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A New Budgeting Model for Academic Departments, Part 1: Basic Elements

Budgets and Finance

A New Budgeting Model for Academic Departments, Part 1: Basic Elements

Why redo department budgets at a time like this? There are so many other important considerations these days that this task might seem an unnecessary distraction. Well, we have just emerged from a pandemic; have experienced real, and likely permanent, losses of enrollment; and are dealing with significant inflation. There are also many news reports that higher education may not be financially worth the investment or even necessary for lifelong success. One need only consider the number of institutions that are closing and the even greater number that are cutting programs and staff due to financial shortfalls to realize that budgets will be tighter. In addition, it may be time to correct past circumstances that have left some departments generously supported and others under-resourced. As a dean, you might also welcome the opportunity to incentivize the budgeting process. Below, I describe some things you might consider when reconstituting how your school sets department budgets.

In a multi-institutional survey of department chairs conducted several years ago, I learned that most department budgets are historically determined. That is, in a good year you’ll get 2 percent more than you received the year before and in a bad year maybe 2 percent less, but it’s calculated on the historic base amount. At most institutions, there is probably no one who can provide a rationale for a given department’s budget except that it made sense at some time in the past. To gain support, the new model will need to generate about the same revenue as the current or planned budget. ln this case, the dean will have to match the current allocation to the new model in a way that does not much affect most departments. This allows the new budget to “escape responsibility” for any financial woes you may be facing. In fact, it’s helpful to make a small amount of extra money available so that all budgets are slightly more generous. Exceptions to this are departments that have outlandishly large budgets due to uncorrected prior circumstances. For example, the department may have had to offer courses in general education but, due to changes in that curriculum, no longer teaches those courses. In cases like this, the dean will have to inform the department that its subsidy will be reduced.

The model for budget allocation will assume that the departments fully participate in research, teaching, and service and that each unit offers degree programs through the PhD. We will also assume that there are science units in the school so we can consider how to budget for laboratories. Full-time faculty and staff salaries will not be part of our exercise.

We are now ready to assemble the components of our new budget. First, fund each department with last year’s expenditure for part-time instructors. The rationale for this is that these expenditures generate revenue and meet the needs of our students (our first priority!). The model will fund each unit for summer school at last year’s level with the same rationale as for part-time instructors.

Some institutions do not provide direct budget support for part-time instructors and hold money back pending requests from the departments. They do so presumably to save money by not approving instructor pay for low-enrolling courses. From personal experience on both school and department sides, I recommend that departments receive the money in their budgets. The budget model will enforce sound fiscal decisions by chairs.

The budget will provide departments with an amount equivalent to what they spent on graduate students (stipends, tuition, fees, insurance) the previous year. Excluded are grant-supported students and those with fellowships. The rationale here is threefold; grad students are the hands that produce research results, they contribute to our teaching efforts (as TAs), and they are necessary for research faculty morale.

Because we depend so much on student tuition revenue, and to incentive enrollment growth, each department will receive a dollar amount for each credit hour its instructors teach. The amount will be small but reinforces the notion that student enrollment is essential to our success. A way to enhance enrollment is to recruit more majors. A department will receive an amount of money for each major it houses. Amounts will vary by degree program, with the highest amount attached to PhD students and the lowest to undergraduates. Finally, in recognition that faculty and staff create cost to the department, the school provides an amount for each. One could justify different rates for tenure-track and non-tenure-track faculty on account of the scholarship expectations for the former. Staff levels will be lower than those for faculty. It is within these three elements—the dollar amounts allocated for student credit hours taught, student majors, and the number of faculty and staff—that the dean can manipulate to reach the budget targets.

Because our department conducts research, we will also want to include research income in our budget. This money comes in the form of grant overhead or indirect cost recovery dollars. This is a substantial amount of money, sometimes exceeding the direct costs of the grant. The overhead rate is set through a negotiation between the campus administration and the agency (e.g., the federal government). These funds allow the university to recover its costs in hosting the research. (I will more fully discuss this component of the budget in part two.)

You may be wondering, How does this budget address growth in credit hours? For example, a department has a fall increase in credit hours of 500 followed by a spring increase of 400. Let’s also say that departments are budgeted at $5 per credit hour. This means that the department is short $4,500 (900 × $5) during the year of the increase. Furthermore, it had to launch two new lab sections (limited to 30 students per section) and one new lecture section. The bursar has 900 times the full tuition rate per credit hour of unexpected income. If that rate is $300 per credit hour (a modest public institution rate), it generates $270,000. That amount would be credited to the school under RCM, and other budgeting systems would and should get a share of the new money (the dean can confirm this!).

By late spring (when budgets are set for the coming year) you should have a picture of total enrollment for the current year including summer session(s). You have your budget numbers for credit hours for the next year (this year’s budgeted amount plus the additional 900 credit hours), and we can now “adjust” this year’s budget using the money from the department increase in enrollment by giving them their $4,500. The other departments would also be adjusted up or (for those who fail to meet their projected credit hour goals) down at this time as well.

One weakness that we recognized is that the $4,500 would be insufficient to pay three adjunct salaries for teaching the two labs and the lecture section that had to be opened. Some increases can be accommodated by filling vacant seats in a class or by moving the class to a larger classroom. To address situations where these remedies are not possible, we created a credit hour bonus program that works as follows: departments receive $10 per credit hour (cash) for every credit hour that exceeds the average credit hours earned in the past four years. Projecting ahead, if the department described here can maintain its increase in credit hours, it would be eligible for bonus dollars for the next four years (albeit a diminishing amount each year). The bonus dollars for the example above would be roughly $9,000, assuming that this year’s increase was achieved following four years of flat enrollment.

What about increases for part-time instruction (pay boosts for high performers) or new graduate student lines? Increase the allocations annually by the same percent provided for full-time faculty salary increments or do a 10 percent increase every four to five years (in a good year, when there are some resources available!). The grad student support line must be carefully monitored; high-quality students will shop around, so you must offer competitive stipends. Due to tradition and factors in the local environment, academic departments offer graduate stipends at different levels. This can raise issues of equity. I recommend tying any increase in graduate support to the size of the package the department offers rather than giving all units identical lump sums of money.

Finally, what about the timing of the data collection? A staff member in the school collects student data at the midpoint of the fall semester. This is the time of maximum enrollment of majors for most departments. Faculty and staff counts are made April 1 for the next year. To count, faculty must be working full time on this date.

Part two of this article will address budgeting for research income, the complexities of dealing with lab fee income, and some added benefits of having an incentivized, transparent system of budgeting.

N. Douglas Lees, PhD, is professor and chair emeritus of biology and former associate dean for planning and finance in the School of Science at Indiana University–Purdue University Indianapolis.


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