cannot effectively capitalize on competitive advantages if managing in
crisis mode
- Should face organizational challenges to create economies of scale across
colleges and academic units (i.e. colleges the size of departments)
- Has inefficient organization and duplication of administrative services to
and within collegiate units
- Is land-locked on the East Bank and to a lesser degree the West Bank Twin
Cities Campuses
- Should address the role of and priority for intercollegiate sports
facilities and programs vs. academic facilities and
programs
How are these issues/trends likely to affect the
ability of the University of Minnesota to maintain or enhance its
quality relative to its competition and fulfill its
mission:
The institution should decide what it will and will not do
on a global level (all campuses and all units). If not, it will be viewed as a
“sinkhole” into which ever-increasing dollars must be poured to
sustain it. The institution should define what is “core” to the
academic (i.e. teaching and research) operation based on the needs of the State.
The institution should focus on the combination of supply and demand vs. what it
costs to satisfy the demands (i.e. by students, by programs, by legislators, and
by accreditation agencies). If we are not sure where we are going, we will not
be able to sell our services, let alone be able to capitalize on our strategic
opportunities. We will not have the money or the support to execute our
mission.
Key policy and strategic issues that the
University should address, given the
above trends/issues:
- Develop a detailed cost analysis of programs and compare results to what
this institution needs to produce what the State of Minnesota needs; what the
revenues generated (e.g. tuition, ICR, clinical, etc.) actually support; and
what the gaps are that must be supported by the State, the students, the alumni,
the research organizations, the fans, or be abandoned.
- Conduct an efficiency analysis of the institutional structure (e.g. colleges
and campuses) to determine where savings can be realized (e.g. combining or
closing colleges or campuses, centralizing selected services to minimize
unit-level “shadow” systems, etc.).
- Develop a long-range plan of what this institution will be doing as
“core” functions for the next 5-10 years and analyze the space,
services, equipment, and management services necessary to execute its mission.
Put this into a financial model and develop a priority list of what can and
cannot be done.
3. Research Infrastructure -
University of Minnesota critical issues and trends:
The
University of Minnesota:
- Lacks predictable funding for its research infrastructure (e.g. molecular
biology instruments, geophysical instrumentation)
- Should face the relatively high cost of construction for research space and
prioritize it according to the reputation it wishes to portray
- Should effectively educate the public on the value of research and persuade
the legislature that research overhead merits financial subsidy over and above
federal funding
How these issues/trends are likely to
affect the ability of the University of Minnesota to maintain or
enhance its quality relative to its competition and fulfill its
mission:
If this institution expects to hold or enhance its rankings
as a “Level 1” institution, it should maximize collective resources
through planned expenditures while supporting academic freedom. It should
commit to areas of focus where resources will be placed (possibly at the expense
of other units or campuses). To compete in the research arena, the institution
must have financial management tools and facilities and equipment that are
cost-effective, available and reliable. Trying to “piece together”
needed resources at the unit level, on an ad hoc basis, to execute research will
cripple this institution strategically. There will not be any economies of
scale and obsolescence will destroy our short-term investments.
Key policy and strategic issues that the University should
address, given the above trends/issues:
- System-wide research thrust to make resources available on a priority basis
for large-scale instruments that foster research consistent with the strategic
plan.
- If the University is to continue as a Level I research institution, it will
require subsidy, through internal reallocation or additional external funding,
from the State or other sponsors.
4.
Financial Capacity including Acquisition and Distribution - University of Minnesota critical issues and
trends:
The University of Minnesota:
- Has comparatively strong State support for capital needs, offset by
relatively weak support from State for operating costs
- Struggles to raise funds for operating expenses, including equipment
maintenance and depreciation
- Should prepare for and understand the competition for capital funds both
within the
- Has undergone progressive dilution of core funding to
finance new initiatives and resisted divesting from lower priority programs
resulting in thinner spread of core funds
- Struggles with issues around the
competitiveness of faculty/staff salaries, including institutional
inconsistencies in compensation/merit assessment and adjustment procedures and
policies.
How these issues/trends are likely to affect the ability of
the University of Minnesota to maintain or enhance its quality
relative to its competition and fulfill its
mission:
Despite successes in recent capital campaigns, fundraising
will become more difficult with likely restrictive economic conditions. Care
must be taken to avoid “competition” among institutional fund
raising initiatives so they do not become self-defeating. This means having a
coordinated and skilled development staff and close communication among
“foundation”, “institutional” and “unit”
fundraising endeavors. We must get beyond the annual financial crisis
management (e.g. balancing the budget from whatever sources are available at the
time) and move into an organized assembly of state support, philanthropic
pursuits, industrial support, and return on investments to support the mission
as defined in the strategic plan. Care must be taken to assure that faculty
salaries are competitive and that core (defined by strategic plan, not by
perception) units are not “starved out” at the expense of new
initiatives competing for the same dollars.
Key policy and strategic
issues that the University should address, given the
above trends/issue:.
- Define a budget model that factors in the financial risks facing the
institution (e.g. several potential sources of funds to support various aspects
of the institutional mission(s)).
- Coordinate all fund raising to avoid overlap and to maximize
efficiencies.
- Define specific sources of funding that are to support selected endeavors
instead of robbing Peter to pay Paul with a high degree of annual
variation.
- Assure that the strategically planned research initiatives are covered to
make the most efficient use of ICR dollars and contract dollars in support of
research programs knowing that external support (e.g. grants) do not cover the
entire expense of the research endeavor.
- Consideration should
be given to merging, downsizing or possibly even closing some units.
5. Utilization Inefficiencies – University of
Minnesota critical issues and trends:
The University of
Minnesota:
- Should improve space utilization
- Should create incentives to efficiently utilize space (e.g. classroom,
research, administrative, faculty office space)
- Should limit disparate financial treatment of programs that reside in
different space due to historical circumstances (e.g. academic programs in
auxiliary buildings or off campus space could be solved by improved space
planning and/or budget model)
- Lacks central support structure for certain specialized building management
service (e.g. KE Dock, equipment sterilization)
- Should limit inefficient organization and duplication of administrative
services to and within collegiate units
How these
issues/trends are likely to affect the ability of the University
of Minnesota to maintain or enhance its quality relative to its
competition and fulfill its mission:
This institution has
considerable space, some of which is used efficiently and some of which is not.
We continue to construct buildings without a defined plan of how much space we
can maintain and how much space is being maintained, but underutilized (e.g.
afternoon classrooms). Because ongoing maintenance and upgrade of facilities is
a costly endeavor, we should only maintain what we can afford (based on a cost
allocation model) and we should take inefficiently used space off line to
conserve resources.
Key policy and strategic issues
that the University must address, given the
above trends/issues:
- Institute a comprehensive space management program wherein assigned space is
paid for by the user(s) and unassigned space is available to those willing to
pay.
- Develop a detailed and “real-time” cost allocation model that
puts costs where they are incurred and that identifies which funds (e.g.
tuition, ICR, clinical revenues) might pay for the space being used.
- Promote economies of scale by combining colleges to minimize administrative
duplication.
- Centralize services common to academic units and charge for provided
services based on what is used (e.g. users will get what they want, not what
somebody thinks they should pay for).
- Limit the need for “off campus” leased space, and the associated
charges that go with that, to units currently short on space by charging for
space and reassigning what is not paid
for.
Summary
There is a
need for a functional financial model, the commitment to make it work to support
the strategic plan, and the courage to make difficult strategic decisions.
There is a need for the combination of demonstrable fiscal efficiency, a pruning
of what the institution does (e.g. live within its budget and prepare for
further declines in State support), and a uniformity of policies that are
equitable. There should be incentives to conserve as well as generate resources
and economies of scale must be recognized and implemented. The research
infrastructure must be predictable and cost-effective. It will most likely
have to be based on predetermined, centrally-developed, and shared resources.
Last, but not least, the institution must be able to continue to recruit and
retain the caliber of faculty befitting a Level I research institution.
Respectfully submitted by the AHC Finance & Planning
Committee:
Dan Feeney (03-04 Chair), Professor, Veterinary Medicine
Tim
Church, Professor, School of Public Health
Katie Dusenbery, Professor, School
of Medicine
Lynda Kreisher, Professor, School of Dentistry
Joan
Liaschenko, Professor, School of Nursing
Tom Shier, Professor, College of
Pharmacy
Carol Wells, Professor, School of Medicine
David Hagen, Ex
Officio
Stuart McMullan, Ex Officio
Beth Nunnally, Ex Officio
Go to the Strategic Planning Letter