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Strategic Budget Cuts

April 13, 2009

I have already commented on university budget cuts in general in an earlier blog.  Here I want to get more specific.    My university is facing a budget cut next year to its state appropriations of about 15%.   This will require a significant reduction in university expenditures (ca. $40 million).  Because about half of our income comes from tuition, the overall cut to units will average around 7.5 %.  We are expecting to get federal stimulus money to help “back fill” some of the cut to our state appropriations.  Because that is one time money, it simply gives us more time to make the transition to a lower base budget and to make it in a more ordered and hopefully humane way.   It is unlikely that the state will ever restore the $40 million being being cut from our base budget.  The stimulus package is like a life preserver (PFD for the boaters)  thrown to a drowning woman.  It will keep her afloat a while longer, but that it will  not prevent her losing part of her body to a shark.

After much discussion and with the support of the university budget advisory committee, the senior administration decided to make strategic, i.e., differential, budget cuts to various colleges and non-academic support units. The big questions were what the criteria would be for making them and how big they would be.   In the end, the only criterion was “centrality to the mission of the university.”   When members of the budget advisory committee were asked what were the colleges most central to the university, the first reply was liberal arts and sciences.  Because we are a land-grant university, this was quickly followed by agriculture and engineering. There was widespread agreement that these were indeed the colleges most central to our mission, even by faculty, administrators, and staff from other colleges.   The range of the  nominal differential cuts was small.  The most “central” colleges would be cut 7.5% and the least central 8.5%.  Non-academic units would receive around a 9% cut.

I stress that these are nominal cuts.  Negotiations between the central administration and academic and non-academic units about their FY2010 budgets are just beginning.  If I had one,  I would be willing to bet the family farm that actual budget cuts will not be anywhere close to these nominal cuts for some units, especially non-academic units.  Let’s hope that I am wrong and that I will  lose my imaginary farm. My reason for being skeptical is that senior administrators seem to be more interested in maintaining support services at current levels than academic programs.

I favor differential cuts, but I think that they need to be made using more than one criterion.  A better approach would be to use the three c’s:  centrality, capacity and cost. I agree that centrality to the university’s mission should be used to rank units, but centrality alone provides little guidance for how large these differential cuts should be. By considering each unit’s capacity to absorb cuts, it is possible to assess how large a cut each unit can sustain without compromising its core teaching and research missions.  For the sake of simplicity, I will restrict my attention to academic units because they are more similar to each other and can be validly compared.

It is the tenure-track faculty that are central to the mission of each college.  These faculty do most of the teaching and research.  They are the college.  Faculty need to be preserved at all cost.  Colleges, however, employ many other people, including non-tenure eligible faculty, administrators, professional staff, and support staff.   One way to assess the capacity of a college to absorb a budget cut is to look at the ratio of all non TE faculty and staff to TE faculty.  Let’s call this the support ratio.   The veterinary college with its animal hospitals and clinics will inevitably have a higher  support ratio than the business college.  For our colleges, support ratios range from about 0.5 to 3.0.  This is a six-fold range!  Is such a range justifiable?  Again, this would depend on the nature  of the programs in each college.

When colleges with similar missions (primarily teaching and research) are compared, there are large differences in their support ratios.  For example, our liberal arts and science college has one of the lowest support ratios of all the colleges (0.5).  Liberal arts and sciences is a very efficiently run college, and it is central to the university.   There are colleges with a support ratios of 1.0 to 2.0 that have teaching and research missions very similar to those  of liberal arts and sciences. The nominal differential cuts proposed ignore the capacity of each college to absorb cuts without adverse effects on its programs.  The support ratio provides one away to quantify differential budget cuts.   Differential cuts that consider the capacity of a college to absorb cuts would ultimately benefit the university by maximizing its  productivity.

The capacity to absorb a budget cut can also be estimated by examining the cost of doing business in each college.  Many metrics can be used to evaluate this cost, including the return on investment (tuition, grant dollars) per TE faculty member and the cost per TE faculty member to deliver a college’s teaching and research programs (delivery cost).  For example, dividing the total budget of a college by the number of TE faculty and subtracting the weighted mean salary of the TE faculty provides a simple measure of a college’s delivery cost.  This delivery cost varies significantly among our colleges.  Again, liberal arts and sciences has among the lowest delivery costs.   Colleges with high administrative and operational overhead, as reflected in a high delivery cost, should be able to absorb cuts more easily without having to close TE faculty lines.

In the long term, the most costly mistake  that the university could make is to close open faculty lines in order to reduce expenses. A university’s reputation and the rankings of its academic programs are based on the quality of its faculty.  We have about 200 fewer faculty today than ten years ago, but about 400 more professional staff.  The cost of loosing 200 faculty is hard to quantify in terms of the university’s reputation and impact or the amount of grant dollars lost.  Nevertheless, there is little doubt that we paid the price for past mismanagement.

Differential budget cuts to deal with reduced state appropriations make strategic sense, but only if they are based on sound criteria.  The nominal budget cuts being proposed are based solely on the centrality of a college to the university and ignore its capacity to absorb cuts and the costs of cuts to the college and university.  Centrality may be easier to sell, within and outside the university, and to  implement but its use as the only criterion will have unintended negative consequences.   Efficient colleges will be penalized more than inefficient ones, and this will reduce the overall efficiency of university.

One Comment leave one →
  1. Elliot Krafsur permalink
    November 13, 2009 01:37

    Well, yes, Arnold, you’ve made a strong case. But there’s more. Here are some likely possibilities that help to explain the increase in support staff and decline in academic staff: (1) the legislature tends to look on ISU as the state’s civil service; (2) no question of tenure decisions that stir up ‘conservative’ opinions in the state who imagine that tenure protects political lefties and homosexuals, and (3) support staff better respond to the wishes of management than do academics.

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