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), David
Chapman, Daniel Feeney, Steve Fitzgerald, Thomas Klein, Joseph Konstan, Michael
Korth, Kathleen O'Brien, Richard Pfutzenreuter, Terry Roe, Charles Speaks, Susan
Van Voorhis, Warren Warwick, Susan Carlson Weinberg
Absent:
Calvin Alexander, Brittny
McCarthy Barnes, Stanley Bonnema, Yi Li, Cleon Melsa, Timothy Nantell, Thomas
Stinson, Alfred Sullivan, Kate VandenBosch, Michael Volna
Guests:
none
[In these minutes: budget
principles]
Budget Principles
Professor Campbell convened the meeting at
The principles forwarded by the AHCFPC were as follows:
Budgetary Principles for a Changing Economic
Environment
The Academic Health Center
Faculty Finance & Planning Committee (AHC F&P) is encouraged to learn
the University administration will revisit the University’s existing IMG budget
framework for FY06. Renewed attention
to University core budget principles is critical during this time of
diminishing state resources, which results in creeping privatization of higher
education. After some deliberation, our
committee offers the following budget principles and proposed actions for
consideration.
The University’s budget model should …
Principle 1: Be accessible, predictable, and transparent
Proposed Actions
-- use a one-year lag to determine
central assessment base
-- keep assessment rates stable
-- eliminate multiple assessments on the same dollars
-- use reasonable and well-understood measures to assess
central costs
-- ensure that data from which these measures are derived are
available to units
-- aim for administrative ease at the
unit level
-- make academic program subsidies explicit rather than
implicit
Principle 2:
Ensure the most efficient use of resources (e.g. staff, space,
technology, equipment) at all organizational levels and avoid duplication of
services
Proposed Actions
-- align
assessments with consumption of services (e.g. cost of student services based
on number of students utilizing services; cost of HR, payroll, benefits based
on number of employees; cost of accounting, budget and finance, SPA based on
dollar expenditures; cost of facilities management services based on square
footage of occupancy, etc.)
-- provide
incentives and demand accountability for centralized services to be cost
efficient and cost effective and protect against the inappropriate shift of
effort or fees to local units
-- on an annual basis, align and
justify increases in central service costs to demand for services
provide
cost/benefit analyses, at both the central and unit level, of proposed business
practices and policies before they are implemented
-- require
local units that choose to do business in non-standard ways to pay the full
cost of such choices (conversely, provide central financial support for only
standard ways of doing business)
provide
incentives at the local level to support the generation of revenue and
coordinate those incentives centrally to avoid duplication costly to the
institution
Principle 3:
Eliminate financial barriers that inhibit collaboration and
interdisciplinary activities between academic units and create financial incentives
to foster such activities
Proposed Actions
-- develop alternative funding models for interdisciplinary
education
-- develop
principled models for sharing ICR resulting from collaborative research across
colleges and centers
Principle 4:
Continue to allow for reallocation and investment in strategic
priorities
Proposed Actions
-- avoid across-the board reductions
that erode the overall quality of the institution
-- selectively
reallocate funds to and expand investments in programs that are consistent with
institutional priorities, even if other programs must be reduced or eliminated
in scope
-- resist historical practice of keeping units “whole” in a
period of budget transition
-- develop
a rationale for use of state appropriation dollars and allocate based on
defined institutional priorities
Principle 5:
Fully attribute revenues to units generating them and allocate costs to
units incurring them
Proposed Actions
-- attribute all forms of revenue to units where generated,
including 100% of ICR
-- directly and explicitly recover overhead costs for each of
the mission based programs: research, education, and service & outreach
-- assess actual fringe benefit costs to units where they are
incurred
-- define space costs equitably, including debt service, and
allocate to units occupying
Professor Campbell said that he could mostly support the
principles. There places where he would
like to see more discussion, especially around Principle 5, which joins the
most controversial issues.
Professor Feeney said the one goal of the principles was
to get everything on the table. Another
goal was not to be parochial. The
principles are intended to respond to what has been complained about for a long
time, things like the assessments and the fringe benefit pool swings. The underlying assumption is that any
assessment should be based on rational metrics--on students, on faculty, on
space, whatever makes sense, and not because the measure is convenient. The AHCFPC has nothing against IMG, but the
elements of it that have backfired have raised concern: There are no new state funds so the
administration has had to impose taxes on revenues. They want to be sure all these issues are addressed. In addition, it is easy for tenured faculty
to bring up and discuss the issues because they do not need administrative
favors or function in a hierarchical system--they can say what they want to.
Professor Speaks asked what he meant by
"attribute" in Principle 5:
"recognize as generated" or "captured"? Tuition attribution
is not just recognition, he said; the colleges get the money. That is what they meant, Professor Feeney
said. And if "unit" means
college, that should be clarified.
Where is the IRS addressed, Professor Speaks asked? In Principles 1 and 2, Professor Feeney
said. They are not assuming that there
will continue to be an IRS. Every budget
and tax model has winners and losers, Professor Speaks observed; who do they
see as winners and losers under these principles? They tried to stay neutral, Professor Feeney
said. He recalled the discussion with
former Senior Vice President Infante about "every tub on its own
bottom": units would receive funds
and do with them as they thought best, with an assessment for central
administrative costs. The idea is to
develop principles and not fudge them because they adversely affect one group
or another. The decision about winners
and losers is one step above this Committee, he suggested.
Does Principle 5 exclude sponsored funds, Professor
Speaks asked? It does not, Professor
Feeney said. If one lives in a dual
income household, all the income goes into the common account and one pays
expenses out of it.
Professor Roe said he saw Principle 5 as calling for a
balance sheet, identifying revenues and costs, and the result could be plus or
minus. The concern, as he saw it, is
that there be a transparent balance sheet. Professor Feeney agreed. If a decision is made to subsidize something
with O&M funds, it should be a conscious decision that all understand and
that minimizes speculation.
Professor
Konstan said he liked Principles 1-4 but that there was a Principle 0
missing: The institution must articulate
a set of values and priorities to set the framework for the budget. He said he did not believe Principle 5 could
be implemented. Philosophically, the
University wants undergraduates to flow between units without paying
differential tuition. IT could perhaps
charge 25% more per credit, but foregoes that income because GC and CLA cannot
increase tuition that much. The attempt
to attribute all funds, through the use of a detail spreadsheet, focuses on the
wrong things. Similar externalities
occur throughout the University--the ready availability of undergraduate
workers may reduce personnel costs of some units; the fact that health benefits
across the University include the option of UMP may also be viewed as a cross
subsidy. Every unit contributes
some--perhaps through its own financial sacrifice--to the welfare of others,
and every unit in some ways benefits from the overall excellence and
comprehensive coverage of the University.
The budget system should focus on values and priorities; IMG was a
mistake and "every tub on its own bottom" would be a mistake. This institution has a lot of externalities
that one does not want on a spreadsheet.
He said he would be more comfortable with the University leadership
identifying a set of common values, of common goods, and making hard
decisions. That has been the
struggle: Without enough funds, the
University must decide what to cut. To
do spreadsheets that leads to "you owe us, we owe you" creates
factionalism.
Professor Konstan then moved to strike Principle 5 from
the document.
Vice President Pfutzenreuter said he had no problem with
attribution (give the money to the units--colleges--and then tax it back). His problem, he said, is with the second
bullet ("directly and explicitly recover overhead costs for each of the
mission based programs: research, education, and service & outreach"): He did not know how that could be done. To do as accurately as possible, one would
need to keep track of how people spend their time on the three parts of the
mission. That is not done well across
the University. Overhead charges for the
three missions would be different; research is more expensive (largely because
of buildings and equipment). He also
worried about gaming the system (e.g., putting
salaries in lower-overhead categories, or force CLA faculty to keep track of
their time). And how much research is
teaching, Professor Campbell inquired?
They are concerned about overhead, Professor Feeney
responded, not salaries. A unit should
pay the space costs if it wants expensive space. They do not want units sitting on space; if
they want it, they should pay for it.
Mr. Pfutzenreuter said that if ALL the money is given away and there are
no funds in central administration for the Regents' office, the libraries,
student services, and so on, and assessments are to be mission-based, they must
know how much time is spent on each mission in order to know how much to charge
for overhead. Professor Roe again said
he saw this as a data collection tool (where are the revenues and costs), not a
control mechanism. And some costs could
be too costly to measure, which is why he asked if the principle is calling for
a balance sheet.
Professor Feeney repeated that they are not married to a
specific model. The goal is to
understand where the costs are, what they are, and how they are paid for. The 0100 (state) funds should go to the
central administration; the others (tuition, ICR, clinical revenues, etc.)
should go to the units, and that is what Principle 5 is about. The goal is to get a discussion, not create
an accounting nightmare where everyone must punch a time clock. The biggest decisions are about space and
classrooms. He said has heard the campus
does not really have a classroom shortage--except between
Attribution of revenues to the units means turning over
all the money to them, Mr. Pfutzenreuter said; the administration must then get
back what it needs to pay the bills on the basis of overhead costs based on
mission-based activity. He repeated that
he did not believe this could be done.
What if there were another way to do it, Mr.
Klein asked? The implication is that
someone would be unhappy with the scheme; the University just has to adopt a
budget scheme and then live with it.
Professor Feeney agreed; the intent is not to be confrontational or
dogmatic and they would welcome any better ideas. The goal is simplicity and paying for what
you use. Mr. Pfutzenreuter said he
agreed on that; mission-based charges are something else.
Under all the scenarios there must be transparency, Mr.
Klein said, so that all start with the same information as values are
applied. Implied in the cost allocation
is a question not on the table about productivity and cost control in different
units. This proposal tries to solve that
issue with revenue and cost maneuvering that could be more difficult than
productivity measures and benchmarks.
That could be a better way to get control of costs.
(Principle 5: Fully attribute revenues to units generating
them and allocate costs to units incurring them
-- attribute all forms of revenue to
units where generated, including 100% of ICR
-- directly and explicitly recover overhead costs for each of
the mission based programs: research, education, and service & outreach
-- assess actual fringe benefit costs to
units where they are incurred
-- define space costs equitably,
including debt service, and allocate to units occupying)
Professor Speaks addressed the four bullets under
Principle 5:
-- 1 is reasonable and doable and
can be retained without Principle 5;
-- 2 is not doable in any valid way
and there could be a lot of gaming;
-- 3 can
of course be done and is not unreasonable (it is OK as long as one wants a
parking rate increase, Mr. Pfutzenreuter commented); and
-- 4 is not doable and will lead to gaming and to the generation
of useless information.
As for the principle itself,
he said, the IRS tax exists because as the University adopted IMG, it
attributed tuition to the colleges and left the administration with an
insufficient amount of money. This would
call for attributing ALL income, which could create an even bigger problem.
Professor Feeney repeated that they are not trying to
sell a particular model. Central
administration receives the state funds but needs more to operate the
place. The point is to know what the costs
are. Professor Speaks responded that one
knows that state funds are declining and taxes must go up. He said the document would be stronger
without Principle 5.
If all funds go to the units, there will remain the
common goods problem that has never been addressed, Mr. Fitzgerald said--the
funding of libraries, classrooms, student services, and so on. If the money is allocated out and taxed back,
can the administration capture enough to pay for common goods? He noted the money generated from centrally-controlled
classrooms and said there would be incentives for departments to use them at
other times, and to make departmentally-controlled classrooms more
available. No budget model will solve
that problem, Mr. Pfutzenreuter commented.
There are elements of this proposal that are not pulled
together, Professor Konstan said. The
Office of the Registrar is a unit; it could buy classes from the colleges. He said he did not believe that 0100 funds
are different from other revenues. If
not for the
The University is not a business, Professor Konstan
maintained; it is not about money. Money
to units should not be based on what they can generate; those are not the
University's values. Units should be
rewarded for being excellent. He said it
is fine if units generate revenues and some of it is taken for the rest of the
University. With a spreadsheet system,
units would say "you can't take our money away."
Professor Konstan said the University should also not
play with numbers inside that it cannot play with outside as well. It should not internally allocate different
charges, for example, to classes, if it won’t let the colleges also adopt
differential tuition rates. Businesses
do not run that way; they fund a common core and only bill units when doing so
might affect behavior.
Professor Roe said that a balance sheet should document
what can be documented and that it is important to know how things change over
time. The University's operation should
be understood with the best numbers available.
If Principle 5 is also an action plan, then he said he did not like
it.
Professor Feeney said they did not envision carrying the
accounting to the level that Professor Konstan spoke about, but the system
needs incentives to allow units to work out of financial trouble. IMG allows a unit to offer an extra section
of a class, for example; why not apply that to what units use? Some may only want a classroom with a
blackboard, not a high-tech room. Let
units make the decisions. That is in
Principle 2, Professor Konstan said. Mr.
Pfutzenreuter said he agreed with eliminating Principle 5, and that the second
bullet could not be done. The others
could be moved elsewhere in the document.
Professor Campbell noted that there had been a lot of
discussion about bullet 1 of Principle 5 and that there would have to be
substantial rewording for it to be clear.
Committee members do not agree on what it means. Professor Speaks asked if the Committee could
eliminate Principle 5 but retain the bullets.
Professor Campbell said that it could.
The Committee then voted unanimously to eliminate Principle 5.
Professor Speaks said he was bothered by Principle 3 for
two reasons that could be fixed ("Principle 3: Eliminate financial barriers that inhibit
collaboration and interdisciplinary activities between academic units and
create financial incentives to foster such activities"). One, it is worded negatively while the others
are positive. Two, as
it stands, some would say that there are no barriers, so it should call for creating
more incentives. Professor Feeney
concurred with the suggestions.
Professor Roe said that with respect to Principle 1
("Principle 1: [the budget system should] be accessible, predictable, and
transparent"), one component of transparency includes knowing the facts,
which are part of Principle 5. Principle
1 should also call for data. Professor
Konstan agreed and said there should be development and distribution of a
comprehensible annual or biennial University budget showing revenues and
expenditures across the institution. Few
see such a report and it is usually prepared at such a high level that it does
not tell one much. Mr. Pfutzenreuter
asked if it should include both direct and indirect costs (direct costs would
not include facilities costs, for example).
He said they would not drive the revenues/expenditures down to the
department level; they only allocate revenues and expenses at the college and
campus level. Mr. Klein wondered if the
tension in IMG, however, is not between the expectations of chairs and
departments about what the deans will do.
Professor Campbell said that departments vary so much from college to
college that it would be futile to carry the budget system to that level.
Professor Konstan moved that a new first section be
incorporated in the document:
[The
University's budget should] "be grounded in a set
of institutional values and priorities
Proposed actions:
-- Develop,
articulate, and promulgate a statement of institutional values and priorities.
-- Evaluate
candidate budget models based on the degree to which they support and
facilitate these values and priorities"
Professor Roe said that values and priorities are dynamic
and change with time. Issues and
emphases change. The language could make
the document so generic it would have no value.
Professor Campbell said he wanted to see the mission included, which
should be virtually immutable; priorities, he agreed, could change from year to
year. One would hope that values are
also fairly stable, Professor Konstan said.
Values are something to do with the land-grant mission, Professor Roe
said; they must be dynamic and need to be revisited.
Mr.
Klein said the University's mission is stated repeatedly; the issue is
communication of that mission throughout the organization. One form of the mission statement appears on
the façade of Northrop Auditorium and Committee members have referred to that
statement several times in deliberations.
He said he did not see how Professor Konstan's proposal moved the document
forward. Professor Speaks said the
mission is well understood; Professor Konstan's language says that any budget
document should affirm its relation to the mission and values of the
University--as opposed to drawn out of thin air or chaos and not reflecting the
mission. He said he believed that a
number of decisions made during retrenchment did NOT reflect the University's
mission. The mission may be known,
Professor Konstan said, but the values are not so clear or are not documented
(e.g., about undergraduate education, about interdisciplinary work, about how
employees are treated, and so on). Often
administrative convenience, expediency, or efficiency is substituted for
decisions based on institutional values.
Mr. Pfutzenreuter agreed; values are not written down, they are in the
culture, he said. Do they ever change,
Professor Speaks asked? Priorities
clearly do. Professor Roe said the
values should come from the President.
If one value is to foster interdisciplinary work, Mr. Pfutzenreuter said,
then the document should call for a budget model that
would not stymie such work. Professor
Speaks said he could understand an argument that Professor Konstan's first
principle is not necessary but he could not understand an argument that says it
is harmful; it only says what most people want--would anyone want the budget
system to work in some OTHER way?
With
the addition of language grounding the values and priorities in the mission,
the Committee voted unanimously to approve Professor Konstan's language, as
follows: [The University's budget
should] "be grounded in a set of institutional values and priorities in
support of the University's mission."
Professor
Konstan next moved that bullet 4 from Principle 5 be moved to Principle 2 in
the document and that it call for development of an equitable mechanism for
defining space costs, including debt service.
He said that costs should not be allocated yet; this is a way to move
toward efficiency. "Equitable"
is a value term, Professor Roe pointed out.
Professor Campbell asked to hear from Mr. Pfutzenreuter about
space.
The
University tried this before, Mr. Pfutzenreuter recalled. Space was included in the original IMG
plan. They knew they were giving away
revenue (all tuition and one-half the ICR funds) and that central
administration would be short of money for common goods, so they proposed to
decentralize space at $5 per square foot in order to provide an incentive for
units to give up space. The system led
to a mountain of data, at a time when a lot of people were moving around
because of construction, and at $5 per foot there was not enough incentive for
units to relinquish space. A couple of
other universities have tried to include space in their IMG-like plans and also
gave up. Professor Konstan said he also
doubted the system could work, but pointed out that budgets are now
sufficiently tight that $5,000 or $10,000 for giving up space might be more
appealing. Moreover, the University must
still do the space survey for negotiation of the indirect cost rate with the
federal government; as long as that must be done, the data exist and could
perhaps be used.
Mr.
Pfutzenreuter said he was not uncomfortable keeping language about space in the
document, but observed that the University has tried this once and it did not
work. Vice President O'Brien also agreed
the language should be in the document, but there is a challenge in the
model: If unit X gives up 5000 feet in
one place, and unit Y gives up 10000 feet in another location, how does the
University consolidate and use the space?
The private sector has a lot more flexibility in this regard. Professor Campbell observed that when a
department is in a 1923 building trying to run a high-tech research operation,
this incentive does not mean anything.
Professor Feeney said the AHCFPC was trying to get at efficient use of
space, paying for what is used, not "squatting" on it (thus creating
pseudo-shortages); they were not talking about moving a physics lab to the
Professor
Speaks asked how much these principles (not the action items) differ from the
recommendations of the Rosenstone Budget Management Task Force of a few years
ago. "Not much," Mr.
Pfutzenreuter said.
Professor
Konstan said that with the changes, it is a much stronger document. It is still a very conservative document,
however, with respect to change. One
could ask if there is need for a fundamental change in the model so funds are
tied to productivity within units. If a
department receives a faculty line, it can hire someone, but it does not
receive funding for support costs, space, staff, and so on. The new person is just squeezed in. There needs to be a model that allocates
support costs to units in order that they can become more efficient. The compact process is supposed to do that,
although that goal may not be articulated.
This document is more conservative.
Mr. Pfutzenreuter said that has to occur in the compact process, not in
the budget model, because the level of granularity that would be required
cannot be obtained in the institutional budget model. Is it happening in the compact process,
Professor Konstan asked? It's spotty,
Mr. Pfutzenreuter said. This is a
question the Committee will return to, Professor Campbell said.
Professor
Roe said that these general principles apply to the central administration, but
they could apply equally well to colleges and departments. The Committee agreed unanimously that there
should be a statement to that effect at the end of the document.
Vice
President O'Brien suggested language for Principle 2 concerning duplication of
services. "Duplication of
service" has many attributes, Professor Roe said, including space, time,
and form, and is not necessarily bad. It
is to be avoided when it leads to an increase in costs. One would not want to pull all the
duplicating machines out of departments.
Professor
Campbell turned to Principle 5, bullet 1 ("attribute all forms of revenue
to units where generated, including 100% of ICR"): 100%, he asked? As is done with tuition now, Professor Feeney
said. Right now units receive 49.5% and
then are taxed on the amount, which makes it tough on research units. If 100% of the revenue for teaching can be
attributed to departments, it can be done for research income as well. Professor Konstan said he did not believe
that was appropriate. There are differences
between tuition and ICR funds, because there are overhead costs with teaching
and research.
Would
Principle 5 include purchasing services from Sponsored Projects Administration,
Professor Campbell asked? They want to
know where the dollars go, Professor Feeney said; if there is a charge, it
should be to a metric that people can understand. That is the question that these principles
seek to document, Professor Roe observed.
Professor Campbell said he knows exactly how much money the
Professor
Konstan said that Principle 5 says that assessments should be paid on
expenditures, not revenues--so units should still fund the 27% central overhead
costs for research even if the research grant bring in no or little ICR funds,
because the dollars are still needed for libraries, and so on. This, however, affects academic freedom--if
one wants to do research that is not funded or is funded without indirect
costs, it means faculty could be assessed for the central costs of supporting
research.
There
are certain expenditures that must be paid, Professor Feeney said, and they
want a model that shows how the money is spent, that does not encourage units
to hoard space, and so on. They want to
understand where money is going and why conscious decisions are made. There could be a metric for common
goods--perhaps a faculty-head tax to support the libraries, for example.
Mr.
Pfutzenreuter said he favored giving 100% of ICR funds to the units, although
in reality the actual division of costs is about 50/50, based on the components
of the rate developed for the federal government. The way the money is distributed now is very
accurate in terms of costs. He said that
he would send the money out to the units and then assess them on the components
of the rate. The problem now is that faculty do not see the central costs because the money
is taken off the top.
Professor
Konstan said he saw things differently.
Where grants do not pay salaries, a lot of money spent at the University
would be billed to grants but cannot be.
He said he believed that 100% of ICR funds should be retained centrally,
but there are some non-direct-chargeable marginal expenses for research in
units, so some ICR needs to be distributed, and the amount should be enough so
there is an incentive for researchers to drive a hard line on getting the full
ICR rate.
Professor
Roe said that he assumed the document would include patent income because it
should meet the same rule of opportunity costs.
How much of the patent money is earned because of support from the
department, from someone in Patents and Technology Marketing recognizing
something that will sell, because there was a good library that had an article
that sparked the discovery, etc., Professor Konstan asked? All are part of whey detailed ledgers will
not get the University very far; it must be treated as a university and avoid
camp squabbling.
The
Committee voted unanimously that it would incorporate part of the facilities
issue in Principle 2 and not include the bullets from Principle 5 in its
version of the document. The Committee
then voted unanimously in favor of the statement as modified through discussion
at the meeting.
Professor
Campbell said he was not sure the Committee had discussed the document enough,
although it will be brought to the Faculty Consultative Committee in June
[actually, after the meeting, it was put on the May 20 FCC agenda]. A number of the bullets have not been
discussed. When it is communicated to
the administration, Professor Konstan said, it should be with the message that
the Committee wants to be involved when the principles and actions are
implemented. Professor Campbell said he
will urge the Committee to continue to consider the document; sending it to FCC
does not stop the discussion here. The
Committee owes a lot of gratitude to the AHCFPC, and they have done something
this Committee should have been doing for a long time but got sidetracked. It is good to be put back on the planning
level rather than only addressing issues at the operating level.
Mr.
Pfutzenreuter said that he may have, by the June 22 meeting, a charge letter to
the working group that is to develop a new budget model. That group and this one should be on the same
page about what the Committee has approved today.
Professor
Campbell thanked everyone for coming and adjourned the meeting at
--
Gary Engstrand