Chapter 28:

 Financial Planning and Resource Allocation

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INTRODUCTION AND OVERVIEW

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Over the past decade San Francisco State University has introduced significant changes in both its budget planning and its budget allocation methodology. These changes have come about in response to systemwide policy changes and President Corrigan’s mandate to effectively use the financial resources of the university in support of institutional priorities. The 1992 WASC visiting team report raised concerns about the relationship between resource allocation and institutional priorities and the relationship and communication between administration and faculty. The visiting team also noted the need for data to be used more effectively in the decision-making process. Many of the changes that have occurred at SFSU over the past eight years have reflected our attempt to be responsive to these concerns.

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Prior to the devastating budget cuts brought about by the recession in California in the early part of the last decade, the campus budget was determined by a multitude of algebraic equations (contained in an orange binder and thus known as the "Orange Book"). The Orange Book was an elaborate system of formulas that had been negotiated between the CSU and the State Department of Finance. The formulas used variables ranging from the number of admission applications, to the square footage of buildings and landscaped grounds, to the mode (lecture, laboratory, seminar, etc.) and level (lower vs. upper division or graduate level) of instruction in order to determine positions and funding for the campus. Under this system, the campus provided data to the Chancellor's Office that, in turn, generated the campus budget based on these input variables.

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This process generated a campus budget entitlement consisting of two components: (a) incremental funding and (b) "pass-throughs" which were by policy directed to specific expenditure items in the campus budget itself. The remaining discretionary funds were reviewed by a University Budget Committee that, following budget presentations by each major campus cabinet area, proposed incremental allocations to each unit based upon need. A small reserve was held for contingencies. The University Budget Committee (UBC) recommendations were forwarded to the president and generally approved. At that time, the University Budget Committee was chaired by the vice president for administration.

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During this period (through 1990-91) there was little, if any, long range financial planning. In addition, there was a major "disconnect" between the negotiation of enrollment capacity or targets, which was the responsibility of Academic Affairs, and the fiscal management of the university. In addition, the university and its leadership did not have a clearly delineated set of budget and programmatic priorities.

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Then, in the early part of the 1990s, the collapse of California's fiscal situation and the resulting devastating budget cuts in the California State University provided both a challenge and an opportunity to effect significant change. In the first two years of budget cuts, the campus followed its usual pattern of imposing pro rata reductions on each of the major cabinet-level units. Since Academic Affairs accounted for the largest share of the budget, it took the biggest percentage reductions during this period.

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It appeared that the worst cuts would take place in 1992-93, when it was thought that the CSU campuses might suffer a 17% budget cut as the worst-case scenario. At this point, the president began a reorganization of the budget process that ultimately led to a more effective use of the university's resources and the establishment of a clear set of budget priorities.

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Since the campus was in a state of crisis, the president directed that each unit submit plans for a 17% reduction. By the time the legislature had acted, the actual net budget cut was about 9%. In order for the university to protect the viability of its academic program, the administrative support units absorbed the cuts at a higher level than straight pro rata while Academic Affairs’ reductions were lower than its pro rata percentage of the budget.

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While the crisis was wrenching to the institution, it was the catalyst for profound change in the way the university managed budget policy and preparation. During this period, the CSU system and the state eliminated the use of the "Orange Book" for budgeting purposes. A much simpler approach to funding emerged, structured around a percentage increase basis for funding (a "compact" made with the governor). The agreement was for a four percent budget increase, with a major component of this budget compact being the enrollment growth that provided the only discretionary funds for the campus.

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At this point in time, the president directed that the chief fiscal officer establish an administrative committee to coordinate fiscal planning as well as enrollment planning and management. The group, referred to as the Monday Group, brought together representatives from Business Affairs, Academic Affairs, and Student Affairs. The initial charge was to improve communication about the budgeting process and resource allocation. The Monday Group analyzed and discussed the effect of different budget scenarios on instructional offerings, enrollment, and the overall well-being of the university. Communication across units, particularly with Academic Affairs, improved significantly, as did the sharing of budget data. This enhanced the information that the University Budget Committee received and could use in its discussions. Subsequently, the Monday Group began to review enrollment trends and other relevant data to make recommendations to the president about short- and long-term enrollment targets.

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For the first time, the university systematically developed and used demographic and other data from its enrollment planning process as the basis for budget development and planning. This was a major improvement over the process that the 1992 WASC visiting team had observed and notably addressed concerns about the lack of data being utilized in the decision-making process. The university budget was arrayed in a Budget Book to provide detailed information about all employees and the operating budget of each department and cabinet division. This book is now produced annually and a copy is readily available at the university library.

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The new approach provided greater predictability and a basis for inter-year and long-range financial planning. Over the next several years, budget planning and forecasting became increasingly accurate, and a process was established within fiscal management for identifying needs in advance through the budget process.

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In addition, the president, taking over as chair of the University Budget Committee in Summer 1992, involved faculty more fully in the budget process to develop campus-wide budget priorities. In UBC, faculty and staff representatives and senior administrators began addressing fiscal issues stemming from previous years' budget cuts across the campus. These ranged from the need to increase course offerings addressing enrollment demand to restoring the budgets for book acquisitions and instructional equipment. UBC proceeded to establish budget priorities to restore the budgets of many units that were decimated during the budget crisis. These university budget priorities have led to increased annual permanent funding (as of FY 1999-2000) of $3,934,735 for additional courses and sections corresponding with enrollment growth; $2,657,711 for restoration and maintenance of the library acquisitions budget to the 1989-90 funding level; $1,990,400 for maintenance of the instructional equipment budget to correspond to 1989-90 purchasing power; $1,666,923 for restoration of the academic infrastructure (staff and technical support and operating funds); $2,175,000 for university-wide deferred maintenance to address a massive backlog; and $2,372,000 for information technology. Within the last several years, restoration of 78 tenured/tenure-track positions has been added as a budget priority item ($603,686 in on-going funding), as well as teacher education that is also a systemwide budget priority. In addition, beginning in 2000-2001, one million dollars is being earmarked over a three-year period for clerical and technical support for the colleges and the university library.

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Since 1993-94, when fiscal recovery began, both budgeting and enrollment processes have become closely integrated and reasonably sophisticated. By early fall each year, the staff is able to project and develop budget scenarios for senior management that are the basis for planning for the next year’s budget cycle. As a result, the campus has made significant progress in focusing its financial resources to move the campus agenda. The campus has an effective technology infrastructure, and all tenured/tenure-track faculty were given a current technology workstation including one refresh cycle. The campus has been able to meet its enrollment targets and, to a major extent, provide the necessary courses and sections to meet a growing student body. It should be noted that even now the Monday Group and the Academic Affairs leadership are re-evaluating distribution of resources to more effectively match up with student demand.

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PLANS AND PRIORITIES

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Along with the establishment of better budget planning and administration, the university initiated a broadly consultative strategic planning process beginning in Fall 1995, with the formation of a Commission on University Strategic Planning (CUSP) that, over a three-year period, established a plan to help shape the university for its second century. Since initiation of the CUSP planning process, each of the cabinet-level officers has moved forward to implement the recommendations of the strategic plan. Campus-wide budgeting priorities in some instances are directly linked to the campus plan while, in other instances, they are more indirectly linked. Each cabinet area’s budget becomes the vehicle for realizing the objectives of the plan. Where necessary, unit budgets are augmented to achieve particular strategic plan objectives. Most often, these objectives can and are being met by redirection of existing resources.

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In Fall 1998, for example, the president, in his opening remarks to the faculty at the beginning of the academic year, articulated ten academic priorities: (1) required advising, (2) structured first-year experience, (3) basic skills, (4) diversity, (5) restoring faculty positions, (6) teacher education, (7) technology leadership, (8) library acquisitions, (9) technology partnerships, and (10) increasing faculty support. Each of these initiatives has either been supported directly as an explicit university-wide budget priority (technology, library acquisitions, restoring faculty positions); funded through the CSU system budget process (teacher education, technology); or supported by redirection of existing resources within cabinet areas. The chart on the next page highlights some of the more important examples of university allocations over the past year in support of strategic plan objectives. Other funding allocations were highlighted in the first section of this chapter, while still others are discussed throughout the self-study.

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Thus, out of the major challenge resulting from the significant loss of resources in the early part of the 1990s, the university has emerged with a comprehensive vision of its future in serving its constituency and a sophisticated well-managed budget planning process for focusing resources where they are needed to achieve the institutional vision. The university budget and enrollment planning process is data-driven and guided by a clear set of principles. Plans are openly shared through the University Budget Committee (1); and resources are directed consistently to meet the priorities as delineated by the strategic plan and the president, while at the same time available to meet the unavoidable contingencies encountered by any large institution.

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(1) The membership of UBC includes the president as chair; the chair of the Academic Senate; three elected faculty representatives; the provost/vice president for academic affairs; the vice president for business and finance; the vice president for student affairs; the vice president for university advancement; one college dean; one staff representative; and the president of the Associated Students.

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We have emerged a much stronger and more focused institution over the last ten years, using data and priority-setting to drive institutional decision-making. These efforts have stemmed from a need to address severe budget constraints imposed by economic conditions within the state, as well as to be respon-

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Selected Expenditures

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sive to the concerns raised by the 1992 WASC visiting team. However, while we believe we have established priorities and processes that can move the institution forward, major challenges confront SFSU in the new millennium.

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The advent of "Tidal Wave II" is pushing the university to explore and develop creative means to provide access to students wanting to attend SFSU. While the current CSU budget process provides funding for new enrollment at the marginal cost of instruction, all other funding provided to the university is earmarked for specific projects or purposes (e.g., compensation increases, deferred maintenance, etc.). Increased enrollments and the associated funding provide the only "discretionary" source of new funding; and a significant proportion of this is linked to additional faculty positions for increased course offerings. Thus, to implement many of the priorities proposed through the strategic planning process, continued reallocation of resources will ultimately be necessary for the university to meet many of its goals. This is not a welcome process, particularly at an institution with both a decentralized and a highly faculty-centered governance and decision-making process, and will be a major challenge confronting SFSU in the coming years.

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