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Your Tub or Mine

Your Tub or Mine
December 13, 2010

An old debate is rearing its head again.

The two primary camps of higher education budgetary strategy have for years been wrestling over whether it’s better to dole out revenues from a central administration or allow individual colleges to control their own financial destinies. With an economic crisis now draining dollars from college coffers across the country, that question is yet again top of mind on several campuses.

The debate over the two models essentially boils down to whether colleges or academic units within a university should bear their own expenses and keep their share of tuition, grants and gifts – “Each Tub On Its Own Bottom,” it’s often said – or be given a share of resources from the central administration based on established institutional priorities.

For some scholars of higher education, it’s predictable that several institutions have moved toward or considered centralized models amid the economic downturn. Cases in point include Vanderbilt University, which adopted greater budgetary centralization in the 2009-10 academic year, and Cornell University, where a task force’s recommendations this year were widely viewed as a move toward more central budgetary control.

“I’m not surprised that institutions would be considering centralizing their models during periods of financial restraint, because that’s happened a lot,” said William Lasher, a professor emeritus of higher education at the University of Texas at Austin.

Lasher explains that centralization in tough budget times is a tacit acknowledgment among high-level administrators that – after all the committees have had their say – someone up top is going to have to make a tough call, and that’s easier with more control over the purse strings from the outset.

“Ultimately, the really tough decisions are going to have to be made by the administration, because they are the guys that are paid to do that,” Lasher said.

But it just wouldn’t be higher education if everyone agreed on a strategy, would it? Indeed, there are plenty of voices on the other side, arguing that the best way to encourage deans to pursue new revenues on college campuses is to force them to fight for their own survival. Nothing concentrates the mind like a balance sheet with red ink.

“It is no surprise that public universities [in particular] that are watching state subsidies drop like a rock are looking for more entrepreneurship,” said John Curry, managing director of Huron Consulting, who has held senior-level finance positions at the California Institute of Technology and several other institutions.

While not naming clients, Curry said he’s actually working now with three public universities that are all considering a decentralized model, often dubbed “Responsibility Centered Management” or “Revenue Centered Management” (RCM). Individual academic units, such as the University of California at Los Angeles's business school, have similarly seen the economic crisis as a motivator to become more financially independent.

A number of elite institutions operate on an RCM system, and Harvard University is noted as an early adopter that is still employing an extremely decentralized budget system. But critics of an RCM model often suggest it doesn’t give the central administration enough tools to underwrite strategic initiatives across multiple colleges – an increasingly common practice at major research institutions where interdisciplinary work reaps some of the greatest funding rewards. A centralized model, the theory goes, allows an institution to set or change priorities, moving money around to suit the needs of an evolving institution. But that’s not necessarily how it works in practice, Curry said. Once deans get used to a certain budget allocation, they’re none too pleased to hear it’s going to be reduced to fund another initiative deemed more worthy, and that can mean money doesn’t move around as much as one might think.

“I have seen centralized management far more ossified than the distributed responsibility system,” Curry said.

But the disciples of centralization beg to differ. Take Robert A. Brown, president of Boston University and a major proponent of the centralized model. Brown is convinced that very real downsides can come with an RCM system, saying that deans who fear losing tuition revenue when students take courses elsewhere will fight to keep them no matter what.

“It can lead to all kind of perverse incentives, like engineering schools that want to teach English,” he said.

Apart from the possible pedagogical issues of teaching English in an engineering school, Brown suggests that RCM systems can encourage a duplication of efforts across colleges, which are determined to hang on to tuition dollars by teaching courses already offered elsewhere.

Brown views the panoply of courses and disciplines at Boston as one of the university’s key attributes, and his allegiance to centralization is in part driven by a desire to ensure students can move freely throughout the institution. The university’s One BU initiative is intimately linked to the broader goal of student mobility, and administrators are working to increase course availability and better align entry requirements across majors to ensure that can happen, Brown said.

“We’re trying to break down the barriers," he said. "It’s easier to do that precisely because we’re not an RCM institution, so a school that loses four credits because a student goes to another college doesn’t get penalized.”

While Boston has been centralized for decades, Vanderbilt has only recently joined the club. The university is hoping to break down some of the same barriers Brown cites, figuring a move away from RCM – at least for four undergraduate schools – will help.

Richard C. McCarty, Vanderbilt’s provost, says he remembers from his own experience as a dean how the RCM system discouraged student mobility.

“I can tell you for a fact that we as a school attempted to restrict the movement of Arts and Science students into education or music or engineering because it cost us money,” says McCarty, who was dean of arts and science at Vanderbilt before moving into his current role.

McCarty suggests the disincentives for students were more reflected in a governing philosophy of the colleges than actual policy barriers, but at the same time he concedes that credit hour requirements and other measures often have the favorable financial effect of keeping students grounded in a single school.

While McCarty is a critic of RCM as a provost, he actually had it pretty good in arts and science. The college teaches a host of general education courses for students majoring in other colleges, meaning a steady flow of tuition dollars coming in from colleges such as education and engineering.

“Honestly, it sets up a lot of tension,” McCarty says. “I think [centralization] encourages people to think more as university citizens than a school that’s renting space on campus.”

The jury is still out, however, on whether Vanderbilt’s budget model will be viewed as equitable and whether it will accomplish broader strategic goals. Kenneth F. Galloway, dean of the school of engineering, calls the new model “a work in progress.” He notes that the school has benefited from institutional funding of large-scale construction projects that it might not have been able to fund on its own.

The centralized model effectively forces academic units to make a case for their goals and plans, which can be positive, Galloway adds. At the same time, there’s less control at the local level.

“There is sometimes uncertainty about how to proceed if the school wishes to support a faculty initiative but doesn’t control the funding for it,” Galloway wrote in an e-mail.

Cornell Grapples With New Model

Even higher education’s biggest proponents concede that it is an enterprise often resistant to change, and it’s little wonder that fundamental changes to budgetary strategy are among the most difficult to sell. That difficulty became apparent early this year at Cornell, where recommendations from a budget task force that seemed to argue for greater centralization received mixed reviews.

When faculty and administrators gathered to discuss the task force's recommendations in February, there was plenty of talk about winners and losers. As reported by the Cornell Chronicle, the university’s in-house publication, some viewed a lurch toward greater administrative control as potentially deleterious.

“You’re essentially undoing the decentralization that has made Cornell the great institution that it is,” said John Bishop, associate professor of human resource studies in the ILR School. “The provost gets the power to kill off a campus if he wants to and to do whatever he wants.”

In a Friday interview, Bishop told Inside Higher Ed that he worried a centralized model might involve high-level administrators in decisions on hiring, which are best left to experts in their fields. Moreover, there are healthy incentives for colleges and schools to pull their own weight in a decentralized system, he said.

“If [schools] are successful, they should continue,” Bishop said. “If they’re not, then the provost should decide, 'I can’t subsidize these guys so they are going to go down.' ”

The fears Bishop and others expressed have not come to fruition at Cornell, because the university hasn’t adopted the task force’s recommendations, said Elmira Mangum, Cornell’s vice president for budget and planning. At the same time, the university is reviewing its budget policies and aiming to develop a system that is more transparent and standardized across colleges, she said.

“We’re still wrestling with this on campus in terms of what we can do,” she said. “It’s by no means settled yet. I wish it was.”

Because several of Cornell’s colleges are state-supported, the university's budgetary options are necessarily limited. The four state-supported colleges are statutorily obligated to retain their own tuition revenues, necessarily instilling those units with one of the hallmarks of an RCM system. At the same time, Mangum says that only the law school and the Samuel Curtis Johnson Graduate School of Management function independently as “tubs,” controlling revenues and expenditures independently.

“I think what most people want to know is that they will be treated fairly, and they can understand [the budget process] and they will be accountable,” Mangum said.

Economic pressures, she added, are another incentive for rethinking how budgeting is done.

“I think that’s probably what is [compelling] a lot of people to examine how they actually allocate their resources,” she said, “and on what basis they should allocate those resources.”

 

 

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