Budgeting for New Chairs: Personnel, Grant, and Foundation/Gift Accounts
In the June 2018 issue of Academic Leader, I covered questions that new chairs may wish to ask their supervisor, presumably the dean. Armed with basic information on the sources of academic income available, how the department’s budget is derived, and what expenses the department is responsible for, chairs are now ready to move to another aspect of the department’s budget and to consider other department accounts that they must monitor.
The personnel budget
Thus far, we have considered only the operating budget or the funding categories that recur annually and are expended at local discretion. Examples are supplies and expendables, travel, colloquium speakers and other guests, student hourly pay, and perhaps adjunct salaries and graduate student costs. We have not yet considered the personnel lines in the department. The total dollars here exceed the operating budgets by a significant amount but are not discretionary. Thus, the chair has no reason to monitor the expenditures. However, the chair needs to know if the funds in the line revert to the department in the case of a vacancy and whether the line remains for the department to fill.
In large professional schools with decentralized budgeting systems, hard line salary dollars are part of the department budget, and, unless there is a fiscal crisis, the chair can refill the vacated position. If the chair is at an institution where the dollars from vacated lines are available, at least in part, for department use, the chair must be prepared to develop a spending plan for these dollars. However, traditional practice when faculty and staff positions are vacated is for the dollars to revert to a central budget.
Although chairs would like to have the use of salary savings from a vacant line, there are some compelling reasons for this resource to be held by the dean. In institutions that have a research expectation, the start-up costs can be daunting and salary savings is a way to help with these costs. Furthermore, holding the dollars centrally means that all departments are funded equitably with no advantage to a large department that may have 3-4 positions open at any point in time. If the department’s budget is tight, it is reasonable for the chair to request additional adjunct pay to cover the teaching lost in sections that cannot be internally reassigned.
The issue of whether faculty lines are permanently committed to a department is a complex one. Faculty and chairs sometimes assume that the department retains its historic maximum number of lines. The chair should ask the dean what factors determine if and when a faculty vacancy is refilled. Because people costs far exceed all others, it is difficult to reduce an overall budget deficit or significantly reduce costs without looking at this expenditure category.
Other factors that impact the decision as to whether a position will be refilled is the general education curriculum and individual considerations at the department level. Changes in the general education curriculum can lead to increases or decreases in department responsibility for teaching. Department curricula can come into play if the departed individual taught a required course needing an expertise not found among the remaining faculty.
Some new chairs may be saying to themselves, “I can skip this section because this is not a research university, so we don’t have external grants.” That may not be true or could become untrue very quickly, so please read on. There is a plethora of private foundation grants for improving undergraduate education and even the National Science Foundation (NSF) and the National Institutes of Health (NIH) have grant programs for innovative teaching in the sciences and for increasing the pipeline for undergraduate students to pursue four-year degrees.
So, aren’t faculty, as principal investigators (PIs), responsible for managing and monitoring their own grants? Faculty will purchase items, travel, and hire personnel from grants, but they are not uniformly vigilant about following the rules and watching the bottom line. The story about the PI who, when asked how he manages his grant budget, responded, “I spend until someone tells me to stop!” is true! Thus, chairs are encouraged to make certain that post-award support is in place.
Many grant agencies have rules on what and how things must be done. Fixing errors and getting special permission is far more complicated than it is for similar transactions using college/university accounts. When rules are not adhered to in payments to individuals, for example, the agency, should it conduct an audit, can require that the dollars be returned. By this time the funds have been disbursed and spent, leaving an institutional account to pay back the amount. Overspent accounts also obligate institutional accounts to pay the overage bill, and typically the department or school is responsible.
The chair who monitors grant accounts through staff delegation and sets appropriate expectations for PIs along with the assistance of school-level or research office staff should encounter few problems. Chairs should also know that there are some significant fiscal positives to the institution for earning external grant funding. The obvious one is grant overhead, also known as indirect costs, that may or may not be shared with the department. A second form of financial reward for grants is the proportionate salary coverage for the percent effort that the PI has requested in the approved grant budget. For example, a faculty member who has salary support from a grant at 20 percent FTE will have 20 percent of the academic year (AY) salary and fringe displaced by funds from the grant, leaving an equivalent amount free in personnel budget. This means that the faculty member commits to spend 20 percent of his/her time working on the project. To accommodate the new work and to promote grant writing, most colleges and universities have a “buy-out” policy, which releases these faculty members from a portion of their teaching obligation. Institutions generally view this windfall as new resources generated by department faculty and return most or all of it to the department.
The foundation account
The final account that the new chair will be responsible for is the philanthropic account that is typically held in a foundation that is recognized by the IRS as an entity approved to receive charitable donations. Departments typically have subaccounts that have been established for specific purposes. For example, scholarship accounts may carry the names of former students or faculty members and are restricted accounts governed by written agreements between the donors and the foundation as to how the funds are disbursed. Chairs should be scrupulously compliant with donor intent in order to facilitate future donations. Other donations are received with no designation and are considered unrestricted funds.
The department personnel budget containing all the salaries and benefits of full-time faculty, staff, and possibly others, could be a focal point for a new chair if some or all the salary dollars resulting from a vacancy are available to the department. Chairs should be aware of the potential fiscal consequences of violating the rules on grant expenditures and for overspending grant accounts and the potential for department income from salary savings derived from external grants. Finally, chairs also have the responsibility for overseeing the philanthropic accounts in the department.
Lees, N. D. (2018) Getting a Head Start: Early Budget Questions for Beginners, Academic Leader 34(6).
Douglas Lees, PhD, is associate dean for planning & finance, professor, and former chair of biology, in the School of Science at Indiana University-Purdue University Indianapolis (IUPUI).