Provost Kent Fuchs and Vice President for Planning and Budget Elmira Mangum are rolling out a framework of a new budget model to the campus. An important effort has been under way since 2009 to design an enduring and comprehensive financial budget model for the Cornell campus that is more streamlined, more consistent and transparent in the allocation of resources and expenses, and therefore easier to understand and effectively manage than the multiple models that have been used for years.
Fuchs outlined the current draft of the new budget model to the Faculty Senate, May 9. When completed, the new budget model will go into effect for the university's 2013-14 (FY 2014) budget season.
"Through much hard work and collaboration across this campus, we have achieved a budget framework for allocating revenues and expenses that allows academic deans and vice presidents to better understand the economic impact of strategic decisions and that improves our ability to monitor our financial position," said Fuchs. "I believe this comprehensive change in Cornell's budget model is one of the most important initiatives impacting the university's future that I have been involved in during my tenure."
For years, the university has employed and had to reconcile a tangled web of major budget models, including: one for the statutory colleges; another for the Colleges of Architecture, Art and Planning, of Arts and Sciences and of Engineering and for the central administration; a third for the Johnson, Hotel and Law schools; and a fourth for enterprise and cost-recovery units. The multiple models have not only made the university's financial situation difficult to understand and manage efficiently, but they also have created opposing incentives and behaviors for the university's operating units, said Mangum.
"These differences have caused uneven operating incentives and real challenges in managing common activities and collaborations across colleges and units," Mangum said. "In the new model, revenues will be distributed consistently; real costs will be exposed and distributed with associated revenues; and budget decisions will be more informed by data."
At the core of the new budget model for the campus is the distribution of tuition income to the colleges and schools along with associated expenses and two taxes that fund central expenses. A provost's "tax" on tuition income (called a University Support Pool or USP) will be used to fund strategic central academic initiatives and priorities. A second tax (termed Cost Allocation Methodology or CAM) levied by the provost's office on each unit -- based, proportionally, on a unit's number of students, faculty and staff, and research expenditures -- will fund central administrative costs.
In the new model, for instance, undergraduate tuition dollars will be returned proportionally to students' home colleges, taking into account the college in which a student is enrolled and the college where instruction for that student occurs.
The Office of Financial Aid will continue to create student need-based aid packages using centrally held endowments and grants to reduce the amount billed to the colleges.
Philanthropy income will also continue to be allocated as in the past, based on donor wishes. And the use of payout from professorship endowments will be consistent across the university.
"With this model, we have achieved a sustainable structure that balances between two extremes -- one in which all the revenue goes to the Office of the Provost and the provost decides how it is distributed; and an opposite model in which the colleges and units retain all the revenue that they bring in and make all the strategic decisions regarding allocation and use of revenues," Fuchs said. "I believe that this new model creates a balance that acknowledges our university's breadth and the strength of our colleges and schools, and yet enables us to also make central decisions that will enhance Cornell's future."
In order to determine the effects of the new budget model and preview how colleges, units and the central administration would be affected, this year's 2012-13 budget numbers are being fed into the new model in June and July so that a mock budget can be formulated. Comparative budgets will be created to put this year's real and mock budget allocations side by side. University finance officers, deans and vice presidents then will be able to evaluate the differences and give their feedback to the provost in the fall before the FY 2014 budget cycle begins.
"A number of decisions on the budget model are yet to be made and are subject to change this calendar year. And there is no doubt that information gained from the outcome of the mock budget comparison will inform possible changes resulting in the final implementation of the new budget model in the late fall," Fuchs said.
Here is a brief outline of components of the new budget model:
- All academic year undergraduate tuition revenue will be pooled. The pool will include a payment from the statutory colleges for every in-state student to provide an equitable contribution to the pool for all students. An assessment will be deducted from the pool for the USP. The remaining tuition pool will be returned to the home college in which the student is enrolled and the colleges where the instruction occurs.
- All graduate Ph.D./M.S. tuition (terminal research degrees, not professional M.S. degrees) will be returned to the unit paying the student's expenses. Individual colleges will manage and fund all waivers, stipends and revenue sources as well as teaching assistant assignments. University-funded fellowships will be administered through the Graduate School. This terminal research degree tuition will not be subject to the USP tax. All professional master's programs and professional student tuition will be returned to the college of enrollment and will be subject to the USP.
- Facilities operations and maintenance expenses will be distributed and paid by all units that have assigned space, using a universitywide, per-square-foot charge for distinctive categories of space. This charge will reflect averaged maintenance costs for the entire campus, not actual costs for individual buildings. Actual utilities costs will be paid by units with assigned space.
- Central administrative costs will be distributed through CAM and will be based on four key drivers of administrative costs: number of students, number of faculty, number of staff and research expenditures. Budgeted central costs will be assigned to categories, where each category is distributed according to a combination of these four measures. The costs will be distributed over all units -- academic, enterprise and administrative.
- Facilities and Administrative (indirect cost) revenue on grants and associated costs will primarily be distributed to the unit expending the research dollars.
- The two main uses of state aid will be: equalization of in-state undergraduate tuition and support of identified functions in the statutory colleges that are critical to the state.