Budget Cutbacks: Some Strategies for Deans, Directors, and the Staff They Lead

It's the fourth month of a new fiscal year. State revenues are well below projections, the state cannot go into debt, and the governor announces a 5% current year budget reduction for all state agencies and programs. Your university president decides that every university unit will share equally in the reduction. Your College, the Experiment Station, and the Extension Service must each find that 5% in the next 8 months.

Or the legislature dictates a 6% salary increase for all university staff, health insurance costs will be up 10%, and the state legislature provides only a 2% increase in appropriations. The regents approve a tuition increase to protect the instruction budget, but that doesn't help the Experiment Station or Extension.

What is your strategy?

The New York Times recently (March 9) reported that current tax revenues are below expectations in 18 states and that the education budget in 9 states is in specific difficulty. The economic slow-down that began in 2000 doesn't show signs of abatement, appropriations for the next fiscal year will be cautious in most states, and reductions are forecast in some.

As a director, dean, university president, or government agency head, I've had to cut back operating budgets or programs five times. I've watched other university units and government agencies struggle with budget reductions. More recently, my budget work has been in the private sector. But I am on an Extension Advisory Council in a state where revenue growth is far below projections, and I am working with an Experiment Station in another state facing a serious and immediate cutback in state funds. I've learned some lessons on both strategy and the human principles that should influence strategy.

A good strategy can result in good decisions, protect faculty morale, and safeguard relationships with clientele. It can also strengthen your organization for the years ahead.

A Good Setting

How difficult the task you face in a budget cutback depends on your current College, Experiment Station, or Extension setting. A good setting is characterized by the following.

• Your financial data system allows quick disclosure of fund allocations and expenditures, current and cumulative, by budget unit and by expense category.

• Personnel costs, including fringes, are at or below 70% of total budget for an Experiment Station, 80% for Extension or the College instruction program.

• Personnel commitments that depend on an external grant are for no longer than the grant.

• 3 to 5% of the annual budget is held in reserve.

• There exists a clear set of specific and directional College, Experiment Station, or Extension goals/priorities, such as "increase beef cow productivity" or "enhance nutritional status of teen-agers."

• Unit heads carry an appropriate delegated responsibility for budget allocation and accountability.

• There exists a good record of the output and impact of each unit, project, and program, especially where the record is open to all staff. Such could be on an internal Web site, updated annually.

• Both the university president and unit and program heads recognize that the dean or director's job is to provide both intellectual leadership on the priorities most important and most achievable and management leadership in focusing resources on those priorities.

• External clientele have been kept well acquainted with programs, priorities and productivity of your organization and, specifically, of their favorite unit or program.

If the setting is good, your job will be less difficult–not easy, but doable.

A Good Setting Is Not Common

In most of higher education, such good settings aren't common! In many cases, both internal and external pressures have worked to maintain or even increase staff numbers in years when state appropriations failed to match cost increases, and personnel costs exceed the 70 or 80% rule. There has been reluctance to close projects or programs, in hopes that "next year will be better."

Often, goals and priorities are either not stated or are non-specific and non-directional. Examples of the latter: "To be the source of technology for the state's major industry" or "To be in the top 20% of universities in our disciplines." Such statements may be impressive, but they don't help much when budget choices must be faced.

I've also seen cases where the university president implies the dean or director's main job is to protect that office or the regents from political pressure and where unit or program heads suggest their main job is to protect or increase their current budget.

However, there is a job to be done. Budget constraints are reality. Issues are to be faced, decisions made, results communicated, and clientele served. The sooner the job is done, the better the result, especially in the case of a current fiscal year problem.

A Strategy in 10 Steps

A leadership strategy is needed, and that strategy needs to be thought through, in terms of specific steps and their consequences. I suggest a 10-step strategy, and I cite the human traits that make such steps logical and productive.

1. Establish within yourself and convey to key colleagues a positive, constructive attitude, an attitude that you all have a job to do and that you have confidence in your collective ability to do it. Believe and convey that, when the job is done, your College, Experiment Station, or Extension Service can be more productive, more adaptable, and stronger for the years ahead. Your staff can be more productive and gain more satisfaction because the projects and programs retained will be well funded and will deserve continuing support.
   • A positive, confident leadership attitude is valuable and contagious.

2. Establish an assumed budget level for the next 2 or 3 fiscal years, based on realistic projections of tax revenue and legislative behavior.
   • This will illustrate that simply "tightening the belt" on travel or operating expense one more time won't solve the problem.

3. Provide the financial facts to all, including off-campus staff, technicians, clerical staff, and graduate assistants. E-mail allows rapid dissemination, but also schedule several open meetings, so any person can ask questions and hear explanations. Show dollar sources and dollar commitment for the current FY by budget unit and expense category. Show the size of the budget shortfall relative to the total budget or the categories. Be open, accurate, and credible.
   • People are more afraid of the unknown than of the known. And the sooner they know the magnitude of the problem, the sooner they can think about solutions.

4. Do the same with clientele, including students, if the instruction program is involved. Don't mislead. If you face a 6% salary increase with only 2% more money, don't call it a "budget cut." That's not credible. Call it a "program cut."
   • If they know and believe the plight, they are more likely to support actions to solve it.

5. Seek suggestions from key staff–the solid, respected thinkers, both staff and administrative–regarding unit-wide or major programs that should be considered for reduction or closing.
   • They'll be more likely to give suggestions in a one-on-one setting.

6. Consult with key staff on organization-wide guidelines to be followed in making budget reductions. Example issues: incentives for early retirement or shifting to part time employment or minimum travel and operating budget per senior staff.
   • Open discussion and compromise help each unit leader to better explain these guidelines to staff, and they'll be more likely be consistently followed.

7. Decide and announce specific reductions in the dean/director's office budget.
   • Leaders don't ask others to do what they won't.

8. Assign to each unit or program head a budget target for each of the next 2 or 3 fiscal years. Tell them they'll be judged in part on how their cutbacks mesh with organization goals/priorities and insure a solid base for their unit's future. This also recognizes that some program and personnel reductions can't or shouldn't be implemented immediately.
   • Unit and program heads need to carry their responsibility and also feel some "control."

9. Set deadlines for unit reduction plans, perhaps 24 or 48 hours for a preliminary and a week for complete recommendations. This is enough time for thoughtful consideration but not for procrastination.
   • Most staff will believe their program or their position is in jeopardy and will fear the worst. The sooner they know the outcome, the sooner they can plan their next task or begin rationalizing their future.

10. Identify some new and creative opportunities that can capture the imagination and enthusiasm of all staff and clientele. For example, if the judgment is to close down a $400,000 program, assign $75,000 to that sector, and name a staff/clientele committee to identify and plan the program that would serve the sector best.
    • Several of these in the College, Experiment Station, and/or Extension will help the total staff feel positive about the future.

Human Emotion and Behavior

These strategy and steps are based on several basic principles of human emotion and behavior that are usually more pronounced in faculty and industry leaders than in society as a whole.

• The unknown magnifies fear and encourages rumors, usually rumors that are more draconian than fact. Not knowing the magnitude of a problem increases frustration; one can neither estimate its impact nor begin to seek solutions.

• Pride needs to be satisfied. Attention to and investment in "my program" or "my industry" are highly important to a program, project, or industry leader. Quick identification of a "new venture fund" let's them know that they, their discipline, and their industry have attention and respect.

• Having some control of one's program or unit destiny minimizes frustration. Otherwise, the unit or program leader is but a victim. The worst situation for a leader is to have responsibility for absorbing cuts without having some say in the process.

• Satisfaction is the major reward. Few will get a big salary increase in these circumstances, and there'll be few "atta boys" to deans and directors from staff or clientele for decisions made, but when the job is done, each wants to feel he or she has played a constructive role.

• The human mind wants to rationalize. And rationalization begins sooner and progresses more quickly when facts are known, decisions are made, and there can be focus on some opportunity ahead.

• Distant targets seem more reasonable. If you were told today to train for a 26-mile marathon scheduled Sunday, you'd likely see only pain, exhaustion, and failure. The task seems impossible; frustration reigns. Were the marathon 12 months hence, you could lose 20 pounds, plan your training, and schedule time to achieve it–and you may be ready in 6 months. Once a known target is set, most will say, "If we are to do it, let's do it now."

Conclusion

Budget cutbacks are not easy. But they can be done. Beyond that, if handled well, budget cutbacks can provide opportunity to close programs that have "done their job" and to redirect resources. Because all know of the budget reality, difficult decisions can be more readily accepted and rationalized by staff and clientele.

A well-considered strategy, including specific steps based on budget reality and consideration of human emotion and behavior, can serve you and your organization well.