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Priorities for Excellence: The Penn State Strategic Plan 2009-10 through 2013-14

Goal 7: Control Costs and Generate Additional Efficiencies
Strategy 7.5: Modify Central Recycling and Introduce Investment Models for New Initiatives
Actions:

The University has followed a strategy of unit budget recycling since 1992-93, recycling $173 million in recurring funds from operating budgets, and shifting considerable resources from administrative to academic units. These recycled funds have provided the means to keep faculty and staff salaries and benefits at competitive levels with Penn State’s peers, to provide some limited funding for new strategic initiatives, and to keep tuition lower than it would otherwise have been for our students. This recycling has averaged about 1.0 percent per year, and while academic units have collectively received more funding in other forms than they have recycled, all budgetary units have lost flexibility and much of their already meager department allotments that support their operations. While not devastating in any single year, the cumulative effect of annual recycling has created great “fatigue” among both academic and support units across the University, and is now impacting basic service levels and necessary capabilities.

The University must re-evaluate its approach to recycling and consider moving away from across-the-board, horizontal recycling to a model of differential recycling based upon the comprehensive approach to program review resulting in consolidation, alignment, and/or elimination of programs or functions that are not absolutely necessary or may not be performing at the highest levels.

In addition, the University should consider expanding the base of any future recycling to the possible inclusion of other units beyond those funded in Educational and General (E&G) budget lines. Although some of these non-E&G functions cannot be subject to recycling (e.g., restricted research funds), others, such as some auxiliary enterprises, could be expected to contribute to recycling targets.

Penn State has a relatively centralized model of resource allocation for new initiatives, particularly in the allocation of recurring (so-called “permanent”) funds, which has served the University well for many years. However, a modified approach that could be used in many, but not all cases, would be similar to an “angel investor.” Funding for new initiatives would be provided in the form of temporary funds, which would be designed to enable the idea to be developed and implemented. Incremental revenues from successful initiatives would be shared between central administration and the operating unit. In the event an initiative did not achieve targeted performance, central administration would be entitled to initial monies generated up to some guaranteed share. If the program cannot sustain itself, it would be subject to a sunset provision and discontinued. A similar modification could be implemented for units that do not directly generate revenue, with temporary funding provided for re-engineering processes to make longer-term improvements in efficiency and service delivery.

Leadership:
  • President and Budget Task Force—Primary
  • Executive Vice President and Provost
  • Senior Vice President for Finance and Business