Resourcing the Mission A New Academic Business Model for UMass Dartmouth Budgetary Planning Council 2016
Public Higher Ed in the 21 st C The situation The social compact has been compromised Resulting in cost shift and crippling debt Tuition escalation alongside stagnant family income Social mobility at risk! The challenge Increase quality, efficiency and access The stakes Long-term economic prosperity; educated citizenry
General Fund Revenue Trend From 2000 2015, revenues increased ~5%/yr; expenses increased ~5.6%/yr Source: UMass Audited Financial Statements Budgetary Planning Council Summer 2016
Major Expenditures Source: Audited Financial Statements Budgetary Planning Council Summer 2016
External Environment Scan Projected University Revenues Steady-State Enrollment Modest Tuition Increases Increasingly Competitive Environment Need to Increase Quality, Reputation and Brand Long list of wants and needs
Budgetary Planning Council Summer 2016 Shifting the Budget Conversation Leading universities are transforming traditional, appropriations-based budgeting. Expenses Focus on Central Financial Control Revenue Resource Planning Allocation Management Accountability to an effective resourcing process engaging a broader community in collective strategic decisions about shared priorities.
Recent Budget Redesigns From 2008 to 2011, ~20% of institutions and ~25% of doctoral institutions reported new approaches to resource allocation
Incremental system Current Budget Model Central administration provides funds to colleges/administrative areas based primarily on historic spending patterns Central authority for financial planning, execution, and control; focused on expenses; ease of administration Budgets based on past allocations Little or no justification or accountability Agency-based funding Limited revenue growth Limited flexibility Lacks incentives Lacks transparency Misalignment of resources and priorities
Why Change? Eliminate structural deficit Direct resources in support of strategic goals Align resource management and decision-making Create incentives to increase revenues Encourage high value support services Improve financial reporting, planning and accountability Understand the total cost of activities Promote transparency and collaboration
Alternative Budget Models Budgetary Planning Council Summer 2016
Decentralized Models RCM Variations Hybrid RCM Traditional RCM Each Tub on Its Own Bottom (ETOB) Higher degree of central control Local units keep a majority of their revenue but pay a higher subvention contribution Larger subvention give central administration greater ability to subsidize colleges and fund strategic initiatives Higher income reduction, 15-20% typ. (in addition to indirect cost rates) Most commonly implemented since 2005 Some centralized control Local units keep most of the revenue they generate, but contribute some to a central subvention pool Subvention pool is used by central administration to subsidize colleges and fund strategic initiatives Contribution is generally <10% (in addition to indirect cost rates) Most frequently implemented from 1990-2004 Extremely de-centralized model Academic units operate essentially financially independent Very little central strategic control Under-performing units must cut costs or generate more revenue to cover any losses Few U.S. institutions use this extreme iteration
Council Recommendation The Budgetary Planning Council recommends a hybrid RCM model because this revenue-based, budget allocation approach: Combines academic and financial decision making Increases transparency of decision making Promotes improved outcomes
Guiding Principles The new budget model will promote student success, stimulate strategic growth, encourage innovation and entrepreneurship, and support collaboration and institutional excellence. It will also be characterized by the principles below: 1. Align resources with institutional mission and priorities 2. Simple; transparent; data-driven 3. Balanced; predictable; flexible; sustainable 4. Align decision making with responsibility and accountability 5. Incentivize revenue innovation and diversification 6. Reward teamwork, productivity and program quality 7. Reconcile program costs and revenues 8. Enhance local autonomy and long-term planning 9. Promote improved fiscal stewardship and efficiency 10.Resource strategic initiatives and investments
Methodology: New Model Framework 1. Transfers revenue ownership to colleges and schools 2. All-funds transparent includes restricted, unrestricted, and capital funds 3. All UMD units classified as academic, auxiliary, or administrative and support 4. Creates incentives through the use of revenue allocation formulas 5. Allocates central administrative and support unit (A&S) costs 6. Creates central funds for academic unit subsidy and strategic investments 7. Includes set-asides for deferred maintenance and reserve requirements 8. Implement a campus salary program/reserve 9. Automatic year-end balance rollover 10.Provide for phase-in period and subvention process
Model Constituencies All revenue/cost centers are partitioned into one of three groups: Colleges / Schools Charlton College of Business College of Arts & Sciences College of Engineering College of Nursing College of Visual & Performing Arts School of Law School for Marine Science & Techn. Responsibility/Revenue Centers Auxiliaries Housing Parking Conferencing Dining&Vending CIE Research Ctrs Administrative/Support Units Academic Admin Student Affairs Athletics Library CITS Enrollment Research Admin&Finance Chancellor Advancement Marketing Central Services * Auxiliary Definition: In addition to rendering goods or services like revenue units, should be managed as selfsupporting operations, and include expenses for operation and maintenance of plant, deferred maintenance, and administration in addition to their direct expenses. Budgetary Planning Council Summer 2016
What Will Change? Distribution of revenue will reward: Educating more students Developing new programs Maximizing external opportunities Allocation of costs will increase: Awareness of consumption Transparency of institutional commitment Encourage efficient and competitive services
What Will Not Change? How we generate most revenue will not change State appropriation Tuition from students Federal funding Philanthropy Auxiliaries Basic cost structure will remain the same Faculty and staff costs Facilities and support costs Financial aid Central assessments
Current Funds Flow Most revenues are pooled centrally; some allocated directly to revenue centers Allocations to Colleges and Support units often don t correlate with need or performance indicators Tuition and Fees State Appropriation Other Revenue Central Fund Colleges and Schools Service Centers
Proposed Decentralized Model Budgetary Planning Council Summer 2016
Service / Support Centers Generates little or no revenue, but does incur costs: Administration and Finance Facilities Public Safety Information Technology Libraries Managers of these areas are accountable for cost and quality of services provided to the university Must be customer focused and value driven The revenue centers (colleges, auxiliaries, etc.) cover these support costs through an assessment or overhead allocation
Simple Funds Flow Revenues are credited to the unit in which they are generated. Revenues - Tuition & Fees - State Appropriation - Grants & Contracts; IDC (F&A) - Other Direct Revenue (Gifts, Sales, Royalties, etc.) Allocated Direct Investment/ Subvention Fund Revenue Centers -Colleges/Schools -Auxiliaries -Others Central Overhead Utilities; Debt From this revenue, units cover their direct expenses and a share of costs for Support units Direct Expense Salaries & Benefits Operations Travel Space Cost Allocation A&F Library Technology Student Affairs Public Safety Facilities
Sample Revenue Allocations Revenue sharing between teaching college and major/home college Revenues are allocated to incentivize four major areas: successful credit hour completion, enrollment, degree completion, and sponsored program activity.
Revenue Allocation Considerations Tuition In state vs. out of state differential Financial aid Instruction vs. major Undergraduate vs. graduate Weighted cost of delivery Graduate tuition credits Interdisciplinary program incentives On-line; summer session State Appropriation Strategic investments Subvention Performance incentives Fees F&A Cost Recoveries Unrestricted Gifts and Endowment Auxiliaries Pass-throughs Space re-assignment Capital Budget
Support Unit Cost Allocations The model allocates the majority of revenues directly to colleges, leaving the university s infrastructure unfunded. To support these units, the model allocates administrative and support unit net costs using select variables. Admin. Support Unit Possible Allocation Variable Libraries Information Technology Student Services Athletics Academic Services Administration & Finance Facilities Management Research/SPA Advancement Major FTE; Faculty FTE Total Headcount student/staff/faculty Student headcount College of major Tuition subsidy Credit hours instructed Direct Expenses Square Footage Sponsored Revenues (exc. IDC) Direct Expenses Notes: -Functional organization depicted for model development does not represent an institutional reorganization will occur/is required. -Costs allocated to revenue-generating units will represent the net of each administrative service unit s revenues and expenses. Budgetary Planning Council Summer 2016
Unit Incentives Methodology for revenue allocations to departments will be developed within each College. Besides activity-based allocations (e.g., SCH, FTE, etc.) incentives for revenue growth, efficiency, student success, scholarly output, and quality may be applied. Annual Reports of KPI* will be required. *Key Performance Indicators Budgetary Planning Council Summer 2016
Strategic Investment Pool A centrally-held pool of dollars. Purpose: Provide sufficient discretionary resources to the Chancellor/Provost to support cross-unit collaborations and fund other strategic initiatives/priorities Subvention pool subsidizes inequities during model implementation
Planning Background The UMD budget model initiative began as a result of feedback collected during budgetary review meetings and Chancellor Helm s Spring 2016 listening tour. Budget Initiative Announce FY18 budget planning process Eliminate structural deficit Provide funding for strategic priorities Increase communication and transparency Increase participation across all levels Initial Assessment (BPC) Create budget planning council to assess current budget process, identify best practices, and recommend a new budget model framework Engage Deloitte Consulting for baseline revenue and space allocation analysis Conclude effort by recommending a decentralized, incentive-based budget model Model Development Create a Steering Committee with all academic deans and select faculty and administrators Work with Deloitte Consulting Grp to support project management, facilitate Steering Committee discussions, develop a workable budget model, identify infrastructure needs, and build campus buy-in Budgetary Planning Council Summer 2016
Timeline Full implementation of a decentralized budget model typically takes 3 years UMD s target to full implementation is 2 years (FY2019) FY17 Design and Preparation FY18 Pilot Run and Training FY19 Implementation and Monitoring
Budget Model Development, FY17 Introduce budget redesign at Town Hall meeting (Fall 2016) Engage campus stakeholders for budget redesign feedback Use RCM to determine how revenue will be allocated to academic colleges/schools Determine amounts for central services/subvention fund Determine cost allocations for service units Estimate desired investment pool funding Develop administrative structure and reporting methods Define database and infrastructure needs Plan for pilot budget run in FY18
Budget Model Development Budget development = Budget framework + Decision-making process Year 1 (FY17) Development Year 2 (FY18) Implementation (parallel mode)
Impact on Decision Making Incentive-based models have the potential to transform institutions by changing the culture of decision making. Chancellor Can keep the focus on mission and avoid becoming all things to all people Provost and Finance Can use incentives to steer toward priorities and support initiatives Deans Understand full-cost of activities and prioritize them through internal crosssubsidies Service Units Can improve services in presence of clearer expectations Academic Departments Can innovate with better insight into how activities drive funding
Annual Budget Process Adopt a dynamic, interactive, expedient annual budget cycle Support Unit Process in the Fall Academic Unit Process in the Spring Strategic Resource Allocation Review/ Recommendations
Academic Unit Budget Cycle Budget and Planning Assumptions September - October July - August Fiscal Year Close, Analysis and Performance Assessment Budget and Long- Range Plan Development November - February May - June Budget Adjustments and Approval Budget Proposal and Review March - April Note: Cycle may vary due to external (legislative/bot) factors Budgetary Planning Council Summer 2016
Budget Model Accounting Statement The condensed spreadsheet below is intended to illustrate the FY2018 decentralized budget model s foundational structure. College and Auxiliary Units Revenues (Operating; non-operating) Direct Expenses Allocated Central Costs Central Investment Pool
Governance Committees and working groups to address following: Budget Planning Council / Steering Committee Set Institutional Priorities Update Strategic Plan Strategic Resource Allocation Accountability
Questions For more information and updates: http://www.umassd.edu/admin_finance/budgetaryplanningcouncil/