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"THE BUDGET ALLOCATION PROCESS AT OSU"
BY
M. Carlson, R. Frank, K. Moore, V. Tremblay, J. Young
February 1998


NOTE: Footnotes are noted in brackets. Footnotes appear at the bottom of the appropriate page when printed out; however, for those of you who prefer not to print out the paper, the footnotes are printed at the end of the document.

As members of a Budget Task Force for the College of Liberal Arts (CLA), we have spent much of last and this academic year reviewing OSU's past and current budget allocation process. Although we would like to commend the Administration for working hard to increase student enrollment and to improve the University's budget process, our work has revealed several concerns.

This document describes these concerns and makes several suggestions to further improve the budget allocation process at OSU. It is our hope that this document will lead to continued public discussion about the internal budget allocation process at OSU.

Before we begin, we would like to thank President Risser for taking the lead in developing a new budget allocation model for Oregon's higher education system, and we hope that our paper contributes to this discussion as it applies to OSU.

I. The New Budget Approach at OSU

During the past year, the Administration has worked to develop a new approach for allocating budgets within the University. Initially, the OSU Administration considered using the Budget Allocation System (BAS Model), a model developed by OSSHE to determine public college and university budgets in Oregon[1].

Because of problems associated with the BAS Model, the Administration developed a new budget approach, driven, at least in part, by student credit hours (SCH). A major concern with this approach is that it potentially ignores the cost side of SCH generation, and as a consequence, growth in certain areas may actually reduce the economic viability of the University. As is evident from the figures in Table 1, there is a wide discrepancy in the cost effectiveness (i.e., profitability) among colleges [data sources can be found in the College of Liberal Arts document, "CLA Task Force on Budgets" (March 21, 1997)].
TABLE 1: Profit per SCH for 1993-94
College Profit or Loss/SCH
_______________________________
Agriculture      -$26
Business       76
Engineering      -50
Forestry       35
H&HP       95
Home Ec       69
Liberal Arts       124
Oceanography       -942
Pharmacy       -78
Science       78
Vet Med       -2,567
While OSU is not a private institution driven by profits alone, and while some colleges within OSU attract more outside funding that others, it is nonetheless questionable fiscal policy to underfund those units that clearly earn a profit from instruction. One could nonetheless argue that OSU will ONLY be able to extract itself from its current fiscal difficulties by redirecting more, not less, of its resources into those units that generate profits for the institution, profits which in turn are needed to help support the higher cost programs that traditionally have been prominent features of the OSU curriculum.

II. Application of the New Budget Approach at OSU

An important concern involves the implementation of the budget allocation process during our last set of budget cuts. According to an article in OSU This Week, one third of the cut in a college's budget "was based on enrollment trends" ("Enrollment History Tied to Budget Questions, OSU This Week, March 6, 1997, p. 1). As a result, the College of Liberal Arts (CLA), for example, received a substantial cut in budget because CLA saw a large drop in student enrollment from 1990-1995.

The reason for concern with this explanation is that it is based on a very limited sample of information about OSU's enrollment and budget histories. To illustrate, consider the budget and enrollment data for a more extended time period, 1982-95 for example, a period for which data are readily available[2].

1. From 1982-95, overall OSU enrollment fell 15.5%. Of the largest colleges CLA was the only one to see an enrollment increase of 2%. Enrollments in agriculture fell 23.0%, engineering fell 23.1%, science fell 34.9%, and business fell 48.0%.

2. Although the Administration is correct to note that CLA enrollments fell from 1990-95, the Administration fails to point out that they rose dramatically from 1982-90 (51.4%). More importantly, CLA saw no substantial budget (real dollar) increase from 1982-90. Yet, CLA's 1996-97 budget is cut dramatically because of the SCH decline since 1990.

3. The enrollment decline in CLA since 1990 is the direct result of purposeful administrative cuts to popular programs (i.e., journalism and broadcast media) in an effort to cover the budget shortfall created by Measure 5. Thus, CLA budgets are cut twice: popular programs were eliminated in CLA because of Measure 5, which resulted in declining SCH and further budget cuts.

4. Enrollment declines have had no adverse effect on college budgets in the past. For example, from 1982-95 engineering had a 23.1% decline inn enrollment while its budget rose 66.9%, and business had a 48.0% decline in enrollment while its budget rose 13.2%.

These examples illustrate that funding only follows SCH for CLA when SCH fall. In any case, the Administration's position that declining enrollment justifies a large budget cut to CLA relies on a very select sample of data. This makes clear how important it is for any budget model to first explicitly identify an equitable base budget or year from which to make comparisons. Budget implications are quite different if one chooses 1982 instead of 1990 SCH from which to base budget cuts.

Finally, focusing primarily on SCH may create financial incentives that are not always compatible with the fundamental goals of the University. For example, such a model may encourage departments to duplicate courses in other disciplines. Likewise, it may encourage an advisor in discipline X to advise students into discipline X, regardless of whether or not this advice is in the best interest of the student.

III. Inequalities Among Colleges at OSU

Although all units at OSU are poorly funded, we are concerned that there are serious funding inequalities across colleges at OSU that are not being addressed. Because of our recent work for the college, we focus on funding inequities regarding CLA, but other colleges may be able to make similar claims.

Our analysis demonstrates that although average OSU salaries are generally comparable to salaries at peer institutions, CLA faculty have salaries far below those of faculty members in like departments at peer institutions. The average CLA faculty member earns barely three-quarters of what faculty earn in the same field at peer institutions. To illustrate, Table 2 shows that OSU salaries are generally on par with salaries at peer institutions[3]. Table 3 indicates that of all colleges at OSU, CLA average salaries are lowest. More importantly, the "Salary Ratio" is far below that of any college at OSU[4]. For example, these figures indicate that average CLA salaries are only 77.6% of those from a national survey of faculty salaries during the 1990-91 academic year.

TABLE 2: MEAN SALARIES AT OSU PEER INSTITUTIONS
(All Ranks, 1993-94)
Mean Salary
Peer Institutions     (thousands)
__________________________________
UC-Davis       56.1
Arizona       53.7
Iowa St       53.4
Colorado St       51.7
N. Carolina St      50.5
OSU       47.5
Washington St      47.0
Oregon       45.9
Oklahoma St       44.9
Kansas St       44.0
Utah St       42.0

AVERAGE       48.8

TABLE 3: MEAN SALARIES AND SALARY RATIOS BY COLLEGE
College       Mean Salary      OK-State Salary
Survey (thousands)
Salary Ratio (1993-1994) (1990-1991)
________________________________________________________
Business      57.7      79.1
Engineering      60.6      84.9
Science      51.6      85.4
Vet Med       58.6      88.4
Pharmacy       50.5      89.1
Oceanography      55.1      90.6
Agriculture      49.7      98.5
Forestry      49.5      100.7
H&HP      46.1      102.3
Home Econ      48.7      103.8
Liberal Arts      43.8      77.6

AVERAGE       52.0       90.9
Again, more discussion about the budget process is in order, and we recommend that the Administration establish a committee to address these salary inequities across colleges at OSU.

Finally, it is clear that the Oregon economy is changing away from traditional agricultural-extraction to high-tech industries. Thus, in order for OSU to continue to be a major contributor to development of the state and world economies, to provide a quality education in fields most relevant to the 21st century, and to attract more students, OSU must invest more heavily in the core areas of liberal arts and sciences-- a vision adopted by all of the great land grant universities in the U.S[5].

IV. An Alternative Budget Allocation Model

As administrators ourselves, we are sympathetic to the problem of developing a fair and rational budget allocation model. We also understand that it is much easier to criticize than to suggest a practical alternative. As a result, we have given this issue considerable thought and have designed an alternative that we believe is worthy of consideration.

Our purpose was to develop a budget allocation model that is consistent with the primary goals of the University. In our opinion, such a model should better reflect market conditions, better serve the public by encouraging units to become more competitive with like units at peer institutions, and allow the Administration to help identify specific objectives for the institution. This would require the following:

1. Identify a set of universities that OSU views as peers. Given the unique nature of many programs at OSU, it might be more desirable to do this by college or even by department. This would enable the Administration to set priorities and allow for differences in mission and program type (i.e., undergraduate programs, graduate programs, extension, etc.).

2. By unit (college or department), compare performance with budgets. This could include a comparison of SCH, faculty productivity (research, teaching, and service), faculty salaries, faculty FTE, staff support, and profits with those at peer institutions.

3. Fund each unit in a way that allows the unit to become competitive with peers and is based upon the unit's long-run productivity and profit levels relative to peers.

This model would better ensure the financial health of the institution by paying more attention to profits (and not just SCH). In addition, it would enable the Administration to clearly identify priority programs, since the Administration would determine each unit's set of relevant peers. It would also better reflect the market, as many faculty are concerned with working conditions and salaries relative to peers. Finally, since budgets would be tied to productivity (broadly defined), units would have an incentive to better meet the broad range of goals of the University. This would encourage all of us to improve the academic reputation of OSU.

Because a budget allocation model will have a lasting effect on the reputation and future of OSU, we would encourage the Administration to continue with its open discussion of OSU's budget process and address the concerns we have outlined above.

[1] For a discussion of the benefits and costs of the BAS Model, see the College of Liberal Arts, CLA Task Force on Budgets," March 21, 1997.

[2] See our memorandum (April 23, 1997) to Dean Schaffer, "Letter to Editor of OSU This Week: 'Is Enrollment History Tied to College Budgets?" for a more complete description of the data and their sources.

[3] The sample of OSU peer institutions are defined in the Oregon State University Fact Book.

[4] The Salary Ratio measures the average salary by college at OSU divided by the average salary by college at a broad-based national salary survey compiled by the Oklahoma State University. (See the "Budget Allocation System" document for details.)

[5] This will be especially important if the state decides to go forward with discussed plans to undergo "a 'massive transformation' of Oregon's higher-education system by putting the seven state campuses mostly on their own to compete for students and dollars." (Charles E. Beggs, "Planned Overhaul Stirs Waters," Gazette-Times, Corvallis, Oregon, December 9, 1997, p.1)
Opinions expressed by authors of Faculty Forum articles are not necessarily those of the OSU Faculty or Faculty Senate.