Report of the Budget Committee of the University Senate April 20, 1998

Budgets reflect the institution's priorities, and in a perfect world we would report on Columbia's budget in these terms. In practice, this is impossible. The budget is so complex and decentralized that preparing a proper report would be a full-time job. Furthermore, the great bulk of our spending is within the individual Schools, and accordingly, without specific input from Vice-Presidents and Deans, not to speak of School faculties, this Committee does not have the information or the mandate that would permit meaningful comment on these expenditures.

The central administrative budget itself is very complex. Next year's report will say more about it, and here we would just note that it includes many units that students and faculty often do not consider to be administrative. This is especially true of the library system, an area in which the Senate has called for significantly increased spending.

We would of course like to decrease spending for administrative services if this could be done through increased efficiencies. President Rupp, Executive Vice-President Lloyd, and others have put in great efforts to increase efficiencies, and we do not have the expertise to say whether more might be done along these lines.

Another large segment of the central budget involves capital projects, many of which are also the direct responsibility of Schools (i.e., while the borrowing for the new Law-Business classroom building has to fit under the overall university borrowing limit, the interest payments are the responsibility of these two Schools and are not "socialized" through the central budget). Columbia is just completing one five-year plan and the next one, which will involve borrowing approximately $42 million a year, has not reached the stage of specific proposals, although some projects already approved will be funded out of these sums (e.g., phase II of the Butler renovation, the completion of Lerner, and the new undergraduate dormitory). The Budget Committee is working in conjunction with the Physical Development Committee to comment on plans as they are being developed. The obvious general question is whether Schools will have the ability to pay debt service for desired projects; the obvious question for the Senate and its relevant committees is whether the priorities of the Deans, Vice-Presidents, and Provost reflect all the considerations that should go into formulating such plans.

As noted in previous reports, Columbia's budgeting system has changed in recent years to be more decentralized. Funds--especially tuition dollars--no longer flow to the center, to be dispersed to the Schools, but rather go directly to the Schools. Central expenses are covered largely by central endowment, earnings from patents and licenses, and a "tax" on each School. The level of the tax incorporates previous arrangements, and for each School is projected to increase at approximately 5% a year. Questions about the appropriateness of the tax on particular Schools, the division between expenses that are on the central budget (i.e., "socialized") and those that are allocated to particular Schools, and the allocation of endowments have been subject to long discussions in the past and need not be rehearsed here. We just want to note that Columbia does not have many mechanisms for the central direction of funds and therefore lacks accepted and transparent means for setting University priorities. To take an unlikely hypothetical case, if a School received a donation that doubled its endowment, one could easily argue that some of these funds should be re-directed to less fortunate schools. But current procedures would not readily permit this.

Currently, some discretion over this allocative process has been achieved through the Strategic Initiative Program directed by Vice-Provost Michael Crow. The primary purpose of this program is to invest in areas that are likely to yield additional funds in the form of income from patents and licenses. Unfortunately, the amounts available will decrease after two years because the patents that currently provide the bulk of our funds will expire.

In order to generate funds for new initiatives that will not necessarily provide a monetary return, the University has established an Academic Quality Fund (AQF) for the Morningside Heights campus. At first, the funds will be generated by a tax of 0.25% of a School's unrestricted expenses, a figure that will eventually rise to 1.50% in FY 2004. The Budget Committee discussed the fund with Provost Cole and our letter to him is attached. We understand that a faculty committee will be established to screen proposals, but the other concerns we expressed in the letter remain. Further discussions with the Provost are being scheduled and we will report on them when they are concluded.

Perhaps the most important element of central discretion is not a formal one, but instead consists of the President's decisions on how he will deploy the discretionary resources of UDAR and his own time. Existing Schools and new efforts can be supported by a Presidential decision to give them highest priority for fundraising.

The most pressing budgetary problem confronting the University is that many plans assumed that tuition could increase at a recurring annual rate of approximately 6%. The moderating rate of inflation and the actions of peer institutions render this assumption invalid for many if not all Schools. The problem is particularly acute in Arts and Sciences, whose budget is very tight and in which tuition must clearly be moderated. Even if the Senate had statutory authority in this area, it would be difficult to know what to say. We are between a rock and a hard place. The University is highly tuition-dependent and budgets in most of the Schools are stretched extremely thin, with long lists of serious unmet needs that we cannot long defer and yet cannot cover. Schools will be placed in a very difficult position if the central tax goes up faster than the rate of tuition increases. Although in most cases this tax constitutes something like 1/3 of a School's costs, since many other costs can be cut below their planned rates only at significant curricular and programmatic sacrifice and the rate of increase of the central tax was set at a period of time when tuition increases were expected to be higher, it makes sense to see the tax and tuition increases as linked. Tuition increases simply must be kept to a reasonable rate and cannot greatly exceed that of our peers. In many Schools (e.g., SIPA and the School of the Arts) Columbia already charges more than any peer institution. There is no simple solution to this problem--indeed, there is no single solution. As the inflation rate has dropped, it is perhaps appropriate to reexamine costs, including but not limited to those in the central administration, to see if those that were pegged to inflation can be trimmed. But this is not likely to take us very far. We all will be dealing with this topic for some time and with some pain.

As one step in our consideration, the Budget Committee has asked the Central budget office to prepare a report on why expenses have gone up faster than inflation. Committee discussions will start this spring and we will report to the Senate next year.

Robert Jervis, Chair