'Free Market' for Higher Ed

November 11, 2008

Larry Johnson is a self-described “entrepreneur from hell,” so it’s of little surprise that the University of Cincinnati dean likes the plan for a new budgeting system on campus.

Johnson, dean of the College of Education, Criminal Justice and Human Services, is helping to craft a “performance-based” budgeting model at Cincinnati. The plan, which is being accelerated to address anticipated budget shortfalls, rewards colleges for enrolling more students to generate revenue. On the other hand, colleges that fail to meet agreed-upon revenue goals may have to take budget cuts.

“In a sense, we’re creating a higher ed free market,” Johnson said. “We’re really embracing each program and unleashing its creativity.”

Photo: University of Cincinnati

Nancy Zimpher, president of the University of Cincinnati, says a new budgeting process will incentivize growth.


Creating incentives for revenue growth is not new to higher education, and Cincinnati drew upon models used at Ohio State University and Indiana University. But Cincinnati’s decision to implement a new budgeting process for the entire university by 2009 reflects an important philosophical shift that speaks to the times, according to Nancy Zimpher, the university’s president. Faced with the likelihood of declining state support in a faltering economy, the new plan encourages growth, she said.

“We have to be able to make those cuts, and at the same time we have to be able to grow,” Zimpher said. “So how are we going to do that? I think the way universities have responded to [budget shortfalls] is they’ve just cut. They haven’t thought about the growth side.”

As Johnson explains, deans at Cincinnati have not always seen their total budgets increase when they've increased revenues by boosting enrollment, making operations more efficient or securing donations. If a college received a gift to endow a scholarship that was previously covered by institutional funds, for instance, the college would typically lose those institutional dollars once the scholarship was covered by another revenue stream. In short, there could be a disincentive for raising money.

Under the performance-based model, deans could count on keeping more of the money they bring in -- without fear of a reduction in institutional support. The performance-based model will give each college a "threshold," which essentially defines the bare minimum amount of money each college needs to conduct business. If a college's threshold was $30 million a year, for instance, the college would be able to keep somewhere between 55 percent and 65 percent of any dollars it generated beyond the threshold. The college could use its excess funds to hire more faculty and staff or increase scholarships. The remaining money generated over the threshold would be placed in university coffers and distributed across campus to fund other initiatives.

As with any budgeting process, the devil is in the details. Mary Hall, chair of the Cincinnati faculty, said professors are mostly reserving judgment until those details become more apparent.

“There is just great hesitancy as with any change, and of course you really don’t know until the rubber hits the road,” Hall said.

Different colleges will be given different budgetary goals, but planners are still wrestling with how revenue targets might differ across the campus. There is an acknowledgment, however, that some colleges – by their very nature -- are much better positioned to be able to increase revenues than others.

Zimpher said the university will still supplement colleges that are less capable of increasing enrollment, but she noted that some programs may simply be exposed as inefficient and unsustainable through this process.

“We will all have to agree as an institution that there may be some departments that cannot be revenue generating but cannot [cease to] exist in a university environment,” she said.

“[But] do I think that there is a portion of our enterprise that may not be sustained in the process? Yes.”

The new budgeting system is part of a larger series of changes at Cincinnati, including a move from a quarter system to semesters. Outlined in Zimpher’s most recent “state of the university," the changes also include a concerted effort to reduce courses that may be duplicative, and a potential reduction of the number of credits required for certain majors.

Adjunct Hires

Encouraging colleges to increase enrollment or face potential budget cuts might seem like a recipe for deteriorating quality, but Zimpher assures that won’t be the result of Cincinnati’s new approach. She acknowledged, however, that the university needs to guard against changes that would skew student/faculty ratios or lead to dramatic increases in reliance on adjunct labor.

“You might call those unintended consequences [of this budget model], and I think we want to do our best to maintain the balance between full-time faculty and -- I think -- our marvelous adjuncts,” she said.

Valerie Gray Hardcastle, dean of the McMicken College Arts and Sciences, said she did not think deans would be lured into increasing adjunct faculty numbers in order to see a short-term increase in revenues.

“If you rely more on adjuncts, that means you have less control over curriculum and quality,” she said. “Then your retention rate will go down, and then you have less dollars in your pocket.”

But Hall, an associate professor of psychology, said a further trend toward adjunct hiring is “absolutely a concern,” even under the current budget model.

“We’ve been concerned that there has been that kind of moving going on already, fewer and fewer positions that are tenured or tenure track positions and more and more positions that seem to be field service positions or adjunct positions,” Hall said.

Currently, 42 percent of faculty at Cincinnati are not eligible for tenure, marking an increase of 8 percentage points of that cohort since 2003-04. The university, which enrolls more than 37,000 students, has a faculty-student ratio of 14:1, and a six-year graduation rate of 52 percent, according to university data.





or Tenure Track

Non-Tenure Track Non-Tenure Track
07-08 2270 1311 959 42%
06-07 2284 1406 878 38%
05-06 2264 1473 791 35%
04-05 2161 1487 674 31%
03-04 2084 1380 704 34%

SOURCE: University of Cincinnati

Administrators Reject 'Corporate' Label

While the performance-based budget model rewards big revenue producers, administrators involved in developing the plan reject labeling it as a “corporate” approach. Monica Rimai, senior vice president for administration and finance, said the university is considering factors that simply wouldn’t be considered in a pure corporate setting.

“I think the difference has to do with how we define value,” she said. “If Procter & Gamble has some product line that is consistently not meeting revenue targets -- profit targets -- over some period of time, it will be eliminated … But at a university -- and I would dare say at any university -- there are certain activities that we always subsidize.”

But Johnson, a dean who supports the changes, notes that the very idea of performance-based budgeting makes some people on campus a little squeamish.

“I’m not going to lie to you,” he said. “We have faculty that are very scared of this, and people who are like ‘Oh my God, have we sold ourselves out?’ But for the most part it’s [viewed as] an empowering approach.”

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