UNIVERSITY PARK, Pa. — On Jan. 22, Penn State President Bendapudi and the senior administration shared a road map for Penn State’s future and outlined several initiatives to position the University for future success. Bendapudi asked the Penn State community to share their questions as one mechanism for faculty, staff and students to participate in addressing the University’s financial challenges, business model, and several change initiatives over the next 18 months.
The following is the third in a series of Q&As to answer the most frequently asked questions shared with senior leaders. This installment provides additional insight on the budget allocation model, which accounted for about 30 of the submitted questions.
“We are making meaningful progress toward balancing our budget, including implementing a new budget allocation model. These are critical elements in creating a sustainable business model for Penn State to address the financial challenges we’re facing while we continue to meet our mission to serve students,” said Sara Thorndike, vice president for Finance and Business and treasurer. “We have time to work through these challenges over the next 18 months before the beginning of the 2025-26 fiscal year and will continue to work closely with deans, chancellors and budget executives to develop strategies for success now and into the future.”
1. Will the University share more transparent information about how the budget allocations are determined?
The budget allocation model is based on a multitude of factors, including student head count, student credit hours, tuition and research expenditures. The budget allocation model uses these inputs to determine the distribution of resources that the University has among its colleges, campuses and units. In 2023, the University shared the new budget allocation approach and how the model works — including the various revenue sources that Penn State uses to fund college, campus and unit allocations — starting with the fiscal year 2023-24 and 2024-25 budgets.
In December, the 2025-26 fiscal year budget allocations were shared with budget executives across the University, who had the opportunity to review the numbers, what goes into the model, the data inputs that determine allocations, and the distribution of subvention funds. Like every year, unit leaders will continue to make decisions about their area’s budget and planning and will use the budget allocation to help inform decisions about strategic investments, personnel and other priorities.
2. With the new budget allocation model relying so heavily on student headcount, how is the University prioritizing and investing in research, interdisciplinary collaboration, quality and other items of import at a university?
As Andrew Read, interim senior vice president for research, explained in the University road map update, the budget allocation model isolates research in a way that protects and incentivizes research investment better than at any time in Penn State’s history, and the Office of the Senior Vice President for Research will be partnering with colleges and campuses even more closely than in the past so that we invest to maximize University-wide research impact.
The University’s budget allocation model prioritizes research, collaboration and quality in several ways, beginning with a $28.5 million annual commitment that is distributed to colleges and campuses based on their research productivity and $10 million for the provost to allocate to faculty start-ups. The research budget allocation also grows annually as facilities and administrative (F&A) costs continue to increase.
Strategic funds from the president’s and provost’s offices are frequently allocated to research and scholarly endeavors across the University. There also are significant funds in the University Libraries that support research in many ways as well as in the University Press, which promotes scholarly research. Additionally, central allocations to each unit are used at the discretion of the academic unit leader to promote research, encourage interdisciplinary collaboration through seed grants and expand on research projects that have the greatest impact.
3. Is the budget allocation model making us more like a business than an institution of higher education?
The budget allocation model takes a set of factors relevant to higher education — student headcount, student credit hours, research — and runs a formula to allocate funds to units based on these factors. Colleges and campuses that support more students, teach more courses and credit hours, and conduct more research will receive a proportionate allocation to support their unit. Like many strong peer institutions, Penn State sets aside strategic and subvention funds to provide additional support to resource-intensive programs, smaller programs that are thriving and important to the University’s mission, and to areas where strategic investments will advance the University’s ability to continue to excel for years to come. It is important to remember that the model only addresses Education and General (E&G) funds, which represent about $2.1 billion. Of that, almost 87% of funding comes from tuition revenue, with the rest coming from state allocations and investment income. The allocation model aims to keep students’ tuition dollars and state appropriations allocated in way that is transparent and defensible based on both performance and mission.
4. If my college or campus is successful and/or growing in enrollments then why are we still facing cuts?
Penn State is taking steps to create a sustainable business model. Each unit, college and campus is being asked to take a look at their areas to identify opportunities to better support the University’s mission given the financial realities we are facing as an institution. Even if a college has experienced growth or increasing enrollments, it doesn’t necessarily mean there are not areas that need to be reviewed to free up dollars to invest in strategic University priorities that drive student success.
It is important to remember that at University Park, there are a number of colleges that did not receive a reduction in their allocation and instead received an increase. At the campuses, allocations for individual campuses have not yet been determined.
5. What is the University doing to support programs that require small class sizes and more individualized instruction, such as the performing arts, nursing and agriculture?
The University’s budget allocation model takes into account that certain disciplines require more resources and/or more individualized instruction and supplements the formula-defined initial allocation with strategic and subvention funds. For instance, beginning in the fiscal year 2025-26 budget, $11 million in permanent subvention has been provided to the College of Arts and Architecture and the Nese College of Nursing, recognizing that their curricula require smaller class sizes and more individualized instruction. At the Commonwealth Campuses, $31 million has been set aside for subvention to support strategic needs and priorities, which will be allocated once individual campus allocations are determined.
6. Are you looking at bloat in the central administration for cuts as well?
The University is examining a variety of opportunities and strategies to reduce expenses and expects every unit to examine their areas and consider if there are opportunities to reduce costs to better support the mission and student success. As has been shared, for the fiscal year 2025-26 budget, Penn State has reduced the total allocation across all administrative and student support units by $29 million. The central administrative units also cut $15.7 million from their current budgets compared to the fiscal year 2022-23 budget. This is a permanent reduction for central administrative units that will not need to be cut from academic units.
7. Do the allocation numbers shared online for each unit represent all the funds the unit will receive from the central University budget?
The allocation numbers shared on the Budget Office website represent the initial funding provided through the budget allocation model from the Education and General funds budget. However, the budget allocation model also sets funds aside for strategic investments from the provost and president and carryforward funds, which are not yet included. The allocation numbers also do not include additional funds distributed to units for salary increases and the final phase of the Compensation Modernization initiative. Importantly, the percentage budget reduction will be lower than what is noted online once these funds are added to the unit budgets.
8. Why is the budget for the Office of the President remaining flat while so many other budgets are being cut?
The budget for the Office of the President was reduced by 2.5% in the current budget cycle compared to the fiscal year 2022-23 budget. The budget for the Office of the President is one of the smallest central unit budgets, consisting mainly of staff salaries. While other higher education institutions may have other items that are part of these budgets, this isn’t the case at Penn State. The Office of the President will continue to seek out efficiencies in its operations regardless of its allocation.
Additional Q&As in the series include topics on: