Budget forums focus on projected shortfall and RCM
Feb 24, 2011
From staff reports
A panel that included Executive Vice President and Provost Pam Benoit and Vice President for Finance and Administration Stephen Golding addressed the projected budget shortfall and implementation of Responsibility Centered Management (RCM) at this week’s open budget forums.
Held Feb. 22 and 23, the forums provided an opportunity for faculty, administrators and staff to ask questions and engage in discussion about budget matters. The conversation largely focused on the Athens campus budget.
In addition to Benoit and Golding, panelists and moderators included:
A brief opening presentation given by Golding, on Tuesday, and Benoit, on Wednesday, provided projections on the University’s current budget shortfall, stressing that actual dollar amounts will not be known until the state budget is released by Ohio Governor John Kasich.
- Associate Provost for Academic Budget and Planning John Day
- Associate Vice President for Finance Mike Angelini
- Director of Benefits in University Human Resources Greg Fialko (Feb. 22 only)
- Linda Lonsinger, Chief Human Resources Officer (Feb. 23 only)
- Executive Vice Provost David Descutner (Feb. 22 only)
- Executive Associate Provost Ann Fidler
“Until the Governor announces the budget on March 15, this is speculative, and we are using the $27 million figure as a planning tool,” he said.
On Wednesday, Benoit echoed Golding, “We do not know what our target is. The best thing that we can do at this time is say that this is that we’re planning.”
Ohio University is currently anticipating a $32.6 million shortfall ($27 million plus inflation) on the Athens campus. This includes a 10 percent cut to its State Share of Instruction (SSI), the loss of federal stimulus funding in the amount of $11,355,107 and the potential loss of the June 2011 lapsed SSI payment of $7,640,709.
When possible revenue generators and the recent gains made through the University’s endowment are taken into account, the total shortfall is reduced to $23.2 million, according to Golding.
Golding stressed that a solution involves a multi-year planning process, laying the groundwork for the University budget through Fiscal Year 2016.
Following his briefing, Golding opened the floor for questions.
One of the important components of the multi-year planning process is the transition of the university to Responsibility Centered Management (RCM). The University recently announced plans to implement RCM over a three to five year period. Experience at other institutions indicates that RCM is effective in protecting quality, providing flexibility at the planning unit level, and encouraging the development of new sources of revenue. The budget model has been studied for several years at Ohio University with initial conversations about the use of RCM taking place during the first phase of the Vision Ohio planning process.
In response to a question on RCM on Tuesday, Benoit explained that there are two types of units in an RCM based institution: Revenue-generating units, which are the academic units, and academic support units which supply essential services to the academic units.. Under RCM, academic support units are supported by “taxing” the revenue-producing units for services.
Golding added that the tax has yet to be determined. He indicated that it will take three to five years to calibrate all of the RCM algorithms in terms of how the revenue is distributed and taxed. It will also take time to ensure that the incentives built into the model are the right incentives for the university’s mission.
A key part of the budget planning to date has been the construction of a matrix containing various expenditure categories, such as procurement, travel, the fleet, etc. and a set of proposed savings targets for those expenditures.
In response to a question on Wednesday about what would happen if a planning unit was unable to meet a proposed savings target in a particular area, Benoit responded that it was understood that the capacity for savings was bound to be variable across units. She indicated that in her office the majority of the expenditures in the procurement area were related to mailing costs for necessary survey work done by Institutional Research. Since those mailing costs could not be significantly reduced, her office would have to cut more deeply in other areas. Golding outlined a similar situation in his unit, which has already eliminated most travel expenditures.
Ken Brown, professor of chemistry, expressed his concern over the possibility of greater employee cost-sharing related to inflationary increases in healthcare costs. Currently the university is estimating increased health care costs of $5 million.
“What we’re talking about here in terms of inflationary expenses for healthcare is a major policy change from the University covering most of healthcare benefits to employees covering an equal share,” he said.
Golding acknowledged his concern but said to maintain current benefits it was necessary to explore the cost-sharing option.
Bernhard Debatin, professor of journalism, suggested that if the university had to shift some of the increased healthcare costs to employees that it consider scaling the increases so that those who earned less would bear a smaller portion of the potential cost shift.
A scaled system is already in place but Debatin noted that “This system goes back pretty far in history and set up at a time when wage differences weren’t as dramatic as they are now,” he said.
In response to a question on the possibility of tuition hikes, Benoit said the proposed solutions do not assume a tuition increase. However, she expects that a tuition hike will eventually have to be proposed to the Board of Trustees.
“We wanted to not use all of the resources that were available to us in the first round,” explained Golding. “We also felt … that using tuition to solve the structural deficit at the front end would not signal to the trustees the discipline that we need to demonstrate from a budgetary standpoint.”
On Tuesday, Associate Professor of Political Science Julie White expressed concern over the emphasis on budget as opposed to educational values.
“We’ve reduced what it is to be responsible to having a balanced budget. I can imagine a lot of ways where I can be responsible budgetarily but irresponsible educationally,” she said. “I’m wanting conversations that are budget-focused to be brought together with the educational conversation.”
Benoit acknowledged the concern, offering assurance that RCM supports the preservation of a quality academic experience, “You can’t become a diploma mill and survive in RCM.”
Following the March 15 announcement, Benoit said another round of conversations with the planning unit heads will take place with a more informed target – providing a better understanding of what actions are needed to bring the budget into balance.
One of the themes that the panelists emphasized was the need to have a broad-based commitment across the institution to the proposed strategies.
“This is an incredibly difficult position to find ourselves in…. None of us want to be in this position. We all share that,” Benoit said.
She and Golding pointed out that some of the most significant possibilities for cost savings come from university-wide approaches such as centralized procurement. Those savings will not be realized without the cooperation of every employee and every unit.