In 2017, I became a dean of a liberal arts college at a mid-size new comprehensive university that emerged from the merging of two regional campuses. I was intrigued by being on the ground floor of building a new university. Despite the enthusiasm conveyed by the leaders during the interview process about the potential opportunities of a larger institution, the budget dictated what could be accomplished. Once on campus, I quickly learned that the new university did not have an accurate count of the number of full-time equivalency(FTE) or traditional undergraduate students, an important metric to determine the schedule of classes and the number of faculty needed to teach or to be hired to teach those classes, as well as establish the allocation of state funds. That discrepancy created a major enrollment and budget challenge, and we as leaders found ourselves facing a budget crisis. The data highlighted the university’s need to right-size faculty and staff numbers due to enrollment declines. Such changes were an even more challenging feat because budget managers were integrating two separate budgets and budgetary models from the former institutions. The arrival of the COVID-19 pandemic further exacerbated the budgetary problems faced by many institutions, including mine, by shining a very bright light on problems that may have been previously been in the shadows.
March 13, 2020 was a watershed event at our institution as at so many others. After spring break, most colleges and universities never returned to face-to-face classrooms for the rest of the 2019-2020 academic year. For those universities and colleges already facing challenging budget shortfalls, leaders found themselves catapulted into a full-scale budget crisis, in large part due to uncertainties about federal or state funding for their institutions. The COVID pandemic created urgency around the ongoing and more endemic financial difficulties that leaders of the institutions of higher education have been focused on to manage the pressures of generating new revenue to maintain size, scale, and services. The so-called “demographic cliff” has been prime among these challenges, as higher education leaders have struggled to identify better predictive data and analytics on student enrollment to forecast tuition revenue. Many of us imagined we had a few more years before those shifts strike most universities in the Midwest and Northeast. Instead, COVID brought some distant realities to the forefront in a period of weeks rather than years. To respond to immediate needs, leaders accessed reserves to transition to virtual learning, to support students, faculty, and staff, and to provide additional services. Savings that emerged due to lack of travel were reallocated to assist faculty and staff with technology, including devices, training and virtual services. At many public institutions that already had experienced drops in enrollment due to fewer higher school graduates and other demographic shifts, compounded by stagnation or declines in state allocations, leaders wondered how much lower enrollments would decline if students elected to delay enrollment due to the pandemic.
My experience as an incoming and founding dean facing challenging enrollment and budget scenarios coupled with the adapt-and-overcome approach that I was compelled to take during the pandemic led me to propose a roundtable discussion at ACAD conference in February 2022. In the series of roundtables, my colleagues and I shared ideas about various budget models. The objective of the roundtables was to emphasize the importance for anyone considering a leadership role to understand the budget model utilized by the institution. During our cross-functional roundtables we defined a budget as part of a policy document that expresses the mission, vision, priorities and future direction of the institution. Generally speaking, there are six types of budget models that universities use, namely the following: centralized, performance-based, incremental, zero-based, activity based, and responsibility center management (RCM).[1] Using these parameters, we considered the models for our home institutions. While in theory the models have stricter definitions, we learned that most institutions blend these models and borrow part of two or more, often depending upon the broader goals. For example, an institution may have a centralized budget model for undergraduate colleges, but have an RCM model for professional or graduate schools such as dental, law, or medical or with auxiliaries such as housing, conference services, golf courses, or recreational sites.
In addition, the groups discussed various financial literacy education resources for leaders in higher education. Like any other profession in higher education, financial managers have their own association. The National Association of College and University Budget Officers (NACUBO) offers a resource page that is helpful understanding university and college finances. Those resources may further guide questions to consider about an institution, its budget, and how it is managed. For example, for those of us who teach at state institutions, we must consider what percentage of the university budget come from the state appropriation. The ACAD participants also discussed how the state allocation is applied and asked important questions such as “is the fund used for scholarships? Is it part of the central budget, or is it distributed to academic and operations areas?”
Roundtable participants also addressed what they had learned from reading the audited financial statements and the chief financial officers (CFO or Vice President for Finance) reports to the governing board. In a CFO’s report, you may also find the weighted average of tuition for your college or unit. Upon reading reports from institutional research, consider how many FTE or core students are enrolled versus concurrent enrollment students or certificate students. With the weighted average, you can calculate the operation or base budget of a college based on FTE core student enrollment. After running the calculations, ask questions about the number of faculty and staff, including full time versus part time. Does the budget that is reported in the documents reflect your calculations? Does the budget reflect the mission, the vision, and the strategic plan of the institution? What are the priorities? As Dr. Menna Bizuneh of Pitzer College asked during the roundtable, how does the margin match up with the mission? What is the “holistic” rate of return (ROI) of the activity your institution is about to undertake with regards to the mission and values and ultimately for the equitable success of the students?
Much of what I am writing is advice given in hindsight having learned some difficult truths when I started my first role as a dean of a liberal arts college. As a dean or a department chair, you are responsible for the financial welfare of your unit and yet you may receive little formal training in your oversight of this critical function. Therefore, it is important to understand the story the numbers of the budget are telling you and the decisions that need to be made based on that policy document. Even in a situation where you feel comfortable about your knowledge of the budget, you may still experience a budget crisis. As such, setting up regular meetings with the budget manager must be a significant part of your job. Ask them explain the budget, line by line. Along with the budget manager, meet the your university’s CFO. While a dean may not work directly with the CFO, as they more often support the Provost and/or President, the person in that role has tremendous influence over the work of any dean. To understand the changes, request historical budget information to understand trends and shifts. For example, pay attention to the allocation of indirects from grants if your faculty are engaging in more funded research. Does your college or university have a stated policy? What percentages does the principal investigator, department, college, research office, and institution receive? Have those percentages changed over time, and do those percentages follow the budget model? If not, why?
Along with meeting with the budget manager and the CFO, schedule time with your college advancement team. Whether college advancement reports to the dean or to the leader of advancement, ask your colleagues to provide you a list of and the nature of distribution of each gift. While most funds have restrictions for student scholarships, lecture series, research awards, or named chairs, you may have some unrestricted funds that could be a rainy-day fund to help cover gaps or invest in strategic priorities. Along with advancement, ask the budget manager, CFO, or research leader if there is a subvention fund.[2] Knowing what is available will help to guide your responses to fiscal shifts. It also allows you to be transparent with your colleagues when you no longer can support a particular initiative, but may be able to direct them to other avenues for financing.
When confronting budget challenges, you will have to convey urgency to your colleagues while supporting students and faculty initiatives. That is a delicate balance. Thus, be transparent and communicate frequently as you learn about the budget and consider how the budget supports the mission, the vision, the strategic plan, and significant initiatives in your area. At ACAD, I learned that other deans and leaders are seeking professional development to improve their financial literacy. On campus, I have found that those who deal with budgets and the finances of the institution are willing to help. The best way to start your budget education is by simply asking questions. Your financial literacy is essential to the success of your unit to ensure its future while confronting challenging higher education financial landscapes.
Understanding how the budget supports the mission and vision of the university, college or unit is essential knowledge. Through crowd sourcing, I created an Higher Ed budget and financial playlist on Apple Music because this work may be both frustrating and fascinating Check out the HigherEd Budget and Finance playlist:
https://music.apple.com/us/playlist/highered-budgets-finances/pl.u-RRbV0YWt31JZyN
I would like to thank Dr. Menna Bizuneh Fikru for her participation in the roundtable and her comments and feedback. Budget have been very importantto my financial literacy, I thank Fran Balla, Laura Culbert, Liz Rodriguez, and Erren Tapia. I also wish to thank Gloria Thomas, Felicia McGinty, Carol Nonner, and the HERS 2021-22 Weekend Higher Education Leadership cohort for all their support in thinking about financial literacy and leadership in higher education.
Sources
Alstete, Jeffrey W. Revenue Generation Strategies: Leveraging Higher Education Resources for Increased Income. Hoboken, NJ: Wiley & Sons, 2014. <http://site.ebrary.com/id/11005747>.
Barr, Margaret J. Jossey-Bass Academic Administrator’s Guide to Budgets and Financial Management. San Francisco, Calif: Jossey-Bass, 2002. <http://site.ebrary.com/id/10300870>.
Goldstein, Larry, and Richard J. Meisinger. College & University Budgeting: An Introduction for Faculty and Academic Administrators. Washington, DC : NACUBO/National Association of College & University Business Officers, 2005
Barr, Margaret J., and George S. McClellan. Budgets and Financial Management in Higher Education. San Francisco: Jossey-Bass, 2011.
Massy, William F. Reengineering the University: How to be Mission Centered, Market Smart, and Margin Conscious. Baltimore : Johns Hopkins University Press, 2016.<http://site.ebrary.com/id/11213124>.
Notes
[1] https://sr.ithaka.org/publications/university-budget-models-and-indirect-costs/; https://www.hanoverresearch.com/insights-blog/6-alternative-budget-models-for-colleges-and-universities/
[2] Subvention funds may allocated by a research office to offset publication costs. At a university level, a subvention fund may be used by university leadership to fund initiatives such as new degree programs. The funds might support a unit as it transitions to build new programs or that is significant to the mission and values of the university but is costly and need additional financial support.