by Brent Gustafson, Finance Director
The budget for the College of Liberal Arts comes primarily from two sources--tuition (75%) and state appropriations (19%), and the vast majority of expenditures are for two functions--salaries and benefits for employees (54%) and "cost pools" (35%). This column will examine cost pools in more detail, highlighting what these costs are for and the various categories of cost pools we pay. For the current fiscal year, CLA will pay $90.2 million in cost pool charges. (See the first column in this series for more background on sources and uses of the college budget.)
What are cost pools?
Cost pools are a way for the University to pay for functions that are essential for operating the institution, but are not specifically associated with individual colleges. The types of expenses covered by cost pools are likely found at any major research university or other large organizations. Cost pools are a necessary part of the University's overall budget model, because all of the revenue in the University is allocated out to collegiate units, and it is not retained for University-wide expenses. These cost pools are a mechanism to finance University expenses by distributing costs to colleges.
Over time, the University has modified its cost pool model, and currently, there are nine separate cost pools paid by CLA. Each is distinct in what costs it is designed to cover, as well as how those costs are distributed out to colleges. The reason for these different methodologies of distribution is to seek a relatively fair manner of assessing charges.
The Nine Cost Pools
Below is a listing and description of each of the cost pools charged to CLA and our cost for FY 2013. Also included is information about the manner in which the costs are distributed to colleges.
Student Services ($34.9 million): this cost pool covers central offices and functions that support all students in the University, including admissions, student finance, and the Graduate School. The costs are distributed to colleges based on the numbers of students, so this is a large cost pool for CLA, and we pay the largest share of this cost pool given our size. There are actually four sub-categories of this cost pool in order to try to have different distribution methodologies for the component costs.
Technology ($16.0 million): many of the University's technology systems are managed centrally, so the costs of email, voice services, file storage, the Office of Information Technology, the help desk, and others are distributed out to colleges through this Technology cost pool. This cost distribution is on the basis of total number of students and employees.
Library ($13.1 million): the Library cost pool allocates the budget of the University Libraries out to colleges based on the number of faculty and students in the college.
Facilities Operations and Maintenance ($7.9 million): this charge covers the costs of building maintenance, waste management, custodial services, and grounds keeping. Costs are charged to colleges based on the amount of square feet that it occupies.
Support Service Units ($6.5 million): in order to fund the units of the University that have general support responsibilities, this cost pool charges out costs on the basis of total expenditures. Included in this category are things like the President's Office, University Relations, the Office of Human Resources, General Counsel, and the Office of Budget and Finance, among others.
General Purpose Classrooms ($3.9 million): as it sounds, this cost pool includes the functions associated with monitoring and maintaining classroom space on the Twin Cities campus, and it is allocated on the basis of total course registrations in a college.
Debt and Leases ($3.6 million): this pool includes the costs of centrally supported debt service and leases. Colleges are charged this cost if they occupy spaces for which the University is paying debt service. For CLA, Folwell Hall is an example of a debt-financed renovation for which we are charged costs in this pool.
Utilities ($3.6 million): while some utilities are charged through the Facilities Operations cost pool, most are included in this Utilities cost pool, including steam heat, electricity, and central air conditioning. Most utility charges are measurable by building, so over time, this charge has been more of a direct cost to units, rather than a proxy methodology that is present with most of the other cost pools.
Research Support Services ($0.6 million): the budgets for central units that administer, support, and monitor sponsored research activity are covered by this cost pool, such as the Office of the Vice President for Research (OVPR) and Sponsored Financial Reporting, among others. The costs are charged out to colleges based on a three-year rolling average of sponsored research expenditures.
Finally, it should be noted that the University's budget process has two distinct components that separate the units that are supported by cost pools and the collegiate units that pay the cost pools. The administrative (cost pool) units have an earlier (early winter) budget process to allow budget decisions to be made in time to reflect the impact on cost pools for the colleges. The colleges then know the impact of any cost pool changes when engaging with the University's budget process in the spring.