MEMBERS:

Max Kerlin, Academic Affairs (Chair)
Dupuy Bateman, Auxiliary Enterprises
Robert Earnest, Health Sciences Center
John Maes, Development
Leo Moya, Bursar
Leslie Oakes, Anderson Schools
Curtis Porter, Budget Office
Ann Powell, Research Services
Joanne Tapia, Student Affairs
Christine Kozojet, Development (Task Force Liaison)
Julie Weaks, Business & Finance (Task Force Liaison)

SUMMARY OF REPORT

I. Resource Base

• UNM's resource base is under severe pressure and is now dangerously thin.
• The pressure is caused by a combination of chronic underfunding relative to mission, programmatic growth, and weak enrollments at main campus.
• The “resource crunch” is the university’s greatest financial challenge, and perhaps, its greatest strategic challenge.
• UNM must develop strategies that will achieve balance between the resource base and the demands placed on it.  Unrestricted funding must be increased, and we need to be much more selective in the programs we undertake.

• Organizational efficiency at UNM is an important strategic issue that has been the subject of several studies in the past.
• Efficiency is the prudent and effective use of scarce resources to meet goals, including the goal of quality. We need to foster continuous improvements in efficiency across all programs.
• UNM's curriculum needs to be reviewed to insure that instructional goals are being met in an efficient way.
• UNM's internal cost allocation procedures need to be reviewed to insure that all major activities are paying an appropriate share of their full costs.
• Development and fund-raising activities need to be results-oriented.

• Adaptability is responding to changes in the environment by doing new things, doing things differently, and discontinuing things that are no longer needed.
• Increasing competition in education, health-care, and research require the university to be more adaptable, as do changes in information and telecommunications technology.

• Main campus has accumulated sizable deficits in its auxiliary enterprises and has low balances in I&G and public service.
• Balances cannot be allowed to deteriorate further.
• Procedures must be established to prevent future deficits; existing deficits must be covered; and most importantly, the institutional culture must change in the area of financial control.

• Strong individual and unit-level incentives exist to obtain outside funding, but incentives in the areas of teaching, advising, and service are weak.
• Clear incentives to maintain financial control must be in place.
• Pay-for-performance and other incentives for staff are encouraged.
• Appropriate, balanced incentives must be developed in all areas of strategic importance to the university.

• In the past, UNM’s financial planning has been centered around I&G funding and the annual legislative appropriation process. The limited scope and range of our financial planning has contributed to some of the problems outlined above.
• UNM needs to develop the capacity to do long-range financial planning that cuts across funding sources.

I. Resource Base
The committee’s assessment is that UNM’s resource base is under severe pressure and is now dangerously thin.  We believe this results from a combination of three factors:

• First, main campus core funding – what we refer to as “I&G” – is substantially less than other institutions with similar missions and programs.* About ten years ago, the Commission on Higher Education compared our main campus instructional expenditures per student FTE to the average of our official peer group; the deficit was more than twenty percent.  This study is being updated now, but we do not anticipate that there has been substantial improvement in our position over the past decade.  Moreover, many public research universities have substantially more students than UNM, giving them the benefits of greater economies of scale.
• Second, programmatic growth at UNM has created ever-increasing demands for space, administrative services, library and computing resources, and department-level support.  While the “overhead” that is provided by some grants and contracts is a source of partial funding for these needs, many activities provide little or no overhead.  The consequence is mounting pressure on I&G resources, which ultimately are called upon to meet the needs.
• Third, UNM’s main campus enrollments took a downturn in 1994 from which we have not fully recovered, especially at the graduate level.  This is extremely important because enrollments drive both the CHE funding formula and tuition income, the two principal sources of I&G funding.

It is not possible within the confines of the current assignment to recommend detailed solutions for the resource crunch.  However, the committee urges the planning task force to develop strategies that will achieve balance between our resource base and the demands placed on it.  To strengthen the base, we must increase unrestricted funding. This means increasing enrollments through intensive recruitment and improved retention of students; optimizing revenues from both student tuition and fees; and increasing external funding that closely complements and enhances institutional priorities, including instructional programs.  On the demand side, UNM needs to be much more selective in the programs we undertake.  This means evaluating more carefully the full costs of programs over the long run and being prepared not to undertake – or to discontinue – those which cannot be cost-justified in the fullest sense.

II. Efficiency
Over the years, several task forces and other groups have addressed the subject of efficiency in considerable detail.  Typically, they have focused on things like reducing duplication of services, achieving economies of scale, privatization, and reallocation.  These groups have done a lot of work, and there is no need to duplicate it here.  Our committee would, however, like to reemphasize the strategic importance of efficiency, and also add the following points:
 

• Efficiency is the prudent and effective use of scarce resources to meet goals, including the goal of quality.  Further, efficiency is not an end, but rather an ongoing process.  We need to develop plans, policies, and processes which foster continuous improvements in efficiency across all our programs.
• There is a tendency to think about efficiency as an administrative matter.  However, our curriculum consumes a large share of the university’s resources in terms of faculty time, use of space, and general support. We believe that the curriculum should be reviewed to insure that our instructional goals are being met in an efficient way.
• Allocation of cost is an efficiency issue.  As addressed in section I above, programmatic growth is placing enormous pressure on the university’s resource base.  Yet we tend to consider only the marginal costs – rather than the full costs – of our programs.  A complete review and update of UNM’s internal cost allocation procedures is needed to insure that all major activities are paying an appropriate share of their full costs.  This would include research and public service activities, legislative special projects, student fee-supported activities, auxiliary enterprises, clinical operations, and branch campuses.

While development and fund-raising activities are about building relationships with donors, they also need to be results-oriented, with return-on-investment as a key criterion.

Examples of environmental trends that require UNM to be increasingly adaptable include:

• Growing competition for our students from for-profit universities and distance education providers;
• An intensely competitive health-care environment;
• Heightened competition for sponsored research funds;
• Accelerating changes in information and telecommunications technology.

IV. Financial Control
Main campus has accumulated a deficit of over $4 million in its auxiliary enterprises and has very low balances in both I&G and public service.  The CHE approved our 2000-01 budget only after instructing the university to submit plans for correcting the situation.  Any further deterioration of our financial position could result in much more severe consequences, including outright disapproval of our budget by the CHE, adverse audit opinions, and downgrading of our bonds.  This would be a financial and public relations disaster.

We believe that the following three steps must be taken to rectify the lapse in financial control at UNM:

• Procedures must be established to insure that deficits do not accumulate in the future.
• Existing deficits must be covered.  Given that some of the deficits are quite large, thoughtful and creative planning will be required to address them.
• The institutional culture must be changed so deficits are no longer accepted – or worse, ignored.  To do this, accountability needs to be maintained at the lowest possible organizational level.  This is a matter of incentives, which are addressed further in the next section.

V. Incentives
As alluded to above, the university has greatly increased its external funding over the past decade. This is due in large part to the growing quality of our faculty; however, it is also a matter of incentives.  At the level of the individual faculty member, promotion, tenure, and compensation are often related to the acquisition of grants and contracts.  Moreover, there are clear incentives for individuals to obtain outside funding for graduate and staff assistants, travel, equipment, and other forms of support.  At the unit level, UNM’s policy is to return a portion of overhead income to the units that receive overhead-bearing awards.  And at both levels, considerable prestige is associated with receipt of outside funding.

Unfortunately, however, there are many fewer and less powerful incentives for such activities as teaching, advising, and service to the university community.  These activities are crucial to the health and quality of the institution, yet they are unlikely to result in the kinds of rewards that accrue to those who obtain outside funding. Moreover, at the unit level, resources tend not to be reallocated as enrollments change, even by significant amounts.  The unintended result is that units with growing enrollment effectively are penalized with greater teaching loads, while units with declining enrollment are rewarded with reduced teaching loads.

Regarding financial control, our committee believes that inadequate attention is given to this subject when vice presidents, deans, directors, and chairs are evaluated.  These positions are responsible for management of large sums of public money, and clear incentives to maintain financial control must be in place.

In the staff area, we are encouraged by the pay-for-performance plan that is being implemented.  We hope consideration will be given to other forms of incentives for staff, including use of non-recurring pay.

If UNM is to have an adequate resource base, be efficient and adaptable, and maintain control of its finances, the right incentives must be in place.  Our committee urges the task force to recognize the critical role that individual- and unit-level incentives play in the accomplishment of university goals, and to encourage the development of appropriate, balanced incentives in all areas of strategic importance to the university.

VI. Financial Planning

In the past, UNM’s financial planning has been centered around I&G funding and the annual legislative appropriation process.  We have done very little planning that considers the full range of funding sources, and very little financial planning that extends beyond the next fiscal year. Nor have we always thought about the long-term financial implications of our policies.  This has been a mistake given the increasing complexity of our funding.  Frankly, some of the issues addressed above might not be so pressing had we thought more broadly about financial issues.

UNM needs to develop the capacity to do long-range financial planning that cuts across funding sources.  We urge the planning task force to incorporate development of this capacity in its plans.
 

The committee appreciates this opportunity to present our views, and we look forward to discussing them further as the planning process proceeds.