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.