A new budget model: More flexibility and transparency

I held a conversation with each of the deans before I started in this job and heard from almost every one of them that the budget model at UW-Madison no longer worked effectively. I and others across campus have spent quite a bit of time over this past year reviewing the current model and thinking about improvements.

Let me start by being clear about what is meant by “budget model.” I’m primarily talking about the ways in which the money in what we call Fund 101 is distributed from Bascom Hall to all of the schools and colleges. Fund 101 is composed of the state and tuition dollars we receive to support our core missions. This budget review also includes a discussion of the formula by which UW-Madison’s indirect federal research funds are distributed to schools and colleges.

Deans have always had substantial discretion in how they distribute money within their units, and the changes we are discussing will not change the ability of deans to spend their dollars in the ways they find most effective.

UW–Madison has used the same approach to budgeting since the UW System merger in 1972-73. The best description of that model: Each school and college gets what it got last year, unless they can convince the provost that they require additional money for a specific need. In particular, there has been no assurance that budget changes would occur as activity levels changed. And there’s little transparency about how dollars are distributed or why.

Much has changed since we adopted the current model more than 40 years ago, not the least of which is that the share of revenue the state provides to UW–Madison has shrunk ­­from 43 percent of the university’s overall revenue to 17 percent. At the same time, tuition as a share of the university’s total revenue has risen from 11 percent to roughly 17 percent.

In the fall of 2013, I asked our governance groups to appoint a committee of faculty, staff and students to review the budget model and provide a framework for thinking about alternatives. The committee reported back to me last January, concluding that the time is right to transition to a new model – one that is more transparent, and in which resources move over time as activities change.

Building on the committee’s recommendation, I worked with governance groups to appoint an advisory committee to myself and Darrell Bazzell, vice chancellor for finance and administration. This group of faculty, staff and students worked hard through the spring and summer. In September, this committee forwarded to me a specific set of recommendations regarding a new model. The recommended model would establish transparent, objective metrics related to instruction and research that would drive at least some share of the budgetary allocations to schools and colleges.

For instructional activity, the recommended metrics would allow resources to shift based on credit hours taught and number of degree majors. In our research enterprise, the recommendation is to distribute indirect funds based on sponsored research expenditures and associated overhead. Professional programs would continue to be managed through a separate process.

At the same time, the recommendations acknowledge that not all allocations can or should be determined by a formula. Flexibility is essential so campus leadership can invest in strategic initiatives and emerging opportunities. So only a share of Fund 101 dollars would be distributed based on this formula, allowing the provost and me to make sure that other needs are met, particularly those that are not as directly related to enrollments. Similarly, we will distribute only a portion of the overhead dollars according to the formula back to schools and colleges. Other dollars will be used by the vice chancellor for research and graduate education and myself to support larger centers and campuswide research needs.

The share of Fund 101 dollars that will be subject to an activity-based formula distribution is not yet determined. Particularly given our tight budget situation, we’re likely to start at a very low level and phase this in over time.

One clear recommendation is that no unit’s budget should experience large single-year shifts in dollars due to the implementation of this new model. That’s one reason to phase things in slowly. It’s also why we’re starting with the current budget distribution and making incremental changes from that.

I want to state clearly that the need to revise our budget model is not related to the upcoming state budget process, or the budget cut exercise in which I have asked our deans and directors to participate. We need to implement a more flexible and transparent resource distribution system, regardless of the state of our overall budget.

We face many challenges as we attempt to define what it means to be a great public university – especially at a time when state financial support is more limited and the public conversation about higher education is often more critical than supportive. I am confident that we can develop a more effective budget model that is better suited for the needs of a leading public research and teaching institution in the 21st century.

I encourage you to attend one of two campus forums scheduled to gather feedback on the committee’s recommendations. The first is from 10 to 11:30 a.m. this Thursday at Union South’s Varsity Hall. The second will be held from 1 to 2:30 p.m. Monday, Nov. 3, in 1306 Health Sciences Learning Center.

The proposed changes to our budget model will create greater transparency and provide incentives for efficiency and innovation that will help keep this historic institution in a position of strength, leadership and extraordinary value for our students and state.