By Craig Chamberlain Larry Faulkner uses several different terms when describing the campus's current budgeting system - from "defective" to "totally illogical." Other administrators and faculty members, including those on the Budget Strategies Committee, have come to a similar conclusion. In a letter sent out last week to administrators and Senate Council members, Faulkner, the campus provost and vice chancellor for academic affairs, said he had "come to believe that the campus is badly crippled by important shortcomings of our current budgeting system." The Budget Strategies Committee, in a year-end report produced in May, said the current system "does not cope with the realities we face." The committee, chaired last year and this year by John Braden, professor of agricultural economics, concluded that "the campus's budget problems are endemic and must be addressed through systemic changes in the way we conduct our financial affairs." One of the realities faced by the UI, Faulkner said, is changes in the state's approach to budgeting, especially in recent years, which have removed much of the university's flexibility. The system needs to be reformed within the next year or two, or budget battles could get very messy, he said. Faulkner is concerned about what he calls the "post-DeVor era," or what will follow the completion of the five-year DeVor reallocation plan. Developed by the 1990-91 Budget Strategies Committee, chaired by Richard DeVor, professor of mechanical and industrial engineering, the plan set out a system of differential taxation and reallocation to shift $15 million in recurring funds to campuswide priorities. Among the priorities already addressed or to be addressed with DeVor funds are undergraduate education, including instructional equipment, facilities and money to implement general education requirements; the library; graduate fellowships; minority student support; faculty recruitment and retention; the Research Board; development, in preparation for Campaign Illinois; new program initiatives; and new resources for units. The portion of funds designated this year as new resources for units went toward campuswide salary increases, following approval from the Budget Strategies Committee. The DeVor plan, however, did not change the basic principles or assumptions upon which budget decisions have been based for decades, Faulkner said. Many of those principles and assumptions developed during periods of growth. Among the system's shortcomings, according to Faulkner, who dealt with it as a department head and dean before becoming provost: * It allows for no systematic review of allocations to major units - colleges and other free-standing units - "in the light of their actual participation and performance in instruction, research and outreach." Allocations are based mostly on the previous year's budget. * It provides leaders of major units with "practically no budgetary incentives for effective performance in any area of teaching, research or service." * The focus is entirely on the allocation, or expenditure, side of operations, with no attention to revenue. * The allocation of new recurring funds "tends to be idiosyncratic because decisions are often made at the wrong organizational level, frequently the campus level." Put another way by Faulkner, "the problem with our system is that it's all judgmental, and it's done at a level where the judgments can't [or shouldn't] be made." * Large resources, particularly space and tuition waivers, are distributed as free goods to units and therefore "are not subject to a discipline based on demand or performance." The DeVor plan took effect with the 1993-94 academic year - or fiscal year 1994 - meaning it will end in 1998. The current budgeting system "really hangs from the DeVor reallocation thread," Faulkner said. "That's where we get almost all of our resources for addressing contemporary needs." Without a successor to the DeVor plan, there is no strategy for acquiring funds necessary to promote improvement of programs. "It's really not a [choice] of doing nothing at all," Braden said, "because doing nothing at all will leave us in a position where we don't want to be. It's really a matter of what we do to follow DeVor." To address that, and to fix the perceived deficiencies in the system, Faulkner asked the Budget Strategies Committee last year to examine the current system and consider new budgeting methods, paying particular attention to a system known as responsibility center management or RCM. (Faulkner noted, with humor, that this has occasionally been confused with TQM, or total quality management. They are very different things, he said.) Responsibility center management, first used in private universities, has attracted attention at public universities in recent years and already is in place at Indiana University. The University of Michigan adopted it last year and will put it into place next July. Teams of about 10 members, including administrators and members of the Budget Strategies Committee, visited both Indiana and Michigan for full-day briefings in December and January. A small working group chaired by Walter Tousey, associate vice chancellor for academic affairs, then drafted a budgetary model of the campus around a scheme similar to the one planned at Michigan, in order to provide a basis for discussion. By the end of the spring semester, the Budget Strategies Committee had concluded that the campus budgeting system did, in fact, need an overhaul. Its year-end report, presented to both the Council of Deans and the Senate Council, also concluded that a reform of the system "informed by the principles of RCM" would be a positive force for the campus. Other discussions have followed, including one last week with a group of faculty leaders, coordinated by Robert Zemsky from the Pew Higher Education Roundtable. The Roundtable, sponsored by the Pew Charitable Trusts, is a national program that seeks to identify the best practices for academic restructuring. The Roundtable discussions on the UI campus - with a follow-up scheduled for December - are focusing on institutional values and how those values are reflected in a budgeting process. With the letters sent out last week, Faulkner announced that he has asked the Budget Strategies Committee to recommend a model for a reformed budgeting system by March 1 of next year. Toward that end, seven budget reform subcommittees have been formed to deal with the various issues involved, each of the subcommittees chaired by a member of the Budget Strategies Committee but including others from outside it. When the Budget Strategies Committee delivers its recommendations in the spring, Faulkner said, reaction will be sought from throughout the campus community. No deadline has been set for implementation. Among many of those who have studied the issue and are taking a lead in the process, there is obvious interest in an RCM approach, and particularly in the approach being implemented at Michigan, Faulkner said. They call their new system "value-centered management." In fact, members of the Budget Strategies Committee and the budget reform subcommittees - along with administrators from all three UI campuses and the university administration - held a day-long conference Oct. 31 with Robert Holbrook, Michigan's associate provost and a principal figure in the changes there. But despite that obvious interest in an RCM-like approach, Faulkner and Tousey are careful to say that no decision has been made other than to develop specific reforms to the budgeting system. Faulkner also points out in his letter that: * "Our aim is to cure identified, critical deficiencies in our current practices in a manner that can support the ambitions and values of the campus." * "We are committed to create a system that works at Illinois within our best traditions and habits. There is no interest in simply importing a system that has been devised elsewhere." * "The result may be a set of changes that can be installed fairly independently over a period of time, rather than an entirely new scheme with a sharp starting date." * "Continuing the status quo is not an option for us, regardless of the sense of security rooted in its familiarityÉ operating principles for the post-DeVor era will be defined in the months ahead, either by design or by default." Braden said he is being especially careful not to prematurely fix labels like RCM on the solution by the Budget Strategies Committee. The committee sees RCM as "containing some interesting ideas and useful principles, but it's not as if we expect to adopt some package off the shelf." RCM, in fact, is not a package but a set of principles "that need to be adapted and tailored to local circumstances," Braden. "So we are looking at those principles and asking whether they are useful on this campus and, if so, how might we go about implementing them." "Above all, it needs to make sense within our local context," he said. "We need to do things that make sense here."