By MARTY LEVINE
Staff members were full of questions about how the new budget model would affect salaries, job duties and the work of their offices, as Hari Sastry, chief financial officer, spoke to 200 staffers about the budget “ReSTART” model at the first Staff Council Spotlight event on March 30.
Under the new budget model, schools and other departments that earn revenue, such as athletics (called primary responsibility centers, or RCs), will support their own expenses and new plans. They also will be funding the support RCs — the non-revenue-generating departments, such as Pitt IT and HR that provide services and are “essential to the mission,” Sastry explained.
The primary RCs will contribute an annual 16 percent “participation fee” to fund the University’s new initiatives, new research and “subventions”: money for the schools that don’t usually earn enough from tuition and fees — such as the Schools of Law and Education, he said — to cover their costs.
“And that’s not a bad thing,” he said, “because we know we want a School of Law and a School of Education. The question is, can we move in a way” to have those schools show a “positive margin” — a profit, or at least a balance between costs and revenue?
“Schools will have a better picture of their revenue, expenses and financial performance as they think about their budget priorities,” Sastry said. “This helps connect goals and budget for school deans and responsibilities center heads.”
He said they want a two-way discussion, with each school’s budget planning group thinking, “How much investment do I need from the University to get from point A to point B,” and the University asking, in return, “What are you doing toward that goal?”
The University is not looking for all schools to “make money. … Some of these schools are naturally inclined to see a positive margin, some are not,” he added.
One innovation is the new Support Responsibility Center Committee, made up of primary RC representatives who will discuss what level of service they are getting from each support RC and make budget recommendations for the support RCs to top leadership.
“I think it is going to take two to three years before we really get comfort around this budget model,” Sastry said.
The many questions Sastry received showed some discomfort among staff with the impending change:
How will this work with the compensation modernization effort?
“We will have to make it work with this model,” he answered. If some salaries need to go up, those schools will need more subvention, he said as an example.
Will anything in the budget model create lower salaries?
“The model itself does not create or destroy wealth.”
How will the faculty union impact the budget process?
“Obviously pay is going to be one of the things that is a bargaining piece.” Pay level decisions will remain part of the parameters committee, a subcommittee of the University Planning and Budget Committee.
Will academic centers paying for support RCs lead to schools having more discussions on how support RCs work?
How will the University deal with support services that are subpar?
“You have a lever now on the budget side that you didn’t have before” — the Support Responsibility Center Committee.
Will the new budget model cause mergers of programs?
In the main, it is too early to answer, but “I don’t see mergers of schools happening.” Among degree programs that cut across RCs, for instance, they will be able to better allocate revenues by splitting tuition and fees based on students taking classes in one school or another.
Will this turn into revenue-generating RCs being bitter about non-revenue-generating RCs?
“I could see that happening” but more likely some RCs will be seeking more of a claim to their own revenue. The University will need to discuss that apportionment every year. “We want to create the incentive … to see follow-on investment, but you’re not going to get to keep all of your revenue … if you want to be part of the University of Pittsburgh.”
Will arts programs still be supported, for instance?
“This is not something that we set … the budget doesn’t go down to the individual department level.” Such decisions will remain at the dean level.
How will departments with high revenue but high overhead be handled?
These decisions will be made at the beginning of each year. At the end of each year, “we’re going to look for accountability at the head or the dean level” to see if such schools stay inside their subvention level. If they only needed $800,000 and they got a $1 million subvention, for instance, they will get to keep 80 percent of the extra money that year. If they needed more money compared to their subvention, the CFO’s office will determine if the difference had a one-time cause or is something that needs to be taken into account in future subventions.
Are RCs prepared to manage their own budgets?
“We are pretty confident that they are either ready now or close to being ready” by the July 1 start of the new budget model.
How would a sudden shortfall in the annual state appropriation affect the budget process?
With a shortfall of $50 million, as occurred in 2012, “we would have to scramble to see how we can build that into the budget.” If there is no appropriation, “I think we would have to rethink from a University standpoint our entire strategy.”
Is it true that some RCs may be able to opt out of following the new budget model?
Would one support RC have to pay another support RC for services?
No, this would create so complicated a situation that it would not be worthwhile.
Has the increase in inflation been considered in the model?
“This is just a budget model. This doesn’t make any decision about what gets funded or how much it gets funded. … Those decisions are independent of which budget model we use.”
What happens if an RC doesn’t perform as expected?
“We have to do a diagnosis as to what happened and what is the plan. If (the shortfall is) repeated … it’s probably not a strategic plan that needs to be accomplished.”
Marty Levine is a staff writer for the University Times. Reach him at firstname.lastname@example.org or 412-758-4859.
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