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Budgeting at Ohio University -- past, present and future

Sept. 17, 2007

A new state biennium budget took effect July 1, 2007. It departs in some significant ways from past budgets. Ohio University also is in the process of shaping a new budget model. Both developments raise questions. Here are answers to some of the most likely questions.

What is the total budget of Ohio University?

$540.1 million. This figure includes the regional campuses and the College of Osteopathic Medicine as well as general operating and "restricted" funds, which are such things as grants and contracts. The budget for the Athens campus is $350.5 million. The information presented below concerns the Athens campus budget only.

What are the traditional major sources of revenue for the university?

State Support: The state provides dollars in the form of State Investment in Instruction (SII) and Success Challenge. SII is based on a formula that takes into account the direct and indirect costs of delivering courses in different disciplines and other factors. Our share of SII is projected to be $88,776,000 for fiscal 2008. Success Challenge is an incentive for graduating at-risk students and for timely graduation. We earned $5,921,000 from this incentive last year. 

Tuition and Fees: All students are charged instructional fees (tuition) and a general fee (for services related to student health, safety, recreation, athletics, student activities and campus life). Out-of-state students are charged a nonresident surcharge because these students do not generate SII. These revenues are projected to be $146,040,000 in tuition, $33,917,000 in general fees and $23,704,000 in nonresident surcharge. 

Other Fees: Additional revenue is collected from student fees related to individual courses, admission applications, graduation and other types of services. This results in $3,698,000 in additional revenue.

Other Income: Additional sources of income include interest income, departmental sales and services, and indirect cost recovery (IDC) from grants. This type of income accounts for an additional $25,081,000. 

How did Ohio University fare in the biennium budget passed in June?

The budget includes a freeze on tuition called for in the state budget, which Gov. Ted Strickland signed into law on June 30. However, the state is providing Ohio University with at least $4.3 million in both years in what it calls "tuition replacement" monies, which help offset the loss in tuition dollars. Additionally, the state is offering a 2 percent increase in SII funds in the coming fiscal year and a 10 percent increase the following year. In fiscal 2008 (which began July 1), the increase amounts to $2.6 million for the Athens campus, bringing total SII funds for the campus to $88.77 million. Universitywide, those funds for the coming year total $121.88 million. 

Initially the university anticipated reallocations on the Athens campus of $6 million to $11 million. The increased funding from the state allowed the university to reduce the reallocation amount to $2 million. 

What is different about the current state biennium budget compared to those of past years?

The state biennium budget has several new characteristics. There is a freeze on tuition.  There will be no increase in the general fee. There is an expectation that Ohio University must produce efficiency savings of 1 percent ($1,944,917) in the first year and 3 percent ($5,834,751) in the second year to reinvest in high-priority areas.

Additional funding for disciplines in science, technology, engineering, mathematics and medicine through the Ohio Innovation Partnership is part of the biennium budget. The partnership program has two components: the Ohio Research Scholars Program ($50 million) and the Choose Ohio First Scholarships Program ($100 million). Ohio Innovation Partnership awards will be made to institutions on a competitive basis under guidelines developed by the Ohio Board of Regents. 

In the past, the state used SII to determine allocations to institutions of higher education based on credit hour production. The current state budget has essentially disconnected subsidy from credit hour production for this biennium; Ohio University will receive instead a 2 percent increase in fiscal 2008 and a 10 percent increase in fiscal 2009. These are guaranteed amounts, assuming that the university meets its efficiency targets, so any variation in credit hour production would not affect the dispersal of these funds.

How will the University System of Ohio influence state budget support?

At this juncture, it is unknown how state support for universities will be formulated under the proposed University System of Ohio. Strickland has indicated that decisions will be influenced by such factors as the need to provide higher education for an additional 230,000 students over the next 10 years; the catalyst role public institutions of higher education will play in the Ohio economy; attention to academic accountability and operational efficiency; emphasis on meaningful collaborative academic and administrative programs between institutions to facilitate degree completion; the need for universities to develop strategic planning around centers of excellence; and the goal of making Ohio universities and colleges the first choice of Ohio residents. It is likely all these factors will play a role in the funding structure for the USO.

How has the university approached budgeting in the past?

Ohio University has traditionally used an approach known as incremental budgeting. In incremental budgeting, the creation of a unit's budget builds off its current budget. For example, if College X has a budget of $1 million, all decisions about increasing or decreasing its budget will begin with that number. 

This approach has not allowed for much in the way of strategic distribution of resources. Information has not been available to have conversations about whether current levels of funding are appropriate or how to support new academic initiatives. 

The university has not collected and used information about revenues and expenses related to academic and academic support units. Consequently, in the absence of this information, it is difficult to connect resource allocation to academic priorities. Without a means of peeling back the layers of quality, enrollment, workload, efficiencies and facilities, decisions cannot be rendered in a way that is transparent and consultative. 

For the past 10 years, Ohio University has experienced an erosion of resources rather than a surplus. There are many reasons for decreased availability of funding, with most of them tied to issues of the state economy and the ever-increasing costs of running a complicated institution, which now comprises 20,146 students and 4,831 employees. 

The Vision OHIO Resources Implementation Team recognized early in its discussions that our past approach had long outlived its usefulness. The team devoted significant attention to exploring different models that would rationalize budgeting at Ohio University. What came out of the deliberations of the faculty, staff and students on the implementation team was a recommendation that the university devise a new approach to budgeting that put a premium on information. 

How does the university plan to approach budgeting in the future?

Ohio University is developing a budget model based on a set of values that emerged from the Vision OHIO strategic planning process. The values relate to issues of academic quality. To this end, the deans, with input from the leadership of Faculty Senate, have drafted a set of Academic Quality Indicators (AQIs). The AQIs include:

  • Maintenance of the tenure-track faculty base, tenure-track faculty credit-hour production, and faculty research and creative activity production
  • Monitoring of academic quality through program accreditation, grade distribution as a check on grade inflation and the quality of the entering freshman class
  • Prevention of extended time to graduation for reasons other than programmatic integrity and the duplication of courses already being offered by other units
  • Ensuring stability in section size and continued support for honors and interdisciplinary programs

These are the non-negotiable elements of future budgeting practices, and adherence to them will be reviewed by current oversight entities such as, but not limited to, the University Curriculum Council, the Faculty Senate Finance and Facilities Committee, the Faculty Senate Educational Policy and Student Affairs Committee, the Budget Planning Council and the Deans' Council. In addition to the institutional AQIs, each college is developing its own set of criteria designed to ensure accountability for academic excellence. 

With the institutional and unit AQIs as foundational elements, deans will use the new budget model as a tool to gather data (how revenues are brought in and how the budget is allocated in support of our activities) to inform decisions about allocation of resources. Because there is potential for confusion here, it should be stressed that the approach that the deans adopted will not use the budget model as a formula that determines resource allocations. Other institutions do allow their budget models to determine resource allocation decisions and essentially let academic units run as separate independent operations. But moving directly to such an approach was deemed to be too drastic for Ohio University, given its lack of experience with such a system and the uncertainty of the funding model that will emerge under the proposed USO. The consensus among faculty and administrators is that the university would not thrive in a formula-driven environment whereby every academic unit became a separate financial operation expected to bring in enough revenues to balance its costs. The deans and the executive vice president and provost will work over time to align resources to achieve an appropriate balance between allocations and needs within academic units and direct resources to academic institutional priorities. 

The new budget model will be used for information purposes to support budget planning and decision-making processes. It will promote transparency and provide an evidentiary basis for rational, long-term budget decisions. Particular elements that the deans selected for inclusion in the budget model include:

  • Three-year averaging of credit hour production
  • Weighting of tuition revenue to reflect cost of instruction
  • Allocations reflecting both credit hour production (85 percent) and numbers of majors (15 percent)
  • Tracking of space costs in proportion to amount of net assignable square footage
  • Allocations of enrollment-driven costs in proportion to enrollments
  • Allocation of all remaining costs as a simple overhead calculation rather than actual usage

Isn't the new budget model a manifestation of Responsibility Centered Budgeting, Responsibility Centered Management or some other similar system?

Although many of the calculations within the budget model are similar to those made in Responsibility Centered Budgeting (RCB) or Responsibility Centered Management (RCM), the main difference relates to expectations that require units to operate within their own resources. Under RCB, there is a more exact calculation of actual revenues and expenses, and an expectation that a unit's budget will be limited to the amount of revenue it can generate. Left uncontrolled, a unit could try to bring in as much additional revenue as possible, which could lead to perverse incentives to provide low-cost and low-quality programs to maximize revenue. The new budget model will allow the university to understand how revenues are related to costs, but that information will not control all budget decisions. The budget model begins and ends with the university's institutional values based on academic quality and its articulated mission.

What is the timeframe for implementation of the new budget model?

Initial calculations in the budget model have been made based on activities for the three-year period of fiscal 2004 through fiscal 2006. These calculations are now being rolled forward for fiscal 2005 through fiscal 2007. The information gained from these calculations will be available to inform the process of constructing the fiscal 2009 budget (which begins July 1, 2008) during the budget discussions that will take place in the Budget Planning Council starting in winter 2008. The extent to which the calculations in the model will be used in future budget processes can vary depending on other factors that will influence budget construction, such as the evolving state system and progress on academic priorities.

How can members of the university community learn more about the new budget model?

The rolling forward of the calculations should be complete by the middle of fall quarter. Once those are completed, open forums will be held to gather input and provide information to those in the university community who are interested. In addition, the deans are planning meetings among department chairs/school directors on the model. Additional meetings with constituent groups, particularly the Faculty Senate Executive Committee, will start in October. Training also is planned for budget unit managers and planners within the academic units (such as associate deans and program directors) to help them understand how to use the model in unit-level planning. One of the chief goals of the new budget model is to ensure transparency about how the budget works and what goes into its development. For example, the Office of Institutional Research already has developed online tools that will allow the querying of data going into the model. 

Suggestions for other ways to help the university community learn about the new budget model are welcome. Contact John Day, associate provost for academic budget and planning (dayj@ohio.edu), with your ideas.


 

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Published: Jan 3, 2007 9:35:38 AM
 
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