EDLD 513 Windchief Ch 3

Roles

Who Controls the Budget Process?

Operating Budget Cycle

Capitol Budget Cycle

September

December

February

Faculty

• Instruction
• Research
• Service

Students

• Tuition is going up
• Less Federal Assist
• Keeping up with the Kardashians

• Submit base operating budget & Activity based budget to the state
• Present operating budget and capitol budget requests or ammendments to the governing board for approval;

• Cross-over of state budget bills from house and senate
• Fee requests due
• Campus entity budget submissions due
• Present housing rates and development assumptions to governing board

• Governor submit budget to the genewral assembly
• Distribution to Vice Presidents
• VP's Distributee to reporting units
• Make and process modifications that effect upcoming fiscal year
• Tuition housing and board fee increases requested

Institutional Dilemma

Faculty have more time on campus

Student voice is powerful

"If they're not meeting with you, they're meeting about you"

-LaDonna Harris

Students

Federal Support

April

Tuition

Out of date Academic Programs?

Humanities under attack

Where does someone go after getting a Ph.D. in 17th century English Literature?

• Academic Division budget submissions due
• Dining Tuition and Mandatory fees proposed to governing board

October

July

January

March

Larger Institutions

"Decentralized"

• Submit Biennial Budget Request/Ammendments

Smaller Institutions"Centralized"

• General Assembly bill moves forward to governor
• Budget submission for upcoming fiscal year due
• Present Fee proposals to governing board for approval

• New Fiscal Year Begins
• Implement new state budget
• Implement new University budget

• Submit budget amendments to General Assembly not included in the governors proposal
• Distribute budget targets to VP's
• VP's then redistribute to the units
• Fee increase requests
• Begin development of of tuition proposal and financial aid allocations

Why would the author advocate for a transparent budget process?

P. Trust: Is the provost "Playing Favorites"

S. Transparent budget process

P. Is the university administration hiding something?

S. Transparent budget process

P. Is the university spending In alignment with its Mission and Expressed Goals?

S. Transparent budget process

May

Appropriation Act Approved by General Assembly and Governors

Cary forward requests due

Budget presented to governing board for approval

Approved budget distributed to VP's

Same Basic Process for All institutions

• Private
• Public
• Religious
• Flagship
• Land grant etc...

The Budget Process

College and University Budgeting Chapter 3

Larry Goldstien

August 2005

March 2005

Dec. 2004

Dec. 2005

May 2004

September 2004

Annual "Maintenance Reserve" plan docs submitted to Dept. of budget and planning

Six year plan presented to governing board committee for final review and approval

July 2006

6 year Capitol Plan "Call out" to VP's

Gov. Submits 2006-2008 biennial budget to general assembly

Controllers need to understand...

What does the central accounting office do?

Executive Review Committee:

• 6-year plans
• Business plans
• Debt assessments

Governors amendments submitted to dept. of planning and budget

Approved 2006-2008 project authorizations take effect

Monitor and re[port on the progress of

1) Receiving revenue

2) Expending allocated resources

They maintain a 30,000 foot perspective

They are constantly asking, are we on track?

• Global needs of the institution
• How to operate within Committees
• How to come to consensus
• How to establish program & Activity priorities

Legislature

Provost

VP's

College Deans

Department Heads/Chairs

Faculty

Student groups

What does the budget office do?

When Advocating for your "Slice"

• Reviews requests for changes to current budgets
• Prepares for the next budget cycle
• Considers the grants and contracts created by the faculty members/professional staff
• Has to be aware of "Matching Funds Phenomenon"

• Have evidence of importance
• Tie your request to the Mission and goals of the university
• Understand the process

July 2004

Understand that it is time consuming

Jan. 2005

Effort

Issue familiarity

Priorities

Send in the feisty soreheads

Make sure they have tenure

April 2005

Oct.2004

Sept 2005

6 year plan Preparation

Amendments due

Legislative Budget Amendments submitted to department of planning and budget

Six year plan submitted to commonwealth Dept. of Planning & Budget

University Architect completes project formulation documents

Jan 2006

Complete financial feasibility studies for revenue bond projects

Legislative budget amendments for 2006-2007 submitted to department of planning and budget

Incremental Budgeting

Definition

This is a traditional budget model in which budget proposals and allocations are based upon the funding levels of the previous year. Only new revenue is allocated. Budget cuts are made as a percentage of the institution’s historical budget, and are typically across-the-board in reach.

Benefit

Incremental budgeting has historically been attractive to institutions of higher education because it is easy to implement, provides budgetary stability, and allows units and institutions to plan multiple years into the future, due to the predictability of the model.

Drawback

This model is limited in its vision, as it is difficult to determine where costs have been incurred and how these costs contribute to revenue and value creation. Institutions are accountable for what they spend in the most basic sense.

Aug 2004

Nov. 2004

Feb. 2005

June 2005

present plan (6Year)

• biennial plans
• project justifications
• funding

Nov. 2005

VP for finance complete plans and assessment for proposed plans

Depart. of Planning and Budget notifies agencies of:

• submitting schedule for 2006-20012
• Six year plan
• Unfunded projects from 2004-2010

Governor submits six-year Capitol improvement plan to general assembly

• Notification of 6 year projects approved by dept of planning and budget
• Notification of maintenance sub-project that meet required criteria

Zero-Based Budget

May 2006

6 Alternative Budget Models for Colleges and Universities

Centralized Budgeting

2006-2008 appropriation act approved by general assembly and governor

From: http://www.hanoverresearch.com

Incremental Budgeting

Zero-Based Budget

Activity-Based Budgeting

Responsibility Center Management

Centralized Budgeting

Definition

At the beginning of every budget planning period, the previous year’s budget for each unit is cleared. Every part of the institution must re-request funding levels, and all spending must be re-justified.

Benefit

Zero-based budgeting is an effective way of controlling for unnecessary costs. Since departments and divisions do not automatically receive a certain sum each year, all money allocated to a unit has a purpose, keeping waste and discretionary spending to a minimum. According to the Mackinac Center for Public Policy, zero-based budgeting reduces the “entitlement mentality” with respect to cost increases, and has the potential to make budget discussions more meaningful.

Drawback

Zero-based budgets take longer to prepare and may “be too radical a solution for the task at hand.” As one expert has noted, “you don’t need a sledgehammer to pound in a nail.”

Definition

Centralized budgeting requires all decision-making powers to be in the hands of upper level administration. Typically colleges and universities combine aspects of centralized budgeting with decentralized budgeting.

Benefit

Professor William Lasher of the University of Texas at Austin sees a more centralized budgeting system as a prudent way to navigate difficult financial circumstances, due to the powers invested in top administrators to make tough decisions for the university as a whole. In a system combining central budgeting with another process, the rationale for choosing which units are centrally budgeted may be adaptable. For example, when combined with performance-based funding, colleges might centrally budget those divisions for which no performance metrics can be reliably identified. Another reason to implement centralized budgeting is that some expenses are necessary to the basic functioning of divisions, and are therefore not optional. A common example of centralized budgeting under this rationale is IT equipment—e.g., computers, printers, and software. If all faculty require a computer to perform their duties, this is a cost which cannot be compromised, and can be centrally budgeted to ensure that the college keeps the cost under control.

Drawback

When budgeting is centralized and the element of competition is removed, departments may be less motivated to generate revenue.

Activity-Based Budgeting

Responsibility Center Management

Definition

Activity-based budgeting awards financial resources to institutional activities that see the greatest return (in the form of increased revenues) for the institution. Adoption may involve:

Developing activity groupings for budgeting, in coordination with campus leaders and constituents;

Developing fund source groupings;

Designing budget processes whereby campus leaders use activity taxonomy and allocation plans to align resources to institutional strategic objectives; and

Implementing an activity-based campus budget allocation process

Benefit

If the University can accurately state where revenues are coming from and link these revenues to broader strategic objectives, this method may increase revenue moving forward.

Drawback

Comments made by Interim University of Washington Provost Mary Lidstrom suggest that implementation of an activity-based model requires a substantial time and resource commitment, which may not be feasible for some institutions. Commenting on the University of Washington’s decision to push back the implementation of its activity-based model—a decision influenced in part by the impact of the recession—Lidstrom noted that “No other university has been able to implement something like this in less than three years, and we were trying to do it in less than two.”

Definition

Responsibility Center Management (RCM) is perhaps closer to a management philosophy than a budgeting strategy. It is designed to support the achievement of academic priorities within an institution, and allows for a budget which closely follows those priorities.

RCM delegates operational authority to schools, divisions, and other units within an institution, allowing them to prioritize their academic missions. Each unit receives all of its own revenues and income, including the tuition of its enrolled students. In this way, units effectively compete for students. Each unit is also assigned a portion of government support (where applicable). However, units are also responsible for their own expenses, as well as for a portion of expenses incurred by the university’s general operations.

Benefits

Some university administrators are turning to RCM as a solution to budgetary woes brought on by the recession. Advocates of RCM claim that forcing individual units to fight for their survival induces deans to pursue new revenue sources.

Drawbacks

Boston University President Robert A. Brown claims the competition for students promoted by RCM could cause deans to resort to inefficient measures to prevent students from enrolling in courses in other colleges. “It can lead to all [kinds] of perverse incentives, like engineering schools that want to teach English,” he claims.

Performance-Based Budgeting

Definition

Whereas an activity-based budget awards funds based on the amount of revenue-generating activity a unit undertakes, a performance-based budget awards funds based on performance, which is determined by a number of defined outcomes standards. The most effective performance budgets will show “how dollars fund day-to-day tasks and activities, how these activities are expected to generate certain outputs, and what outcomes should then be the result.”

Benefit

A performance-based budget should give an institution a good idea of how money is expected to translate into results. Performance-based systems are often imposed on public systems of education as a result of greater accountability demands. Linking the funding of public institutions to the results they deliver lends an increased level of transparency to expenditures among institutions reliant upon public financial support. Performance-based funding is not new to higher education, but according to a report released by Virginia Tech researchers, it is “now more likely to be legislatively mandated than at any other time in history.”

Drawback

The budget process must include time for the review of performance measures (which itself necessitates a prior collection and analysis process) and time for discussion of performance against expectations. Only then can dollar values be assigned to divisional outcomes.