UMass Amherst People Finder
Reports on the Campus Budget
 

Approaching the Campus Budget - Part I

[posted September 18, 2003]

University budgets often confuse the most expert observers because they reflect many different sources of revenue and their expenses conform to so many different regulatory constraints. This is especially true of public universities whose budgets reflect many idiosyncratic and sometimes arcane rules and traditions derived from each state’s political process. Nonetheless, all of us who care about the success of universities must understand the budget, because the quality and productivity of the institution depend on the amount of money available and how well the university spends it.

Every university budget is a model for the institution’s values. We spend money on what matters. If we say that teaching and research matter, but we spend money on other things, then we have a dissonance in our system that leads to confusion of priorities and difficulty in making good investments. The purpose of this discussion is to be clear about the sources of our income and the major categories of our expenses so that all of us can focus on improving the effectiveness of our expenditures and enhancing the acquisition of our income.

In this series of presentations to the campus we will look first at the overall campus budget from an income and expense perspective to get a sense of where the money comes from and where it goes. Then, after we have looked at this and everyone who has an interest has commented on the information or suggested better ways of displaying it, we can look more closely at both the income earning side of the budget and the expense side and then turn our attention to unit level budgets and the incentives that drive them.

The measure of university success each year, and especially for a major national research university, is defined by the increase in the indicators of the quality produced on its campus. It is the increase in the number of high performing faculty and students, the number of grants and contracts won, the number of discoveries patented and licensed, the number of publications appearing in premier scholarly journals or published by first rank peer reviewed presses, the number of students winning undergraduate and graduate awards, the quality of the freshman class and the entering graduate students, the number of prizes and awards won by members of the university community, and similar indicators of quality. A university can be proud of having one superb scholar on campus, but two superb scholars are better, and 800 outstanding faculty represents a national level of distinction. Quality and quantity are different dimensions of the university bottom line. Universities need more of the best, and to get more of the best, we have to earn the money to pay for it.

Universities are revenue machines: the principal limit on their success is defined by the maximum amount of revenue they can bring into the campus. Universities can become more efficient and effective in the use of the money they have, and every university should do so, but the institution must have money in order to spend it well. Universities operate primarily on a cash basis (although their accounting systems have other ways of presenting the data). Universities earn their revenue each year and spend it during the year. At the end of the year, the university has a positive or negative result that adds or subtracts from its balances, an equivalent of savings. Universities have capital budgets that deal with the multi-year issues of building new facilities, renovating old ones, maintaining the physical plant, and acquiring scientific equipment, but they either pay for the annual cost of capital renovations with cash earned that year or they borrow the money needed and then pay the debt service on that loan from their annual cash income.

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