The new vice president for finance at Illinois State University has been through several budget realignments and course corrections at other universities.
Glen Nelson said he is bringing that experience in design thinking to ISU, though the process is well under way as he takes the position.
Step one is to change the university's budget process from a plan based on past year's spending to one based on projected revenue.
“Some of the other steps are actually developing a new process to allocate those dollars and creating a strategic initiative fund, which will then allow campus leadership to direct dollars at projects that we believe will or projects of strategic importance,” said Nelson.
Audit report
A recently released audit report was "unqualified," which means ISU passed.
“That should give the community assurance that the accounting team is doing what they need to do to record the transactions and to present our audited statements in a fair, unbiased and accurate manner,” said Nelson.
Nelson said the audit found ISU had a net increase in assets last year of $14 million. The prior year the university basically broke even. Nelson said that is misleading.
“We have restricted funds and unrestricted funds, and we're not able to move restricted dollars to pay for expenses in the unrestricted side. And so we had a surplus in the the restricted funds of about $21 million last year. To get from 21 to 14 meant that the other side, or the unrestricted balance, had a deficit of $7 million, which was up from a deficit of $4 million the prior year,” said Nelson.
Unrestricted dollars pay most faculty, staff, salaries, benefits and other expenses. Students generate most of that money.
Restricted funds accumulate to allow ISU to make improvements or address deferred maintenance issues, often supported by fees.
“Housing assets, parking assets, for instance, were built with bonded debt. Those debts have bond covenants that restrict the use of those assets,” said Nelson. “So, in the financial statements, it's easy to misinterpret the financial statements when you look at a summary balance sheet or a summary income statement, because of the various funds that we have in the university.”
ISU has also ordered holdbacks of funds within divisions of 2% of their current year budget. Those are supposed to be items that could be deferred or foregone.
“These would be things like not doing a software improvement to a process that we have, or re-looking at travel expenditures, maybe not going to a conference,” said Nelson.
The university also cannot or should not look to its endowment fund or the foundation to address the structural budget deficit. Nelson said endowment funds are given for specific purposes such as scholarships. They are invested and the interest used to pay the scholarships. Nelson said you cannot use the principal for another purpose.
In some cases, the Foundation may receive unrestricted gifts, and the foundation can direct those where needed.
“These are one-time dollars ... It's not something that you're going to use for ongoing monthly expenses,” said Nelson.
How much belt tightening
Nelson said the actual amount of belt tightening next year must be more than $7 million.
“That's before inflation. That's before salary and wage increases, before benefit increases… The good news is we're not talking about a 10%, 15%, or 20% reduction, which a number of institutions have had to look at,” said Nelson.
Another complicating factor is uncertainty at the federal level, and the well-known looming demographic cliff that could pressure enrollment.
He said the current budget process does not allow the institution to react quickly or strategically to environmental factors.
“One of the outcomes of the new budget process will hopefully put us in a position that will be able to be much nimbler and more strategic in the decisions that we make,” said Nelson.
He said the university was well on its way to defining the new parameters of the budge through the Resilience, Innovation, Sustainability, and Excellence [RISE] initiative and the consultants that were brought in to help lead this process.
“In the summer, we'll be developing a pilot, if you will, of the model, that we’ll run numbers through. They'll be able to share that back with the RISE Task Force, with the Senate and with various constituents on campus in the early fall. We’ll probably have to make tweaks to that model. We'll be then running that in parallel with next year's budget, and then in the following fiscal year is when we'll target running with the model,” said Nelson.
Nelson said he’s pleased that more of the Illinois State University campus is engaged in the process than in other places he has gone through restructuring, and it is refreshing to have the university take the extra step to have wide input at this stage. He said that speaks to shared governance and the ISU culture. Nelson said he hopes the process will create more cross-departmental initiatives and incentives for departments to work together.
