Approaching the Campus Budget - Part I

Campuses have long term commitments that, although paid on an annual basis, nonetheless have first claim on the revenue earned each year. They pay salaries for continuing employees, debt service on loans to build or repair facilities, fringe benefits owed employees, and other, perhaps less formal but nonetheless significant and binding commitments to sustain programs and activities for students, faculty, and external constituencies.

Some observers, particularly from the for-profit sector, try to identify the university’s “bottom line.” In simple business terms, they look for some kind of profit, some kind of return on investment measured in dollars that would allow them to say the university is doing well. This perspective misses the point of the exercise. Universities do not exist to produce a profit or in non-profit terms, a surplus. Indeed, if a university is accumulating more of a surplus than it needs to sustain its operation, it is a bad sign, an indication that the institution has no plans for the future, no ideas for investment, and no capacity for growth. The dividend on university success is more university success, not a payment to stockholders or an increase in asset value.

Quality requires financial support. The best students want good facilities, faculty, teaching, libraries, laboratories, extracurricular programs, and similar elements that contribute to a high quality undergraduate experience. They will go to the university campus that can provide these things, and the university must earn the revenue that buys the quality attractive to many excellent students. The best faculty want high quality research and teaching facilities, strong libraries, good students, graduate student support, research support specific to their discipline and program, and a salary that meets the national marketplace for high quality faculty. When we seek to hire faculty we compete in a national marketplace that provides this context to the best faculty, and if we want the best for our campus, we must earn the revenue.

This explanation may be obvious to university people but on occasion not obvious to other observers, and so I repeat it here. Yet, even if we understand this way of looking at the university, we still need to understand the structure of our campus budget so we can accurately assess where our revenue opportunities lie and understand what we do with the revenue we earn.

The Campus Budget

Our perspective is global, in that we see the campus budget as a complete system. Accounting standards, restrictions on funds, and other rules and regulations may complicate the getting and spending of university money, but in larger terms all money, whatever the source and whatever the use, is the same. It is all green and it all goes to support the acquisition of the quality that defines the institution’s success. University budget managers and accountants must pay attention to various rules about other colors of money: for example, blue money gets spent on buildings and red money on faculty, yellow money goes to student affairs and orange money pays for student scholarships. Yet, at the end, we operate the campus most effectively if we make the pragmatic assumption that all money is green and if we focus on earning the most money possible and then spending it in the most effective way. If it becomes necessary to make adjustments to meet the obligations that follow the other colors of money, we can do that. The focus, however, is always on earning the most money and spending it well. The attached diagram provides a graphic presentation of the campus budget by major income and expense categories.

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