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FAQFrequently Asked Questions about Iowa State University budgeting process, from general to really specific. What is the budget model now at ISU? Each year, the Iowa State University budget is developed by changing the previous year's budget by a university-wide percentage increase or decrease. This is described in the third report issued by the Budget Model Development committee. The instructions for developing the current budget are available here. Why change budget models? Each year, the Iowa State University budget is developed by changing the previous year's budget by a university-wide percentage increase or decrease. The proposed budget model would align revenues and expenses with where decisions are made that can affect them. Some revenues would be available for leadership to use in directing the university in ways that more directly follow the strategic plan, mission and values of the university. How did this develop at ISU? The President asked for advice on adding flexibility to the budgeting process. A consultant recommended a different model and the President appointed a group to review what types of budget models are used at other universities. The results were shared with the campus community in a symposium. Then, the Budget Model Development Committee spent a year reviewing the current budget model and three alternatives. The Budget Model Review and Implementation Committee was appointed to review Alternative Budget Model #3. Who else uses this type of budget model? Decentralized budget models have been developed and implemented at a variety of public and private institutions of higher learning, including: Public:
Independent:
What is Alternative Budget Model #3? Alternative Budget Model #3 was the third alternative budget model developed by the Budget Model Development committee. Here is a link to the report that includes ABM3. The following are some primary issues that have been presented to the Budget Model Review and Implementation Committee, along with how the committee recommends to deal with each issue.
Issue: How should differences in the Cost of Instruction (COI) be reflected in the proposed budget model? Recommendation: In the initial years of the Resource Management Model, COI differences will be reflected through the distribution of the state appropriations via the RMF. In the initial year when colleges are "made whole," the RMF allocation will reflect the COI differences currently incorporated in base budgets. For the first three years, strategic decisions on the distribution of the RMF will explicitly consider adjustments based on cost of instruction factors including costs associated with enrollment increases in high cost disciplines. During that time, a careful and thorough study of the cost of instruction will be conducted. The results of the study may lead the President and Provost to reconsider this decision. Issue: What budget advisory committees are needed in the proposed budget model? What should be their purpose and how should they function? What is the optimal composition of each budget advisory committee, and how should members be selected? Recommendation: The BMRIC has discussed the purpose and function of budget advisory committees, and believes that the long history of cooperative engagement between administrators and advisory groups at ISU should be preserved in the Resource Management Model. The primary purpose of the budget advisory committees is to provide advice to administrators throughout the annual budget development process. Specifically, the BMRIC believes that each budget advisory committee will have adequate representation of administrators, faculty, staff, and student leaders as well as other members that would be appropriate for each committee's work. Second, the budget advisory committees' recommendations should remain advisory to the administrator and focus on recommending the level of funding required to efficiently provide the type and quality of service desired by the university community. Third, the decision-making processes will continue to flow through administrative channels, with appropriate advice from the relevant budget advisory committee at each level. Fourth, administrators must consider advisory committee commentary and recommendations when developing annual budget plans/requests and provide feedback to the advisory committee. Finally, administrators are expected to provide advisory committees with clear frameworks for programs and services, pertinent financial data (with emphasis on trends), explanations of income streams and their relationships to services and programs, and logistical support for advisory committee operations. Currently, the BMRIC suggests that the committees include a university-level budget advisory committee and a budget advisory committee for each of the major administrative units that are not Resource Responsibility Centers -- Office of the Provost, Library, Student Affairs, Information Technology Services, and Business and Finance. Each of the administrative units will be advised by at least one budget advisory committee. Although one goal was to keep the advisory committees as small as possible, the BMRIC's recommendations regarding advisory committee composition were guided by the important principles of representation, shared governance, diversity, and expertise. These principles required that each advisory committee be relatively large, about 18 members each on average. Details of the advisory committees' composition, selection procedures, and terms of appointments are presented in the main body of this report. Issue: What impact will the proposed budget model have on the quality of teaching, research, and outreach? Recommendation: The model must be coupled with management approaches that ensure a focus on quality and on the University's mission, goals and strategic plans. The budget model exists to serve the major guiding principles and goals of the institution. As it is made clear in ISU's strategic plan, excellence is and will continue to be a core value of the institution. The model is intended to provide incentives for both revenue generation and cost reduction that will ultimately provide the necessary resources to support the mission and goals and strategic plans of the institution. The model has to support university leadership's decisions and should be coupled with a planning and decision-making approach that supports the mission, goals, and strategic plans of the institution. Resource Responsibility Centers should be held responsible for performance across the range of strategic goals. Performance with respect to strategic goals should be coupled with Resource Management Fund allocations as part of the annual planning process. Issue: Will the proposed budget model create an "even playing field" or will units have unequal starting points because of historical inequities that are not addressed by the current budget model? Recommendation: The BMRIC recognizes that workloads and responsibilities for units have changed and the current budget model did not adequately address those changes in a timely manner. This situation highlights one of the primary reasons that ISU is exploring an alternative budget model. However, the committee believes that it is not practical to rebase the budget in the first year and at the same time, implement a new budget model. In addition, the Resource Management Model is not designed to immediately eliminate inequalities, but is designed to be more dynamic and responsive to changes moving forward. In the base year, the model will be neutral on adjusting for historical inequities. In subsequent years, the model provides university leadership with the Resource Management Fund to address these inequities. Issue: What impact will the proposed budget model have on interdisciplinary academic programs? Recommendation: The BMRIC believes that every effort should be made to maintain, and even enhance, the high level of collegiality and interdisciplinary programs at ISU. The committee agrees that this achievement is more of a reflection of the overall culture at ISU, rather than its budget model, so the committee expects that interdisciplinary activity will continue to develop under the Resource Management Model. The principles of the model imply that revenue and expenses be equitably distributed to the units that generate them. These principles guided our recommended distribution of tuition revenue and that, if followed, should promote interdisciplinary academic programs. In fact, the model provides incentives for interdisciplinary programs that are not present in the current budget model. Specifically, by guaranteeing that some revenue will follow students, there is an incentive for visionary leaders to work collaboratively across disciplinary boundaries to develop attractive, high quality academic programs. Therefore, the committee expects that interdisciplinary academic programs will continue to develop under the Resource Management Model. Issue: What impact will the proposed budget model have on interdisciplinary research? Recommendation: A budget model does not need to directly incent all desirable behaviors because many incentives are contained within the local culture, which is characterized by a high level of collegiality. External incentives for interdisciplinary research, as dictated by external funding agencies, are also considered extremely "hot," so no additional incentives are being proposed in the Resource Management Model. The principles of the model imply that revenue and expenses be equitably distributed to the units that generate them. These principles guided our recommended distribution of IDC recovery revenue and that, if followed, should promote interdisciplinary research. In addition, the current level of interdisciplinary research at ISU was achieved under a system that distributed IDC, so the mere existence of a distribution system should not be problematic. The primary difference between the current budget model and the Resource Management Model is that the Resource Management Model will distribute a greater proportion of IDC and ensure that a substantial portion of that revenue reaches the unit where the research is being conducted. The BMRIC believes that this approach will encourage funded research of all types, and particularly interdisciplinary research. Therefore, the committee expects that interdisciplinary research will continue to develop under the Resource Management Model. Issue: Why isn't the Resource Management Fund (RMF) distribution as transparent as other formulaic resource distributions? Recommendation: The RMF is intended to provide strategic steerage for the institution. Strategic steerage can't be driven with a formulaic approach. The distribution of the RMF must be based on leadership decisions to ensure that the university achieves its strategic goals. Under the Resource Management Model, there will be greater transparency than in the current model because the outcomes of leadership decisions will be fully public. Transparency will be enhanced by clear communication from the leadership regarding RMF decisions. Also, the budget advisory committees proposed in the model will provide a level of review and discussion that will improve transparency. Issue: What is the relationship between the proposed budget model and the institutional strategic plan? Recommendation: One of the goals of the proposed budget model is to better link resource allocation with the goals of the strategic plan. The revenue distribution formulas in the Resource Management Model are designed to maintain enrollment and increase sponsored research, both of which are elements of the strategic plan. Other strategic issues must be addressed through management processes and leadership decisions. The link between resource allocation decisions and the strategic plan will be more transparent and explicit using the Resource Management Model. Issue: Alternative Budget Model #3 (ABM3) allocates tuition and a portion of state appropriation to the colleges in the same manner as tuition. Does this approach over-emphasize the instructional component of the college mission? If the amount of state appropriation allocated to instruction is too large, then it can lead to one or more of the colleges being entirely tuition dependent and it was felt by many that all colleges should receive a portion of their resources through the Resource Management Fund. The RMF allocation recognizes that the college's other missions are being supported by centrally allocated resources. It is also important for all units to participate in the RMF distribution because that is the mechanism that provides "steerage" for meeting the university's overall strategic goals through leadership decisions. Recommendation: Tuition alone may not provide sufficient incentive for colleges to maintain and grow enrollment. Providing appropriate enrollment incentives is a major goal of the Resource Management Model and so some amount of state appropriation needs to allocated based on enrollment and teaching. However, the President has indicated that the amount of state appropriations distributed on the basis of enrollment and teaching needs to be set so that each college receives a significant amount of funding from the Resource Management Fund. It is also important for all units to participate in the RMF distribution because that is the mechanism that provides "steerage" for meeting the university's overall strategic goals through leadership decisions. Issue: Why doesn't Alternative Budget Model #3 (ABM3) propose including any state appropriations in the tuition allocation for graduate students and professional students? Recommendation: The Resource Management Model suggests a change to ABM3 in the allocation methodology to address this concern. State appropriations will be added to all tuition allocations for undergraduate, graduate, and professional students. It is further recommended that the state appropriation be distributed in the same manner as tuition, i.e., a portion distributed based on the college of enrollment and a portion distributed based on student credit hours (SCH). Issue: Alternative Budget Model #3 (ABM3) shows leadership expenses being funded directly from state appropriations and not allocated back to the Resource Responsibility Centers. What is in this category, and why is it treated differently than other administrative costs? Recommendation: The Resource Management Model addresses these concerns by adopting a much narrower definition of leadership. Only the direct offices of the President and Executive Vice President and Provost are included in the leadership category and funded directly from state appropriations. Costs of the other Vice Presidents and the academic support units that report to the President and Provost are included in one of the suggested expense pools and allocated to the Resource Responsibility Centers using the allocation methodology appropriate to the functions of the support units involved. Issue: What is common good and what are the criteria for inclusion and exclusion in the category? Perspectives: There was significant confusion about the common good expense pool because of the misconception that units could "opt out" of paying for services in other pools but could not "opt out" of paying for the common good services. This led many support units to assert that they should be included in the common good expense pool. A related concern was that some units included in leadership and the common good are auxiliaries because they receive much of their support from non-general fund sources. These units include Athletics, the Memorial Union, the ISU Center, University Museums, and Reiman Gardens. Auxiliary units should be treated like Resource Responsibility Centers in the sense that they generate their own revenue, but some may also need a Resource Management Fund (RMF) allocation. Recommendation: The common good expense pool that was in the ABM3 has been dropped in the Resource Management Model and the services previously included in this category are reclassified into one of the other expense pools. The revenue-generating auxiliary-type units that were classified as common good services will be treated like Resource Responsibility Centers and may receive funding from the Resource Management Fund. Issue: What is the purpose of the expense allocations? Recommendation: The distribution of revenues requires the allocation of expenses. Some expenses can be distributed based on consumption but many services can not. Although the allocation methods vary, the Resource Management Model approach is to allocate central services costs proportionately. Expense allocations should not be viewed as a bill for services, and it is misleading to translate expense allocations into a per unit type of calculation. Expense pools will be reviewed by budget advisory committees that will provide guidance on base levels of service and oversight on efficiency and funding issues. Resource Responsibility Units will not be allowed to "opt out" of base levels of services. Options to purchase additional services either internally or externally should be considered. Issue: How will the proposed budget model work beyond the college level? Do we really have a more transparent budget model if it does not drive revenues and expenses beyond the college level? Recommendation: The BMRIC strongly believes that formulaic distributions of resources should not go beyond the Resource Responsibility Center (RRC) level at this time. The committee does recommend that the RRCs incorporate the same basic principles of the Resource Management Model into their budgeting and management processes. There are many reasons to not formulaically distribute resources to the department level. One reason is the possible volatility in revenues and expenses from year to year. RRCs are much better able to deal with such volatility because of their greater size. Distributing resources to the department level would require a level of record-keeping, tracking, and forecasting that is inefficient and expensive. Greater creativity and strategic planning is encouraged by bringing some revenue and expense streams under more local control, but the challenge of developing a budget model is to balance this against the unintended consequences of driving the model down too far. Issue: What oversight mechanisms will be needed to ensure cooperation and prevent undesirable behavior under the proposed budget model? Recommendation: Any institution of higher education requires strong leadership and coordination to carry out its mission and achieve its strategic goals regardless of its budget model. Current policies will need to be reviewed in light of the proposed model. Existing coordination and oversight mechanisms may currently be adequate in some areas and may need to be strengthened in other areas. It will be important for the administration to work with the Faculty Senate, P&S Council, and other groups to ensure that the university's policies and oversight mechanisms are appropriate for its budget model, mission, and strategic goals. Issue: Why is the current description of the model silent on the issue of second major enrollment? Should the enrollment portion of tuition be split when the student has a second major? Recommendation: The Budget Model Review and Implementation Committee believes that there is an incentive currently in the model for colleges to offer second majors. The college would receive tuition revenue through the increased number of student credit hours (SCH) a college would gain from students choosing to second major. In addition, it does not seem equitable to allocate revenue to a second major college for enrollment without also allocating some proportion of the expense pools that are allocated based on student enrollment. Mapping tuition revenue and adjusting student head count expenses for students who double major would add a level of complexity to the model that is not desired or necessary. Since 75% of the net tuition is going into the SCH pool, having students double major will directly increase the college's share of tuition revenue from SCH without increasing their share of allocated expenses. |
Resource Management Model, (515) 294-0831, budgetmodel@iastate.edu.
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