An Examination of Resource Allocation at Stout

Transcription

1 An Examination of Resource Allocation at Stout In January of 2014, Chancellor Charles Sorensen requested that a committee be formed to examine resource allocation at the University of Wisconsin Stout. The impetus for this request was multifold. After years of increasing enrollments, the academic year was marked by a decline in enrollment. This was combined with the graduation of one of UW-Stout s largest classes. Enrollment growth funds had become a resource that was relied upon in several departments and colleges as base budget. These funds were generated when enrollment revenues exceeded the revenue estimates (tuition target). When the university falls below tuition target, enrollment growth funds are not available. For many years, UW-Stout exceeded our tuition target until The tuition revenue shortfall created a lack of enrollment growth dollars and a hole in several college budgets. To correct the situation, Chancellor Sorensen funded the shortfall; but only on a one time basis. He also requested a review of the college base budgets to determine if they were correctly proportional to their outputs and enrollments. Concurrently, the university was in the midst of one of the deepest budget reductions experienced by the UW System and by the University of Wisconsin-Stout. Every biennial budget for the past 20 years had been marked by budget reductions and budget lapses in the state of Wisconsin. The biennial budget cuts were dramatic. These budget reductions were not isolated to Wisconsin as the defunding of higher education is a national trend as public higher education has lost its standing in state budgetary priorities across the country. In Wisconsin alone, eighty-five colleges and universities are listed under the Carnegie Classification of Institutions of Higher Education. Those institutions enroll approximately 380,000 students. According to the 2010 US census, 386,552 Wisconsin residents were in the age range from Competition for students is high as the pool of traditional aged students has declined. State support of higher education has been on the decline across the nation. To counter the lost revenue, institutions have raised tuition to remain competitive. These tuition increases have not increased quality, they simply fill the voids created when of state funds are directed to other priorities. The result has been an outcry regarding the affordability of higher education. The problem is misunderstood when the cost of public higher education is benchmark against the Consumer Price Index or other inflationary indexes. This comparison does not take into consideration the revenue lost when state government defunds higher education. The result of this changing landscape is that institutions of higher learning will need to adapt to a changing landscape if they are to survive. 1

2 Financial Centralization/Incremental Budgeting During this transformation in the landscape of Higher Education, the University of Wisconsin- Stout became designated as Wisconsin s Polytechnic institution. Building on its tradition of career-focused education stressing applied learning and technical innovation. Stout embraced technology and became a laptop and wireless campus well before other institutions had considered such a move. Stout also entered the distance education market well ahead of its competitors. These moves grew student enrollments and helped offset annual budget lapses and cuts that had become a regular occurrence within Wisconsin s budgetary process. Achieving strategic planning goals was made possible in part by the UW-Stout s highly centralized budget model. Fiscal resources flowed centrally at the close of the fiscal year. Considerable resources were directed to university priorities such as technology projects, server upgrades, laptop rollouts and wireless connectivity that embodied the Polytechnic designation. That budgeting method relied upon the previous budget cycle that determined current and future resource allocations. UW-Stout utilized a base-plus approach to budgeting that mirrored the previous year s budget priorities. Additional base allocations to units were allocated by the Chancellor or through priorities identified in the strategic planning process. This funding method, which is characterized by central ownership of the unrestricted funding sources, is referred to as an incremental budget model. One benefit to a centralized (or incremental) budget model was the simplicity. Using the previous year s budget with additional base allocations as needed was simple to manage. On the revenue side, Stout s administration does not set tuition rates. Tuition is decided by the UW Board of Regents and the Wisconsin State Legislature. The largest source of revenue is largely determined outside university control. On the expense side, institutional pay plans are set within the legislative process. Therefore, the largest expense at UW-Stout (payroll) is decided by state legislators. Historically, when state support was strong, the need to make budgetary reallocations within the institution was less necessary. Emergency requests or new program initiatives were requested centrally. This budget model was simple and uncomplicated; thus creating stability across units and funded strategic priorities. This approach worked well when state support was high. This financial model did not adjust for enrollment fluctuations, did not create entrepreneurial activity, and did not incentivize units to grow or become more efficient. Important to note, in 1999, UW-Stout launched a program that turned the traditional method of resource allocation on its head. Customized Instruction (CI) was approved by the Wisconsin Board of Regents as a market based approach to deliver customized education to professionals. The budget model differed dramatically from the traditional method of resource 2

3 allocation at the university. The CI approach was established as a cost recovery method. The price of the tuition was set at at least 150% of tuition. Because it did not serve on campus students, segregated fees and laptop fees were waived. Overhead and indirect expenses are assessed to the tuition revenue at a rate of 36%. These taxes paid for university overhead, administrative support, institutional marketing and new program development. For years, excess revenue stayed in the program and was later swept centrally after large balances had begun to accumulate. Budget Model Committee The biennial budget was initially favorable for the University of Wisconsin System and for UW-Stout. When it was reported that the University of Wisconsin System collectively had reserves in excess of $1,000,000,000, the public and legislative action was swift. For the University of Wisconsin-Stout, it meant a permanent base budget reduction of $2,400,000 and a two-year tuition freeze. The two-year freeze then became a four-year freeze when the fund balances grew across the UW System instead of declined. At the time, UW-Stout s balances were second lowest in the UW-System. They stood at a paltry 10% of institutional budget compared to other UW institutions. The irony of the situation is that, by most standards, reserve balances of 20-30% are considered appropriate. In reaction to these cuts, Chancellor Charles Sorensen charged a committee in January of 2014 to explore the possibility of a different institutional budget model with a focus on incentivebased funding. He specified that any change to the budget model should provide greater transparency, establish incentives for revenue enhancements and judicious spending and maintain the ability to capture some funds centrally to support strategic planning. These items were included in the goals statement on the committee establishment form. The committee met numerous times as a whole in the spring of Through those months, the committee learned of the transition that the University of Wisconsin Colleges had made to a different budget model called responsibility centered management (RCM). The Budget Model Committee reviewed the 2013 UW-Madison White Paper on a potential transition of their budget model. The committee also developed a document that outlined institutional guiding principles that should guide any budgetary changes; principles that aligned well with Chancellor Sorensen s committee charge. The principles that the committee developed directed that a new budget model should: 3

4 Establish a sustainable funding model that advances UW-Stout s Polytechnic tenants of 1) career focused programming, 2) applied learning, and 3) collaboration with business, industry and other educational institutions. Prioritize student learning and maintain a comprehensive, competitive and unique undergraduate and graduate program array. Allocate resources to schools, colleges, and campus-level units but not allocate resources within those schools, colleges and campus units. Advance the University s strategic planning process through an alignment of financial resource allocation and UW-Stout s enduring goals, five-year goals, university priorities and action plans. Build incentives that can lead to entrepreneurship, innovation, and intelligent risk taking. Retain a centralized fund sufficient to ensure the achievement of our strategic goals, priorities, action plans, discretionary proposals and emergency needs. Ensure that the institution operates as a cohesive whole and rewards collaboration between units rather than fosters competition. Provide the information necessary to make data-driven decisions. Recognize the tradition of shared governance in the development and implementation of the budget model. Provide clear and concise communication and reasonable transition and bridging strategies. It was decided that one outcome of the Budget Model Review Committee would be to develop a document (similar to a UW-Madison Budget Allocation Model white paper) that established recommendations on achieving Chancellor Sorensen s charge. The document would serve as a communication tool to inform the greater university community. The audience for the document would be our new Chancellor, Dr. Robert Meyer, the Strategic Planning Group and ultimately the greater university community. An important recommendation that rose from committee deliberations involved the nonacademic and support service areas. Much of the conversation focused upon the historical budget allocations within the academic colleges. The comment was made that we should consider examining all areas including support areas such as the Physical Plant, Information Technology, Business & Financial Services and Student Services, to name a few. Committee Work From the onset the Budget Model Review Committee was a large group comprised of members of the administration, budget managers, governance representatives, the Academic Deans and 4

5 Directors of large non-academic areas. To better achieve that task at hand, it was decided to divide the larger group into four subcommittees that would work on focused goals. The subcommittees were charged to look at the base budgets of the academic colleges; measure the resource allocations of the non-academic areas, set timelines and milestones and organize the communication of the committee s work. The academic subcommittee would determine and recommend if institutional reallocation was needed to address enrollment fluctuations over the years. The second subcommittee was charged with examining institutional support services outside of the academic colleges. The committee would recommend metrics for measurement that would be benchmarked against state and national averages. Benchmarking would determine if those services were under or over allocated. The third subcommittee was charged with developing the narrative for why a change was needed from the current model to a future model. A final and fourth subcommittee was charged with focusing on the process of how a new budget model might be adopted. That subcommittee also attended the other subcommittees to understand their timelines. Costing Academic Programs and Administrative Services In order to manage resources effectively, it is important to understand how much it costs to educate students in any particular program. Instructional costs vary from program to program not only based upon class size but also faculty salaries, equipment and technology that is needed for classroom instruction. Outside of the cost of instruction, there is also the value in services that faculty offer through leadership positions (such as being a program director) or the value they return to the institution through research, product development, and grants. Faculty/student interaction has often been cited as the most important factor in retaining a student and moving them to graduation. In order to manage resources effectively, it is also very important to understand the value of administrative and student service functions. For instance, groundskeepers mow the grass. But, they can also impact recruitment by impacting the look of the campus. Athletic coaches work with student athletes, but they are also residually responsible for our highest retentions rates among traditional students on the Stout campus. It is not only an exercise in understanding the costs of things but also appreciating their full value. 5

6 Costing the Academic Program The Case for Change subcommittee discussed these concepts. Determining the true cost and true value included conversation regarding presenting financial data in its simplest format, including revenue and expenses by college and nothing else. That was a starting point for discussion. The conversation then brought forth the idea of other sources of revenue should be included as a part of a college s base budget. Those additional revenue streams include customized instruction funds, enrollment growth funds, access to learning funds, gift and grant revenue. Recommendations were presented that offered suggestions on how to measure faculty work load accurately. The recommendations were to subtract reassigned time for department chairs and program directors. Independent studies, co-ops, field experiences should be assigned back into the college so that the student credit hours can be counted for the college. These were among the recommendations on work load. The topic of class size was a focal point. Dramatic disparities in class size exist. It is widely recognized that some classes are better suited to larger sections. Social sciences and business courses are more easily taught in larger sections because there are no laboratory needs. But the comparisons are still dramatic when one college s academic staff are teaching average class sections of 27, while another college has an average class size of 13. The issue of class size is critical because of revenue generation, but it is also an issue of equity. Recently, the Bill and Melinda Gates foundation completed a study that showed that by simply consolidating sections within a single course (filling the empty seats in that classroom), an institution could save over $1,000,000. The study looked at seven regional public universities. The data allows academic administration to examine costs required to teach the average credit hour in a department. Taking a page from that book, UW-Stout ran an analysis that simply took budget divided by credit hour. The result was: Fall 2011 Fall 2012 Fall 2013 Credits CAHSS 33,574 32,077 31,964 CEHHS 24,990 24,810 24,165 COM 20,562 19,869 18,901 STEM 33,214 33,123 34,285 6

7 Budget CAHSS 7,392,339 7,711,810 7,823,974 CEHHS 10,041,711 11,566,819 10,309,548 COM 7,133,134 7,048,140 7,214,275 STEM 10,685,851 11,524,238 11,901,515 Budget/Cr CAHSS CEHHS COM STEM Average This illustrated that credit hour production between colleges is just one metric and does not take into account a number of other critical issues. Research productivity is not counted in credit generation and the revenue was not added to the bottom line of the college budgets. Credit hour generation does not take into account the higher cost for graduate programs as compared to undergraduate programs. Nor does this model identify that certain lab intensive programs are more costly to operate. To grapple with the different issues, the academic committee examined a weighting formula utilized by the Nevada System of Higher Education. The model takes into account the differing costs of instruction by discipline. This is an improvement over the Delaware Model of faculty workload that benchmarks workloads as an average, depending upon the institution. The first step in a new budget model would be to establish a new methodology compared to the historical college base budget allocation model. Once achieved, this new algorithm would allow the committee to discuss the ability for the colleges to carryover budget at fiscal yearend. This would eliminate some of the use or lose behavior. And, an important conversation by the budget model committee will involve the endorsement of running a model (Nevada Model?) annually to calculate the yearly budget. Colleges and academic units would benefit from enrollment increases that are reflected in budget. The converse would be that budget reductions by college or program would occur when enrollments declined. 7

8 Reallocating the Historical Base Budget Over the course of years we have increased the college budgets based mainly on building from the historical budget and then allocating new funds as they are received from UW-System. This method does not take into account the changing enrollments in the various colleges. This has led some of the colleges to need exceptional amounts of additional funding support that may not have been needed if the changing enrollment patterns had been taken into account in the past allocation periods. The Budget Model Review Committee has been looking at various formulaic approaches to both redistribute the current base allocations but also to distribute out future excess tuition dollars commonly called enrollment growth funds on our campus. We looked at using the Nevada Model which gives additional multipliers to areas based on discipline and level. The Nevada Model was developed by the Nevada Higher Educational System and was presented to the Nevada Legislature in While Wisconsin is not Nevada, the principles of the Nevada Model are important to highlight to understand the premise of the metric used for weighting resource allocation. Those principles included these guiding tenets: The primary driver of allocation of state resources to teaching institutions should be instruction as measured by student credit hours. With financial support based on this unit of student progression, each Chancellor can manage budgets to encourage excellence and student success. The differing cost of instruction by discipline and by level must be taken into account, and this can be accomplished through a matrix based on the cost studies and experience in other states. Courses are weighted based on discipline and course level. To recognize the research mission of the universities, an additional weighting to upper division and graduate courses is suggested. This additional state support for research reflects the state priorities for the role of research in innovation and economic development. Under this proposed model, the revenue from students tuition and fees remains at each institution. It is the student contribution to the cost of their education, just as the State supports its share of the cost through General Fund support. This methodology enables students (and their families) to see the direct link between their tuition and fees and the services provided to them at the institution they attend (Nevada Model, 2011). The results of using the model on the historical base budgets did not result in acceptable changes to the base budget reallocations. It is not possible to identify the exact reasons for this. Therefore, a different approach was used to redistribute the base. This resulted in conversations about the allocations of program directors/department chairs release times and how base budgets had further been impacted by System awarded DINS. The formula that was eventually used was based upon calculating what the colleges really needed in expenses. The Fiscal year of 2014 was an ideal year to use to adjust the historical budgets. During that year, the colleges used a maximum account of 102 funding and only as much 131 (excess tuition) funding as they needed. This was due the lack of excess tuition during that fiscal year. The usage for the two types of funding shows the inequity. It appears as such: 8

9 FY14 FY FY Combined use CAHSS 6,369, ,857 7,255,118 CEHHS 6,611, ,802 6,799,700 COM 4,557, ,173 4,724,478 STEM 8,954, ,800 9,353,866 26,492,530 1,640,633 28,133,163 The committee is proposing that we shift base dollars to take into account the changing enrollment patterns. By shifting 102 funds from one college to the other we would make the enrollment growth need identical in all colleges which would represent the changing enrollment patterns. New Base New 102 New 131 Combined use CAHSS 6,844, ,158 7,255,118 CEHHS 6,389, ,158 6,799,700 COM 4,314, ,158 4,724,478 STEM 8,943, ,158 9,353,866 26,492,530 1,640,633 28,133,163 The overall funding for each college remains the same by doing this, but the 102 funds are now in the appropriate portions for each college and their need for excess tuition is now identical. This does not take into account the use of the Nevada model for distributing out the excess tuition based on Student Credit Hour production. Using the Nevada model we took the prior 3 years of SCH production and modified them using the suggested Nevada Model multipliers based on discipline and level. The results were: Average CAHSS 91,492 87,535 86,689 88,572 CEHHS 108, ,035 92, ,836 COM 79,723 66,636 63,187 69,849 STEM 126, , , ,160 Total Cr 409, , , ,092 The excess tuition (enrollment growth) funding would then be allocated using a comparison of the current year s credit hour production to 90% of the 3 year average of credit hour production. This will give growing areas additional funding to provide instructional staff when needed. In order to achieve a 9

10 certain amount of fairness 90% of the average was used so all areas received at least some of the excess tuition the committee will need to decide on what percentage will be used in the future but 90% was used for this example. The result of shifting the excess tuition based on that premise is: Original FY14 New Prorated New FY14 Overall Combined Base 131 Combined Change CAHSS 7,255,118 6,844, ,350 7,387, ,192 CEHHS 6,799,700 6,389, ,275 6,577,817 (221,883) COM 4,724,478 4,314, ,691 4,427,011 (297,467) STEM 9,353,866 8,943, ,317 9,741, ,159 During the transition period we will be looking inside our colleges to look for efficiencies in many areas including cost of programs, support staff ratios, workload rules, sabbatical leave, department chair model, program chair model, travel rules, and many more areas. The State is expected to put more and more burden on the Universities in general to take on additional self-funding options and we plan on using our contacts in the private sector to partnership with as well. Creating Benchmarks and Cost Comparison for Academic Support and Service Units The benchmarking sub-committee was charged to examine the non-academic units and administrative/student service areas of the university. Their charge was to develop a method in determining if the allocation of resources to these units was an outlier in being under allocated or over allocated. A spreadsheet was developed by committee members that identified those units. They included: Marketing; Information Technology; Office of International Education; Administrative Office Professionals; Advisement; Career Services; Counseling; University Library; Research Services; Admissions; Registration and Records; Financial Aid; Business and Financial Services (and subunits); Planning, Assessment, Quality and Research; Human Resources; Physical Plant (and subunits); Health Services, Housing, Student Activities, Police, Parking and Risk Management. A proposal had been written by the Vice Chancellor s office for consideration by the benchmarking committee. That proposal suggested that we engage Huron Consulting to conduct a cursory review of all of the areas using recognized national benchmarks and comparing those benchmarks to our polytechnic peers and UW Comprehensive peers. The committee decided to not engage Huron due to the report that was released in the previous year that produced lingering concerns about their conclusions. The benchmarking proposal was sent to the Educational Advisory Board or EAB. EAB communicated that a cursory benchmarking study would not be something that they would 10

11 recommend because it would have a tendency to compare apples to oranges. For example, using a metric such as student advisees per academic counselor would not get at the underlying difference in the jobs of academic advisors. Some academic advisors only advise and register students while others have responsibilities in teaching, career counseling, orientation, study skills and special population advising such as athletics. EAB suggested in depth investigations of large areas. The full Budget Model Review Committee considered this recommendation from EAB, agreed to it and decided that the Physical Plant should undergo the first review. This was primarily based upon its FTE. The report has yet to be completed, but EAB has reported speaking with several UW institutions, and has collected an abundance of information on staffing and budgetary resources. They provided preliminary initial findings that included these comments: Physical Plant implements an altered chargeback model in which only revenuegenerating departments pay for facility services. All departments pay for services outside the standard scope of maintenance and operations. Decreases in state funding for central appropriations have reportedly forced facilities staff at some profiled institutions to increasingly rely on revenue generated for chargeback services. At UW Stevens Point, budget cuts forced administrators to eliminate several physical plant staff positions and consequently increased workload expectations for existing staff positions. UW Platteville administrators regretted that they must now perform more granular cost-analysis on chargeback services and cannot afford to waive any minor charges outside the scope of standard maintenance and operations. Decentralized facilities and residence life maintenance units can create tension between the departments due to duplicated positions and cost disagreements. The full EAB report should be completed at the beginning of November. The benchmarking committee will then make a recommendation on other areas to examine. Road Map Committee The final committee was the roadmap committee. The task of this committee was to develop a timeline, process and set of milestones for the Budget Model Review Committee. It was recognized that a task of this size needs a process and the recommendations that it develops need to be communicated widely across campus. The work of the road map committee produced this template. 11

12 Philosophy: There are needs for immediate, mid-term and long-term actions to address budget needs. The budget model committee needs to make separate recommendations for each of these timeframes within the context of their committee charge. There will be opportunities for campus-wide input, as described below. Long term roadmap for identifying a budget model for the future Early July, 2014 Early September September 22 Late October Late October November 3, 2015 (1 hour) Mid November Mid November November- December January, 2015 Late January February March/April April/May Each subcommittee presents updates to the budget committee. Phil takes the feedback from the budget committee and assembles a power point of the committee work to date. Chancellor invited to a budget committee meeting to review status, get feedback, and make modifications. Budget model committee meets to finalize initial draft of the white paper A draft of the white paper which describes the work done to date, guiding principles, and a process for obtaining input and finalizing the recommendations is ready for presentation to the Chancellor and SPG. White paper is reviewed with the SPG to obtain approval on the process and to discuss the current version of the white paper. If needed, the white paper is modified based on feedback from the SPG White paper is distributed campus wide for input. There is a link for feedback. Meetings occur with faculty senate, senate of academic staff, classified advisory development council, and college councils An open forum is held during professional development week to obtain additional input. All feedback is received and shared with the budget model committee. Budget model committee updates white paper based on feedback Budget model committee presents final recommendations to SPG for approval Recommendations forwarded on to the Chancellor for final approval Workload Metrics The workload metrics committee began by identifying a list of concerns with the way workload data is currently measured, and has been in the process of identifying solutions for those issues. The work of the group is ongoing, however, the initial recommendations include the following: 12

13 Change the activity code for program directors from 2 to 6, which would remove them from the workload metrics. Where appropriate, change the activity code for other types of reassigned time (excluding department chairs) to something other than activity 2, which would then remove them from the workload metrics. An example is to change technicians to activity 6. Ask the colleges to identify how they count each of the different types of instruction toward workload. For example, practices for counting field experiences, practicums, coops and internships vary across colleges. The following were identified as potential issues, but the group subsequently confirmed that the way they are currently being accounted for is correct: Dual level courses: the course is reported only once in the workload data and all student enrollments are counted. Late starting courses: any courses that have any student enrollments in them by the 6 th week of classes are included in the workload metrics. Issues yet to be resolved include the following: Department chairs are coded in activity 2, per Regent policy, and show up as part of the instructional workload metrics for all UW institutions, including UW-Stout. We are exploring whether we have any alternatives and what impact that would have on the ability to compare to other UW institutions. How to handle stacked courses. Currently, practices differ across colleges. How to handle differences between how colleges count credit hours vs. contact hours. How to handle instances where one person is listed as the instructor of record for accreditation purposes, but another person is teaching much of the course. How to handle courses that are team-taught. 13