Activity based budgeting: Cautionary tales from the US Reply

Justin Podur

A new shock is on the way to York University, in the form of a new budget model.

The York University community has just suffered through the AAPR, whose intention of setting programs against one another to justify the administrative reorganization of the university has been blunted somewhat, but is a still present danger. Immediately on the heels of the AAPR came the strike, in which the administration walked into a negotiation with CUPE 3903 seeking massive concessions, chose a strategy during the strike that led to chaos, trying keep the university open through Senate Executive decree, overturning the previous, and wise, policy of closing academic activities for the duration of the strike. Now the administration is seeking massive concessions from the staff union, YUSA, which could lead to another strike. The faculty union, YUFA, is about to enter into bargaining as well in this climate of extreme uncertainty.

Beyond these shocks, however, yet another shock is coming to the university community: the SHARP budget model, or “activity based budgeting”. Like other damaging shocks to the community, this is being prepared in secret, away from the eyes of those who will be affected by it. Details of the budget model are embargoed, and faculty are told only vague promises that the model will provide additional transparency. Units have been threatened that when the new model comes in, there will be huge new deficits that are an artifact of the new way of accounting for things. We can expect that the new budget – like the enrolment losses that are a direct result of the administration’s handling of the strike – will be used against programs, to argue that we can no longer afford x (whatever x may be – academic freedom, the collective agreement, collegial governance, a high full-time faculty complement, enough staff support…)

The budget model, like AAPR, comes to us from the US. The AAPR was born in the brain of an American consultant named Robert Dickeson, who took his methodology on the road and is paid as a consultant to reorganize university programs. Craig Heron has written about Dickeson and his methodology, as have others, including Nalinakasha Bhattacharyya from the University of Alaska, who argued that it was fundamentally about attacking tenure. The “activity-based budget” has been used to reorganize public universities since the 1970s. Christopher Newfield, in his 2008 book, Unmaking the Public University: The Forty Year Assault on the Middle Class, has a chapter dedicated to it (“The Costs of Accounting”). In the US it is called responsibility-center management (or RCM), or revenue-center or activity-based management.

Newfield describes the model as seeking:

to inject financial incentives into the budgeting decisions that schools, departments, and other units were making. Because the facilities, administrative, and other general costs were not charged to schools and departments but were paid by the central administration, RCM advocates alleged, these costs were not factored into academic decisions at those levels – how many new faculty to hire, which courses to shrink or expand, and so on. (pg. 165)

The way York currently budgets, which is the way pre-RCM US universities budgeted, was “centrally allocated, incremental budgeting, meaning that most or all units used the previous year’s budget as a base; their budgets were then cut or, more commonly, augmented from that base”. When new money was available, in the 1950s and 1960s, the new money could build new programs. But after the 1970s, when money became scarce, “new programs died before they were born.” RCM (or, in our case, SHARP), could be justified as a way to catch new growth areas by responding quickly. Newfield reports that where implementation was “gradual and inclusive, RCM improved at least the budgeting process, if not academic planning overall.” The problem, however, was that RCM put everything “nonfinancial” on the defensive. In RCM theory, the integration of financial incentives into unit-level educational decision-making would “support varied academic units by using finance as a universal language, one to which all separate strategies were finally accountable… finance was the privileged language of reality. How the institution was doing was first and foremost a question of its economic situation… the bottom line was comprised of dollars and cents.” (pg. 169)

RCM is part of a broader movement to try to stimulate or create markets, or finance-driven, competitive dynamics within organizations, however artificially this has to be done. In the university context, an organization that is supposed to be spending public money in the public interest is turned inside out with the creation of artificial financial incentives to force dividing education, courses, or students, into commodity units.

What went wrong with RCM was not solely in implementation, but also in the theory itself. The trouble is that:

Education cannot be divided into functional and emotional halves like this… Education is not a form of goodwill, nor is humanistic knowledge a heartwarming sideshow, the academic equivalent of an evening with family by the fireside. The university is in general not-for-profit, meaning that it exists to spend money on making citizens, engineeers, writers, and the other forms of what is sometimes called ‘human capital’ and that can also be called the creative capability of always-evolving society… RCM reinforced the… belief that education is a commodity as measurable as any other, and that administrators must sort the discplines according to those that supposedly pay and those that supposedly do not. RCM is thus as hard on educational development – as dismissive of education’s internal logics and conceptual independence – as any form of financial accounting. (pp. 169-170)

So, what happened as a result? Newfield reports that in the numerous institutions where he has had experience, cultural disciplines, the social sciences and humanities (the areas of York’s strength) suffered:

…it was hard for anyone to fight numbers with philosophy and love, especially under nonstop post-1970s financial pressures… Nonquantifiable benefits were harder to justify than were quantifiable ones. When the overall university was divided into cost units, accounting gave programs that attracted outside funds – materials science, mathematical finance – a natural advantage over those that provided services, required public sector involvement, criticized policy, developed human capabilities, or rested on self-sponsored research that lacked external markets (anthropology, classics). Returns on investment were potentially damaged by controversy, and yet controversy was built into most cultural study. The lack of paying customers now quantified by RCM, then combined with the presence of debate, threatened to keep cultural disciplines in a permanent state of underdevelopment… downturns coupled with accounting standards took a toll on dreams of the new: new programs, new disciplines, new combinations, new ideas that could not yet – or would never – acquire markets and revenues. (pg. 170)

Newfield reminds readers, citing the field of American history, that “universities had brought some fields of knowledge to great heights by defying market judgements about them” (pg. 171). The old way was one of “genteel socialism: by paying the overhead and related costs for all departments regardless of income, they ensured all disciplines the basics of a decent living.” This “general parity” between university fields, including “an equality of expectations for research and teaching”, “benefited every field of endeavor as well as the country as a whole.” Under RCM, “this kind of general provision was redefined as a subsidy that the institution provided to low-income areas.” Before RCM, “educational value would have been the baseline, where good work on Milton and good work on carbon nanotubes produced similar amounts of intellectual value.” But under the RCM world view, “inequality is natural and equality the result of unnatural intervention.” (pg. 172)

The truth was, Newfield says, “the university already knew how to worry about money. What was needed was a system for explaining nonquantitative educational benefits to a deeply money-minded culture, and this is what RCM made even more difficult… RCM was of little use in helping universities support the inventive teaching and novel research that were their main reason for existing, precisely because they would not be supported by its already existing customer base.”

Newfield concludes the chapter with the statement that the “rise of accounting… confirmed the market not as academic servant but as academic master, the de facto final authority on the health of the enterprise.”

RCM, like AAPR, is a US-based management system that has rolled over that country’s public university sector, damaging the university’s mission, damaging non-marketable disciplines, and damaging the possibilities for accessible education. There is no reason to think that it will have a different effect at York.

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