Frequently Asked Questions
New Budget Model
Why does Penn State need a new budget allocation model? What advantage does this bring to the University?
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 While the previous model has served the University well, it is an outdated method that many institutions have moved away from.
How were allocations determined?
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.
How does the new allocation model impact units’ budget and budgeting process?
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.
How is this better than across the board cuts?
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.
Are there savings in this model? If so, how will the savings be used?
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.
Does this impact other unit revenues such as gifts and endowments?
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.
How will progress be measured with the new budget 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.
During the development phase, what changes were made following feedback from deans, chancellors, unit heads and financial officers?
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.
Will the new budget allocation model impact the Compensation Modernization Initiative?
University-wide efforts such as the Compensation Modernization Initiative are not directly linked to the work on the budget allocation model. General salary increases for employees are also not included as part of the model.
Are the budget allocation model and Optimized Service Teams initiative connected?
Optimized Service Teams (OST) is a multi-year effort to create a new ecosystem of shared support and services across Penn State in five functional areas — Development and Alumni Relations, IT, Facilities, Safety, and Finance — along with these areas at the Commonwealth Campuses. The initiative is a significant effort that is not directly linked to the work on the budget allocation model and is not considered in the new model. Penn State is still in the early stages of the OST effort, and each of the workstreams will be moving forward along a separate timeline over the next few years.
How does the new budget allocation model impact the current strategic hiring freeze?
The University's strategic hiring freeze is not affected by the budget allocation model and will remain until summer 2023. Budget executives make decisions on staffing for their individual units and can continue to request exceptions for roles they feel are critical.
How does the new Corporate Sponsorship Program impact the budget model?
Strategic Investments and Priorities
How much is set aside for strategic investments and to cover needs the model doesn’t account for?
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.
How will decisions be made about providing additional strategic funding to units?
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.
What is the investment in the campuses and how are allocations distributed?
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.
What is the investment in the colleges at University Park and how are allocations distributed?
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.
How does the model support research?
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.
Is there a fund for contingencies or emergencies?
Yes. $10 million has been set aside for contingencies. The University has additional reserve funds for emergencies.
How does this model prioritize student success and consider other factors like varying cost of instruction for some programs?
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.
Allocations for Fiscal Years 2024 and 2025
What is the maximum allocation increase or decrease per year starting in fiscal year 2024?
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.
Will the University adjust the model in future fiscal years and will allocations for fiscal year 2025 change?
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.
How are administrative and student-supporting units funded and are they all getting the same cut or increase?
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.
Why did a unit receive an increase and what happens next?
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.
Why did a unit get a cut and what happens next?
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.
Will a decrease in a unit’s allocation put a program’s accreditation at risk?
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.
Will there be layoffs or plans to close colleges or campuses in areas that have an allocation reduction?
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.
If a program or campus experienced an enrollment drop during the last academic year did that impact their budget allocation?
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.
How did a campus or college’s student headcount factor into the allocation for that area? Do smaller headcounts automatically mean a unit will receive a smaller allocation?
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.
How does this model impact colleges that offer a lot of general education courses?
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.