Matt Adams is president of The Adams Consulting Group, Atlanta, Georgia. He can be reached at firstname.lastname@example.org.
The slowdown in the economy has directly impacted the coffers of our state governments. Some states are able to run deficits and others cannot. Regardless, the impact of these budget shortfalls directly affects our public education institutions. While some private institutions have had to trim expenses, the current triage is taking place mainly in our publicly funded institutions of higher education. It has happened before, during the late 1980s and early 1990s when our universities and therefore their respective facility management departments had to endure across the board cuts. These often occurred for many years in a row. Financial records show that the typical facilities management department endured cuts that exceeded those of the other competing departments within the university. Why did the plant department get hit so much harder? Will the same thing happen again? Ten years later, we have a more savvy group of plant administrators and we have learned a few lessons since then.
In good times, fund-based accounting has given us cover. Now that things are tight again, it is payback time. At the senior administrative level, the campus-wide shortfall from state-based funding is relatively easy to determine. This figure translates into a rough percentage of the overall campus operating budget. As you might expect, this percentage is then applied to each of the major departments (although not always evenly). When the accounting dust settles in the finance office, the plant department is often presented with a reduction guideline of 1, 5, or even 10 percent. In the past, the review of the plant budget was overly simplistic. The following questions were usually asked.
• What is our total O&M budget as reflected by the office of finance?
• What is the requested (x)% of that budget?
• What are the variable cost budgets, e.g., material supply and contracted services?
• Can we cut those enough to avoid reducing funded positions (jobs)? If so, do it and hope for a better day.
This approach can create havoc within the department in the following years. Without materials, maintenance staff cannot be productive. Specialized contracts for maintenance and other services are necessary, but not renewed. This work, left unfinished, typically presents acute performance issues for campus buildings with respect to controls, life/fire safety systems, chillers and boilers, etc. The campus demand for “work-for-hire” continues. This work then dips into the state-funded maintenance resources. This sequence of events was very difficult to control for most departments back then. Many have only recently recovered from those reductions.
Now, during this economic slowdown, many of our peers are more sophisticated. What was once a collegial environment, where we all worked for one college, now gives way to pragmatic departmental advocacy. This time, the plant department is a shrewd advocate as well. Some of the most important strategies to consider have been used by other departments within the university before. Other strategies are common sense and hard to argue with.
First of all, what is a “core” service of the department versus “non-core?” Bigger is not better in periods of budget scrutiny. The plant department that has gradually added other services to its repertoire is doubly hurt during a cutback. There is a difference in services—some services are scalable and others are not. Some are expected by the campus stakeholders while others are not. Unfortunately, the presence of too many non-core services will exacerbate the cut to core services. If there is an impending budget cut, the communiqué must distinguish between core and non-core services. Otherwise, forward looking accounting practices of the department must clearly delineate core versus non-core.
One of the biggest issues is work-for-hire. Many facilities employees provide small project work for our campus. This dollar volume of work is not part of the core services and should not be included in what is hard funded. A good example of this is the custodial service provided to auxiliary customers. These satellite sites represent a fixed entry on the financial statement. The department has a custodial budget of $1 million in total. Pursuant the budget cut, the custodial department, like the others within plant, must cut 5 percent or $50,000. Each facilities department does the same math.
However, close scrutiny of the custodial budget and its operation reveals important considerations. This department supplies custodial services (dedicated staff) to the gymnasium and the student health center. This staff also works on special events for overtime pay, e.g., graduation, sports events, seminars, etc. This work is done on a chargeback basis and annually totals $150,000. The reality is that this work will continue. It will not
be reduced by 5 percent. As such, the core custodial services to the classrooms will take a disproportionate cut since the original calculation of $50,000 in cuts now represents 50,000/ (1,000,000–150,000) or 6
The effects become exacerbated as mentioned earlier. Now a total of 6 percent or the core budget is cut and it affects both material and contracts, effectively reducing the productivity of the core custodial staff. The internal “true” cuts then exceed even 6 percent. Unfortunately, the real calculations do not reflect the reduced satisfaction from the core customers (staff, faculty, and students). It is very important that budget reduction
proposals take this reality into consideration.
Recent industry best practices have proven that the most effective way to reduce the chance of deeper budget cuts is to clearly separate services and their associated budgets. To do this, the plant administration must go back to the basics. Determine exactly what services the state and subsequently the college “hard” funds. Was the motor pool a part of the state’s funding formula? Was environmental health and safety? What about moves and set-ups?
From a budget, organizational, and if possible physical standpoint, the basic maintenance services (stewardship) for education and general facilities must be clear and distinct. When they are not, the total pool of resources and services are viewed together, as one big service and cost center. This point of view is highly detrimental to plant departments in lean times.
Ideally, a true zero-based education and general maintenance budget should be presented on its own with clear service-scope description. Everything else is described realistically as “other” or nonmaintenance services. This begs the question during budget cuts—do we cut basic stewardship or do we cut other nonmaintenance services? When this distinction is made at the onset of a proposed budget cutting review, you are many steps ahead of your peers from the last round of budget cuts ten years ago.