Friday, January 11, 2002

Members:      Lajos Balogh, Kitty Bridges, Thomas Brock, Bruno Giordani (chair), Kathryn Meiner, Scott Stoltenberg, J. Hunter Waite, Peter Ward, Mark Wenzel, Victor Wong, David Wu, John Younger

OVPR:           Judy Nowack, Marvin Parnes, Jim Penner-Hahn, Rob Todd, Jane Ritter (staff)

Guest:            Marilyn Knepp

The minutes from December 14, 2002 were approved. 

Marilyn Knepp discussed the University Budget Model (UBM), which is one piece of how budgets are created.  At UM, the Provost is the chief academic and budget administrator.  This is seen as the surest way to have budget priorities follow academic priorities and applies mostly to the General Fund Budget.  Universities are governed by a set of accounting guidelines to ensure that expenditures are appropriate for funding. 

There are four operating funds: 1)General Funds cover education and educationally related activities and are the major source of unrestricted funds.  2)Expendable restricted.  Gift funds often flow into ER based on the donor. 3)Designated funds, quite small, where UM imposes restrictions; and 4)Auxiliary funds: activities which look more like a business.  E.g., intercollegiate athletics, housing, etc.  The Provost budgets GF and makes resource allocations.  GFs are budgeted from an all funds perspective and try to understand in total what units do and all sources of support.  The issue is to ensure all units can accomplish their missions and activities. 

Budgets are nested; project and grant budgets, and roll up to All Funds, for the all campus budget.  UBM only concerns budget at AA campus.  Provost budgets to school or college, research unit, VP areas (but not within and does not tell LS&A (for e.g.) how to budget for colleges and programs.  UBM does not create the budgets, only one piece of the system, containing a lot of things, discretion, how to fund UM priorities.  There is considerable flexibility built into system. 

UM used to have an incremental system of budgeting, i.e., start with last year’s budget and make an across the board increase.  There was a small flexible amount the Provost could allocate but not much extra money each year without a lot of reallocation. 

Throughout the early 80’s, across the board incremental increases did not reflect changes in activity.  UM began to think about activity-based budgeting.  This led to VCM-Value Centered Management, which was used for one year.  The leadership changed, Lee Bollinger came in and made changes.  How funds are allocated sends strong signals. 

Matrix:  academic and non-academic units.  Some activity based and some not.  Academic units include not just schools and colleges, but library and research units - places where mission of UM is accomplished.  Non academic are service and administrative units - support activities.  Necessary but not front line.  Activity-based mechanism allows for automatic changes.  E.g., more students, more research, etc.  Increase in costs reflects increased funding needs to hire more faculty, etc.  If activity shrinks, budget should also reflect this. 

UBM has tax piece added in, felt to be an unfair burden by many Deans.  However, there has to be a mechanism to allocate funds for central offices.  The Provost believes this is a flexible system with positive outcomes, allowing for growth in academic units and allows support in areas where there is need or not enough outside support. 

This has been easier when the financial climate was more positive and will be more difficult this year.  Units must look at the tax as a piece of the system, not just a tax itself.  Units are paying taxes on growth and part is funneled back on academic units. 

There is a two-year lag in Sources and Uses calculations, which is based on data coming out of units.  The GF does not grow in any specific way or allocation, e.g., School of Music, very expensive - more one-on-one instruction, and expensive instruments.  Medical School profited most from activity-based budget due to increases in research.

Currently tax space costs are in the models.  There is an increase in utility costs.  The Provost is changing the basis for taxes to exclude all space costs. Deans should be making allocation decisions based on following the academic missions.  Grants should not be declined because IDC aren’t enough, or courses not offered.  Provost budgets to the Deans, Deans budget to departments and divisions.  The GF is only a fraction of the overall budget.  Current budget model fit the previous administration and should fit the interim budget model, but may not suit the next Provost.  The model does not have a life of its own. 

In the past, all tuition flowed to the unit where a student is enrolled.  At UG level, 75% of tuition will flow to unit of enrollment and 25% to units of instruction.  Takes affect in this year’s budget but “hold harmless” clause for first year to balance out.  Next year will be the first year we see the effect.  Changes will be seen if pattern changes.  Tuition increases are the most dependable source of funds. 

Indirect costs flow to unit where direct expenses occur.  Subaccounts flow down for work done outside.  It is very important that subaccounts be created.  Starts with PAF - lays out which unit has ORG code, determines where dollars go when award is made.  Issue is one of decision making.  Different colleges and students impose different norms on faculty and students. 

LS&A will be changing salary allocations.  In the past, there was no incentive to put faculty salary on grants.

Add to future topics:  Regental Research Policy, Savageau report on Interdisciplinarity. 

The next meeting will be on Friday, February 8, 2002.