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The Point: “Activity-Based Budgeting”: UMB’s Pending Shell Game


Subject: The proposed new approach to budgets on campus

Action: Educate yourself, ask hard questions of upper administration, resist marketplace logic however you can!

The Communications Committee is delighted to step aside this week to make room for this important contribution from our former FSU President, Steve Striffler.  Here, as you will see, Steve helps us understand why the much-touted “Activity Based Budgeting” is a dangerous proposition that runs counter to the central mission of the university.

Greetings, Colleagues:

Sound the alarm!  The university is moving towards an “Activity-Based Budgeting (ABB)” model.  Wait.  What?  What does this cheerful bit of Administrative speak actually mean? How does it work?  Should I be worried?  [YES!]  

Activity-Based Budgeting (ABB) has been around for decades, migrating recently from the corporate world to academia.  For universities, the exploration of new budgeting models was largely driven by the reduction in state support and the resulting fiscal crisis that we have lived through over the past thirty-plus years.  Put another way, although ABB is “just” a budgeting tool that attempts to account more accurately for costs and revenue, it is implemented through a logic that seeks to run universities more like businesses – and moves us further away from the core mission of teaching, research, and service.  ABB may sound innocuous in theory, but it is anything but in practice.  

Under Activity-Based Budgeting, each campus unit (in theory) pays for its expenses out of the revenue it generates from tuition, grants, clinical services, and whatever else – minus a percentage of revenue that gets taken off the top to sustain everything else that makes a university run.  Not surprisingly, what that percentage is, and how it is calculated for each unit, becomes a source of conflict and competition. 

Some of the administrative overhead (i.e. tax) goes to “business-sustaining” activities that don’t generate revenue but are necessary for the university to function.  Think the library, technology, disability services, financial aid administration, etc.  Yet, as we might expect, the upper Administration also captures a lot of this revenue, often spending it on vague categories like “strategic initiatives” that have virtually no accountability.  

At this point, you might be thinking: Doesn’t management already do this?  Fair enough.  But ABB institutionalizes a lack of accountability for administration while imposing problematic accounting elsewhere on campus.  Administrators determine (and frequently change) the rate of taxation while putting the revenue-generating academic units under increased pressure to reduce costs and increase revenue – and to do so in competition with each other and at the expense of the core mission of teaching, learning, and research. Taxation without Representation!

But won’t we have more control over “our” budgets?  The model comes with a degree of budgetary decentralization that is seductive.  You make it, you spend it.  The idea is that departments, institutes, and centers have more control over their budgets, and are theoretically freed from the arbitrary whims of upper administrators.  But the budgets themselves are typically calculated through mysterious formulas that rarely seem (or are) fair, pit units against each other, and tend to leave administration really well-funded.  A cost-cutting logic is baked into the model, forcing departments/units to make decisions based on what is “cost-effective” as opposed to what is best for teaching, learning, etc.  We do this now to an extent, but under ABB those at the unit/dept level quickly realize that local control is a fiction undermined by a metric-driven system that disguises the continued control of upper administration.  It comes at a cost, putting us in competition with each other while making us the authors of our own demise….and that of the university.  

Who typically gets hit?  In a sense, everyone – though some get hit worse than others.  As departments and colleges are left trying to balance (typically shrinking) budgets, there is a strong compulsion to shift teaching to part-time, non-tenure track faculty, as well as graduate workers – and to keep their pay low.  This is bad for all faculty (and students).  Conditions worsen for NTT faculty and grad workers, tenure track lines are reduced, and classes get larger.  Units are pitted against each other.  Those with more capacity to generate revenue find that the goal posts are continually moving (and the promised returns never materializing).  And those who do not have that capacity – but nonetheless contribute fundamentally to our core mission – find themselves further marginalized.  Staff, in turn, are put under increased pressure and instability.

A case study?  The ABB model is just coming to UMB, but it has a track record elsewhere.  Our union equivalent at Rutgers reviewed the budget model after five years of implementation.  Here is their eye-opening report and short primer. The university administration at Rutgers also conducted its own five-year review of the budget model (RCM, or Responsibility Centered Management, is a different term for what is broadly incentive-based budgeting).  Although the authors of this 120-page report were primarily Deans, Vice Chancellors, Vice Presidents, and others we would expect to be sympathetic to an administrative-driven initiative, the report is also quite upfront about the model’s shortcomings.  From its executive summary:  

“…the current budget model appears to discourage desired behaviors or impede mission-critical programs and initiatives, including those that relate to Ph.D. education, arts and humanities, diversity, equity, and inclusion, and those that support students or further the University’s public mission.”   “…the design of the current budget model seemed to discourage interdisciplinarity and collaboration across budget lines, making it difficult for faculty to collaborate on courses that cross schools….creating unnecessary competition for students…” 

Remember, this is a report authored by top administrators.   For a more critical perspective read the report and primer from the Rutgers union.  They are both really good.

What to do?  Activity-Based Budgeting comes in many shapes and sizes, and it remains unclear whether our administration is going “all-in” with the model, or how revenues, costs, and “taxes” will be calculated, or how this shift to ABB shapes other important decisions – such as the recently proposed academic restructuring.  This lack of transparency is troubling.  We cannot leave the question of budgetary models up to the financial bureaucrats.  These decisions need to be in the hands of faculty, staff, and students so that we can have a budgetary process that is more transparent, less arbitrary, and prioritizes teaching, research, service, and our broader public mission. 

This is your union! Please let us know at what you think about Activity-Based Budgeting and how you think the FSU should respond to implementation plans.