Budget Approach

*DEM, DAPIR, DTL representatives as needed

Historically, UW-Madison has followed an “incremental” budget approach.  In this type of approach, all revenue flows to central campus, divisions receive base budgets, and senior leadership typically make only minor (“incremental”) adjustments to base budgets each year.

The last major review of our budget approach was conducted in 2014 to 2016.  While it was intended to better link funding to instructional and research activities, the budget model that emerged from the initiative has proven inadequate.  Under that model – an annual zero-sum reallocation between schools – it is possible (indeed common) for some schools to grow in absolute terms but nevertheless incur a budget cut because other schools are growing faster.

Given the shortcomings of incremental budgeting and the 2016 model, we have made a variety of ad hoc modifications in recent years.  These include the “bolt-on” agreements between central campus and schools to provide additional funding to accommodate undergraduate enrollment expansion.  We have also developed different budget models for non-pooled (131) programs and profession-specific graduate programs.

The shortcomings of our current approach suggested the need for another major review.  The new budget approach is intended to provide greater clarity, transparency, and uniformity across different revenue sources.

In recent years, some universities have adopted a highly decentralized budget system called Responsibility Center Management (RCM).  In its most extreme form, each school or college within the university retains all the revenue it generates but must also pay for all its direct costs and its share of overhead expenses like rent, utilities, and other costs of central services. In addition, with the revenue schools and colleges earn, they also have to handle all compensation increases. 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 initiatives.

Given the experiences of other universities using RCM models, the executive sponsors—Former Provost Isbell and VCFA Cramer—have developed a “hybrid” budget approach that combines the best parts of both the incremental approach and pure RCM budget models.

Under this hybrid approach, central campus will retain a portion of the revenue from net undergraduate tuition, profession-specific graduate tuition, and indirect cost returns (overhead) as well as the state general appropriation.  This will enable central campus to directly cover the costs of facilities and central services, supplement state pay plans, make discretionary allocations, fund central strategic initiatives, and help smooth variation in the formulaic allocations.

The new approach will most directly affect schools, colleges and units with research activities.  In particular, it will affect the funding received through General Purpose Revenue (fund 101, state appropriations), federal indirect cost return (fund 150) and tuition and fees (fund 131).

While the new approach determines how funds flow from central campus to schools, deans will determine how the new approach is implemented within schools and colleges.

Schools will receive 40% of net tuition revenue.  (Net tuition revenue is equal to assessed tuition minus financial aid provided centrally.)  Net tuition revenue will be allocated using two metrics: credit hours (CFI) and student headcount (PAG).  Weights will be 60% CFI and 40% PAG.

Schools with tuition surcharges (Business, Engineering, Nursing) will continue to receive 100% of these differentials.

The undergraduate tuition allocation applies to fall and spring terms.  The new budget approach does not affect the existing summer-term budget model.

The new approach will eliminate the need for ad hoc “bolt-on” funding to address enrollment growth or changes in enrollment patterns across schools.

Divisions will receive 40% of indirect cost returns generated from federal and non-federal research grants.  Allocations will be based on overhead generated, direct expenditures are excluded. We will also eliminate pooling of FICR in 101 budgets

We will discontinue the campus Collaborative Grant Expenditures policy.  In its place, a small proportion (10%) of the divisional share will flow to the home division of the project PI (based on Workday default payroll funding).  The remainder (90%) will continue to flow to the “spend” division(s) following current practice (based solely on data from financial system – Workday = Cost Center).

This only includes profession-specific graduate tuition and applies to the Law School, School of Pharmacy, School of Veterinary Medicine, School of Medicine and Public Health, School of Nursing, and Wisconsin School of Business.

Traditional graduate programs and service-based pricing will not be included in the graduate tuition allocation. 

For this allocation, tuition revenue will be split into “base” revenue ($670 per credit) and “additional” revenue (the remainder). 

Schools receive $270 per credit for instruction (CFI) and central campus will receive $400 per credit.  Profession-specific program students generate $270 per credit regardless of where they take the course or the type of course. Schools will also receive 90% of additional revenue (based on program home), while central campus will receive 10%.

When the new approach is first implemented, new allocations will be calculated then a new 101 base budget will be calculated so schools/colleges are “held harmless” during the transition. 

The hold harmless calculation may increase due to pay plan/compensation initiatives or approved budget initiatives. It can also decrease due to budget reduction exercises. The key change is that the campus will include employees on fund 131 (relative to new allocations) and 150 in pay plan and compensation exercises.