Penn State Moving Toward Data-Driven Budget Allocation Model

Penn State officials hosted a virtual town hall on Wednesday to summarize upcoming changes to the university’s budget allocation model and provide an overview of the modernized process.

In essence, Penn State’s new-look allocation process seeks to use university-collected data to inform budgetary decisions. The soon-to-be remodeled approach will regularly examine changing factors, including university funding and student demand, to more accurately support units throughout Penn State’s campuses, all in an effort to help balance the university’s budget by 2025.

“This is a data-driven model that was designed with the idea of reducing unpredictability and making sure changes are not abrupt,” said President Neeli Bendapudi. “It’s something that will evolve over the years and help Penn State to advance and grow our mission.”

While plans are not yet finalized, Penn State expects to adopt its new budget allocation model next spring in time to propose a revitalized budget in July, aligning with the university’s typical budget approval timeline. The university will begin with a two-year model before running its calculations each year thereafter to create modernized budgets that reflect current needs and data.

Penn State’s current budget allocation model, an incremental process, essentially grants the same funding to units each year. Small changes are implemented from year to year, but that approach often ignores changing enrollment data, student needs and research expenditures that heavily influence Penn State’s needs, administrators said.

During Wednesday’s town hall, university officials said a new budget model is long overdue for Penn State.

“Our current model, actually, is outdated,” said Sara Thorndike, Penn State’s treasurer and senior vice president for finance and business. “We’re a little bit behind where our peer institutions are where they’ve moved away from incremental budget models already to something that’s more data-driven like we’re moving toward.”

A new analytical model serves as the cornerstone of Penn State’s upcoming budget allocation process. That model, officials say, will funnel critical university data into a number of formulas to determine appropriate budget allocations for units across Penn State’s campuses, ranging from academic colleges to university libraries. Crunching the numbers and using them to inform decisions is expected to help the university reduce unpredictability, provide flexibility in the future and ensure that budgetary changes are not abrupt.

Key data points include tuition dollars and state-granted appropriations, which heavily influence Penn State’s budget. Other metrics the university will monitor include student credit hours, the number of degree-seeking students and research expenditures. The university is currently working to collect benchmark data for units across Penn State’s campuses to ensure they’re properly funded under the new allocation model.

Although Penn State’s new model would put data in the driver’s seat, it will still give unit leaders and department heads the chance to make key decisions with the money in their budgets.

“This does not take any decision-making away from the budget executives,” Thorndike said. “This is giving them one number, which we have calculated, that they will then decide how to use. If you are in a unit within a particular college, we’re not giving that unit a budget. That dean will be working with their college to determine what those allocations are.”

Under the proposed budget allocation model, Penn State units are not expected to see budget cuts of more than 4% in the next two years, officials said on Wednesday. A 3% reduction is considered normal when university budgets are trimmed.

Justin Schwartz, Penn State’s interim executive vice president and provost, says the university’s new approach to data-driven cost-cutting is expected to help it more accurately manage its books while supporting its students, faculty and staff.

“There was really no one advocating that we continue with an across-the-board cut method,” Schwartz said. “Across-the-board cuts don’t address the changes in student needs and student demands and student interests. We really hadn’t, in a long time, taken a look at aligning our resources with what the needs of our students really are. We all agreed that if we wanted to meet our mission, we needed to do it in a data-driven way.”

Tackling Penn State’s budget concerns has seemingly become the most important challenge for Bendapudi’s administration. The university operated at a nearly $200 million deficit last year and has since taken drastic action to help balance its books, including a widespread 3% budget rescission, increased tuition rates and a “strategic hiring freeze” that is expected to last through next summer. Nationwide inflation and stagnant state appropriations also necessitated stronger budget action, Thorndike said on Wednesday.

The university took a major step toward that goal by passing an $8.6 billion 2022-23 operating budget in September that, despite spending more, is expected to gradually lower Penn State’s deficit below $150 million, serving as a stepping stone toward a balanced budget by 2025. Financial woes, at least in part, also resulted in the high-profile shelving of Penn State’s Center for Racial Justice, which was once slated as “just the beginning” of Penn State’s racial equity initiatives following nationwide outcry in 2020.

While budgetary pressures impact nearly every facet of Penn State’s operations throughout Pennsylvania, administrators on Wednesday reiterated that the university does not plan to make many structural changes. Bendapudi recently announced her intentions to consolidate the university’s two separately accredited law schools with a primary campus in Carlisle, but that decision came as the University Park-based school sought a new dean — a move Bendapudi said didn’t make sense for the university’s long-term outlook.

Law schools aside, Penn State has no plans to consolidate its colleges or close any campuses, Bendapudi said. Individual units will not be forced to close any programs or implement mass layoffs, either.

Moving forward, Penn State is expected to release a document that explains its upcoming budget allocation model and unit allocations. According to Tracy Langkilde, dean of the Eberly College of Science, those resources should be available after winter break.

Wednesday’s town hall will be archived and available for viewing at LiveEvents.psu.edu in the near future, Penn State said. Those with budget-related questions or concerns are encouraged to contact the university at [email protected].