Budget Approach

*DEM, DAPIR, DTL representatives as needed

In recent years, some universities have started using a budget system called “Responsibility Center Management” (RCM).  In its most extreme form, each school or college within the university retains all the money it earns but also has to pay for all its direct costs and its share of overhead expenses, like rent, utilities, and other costs from central services. In addition, with the revenue schools and colleges earn, they also have to handle all salary increases above what is provided by the state. While this type of system creates strong incentives to raise revenue and control costs, it also makes schools and colleges more vulnerable to financial ups and downs and may limit the ability for university leaders to invest in campus-wide projects.

Given the experiences of other universities using RCM, the executive sponsors—Provost Isbell and VCFA Cramer—propose a “hybrid” budget approach aiming to combine the best parts of both the incremental approach and pure RCM budget models.

Under this hybrid, central campus will continue to retain a portion of tuition and overhead revenue to:

• fund central support units directly rather than taxing revenue producing units,
• supplement state pay plans to remain competitive in the marketplace and reward high performing employees,
• provide significant funding for research infrastructure (including space and utilities costs), and
• offer additional support for research activities (like funding for faculty start-up costs) when needed.

Schools and colleges will tentatively receive 40% of the net tuition revenue. This amount will be based on the number of credit hours taught by instructors (Credits Follow Instructors) and the number of students in their program (Primary Academic Group). This new approach would replace the current “bolt-on” practice of providing extra funding to units with rising undergraduate enrollment.

The Undergraduate Tuition Task Force has examined the potential impacts to teaching and learning if this new approach is adopted and has shared its findings with the Coordinating Committee. The executive sponsors will consider these insights in crafting their final recommendations to the Chancellor.

Divisions will tentatively receive 40% of overhead (indirect costs) generated from federal and non-federal research grants. Each division’s amount will be determined using overhead generated as a core metric.

In the past, central campus diverted some federal overhead into fund 101, which schools and colleges draw upon to cover their core expenses.  With the new approach, overhead will be allocated to schools and colleges directly on fund 150 instead of indirectly through fund 101.

The Overhead Allocation Task Force was charged with offering findings on the effects of this new approach and has shared them with the Coordinating Committee. The executive sponsors may incorporate this feedback in their final recommendations to the Chancellor.

Currently, different types of graduate programs (traditional, profession-specific, and service-based pricing) operate under separate budget models. Under the draft plan, all graduate programs will share the same methodology. Divisions will tentatively receive 40% of base revenue and 100% of any additional revenue for each program.

The Graduate Tuition Allocation Task Force met over the summer to consider the impacts of this new approach.  Their findings have been shared with the Coordinating Committee and the executive sponsors will soon be making a final recommendation to the Chancellor.

In year one of the new budget approach, schools and colleges budgets will be adjusted to insure they continue to receive their current funding amount.  This “hold harmless” tactic allows for a more stable transition to a new model.

In the following years, each school and college’s base budget may increase or decrease for the same reasons that their current fund 101 budget fluctuates.  Common examples include state pay plans, campus compensation exercises, and other central campus initiatives.  As we have done in the past, we may need to resort to base budget cuts when the state reduces its support, or we are adversely impacted by external factors.