Ad hoc committee explores new method of campus budgeting

By Craig Chamberlain

Responsibility center budgeting.

Is it an idea whose time has come for public universities? Is it an
idea whose time has come for the UI? What is it, exactly?

Walt Tousey knows one thing: He can't get extra copies of a key book
on the subject, written by a budget-office administrator who observed
the system's implementation at Indiana University. There's enough
interest out there that the book, by Edward L. Whalen, is in short
supply. Tousey must guard his copy, apparently the only one on campus.

As an associate vice chancellor for academic affairs, Tousey is
coordinating a small ad hoc task group exploring the system and its
relevance for the UI.

The emphasis is on the word exploring, he said. "There's a lot of
discussion that has to take place first," starting with the Budget
Strategies Committee, the Council of Deans and the Senate Council.
And even that discussion has to wait until the ad hoc group can
model how the system would affect the campus.

But what is responsibility center budgeting?

The key words to understanding the concept might be decentralizing
and entrepreneurial.  Much like business management thinking about
pushing responsibility closer to the shop floor, this budgeting
approach puts more responsibility for both revenue of and spending
by units in the hands of deans, rather than campus administration.
And that is revenue and spending related to all aspects of what a
unit does -- in teaching, research and public service -- with public
and private dollars.

"What this does is foster an entrepreneurial attitude on the part
of units," Tousey said, "because we're telling them, 'Here's how you
generate income. If you want to go out and do it, you can do it.' "

Units are assessed all costs related to their activities, including
some -- like space and graduate tuition waivers -- that are currently
"free goods" to units at the UI, he said.

Each unit, in a phrase commonly used to describe the concept, is to
some degree asked to be "a tub on its own bottom," Tousey said.

The drawback, apparent at some schools using a more extreme version
of the concept, is that units can set their own course and forget
about the priorities and values of the larger institution, Tousey
said. At the same time that the system would give added freedom to
units, "we would then need some kind of brakes on people that ensure
what they're trying to do is within the vision and the focus of what
we're after for the university as a whole," he said. 

Put another way by Whalen: "The raison d'etre of responsibility
center budgeting is to help an institution focus its energies and
resources on accomplishing its mission. If a sense of purpose and
vision is lacking, the mechanism is not needed and can be a
prescription for mischief."

Responsibility center budgeting first appeared in the early 1970s,
Whalen notes, but its use since then has been limited chiefly to
leading private institutions on the East and West coasts. Among
those using some form of it are Cornell University, Harvard
University, the University of Pennsylvania, and the University of
Southern California.

Public institutions haven't looked at it until more recently,
Tousey said. "I think they've seen themselves as operating in such
a different venue that creating the environment for it doesn't
really make much sense -- that they don't have control over their
budgets the way that the privates do."

But Indiana University is now among the public schools that have
adopted it and the University of Michigan is committed to the idea,
Tousey said.

Despite all that, Whalen notes in his book that responsibility
center budgeting, "however great its potential advantages, is not
for everyone."

Why here? Why now?
------------------

Among the reasons the UI is looking at it, Tousey said:

  * A change in leadership. Larry Faulkner, in his first year as
    provost and vice chancellor for academic affairs, asked Tousey
    and the Budget Strategies Committee to explore the concept.

  * The inability of units to react flexibly to problems with
    available funds. "They have to come to us [the provost's office]
    for everything, just about," Tousey said. "Deans ought to get
    the budgets to do that, and they ought [to be able] to handle
    their own problems."

    "We see this as a way to give units the first dibs on the
    money," Tousey said. A tax on units would be put in place
    to finance campus administration, but that would have to be
    justified and approved by the Council of Deans.

  * Accountability for expenses not now assessed to units, such
    as space. "There's no unit on campus that feels it's got
    enough space," Tousey said. "On the other hand, there's no
    unit on campus that has to pay for its own space." If
    considered side by side with other expenses and priorities,
    some units might opt for spending on resources other than
    space, he said.

  * A better assessment of the costs and benefits of various
    programs. "What this will do is allow us to look at a unit's
    budget and see very quickly what it costs us in terms of what
    that unit generates -- for research, teaching, public service,
    gifts, etc.," Tousey said.

    Benefits would not be figured only in terms of money generated.
    It is understood, he said, that some units will be subsidized
    because their programs have an obvious benefit for the
    university's overall program -- some general education courses,
    for instance.

  * Incentive for units to seek out and fulfill educational and
    research needs. "There are problems that we could be solving,
    and people are willing to pay for them," Tousey said. Meeting
    those needs might entail offering new courses, off campus or
    even non-credit, he said, or seeking out joint research projects
    with industries.

  * The less-than-great prospects for state funding. Annual increases
    in state appropriations have been modest to non-existent in
    recent years, and "we don't anticipate any real change in the
    next few years," Tousey said. Responsibility center budgeting
    seems to offer more flexibility in shifting funds to meet
    important needs, and more incentives -- as noted -- for finding
    new sources of revenue.

The exploration and discussion of the idea will continue through
the semester, Tousey said. A decision on whether to move forward
on implementation may be made by July 1, but that could easily be
extended.

Tousey stressed that this new system of budgeting would not, or
should not, change the core values of the institution. "If we do
this, we'll do it because it's a tool that better enables us to
put those values in place. If it's not, why bother to change...
It's not meant to tell us where we want to go. It's kind of the
road down which we go to get there, but someone else has picked
out [the spot on] the map."