The University of Vermont has laid the groundwork for a radical shift in the way it distributes money to the 160-plus departments across its Burlington campus.
Starting in July, UVM will employ “incentive-based budgeting,” a system that pushes all academic units to become more financially self-sufficient.
The strategy has grown in popularity at public universities across the country for more than a decade, and it’s been discussed at UVM since at least February 2013.
The University of Minnesota, where President Tom Sullivan served as provost and senior vice president before joining UVM in 2012, is among the largest universities to have adopted incentive-based budgeting.
A working model of “IBB” at UVM, finalized in June, will be run this year parallel with current budget protocols as a test model. Budget decisions will not be based on the new protocols until July 2015.
UVM’s budget for the current fiscal year is $309.2 million, up about 2 percent from spending in the 2013-2014 period, according to a June budget summary. The school is carrying a debt of roughly $6.7 million into fiscal year 2015 from expenses that exceeded revenues last year.
David Rosowsky, UVM provost and senior vice president, led a steering committee to advise the administration on incentive-based budgeting as an answer to several budget challenges. The school’s conventional model is too complex, not flexible enough, lacks transparency and provides few incentives, according to the steering committee’s final report. The proposed incentive-based solution aims for a decentralized budgeting and management approach that facilitates better long-term planning.
Competing departments
But some faculty fear the incentive-based budgeting approach will hurt their departments.
Denise Youngblood, president of United Academics, said the faculty union has not taken an official position on incentive-based budgeting, but members have concerns.
“Our major concern is it creates a framework for competition among the schools and colleges instead of an incentive to cooperate and build a better university,” Youngblood said.
She said the need to compete for students could threaten smaller majors with budget and faculty cuts, or even elimination of their entire programs.
Rosowsky declined an interview for this article, but said in a written statement that IBB — including any competition it fosters — is not intended as a punitive budget approach. Rosowsky did not directly respond to an inquiry about what would happen to a department that doesn’t measure up.
“Competition for students is healthy – it’s good for students!” Rosowsky wrote.
“There is no situation where any faculty member will see a cut in salary if a college or school fails to meet a target,” Rosowsky said. Deans will assist programs with innovation and revenue generation, he said. The decentralized model will put them in a better position to forecast and manage any budget challenges, he said.
Addressed to Sullivan, Rosowsky’s final report on incentive-based budgeting addressed some of the concerns Youngblood voiced.
Youngblood said she’s glad to see some subsidies written into the plan, but she’s skeptical about whether and how they will be administered.
Cost and responsibility
Under incentive-based budgeting, the entire university structure is organized into “responsibility centers” and “cost centers.” Responsibility centers — UVM’s eight schools and colleges, plus UVM Extension, and Continuing and Distance Education — generate revenue. Cost centers provide administrative support. Responsibility centers are allocated money on the basis of algorithms that consider revenues and direct expenses.
In the first year, each “RC,” as responsibility centers are called, will be able to maintain its pre-incentive spending. Any shortfall in revenue will be filled by a subsidy from a strategic investment fund maintained by the president and provost. Over time, the “subventions,” or subsidies, are expected to decrease.
“However, the nature and structure of some RCs is such that they will always require subvention,” the report states. “The need for subvention should not be viewed as a value judgment on a unit’s worth or productivity. The University as a whole benefits from its broad portfolio of programs, each with unique characteristics and complexities, and some of which will require strategic, differential investment and support.”
Other strategic funds and incentives will encourage interdepartmental collaboration, according to the report.
Youngblood said the UVM administration has talked about fostering interdisciplinary collaboration for years. It’s a positive sign to see a vehicle for the goal, she said. But she’s less optimistic that it will stick.
Youngblood, who has taught at UVM for 26 years, said administrative leaders typically last only a few years, and their successors do not have a track record of following through with prior initiatives.
“But it’s a good idea,” Youngblood said.
Her other reservation comes from the discretion deans will have over the special funds. Many faculty do not trust their deans, Youngblood said.
“Many of the deans do not appear to be interested in serving the business of education, but more interested in following the orders of the central administration,” Youngblood said. “So they seem to be beholden to the central administration, and not independent cheerleaders for their own programs.”
United Academics has not responded formally to the final report on incentive-based budgeting since it was released in June.
