R esponsibility C entered M anagement

1. ResponsibilityCentered Management University Planning Council 8:00-9:30 a.m. Union, Room 418

2. Newspaper Headlines

3. Newspaper Headlines

4. Newspaper Headlines

5. Newspaper Headlines The New York Times Editorials/Op Ed “Colleges Caught in a Vise” by Stanley Fish September 18, 2003 Taxpayers estimate that 75% of a university’s operating costs are covered by public funds—the figure is just 25% and heading downward John Boehner & Howard McKeon (Republicans on the House Education Committee) issued “The College Cost Crisis” holding that “institutions of higher education are not accountable enough to parents, students and taxpayers—the consumers of higher education.”

6. Newspaper Headlines “Colleges Caught in a Vise” (continued) Howard McKeon bill to “cut federal financing to colleges whose tuition hikes are more than double the rate of inflation or the consumer price index.” “Even if states impose salary and hiring freezes, they would be more than offset by increases no state government can control: raises mandated by union contracts, skyrocketing utility and insurance rates, the cost of replacing worn-out equipment, the cost of replacing equipment declared obsolete after three years, the cost of buying equipment that did not exist 18 months ago, the cost of maintaining a crumbling physical plant, the cost of security measures deemed necessary after 9/11.”

7. Newspaper Headlines “Colleges Caught in a Vise” (continued) “…if a business were to find itself with rising costs and falling revenues it would top off unprofitable lines, close units, downsize the work force, relax quality control and, of course, raise prices to whatever level the traffic would bear. In university terms, this would mean offering fewer courses, closing departments, sending students elsewhere, skimping on advising, hiring the pedagogical equivalent of migrant workers, eliminating remedial programs, ejecting the students for whom remedial programs are necessary, reducing health and counseling services, admitting fewer students and inventing fees for everything from registration to breathing.” “If the revenues sustaining your operation are cut sharply and you are prevented by law from raising prices, your only recourse is to offer an inferior product.”

8. Newspaper Headlines USA Today “Public Students Take Double Hit for College Funding Woes” September 18, 2003 “Bruising state budget cuts to higher-education funding are shrinking class offerings and putting students in a double financial bind. First they face rising tuitions: 40% this year in California; 15% over two years in Virginia; 40% over three years in Iowa. Then, students closed out of required courses because of limited offerings face the prospect of paying for summer terms or extra semesters. Already the average student at a four-year public university graduates with $16,000 in debt. And extra year adds $4,500, excluding lost wages or living expenses.”

9. Newspaper Headlines “Public Students Take Double Hit for College Funding Woes” (continued) “Virginia Gov. Mark Warner proposed a plan that would place more advanced college credits into the pockets of ambitious high school seniors. “Colleges remain mostly untouched by the accountability movement that has swept K-12 schools during the past decade. According to a report released this month by a congressional education committee, tuition increases can be avoided. Wasteful spending, not state budget cuts, are the real problems on campus..especially wasteful are costly research projects.”

10. Newspaper Headlines

11. July 9, 2003 President Gates Issues Memo Regarding Budget Update • reductions will total $20,500,000 • The University will eliminate approximately 250 positions. Because of the hiring freeze imposed last January, 211 of these positions currently are vacant. Thus, we are looking at over-all lay-offs of fewer than 40 people currently in jobs. • It is obviously of little consolation to individuals directly affected by the lay-offs, but many other universities, both in Texas and elsewhere nationwide, are facing similar and, in fact, far worse cutbacks. For example, the University of Texas at Austin last week announced lay-offs affecting 140 employees. • Nationwide, state funding for higher education is declining as a percentage of expenditures. Texas is no exception. Accordingly, the leadership of universities must be more rigorous in evaluating programs and performance, finding ways to cut costs, establishing priorities, and re-allocating resources in order to sustain and to improve the quality of education and scholarship. We must do our part to make the university as efficient and as cost-effective as we can consistent with our educational mission before turning to students and their parents for additional tuition. We must also invest in our future. Achieving these goals requires making choices, and that is always difficult. It is especially difficult when those decisions affect the lives of individuals in the university community - members of our family. We will continue to do all we responsibly can do to protect our Aggie family, but there will be times when we must make difficult and painful decisions. • likely some anxiety caused by uncertainty about the budget.

12. July 21, 2003 President Gates Issues Statement Regarding Layoffs Announced Today “I regret to announce that 35 members of our staff were notified today they are being laid off because of budget restrictions and reorganizations that are part of the plans I outlined on July 8, 2003, to redirect some campus activities and increase program efficiencies.”

13. Texas Law: H.B. 3015 • Sec. 54.0513. Designated Tuition • (a) The governing board...may charge any student an amount designated as tuition that the governing board considers necessary for the effective operation of the institution. • (b) A governing board may set a different tuition rate for each program and course level...to increase graduation rates, encourage efficient use of facilities, or enhance employee performance.

14. Texas Law: H.B. 3015 (cont.) • Sec. 54.0515 Legislative Oversight Committee • (e) ...each institution of higher education, as a condition to tuition deregulation ...reasonably implement the following: • (1) ...make satisfactory progress towards the goals provided in its master plan and in "Closing the Gaps"... • (2) ...meet acceptable performance criteria...such as graduation rates, retention rates, enrollment growth, educational quality, ...minority participation, ...financial aid, and affordability

15. Why Passage of H.B. 3015: The Creation of an Education Marketplace • Relatively Little Discretion in Budget • 16.6% of State Budget is Discretionary • Increasing Demands on the Discretionary Part of State Revenue • Public Education • Public Safety and Criminal Justice • General Government • Health and Human Services • Higher Education

16. Why Passage of H.B. 3015: The Creation of an Education Marketplace (cont.) • Political Agenda: No New Taxes • Responsibility of raising tuition and fees moved from the Legislature to the institution's board • UT Austin Lobbied for Passage • Campus at Capacity • Students Willing to Pay for Reputation • Desire to Move up in National Rankings

17. Economic Outlook for Public Higher Education • The federal government and now state governments are treating higher education as a private good rather than a public good. • The responsibility and authority for raising a significant portion of the cost of operating institutions of higher education have been transferred to the institution (typically through boards of regents).

18. Economic Outlook for Public Higher Education (cont.) • Students will be responsible for a larger share of the cost of higher education (tuition and fees). 1985: Texas started raising tuition. • The shift from "state supported" to "state assisted" institutions of higher education will continue.

19. UNT History • Incremental Budgeting • Base Level • Incremented by Some Amount • Needs • Opportunities • State Budget Capacity • Political Process (Construction, Special Items) • No incentives for improvement at the margin (cost reduction or revenue enhancement) • No encouragement of a shared sense of responsibility • Causes administrators to dispense massive numbers of small favors through a black box process

20. Decentralized Budgeting • Responsibility Centered Budgeting (Pennsylvania) • Responsibility Centered Management (Indiana) • Value-Centered Management Budgeting (So. Carolina) • ETOB: Every Tub on its Own Bottom (Harvard) • Budget Redesign (New Hampshire) • Budget Decentralization (New Hampshire) • Revenue Centered Management (Southern California) • Incentives for Managed Growth (Minnesota)

21. Cornell Indiana Ohio State UCLA (new president) U of Illinois U of Oregon U of Pennsylvania U of Southern California ) U of Toronto U of South Carolina U of Michigan U of New Hampshire U of Minnesota Southern Illinois University (new president) U of Idaho Brandeis University References

22. Clemson University Harvard University Washington University of St. Louis Mercer University Cal Tech University Vanderbilt University Duke University Auburn University Clarkson University Purdue University Temple University West Chester University (PA) Central Michigan U. of Iowa University of Alaska University of Connecticut McGill University Florida International University RPI Claremont Graduate University of Denver References (cont.)

23. Overview • Decentralizing budgeting, regardless of name, is an arrangement used by a growing number of universities in which a unit's revenues and expenditures are largely determined by its own actions. It allows for an appropriate level of cross-subsidization among units, as well as for substantial central funds to encourage interdisciplinary activity and other such initiatives. • Decentralized budgeting is a mechanism (tool) for allocating resources to schools, colleges and VP areas.

24. Principles of Decentralized Budgeting • The closer the decision maker is to the relevant information the better the decision is likely to be; • The degree of decentralization of an organization should be proportional to its size and complexity; • Authority should be commensurate with responsibility;

25. Principles of Decentralized Budgeting(cont.) • Clear rewards and sanctions are required; • Resource expanding incentives are preferable to resource dividing rules; • Requires use of a common information system and database; and • Outcome measures are preferable to input controls.

26. Desirable Qualities of Decentralized Budgeting • All costs and income attributable to each school or other academic unit should be assigned to that unit. • Appropriate incentives should exist for all academic units to increase income and reduce costs. • All costs of other support and service units should be allocated to the academic units.

27. University of MichiganUniversity Budget Model

28. Purpose of Decentralized Budgeting • To allow resource allocation decisions to be driven by the values, core mission and academic and institutional priorities of the University. • To provide a framework for decisions consisting of knowledge of the true resource flows throughout the University. RCM is a tool to assist the process of allocating resources to academic and institutional priorities.

29. Purpose of Decentralized Budgeting (cont.) • To allow both academic and administrative units to participate in making resource allocation decisions. RCM helps realize the objectives of collegial governance. • To allow us to verify the true costs of the educational process and better defend our tuition and fee decisions to external critics.

30. Purpose of Decentralized Budgeting (cont.) • Decentralized Budgeting does not • Produce any more money for an institution; • Set academic priorities.

31. Potential Problems with Decentralized Budgeting Systems • Decisions are driven more by financial than academic considerations. • Financial incentives might encourage inappropriate academic leadership and faculty behavior in schools/colleges. • Tensions are exacerbated because financial performance is public and priorities are made clear. • Public information invites meddling from Regents, Coordinating Board, and Legislators.

32. Potential Problems with Decentralized Budgeting Systems • Units may create low-quality, large-enrollment courses. • Units may limit enrollment of their students in other units. • Units may not allow faculty to participate in interdisciplinary activities. • Local optimization may prevent global optimization. • The rich could get richer.

33. Selected Handouts • Curry, John R. and Strauss, Jon C. “Whither Decentralized Management? Responsibility Center Management 25 Years Later.” Paper presented in 2001. • Snyder, David Pearce, Edwards, Gregg, and Folsom, Chris. “The strategic context of education in America 2000 to 2020—part 1.” On the Horizon. (MCB UP Limited, Volume 10 Number 2 2002, pp 6-12.) • Snyder, David Pearce and Edwards, Gregg. “The strategic context of education in America 2000 to 2020—part 2.” On the Horizon. (MCB UP Limited, Volume 11 Number 2 2003, pp 5-18.)

34. Links University of South Carolina http://www.sc.edu/library/pubserv/value.html University of Idaho http://www.webs.uidaho.edu/ipb/rcm.htm Indiana University http://www.indiana.edu/~vpcfo/economic_model/index.html University of New Hampshire http://www.unh.edu/rcm/ University of Illinois-Urbana Champaign http://www.provost.uiuc.edu/provost/budget/budgetary.html Ohio State University http://www.rpia.ohio-state.edu/Budget_planning/Budget_restruct.htm

35. Action Plan • Introduce the Concept of RCM • Appoint Task Force to Study/Recommend Specific Version of RCM • Study, evaluate, and determine if a version of RCM will provide UNT with an effective tool to assist in meeting new responsibilities. • Collect information about alternative budgeting systems and tools to assist decision makers in determining tuition/fees. • Hold public forums: present options and collect feedback. • Evaluate alternatives.

36. Action Plan (cont.) • Develop Recommendations • Identify units to receive budget authority • Identify operating parameters, e.g., carry forward, required balances, institutional funds • Identify organization structure • If Decision to go Forward • Provide Training • Operate Concurrently (neutral budget) • Operate New System

37. Task Force Membership

38. ResponsibilityCentered Management University Planning Council 8:00-9:30 a.m. Union, Room 418