Ad Hoc Budget Committee Report

November 15, 2007

The ad hoc committee on the new budget model has members from the Senate Committee on Finance and Planning and the Senate Research Committee.  The committee was specifically charged by the Chairs of these committees
To this end, the ad hoc committee began regular meetings in late Fall, 2006. We held discussions with administrators, college deans, and department heads, broadly representative of the University.

In what follows we first describe our understanding of the new budget model. We then briefly report some of the observations we collected from those who are engaged in trying to make the model work. Finally, we summarize our findings.

What is the budget model?

University documents state that the “new” budget model is designed to be a set of stable revenue and cost attribution rules for use in achieving the strategic goals of the University. Of necessity, the new budget model is also at the heart of a process for distributing and reallocating resources among units.

The model was first used in the 2006-07 budget year. As implemented, the budget model defines how most money flows to and from colleges or equivalent units. The University calls these units resource responsibility centers (RRCs). The new budget model is intended to apply to RRCs, but not smaller units like departments or centers, although some RRCs seem to be implementing the new budget model by passing expenses and revenue through to these smaller units. The guiding principle in the new budget model is that an RRC keeps all its revenue and pays all its own expenses. Although formulaic in principle, every RRC must have state funds allocated by Central Administration in order to have a balanced budget.

Revenue and expenses apart from state allocations

The costs of these services are determined by Central Administration and are allocated to RRCs using fixed formulas. Some of the formulas are based on actual RRC consumption, such as utilities and space; some are based on a proxy for usage, including libraries and research Administration. The allocation for administrative units is based on a “common good” principle.

Centrally allocated state funds

Findings

Deans and Department heads generally expressed unhappiness with the new budget model and distrust of the decision process at the next higher level. These problems appear to stem from three basic causes, none of which is necessarily intrinsic to the new budget model:
Our own overall evaluation is that the budget model itself is neither intrinsically good nor bad. However, its implementation has created a number of difficulties we discuss in the next section.

Distribution of State Funds to RRCs

  1. No RRC at the University has sufficient revenue to have a balanced budget without money from the State appropriation. After an extensive period of consultation, Central Administration allocates State money to RRCs. To the greatest extent possible this process has to be open for inspection by interested faculty and administrators.

    This aspect of the budget process is viewed with skepticism and concern by many of those we consulted, in part because allocations may not agree with priorities set by departments and Deans. While complete elimination of these difficulties may not be possible, they may be reduced by increasing the information available to faculty and Deans about RRC priorities, University priorities, how decisions are made, and who makes them.

    One means of increasing information availability on the new budget model suggested to us, would be for the Office of the VP Finance or the Provost and VP for the Academic Health Center to establish a Q&A section of the Budget Office webpage. At this site, budget and compact funding questions could be directed, the question researched and a response posted that would make the information available to the entire University community. Questions not suitable for broad dissemination could be handled directly with the person or group asking the question and not posted.
  2. Budget allocations from the State are based on priorities determined by Central Administration, but based on our interviews, it is not clear if these priorities are set with input from the RRCs or if the rationale for setting the priorities is clearly communicated. With the explicit goal of the University to become one of the top three Public Research Universities, the committee was quite surprised the Vice President for Research is neither an integral part of the budgeting process nor directly involved in the discussions with the RRCs which determine the distribution of the state funds.

Cost pools

  1. A frequent complaint we heard was that the costs from the cost pools are allocated to RRCs without any input from the RRCs. While this may have been necessary in the first year of the new budget model, each of the cost pools could now work to establish a mechanism, perhaps through advisory committees, that would help set budget priorities and establish equitable methods for distributing expenses.
  2. Since RRCs operate with very limited budgets and thus cannot be expected to support cost pools that are ineffective or too expensive, the committee was surprised the RRCs did not have a mechanism to influence their charges or services. It appears the RRCs must pay their cost pool bill without the ability to establish quality standards, require a response to their needs, or demand a response to complaints.
  3. In 2006-07, RRCs faced budget decreases shortly before the beginning of the academic year, but RRCs were not permitted proportional decreases in their cost pool allocations. Thus RRCs cut funding to academic programs, while the cost pools appeared to be protected. This seems to us to be contrary to the stated goals of the University.
  4. Small variations in departmental revenue can be devastating to departments that are committed to cover their fixed cost pool allocations. RRCs seem to be the appropriate unit to bear the risk of paying cost pool allocations rather than passing charges onto departments or other units.

Retention of savings

  1. One purpose of the budget model is to provide units with incentives to use resources more effectively and save money, for example by building appropriately sized buildings, saving on administrative matters like payroll processing, or reduction in utility use. There are not, however, mechanisms to insure that RRCs can keep their savings, and assurances that these will not be offset by decreased allocations of state funds.
  2. There does not appear to be a means to insure that RRCs will not be punished for protecting activities that promote the aspirational goals of the University, even at the expense of higher costs. For example, the sharing of tuition for co-teaching arrangements when one or more instructors are from an outside RRC seems to be difficult to negotiate. In addition, not all cost savings are desirable. For example, a college’s costs can be reduced by increasing class sizes, increasing the use of adjunct faculty, or teaching more undergraduate courses and fewer graduate courses; none of these are likely to improve measures of the University’s success in its mission.

Reserves

  1. Reserves are necessary for the long-range stability of RRCs. Some reserves are encumbered, for example in a faculty member’s research account, others are for particular purposes, such as start up funds for a new hire or to cover unexpected short falls due to unexpected events. Reserves of these types should not be considered by Central Administration as possible sources for reallocation of funds.

Interdisciplinary research and centers

  1. The new budget model describes how Central Administration allocates funds to RRCs, but it does not address how RRCs allocate money to their constituents, which include both departments and centers that are completely housed within one RRC, or centers that may span several RRCs. Consequently, the new budget model appears to have no formal impact on the operation of interdisciplinary centers or interdisciplinary research. According to our discussions, these activities are generally funded based on ad hoc agreements between RRCs on how centers are to be supported. To say that the new budget model has no effect on interdisciplinary research would be naïve; to say that it has a predictable effect common to all or many interdisciplinary efforts is equally naïve.

Final Note


The committee members would like to acknowledge the cooperation, candid discussion and generous sharing of their time by department heads, deans and central administration. We believe we have a better appreciation of the University’s financial structure as a result of the efforts of these individuals. We look forward to the Research and Finance & Planning Committees’ review of our findings.

Committee Members