The University and Its Environment February 20, 1995

CHAPTER 3: UNIVERSITY STRUCTURE AND FUNDING

This section surveys the organization and budget of the University from the last 10 years to the present and considers anticipated changes in these areas over the next five years. The subsection on administrative structure considers the environmental forces that exert pressure for change and growth. The subsection on the budget examines (1) total revenues from all sources; (2) the general fund, which represents the primary source of operating expenses; (3) federal grants and contracts; and (4) private contributions; and looks ahead to the increasing importance of self-generated resources.

Administrative Organization

The current organizational chart of the University (shown in Figure 3.1) reflects significant changes introduced in the past few years. The University has changed the title of its chief academic officer from Vice President for Academic Affairs to Provost, and administration of student services has been included in this office. The position of Vice President for Student Services has been eliminated. The University has added a Vice President for Health Sciences, a Vice President for Statewide Health Services, a Vice President for University Relations, and a General Counsel. The position of Dean of the Graduate College has been separated from that of the Vice President for Research (formerly Vice President for Research and Educational Development). Offices of Affirmative Action, Internal Audit, Statewide Health Services, and the Ombudsperson now report directly to the President. Figures 3.2a-3.2e show the organizational charts for the chief administrative officers who report directly to the President: the Offices of the Provost and the Vice Presidents for Finance and University Services, Health Sciences, Research, and University Relations.
Reorganization and administrative change are to be expected in large organizations as necessary responses to internal and external demands. While further organizational changes at the top level of the University are not anticipated over the next few years, this may be a good time to review the University's structure at the next level of organization, collegiate, departmental, and major service offices. Are some units too large or too small? Are reporting relationships clear and logical? Would consolidation or combination of offices providing similar services achieve better cost control? Are there opportunities for academic and service units to improve their services, effectiveness, and cost management? Could administrative function be improved by consolidation of smaller departments?
Academic developments also influence the organization of colleges and departments. Many disciplines ranging from biology to cultural studies are undergoing transitions that challenge traditional patterns of teaching, disciplinary identification, and collaboration in research and scholarship. Across the country, academic changes have given rise to new departments, or have brought about mergers, re-organizations, and discontinuations of others. In some cases, interdisciplinary units have replaced or transformed historically-defined disciplinary units. Such changes have also occurred at Iowa, most recently as a result, in part, of the Regents' 1989 institutional audit. Departmental and collegiate self-studies and accreditation reviews sometimes point out the need for organizational changes, but follow-through does not always occur. Since the University does not routinely consider re-organization or re-alignment of academic units, it may lag behind peer institutions in making changes that will shape future higher education.

Regulation and Accountability

Many forces have acted to promote expanded administrative services in public universities, and these new services, in turn have contributed to the pressure for re-organization. Institutions of higher education have come under increasing public scrutiny in recent years, with greater regulatory and reporting requirements affecting all components of universities. Many legal obligations have increased at both the state and federal levels as well as requirements imposed by governing boards, licensing agencies, and accrediting bodies. Compliance with requirements for external accountability will continue to be an institutional responsibility; in fact, it is likely that future laws will only increase the accountability responsibilities of universities.
It should be acknowledged that noncompliance with various regulations may result in institutional liability, financial loss, damage to academic programs, loss of research support, or other harmful consequences. Consequently, the University has no choice but to make all reasonable efforts to ensure compliance. Although this responsibility ultimately rests with the University and its central administration, all colleges and most departments and service units must also meet external requirements and requests for information. Management of accountability and compliance requirements needs to be examined and an administrative structure agreed upon.

University Revenues

Table 3.1 provides a global picture of University revenues from 1983 to 1993. Continuing the pattern noted in 1989, the largest percentage increases in University revenues have stemmed from tuition, federal grants and contracts (with indirect costs), and private sources. While other revenues have increased markedly, state appropriations have lagged behind and, in recent years, have not kept up with inflation. (The large change in the "Other Sources" category under Sales & Services reflects an accounting change in the method of reporting debt service on bonds for capital projects. It does not signify any changes in revenues or funding obligations.)
A useful way to examine the University budget is to exclude the sales and service category (mostly hospital revenues) and ask what proportion of the budget comes from various sources. This information can be found in the bottom panel of Table 3.1. Excluding sales and service, 91 percent of the University's budget comes from four sources: tuition and fees, state appropriations, indirect costs from grants and contracts, and federal grants and contracts (direct costs). The proportion of the total budget from these combined sources has not changed significantly over the last 10 years. However, the distribution across these four categories has changed, with the proportion from state appropriations declining and the proportion from tuition and fees and the proportion from all other sources increasing.

General Fund Expenditures

Turning to expenditures, the University uses the term "general fund" to refer to funds that are not designated for a specific purpose. This consists of that portion of the total revenues (above) which is the most basic and flexible source of funding for academic programs, that is, for operating expenditures. Revenues for the general fund come from three sources: state appropriations, tuition and fees, and other income (primarily indirect cost reimbursement). Changes in the proportion of general fund revenues from these three categories are shown in Table 3.2. The percentage of general fund support from state appropriations has dropped from approximately 75 percent in 1979-80 to 63 percent in 1994-95, while the percentage from tuition has increased from about 18 percent to 30 percent during the same period. However, over the past five years in which these two long-term trends have continued, both percentages have been more stable, with state appropriations decreasing from 64.9 percent in 1989-90 to 63.2 percent in 1994-95 and tuition rising from 28.6 percent to 30.1 percent over the same period.
Table 3.3 compares the growth in tuition and state appropriations since 1983 to two inflation indices: the Higher Education Price Index (HEPI) and the Consumer Price Index. The table indicates that tuition rates increased well above both rates of inflation during the early part of the period but have stabilized more recently. Generally, tuition income has exceeded the HEPI, but increases in state appropriation have remained around the rate of inflation. State appropriations, as shown in Table 3.4, have fluctuated from year to year, with required reversions of state funds in some years producing disruptions in programs and planning. The improved financial status of the state leads to the expectation that such volatility will be less likely in the future.
As in the past, the various components of the general fund have received different degrees of support over the last 10 years. Increases in operating expenses to cover costs of equipment, books, repairs/alterations, and supplies/services have been erratic (see Table 3.4). While the equipment budget appears to have kept pace with inflation over the 10-year period, the rates of increase have been erratic. Also, available equipment funds have been almost entirely earmarked for special purposes, such as faculty start-up costs. There have been inadequate funds to replace old research and teaching equipment or to take advantage of technological advances. The library budget, which has been quite volatile in recent years, has not kept pace with inflation over the 10-year period (using the HEPI component for books). A special allocation in 1993-94 was brought some relief and was carried over into the base budget. The budget for repairs, replacements, and alterations has also lagged behind inflation, but has received occasional special appropriations. Finally, the general expense budget--the operations budget for every department, service unit, college, and office of the University--has trailed other components of the general fund. Because the general expense component of the budget directly affects the quality of education and the delivery of services, it merits more support than it has received in recent years.
Perhaps the most disturbing aspect of the pattern of annual budget changes is the tendency for one category or another to enjoy a dramatic increase in response to some emergency need or special request, usually followed by several years of relative neglect. Some of the budgetary volatility can be attributed to the consistent underfunding of annual salary increments. Because state funding for salary adjustments has regularly fallen short of the amount officially recommended, part of the salary increment approved by the state government has been supplied by internal reallocation within the general fund. Until the state provides full funding, reallocations will continue to affect other aspects of the budget and result in shortfalls elsewhere.

Federal Grants and Contracts

From 1972 to 1992 the national ranking of The University of Iowa in federal grant and contract funding improved from 46th to 35th and the total amount awarded to University of Iowa faculty increased from $27 million in 1972 to $126 million in 1994. Most of the improvement in the University's national ranking occurred in the 1970s; since 1978, the national ranking has been relatively steady. By 1989, the University's ranking had risen to 31st, but since then it has been on the decline. In the context of this steady ranking, however, it is important to note that the absolute amount of federal grant and contract funds awarded to the UI has increased by 93 percent since 1984 in spite of declines in some federal programs. In two of the last three fiscal years (1992-1994) the University experienced little or no growth in this area; in fact, in 1994 there was a slight decrease. The outlook for future federal funding depends in large part on how the University adapts to the change in federal priorities following the end of the Cold War, as described in President Clinton's 1994 report "Science in the National Interest." The University's growth is primarily correlated with growth of the NIH budget which has averaged 3-6 percent over the last three years. In other areas, the University has been slow to respond to new federal initiatives such as the Advanced Technology Program from the National Institute of Standards and Technology and the Technology Reinvestment Program from the Department of Defense. There has been a steady decline in new funding from the National Aeronautics and Space Administration because of the agencies shift in priorities from remote probes to the Shuttle Program and the Space Station.

Private Contributions

Private gifts are not reflected in UI budgets; they do not substitute for other sources of revenue but provide an additional margin of support for special projects and enhancements. Contributions to The University of Iowa over the period 1983-1993, both those made through The University of Iowa Foundation and those made directly to the University, are as follows (in millions of dollars):
Year. . . . .UI Foundation. . . . .U of Iowa. . . . .Total
1982-83. . . . .14.9. . . . .. . . . .7.6. . . . .. . . . .22.5
1983-84. . . . .13.4. . . . .. . . . .8.5. . . . .. . . . .21.9
1984-85. . . . .23.0. . . . .. . . . .7.7. . . . .. . . . .30.7
1985-86. . . . .24.0. . . . .. . . . .9.7. . . . .. . . . .33.7
1986-87. . . . .24.5. . . . . . . . .17.0. . . . . . . . .41.5
1987-88. . . . .23.3. . . . .. . . . .7.6. . . . .. . . . .30.9
1988-89. . . . .25.0. . . . .. . . . .6.2. . . . .. . . . .31.2
1989-90. . . . .27.6. . . . .. . . . .4.6. . . . .. . . . .32.2
1990-91. . . . .28.3. . . . .. . . . .8.3. . . . .. . . . .36.6
1991-92. . . . .29.2. . . . .. . . .19.3. . . . .. . . . .48.5
1992-93. . . . .26.3. . . . .. . . .17.4. . . . .. . . . .43.7
Outright contributions to The University of Iowa Foundation increased dramatically in the early 1980s and have continued to rise, though at a slower rate, during most of the last five years, mirroring the trend in private giving nationally. Giving USA, an annual report on U. S. philanthropy, cited very slow growth in nonprofit giving in 1993. The number of contributors, however, has grown steadily from 31,275 in 1983 to 43,311 in 1993, an increase of 38 percent.
Information on the use of private contributions made through The University of Iowa Foundation suggests some shifts in donor preferences. During 1988, over half of the contributions (56 percent), were designated for "research, departmental, and special projects funds"; 19 percent for student financial aid; 16 percent for faculty development; and 7 percent for capital projects. Only a little more than 1 percent were unrestricted funds. In recent years, gift designations have changed. Gifts directed to collegiate funds have decreased to 35 percent of the total, while those earmarked for capital purposes--such as the new Pappajohn Business Administration Building--have grown to 25 percent. The percentage of gifts directed to student aid and faculty development has remained relatively stable. The amount of unrestricted support has grown to nearly 5 percent percent percent percent percent percent percent percent percent percent percent percent percent percent percent, which may be related to the Foundation's increased efforts to obtain flexible, undesignated contributions that are critical to the University's ability to react swiftly to new opportunities.
In recent years, the Foundation and the University have coordinated fund-raising efforts, encouraging potential donors to make gifts through the Foundation, thus minimizing potential conflicts in approaching donors. Wide consultation to identify the most critical needs of units and the involvement of faculty and staff in fund-raising efforts have increased success and insured better targeting of contributions. Additional attention to broad participation will increase awareness of the critical role of private contributions to increasing quality in all University programs.

Summary

The best prediction about University budgets over the next few years is that steady, slow growth will approximately match inflation, with little or no real growth in external revenues. Even with improvement in the Iowa economy, prospects for large increases in either appropriations or tuition funds are limited. Despite stiffer competition at the national level, the steady rise in federal grants and contracts seems likely to continue, especially given that some of the University's strengths articulate with funding priorities of major sources of federal research funds. The rate of increase may slow, however, depending upon the University's ability to adjust to new demands caused by shifts in federal priorities. The strong fund-raising success of The University of Iowa Foundation should continue, but percentage increases will require vigorous effort. Hospital revenues will be severely challenged by health care reform. While the University must continue to seek additional state support to maintain or raise the quality of its programs, new University initiatives will most likely be funded by internally generated revenues, enhanced cost control measures, or systematic reassessment and reallocation from existing programs and services.