Frequently Asked Questions

The new data-driven budget model creates a clearer picture of the University’s overall revenue and costs and will help to better inform spending priorities and investments to support Penn State’s mission and values. The previous budget was based on an incremental model where each year, the same allocation was distributed with slight changes. Over time, the origin of an incremental model is often lost, and it is unclear whether the base budget is still relevant, appropriate, and based on current data. While the previous model has served the University well, it is an outdated method that many institutions have moved away from.

To determine a unit’s budget allocation, the model uses activity-based data, including student headcount — which is the number of degree-seeking students enrolled in a college or campus — student credit hours, tuition, and research expenditures, among other factors. Any increases or decreases in a unit’s allocation are based on the various types of data that were input into the model. Student-supporting and administrative units are also funded through the model. In addition, strategic funds are allocated to the president, provost, and vice president for Commonwealth Campuses to supplement allocations, especially for units where the model doesn’t account for complexities or extra costs in those units.

The new model is a tool that will use data to calculate what allocations should be for each unit, and as always, units will use their allocations to determine their own budgets and strategies for their areas. Unit leaders will use the budget allocation model to help inform decisions about strategic investments, personnel, and other priorities for their areas.

The University is moving away from across-the-board budget cuts because they are not strategic. While across-the-board cuts may be easier and appear to be more fair, they don’t address the evolution and changes in student needs, student demands, and student interests over time. The University is committed to aligning resources with the needs of our students by using data and metrics to inform annual allocations.

The model does not generate savings but will help the University strategically allocate tuition and appropriations and support budget planning so units can create balanced budgets.

The allocation model includes revenues from tuition and state appropriations. Other revenues generated by units, like gifts and endowments, are not included in the model.

To help keep Penn State on track with its financial goals and to protect institutional finances, monthly financial reports will be distributed to budget executives, financial officers, the president, and the Board of Trustees.

The new Corporate Partnership Program is still in its early stages. A process will be developed around how revenue from the program will be distributed and how this will affect the overall budget.

The model uses activity-based data including student head count — which is the number of degree-seeking students enrolled in a college or campus — tuition-weighted student credit hours, and research expenditures, among other factors to determine a unit’s budget allocation. Increases or decreases in a unit’s allocation are based on the various types of data that were input into the model. Student-supporting and administrative units are included in the model; however, their allocations are not determined by the model but instead through conversations with budget executives and senior leaders. 

Budget decisions are not based solely on formulas and figures. Penn State also allocates subvention and strategic funds for factors not captured in the model and for priority investments. A total of $101 million is being set aside in FY26 for strategic allocations, with $51 million going to the provost for subvention (operating subsidies) for academic units and $50 million to University senior leaders for strategic needs and other priorities, enrollment management, DEIB initiatives, capital projects and new program investments.   

For FY26, individual Commonwealth Campus allocations are yet to be determined. Even though the model has calculated allocations, subvention has not been determined yet for each campus by the Office of the Vice President for Commonwealth Campuses. Individual campus allocations for FY26 are expected to be finalized later in 2024. The Office of the Vice President for Commonwealth Campuses also has $25.5 million in FY26 for additional campus subvention and other strategic needs, which will be allocated to individual campuses once individual budget allocations have been determined. 

While the model uses data to calculate specific allocations, as always, individual colleges, campuses and units will use their allocations to determine their own budgets for their areas. 

Subvention is an operating subsidy provided to a college or campus at the discretion of University leadership. This additional financial support is allocated in the budget model for the Provost, Vice President for Commonwealth Campuses and President to allocate for strategic needs and to provide resources for costs that aren't captured fully in the budget model. 

Strategic Funds are resources provided to a college, campus, administrative or student support unit by the Provost, President or other senior leader for strategic needs or priorities and to provide resources for costs that aren't captured fully in the budget model.  

Decisions will be made by the president, provost, vice president for Commonwealth Campuses, senior vice president and chief of staff and senior vice president for Finance and Business/Treasurer after talking with units and considering strategic needs. These decisions are being made now and will continue throughout fiscal year 2026 until all funds are allocated.

Like every year, unit leaders will continue to make decisions about their area’s budget and planning and will use the budget allocation to help inform decisions about strategic investments, personnel and other priorities. While individual FY26 Commonwealth Campus budget allocations are not yet available and will be determined by the Office of the Vice President for Commonwealth Campuses later in 2024, all other budget allocations were previously shared with budget executives across the University in December. Unit leaders are now in the process of developing their budgets for fiscal years 2025-26, which will be used to present a budget to the Board of Trustees for approval in July (all Commonwealth Campus budgets will be reported to the board in aggregate). Following board approval, the new budget is slated to go into effect on July 1, 2025.

Yes, some updates to the model were made for FY26. Examples include permanent subvention of $11 million for the Nese College of Nursing and the College of Arts and Architecture; adjustments to a couple of the individual administrative/student support overhead percent allocations to colleges/campuses/auxiliaries; there is no cap for UP college decreases, although the Smeal College of Business and Bellisario College of Communications had their increases capped; OPAIR made some changes to how student credit hours/headcounts were categorized; and the carryforward allocation is being determined in early 2025 instead of as part of the model, as was done in past years. Another important factor that is indirectly tied to the model is the provost received more than $15 million in strategic funds from the president’s strategic funds in FY24 and FY25. No funds were received in FY26. 

While the formulas in the model did not change when it was run for fiscal year 2025-26, there is inherent flexibility built into the model to make adjustments based on unit and University needs and priorities each year. Each of Penn State’s academic units are unique, and the budget model has flexibility built into it to account for these differences. That is one of the key reasons the University created a budget model that incorporates subvention, strategic funds, and carryforward, and not something more rigid.

The budget allocation model is designed to be flexible and is a tool to help Penn State leaders make budget planning decisions. The model will continue to evolve as University leaders work through and analyze data. The model will be run annually, so future allocations (for example, for fiscal year 2027) will change as new data is incorporated into the budget model.  

Following approval of the 2025-26 budget by the Board of Trustees in July 2024, the new budget is slated to go into effect on July 1, 2025.  

Original budget allocations for FY26 are available at https://budgetandfinance.psu.edu/budget-allocations. 

More detailed allocations can be found here: https://budgetandfinance.psu.edu/budget-allocation-model

As Penn State works toward a balanced budget, for the 2025-26 fiscal year, the University will need to reduce or reallocate $89 million in expenses, which will come from administrative and student-support unit ($29 million), college ($11 million) and campuses ($49 million).  

There are no maximum decreases this year, although two University Park colleges – the Smeal College of Business and the Bellisario College of Communications – had their increases capped. In total, before salary increases, four University Park colleges received an increase, with the largest being Smeal at +5%; eight University Park colleges received a decrease, ranging from -0.7% (College of HHD) to -5.5% (College of Agricultural Sciences), with the average being -1.4%. Penn State Law and Dickinson Law also saw decreases of 15%.  

Commonwealth Campus allocations won’t be decided until later in 2024; however, in aggregate, the campuses received a -14.1% decrease initially which was revised to -12.8% after the spreadsheet error of $5 million was corrected 

Carryforward dollars are one-time surplus funds that units, colleges and campuses can request to use for strategic investments that promote growth in alignment with Penn State’s mission. The total amount of carryforward for fiscal year 2025-26 is $26 million, with the expectation that $20 million will go to the colleges and campuses and $6 will go to administrative and student support units. It is anticipated that FY26 carryforward will be allocated in early 2025.

The University is focused on making the right decisions. A one-size-fits-all approach isn’t strategic and OVPCC is working closely with each campus to determine its unique strengths and challenges. In the meantime, we will use the aggregate Commonwealth Campus budget to prepare the University budget that will go to the Board of Trustees in July 2024 for approval in lieu of individual campus budgets. Part of this process also includes working through how to allocate $25.5 million provided to the Office of the Vice President for Commonwealth Campuses for strategic subvention.

The Commonwealth Campuses are significant to Penn State’s mission and the University is investing in numerous ways to support the campuses and lessen what could have been a much larger budget reduction. This investment includes: 

1. $31 million in subvention, or operating subsidy, to lessen the impact.  

2. $25.5 million for the Office of the VP of the Commonwealth Campuses to allocate to the campuses. 

3. Carryforward funds that will be determined in early 2025. 

4. Access to request funds from $50 million Senior Leadership strategic funds.  

5. Two new research funding opportunities exclusively for the Commonwealth Campuses: The Presidential Public Impact Research (PPIRA) program The Commonwealth Campus Undergraduate Community-Engaged Research Award (UCERA).  

6. New agreement with the state’s community colleges; new dual admissions process, scholarships and articulation agreements to expand pathways to a Penn State degree, increase enrollments, and serve transfer students as a strategically valuable market. 

7. Additional student financial aid to recruit students and support enrollments. 

8. Strategic funds are being used for marketing to support Commonwealth Campus enrollments.

Penn State is committed to transparency in the budgeting process, which is why we have sought input from so many members of our community. Budgeting is an iterative process, and we value our community’s feedback. That involvement is what brought this error to light, and we have worked quickly to fix the problem. What’s important to note is that we caught the mistake early, and no unit has been adversely impacted.  

Due to a last-minute format change in the spreadsheet for student-credit hour data, an error was discovered in the fiscal year 2025-26 budget allocation model in which World Campus graduate student credit hours were double counted for 2021-22. This resulted in artificially increased FY 2025-26 budget allocations for some University Park colleges and in turn decreased the allocation for the Commonwealth Campuses.  

This mistake has been corrected and the budget allocation for the Commonwealth Campuses has been adjusted, resulting in an increase of nearly $5 million. Following this correction, the previously reported $54 million reduction in aggregate Commonwealth Campus budgets has been reduced to approximately $49 million. In addition, the College of Arts and Architecture, the College of Health and Human Development, and the Eberly College of Science also were underfunded due to this error, by a combined amount of just more than $600,000, and their budget allocations also have been adjusted accordingly.  

The University is funding the approximately $5.6 million budget increase for these four units with contingency funds built into the budget model. Additionally, those colleges that were overfunded will be held harmless, meaning their original FY 2025-26 budget allocations will remain intact due to this error being no fault of their own. Those units that were overfunded in FY 2025-26 are being advised to plan accordingly for FY 2026-27 allocations. 

After careful analysis, we have confirmed that the mistake occurred in December 2023 and, as such, had no impact on fiscal year 2023-24 or fiscal year 2024-25 budgets. After the oversight was discovered, all other data inputs were double checked, and no additional errors were found.  

University leadership has discussed this error with academic leadership and with the Commonwealth Campus community during a conversation event at Penn State Altoona on April 24. 

Note: The error is still visible in the Student Credit hour tab in the workbook. Since neither the original budget model allocations nor the workbook were changed, a new row titled “Student Credit Hour Adjustment” (row 23) in the “Colleges Campuses” tab shows the total $5.6 million adjustment for the four underfunded units (Commonwealth Campuses, College of Arts and Architecture, College of Health and Human Development, and Eberly College of Science). 

The APPR is about realigning our programs based on student and workforce needs and is not directly tied to the 2025-26 budget. The University is looking at the APPR not as a budget initiative but rather as a way to make sure Penn State is doing its very best to serve students, provide high-quality programs, and be innovative to meet their needs. The goal of the initiative is to set Penn State up for the future and is a practice every university should do on a regular basis.

Student headcounts (the number of students) and student credit hours (the number of hours students receive credit for a class) are both important elements of the budget allocation model. Headcounts (35%) are part of the formula; however, they receive a smaller weighting than student credit hours (65%). The higher weighting of student credit hours creates a higher allocation for the colleges that produce high numbers of general education courses. These units have been underfunded in the past since many students taking gen ed courses often do not reside in those colleges. The model weights student credit hours based on in-state upper-division undergraduate and in-state graduate program rates.

Strategic funds may be available for colleges that have smaller enrollments and for units with higher costs to offer specialized facilities and training and more hands-on and time-intensive instruction. For example, $11 million in permanent subvention has been provided to the Nese College of Nursing and College of Arts and Architecture to support specialized instruction and facilities necessary to support the educational mission of those colleges. 
 

This model funds research better now than how it was previously funded. The University maintains its commitment to prioritize and incentivize its research enterprise and to have the resources available for continued investments. The model includes $28.5 million in research allocations to college and campus budgets based on their F&A generating research expenditures. The Office of the Senior Vice President for Research (OSVPR) is not funded by the budget model but instead receives an amount equal to what the University receives from F&A (facilities and administration) recovery so as research expenditures grow, so does the allocation to OSVPR. Also, OSVPR doesn’t pay administrative overhead fees and keeps its carryforward at year end. 

Along with identifying new revenue streams, we are also assessing our investments in graduate education to make sure we continue to invest wisely in the backbone of the research enterprise. We also have launched a Research Support Transformation project to make the University’s research support infrastructure more efficient by taking a more standardized, institution-wide approach to research support. 

Graduate education is a cornerstone of the University, and it’s crucial that Penn State provides the necessary support to graduate students so they may succeed in their academic endeavors. The new budget model supports graduate education by more heavily weighting graduate credit hours in the model that provide funding back to colleges and campuses to support their graduate programs. This is true for all enrolled graduate students that generate student credit hours, including doctoral students who have completed their course work and are focusing on developing their dissertation. Consistent with past practices prior to the implementation of the new budget allocation model, deans and chancellors decide how to allocate funding within their colleges and campuses, including graduate student funding and support packages such as graduate assistantships. Penn State continues to provide additional support to graduate students through faculty start-up packages and support for graduate student insurance plans. 

Along with efforts to cut costs, Penn State is working to identify new revenue streams to help build a strong future for the University. Among these efforts are intentional enrollment planning and our enrollment mix, continuing to advocate for increased state funding, identifying corporate sponsorships, and implementing new commercialization and fundraising opportunities.

Penn State shares many centralized services critical to the function of each campus and needs to fund those operations accordingly. These include functions and offices that directly support the student experience such as Undergraduate Education and Student Affairs, and those that administratively enable the educational mission of the University such as Finance and Business. Each of the administrative and student support units are funded by a specific percent assigned to the University Park colleges, campuses, and auxiliaries. When added up, in aggregate, the University Park colleges pay 67% of the administrative and student support costs, or $603 million. This equates to 43.9% of each college’s allocation of tuition, appropriations and investment income. The campuses pay 29% of the administrative and student support costs, or $256 million. This equates to 46.2% of the campus's allocation of tuition appropriations and investment income. The reason the percentage is higher for the campuses is because the total amount of tuition, appropriations and investment income allocated to the campuses is lower than the University Park colleges. The reason the campuses only pay 29% and not something closer to 67% like the University Park colleges do is because we recognize that the campuses incur costs that they fund themselves that the University Park colleges do not. More than 19% ($49.5 million of $256 million) of the Commonwealth Campuses allocation funds the Office of the Vice President for the Commonwealth Campuses and includes costs that are not in the University Park overhead allocation, including $25.5 million for additional campus subvention, chancellor salaries, financial officer salaries and HR Strategic Partner salaries.

World Campus student credit hours are allocated in the model to colleges/campuses. World Campus headcount is not included in the model.

No. The weighted student credit hours input used in the model are based on in-state upper-division undergraduate and in-state graduate program rates, but the model itself does not distinguish between in-state and out-of-state students as a matter of fairness.

Colleges and campuses receive supplemental funds for salary adjustments outside the model until the model is run again. For example: FY24 and FY25 merit increases are funded annually as supplemental funds until they are run through the FY26 model. FY24 compensation modernization and FY26 merit increases are funded annually as supplemental funds until they are run through the FY27 model. FY27 merit increases are funded annually as supplemental funds until they are run through the FY28 model.

Because no model can capture the nuance and complexity of a university as diverse and strong as Penn State, funds have been set aside to strategically invest across the institution in colleges, campuses and units. Strategic funds are available to the president, provost and vice president for Commonwealth Campuses to direct toward specific unit needs and strategic priorities and to invest in areas critical to the University’s long-term success like scholarly research. These funds can help colleges and campuses in ways the model isn’t necessarily able to capture. 

• Units may receive additional support from the provost and vice president for Commonwealth Campuses to provide support and strategic investments and to account for the unique operating needs of some units that may not be reflected fully in the model.
  • $10 million is allocated to the provost to supplement academic units at University Park.
  • $30 million is allocated to the vice president for Commonwealth Campuses for the campuses.
• $50 million is allocated to the president and senior leaders for strategic investments.
• $28.5 million (5% of research expenditures) is allocated for research incentives.

Decisions will be made by the president, provost, vice president for Commonwealth Campuses, senior vice president and chief of staff, and senior vice president for Finance and Business/Treasurer after talking with units and considering strategic needs.

Penn State’s campuses and the 24-campus model help fulfill Penn State’s land-grant mission and are an area of growth for the University. Throughout the development process, the working group made sure to consider the needs of Commonwealth Campuses and the role they play across the state, including serving a large swath of first-generation students. The vice president for Commonwealth Campuses (VPCC) will continue to play a critical role in making sure that the individual campus budgets are allocated in a way that supports each campus’ individual missions, strengths, and needs. Like the current process, all Commonwealth Campus allocations are distributed to the VPCC to allocate to the individual campuses. 0The allocation provided to the campuses is $1.4 million more than the current distribution and includes funds for strategic investments that support access, affordability, recruitment, and additional campus costs. In addition, a portion of the president’s strategic funds will be used to promote campus enrollments and growth.

Allocations are distributed directly to the deans of the academic colleges at University Park. The total amount is $15 million more than the previous distribution, including $10 million allocated to the provost to supplement academic units.

The budget allocation model continues Penn State’s support and prioritization of research. Disciplinary and interdisciplinary research, scholarly and creative accomplishments are mission-critical and have been incorporated into the model in several ways. The University will continue to provide research incentive funds to colleges and units, and facilities and administrative costs (F&A) are completely protected for research in this model for the Office of the Senior Vice President for the Research budget, faculty start-ups, cost recovery, and other strategic research expenditures. The model also includes a measure of productivity for allocating funds based on research expenditures, public service, and outreach directly to the colleges and campuses of $28.5 million calculated using the average of the last three years of research expenditures reported to external agencies. Strategic investment funds that are allocated to the president, provost, and vice president for Commonwealth Campuses may also be used to support research.

Yes. $10 million has been set aside for contingencies. The University has additional reserve funds for emergencies.

Meeting students’ needs and enabling student success are key priorities for the University. A key consideration in creating the model was developing inputs for measuring and supporting student success beyond enrollment, credit hours, and head counts, as well as cost of instruction. Costs of instruction vary greatly across the institution based on the amount and type of support that students require, whether in a lab, studio, clinical, or lecture experience; the class size; the faculty who are teaching a course; and the number of contact hours. While the model itself is unable to account for such complexity, there are strategic funds that are set aside to be invested in areas like this to make sure the proper amount of support is available. The model will continue to be updated and revised to better integrate the cost of instruction, and funding has been set aside for the provost and vice president for Commonwealth Campuses to allocate to support expenses related to instruction. 

The University prioritized making as modest changes as possible in a single year. As the University works towards a balanced budget, no unit will receive an increase of more than 4.6% for fiscal year 2024 or a cut of more than 4%, and most cuts are along similar lines with past annual budget recissions. Increases and decreases to the central funding provided to units will be phased in over multiple years — and each year will be reevaluated based on current data.

The budget allocation model is designed to be flexible and is a tool to help Penn State leaders make budget planning decisions. The model will continue to evolve as University leaders work through and analyze data. Allocations will increase no more than 3.2% and decrease no more than 4% in fiscal year 2025. The model will be run annually, so future allocations — beginning in fiscal year 2026 and beyond — will change as new data is incorporated into the budget model.

Administrative and student-supporting units are also funded through the model. On average, central units will have a 2.5% reduction, which was determined based on previous budget reductions, reserves, and current needs. However, not every central support unit will have the same cut, while some will have a larger cut, and others will have no cut. Reductions vary by unit and range from 0% to 3.5% for each unit for fiscal year 2024. 

Units receiving an increase will receive phased increases of no more than 4.6% for fiscal year 2024 and 3.2% for fiscal year 2025 to allow no unit to take a cut of more than 4% and give units who are receiving needed increases a chance to integrate these resources into their long-term budgets.

A cut doesn’t reflect the value or importance of what any one area does at Penn State. Allocations are determined by several data inputs, including student headcount and credit hours. While no area will receive a decrease larger than 4% per year, the University understands this is still significant. Many units have reserve funds to help with this transition. After receiving their central allocation, budget executives will meet with the provost or vice president for Commonwealth Campuses to discuss strategic funds and then work with financial officers to develop their budgets for fiscal years 2024 and 2025. The model will be run annually, so future allocations (beginning in fiscal year 2026 and beyond) will change as new data is incorporated into the budget model.

Penn State’s leaders are committed to maintaining the accreditation of the University’s programs. While the model itself is unable to account for every complexity and unique circumstance that exists, strategic investments are available to senior leaders who consider the many variables and distinct needs that exist across the University to support units.

Penn State has no plans for mass layoffs or for closing campuses or colleges. Budget cuts will not exceed 4% per year, which are along similar lines as past annual recissions. As with any year, the unit’s budget executive has oversight over decision-making, strategic priorities, and planning, which includes programming.

During the development phase, deans, chancellors, administrative leaders and financial officers provided important feedback, which was incorporated into the new model. Based on this feedback, adjustments were made including:  

• Adding additional discretionary funds to support units that are overly affected by the activity-based calculations due to the nature of their unit. These funds are allocated to the provost and vice president for Commonwealth Campuses to distribute. 
• Changing the cost driver that calculates a unit’s contribution for student supporting and administrative units to be based solely on general fund revenues. 
• Adding intercollege program headcounts that were previously excluded. 
• Including student credit hours and headcounts from more recent years. The model excludes COVID year 2020-2021 (as it is an outlier) and double counts 2021-2022. 
• Updating the model with the most recent research expenditures now that data is available and sponsored research for public service, outreach, and instruction.

To avoid drastic budget fluctuations from year to year, the model accounts for shifts in enrollment by using three years of enrollment data for “enrollment smoothing” so units have more time to adjust for potential increases and decreases. The model excluded data from the COVID-impacted 2020-21 academic year and used enrollment figures for 2021-22 twice for the three-year smoothing.

Student headcounts (the number of students) and student credit hours (the number of hours students receive credit for a class) are both important elements of the budget allocation model. Headcounts (35%) are part of the formula; however, they receive a smaller weighting than student credit hours (65%). Strategic funds may be available for colleges that have smaller enrollments and for units with higher costs to offer specialized facilities and training and more hands-on and time-intensive instruction.

Student headcounts (the number of students) and student credit hours (the number of hours students receive credit for a class) are both important elements of the budget allocation model. Headcounts (35%) are part of the formula; however, they receive a smaller weighting than student credit hours (65%). The higher weighting of student credit hours creates a higher allocation for the colleges that produce high numbers of general education courses. These units have been underfunded since many students taking courses often do not reside in those colleges.