OSU FY04 Budget

In October,2003, the OSU administration released their FY04 budget for the expenditure of Education and General funds. The Faculty Senate Budgets and Fiscal Planning Committee presents below a summary of that document in hopes of promoting understanding of how the decisions were made that led to this budget, what assumptions are built into the budget, the remaining uncertainties and areas of continuing concern. Special attention is paid to the issue of "productivity" as it is defined in the budget and its implications for the institution. It is our hope that an informed faculty and staff will be able to better contribute to the discussions about the OSU budget in FY05 and succeeding years.

 

How was the budget formulated? What assumptions went into it?

 

Income

Basically one assumes an income in the form of "allocable funds". These funds are composed of funding from the State of Oregon (assuming some level of support of higher education, the so-called Resource Allocation Model or RAM funding).To this amount, one adds funds that are earmarked for a specific purpose such as the Top Tier Engineering School initiative, etc. To this one adds tuition revenues and resource fees along with other revenues such as overhead on research grants and contracts. For FY04, these amounts (in M$, i.e., 1 M$ = $1,000,000) were as follows:

 

RAM funding 64 M$
Earmarked Funds 16 M$
Tuition 93 M$
Fees 15 M$
Other( like research overhead) 24 M$
Total 212 M$

 

A few remarks are in order about these revenues. The total State of Oregon appropriations are down about 15.5% from FY03, but the tuition is increased 26.2% and the fees are increased 38.7%. Other revenues are up 16.5%.. The net forecasted revenue of 211.5M$ is up 6.3% from FY03, due to the large tuition and fee increases. Oregon State University has moved, with little fanfare, from a predominantly public institution to a semi-private institution, in that the principal source of revenue for the institution is now tuition and fees rather than State of Oregon appropriations.

 

Expenditures

OSU has a model for deciding how much of this income will be spent in a given way. That model is called the Budget Allocation Model or BAM. The BAM is a "productivity-informed" distribution of funds, i.e., it is supposed to allocate funds such that those who "made the money" get to spend it, although there is not a one-to-one correspondence between revenue and expenditures.

 

How does the BAM allocate money? Take the total projected revenues (211.5M$) and remove "centrally administered funds" of 10.4M$ (4.9 %). Then subtract off "legislatively targeted funds, departmental revenues and a portion of the overhead on grants and contracts that is returned to the units" of 43.2M$ (20.4%) This leaves about 157.9M$ (the "distributable budget") to be distributed among the academic units and the administration to do the business of the University, i.e., about 74.7% of the projected revenue. How is this latter amount allocated? The following criteria (given as a percent and an amount) are used to distribute the funds.

Lower Div SCH 16.3% 24.1M$
Upper Div SCH 17.4% 25.7M$
Dept Majors 5.3% 7.9M$
Grad SCH 5.3% 7.9M$
# Grad Students 5.3% 7.9M$
Research Productivity 1.5% 5.5M$
Academic Support (Library, Equip, etc) 6.3% 11.4M$
Administrative Support 31.5% 47.6M$
Reserve 0.0% 0.0M$
Miscellaneous Reallocations 1.8%

3.2M$

Strategic Investments 9.3% 16.7M$
Total 100% 157.9 M$

Using simple linear regression models, each college or unit is allocated funds on the basis of the number of lower divison credit hours, majors, grad students, etc they have. In making these allocations, there are a series of "change limit adjustments", i.e., "governors" on the model which prevent increases from year to year of greater than 4%, or decreases of greater than 4.5%. (The primary units affected by these changes are HHS (-1.3M$), Pharmacy (-1.0M$), Centers, Institutes and Programs (+1.7M$) and Vet Med (+3.2M$). The "Provost's Strategic Investments" are increases in budgets of some "core" units who would suffer by a pure laissez faire application of the BAM. Note the administrative budget receives funds in two ways, taking 10.4M$ off the top of the total budget and then 58.8M$ of the allocable funds (for a total of 69.2M$, i.e., about 32.7% of the revenues.)

 

The Bottom Line (FY04 Budget)

 

Administration

The Administrative Budget for FY04 is composed of two components, institutional management funds (10.4M$) and allocated funds (58.8M$), the latter from the pot of distributable and targeted funds. The principal uses of the institutional management funds are:

Contingency 4.3M$
OSU 2007 2.0M$
Grad Fee Remission 2.8M$
Miscellaneous 1.3M$
Total 10.4 M$

 

The contingency funds are to cover the effects of failure of the proposed income tax increase and other legislative actions. The allocated funds for "Service, Support and Managment" are:

Category FY04 Change FY04-FY03
Facility Services 16.1M$ +2.5M$
Academic Renovation and Remodel 0.0M$ -0.00M$
Office of President (incl Athletics for 4.0M$) 5.6M$ +0.4M$
Univ. Advancement 5.5M$ +2.4M$
Finance, Budget, HR, Bus Serv 9.2M$ +0.8M$
Grad School 0.9M$ +0.2M$
Research Office 2.5M$ +0.3M$
Provost 1.3M$ +0.2M$
Academic Affairs 7.3M$ +0.3M$
Student Affairs 3.6M$ +0.08M$
Int'l Programs 0.4M$ +0.015M$
Information Services (w/o Library) 6.4M$ +0.3M$
Annual Reserve Commitment 0.00M$ 0.0M$
Total 58.8M$  

 

Obviously the Reserve and Remodel budgets were gutted to balance the budget. Furthermore, the "change estimates" do not take into account any inflation, so that, in constant dollars, all areas are down in FY04 compared to FY03.

Academic Budgets (Direct Instruction and Research Delivery)

The total Direct Instruction and Research Delivery Budget is 142.3M$ (67.3% of the FY04 budget). The distributions (in M$) are as follows:

Unit
FY04
FY04-FY03
Ag
5.9
0.3
Business
5.8
0.4
Engineering
21.6
3.5
Education
1.9
0.3
Forestry
2.2
-0.04
HHS
9.2
1.3
CLA
18.1
1.4
Oceanography
5.4
0.2
Pharmacy
4.8
0.8
Science
21.9
2.3
Vet Med
12.7
4.2
Summer Session
3.8
0.7
UHC
0.9
0.04
Ecampus
5.8
2.4
Int'l Prog
2.5
0.7
Library
8.8
0.0
Centers, Institutes
5.4
0.2
Equip. Replacement
5.7
5.7

 

General Comments about the "Academic" Budget

1. The overall budget is not that bad. In constant dollars, most people take a hit but the sky is not falling.

2. The large increase in Ecampus budget (3.3M$) should be viewed in light of the fact that Ecampus now re-distributes their revenue among the academic departments offering their courses. This redistribution is very important for units participating in Ecampus activities and may change with time.

4. The "nearly balanced" budgets for several units are the result of a Strategic Investment. After the BAM calculations had been made, the Provost made discretionary investments in several "core" units to restore their budgets to a more tractable level. The Strategic Investments ( in M$) are

CLA 1.4
Oceanography 0.4
Pharmacy 0.3
Science 0.5
Vet Med 0.7
UHC 0.3
Centers, Institutes 0.3
Int'l Programs 0.7
Total 4.6

 

General Comments about the Budgetary Process

1. The BAM sort of works, in that it acts to distribute the revenues amongst the units on a productivity-informed basis.The distribution of funds and its basis should be generally transparent. The weightings attached to various components of the productivity model such as lower division credit hours, upper division credit hours, etc are completely arbitrary and can be re-assigned at will to achieve any goal desired (UBC conclusion). In FY04, they were LDSCH 30.5%, UDSCH 32.5%, Dept Majors 10%, Grad SCH 10%, Grad headcount 10%, and Research 7%.

2. Some tinkering with the BAM is needed. Among the problems noted are:

a. The need for the Strategic Investments--which are basically to patch holes in the BAM (UBC conclusion).

b. The change limit adjustments of no growth of more than 4.0% and no loss of more than 4.5%. HHS loses 1.1M$ because it is growing too fast (because of an adjustment in how HHP 231 and PAC credits are counted). Vet Med receives a "subsidy"of 3.2M$ per year because the assumptions in the BAM just don't fund Vet Med. The Centers, Institutes, and Programs (CIP) have a similar "subsidy" of 1.7M$ in this budget. A task force has been appointed to re-examine how returned research overhead is distributed in hopes that a fair and equitable solution of that problem will remove the need for a "subsidy" for the CIP.

 

 

Details of the BAM

For those who want to explore the BAM, we append a spreadsheet that contains all of the data and equations to generate the OSU FY04 budget.

FY04 BAM

Click on the spreadsheet, enable all macros, then click on the "strategic" tab. That will show you a summary of the model.

If you want to play with the BAM, click on the "productivity" tab. Then you can change the coefficients of the terms in the productivity model.(AX22-BC22) If you want a research university, increase the weight of the research coefficient in the BAM. Similarly you can emphasize undergraduate teaching, etc. by the appropriate choice of terms.

If you like your model better than the official model, write President Ray and give him your insight. Join the dialog with other University officials as to what the philosophical principles behind the coefficients should be. Volunteer for the Faculty Senate Budgets and Fiscal Planning Committee. Ask the Dean of your College to explain the data for your College. The more involved the faculty,students and staff are in the budget process, the better off we are.

Productivity

The BAM defines productivity in terms of lower division teaching, upper division teaching, majors, grad students, grad student teaching and research While the "weights" of each of these activities are arbitrarily defined in the BAM (a conclusion of the University Budget committee) , this definition of productivity shapes the flow of money in theBAM. It is important therefore that one understands the practical consequences of this definition.

For FY04, we show below graphs of the relative productivity of the Colleges in the University and the departments in each College. This information is used to make the distribution of funds amongst the Colleges. President Ray has expressed interest in the idea that each faculty member should understand how the funds are distributed from the Colleges to the departments in each College. This departmental productivity data is a first step in having an informed conversation within each College as to how and why funds are distributed. . For the details behind these graphs, we show a spreadsheet containing the numerical data.

Productivity

 

 

 

 

 

 

 

FY05

In June, 2004, a preliminary version of the OSU FY05 budget was released. (A copy of that budget is appended below in spreadsheet form showing all the available details). The principal features of this preliminary budget are:

With a small number of exceptions, funding for all units is greater in FY05 than in FY04. The “academic portion” of the budget is up, on average, 4.1% while the “management” portion is up 3.2%. The exceptions to this statement at this point (6/2004) are Agricultural Sciences, Forestry and Vet. Medicine. The former two areas are not growing as fast as the rest of the University and their relative share of the budget declines. Vet. Medicine has serious systematic problems relative to the productivity model used in the BAM and requires substantial subsidies by the senior administration to retain quasi-stable funding. Despite these subsidies, Vet Medicine is expected to have a 12% decrease in funding in FY05. The “big winner” on a percentage basis in the management budget is the Grad School, who assumes responsibility (and funding) for administering several interdisciplinary programs.

The increase in revenue allowing these projected increases in allocations is due solely to increases in student tuition. The actual revenue from the State of Oregon declines from FY04 to FY05 from 79.3M$ to 77.8 M$. Student tuition increases from 101.3 M$ to 108.7 M$. An increase in indirect cost recovery of 3.2 M$ is also projected.

The quasi-stable relative allocations to the academic units in the FY05 budget are the result of substantial strategic allocations and subventions/subsidies to units by the senior administration. Once again, change collar limits that restricted the growth or decline of the budget of a unit to 4% were imposed. Detailed modeling with the BAM revealed strategic weaknesses with a model (the BAM) that essentially allocates the entire budget of a unit on productivity metrics each year. In other words, the BAM assumes a zero base budget for each unit each year and builds the budget for that unit from scratch each year. Productivity changes in the various units coupled with a slowly growing overall budget will, in a simplistic application of the model, produce oscillations of the unit budgets of the order of 10-20% per year. That volatility in a university environment was not judged to be acceptable.

• Some very important changes were instituted in the allocation of funds whose impact will become more significant in future years. The report of an Indirect Cost Recovery Task Force recommended withdrawing the indirect cost component of the productivity model allocations and allocating these funds in a way that will directly benefit the units responsible for the generation of these funds and which will encourage an increase in further indirect cost recovery. In the FY05 budget, these recommendations were partially implemented with the most noticeable beneficiaries of this policy are the Library (6.4% increase), and Centers, Institutes and Programs (+10.3%). The full impact of the Task Force recommendations, when implemented, will constitute a ~5% tax on the budgets of the rest of the University to support the research enterprise.

 

The FY05 preliminary budget, in spreadsheet form, is shown below:

FY05 preliminary budget