Budget reform proposal 'elevates role of academic units'

By Craig Chamberlain

The annual budgeting process will change all over campus if the go-ahead is
given on a "Framework for Budget Reform" recently issued by the UI Budget
Strategies Committee.

Under the proposed framework, which would be phased in over several years
through a hoped-for "seamless transition," colleges and other free-standing
academic units would have more control over their budgets.

They also would have incentives to promote research, teaching and service
activities that bring in additional revenue, and would have significant
input in determining the budgets of administrative and support units.

It's a plan that "elevates the role of the academic units," according to
John Braden, a professor of agricultural economics and chair of the BSC.
"They will have more ways to translate what they do into budget," he said.

Along with that control, however - or really as part of it - those academic
units would become accountable for all costs incurred in all activities.
Units would be charged for things that are now free, like tuition waivers
and space - though the details of how those costs would be assessed,
especially in the case of space, have yet to be worked out.

The result of almost two years of investigation and development, the
62-page report was issued March 8 and has been distributed for review and
input from the campus community, including administrators, faculty members
and students. A number of presentations also have been made to a variety of
campus groups, usually led by some combination of Provost Larry R.
Faulkner, Braden and Associate Provost Walter Tousey.

The problems addressed by the plan are largely the same ones outlined by
Faulkner when he asked the BSC to review the budget process in the fall of
1994:

 * Lack of incentives and accountability. The current system does not allow
   for systematic review of allocations to colleges and other free-standing
   units "in the light of their actual participation and performance in
   instruction, research and outreach." The administrators of these units also
   have no "intrinsic guidance" within the system concerning ways to improve
   their budgets.
 * A narrow budgetary focus. The current system has units focused entirely
   on the allocation, or expenditure, side of operations, with no attention to
   affecting revenues. It also focuses only on the state portion of revenue
   when the potential for growth may be greater elsewhere.
 * Decisions made by default or at the wrong level. Large resources,
   particularly tuition waivers and space, "are distributed as free goods and
   are not subject to a discipline based on demand or performance." Also, the
   allocation of new program funds to departments "tends to be idiosyncratic"
   because decisions are often made at a level - frequently the campus level -
   where it is difficult to make informed judgments.
 * With the expiration of the five-year DeVor reallocation plan, at the end
   of the 1997-98 fiscal year, the campus will be left with no central funding
   capacity, and therefore no central mechanism for addressing program needs.
   Developed by the 1990-91 BSC, that plan set out a system of differential
   taxation and reallocation to shift $15 million in recurring funds to areas
   identified as campuswide priorities.

Besides the fact that the DeVor plan will expire in two years, Faulkner,
Braden and the BSC have noted that DeVor was a short-term measure that did
not change the basic principles or assumptions upon which budget decisions
have been based for decades.

Many of those principles and assumptions were developed over periods of
growth and of more-than-adequate state support. "But that's not the
environment we're in," Faulkner told a group of administrators on March 21,
in one of many presentations on the budget reform report, "and it's not the
environment we're going back to anytime soon."

Faulkner has called the present budgeting system "defective" and "totally
illogical." In a letter last year, he said the campus was "badly crippled"
by the system's shortcomings. And in the March21 meeting, he said he
believed "the values of the institution are actually threatened by current
practice."

In a report last May, the BSC drew similar conclusions. The current system,
the committee said, "does not cope with the realities we face É the
campus's budget problems are endemic and must be addressed through systemic
changes in the way we conduct our financial affairs."

In working toward those conclusions, the committee examined a budgeting
approach known as responsibility center management, or RCM, which has been
used for several years at some private schools and is catching on at
publics.

Members spent two semesters looking at problems with the current system,
and visited the universities of Indiana and Michigan, where budgeting
reforms based on RCM-like principles had been implemented or were about to
be.

The BSC report suggested that a reform of the budgeting system be "informed
by the principles of RCM," but Braden was careful to say at the time that
any reforms would not be "some package off the shelf."

The task of the 1995-96 BSC, as charged by Faulkner, was to get more
specific, to develop a model for a reformed budgeting system tailored to
the UI campus. This was done through the work of seven subcommittees.

Also adding perspective for the committee was a Pew Roundtable exercise
that was brought to campus last fall. Facilitated by Robert Zemsky of the
Institute for Research on Higher Education at the University of
Pennsylvania, the exercise involved more than 30 faculty members and
administrators in extensive discussions on campus values and how they
related to budgeting.

In Zemsky's report on the roundtable, cited in the introduction of the
recent BSC Framework report, he noted that participants showed "a broad
commitment to the principle of a comprehensive university." Few, he said,
"wanted the market to play the dominant role in deciding either the
character or the characteristics of the university."

At the same time, Zemsky noted that there was agreement among participants
that the campus was at risk because "too many budget decisions are being
made without real knowledge of their consequences," and because too little
money is available for discretionary investment.

The budgeting model laid out by the BSC in its recent report gives colleges
and other free-standing academic units more control over revenue and costs,
decentralizes decision-making, and generally encourages more
entrepreneurship and long-term planning.

But it also incorporates means for countering what many have seen as the
dangers of such RCM-inspired principles, when pursued too vigorously: the
creation of a system that gives academic units complete freedom in the
pursuit of funds and the total ownership of those funds, thereby
threatening the values of the institution, and forcing campus
administrators to beg for discretionary funds. The BSC's model gives units
significantly more freedom, but at the same time gives the campus means for
maintaining institutional values and priorities.

Both Faulkner and Braden emphasize that the proposed reforms contain both
specific formulas and opportunities for campus-level administrators and
committees to impose discretion on the process. "There is no formula-driven
allocation scheme that can represent all that we are, and all that we want
to be," Braden noted.

All undergraduate tuition money, for instance, would go directly to
academic units based on a formula that directs 80 percent according to a
unit's share of campus instructional units and 20 percent according to its
share of majors. And all indirect cost revenue (ICR) funds would go to the
academic units responsible for earning it.

State general revenue funds, on the other hand, would be distributed
according to both formula and discretion. Those judgment-driven decisions
would come principally from the provost, with advice from a new Campus
Budget Oversight Committee, a successor to the BSC, and from the Council of
Deans.

Curriculum review committees, at both college and campus levels, also will
have an important role, Braden said, as will college executive committees.
"There will be more opportunity for a variety of groups to think about what
this institution is up to and argue for change," he said. "There will be
more [of the budget decisions] on the table, more decisions made in the
light of day, and more awareness of the values driving the process."

Faculty and staff members and students have the opportunity now to study
the report and submit written comments arguing for revisions of the plan or
for rejection of it in favor of another approach.
Faulkner said he wants to have a sense by mid-summer as to whether the plan
is the direction the campus should take. If it is, then the plan will be
worked out in further detail with review before the Urbana-Champaign Senate
in the fall semester.

If the campus signals its approval, the "seamless transition" could begin
during the next academic year. The budgets of academic units for 1996-97
will be set under the current system, but those budgets would be restated,
according to the new system, by December. The bottom lines for each will be
the same, but deans will have a model to work from in preparing for budget
reviews in the spring, for the 1997-98 budget year.

A copy of the budget reform report can be obtained from the provost's
office. Questions and comments should be referred to Faulkner, Braden or
Tousey. Technical questions or concerns you would like to see addressed by
the BSC, should be submitted in writing.