These minutes reflect
discussion and debate at a meeting of a committee of the
Minutes
Senate Committee on Finance and Planning
238A Morrill Hall
Present:
Charles Campbell (chair), Brittny McCarthy Barnes,
Stanley Bonnema, David Chapman, Daniel Feeney, Steve Fitzgerald, Thomas Klein,
Joseph Konstan, Michael Korth, Cleon Melsa, Timothy Nantell, Kathleen O'Brien, Richard
Pfutzenreuter, Terry Roe, Charles Speaks, Alfred Sullivan, Kate VandenBosch, Warren
Warwick, Michael Volna, Susan Carlson Weinberg
Absent:
Calvin Alexander, Yi Li, Thomas Stinson, Susan Van
Voorhis
Guests:
none
[In these minutes: (1) budget principles for the University; (2)
budget instructions and the 04-05 budget; (3) update on the new financial
system; (1, continued) budget principles for the University; (4) statement about
the transit strike]
1. Budget Principles
Professor
Campbell convened the meeting at
Professor
Feeney explained that the AHCFP had tried to distill down the elements in the
principles; they may sound like motherhood and apple pie, but there are
significant principles embodied in the recommendation from the AHCFP. The first two principles deal with IMG, the
third calls for not hindering interdisciplinary activities, the fourth calls
for an open discussion about the allocation of O&M funds, and the fifth
discusses IMG. The goal is to get things
on the table and foster discussion with the central administration; the AHCFP
proposal is an attempt to get the process jump-started. They started to work on this about six months
ago and now want to work through the governance process. This Committee can decide what its views are
and what to do with the principles. He
said that unlike others in the institution, the tenured faculty can take a
critical look at the budget structure and say things that may be unpleasant.
Professor
Roe suggested it was important to discuss the process. He said he did not see the Committee coming
up with the "right" answer that directly helps to best allocate
resources. But the Committee can play a
major and constructive role in helping to design a process whereby informed
individuals knowledgeable of resource opportunity costs at the college level
are part of this decision process. IMG
provides income streams and an incentive to be entrepreneurial; it also
provides incentives to do things that may not be so good, such as teaching
courses that other colleges might more appropriately offer. There is a need to distinguish between income
from undergraduates and from graduate students; much of the latter comes from
research grants with the income transferred to the teaching budget and then
back, but not all of it goes to research.
There was a time when the
Professor Feeney related that he had had it on his list
when he was FCC chair to look at IMG but was unable to get to it. There are fundamentally different views about
IMG across colleges. IMG is centered on
undergraduate teaching and does not work as well for units that do not have a
lot of undergraduates. The AHCFP would
like to be sure everyone understands the implications of IMG for all units.
Professor Konstan referred to the fifth principle,
"fully attribute revenues to units generating them and allocate costs to
units incurring them." He said he
was not sure it was possible ever to allocate costs fully, such as staff
associated with central expenses. One
reaches the point where one decides it is silly to try to get to that level of
detail. The higher-level decision is
whether the University wants an entrepreneurial model for budgeting. Or does it value more of a core university idea, even if some units operate at a "profit" and
subsidize some that operate at a loss?
He said he has not heard that question articulated; it could be done
with the system before IMG and it still possible although harder to do with
IMG.
In
terms of the first principle, "the University’s budget model should be
accessible, predictable, and transparent," Professor Konstan said that
predictability also needs to deal with the issue of reserves. Ever since he has been at the University he
has heard the rumor that the administration is going to take college and
department reserves; it has never happened.
With respect to predictability, people will act irrationally if they
fear the treatment that may be coming. A
corresponding question is where risk is managed--at the individual level, at
the unit, the college, or the University as a whole. From the faculty perspective, the faculty
themselves must guard against risk (e.g., of needing to cover a period of
reduced external funding) because they are not confident that departmental or
collegiate reserves will be allocated to them for this purpose; the
administration views the deans as having risk management responsibility.
Finally,
Professor Konstan spoke about understandability. The average person should be able to
understand where the money is going, he said.
And there is nothing in the principles about system efficiency. The decision was made not to include space in
the original IMG model because it was not efficient to do the work necessary to
include space for the small gain that would have been achieved. These are the three items in his mind, he
said, but the biggest one is the balance between the collectivist institutional
approach (is the Medical School better off because there is a strong English
department?) versus the entrepreneurial university (get what you can).
And
it may be that English does not operate at a loss, Professor VandenBosch
pointed out. To have every department
float on its own bottom is not desirable; there will be areas that require new
investment that will not be self-sufficient, at least not for some time. There will be other areas that need a sunset
provision, but that cannot happen in one year because people's careers are at
stake, but those units also will likely not generate enough revenue to pay
their costs. At the same time, while not
every department needs to be entrepreneurial every year, it is unlikely that
the University can completely abandon the entrepreneurial model, she concluded.
The
"if you can catch it, you can eat it" model works if the market can
distinguish between the knowledge a student gained from a course in field x
taken in college y verse college z, and if there were no public goods whose
provision to one means provision to all, yet the cost is borne by a college or
department supplying the good, Professor Roe said. But there has to be a mechanism to evaluate
how important English, for example, is compared to other departments so there
is a way to evaluate tradeoffs. It is
not possible to ever get it completely right, but one does not want huge errors
in assessing tradeoffs, either. IMG was
instituted but it did not change the old rules or the externalities, and the
system is getting out of balance. Mr.
Klein said that with respect to the "catch it, eat it" model, it
could be consistent with the entrepreneurial model for a department that sees
the need to run a deficit for several years to build up expertise or shift
personnel, to have the capability in the budget system to allow it to do so.
Decisions on whether to invest in a new area should be controlled where the
knowledge is and should also be where the responsibility is. The unit that should bear responsibility is
the college, Professor VandenBosch maintained; departments shrink and grow
within the colleges. There could also be
a central pool of funds for activities that are not within one college. Having such central pool of funds that
colleges and/or departments could have access to for investments in new
programs or majors or courses, Mr. Klein added, would not run counter to a
model that relied on entrepreneurial creativity to find solutions.
A
basic conflict in the system as it now exists, Mr. Fitzgerald said, is the need
to account for the costs of common goods, even with tuition all attributed to
the colleges. There has been an
increased focus on common goods since the adoption of IMG, he said.
Professor
Konstan made several points. First, he
noted that there used to be a Department of Linguistics in CLA but that it was
eliminated. As long as colleges make the
decisions, Computer Science, for example, will have no say about whether or not
it needed Linguistics.
Second,
the newspapers recently reported that the ranking of the MBA program has
improved. But never has there been a
headline about the
Third,
there is a need for incentives; people will not act without them. But it should not just be dollars in equals dollars to spend.
Units have to be allowed to offer small classes that will increase
quality. Graduate tuition increases are
doing terrible things to the long-term future and will cause students to go
elsewhere because research funds will not spread far enough. But there seems to be no way today to make a
central decision to cut graduate tuition for the collective good of the
University.
The
budget principles from the AHCFP are too incremental, he concluded. They are OK if one is committed to the
distributed budget system; if one wants IMG 2.0, these principles will improve
it, but they will not address the issue of having a different system that will increase
the quality and rank of the University.
This
Committee is the place to address these questions, Professor Campbell said, and
it will then send its recommendations and views to the Faculty Consultative
Committee and then to the Senate. There
is not enough of this kind of discussion; the Committee now needs to have it
and to propose something. It would be
great if the Committee could put something on the table, and it can propose
incremental change or that the University move in bold ways. He said the discussion would continue later
in the meeting, but now turned to Vice President Pfutzenreuter to discuss the
budget instructions.
2. Budget
Instructions
Mr. Pfutzenreuter handed out copies of an excerpt from
the Phase II budget instructions and two tables outlining the major elements of
the budget. The goal for the 2004-05 budget, he explained, are to balance the budget as well as
identify funds to invest in the future.
The President wanted to be sure there is an investment pool both this
year and next. Because most cuts were in
the first year of the biennium, there are more investments slated for the
second (next) year. The academic
investment pool for 04-05 will be about $9 million and the investment in
students will be about $6.5 million, amounts that are about twice what they were
in the current year.
Mr. Pfutzenreuter next identified the "budget
challenges" for the 03-04 and 04-05 years.
For the two years, faculty and staff met 15% of the total (salary freeze
and health care costs), administrative and programmatic cost reductions
accounted for 31% of the total, other revenues for 10%, and increased tuition
and fees covered 45% of the total (totals 101% because of rounding).
The
total budget problem in 03-04 was $128,600,000; there will be an additional
shortfall of $63.9 million in 04-05. For
next year, increased tuition revenues will total $50.9 million;
administrative/programmatic cuts will total about $12 million, and there will
be a modest increase in revenues (primarily ICR) funds, all of which in total
will cover the $63.9 million problem.
There will thus be budget cuts again next year, but they will not be of
the same magnitude as for this year.
They are asking units to prepare two pages to identify what the impact
of cuts will be so they can understand the problems. They have had meetings thus far with OIT,
Vice President O'Brien's office, and with the Controller's Office about what
they will do if they must make cuts; the solutions range from cutting staff to
delaying technology improvements to ending daily trash pickup. There are dollar targets for each unit, about
which they have been informed.
How
honest are the units in reporting on the potential impact, Professor Konstan
asked? Do units always propose to close
something that will be noticed, not something that will not? There must be a temptation to cut what will
make the University look bad. Mr.
Pfutzenreuter said he has not seen that at the University (although he has at
other places). People seem to manage
around the margins. This may be because
there is no big cut to any one unit; the cuts amount to a few percentage points
on the base.
Professor Feeney noted again that there is a dramatically
different effect across units when one talks about tuition and fees. If a unit is tuition-driven, changes affect
it. Is it a conscious decision about
tuition elasticity and the net effect of tuition increases, he asked? It is, Mr. Pfutzenreuter said. They prepare a large spread sheet with the
effects of tuition, IRS assessments, compensation, and so on, on each
unit. They know who is advantaged and
who is not by the decisions. Everyone
knows that if a unit is a high-tuition undergraduate college, it will fare
better than units without high levels of tuition revenue. The IRS affects all revenues and has a greater
impact on units with lower total revenues.
The incentives are for departments to put as many resources as possible
in tenured faculty, Professor Roe observed, or to otherwise make it appear that
its funds are committed. He said he was
surprised there were no negative effects at the unit level.
Professor Konstan said that the long-term consequence of
substituting tuition revenue for state O&M funds in some colleges is to
make those colleges more tuition-sensitive.
This can be seen as a benefit (as it often is by the low-tuition
colleges) but can also be seen as a very large risk (as the high-tuition
colleges often point out).
Part
of the challenge in the system now is that there are two levels of allocation,
Professor Konstan said. It could be rational
for a college not to put all its funds in tenured faculty but at the same time
it could be quite rational for a department, based on its view of the
collegiate budget model, to do so. The
view from central administration about what is rational for the college may not
translate to departments, which are then seen as not acting rationally. The biggest item in a department budget is
salaries, Professor Campbell observed, and he said he did not know of any department
that could move more money into salary lines without the approval of the
dean. But it can be a long-term strategy
to move resources that way, Professor Roe pointed out. Professor Campbell agreed, especially because
in virtually every discipline the University has a smaller faculty than its
peers, because the University has more disciplines, so there is always pressure
to increase faculty size. When budgets
must be cut, it is support expenses that are reduced, leaving a greater
percentage of the budget in faculty positions--but without support staff and
expenses, so faculty end up being their own staff.
Vice
President O'Brien said, apropos Professor Konstan's vision about the faculty
convening to arrive at collaborative solutions, that
in the case of University Services people could do their jobs elsewhere but
choose the University because they are committed to it. They try to operate with as much
effectiveness and efficiency as possible, and while perhaps not at 100%, it is
high. They are comparable to the faculty
in their commitment to the University.
She also said that the President has as a high priority the service and
productivity initiative; the University is not where it wants to be but is
working on improvements. About one-third
of the positions eliminated last year were in University Services (which cut
150 positions, of which about 50 were held by people who were laid off). As the Committee thinks about issues, she
said, it needs to be aware of the reality facing the non-academic units.
Professor
Campbell thanked Mr. Pfutzenreuter for his report.
3. Update
on the New Financial System
Professor Campbell turned next to Mr. Volna for a report
on the new financial system.
Mr. Volna distributed copies of a PowerPoint presentation
and noted that it had been several months since he had provided an update to
the Committee about the new financial system.
The University has purchased a new system from PeopleSoft for about $9.5
million (about half of which is five years of pre-paid maintenance on all of
the University's other PeopleSoft systems and which price included a healthy
discount).
They
will approach implementation in two phases.
While the University negotiated a good deal from PeopleSoft, they
understand that it would be difficult to proceed with a $20-million implementation
project this biennium. So the University
has purchased the system and will spend about 18 months learning it before
implementing it fully. There will be no
incremental costs and this approach will allow the University to make better
choices for implementation. Mr. Volna
reviewed the goals and objectives and the business drivers as well as the
vision statement.
Mr.
Klein asked if the system had an e-commerce component. The University decided not to take advantage
of that option, Mr. Volna said, because it emphasizes catalogues and has high
maintenance costs (to keep the catalogues up to date). The University could change its mind and
purchase that option later.
Professor
Konstan noted that the EGMS system is designed so the University can serve as a
host and intermediary for smaller colleges that must interact with federal
agencies. Is that an option with the
PeopleSoft financial system as well? It
is not something the University is planning on, although the system could
accommodate it, Mr. Volna said. Mr.
Pfutzenreuter said this is not something the University would become heavily
involved with because of security issues.
Mr.
Bonnema observed that while Phase I would have no increase costs, Phase II,
full implementation, would be more expensive.
Assuming they do not anticipate new sources of revenue, will this
increased cost mean an increase in the enterprise tax, or an extension of the
tax? Mr. Pfutzenreuter said that it
would likely extend the life of the tax, but not the amount. What is the expected lifetime of the system,
Professor Campbell asked? Mr. Volna said
that question was hard to answer but that this is a mature and flexible product
and that it should last at least 10-15 years if the University keeps up the
maintenance contract and purchases the upgrades.
Professor
Campbell thanked Mr. Volna for the report.
1. Budget
Principles, Continued
The Committee returned to the topic of budget
principles.
Professor Konstan asked if it would be possible to
imagine a model where budgets are mindful of human efficiency and development
(companies build these things into their indirect costs; the University does
not). One complaint about the current
model is that it pushes people to do everything, do it more cheaply, and makes
work worse for everyone at the University.
If one were to hire a faculty member, it should be recognized that there
is also need for a graduate student, a support person, and support in the
department budget for things like travel.
The University does not budget for these things or think about them when
preparing a budget. When budgets are
cut, productivity is cut across the board by taking away support staff or
making things so unpleasant that people leave the University. What would it mean if, when hiring a
professor, a unit had to make an allocation of $200,000 to include staff and
support in order for the faculty member to be productive? It certainly happens with vice
presidents. At present the decisions are
decoupled so there are units where faculty are starved
for graduate students, making them less productive as teachers and researchers.
Professor Campbell said that this subject has come up
before. A former vice president, who had
been a dean, pressured departments, as they grew, to include a support
structure. This was last talked about
around freshman seminars : 100 new faculty
needed new support that amounted to the equivalent of support staff in two or
three departments, but it was not provided.
This is a VERY important issue, he said, but in a time of diminishing
funds to work toward the goal of providing support staff it requires incredible
discipline to convert faculty salary funds into support staff and budget. It is particularly difficult when most units
are short in the number of faculty they need.
During the industrial revolution, companies used machines
to improve productivity so that instead of having 100 people working manually,
they might have 50 people working more productively. The University may handicap itself,
internally and with the legislature, because it so often seems to maintain that
its output, and therefore its productivity, cannot be effectively evaluated or
measured. If the University is to make a
case that it is worth investing substantial funding in faculty support, then it
also needs to make the case that it will have achieved more for the same
dollars that way. That means measuring
reputation, quality of research, quality and quantity of students graduated,
and other things that can be compared to show improved productivity.
One
approach would be for the University to make available a fixed sum of dollars
for units and let the units decide what is the best use of
those funds, Mr. Klein said. That
proposal is based on a rational theory of decision-making, which may not apply,
Professor Campbell said. Then we have
only ourselves to blame, Mr. Klein responded.
That is what the former vice president said, Professor Campbell pointed
out. When looking at the dollars
generated, the University should be able to measure productivity. If a unit receives a lot of grants, it will
need a high level of human resources staffing; if it does a lot of teaching, it
will need a different type of staffing.
There needs to be adequate staff to run the University, he said, but one
cannot decide a priori what kind and how much. The rational decision-making
model leaves these types of decisions up to the individual colleges or
departments.
Contrary to what Professor Konstan said, Professor Roe
maintained, there are incentives for faculty to obtain outside research
funds. It would be interesting to know the
nature of incentives other universities provide to encourage this activity. Do they give PIs some of the ICR funds, which
encourages them to get more grants? But that incentive must be balanced against
the need to provide undergraduate instruction.
Harvard, for example, only offers salary for seven months in some
fields, with faculty expected to generate the remainder of their compensation. In the 1980s there was a successful effort to
obtain legislative funds to support graduate fellowships. The fellowships
obtained seemed also to help increase the University's capacity to compete more
effectively for grants and contracts.
There seems to be the perception that IMG provides
negative incentives for interdisciplinary teaching, Professor VandenBosch
said. That would not have to be. How does IMG provide negative
incentives? Mr. Klein said he has spoken
with a couple of people about this who believe that
IMG could be tweaked, by a slight change in the formula, to change
incentives. There is information about
the negative effects, Professor Feeney said, and it varies with what college is
engaged with what college. There are a
number of examples identified by the AHCFP committee where individuals were
asked to teach but provided no funds for.
It depends on how collaborative or heavy-handed the dean is. Do they say no, Mr. Klein asked? They do, Professor Feeney said, and the
question is the impact those decisions have on majors and students. It gets messy. Perhaps there needs to be a mechanism to deal
with people who game the system rather than overhauling IMG, Mr. Klein
suggested.
"IMG is busted," Professor Feeney
maintained. If one looks at the
complexity of the budget instructions, the incentives being bled out of the
system, the rewards for perverse behaviors, and the effects these things have
on majors and students, one must conclude the system is broken. It is an even bigger problem in the AHC (ICR
and clinical revenues change the whole picture and it is a more complex
system). The AHC colleges have
complained for years about the differential effect of tuition and taxes on
their programs and there are instances where the number of interdisciplinary
programs has declined as clinical revenues have been taxed away. Right now there is a one-size-fits-all budget
model that has a lot of band-aids instead of a multi-faceted model. That model will lead to further deterioration
in activities that are not tuition-driven because of the taxing system the
University now uses. Philosophy about
this varies across the institution; those who benefit from IMG are entrenched
and those who do not are also entrenched.
There is a need to get this issue on the table, he concluded.
Professor Campbell said the Committee did not have good
information on which to base a decision.
The NACUBO report described the debate.
A well-respected public institution on the west coast, where it was said
that their health sciences units supported the English department, did a study
and discovered that a lot of support for BOTH units was provided by the central
administration--and in this case, it happened to be a financial wash. He said that he could make the argument that
CLA subsidizes other parts of the University because the traditional model of
financing higher education calls for the student to pay one-third and the state
to pay two-thirds; when CLA students may be paying 70% of the costs of their
education, that means the state funds are going elsewhere in the institution,
to other units. The point is that if one
takes a certain action, without good information, it may not be what the
Committee thinks.
So everything depends on cross-subsidies, Professor
Feeney asked? The lack of accounting for
subsidies and for overhead must be remedied before one can draw conclusions,
Professor Campbell responded.
Professor Campbell also commented that ICR is "a
losing proposition." No grant that
receives ICR funds covers the cost of doing the research. The state subsidizes research. And many grants do not pay any ICR or do not
pay the full rate, and sometimes gifts are used to support research in order to
avoid paying ICR costs. The
administration makes up the costs with state funds. This is not bad, because research is part of
the University's mission, but it must be recognized that if every tub is on its
own bottom, there must be a calculation for common goods. The rub is that the Committee does not have
good financial information; one hopes the new financial system will help. Even with better information, however, who
decides on how he allocates his time, Professor Campbell asked rhetorically?
The ICR rate is an average, Professor Roe pointed out; it
could be that research in Political Science or Economics has an actual overhead
cost of 12% and in other fields it might be 60% or more. Professor Campbell commented that he is sure
the ICR rate he pays on research grants is more than what his research costs the
University.
Professor Feeney said the Committee should decide if it
is in favor of conscious or unconscious decisions. Many people thought that IMG would lead to
more conscious decisions, with a warning about paying for common goods. He said that decisions should be conscious,
which is what the AHCFP is arguing for--rational decisions. If one group is to subsidize another, that is
OK, but it should be as the result of a decision. There needs to be transparency of
information, Professor Roe commented, to which Professor Campbell assented and
added that if there is a subsidy, there should be good reasons for it.
4. Transit
Strike
Professor Campbell reported that he had been asked if the
Committee would take a position on the transit strike. He said he had agreed to raise the question. It is clear that the University population is
a substantial user of transit, but it would be unusual for the Committee to
take a position on a labor situation.
Are there any concerns about the way the University is responding to the
strike, he asked? Ms. McCarthy Barnes
asked if the Committee took a position on the clerical strike; Professor
Campbell said that the Faculty Consultative Committee had affirmatively decided
it would NOT take a position.
The Committee agreed that it would not take a position
but that it would urge the two sides to continue to talk, and agreed by a 5-2
vote (with 3 abstentions) on the following statement.
The Senate Finance and Planning Committee encourages
the parties to find sufficient common ground to bring them back to the
negotiating table to end the MCTC transit workers bus strike.
Professor Campbell adjourned the meeting at
--
Gary Engstrand