These minutes reflect
discussion and debate at a meeting of a committee of the
Minutes
Senate Committee on Finance and Planning
Tuesday, August 9, 2005
2:00 – 4:00
238A Morrill Hall
Present:
Fred Morrison (chair), Rose Blixt, Charles Campbell, Steve
Fitzgerald, Lincoln Kallsen, Thomas Klein, Joseph Konstan, Michael Korth, Judith
Martin, Kathleen O'Brien, Kathryn Olson, Richard Pfutzenreuter, Justin
Revenaugh, Karen Seashore, Charles Speaks, Alfred Sullivan, Kate VandenBosch, Susan
Van Voorhis, Michael Volna
Absent:
none counted for a summer meeting
Guests:
Mark Bohnhorst (Office of the General Counsel)
Others:
Michele Gross (Office of the Controller); Jon
Steadland (Office of the Board of Regents); Julie Tonneson (Office of Budget
and Finance)
[In these minutes: (1) update on the new financial system; (2)
Regents' investment and social concerns policy; (3) new budget model]
1. Update on the New Financial System
Professor
Morrison convened the meeting at 2:00, introduced himself as the new chair, and
called for a round of introductions. He
then turned to Mr. Volna to provide the Committee with an update on the
implementation of the new financial system.
Mr.
Volna distributed copies of a set of PowerPoint slides and a table with
financial data. He recalled that he last
reported to the Committee in February, 2005 and observed that work on the
project has been going on since the mid-1990s.
He summarized the effort by noting that the new financial system is
"critical to support the University's mission," that it will provide
"better functionality for departmental and central users," that the
first phase of implementation has gone extremely well, and that the readiness
is high. Mr. Volna reviewed the history
of the effort since January 2004, pointed out that the grants management
systems enhancements will be managed and funded separately, noted that the
Phase One "Trail Blazing" project was budgeted at $2.7 million from
existing funds, and explained the key outcomes.
They spent $2.5 million of the $2.7 million budgeted for Phase One.
Following
completion of Phase One ("Trail Blazing"), they are moving to Phase
Two, full implementation. The guiding
principles are that implementation will emphasize internal resources, not
consultants; that "functionality and system infrastructure supporting
sponsored research" will be given a high priority; that costs of retrofits
and interfaces to other systems will be included in the cost; and that related
and follow-on projects are not included (these will require independent
justification and will be managed and funded as separate projects).
The
total budget for Phase Two, implementation, is $28.6 million, over 2½
years. Phase Two began this month
(August, 2005); the "go-live" date is July 1, 2007. The approach to implementation will include
project teams with representatives from academic and business process units,
business analysts, and technical specialists; it will change policy and
procedure before modifying the system, where possible; it will continue
judicious use of consultants for specific knowledge; and will provide "a
strong project methodology to ensure quality outcomes." Mr. Volna emphasized the point about changing
policy and procedures rather than trying to change the systems, and added that
they need to be sure the system can't do something before trying to change it. Ms. Olson asked if employees pulled from
departments will be paid their salaries from project funds. Mr. Volna said it will pay whatever was
agreed, including picking up salaries; although Mr. Pfutzenreuter said that it
will not simply give money to departments that do not hire replacements but
instead simply spread the work among remaining staff. They will pay the real costs to a department,
Mr. Volna agreed.
Professor
Morrison said that the biggest risk to the project was not hiring consultants
and relying on volunteers in the University.
With CUFS, however, the consultants came and left and there was no
expertise left on campus. While the
decision to use University employees was made before the strategic planning
process began, now there will be a lot of competition for employee time; he
said he was worried about added costs that might be incurred as a result. Mr. Volna agreed that they had decided early
to go with internal University resources and there were a lot of people
involved in Phase One. Now, however,
they are finding it hard to get people in the units to help with Phase
Two. They have several options: spend the money and bring in consultants
again, use central rather than departmental staff, or eliminate consultation
and implement the system based on what they know now. Mr. Volna said they don't like any of those
options but will need to do something because they do not want to delay
implementation of the new financial system for another year—and they do not
want to spend a lot of money on consultants.
What
is their fall-back position, Professor Konstan asked? Implementation should not be delayed because
departments are not volunteering people.
Is there a need for deans or others to tell departments they should help
out? He urged that Mr. Volna and his
colleagues not give up on a user-centered design. Mr. Volna said he did not want to say that
departments are not pulling their fair share; he recognized that there is a lot
going on in departments, especially with strategic planning, and employees have
a lot to do. Mr. Pfutzenreuter said that
if the Committee, however, were to emphasize the importance of helping with
implementation of the new financial system, he would take such a sentiment to
the President. The next two weeks are
critical, Mr. Volna said, and they are telling people they will proceed without
consultation if they must. Mr. Klein
said that everyone faces the same problems; this is the issue of the
commons. He suggested publishing a list
of those who are participating and letting those who are not again be invited
to join the effort and be reminded that others are already contributing.
There
is a benefit to the unit to having someone work on the project, Professor
Campbell observed; the person learns the system inside out. Mr. Volna agreed; people coming off work on
the project will be very valuable to the institution because they know the
system.
Mr.
Volna said that when the system goes live, access to it will no longer be
granted based simply on attendance at training; "a successful assessment
of financial competency will be required prior to access." Prospective users may, however, test out of
training. It will not be necessary to
take courses or instruction, although most people will need to do so; those who
have worked on the project will most likely be able to test out. But access to the system will not be based on
seat time in a course.
Professor
Konstan inquired how high the level of engagement in the change is at the
University. He recalled that the
President of the
In
terms of potential risks to the success of the project, a "fit/gaps"
analysis may reveal major functional gaps, there could be problems with
interdependency of PeopleSoft and other systems, there are other complementary
projects that must be integrated with the new financial system (student and
human resources upgrades, the position management project), and there will be
competition for resources from other projects.
Professor
Konstan reported that he had participated in a session about the chart of
accounts, which he found very useful.
Many, however, did not like some part of the chart of accounts and said
it needed to be fixed; is that process underway? Mr. Volna replied that the process did
contemplate the possibility of having to change aspects of the chart of
accounts as the project proceeded. They
looked at three different alternatives for the chart of accounts; the one they
chose met 88-92% of requirements. If
they find things that do not work, they will be open to making changes—they
will not make them lightly, but will do so if there is a need.
Professor
Konstan offered a resolution concerning participation in the project; Mr. Klein
offered an addition. The Committee (with
one nay vote) approved the resolution:
The Senate Committee on Finance and Planning is
pleased with the Phase Two plans for the financial system replacement project,
but is extremely concerned that a lack of unit-level participants threatens to
undermine the quality of a system that is key to our research mission and
operations.
While we recognize that some units may feel that their
benefit for participation does not justify the effort involved, we see this as
a classic public goods problem—one where rational local decision-making can
lead to results detrimental to all.
Accordingly, we strongly urge the President to act
quickly to encourage greater unit-level participation, through whatever
appropriate means necessary. We also ask
that the Executive Steering Committee for the project provide a report that
summarizes the time commitment by unit.
Vice
President O'Brien said that they do look at the time commitments by unit. Mr. Klein commented that it is important that
others BE AWARE that the Executive Steering Committee is doing so.
Professor
Martin inquired if there is a way to identify recently-retired employees who
could work on the project. Mr. Volna
said they looked at that possibility, but Human Resources is nervous about
people working when they have chosen a retirement incentive.
Professor
Seashore said she was glad to see that so much progress has been made to solve
a lot of problems that are annoying even to faculty, but one glitch could cause
a lot of stress: the inability to work
with external financial organizations.
They hold much of the University's money and there could be a problem
with cash flow. Mr. Volna pointed out
that this problem ONLY affects asset management, not the entire
University. They have the University's
and PeopleSoft's best people working on the problem and he said he was
confident it would be fixed. What is the
worst case outcome if the system does not work, Professor Seashore asked? That they continue to have to record
transactions manually, Mr. Pfutzenreuter said.
They will be no worse off than if the system had not been installed, Mr.
Volna said.
Professor
Morrison thanked Mr. Volna for the report.
2. Investment Social Concerns
Professor
Morrison turned next to Mr. Pfutzenreuter to begin a discussion of the Regents'
Policy on Investment Social Concerns.
Mr.
Pfutzenreuter explained that this policy, and the Targeted Group Business
policy, were the last two to go through a complete re-write of Board financial
policies. The Investment Social Concerns
policy will go to the Regents in September; the other one not until next
winter.
Mr.
Bohnhorst, from the Office of the General Counsel, reported that the policy
went through the normal Board review process.
Most of the changes made were to bring it into compliance with the
Delegation of Authority policy or they were stylistic. The Office of the General Counsel is involved
because the law has evolved in the last ten years. It is now unconstitutional for a state
institution to have investments that are contrary to
Professor
Morrison said that the changes to the policy are very modest, almost
technical. Professor Konstan agreed but
observed that when a policy recommendation from the Committee on Social
Concerns about restrictive investments is made, it is typically brought to this
Committee for a balanced view. That does
not seem to be the case here; is that because of the context? Professor Martin said that in the past the
recommendations began with the Social Concerns committee; in this case, the
recommendations were taken from the administration to that committee and it had
no objections.
Professor
Morrison suggested that the minutes reflect the fact that the Committee
acquiesced to the proposed changes.
3. Budget Model
Professor
Morrison began by remarking that some might find the next presentation too
elementary, some might find it too complicated, and no one will see it as just
right. Some bring a great deal of
background, because they have worked on it; others will come to it new. He turned to Mr. Pfutzenreuter.
Mr.
Pfutzenreuter introduced Julie Tonneson, from his office, who has done much of
the work on the budget model. He
distributed a handout and reviewed briefly the history of the discussions thus
far, and then turned to the Working Principles that have guided the discussion:
1)
2)
Transparency – Model should make
budget decisions related to subsidies, investments, reallocations, etc.,
transparent and acknowledge that no units are “tubs-on-their-own-bottoms”.
3)
Efficiency/Cost Control – Model
should optimize the use of the University’s physical, financial and
technological resources; encourage excellence, service and continuous
improvement; and provide clear incentives for member of the University
community to control costs.
4) Revenue
Enhancement – Model should
provide incentives where appropriate to enhance revenues.
5)
Simplicity – Model should be as
simple as possible to understand and administer.
6)
Predictability – Model should
result in predictable rules, consistent application of policies and clear
outcomes.
7)
Adaptability – Model should be
responsive to external “shocks”.
8) Central
Investment – Model should support
the ability of the President to “steer the ship” through reallocations and
central investments.
9)
Information Rich – Model should
foster an all-funds discussion using detailed information related to true costs
and service levels and provide good information to support fact-based decision
making at all levels of the University.
10)
Implementation – Model should be
as easy to implement as possible.
11) Risk – The model should place the management of financial
risk at the level of the institution that can best control the contributing
factors and act to address them.
They
looked at several budget models, Mr. Pfutzenreuter said, and focused on one
labeled as "Earned Income/Full Cost."
He recalled that Professor Morrison had correctly described this model
as attributing costs in place of Internal Revenue Sharing; the model would get
rid of the internal IRS tax, would attribute costs, and would change revenue
allocations only a little. The Committee
reviewed a chart with boxes and arrows indicating the flow of revenues.
In
terms of allocation of costs, central costs (which include facilities
management, debt service, libraries, the Vice President for Research office, information
technology, student services, and the administrative service units (including
central offices) will be attributed to all academic units/coordinate
campuses. They spent a lot of time
deciding the best way to allocate costs, Mr. Pfutzenreuter said. The consensus was that tuition attribution
should not be changed (continue to be split 75/25 between colleges) and the
University Fee should be attributed to the college, that all indirect cost recoveries should go
to the units, that unit-earned revenue should stay in the unit (as is the case
at present). The President would retain
the state appropriation for annual allocation to the academic units (although
State Special appropriations would be spent as required by law). There are several potential bases for attribution
of costs: square foot (metered), square
foot, consumption (utilities), number of students/faculty, sponsored research
expenditures, number of students/faculty/staff, number of students, and total
expenditures.
Professor
Martin reflected that a lot of discussions have emphasized that there has not
been enough central administrative money to do what central administration
needs to do. This model appears to
redirect even more central funds to the units.
Will a shortage of central funds be a continuing problem? They are talking about that, Mr.
Pfutzenreuter said. In the case of
revenues for academic compact investments, for example, there could be a fixed
percent of unit revenue or expense (a small form of the IRS), or there could be
funds taken off the stop of the state appropriation before it is distributed to
units. They have focused mostly on costs
thus far, he said.
Professor
Seashore pointed out that institutions are seeing a shift in state subsidies to
higher education. Have they tested what
will happen if the state appropriation goes down—which is where the President
obtains his money? Mr. Pfutzenreuter
said that none of the state fund will go to central units. Central units will be funded on the basis of
attribution of costs. There will be no
allocations to colleges and (for example) to Facilities Management; there will
be a charge to the college.
Professor
Speaks asked when it would be appropriate to take a fiscal year and run the
model to see the extent to which the model satisfies the working principles and
does what the University wants. Mr.
Pfutzenreuter said he did not know what the University wants; as for running
the model, they expect to be able to do so in October.
There
are two critical numbers if the model is to adhere to the principles, Professor
Konstan said: the state subsidy and the
"franchise fee" (smaller form of the IRS). From everything that is being said, the fee
will be small. If so, then units really
are tubs on their own bottom—and as long as they can stay afloat, they can
continue to use the land and reputation of the University. A revenue-generating, low-quality unit could
continue and there would be no brakes on them.
He said he was encouraged by the language in the first principle about
crossing disciplinary and collegiate boundaries but how will the University
encourage quality? The President has few
new funds and those he does have will need to go to units that cannot afford
the compact tax or franchise fee. If the
President can take 10% of the funds and steer them toward quality, the model
can work; if he only has 1%, the President will have abdicated his
responsibility to units that can generate money.
Professor
Campbell agreed with Professor Konstan but pointed out that the President can
decide to de-emphasize programs, and assuming a stable budget, he can move
money.
Professor
Seashore said there are two principles in conflict that the budget model cannot
resolve. One is that there should be
long-term investments that favor quality.
The other is that the University wants entrepreneurial faculty dreaming
up new things, some of which have a dollar value attached; it is not always
possible to tell which of the new things will have that value. The budget model can't address that problem
except that it can help prevent the University from being skewed wildly in
favor of one or the other. No budget
model will substitute for leadership, Mr. Pfutzenreuter observed.
Professor
VandenBosch asked about the current percentage of University subsidy to units
and whether some units do not rely on a subsidy. Mr. Pfutzenreuter said that indeed some units
do not rely on a subsidy (e.g., the
Ms.
Olson recalled that Mr. Pfutzenreuter said the current IRS is about 8.5% per
year. She asked if he had any idea what
the allocated costs would be. The change
is expected to be revenue-neutral, Mr. Pfutzenreuter said; at present the IRS
generates about $90 million per year.
Professor Morrison said the allocated costs would be much higher than
the IRS; it will be an across-the system application of an indirect cost
recovery system and could be at the 40-50% level. That would, for example, reflect the funds that
are currently allocated directly to Facilities Management—the money will now be
directed to the colleges and they in turn will be charged.
It is
not irrational to charge units if the charge is for items they can manage
(e.g., turning off lights, etc.). But it
is possible to hamper good leadership with the budget model. The President does not have complete
discretion with the O&M funds; it would help to know the percent of those
funds he could move around without putting units into a negative balance. It may be necessary to exempt start-up
activities for a period, and that can be transparent.
Mr.
Pfutzenreuter reported that the budget model committee has developed
recommendations concerning allocation of costs for Facilities Management, debt,
the Office of Information Technology, and administrative service units; it has
pending recommendations for research, the libraries, and for student
services. He reviewed the core
businesses of Facilities Management (building services, maintenance, energy
management, water/sewer, land care/grounds, and the
Professor
Campbell cautioned that it was not completely accurate to say that the budget
model committee had made these recommendations because no votes have been
taken. Mr. Pfutzenreuter agreed that
these are PRELIMINARY recommendations.
He said he did not know if the committee would take votes.
How
will they address the issue that space is not of the same quality around the
University and that some units cannot control energy use because the buildings
are inefficient, Professor VandenBosch asked?
It does not seem fair that new-building occupants pay the same as units
in 50-year-old buildings. Vice President
O'Brien reported that they have modeled the charges in detail and that there
are no material differences across the University. The work it would take to capture the small
distinctions would not justify the cost.
Mr. Pfutzenreuter observed that older buildings are usually cheaper to
operate than new ones. If the University
were to level charges exactly, Professor Morrison said, it would have to hire a
lot more accountants and assessors; it is a question of balance. Mr. Klein said he was reminded of President
Lyndon Johnson's comment about a piece of legislation: it is equally unfair to everyone.
If
units are assessed on the basis of square feet, Professor VandenBosch
continued, and the building does not work properly, there will be less
tolerance for things that do not work.
At the same time, the University cannot fix everything. There will be complications from this
change.
Professor
Campbell said he has to remind himself constantly that the process will start
with making each unit whole; it is what happens after that that matters. He said he hoped that the rates for new space
will reflect quality. With fuel cost
increases, and the possibility of an IRS-type tax, unit will have to handle
expenses within their own budgets. Or
the President says that unit X needs more dollars and unit Y receives fewer,
Mr. Pfutzenreuter added.
Mr.
Fitzgerald asked how the costs for public spaces will be paid—restrooms and the
like. Ms. Tonneson said that all space
will be assigned to someone.
Centrally-scheduled classrooms will be assigned to the Provost. The total building costs (including public
spaces) billed to a unit will depend on its proportion of the assignable square
feet in the building. Professor Konstan
said that seems reasonable; the two things a unit can control are energy and
assignable square feet. This system will put pressure on Vice President
O'Brien, he said, because nothing in the department incentive structure will
lead units to specify designs that are inexpensive to maintain--they will
presumably focus only on size, energy use,
and function. For example, expensive-to-maintain
landscaping would cost the same as low-maintenance landscaping.
University Services will need to provide guidelines or policies for
new buildings so they are designed mindful of all long-term costs, not
just those used as part of the cost allocation. Vice President O'Brien
agreed there will be pressure points in a lot of places that they do not yet
recognize. There may be an increase in
demand for quality customer service because units are being billed for
services. The change will put pressure
on the quality of service and the value of what units pay for. She said she hoped that one incentive from
the new system will be that people see the cost of space and do not keep seeking
more. They see in University Services
how much space the University has and realize that if one were designing the
campus from scratch, it would not require 28 million square feet.
Will
the square feet of a new football stadium be assigned to athletics, Professor
Konstan asked? It will be, Mr.
Pfutzenreuter said.
Mr.
Pfutzenreuter returned to the preliminary cost allocation recommendations from
the budget model committee. In the area
of core technologies, there are a number of things that the Office of
Information Technology (OIT) currently spends its money on (data network,
email, calendar, various other applications, PeopleSoft/WebCT, etc., and
student/faculty/staff support (help desk,
Professor
Konstan said that a large number of units replicate services provided in the
second set (those already charged out) because OIT cannot provide what the
units need, such as help desks. If the
change is made, will OIT fund these unit costs or reimburse the units? Heavy users are not consuming services from
OIT, they are using their own. Help
desks are currently part of what OIT funds; if a unit also has one, it find it
more beneficial to give it up and perhaps gain in efficiency. But that will not support the mission of the
unit, Professor Konstan said; the units provide the service themselves because
they cannot get the support they need from OIT.
Right now services are being offered in two places. That may continue, Mr. Pfutzenreuter said. That is not fair, Professor Konstan argued,
because units are being charged for services they do not use. It is no more unfair than 0100 funds being
paid out for the same thing, Professor Morrison said.
Vice
President O'Brien said she appreciated the discussion about units and what they
will get when they pay for services.
They will try to ensure consistency in standards across the University
and to eliminate duplication. If OIT
tries to provide more services, for example, doing so would probably cost less
than each unit providing the service.
Mr. Klein entreated the Committee not to
look for solutions to leadership and management issues in the budget model. It will only provide information, about which
people must then make decisions. It only
sets the stage for more accuracy in discussions about costs. The key role the budget model can play is to
place consistent information in full view of the entire organization. This allows people to understand how the
money moves, what drives the financial decisions, and the arithmetic underneath
the financial flows.
Vice
President Pfutzenreuter then turned to the methods that can be used to allocate
headcount, which can include an annual snapshot-in-time (fall 10th
day for students, fall 9th pay period for employees, etc.). Professor Konstan asked if there is any
evidence that top universities minimize headcount? If the goal is to be among the top three, the
University does not want a system that encourages minimizing headcount. If a unit reduces the number of students, it
reduces its revenue, Professor Morrison pointed out. But there is an incentive to reduce staff
headcount, Professor Konstan countered, and anything that creates an incentive
to minimize staff is not a direction the University should go. Mr. Klein said that decisions on staffing are not going to be
driven by one variable. Clearly there
several other factors in addition to the cost side issues that a department
will take into consideration in determining the headcount needed. The University should not try to build into
the budget model things that require integrated decisions by administrators.
Nor
will units make rational decisions unless the data are smoothed out, Professor
Seashore added. Budgets are usually
stable, but in small units they can fluctuate.
Why will the model only use one year's worth of data? Mr. Pfutzenreuter said they have discussed
this issue—and he reminded the Committee that the unit of measure is the
college, not departments. Professor
Seashore said she has lived through irrational headcount discussions; there
must be a mechanism to smooth them out.
Professor Speaks said that for
information technology or the libraries he could see advantages and
disadvantages to both headcount and user/use measures. What have peer institutions tried, what
problems have they encountered, and what worked? Ms. Tonneson said she did not have an answer
because they have not asked questions in such detail of colleagues at peer
institutions. Headcount could be an odd
measure if one does not use a service; usage is not good because the University
does not want to create disincentives to using technology or the
libraries. Professor Campbell reported
that University Librarian Wendy Lougee discussed with the budget model
committee the experiences of the
Mr. Pfutzenreuter next identified the
administrative service units that are in the cost pool for which colleges will
be assessed. There are two categories,
those with a system reach and those that are only for the Twin Cities. The system offices are audits, Board of
Regents, Budget and Finance (excluding Bursar), Capital Planning and Project
Management, Controller's Office (excluding Sponsored Financial Reporting),
General Counsel, Human Resources, President's Office, BSAC, Public Safety
(excluding Police), Senior Vice President for Academic Affairs and Provost
(Senior Vice President office only), Senior Vice President for the Health
Sciences, Senior Vice President for System Administration (excluding centers),
University Health and Safety, University Relations (will be reviewed to
determine if some or all should be considered Twin Cities only), and Vice
President for University Services (vice presidential office only). The initial proposal for Twin Cities service
units in the pool for charging Twin Cities academic units are Bursar, Police,
University Services, Printing, and University Stores.
What about the
Mr. Pfutzenreuter reviewed briefly how
the costs of the system units would be assessed (as a prorated share of total
expenditures for each unit); the same method would be used for Twin Cities
administrative units. Some units,
however, do not "fit" in the cost pool; since the budget model
committee was not responsible for reorganizing the University, it concluded it
would treat these units like a cost center.
They include athletics, ROTC, Weisman,
Mr. Pfutzenreuter then explained the
cost allocation system for debt. The
actual cost by building will be allocated to units (excluding general purpose
classroom space). If a college gets a
new building, it is allocated the debt costs.
To the extent there are general purpose classrooms in the building, the
cost will be shared by all academic units.
This will be retroactive, but units will be given the money to pay the
debt already incurred. If a unit pays
off a debt, does it get to keep the money and have a windfall? They will not, Mr. Pfutzenreuter indicated.
Professor Martin asked about funding
for classroom upgrades, which is behind what it should be.
Mr. Fitzgerald noted that the
classroom upgrade issue is no longer one of funding the technology upgrade
installations, it is now one of sustaining the upgrades that we have
accomplished with adequate recurring funding of operations and replacement
costs. Mr. Pfutzenreuter said that when
deans are considering whether to have departmental or centrally-scheduled
classrooms (e.g., in a new building), they will see that it will cost them less
to have centrally-scheduled classrooms.
The
recommendations for revenue attribution are not significantly different from
what is currently in place. All tuition
will be attributed to the colleges; all ICR will also be attributed (once per
term), and the University Fee will be attributed to colleges on the same basis
as tuition.
Mr.
Pfutzenreuter also drew the Committee's attention to "Notes on Allocation
of the State Subsidy":
-- Annual
decision by the President
-- Strategic
decision each year used to implement University priorities: leadership to be
held
accountable for
addressing priorities through the budget
-- Allocations
made in support of unit level performance agreements, based on programmatic
outcomes and
financial management – decisions supported through unit level analysis
-- Budget
process, information and formatting will all be consistent across units to
support decision
making
-- Total
annual allocations cannot exceed the available state resources
-- Allocation
decisions cannot force a unit into a deficit for the year, but can force
discussions about
alternate levers
in revenues and cost allocation categories.
These are intended to provide guidance to the
President, not a mandate, he said.
Professor
Morrison said these seem risky; this is the present system, in a way. If there were a dramatic shift in a year, and
the costs could be covered by the unit, the President could eliminate state
funding for IT or CLA. The reality,
however, is that budget changes are incremental or decremental, Mr.
Pfutzenreuter pointed out.
Professor
Konstan said he was uncomfortable with the last note; if a unit is low-quality
and on the edge, it needs to be forced into discipline. Mr. Pfutzenreuter pointed out again that the
analysis is at the college level—and he said emphatically that the University
will not put a college into deficit; that would be irresponsible. The University could make a college cut
costs, however, Mr. Kallsen observed, but if a unit has contractual obligations
(e.g., tenure), the University must provide the funds. Even at present no org can be in deficit more
than $15,000, Mr. Pfutzenreuter commented.
Is the first note inconsistent with the tenure code, Professor Seashore
asked, because it does not guarantee there will be funds where there are
tenured faculty? Professor Martin
responded that tenure is in the University so paid for across the University.
Mr.
Pfutzenreuter reviewed finally the near-term agenda items and the fall
schedule. He pointed out that the budget
process for central units will have to be completed much earlier in the year
than at present in order to determine the charges to the colleges—in order that
the colleges can do their budget planning.
The support units will probably have to have their budgets ready by
January every year. Professor Campbell
noted that budgets are now done biennially and there would need to be
adjustments if decisions were made in January.
Mr. Pfutzenreuter agreed.
Professor
Morrison said he was concerned that if this is truly a model that passes
through full costs, what mechanism will there be to control costs in central
units? The units will have no costs
because they pass everything on. What
controls will be in place? Vice
President Pfutzenreuter said the vice presidents with whom he has worked have
been good stewards—and he watches expenditures.
Vice President O'Brien said there are several responses to Professor
Morrison's concern. One, the principles
include transparency, which will mean more dialogue about what service units
are receiving for their money. The
support units have to justify their rates in the budget process. More importantly, for her, units will have to
pay more attention to what services they are getting and what they are paying
for them.
Professor
Morrison said there are no arguments about the central budget because they are
paid through a tax assessment. The
question is how to decide the appropriate level of service from OIT, for
custodial services, etc. (to which units can add if they wish). Is the appropriate level a collective
decision of the deans or those who are paying—or a decision by the providers of
the service? A service may look more
valuable to the providers than to the consumers. Ms. O'Brien said that in the case of
custodial services, for example, there is a national organization that sets
standards and the University benchmarks its service levels with peers. There are professional standards that can be
reviewed and choices made about levels of service. Who decides that level, Professor Morrison
inquired? The consumer units must be
engaged in the process, Ms. O'Brien said.
In the end, the President will decide on the basis of recommendations
from the executives and from consultation, Mr. Pfutzenreuter said. The executives are precisely the ones who are
not paying anything, Professor Morrison responded; the consultation should be
with the taxpayers.
Mr.
Klein repeated his earlier observation that the budget model sets the stage for
consultation, with a set of facts (e.g., what custodial standards mean and
cost). There needs to be a clear link
between costs and what a unit gets for the money, and the unit has to have that
information. In some places there are
users budget committees, Professor Morrison said, which reviews the budgets of
all charging units and make decisions about whether windows will be washed,
etc. That could be an interesting role
for this Committee, Mr. Klein commented.
That also plays into the question about the flexibility units will have,
Professor Campbell said; can they opt for a higher level of service and pay for
it? Can they go down a level and pay
less? Vice President O'Brien said there
are administrative standards that a unit could not opt to go below. But could they opt up, Professor Morrison
asked? That would depend on the service,
Ms. O'Brien said.
It
makes a big difference whether the review committee is a users group or a
payers group, Professor Konstan said. A
users group can be advocates for the service.
The group has to be made up of people whose job is to balance
needs. There also needs to be an option
to outsource an activity because a unit can get it done more cheaply. If there are these kinds of checks and
balances, the President can approve the budget.
Vice President O'Brien later responded to Professor Konstan: she said that whoever is in her position or
other administrative positions does not operate in a vacuum. They interact with deans, department heads,
and directors regularly. Right now,
however, not all is known about the issue of incentives and putting in systems;
there is a need to work through the problems.
99.9% of the people in positions are trying to do the best job they can
for the institution, not feather their own nests. Professor Morrison said he agreed 100%. The old
Professor
Seashore said that ultimately the model is premised on colleges and deans
providing the primary oversight. That
makes sense because the University has a strong-dean system. But some deans are better financial managers
than others, better leaders, some have more vision. A college that lacks a dean with these
attributes could suffer. A lot of deans
are people who were associate deans at other institutions, who come to
Professor
Martin commented, apropos the principles, that no
matter what they do, there are few motivations to change faculty behavior to
become more efficient and save money.
The "faculty culture" discussions portion of the strategic
planning process need to address this issue.
Given
that the schedule says the budget model recommendations are going to the
President in October, Professor Martin added, will this Committee see the
recommendations again before they go to the President? Professor Morrison said this topic would be
on the agenda for the first meeting in October.
Professor Campbell said he was concerned that the trial of the model
would take place after the last meeting of the budget model committee. That is a bad idea, he said.
Mr.
Pfutzenreuter commented that when the dean, department heads, and faculty want
a new building or more students or more faculty, they will have all the
elements they need to make a decision.
Professor Morrison adjourned the
meeting at 4:15.
--
Gary Engstrand