By SHANNON O. WELLS
Provost Ann Cudd and Chief Financial Officer Hari Sastry updated Faculty Assembly this week on the implementation process for Pitt’s new budget model, which Chancellor Patrick Gallagher approved last November.
Cudd emphasized the difference between the budget, which represents the money itself, and the budget model, which she described as the “framework” for allocating the budget.
“One thing that’s really important to understand is that a new model does not create or destroy wealth,” she said. “What we want our budget model to do is to empower leaders to change scale or pursue new activities that require financial investment.”
The Budget ReSTART — Revenue Sharing to Accelerate Responsive Transformation — is a modified responsibility center (RC) model, which shifts all revenue from tuition, fees and grants to the schools, or RCs. Each school then pays a 16 percent “participation fee” — sometimes called a tax — back to the central administration to pay for strategic development and other initiatives. The schools also must pay fees to support shared services, such as Human Resources and IT.
Cudd described the best budget model goal as one that allows Pitt to align its “resources with the goals that we have,” she said. “So, with our strategic plan, a budget model also embodies the management philosophy that we have, how we assign authority and responsibility to the various RC leaders.”
Strategic Advancement Fund
To create a “seed money” source from which RCs can borrow funding for one-time investments, a Strategic Advancement Fund has been created from gains in excess of the Operating Quasi Endowment distribution, according to a statement from the CFO’s office.
This fund is intended to be self-sustaining to support one-time, non-capital initiatives that advance the University of Pittsburgh’s mission, brand and the Plan for Pitt. Responsibility centers will be responsible for repaying the investment.
“So, you say, ‘Hey, look, I need $5 million to build this program, which is going to generate 100 more students in this new graduate program,’ ” Sastry explained at Faculty Assembly, “and you’ve talked to the provost and you’ve talked to the senior vice chancellor for health sciences — and they agree this is the right direction for the school, into a really big expansion program, well, if that’s the case, then this advancement fund will give you the upfront resources.”
The idea, Sastry said, is “kind of a bank, so you’d have to pay it back and see the revenue stream come in, but after you do that, then you get to enjoy the benefits and whatever that increased revenue stream is going to be.”
The model will require the ability for people to invest up front, he said, adding that the fund hasn’t yet been launched. “We’re still kind of working through the final dotting the I’s and crossing the T’s on this, but we do want to launch it with (the ReSTART).”
While schools can’t apply for money from this fund yet, it already has about $90 million in it, Thurman Wingrove, Pitt’s controller, told the Senate’s Budget Policies committee last week. Wingrove said that the distribution from the quasi endowment fund was increased in 2019 from 4.25 percent to 4.75 percent, which increased the distribution by $9 million to $75 million.
This added money went into the operating budget to help with financial aid in 2021 and 2022. Wingrove said they decided to keep the $75 million constant, and any additional return was used to establish the separate strategic advancement fund over the past two years. There also was money taken from the principal of the quasi endowment to create this fund. He said the fund currently is valued at about $90 million.
This year, though, Wingrove said, “With all the things going on between the commonwealth appropriation and the desire to try to have as large a salary pool as possible, we decided to no longer hold that amount constant and instead allow for the entire 4.75 distribution to go into the operating budget this year, as opposed to that strategic advancement fund.”
Tyler Bickford, chair of the Budget Policies committee, noted that 2020 and 2021 were “some rough couple of years” to not be putting all the additional money into the operating budget.
Planning and budgeting committees
At Faculty Assembly, Cudd addressed strengthening the role of planning and budgeting committees (PBCs) as part the budget restructuring process. A memo being jointly formulated by Cudd and Sastry will address this, along with concerns about transparency aired earlier by the Senate Budget Policy Committee.
The PBCs need to be majority elected and have bylaws, Cudd said. They should be activate dearly in the fall semester — “When they get their target letters (in August), that will be budget information that’s very helpful to the PBCs.”
The memo also will outline the development of orientation and training modules in anticipation of frequent PBC turnover. “This is a lot to understand and to learn,” Cudd explained. “So we’re going to make our training more robust out of our offices as we go forward.”
With the new budget model currently set to “go live” in fiscal 2023, Sastry emphasized the thorough and deliberate approach his office has taken to develop the model into where it is now. Once the model took shape in the 2020-21 fiscal year, he said this year was spent watching how the current budget model ran “while also seeing how it would run in our new model.”
Despite many months — and literally hundreds of meetings devoted to “getting the University educated and comfortable, and to be honest, our office also educated and comfortable” — Sastry admitted that pulling the trigger for ‘23 “is going to be a bit of a learning curve.”
“You won’t really get a flavor for how this model affects you until you get through the first year of operation and you see your second year’s budget,” he said. “We’ve been telling people it’s really October of ‘23 that you’re going to say, ‘Oh, OK, I get it. This is now my budget. This is what happens when I overperform or underperform.’
“So, we’re asking folks for patience, but also we will work with you because we know we’re not going to get 100 percent right, right off the bat.”
Shannon O. Wells is a writer for the University Times. Reach him at firstname.lastname@example.org.
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