UNIVERSITY PARK, Pa. — As part of Penn State’s efforts to modernize and transform its budgeting process, a working group of faculty, staff, and administrators from across the University is continuing with efforts to redesign Penn State’s current budget allocation model to be implemented beginning in July 2023 for the upcoming fiscal year.
On an annual basis, the model is used to determine the amount of funding — primarily from tuition and state funding — that Penn State allocates to administrative and student-supporting central units, colleges and campuses. The new budget allocation model will help to more strategically align limited financial resources across the University by using data and metrics to inform annual unit allocations.
The creation of the new model — which complements the University’s multi-pronged approach to reducing costs, identifying efficiencies and enhancing revenues — is focused on supporting student needs and success, prioritizing research, aligning resources with the institutional mission and maintaining central funds for investing in new initiatives and priorities. The model aligns with activity throughout the organization, such as student-credit hours, and is flexible to support key mission-centered priorities.
A town hall meeting for budget executives, unit leaders, faculty and staff will be scheduled to provide additional information about the redesign process and budget model.
“We are seeking to create a comprehensive and evolved approach to budgeting that aligns with current best practices, meets our unique needs, and supports our mission, vision and values,” Penn State President Neeli Bendapudi said. “We’re working to create a model that is transparent and simple to use and understand. Throughout this process, we’ve focused on listening to our unit leaders to find ways we can preserve Penn State’s unique strengths while improving transparency, efficiency and agility in our budget operations.”
This effort builds upon work that initially began in 2019, following a Strategic Budget Task Force report, to develop a new allocation model and a multi-year budget cycle. The process also aligns with the unification of the University’s budget and finance operations this summer.
Recent years of financial challenges stemming from the pandemic, significant inflation and increased costs, tuition freezes in three of the last five years, changes in enrollments, and flat state funding have demonstrated the need to review and revise the process for allocating funding and set priorities for strategic University needs.
As mentioned during the September town hall for employees, Bendapudi charged the group under the direction of Sara Thorndike, senior vice president of Finance & Business/Treasurer, to explore and develop a new budget model. The group partnered with the National Association of College and University Business Officers (NACUBO) to help provide guidance and expertise throughout the process.
Key budgeting and finance stakeholders across the institution — including President’s Council, Academic Leadership Council and financial officers — have had an opportunity to review the draft model in November 2022 and provide feedback to the working group to inform potential changes. An update will also be shared with Faculty Senate at the November plenary meeting.
The new model and next year’s allocations — which are not yet final — will be shared with units, colleges and campuses in December 2022. Beginning in January 2023, units will begin to develop their budgets for fiscal years 2024 and 2025, which will be used to present a finalized budget to the Board of Trustees in July. Following board approval, the new budget is slated to go into effect for fiscal year 2024, which begins July 1, 2023.
While not yet final, there will be changes in the allocations that units, colleges and campuses receive for the upcoming fiscal year, and some of the increases and decreases based on the new model will be phased in over multiple years.
“We recognize all models have limitations and ours will evolve over time based on input and feedback of our budget executives, as well as changing data and metrics and University and unit needs,” Bendapudi said. “We have the flexibility, dedication and expertise required to build a model that works for our University and ultimately helps us fulfill our commitment to providing a world-class education to students.”
New budget model
The University’s new approach is a shift away from the current model, which provided a similar set base allocation to units each year. The new approach determines allocations to units, colleges and campuses using current data and metrics such as student enrollments, credit hours, research productivity and other factors.
Approaches using data and metrics for decision-making are adopted across higher education to meet the needs of a particular institution, according to John Cheslock, a member of the working group and professor of higher education in the College of Education who studies the finances of colleges and universities through an analysis of revenue sources, underlying cost structures, and the economics associated with specific activities.
“There is no one budget model that exists that can fit all universities, which means we have an opportunity to build a model specifically for our University that is flexible to our unique structure, needs and values — and that is inherently responsive enough to be adjusted over time,” Cheslock said. “For many months, we've been focused on creating a new approach for Penn State that allocates resources to units, colleges and campuses in an understandable and effective way.”
Decision-making process
The budget allocation working group followed an established framework used by other institutions as a starting point for developing a model for Penn State that takes into consideration a combination of tuition revenue, financial aid, debt, state appropriations, central reserves for strategic investments, research expenditures, enrollment, student credit hours and head counts, administrative costs and more.
The group developed guiding principles that include upholding Penn State’s unique interdisciplinary structure and multi-campus design, the diverse array of academic strengths and research, and collaboration as foundational elements of the model.
While the model is not yet complete, the working group framed their work around key decision-points and questions that include:
-
How to incentivize student success goals, targeted new program launches, and research growth through the budget model?
-
What percentage of tuition revenue should be allocated through an activity-based formula?
-
How to provide sufficient central reserves for strategic investments?
-
Should any forms of differential tuition revenue be allocated?
-
Should unrestricted state appropriations be allocated?
-
Should enrollment smoothing be used to allocate tuition revenue?
-
How should student credit hours versus majors be weighted in tuition allocation?
-
How can costs for support services be allocated?
-
How to regulate spending in support of institutional finances and strategic goals?
Anticipated timeline
To help achieve a balanced budget by summer 2025, the roll-out of the new model will proceed in a phased approach:
-
November/December 2022: Share model and gather feedback from senior leaders, including President’s Council, Academic Leadership Council and financial officers; refine as needed.
-
December 2022 - January 2023: Share new model with colleges, campuses, business units, Faculty Senate and University Staff Advisory Council.
-
January 2023 - March 2023: Budget executives use new model to develop their fiscal year 2024 and 2025 budgets.
-
March - May 2023: Budget executives and financial officers meet with the Budget and Finance Office and senior leaders, including Thorndike, Interim Executive Vice President and Provost Justin Schwartz, and Chief of Staff Michael Wade Smith, to review their fiscal year 2024 and 2025 budget plans.
-
May 2023 - June 2023: Budget and Finance Office prepares budget request for Penn State’s Board of Trustees.
-
July 2023: Request approval of fiscal year 2024 and 2025 budgets from Board of Trustees.
Budget Allocation Working Group
The working group spent significant time together developing an initial draft model, analyzing data, and gathering feedback to refine the budget model, which will be used to help manage the University’s resources and make sound financial decisions, according to Thorndike.
The Budget Allocation Working Group members include:
-
Kelly Austin, vice president for Commonwealth Campuses and executive chancellor
-
Jeremy Bean, director of change management and organizational excellence in Finance and Business
-
John Cheslock, professor of higher education (expertise in higher education organizational finance)
-
Ken Cody, NACUBO consultant
-
Margo DelliCarpini, chancellor of Penn State Abington
-
Marie Hardin, dean of the Donald P. Bellisario College of Communications
-
Jody Heckman, university budget director
-
Terra Ingram, administrative staff coordinator/business manager for Sustainable Agriculture, Food and Environmental Science Institute (SAFES); chair of the University Staff Advisory Council
-
Lance Kennedy-Phillips, vice provost for planning, assessment and institutional research
-
Tracy Langkilde, Verne M. Willaman Dean of the Eberly College of Science
-
Justin Schwartz, interim executive vice president and provost
-
Sara Thorndike, senior vice president for Finance & Business/treasurer
-
Michael Wade Smith, senior vice president and chief of staff
-
Michele Stine, teaching professor of biobehavioral health, chair of Faculty Senate
-
Virginia Teachey, associate vice president for finance
-
Lora Weiss, senior vice president for research
“I am very appreciative of the dedicated group of faculty, staff and administrators who served on the working group. This cross-functional team engaged in collaborative dialogue that enhanced how we approached decisions to develop the new budget model,” Thorndike said. “We know there will be questions from our community, and we look forward to engaging in conversations and discussions.”
For additional information and frequently asked questions, visit the budget allocation approach webpage.