The university’s budget process determines allocations to the level of the colleges and major administrative divisions. Deans and administrators of major administrative divisions are charged with leading a budgeting process to allocate resources within their units, consistent with the university’s principles of transparency and shared governance.
Extensive information on the university’s budgeting approach and decision making is available on the website of the Office of Budget and Fiscal Planning. On that site, there is information on the shared responsibility budget model, the university’s budget conversations, the work and schedule of the University Budget Committee, the annual operating budget, and resources to support budget development by academic and administrative units. Tuition and fee schedules are also posted, as is information on the tuition setting process and tuition forums.
Overview of University Budgeting
The university's total beginning budget was $1.3 billion in 2018-19. OSU’s budget has four major parts:
- Education & General (E&G) funds totaling $596 million, of which $17.6 million was for OSU-Cascades;
- Restricted funds totaling $361 million, which includes federal grants for research or financial aid;
- Self-support funds totaling $243 million, which includes the budgets of University Housing and Dining Services and OSU Athletics, among others;
- Statewide Public Service funds totaling $106 million, which includes support for the OSU Extension Service.
The divisions receiving restricted, self-support and Statewide Public Service support are not allocated tuition earnings, and their budgets are not available for Education and General budget purposes. (back to top)
E&G funds support colleges, academic units and administrative departments funded by tuition and fees paid by students and unrestricted funds allocated by the state of Oregon to support the operations of the university. (back to top)
The E&G budget on OSU’s Corvallis campus is comprised of 67 percent from tuition and fee revenues and 22 percent from a state allocation. OSU-Cascades’ budget is made up of 58 percent of revenues from tuition and fees and 41 percent from the state. Statewide Public Service budgets are 71 percent from the state and 29 percent from federal sources plus allocations from counties throughout Oregon. Restricted funds are 74 percent from governmental awards (mostly federal grants) and 26 percent from other sources, such as donor gifts. Sixty-seven percent of self-support budgets are sales revenues; 17 percent are from fees for specific activities, such as Recreational Sports and operating the Memorial Union; and 16 percent are from other revenues. (back to top)
The largest share of the university’s expenses is for personnel. In the Corvallis campus E&G budget, 76 percent of spending in 2017-18 was for salaries, wages and benefits for faculty, staff, graduate assistants and student workers. In the Corvallis campus budget, 63 percent of E&G resources are allocated to academic units. These include colleges, research centers and institutes, Ecampus, the library, and interdisciplinary programs. Expenses support instruction, departmental research, the library, facility maintenance and operations, public safety, environmental health and safety, and administrative functions. (back to top)
Like other public universities, OSU is funded through a variety of sources, including tuition and fees (over 66 percent of its unrestricted budget); state funding (about 22 percent of its unrestricted funding); grant-funded research; philanthropy; and revenues from auxiliary divisions, including athletics and on-campus housing. The university’s annual budgeting process includes several components: preparation of financial plans by all major academic and administrative units; review and revision of the university’s 10-year capital forecast; tuition review, campus dialogue, and tuition setting; preliminary distribution of budgets to units based on the application of the university’s hybrid responsibility centered management (RCM) budget model and strategic discretionary allocations; and review and “true-up” of budgets near the end of a given fiscal year. The university’s annual budgeting process is led by the Provost and Executive Vice President, in collaboration with the Vice President for Finance and Administration, for recommendation to the university’s President and the Board of Trustees. As well, every two years, the university’s 10-year business forecast is reviewed and revised. (back to top)
Our Budget Challenges
OSU is facing challenges that many of the nation’s land grant peers are dealing with, though some of these issues are more pronounced in Oregon:
- Low state support per student. Oregon is 39th in the nation in the state per student FTE support. This up from 47th in the nation per student FTE support in 2012.
- Increasing employee benefit costs. While many states are struggling with underfunded pension systems, Oregon’s PERS system is particularly challenged because of its historical structure and legal commitments. OSU, like other state and public entities, is required to fund increasing costs associated with correcting the underfunding problem.
- Declining resident undergraduate enrollment. The number of 18-year-old high school graduates is declining throughout much of the nation. In Oregon, studies regarding the demand for higher education suggest the number of traditional college-going students outside of Portland may decline 15 percent in the next decade.
- Aging infrastructure requiring renovation and modernization. The state has provided insufficient funding to maintain campus buildings and infrastructure, and that underfunding has led to a $641 million backlog of repairs. In addition, the university faces the cost of making seismic retrofits to many buildings. (back to top)
OSU has begun implementing a multi-year plan to address the backlog of maintenance and repairs. Executing the plan requires three things: first, that at a minimum, the state of Oregon continues to fund capital renewal projects at the same level as in recent years (including matching donor-provided funds); second, that the university allocates increased Education and General funding to pay for capital renewal projects; and third, that the university carefully manages its credit capacity in order to support reasonable levels of university-paid debt. Success in these efforts will improve substantially the daily working conditions and safety of buildings, laboratories, classrooms, and other facilities, benefitting the entire OSU community and future generations of students. (back to top)
Like any organization, OSU experiences inflation in salaries, benefits, and costs of goods and services every year. Meanwhile, the cost of many salaries are set by contracts based on market forces and benefit costs are set by the state. For example, from FY19 to FY20, salary costs are projected to increase $9.2 million, benefits costs to increase $9.9 million, and service and supply costs to increase $3.6 million. That’s an inflation rate of approximately 4.1 percent.
The other cost pressure is the need to make commitments for new services, some at the request of students or staff, some to meet compliance requirements, some to repair facilities, and some to generate future returns that will help support the university. The latter include investments such as hiring more fundraising staff now to generate more scholarships in the future. New commitments for next year are projected to be about $10.4 million. The total cost increases are about 6 percent overall. (back to top)
Budgeting With PERS and PEBB
Oregon’s PERS issue is a long-term problem. The state retirement program is currently underfunded and Oregon State University and other public institutions that participate in PERS have been advised by the state of Oregon to expect an 8 percent increase in overall benefits costs this coming year, including a 13 percent increase in average retirement costs, and double-digit PERS rate increases for at least the next six years. After that, PERS rates are likely to remain at higher levels for decades to come. These expenses are beyond OSU’s control. Without PERS reform to address these costs, the university will need to find more revenue or further expense reductions to offset them.
While Governor Brown’s 2019-20 proposed budget recommended no increase in state support for Oregon’s public universities—even as the university is required to pay substantially more to cover PERS and PEBB cost increases—the chairs of Oregon’s legislative budget committees have proposed small increases in state funding for universities. OSU will continue to lobby the state 2019 Legislature for increased funding, but we will not know the state’s budget commitment until late June. (back to top)
Increasing benefits costs drive OSU’s total costs higher and they also shift some of the burden of paying for these expenses to tuition-paying students, since the state has not consistently funded the university to offset these mandated cost increases. OSU is pursuing three strategies to address these, and other, cost increases:
- Minimize costs. The university is implementing changes within various administrative, support and academic operations to reduce costs and maximize the use of resources.
- Lobby for state funding for public universities. OSU is working with Oregon’s other public universities to urge the state legislature to allocate additional funds to cover the increased costs of state-mandated benefits programs.
- Increase enrollment in selected areas where growth in revenue will exceed the costs of delivery of new programs. These initiatives include increasing student enrollment in Ecampus and in programs to serve unmet student demand (in different disciplines, learner groups, and modalities, such has hybrid on-site/online delivery in Corvallis, Bend, Portland and other areas).
- Increase tuition. OSU is committed to holding tuition increases to a minimum but also recognizes that eliminating degree options, classes and support services will harm student success. There is a trade-off between minimizing tuition increases and providing quality education. The university is attempting to manage with modest 2 to 5 percent annual tuition increases. These are rates well below the cost increases noted above. (back to top)
Tuition and the Budget
OSU’s expenses continue to increase for the reasons noted above. Because of disinvestment in higher education by the state of Oregon over many years, an increasing share of the university’s operating costs has been shifted to students and families who pay tuition and fees.
Student tuition now pays more than 65 percent of the cost of Oregon State’s Corvallis campus educational operations; state tax revenues cover only 22 percent. This represents more than a 50 percent decline in the state’s relative contribution from 15 years ago, and a nearly 43 percent increase in the share students and their families pay. (back to top)
The university’s Board of Trustees is required to set tuition rates in the spring of each year before the university is informed of its allocation from the state of Oregon. And while the increased funding proposed by the co-chairs of the Oregon Legislature’s Ways and Means Committee (noted above) would help, it will not fully cover the university’s rising costs, and therefore OSU will still need to reduce spending. The increase in state funding currently proposed by the Oregon budget committee co-chairs is far too low to improve access to Oregon’s universities or make investments in student success.
In any year that the Board of Trustees approves an increase to resident undergraduate tuition and fees of more than 5 percent, the proposed increase must be approved by the state Higher Education Coordinating Commission or the legislature. OSU’s Board of Trustees has stated that it expects annual tuition increases of 2 to 5 percent, barring very unusual circumstances. (back to top)
OSU’s 2018-19 resident undergraduate tuition and fees total $11,211 per year while the University of Oregon charges $11,898 in annual tuition and fees. Peer universities charge from $6,381 (University of Florida) to $19,160 (Pennsylvania State University). The median tuition charged by the peer universities included in OSU’s strategic plan is $11,574, and the median tuition charged by other public PAC-12 Conference universities is $11,898. (back to top)
OSU has increased financial assistance substantially over the last decade. Institutional financial aid has increased from $11.4 million in 2008 to $38.5 million in 2018. Meanwhile, graduate student tuition remissions have increased, and insurance is provided to graduate students who work for the university as teaching and research assistants.
The university and the OSU Foundation are committed to increasing philanthropy for financial aid, undergraduate student success, and graduate student support. The Foundation has raised more than $100 million over the past three years for undergraduate student success. Meanwhile, the Campaign for OSU, which concluded in December 2014 after raising $1.142 billion, raised $189 million for student assistance and awards and funded more than 600 new scholarships. (back to top)
Administration and Program
The size of administration expands with increases in enrollment, but OSU has also added other administrative personnel to meet specific needs and state and federal mandates. These have included staff to support: institutional compliance, much of which is related to research; student conduct procedures; management of OSU’s relationship with the city of Corvallis; and support for strategic initiatives like student success and institutional diversity. The university has also absorbed and/or added staff following the dissolution of the Oregon University System, and to support the independent governance model implemented by the Oregon Legislature for Oregon’s universities, including the provision of the universities’ own boards of trustees.
From FY14—before OSU became an independent university—to FY18, Corvallis campus E&G expenses for unclassified salaries increased $44.2 million. The largest percentage increases within a unit—about 50 percent—were to support various student services, including in the divisions of Enrollment Management, Undergraduate Education, and Student Affairs. Expenses for executive offices, such as the offices of the President and Provost, increased largely due to establishing a Board of Trustees office and an Office of Audit Services, both of which were paid for partly by funds returned from the elimination of the Oregon University System.
While those percentage increases were large, $30.8 of the $44.2 million—or 70 percent of the total dollar increase—went to academic units, including colleges, Ecampus, research centers and institutes, and the Marine Studies Initiative. (back to top)
The university must continually look for ways to reduce costs. For example, in the 2017-18 fiscal year, OSU reduced its E&G spending by $20 million to hold tuition increases below 5 percent. OSU’s Board of Trustees has stated that it expects tuition to increase from 2 to 5 percent per year, which means in years with larger cost increases, such as this coming year, the expectation is for the university to make expense reductions.
There several problems with looking at cutting administration as the primary solution. First, “administration” provides core services. For example, the Research Office and the Office of Student Affairs are non-academic (administrative) units, but most faculty and staff would agree they are providing essential services. The Ombuds Office is part of the President’s Office but is probably viewed as a resource for employees. What is valued in non-academic functions depends a lot on one’s perspective.
Second, continuing cuts in administration must eventually result in a reduction of essential services. For example, if inflationary costs are 4 percent annually and OSU cuts that much every year in expenditures, in five years, the cuts made would have totaled 22 percent and many programs and services would have been eliminated.
Third, there is a problem of scale. In 2017-18, OSU’s Corvallis campus reduced projected expenses by about $20 million. In 2019-20, the projection is for about $12 million in expense reductions, depending on the outcome of the legislative session. The budget for all departments under the Office of the President (including the offices of the General Counsel; Institutional Diversity; Audit, Risk and Compliance; Ombuds; Equal Opportunity and Access; and Legislative Affairs, among others) is $8.4 million; for Student Affairs, $7.7 million; and for the Research Office, $7.6 million. The central administration is simply not large enough—even if complete functions were eliminated—to address the predicted revenue shortfall. (back to top)
Oregon State’s most important asset is its employees—its faculty, staff, and graduate student employees. The university believes it is essential to provide the cost of living and market increases to help the university attract and retain talented faculty and staff. The university is committed to provide students an excellent education, and that requires attracting and retaining high-quality faculty, staff, and administrators.
By committing to providing annual salary increases, the university has made progress in addressing gaps in the compensation level for employees vis-à-vis other universities nationally. Benchmark studies against other peer land grant universities show that, on average, Oregon State now pays approximately 102 percent of the average of our peers for assistant professors, 100 percent for associate professors, and 89 percent for full professors. These are up from 99 percent for assistant professors, 92 percent for associate professors, and 80 percent for full professors in 2007-2008. Average salaries are based on the annual survey data compiled by the Chronicle of Higher Education. (back to top)
Administrators’ salaries represent about 2 percent of the university’s budget. This expenditure is not enough to address the university’s revenue shortfall. (back to top)
OSU’s focus on student success and serving a broader cross-section of learners has resulted in increased financial aid programs and the hiring of new employees to support students. Many of these expenditures have been funded with administrative expenditures. To illustrate the types of spending, the following are $2 million in recent annual administrative expenditures:
- Data analytics staff and software to provide better data and tracking of students and student academic progress (approximately $996,000);
- Technology system improvements for navigating the OSU online experience (approximately $241,000 recurring);
- Increase in Enrollment Management staff to improve proactive outreach to students near degree completion (approximately $310,000 recurring);
- Funds reallocated to support access to OSU for Black students and within the Undergraduate Student Success Initiative (approximately $125,000);
- Two additional transfer student articulation specialists hired to improve transfer admission process ($150,000 recurring);
- New writing center opened ($50,000);
- New therapist position to support student mental health (approximately 125,000 recurring). (back to top)
OSU has built a nationally respected and growing online program by emphasizing the quality and delivery of instruction by core university faculty. Ecampus was established to provide access to students who otherwise could not attend classes on campus, not to lower costs. It is true that online students do not use classroom space, but most of the faculty teaching online courses require offices and other support infrastructure. High-quality online teaching requires a substantial investment in course development, delivery technology, student advising, test proctoring, marketing and market assessment, and success coaching. Online classes also are often capped at smaller enrollments per section than on-campus classes, which increases the quality of the student experience as well as the cost of delivery. (back to top)
Buildings and Maintenance
The construction of new buildings does not significantly affect tuition as the cost of constructing new OSU buildings is paid largely by donor gifts, state-paid bonds, and/or non-tuition revenue.
For example, the cost of constructing the new Peavy Hall on the Corvallis campus is paid entirely donor gifts and state-paid bonds. Other examples of recent construction that are funded primarily through gifts and state-paid bonds include Tykeson Hall at OSU-Cascades and Johnson Hall in Corvallis. Donor contributions and revenues from ticket sales and concessions pay for the cost of athletics facilities. And revenues from room and board pay for the cost of constructing residence halls.
New buildings do require additional costs for operations and maintenance, but modern classrooms and laboratories are essential to the delivery of quality teaching and research, as well as to the recruitment of outstanding students and faculty. (back to top)
Oregon State’s Corvallis campus has many buildings that are more than 100 years old and that continue to contribute significantly to educational, research, and student affairs programs. It is important to maintain these buildings and ensure their safety. OSU’s Department of Capital Planning makes an assessment of every building to determine when it is not cost-effective to renovate a building and what purpose a renovated building may serve. In many cases, older laboratory buildings cannot be brought up to modern lab standards and are better repurposed for non-laboratory uses, particularly as those labs are moved to new or appropriately renovated buildings. As well, OSU buildings with historic designation cannot be torn down. Renovations of older buildings can significantly reduce the cost of operating those buildings. (back to top)
Support for Athletics and Research
In 2019-20, OSU will provide $8 million in E&G funds to OSU Athletics as part of its budget. This is about 10 percent of the Athletics department’s projected expenses. That level of support is based on an estimate of the net tuition revenue paid for by the 500 student athletes that participate in OSU’s 16 intercollegiate teams. Most of those students would not attend OSU without the chance to participate in intercollegiate sports. (back to top)
The level of support the university provides was made after a detailed review by the Athletics Financial Sustainability Workgroup, which included representatives of Faculty Senate, ASOSU, staff, and OSU Athletics. The workgroup made a number of recommendations that included the E&G funding commitment, expense management goals, increased goals for donor giving, and increased ticket sales revenues.
The workgroup reached those conclusions recognizing that OSU competes in one of the nation’s largest athletic conferences, but is located within one of the smallest geographic markets for college sports nationally. Realistic projections of revenues showed some level of E&G support was important to field competitive teams. For many, but not all, OSU students and staff, athletic events are a part of the college experience and the reason students choose to enroll and live in a college town. Membership in the PAC-12 is a part of OSU’s identity on the academic side as well as the athletics side. Intercollegiate athletics events are an important contributor to the Corvallis economy, estimated in 2017 at more than $25 million annually. (back to top)
Research and scholarship are essential parts of OSU’s mission as Oregon’s land grant university. The largest part of OSU’s research mission is supported by the university’s investment in a share of tenured and tenure-track faculty members’ time to conduct research and undertake creative work (usually 30-40 percent of the faculty member’s appointment), in the sciences, arts, engineering, humanities, education, business, public health, veterinary medicine, pharmacy and all other disciplines. In addition, the university uses E&G funds to support facilities and services that enable research to be conducted. Undergraduate student tuition dollars and state funds are also used to support graduate teaching assistants (GTAs) to assist with teaching, labs, and recitation sessions, underpinning undergraduate student success and providing a means to support the education of the next generation of university teachers and scholars.
Research at OSU also is supported heavily by external grant and contract funding, particularly in the STEM disciplines. Most external funding comes from the federal government, followed by state and federal funding to OSU’s Statewide Public Services. Graduate research assistants (GRAs) are supported principally on external grants and contracts, yet another vehicle to support graduate education. (back to top)
Oregon State is Oregon’s land grant and statewide university. It is OSU’s mission to provide access to higher education and learning for all Oregonians. While OSU has provided college courses and academic degrees at OSU-Cascades for more than 15 years, until Oregon State opened the new OSU-Cascades campus, central Oregon was the only large population area in the state without a four-year university. Meanwhile, OSU-Cascades does not receive a direct subsidy of E&G funds allocated to the Corvallis campus. OSU has offered programs in the Portland area for decades, including in business administration and pharmacy. Recent market research indicates that there is strong interest among adult learners in the Portland region for courses offered by Oregon State. The OSU Portland Center seeks to serve learner interest by offering access to hybrid courses, professional and continuing education opportunities and opportunities to engage with the university generally. (back to top)
FY19 Mid-year Reductions
Enrollment at OSU’s Corvallis campus did not meet projections for the 2018-19 academic year. As a result, tuition revenues in Corvallis were $7.2 million short of budget projections and thus the initial budgets provided to units across the campus.
A key reason for the enrollment shortfall was that yield rates of students enrolling at OSU—those who had applied for admission and paid advance tuition deposits—dropped unexpectedly compared to previous years. In addition, international student enrollments declined more than expected.
Because fewer students are attending OSU than we anticipated, and thus fewer students are paying tuition and fees than we forecasted, it was necessary to adjust initial budget allocations for all Corvallis campus units downward. (back to top)
OSU is implementing new programs and strategies to attract students to our educational offerings in Corvallis, Ecampus, Bend and Portland. These include offering new academic programs, increasing support for transfer students, improving student retention and graduation rates, increasing online program options, and diversifying international student recruitment. Maintaining enrollment growth will be increasingly challenging in the future as traditional college-age populations decline in Oregon and nationally. (back to top)
Most gifts to the OSU Foundation on behalf of the university are guided by agreements signed by donors that dedicate the use of the funds donated, such as for scholarships, endowing faculty positions or programs. Neither the Foundation nor the university can violate these agreements by diverting the funds for other purposes. With that said, gradually funds generated through philanthropy are providing an increasing share of the university’s operating revenues. That is a reason the university is investing in strengthening its fundraising capacity through its partnership with the OSU Foundation. (back to top)
The OSU Board of Trustees has a policy of maintaining fixed percent of the university’s budget as reserve funds. Doing so protects the university in the event of drastic financial conditions. Maintaining a prudent level of reserves also enables the university to sell bonds at attractive interest rates. (back to top)
OSU's New Budget Model
As of FY19, the university shifted fully to a new means of allocating E&G funding to central administration and to colleges. Prior to FY19, budget distributions were determined on an incremental basis (an increase or decrease on the previous year’s budget), at the discretion of the Provost and Executive Vice President and the Vice President for Finance and Administration.
In 2014, when discussions began about how E&G monies were allocated, there were concerns that OSU’s budgeting process was not transparent; that some OSU units were being treated differently than others; and that the overall approach was unresponsive to enrollment growth or decline. Fast-growing colleges, departments and schools often lacked the revenue growth to offer a sufficient number of sections or minimize increases in faculty to student ratios. In addition, most deans and many faculty noted that while there was a clear linkage between Ecampus activity and college revenues (a key reason why many colleges invested heavily in growing Ecampus options), a similar link did not exist for on-campus instruction. The new budget model was adopted to address these issues. (back to top)
RCM—or Responsibility Centered Management budgeting—is an approach to budgeting that increases transparency in how funds are allocated and puts greater control at the level of the academic unit (e.g., college). In a full RCM model, an academic unit receives all of the revenue it generates through tuition and other sources, and then the cost of providing central administrative support to that academic unit is assessed to the unit. For a variety of reasons, full RCM models are relatively uncommon among universities.
More typical is what is called a “hybrid RCM” model. In OSU’s hybrid RCM approach, there is an allocation formula to distribute tuition and state revenues based on enrollment activity; Ecampus revenues are distributed based on activity levels; incremental budgets are provided for support units; and there is one “tax” out of which all central functions are funded. OSU also uses a pooled revenue approach rather than a dollar-per-measure approach. The pooled approach means that all units benefit when overall revenues rise; conversely, all units share in reductions when revenues decline. Revenue changes are also averaged over several years to create stability and there are cross-subsidies provided to selected colleges to maintain a comprehensive university and serve OSU’s land grant mission. (back to top)
OSU’s process for the allocation of the Corvallis-campus Education and General budget developed over many years through the addition of new kinds of revenues, incentives and distribution models. Beginning in 2014, extensive conversations within the Provost’s Council, with the University Budget Committee, and with specific working groups set up to advise on new budgeting approaches, resulted in broad consensus that the budget allocation process should change because of the lack of transparency in how funds were allocated and the disconnect between revenue distribution and where enrollment was changing across the institution. The university then began a multi-year process of developing and refining the new hybrid RCM approach, consulting with the deans, working groups, and the University Budget Committee. The goals of the shared responsibility budget process are to:
- Align the E&G budget allocation process to support and advance the goals of the University’s strategic plan;
- Recognize the diverse academic missions of OSU’s colleges and centers;
- Promote interdisciplinary and collaborative teaching, research, and outreach, and further OSU’s culture of collaboration and cooperation;
- Make sure the University is financially sound and can make the long-term investments required for success.
The university began using a preliminary version to inform budget allocations in FY16 and FY17 and moved to full implementation beginning in FY18.(back to top)
No. There is no inherent prioritization of disciplines. Rather, the weights acknowledge that disciplines face different cost structures. Discipline weights originated from a number of national studies regarding the costs of instruction by discipline and by student level, such as lower-division undergraduate, upper-division undergraduate, masters level graduate, and doctoral level graduate. These are reported by CIP code (the national classification for categorizing academic degree programs) and are weighted by the number of majors in a particular academic program to yield weighted average weights by colleges.
The studies are quite consistent in the patterns of costs. Undergraduate engineering, for example, is consistently more expensive to deliver per credit hour than undergraduate geography. At the beginning of the model development, deans and working groups were very clear that the differing costs of instruction needed to be considered in the model.
This kind of cost weighting is used in many higher education budget systems. The distribution of state funds has always used a matrix of costs by discipline and by level, both in the old approach and the newer outcomes-based approach that has been used for the last few years. (back to top)
Many, especially large public research universities accustomed to decentralized -- rather than top-down -- academic program decision making. The RCM budgeting model was developed originally at the University of Pennsylvania in 1974. Other adopters include the University of Michigan, the University of Delaware, the University of New Hampshire, the University of Southern California, Ohio State University, the University of Illinois at Urbana-Champaign, Auburn University, UCLA, Purdue University, and many others. (back to top)
No. The allocation approach is used to provide budgets to colleges. It is up to college leadership, in consultation with faculty, to determine the most appropriate means to allocate revenues to schools, departments and other units within the college. Generally, an RCM approach does not make sense for budgeting within colleges; the smaller and more specialized that a unit becomes, the more difficult it is to budget by this kind of approach. Regardless of approach, all colleges need to be attentive to maintaining stability or growth in sources of revenue—increasingly tuition and fees—and to control costs. (back to top)
The budget model is a transparent way to distribute earnings from tuition and fees and state funds (E&G funds) that are provided to the university to support academic program enrollment and degree completion. Most graduate students supported on E&G funds are serving as graduate teaching assistants to support academic programs, and the needs of those programs for GTAs are ultimately driven by those programs’ enrollments. The higher the enrollments, the greater the need is for GTAs to assist with teaching, the higher the budget allocation, and the higher the revenue to fund the GTAs. Graduate research assistants, on the other hand, are supported on external grants, contracts and fellowships. Thus, graduate education, and its link to the university’s research mission is supported indirectly through enrollment of tuition-paying students (and the accompanying E&G allocation) and directly through contracts, grants, and fellowships.
Hybrid RCM models do not distribute funds directly for graduate education because most graduate students do not pay tuition and fees. (back to top)
No. The hybrid RCM budgeting approach does not expect every academic unit, whether a college, school or department, to generate more revenue than the costs the unit incurs. In aggregate, for the university to remain solvent, all units together need to generate enough revenue to cover the institution’s costs. It is the nature of a comprehensive university that some individual units generate positive net revenue and some units consume more revenue than they produce.
The budget model specifically has a community support fund that is distributed outside the model metrics to help support colleges that are important to OSU’s mission, but that do not generate enough revenue through their activities to support their own costs. The more specialized a college is, or the higher its cost structure because of the nature of the research and teaching it conducts, the more likely it is to need some community support funding. This community support funding is essentially a cross-subsidy from other units on the campus. The College of Veterinary Medicine is such an example. (back to top)
An advantage of the hybrid RCM approach, and specifically the revenue pool approach OSU has adopted is that the share (of the pool) allocated for all central service, support and management functions is limited by a single “tax rate.” Currently, this amounts to 41 percent of available revenues after the distribution of dedicated funds. The use of a single rate limits how fast central administrative units can grow and requires trade-offs in funding decisions every year. The share of the overall pool dedicated for central administration can be increased, for example, to adjust to cost increases beyond our control (PEBB, PERS) or for investments that would strengthen the overall institution, but the university is committed to doing so only through consultation and broad discussion of the trade-offs involved. Alternatively, the share could be decreased as ways to streamline operations and reduce costs are found. (back to top)
The manner in which revenues are distributed should not be the only consideration driving academic program decision making, whether at the college or department level. Mission, student need, faculty expertise, reputation, and other factors must also influence decisions.
When this type of budgeting approach is first implemented, there is a tendency for academic units to consider how to “poach” credit hours from other units, to increase their own revenues. If the university’s overall enrollment is not increasing, this will essentially be a seesaw strategy with units’ budgets constantly shifting back and forth.
As always, good leadership at the college, school and department levels, and a robust faculty-led curricular oversight process is important in countering any incentives to chase credit hours. Decisions to approve new courses and new programs must be made based on their academic merits and the resources available, not one or the other. The Faculty Senate, the Provost’s Council of Deans and faculty and leadership discussions in colleges, schools and departments are important venues for raising and discussing concerns and conflicts over curriculum development.
What is most important is the recognition that what makes the most long-term difference in the university’s budget is overall enrollment. OSU’s long run enrollment potential depends on offering a comprehensive mix of high-quality academic programs. Part of the reason that the model was referred to as “Shared Responsibility Budgeting” was to emphasize that growth anywhere at OSU benefits everyone, as some part of all revenues are shared. The largest benefit goes to the unit that grows, but there is some shared support for everyone. This is not true of full RCM models. (back to top)
The staff of the Office of Budget and Fiscal Planning is prepared to hold discussions with any individuals, unit leaders, and campus groups to talk through the conceptual or technical aspects of the university’s budgeting approach and allocation model. There is a Community of Practice being convened to include all of the financial analysts for the colleges, as well as Budget and Fiscal Planning staff to provide a local point of contact for questions. All data in the model, as well as notes explaining its elements, are available on the Office of Budget and Fiscal Planning website. You can contact [email protected] or [email protected] with questions or a request for a meeting. (back to top)