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TO: Dr. Verbie Prevost, President of Faculty Council and Faculty Council

FROM: Economic and Budget Status Committee

DATE: April 6, 1999

SUBJECT: Report on Committee Activities for the 1998-1999 Year

The committee for the 1998-1999 year undertook the review and exploration of four areas that appeared pertinent to providing the faculty a basis for evaluating future budget and economic activities and actions at UTC. The areas were selected so as to cover a spectrum of budgetary activities that impinge the programs and faculty. The areas also are intended to provide information that can be used to set in perspective the financial status of the campus and provide information to the faculty to contribute to the campus budgetary dialogue and allocation of fiscal resources.

The areas reviewed are:

The budgetary requests for the upcoming fiscal year, budgetary cycle, and the current status of the financial shortfall on campus. This topical area is intended to provide the faculty an overview of the budgetary requests from the Vice Chancellors for the upcoming year. This is information presented at the open hearings now on campus and open to all. It was felt important to provide this information since faculty may not have been able to participate in all these hearings. This sets in perspective the budgets for each vice-chancellor’s operations. These budgets are also supposed to reflect a reasonable projection of incomes and expenses for those areas that received income from sources other than the state appropriation, grants, or other restricted sources. The magnitude of the UTC operation will also be realized by a review of these materials (Attachment A).

The preparation of the budgetary requests is guided by budgetary preparation instructions for the 1999-2000 annual operating budget. These are useful to understanding the philosophy, policies, responsibilities, and individual responsibilities for various aspects of the budgeting process.

As part of the normal budget operations at UTC, there are budgetary cycles that involve THEC, UT System, the UC Foundation and UTC. It is pertinent to view each of these cycles in relationship to the others, especially as to inputting to the process and understanding when actions or certain activities occur during the year. Although specific dates for specific actions may change from year to year the approximate timing and relationships will be maintained.

With the current budget shortfall and subsequent actions, it was thought important to include some input and evaluation of the situation. This was done through the committee meetings and hearings for insight into the causes and opportunities for discussion to avoid future such issues.

The second area reviewed was that of the forecasting of revenues. This is done as part of the submission to THEC in establishing funding recommendations for the campuses. It also effects the funding available to the campus to support its operations. This information should offer an opportunity to understand how the initial request to the system and THEC are prepared. This does reflect back to the campus through the total funds that will be available to the campus: state, tuition and fees, etc. This occurs on the front-end of the yearly budgetary cycle.

The total funding that comes into UTC was also investigated. This area is intended to provide a view of the total funds available to the UTC community. It reflects both restricted and unrestricted accounts. It also illustrates that significant monies come to campus beyond the state appropriation and tuition and fees. These funds are from the UC Foundation, grants and research, and other activities. This information offers some insight into monies that are available for general purpose and those limited to specific uses.

Finally, the issue of faculty equity calculations and formulae were reviewed. This area provides some information that is useful in consideration of the basis of the formula, factors included, and understanding of how the formulae are impacted with different factors. This area is a very complex and difficult area since it deals with very sensitive issues. The committee has tried to set some very basic considerations regarding equity calculations for consideration and thought by the council and faculty. The committee wishes that these thoughts might be a first step in the discussion regarding this issue. The Provost has committed that faculty salary equity is an area of high priority. This is significant and an important commitment. The committee hopes that its work may form the foundation for further discussions and input to this process (Attachment B).

I wish to commend each member of the Committee who devoted substantial effort and time to our meetings and in the production of the area reports. The committee members provided a wealth of experience and information to our discussions and deliberations. It was a pleasure to serve with them.

On behalf of the Committee,

 

Phil Kazemersky

Chair

 

 

 

Attachment A

 

The UTC 1999-2000 budget

A report from the Faculty Council Budget and Economic Status Committee

 

Overview of the budget

Primary mission is the education of students

State appropriations and student fees primarily used to support the educational and general operations

Revenue producing units will support their own direct costs and possibly augment institutional funds

External funds will be used to achieve their own purposes and possibly augment institutional funds

Expenditures should support goals and objectives of university

 

Budget planning objectives

Claiming assets of technology

Recruiting, retaining, and celebrating diversity

Improving the potential of partnerships

Demonstrating accountability

Enhancing the learning environment

 

Categories of the budget

Unrestricted educational and general budgets

Auxiliary enterprise budgets

Residence halls

Parking

Food service

Bookstore

UTC Arena

Restricted budgets

External grants and contracts

Residence halls

CECA

UC Foundation

 

Revenue assumptions and projections

No change in state appropriations

Student tuition to increase to cover January 1999 salary and wage increases

Decrease in athletic unrestricted gifts and ticket revenues

No change in program and services fees

No change in technology fees

No change in other revenue sources

 

The Unrestricted Budget Picture

 

Revenue categories [figures in $millions]

Category 1997 1998 1999* 2000**

Tuition and fees [A] 19.38 20.37 22.19 22.89

State appropriations 32.95 32.59 34.95 34.95

Facilities and administration costs 0.30 0.30 0.35 0.35

Private unrestricted gifts 0.92 0.45 0.89 0.62

Sales and services of educational activities 0.24 0.28 0.19 0.19

Organized activities 1.43 1.37 1.42 1.42

Athletics [B] 0.98 1.2 1.5 1.3

Other 0.35 0.88 0.30 0.30

TOTAL 56.54 57.41 61.76 61.98

 

[A] Student tuition and fees sources

Category 1994 1995 1996 1997 1998 1999* 2000**

Tuition 15.25 15.40 16.26 16.91 18.19 19.12 19.82

Program services fees 0.68 0.70 0.81 0.93 1.23 1.24 1.24

Technology fees 0.30 0.30 1.45 1.45

 

[B] Athletics

Category 1994 1995 1996 1997 1998 1999* 2000**

Unrestricted gifts 0.53 0.59 0.56 0.78 0.35 0.77 0.50

Tickets and promotions 1.02 1.06 1.33 0.98 1.18 1.48 1.28

*Budgeted **projected

 

Budget categories

Divisions

chancellor

administration and finance [executive vice-chancellor]

academic affairs [provost]

student affairs [vice-chancellor]

development [vice-chancellor]

athletics [director]

 

Subdivisions

50 plus functional areas

3500 plus budget accounts

2400 plus employees

880 full time and 35 plus part time regular employees

1500 plus term employees

 

1998-1999 base budget [in $millions]

salaries and wages 35.48

benefits 9.36

operating expenditures 15.94

equipment 1.93

TOTAL 62.71

1999-2000 budget summary [in $millions]

projected revenues 62.0

projected expenditures 62.71

SHORTFALL .70

 

 

 

Divisional Budget Requests

Budget

Requested

Amount of

1998-1999

1999-2000

Increase

Percent of

Division

in $millions

in $millions

in $millions

Increase

Chancellor

$ 1.37

$1.55

$0.18

13%

Development

$ 1.24

$1.45

$0.21

17%

Student Affairs

$ 1.20

$1.25

$0.05

4%

Admin & Finance

$ 23.99

$25.39

$1.38

6%

Athletics

$ 5.17

$5.21

$0.04

1%

Academic Affairs

$ 29.28

N/A*

N/A*

N/A*

*Academic Affairs makes budget presentation on 4/12/99

Explanations for increases

Division

Chancellor To fund personnel in Banner office and make public occasions account match expenditures
Development To fund publications [Chatt. Today], equipment maintenance, alumni programs, WUTC connect fees
Student Affairs Additional personnel in student health, other maintenance and equipment
Admin & Finance Utilities, equipment for personnel office
Athletics To cover employee expenses previously charged to restricted accounts

 

 

 

Attachment B

 

Salary Adjustment Methods

Salary Adjustment: Introduction

The basic problem of low UTC salaries cannot be seriously addressed by mere changes in the methods used to allocate adjustments to salaries. Such adjustments have no effect on the total amount of salary funding available. Thus, most faculty objections to last year’s adjustment methodology, while not lacking in validity, would fail to change the outcome even if fully accommodated. Simply put, the majority of faculty, despite being under-paid was not adjusted because the funds were not available. The distribution methodology chosen by the administration was appropriate, and superior to methods used in the past.

UTC faculty is seriously under-paid in comparison with fellow faculty at like institutions. The degree of under performance cited by the administration is 17%. The actual degree of under performance is somewhat greater, since data availability is lagging by one year. The administration uses a comparator base that lags by a year, and the comparator base has been increasing at between four and five percent per year. Thus the average UTC faculty member is under-paid by around 21-22%. Furthermore our comparison includes longevity pay. Several faculty members have declared that longevity pay should not be included, because it does not come directly from THEC formula based educational funding, and because they suspect that the national figures are not generally inclusive of state employee longevity bonuses.

Bringing UTC academic salaries up to the average for like institutions (hereafter ALI) is a frequently stated goal of the administration. However there is a lack of progress in this area and is affected by available funds. The average UTC salary actually fell even further behind the ALI level last year and will do so again this year. It is a matter of arithmetic. ALI has been increasing at 4-5% for the last several years while the average UTC salary has gone up at a 2-3% rate. What was a modest problem ten years ago has widened into a yawning chasm. At an average under-payment of 21-22% (or even more, should longevity pay be excluded) UTC can expect that it will be very difficult to recruit, retain and motivate faculty with the level of expertise of the current faculty. The future quality and success of UTC as an institution of higher learning will be more greatly impacted by the extremely low academic salaries than any other factor over which we have local autonomy.

Bringing UTC academic salaries (including department heads) fully into line with ALI would require an increase in aggregate academic salaries of four million dollars, followed by steady 4 - 5% annual increases thereafter. Last year’s salary adjustment funding was about $200,000, with an additional 2% for across the board raises. The gap between the rhetoric of increasing UTC salaries to ALI and the reality of UTC actions is large. Furthermore there is no strategy in place to produce the long run changes necessary to bring about a significant decline in the gap. In the absence of enhanced state funding, a realistic plan is needed that would make education and other programmatic choices so that UTC products can match available resources.

While fiddling with the formula for the distribution of $200,000 will have no effect on solving the basic problem, the committee wishes to clearly acknowledge that a $200,000 adjustment pool is far better than none at all and a demonstration of the concern of the administration. Furthermore the administration’s chosen adjustment distribution methodology was specifically designed to target the most egregiously under-paid faculty, and was highly successful. The following lengthy technical section describes the chosen method as one that emphasized transparency over complexity. The cost of transparency was the neglect of factors such as years in rank and merit that would have marginally improved the fairness of the distribution. As described below the inclusion of years in rank and merit in the distribution formula would have had only a minor impact on the distribution pattern of salary adjustments, but would have made the adjustment process far more difficult to understand, i.e., transparency would have declined.

 

Salary Adjustment Strategies

1. There is no one correct method of implementing equity adjustments. Equity can be approximated more closely by adding more factors into the adjustment system. The cost of this extra fairness-through-complexity is a decrease in transparency (leaving aside computational issues). This is an important cost if the "fairness" of the adjustment system is not automatically accepted. The optimum balance between fairness and transparency depends on the community, with more distrust implying the adoption of a simpler adjustment mechanism.

2. UTC tends to employ simple adjustment mechanisms. The 1998-99 round did not have an adjustment for years in rank, or performance. Inclusion of these factors at appropriate weights would probably have led to minor alterations in the average adjustment, increasing fairness by a similar minor amount. The cost would have been a major increase in the complexity of the adjustment algorithm. In fact an understanding of the more complex adjustment algorithm would probably cost more time and effort than the average UTC faculty is willing to expend. Thus the adjustment process suffers a major loss of transparency. This is not an insurmountable problem if the faculty generally believe in the competence and fairness of the administrative apparatus controlling the adjustment algorithm. Absent this high degree of "blind trust" a severe loss of transparency is a serious problem. In short: simple may be better, despite the decrease in fairness by not including years in rank or performance.

3. The model.

Adjusted Salary = Prior Salary + Adjustment.

Adjustment = (Proportionality Factor)x(Ideal Salary - Prior Salary), with the addition of various limits, such as, for example, if the prior salary is within .75 standard deviations of the ideal salary no adjustment takes place, no adjustments larger than x take place, etc. Note that, while the limits are designed to increase the fairness of the process they have a cost. (Why was the limit at .75 instead of 1.0 or .5? There may be sensible reasons, but the very fact that an involved explanation is required to unearth them decreases the transparency of the process.)

The proportionality factor is determined by the budget constraint facing the University. Given an adequate budget it would equal one, i.e., salaries would be set equal to the ideal salary.

 

4. All factors usually enter the process through the choice of the ideal salary variable. The simplest method is to choose this from a national database listing salaries by rank and discipline. As there is no national performance norm their can be no national database including this variable. It must be a local (UTC) algorithm. While years in rank could be added to the rank and discipline national database this does not seem to have been done. Therefore a years-in-rank adjustment must also rely upon local data. See section five below for a discussion of a simple years-in-rank adjustment, and section six for merit adjustment.

Even the simplest method, choosing the ideal salary from rank and discipline indexed national data, is not transparent. The choice of which national data base probably makes a completely insignificant difference in the average adjustment. (The outcome is dominated by the proportionality factor given by the University’s budget.) Yet I have substantial anecdotal evidence that many faculty members believe that the choice of database may make a substantial difference. A caveat is in order here, as this belief may be an outcome of the .75 standard deviation filter. If a choice of the national database moved an individual from above to below this artificial limit there could be a difference to that individual’s adjustment. It is unlikely that more than a handful of faculty could possibly have been "reclassified" through the choice of database.

Several faculty have requested that the national salary data not be used for their discipline, and proposed substituting discipline-specific databases (with higher salaries). As almost every discipline could find such a compilation, to be fair, if one department is allowed this tactic, then every department must be allowed to submit its own salary base source. This raises obvious concerns about standardization and differential accuracy. However it is incumbent upon the University to select a national database with adequately fine distinctions between fields.

 

5. Estimation of years in rank effect on salary.

The method described here is the most straightforward possible. It uses the existing UTC database maintained by Dick Gruetzmacher at Institutional Research, except for the calculation of one new variable, years in rank. The result of this change in the adjustment process would be to preserve the existing effect of years in rank on the salary structure. This is "fair" to the extent that the existing years-in-rank effect as it currently exists is regarded as "fair."

5.1. First regression:

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where YR is years in rank, and SAL and NATAV are the individual salary and national average salary by rank and discipline as defined by the OPEIR database. This presupposes a linear relationship between years in rank and salary, which violates the usual experience wherein b1 declines with years in rank (see for example G. M. Swisher’s model for Tenn. Tech.).

 

5.2. Taking into amount the non-linearity produces the second regression

SAL=

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where l < 1. As running each regression should take only a minute or two once the time-consuming work of assembling the database has been accomplished, l can be estimated iteratively. For example run the regression with .5 for l, then try .6, .7 and .8 (.9 is probably unnecessary because by then the relationship approaches linearity). Using the R-squared printed out by the regression program choose the best two results and run the regression with a l halfway in between. Choose from among these three l’s on the basis of the best R-square.

5.3. Using these results for adjusting z-scores to reflect years in rank could be done as follows. Create a new variable called target salary (TS), which is the old NAT AV + b2(YRl). If the

 

b2(YRl) turns out to be large (which I suspect is NOT the case), then in order to avoid an upward bias in the target salary the formula would be changed to TS = NAT AV + b2(YRl) - b2(UYRl), where UYR is the university average years in rank (calculated separately for each rank). This simplifies to TS = NAT AV + b2(YRl - UYRl). This TS variable is a years-in-rank adjusted NAT AV salary variable, and would replace the later in the calculation of Z scores.

 

5.4 We suspect that the inclusion of the years-in-rank adjustment would have minor effects on shifting the rank ordering of the Z scores. Note that, as a consequence of the university’s budget constraint discussed in section 3, the rank order rather than the absolute size of the Z score determines the salary adjustment. Any changes in the rank ordering would be subtle, and would take place only for individuals in the extremes of the years-in-rank distribution, say those with 0-2 years, who would lose, and those with 20+ years, who would gain. Returning to the transparency theme, the slight increase in fairness is accomplished by an increase in complexity, which decreases transparency.

 

6. Merit

Including merit in the salary adjustment process can be accomplished using the record produced by the EDO system. The fairness of this system depends upon the fairness of the EDO record jointly with the rewards to merit embedded in the existing salary structure. The 98-99 salary adjustment algorithm did not take merit into account.

6.1 Assuming that approximately 20% of the faculty receive exceptional merit leads to the conclusion that an average faculty member will receive exceptional merit one out of five years. This is a "batting average" of .200. To establish the existing effect of merit (as measured by the EDO system) a batting average could be established for every faculty member. As in section five above a regression is run that establishes the degree to which a higher batting average has resulted in a higher salary in the existing UTC salary structure. This data can then be used to adjust the NAT AV salary variable (or the TS salary variable), with the resulting merit-adjusted variable used in the calculation of Z scores.

6.2 As with the years in rank adjustment, the merit adjustment would probably not result in a substantial change in the rank ordering of Z scores. Those affected would probably be at the lower extreme of the distribution, as those at the upper end would often have Z scores insufficiently negative to qualify for a salary adjustment.

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