From the Desk: CFO describes how IU develops its budget, recommends tuition increases

Indiana University's budget, approved by the IU Board of Trustees during the June 14 meeting on the IU Fort Wayne campus, represents nearly a full year of planning, preparation and analysis.

John SejdinajView print quality image
John Sejdinaj. Photo by James Brosher, Indiana University

Let's start with IU's largest revenue stream: tuition. But it wasn't always that way. In 2002, the state's operation appropriation provided more funding to the university than tuition. Since then, however, tuition support to the university is more than double what we receive from the state.

It's not just happening here; it's happening across the country as state revenues have stagnated and first priorities are K-12 education, Medicaid, Department of Family and Child Services, and other similar programs.

At IU's tuition hearing this month, the Board of Trustees voted to increase resident undergraduate tuition and fee rates for all IU campuses by 2.5 percent in each of the next two academic years. That equates to $267 for IU Bloomington, $237 for IUPUI and $183 for IU's regional campuses -- IU East, IU Kokomo, IU Northwest, IU Southeast and IU South Bend -- each year. The nonresident tuition increase will be 3 percent.

Even with the increase, IU Bloomington is priced in the lower half of Big Ten research universities, and IU regional campuses have the lowest tuition for any public four-year degree institutions in the state.

What about expenses? At IU, 65 percent of costs relate to salaries and benefits. A 1 percent increase in net tuition does not cover a 1 percent increase in salary and employee benefits.

IU's fastest-growing expense over the past decade has been financial aid. We are heavily reliant on tuition, but we also are committed to affordability. Since the 2008 economic downturn, as incremental state resources have become more limited, enrollments have declined nationally and tuition increases have been at historic lows, more universities have moved to the Responsibility-Centered Management model, as it forces efficiency and budget accountability.

IU works under the Responsibility-Centered Management financial model and was an early adopter of RCM in 1990, which allows academic units to receive funding based on credit hours taught while sharing a portion of central campus and university expenses based on the size of their units. Under our financial model, if schools do not generate credit hours, their revenues decline, and they must reduce their budgets accordingly. Units throughout the university are continually aligning their budgets by cutting costs and working on new course offerings that will appeal to students.

In partnership with programs from the state of Indiana, IU has increased its student scholarship and gift aid by $60 million to over $200 million as the state has added $40 million in student aid investment over the past five years. These programs and financial literacy education are reducing IU student loan debt, as evinced by a 31 percent decrease in loans -- representing $101 million -- compared to 2012.

However, forecasts indicate there is an "enrollment cliff" coming in 2025-26, when the number of high school graduates attending college will drop dramatically. The Midwest and Northeast are expected to be hit the hardest, with only California, Texas, Florida and a few other states seeing rising enrollments. Although the "cliff" is in the future and is not anticipated to impact state flagship schools as heavily, according to data provided by the Commission for Higher Education, resident enrollment at the four-year public universities in Indiana have already dropped by over 5 percent in the past five years and over 30 percent for two-year public universities.

Continuing, incremental investments in IU's strategy for innovative education programs, student services and cost containment are demonstrating success for Indiana.

With all that in mind, here's a timeline of how our leaders decided on a tuition increase and created the budget:

  • Summer 2018

    IU Government Relations, Institutional Research and the University Budget Office proposed changes to the Indiana Commission for Higher Education regarding the state's performance funding model for higher education, which helps determine the Indiana legislature's appropriations to higher education institutions in the state. Some changes were made to the formula, others were not.

    The University Finance team, primarily the University Budget Office and the University Controller, met with the financial leadership of each campus to "close the books" before preparing IU's financial statements at the end of fiscal year 2018.

    During those meetings, campuses reviewed their budgets versus actual performance, indicating where they were over and under budget, what needs were funded, and what the preliminary outlook is for the next year. We then closed the books for the year, and the university controller began to create our financial statements. These meetings were important because they provided a look into the actual financial results and issues that impacted each campus.

    Government Relations and the University Budget Office then began work with President Michael A. McRobbie on IU's budget request to the state, which was presented to the Indiana Commission for Higher Education, the State Budget Committee, the Senate Budget Committee and the House Budget Committee over the fall and winter.

  • Fall/Winter 2018

    The CFO team prepared an analysis of trends impacting higher education using both historical and recent data. Based on that analysis, as well as information from the closing meetings and input from all campuses, the treasurer and the University Budget Office updated IU's high-level forecast model while campuses began working on their detailed five-year models.

    Financial and academic leaders then visited all of the regional campuses to present our preliminary environmental and financial analysis and obtain thoughts and feedback.

  • Spring 2019

    President McRobbie presented to several state legislative committees, while the Indiana governor, House and Senate each developed their individual budgets, each with slightly different proposed allocations for higher education. IU monitored each announcement, and our Government Relations team provided feedback to various legislators.

    After the state adopted its budget in April, the Commission for Higher Education provided tuition guidance. IU and other state universities then had 30 days to announce and hold a tuition hearing. While the Commission for Higher Education provides guidance for resident, undergraduate tuition increases, the Board of Trustees is responsible for actually setting the tuition rates.

    At IU, several things were happening. Academic and financial leaders held budget hearings with deans and departments to obtain a financial update and to hear budget needs for the coming year. Simultaneously, President McRobbie and others held budget hearings with each of IU's vice presidents to obtain updates on their units' financial situation and budget needs for the coming biennium.

    Following these budget hearings, President McRobbie and IU's executive vice presidents determined what priorities required funding for the coming year.

    Financial leaders on each campus completed their detailed five-year planning models and shared them with the University Budget Office.

    The University Budget Office combined those models to provide a campus-by-campus and overall view of IU's long-term financial picture. President McRobbie reviewed the model with university leaders to determine what tuition increase would accomplish IU's goals for the next five years. In any one year, things can be done to balance the budget, but without having a longer-term view, short-term fixes can have unintended longer-term impacts.

  • Summer 2019

    The financial and environmental analysis and the long-term financial model were shared individually with members of the IU Board of Trustees to give them the opportunity to work through the numbers, ask questions, provide feedback and share concerns.

    IU held its tuition forum June 5 to obtain feedback from the public, after which board members voted on the proposed tuition increases. After the increase was approved, campus units completed their detailed budgets for the next biennium and finalized employee salary increases.

    The university's overall budget was then presented to the board at today's meeting on the IU Fort Wayne campus, where it was approved.

John Sejdinaj is Indiana University's vice president and chief financial officer.