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The Budget Matters: John V. Lombardi Challenged from every quarter, America's research universities remain one of this country's few internationally preeminent industries. Unless we in the universities hear the sound of challenge, however, we risk becoming like big steel and the American automobile industries: downsized and out-competed. When criticized, we sometimes dismiss our critics as victims of miscommunication and the issues they raise as problems of understanding. When confronted with competitive challenges to our traditional funding base, we sometimes speak of values in an imagined past rather than to the specifics of performance that determine our future. To sustain the preeminence of American higher education, we must learn to count, measure, and be accountable. Most of us began by counting. First, in some of our leading private universities and then in a number of public institutions, we began to reconstruct our budgets so that we could understand the cost of producing quality products in teaching and research. Promoted under various names (mission-centered, responsibility-centered, cost-centered, or every-tub-on-its-own-bottom budgeting), we developed these systems at Johns Hopkins and Indiana, at the University of Southern California and Florida, and at other private and public research universities. Common to all is a system that allocates the university's costs to production of the university's products. These models, supplemented with measures of quality and centrality of mission, provide a mechanism for effective internal management. Success in internal management requires direct linkage between the accounting for costs and revenues, the production of academic products, and the reallocation of funds. The University of Florida Quality Evaluation Project provided one example of how to start this process, and in the next several months we will introduce a budget model that explicitly links money and productivity performance. Without this direct linkage, the conversations about resources and the university's principal missions often take place in disconnected ways that confuse incentives and undermine the faculty's efforts to become more productive. Good internal management improves the university's productivity and provides a reference for the cost of quality, but it does not always meet the public's need for accountability. The public, and for public universities this almost always means the legislature and boards of trustees, constantly seeks measures of university performance. These measures must satisfy a sense of responsibility for public funds and ensure that we deliver expected results. Performance budgeting allocates resources based on one or many performance measures. Different advocates for the endless measures of process or outcome appear: time to degree, defined as the number of years to achieve a bachelor's degree; employment of graduates, defined as first job income; test scores for graduate or professional school, defined as LSAT, MCAT, or GRE; faculty classroom contact hours; or graduation rate. However, none of these measures works for budgeting. Time to degree fails to account for the complexity of undergraduate education with part-time and working students, who may easily need more than four years. Employment has no meaning at the moment of graduation but becomes relevant only after 10 years or longer. Test scores for graduate and professional schools measure as much the inherent quality of the student body as they do the value of the education provided by the institution. Universities with different student compositions will have different test score results even though they may have identical quality and productivity. Graduation rate cannot drive the budget because then universities, like public schools in many places, will graduate almost everyone, regardless of performance, to ensure that the university loses no money. The difficult part of this enterprise is to tie the money to explicit measures of annual productivity. Many of the university's explicit outputs are many years in the making. Basic research produces useful results generations from now. The university's role in producing a better society is unquestioned, but also immeasurable and long term. To build a budget that directly links money and productivity we need measures to represent the long-term quality and impact of higher education. Most legislatures focus on the undergraduate student when looking at performance budgeting. Consider the medical services model. Medicine, like education, focuses on the individual, a patient. In education, we focus on an individual, a student. Medicine invented the notion of a covered life, which takes an individual and provides complete medical care for the individual's lifetime at a fixed cost. At the University of Florida we focus on the covered degree, which provides the 120 credit hours of an undergraduate degree for a fixed cost measured in dollars per credit hour. Students change majors, fail subjects, and otherwise require more support than the minimum, and we assume this extra supports adds another 10% to the covered degree for a total of 132 credit hours. In building a performance budget for undergraduate instruction, we ask that the state fund those credit hours taught by the university that number less than 132 for each individual student. Credit hours earned by students beyond the 132-credit-hour limit we would not expect the state to fund. In this proposed shared responsibility model, the state funds the majority of the cost of the degree, the university delivers the degree within the cost, and the student follows the program needed to earn the degree within the allotted hours. This model does not count chronological time (years to degree) but rather counts the actual work funded by the state and the student (credit hours to degree). Consequently, this model works as well for the student who finishes in four years as it does for the student who attends half time and finishes in eight years. In this instructional performance model we do not pay direct attention to quality, only to costs, which is the purpose of an annual performance-based budget. Quality measurement in education, as in health care, depends on a separate evaluation that measures longer-term outcomes such as student and alumni satisfaction, employment, entrance into graduate school, and performance on professional certification exams. Research represents the university's second major product. The state invests tax dollars in a research university's program of discovery to enhance teaching, contribute to the international store of knowledge, and serve the economic interests of the state and nation. An effective measure of return on this investment in research is the amount of the contract and grant revenue generated by research relative to the state's tax dollar investment in the university's research enterprise. Contract and grant dollars come from national or international competition and serve as an indicator of the quality, productivity, and significance of our faculty's work. While much research of value in the university does not have an external grant economy (as in the humanities, for example), the total amount of external research funding is a good indicator of the institution's total research health. If the ratio of directly funded university research falls relative to externally funded research, then the state can adjust its performance budget for research downward to restore the proper return on its research investment. The university exists primarily to teach and do research. Public accountability requires simple, easy-to-understand measures. Performance-based budgets require annual measures of performance. Given these principles, covered degrees and external research return on state research investment offer effective approaches to the performance-based management of public universities. Absent a focus on these quantitative measures, universities cannot hope to compete effectively in the resource constrained
environment of the next several decades. Absent an ability to understand how our expenditures relate to the delivery of the products that define our
mission-teaching and research-we cannot hope to achieve our expectations for quality and performance. DRAFT © 1996 |