Budget Philosophy


This document establishes a framework for institutional budget formulation. It clarifies the financial responsibility of units, how Willamette University approaches major aspects of budget management, and the process by which Willamette University engages in annual budgeting and long range financial planning. This document also defines common financial terms used during the budget formulation process.


Budget Landscape: The broad financial environment of the institution. This includes short, medium and long term assumptions, environmental factors (e.g. regulation, enrollment trends), goals, priorities and other factors that affect our financial outlook.

Capital Budget: The institution’s budget for replacing, repairing, upgrading or retiring existing assets and adding new assets. Examples of assets in this context are land, buildings, vehicles and large mechanical or IT systems. Most funding comes from the operating budget but may come from gifts or debt financing.

Carry Forward: Carry forward is the budgeted performance requirement less actual performance. Carry forward calculations include all expense items (labor and non-labor). Carry forward can be a negative number.

Discount: The reduction of the tuition charged to a student. Discounts can be funded or unfunded. Discount rate is the discount as a percentage of tuition and fees.

  • Funded discount: A payment to a student’s tuition that is covered by funds from an external source (i.e. the endowment).
  • Unfunded discount: A reduction to the tuition price charged to a student. This is a reduction to resources available to the institution.

Expendable Net Assets: This amount is used in the calculation of the primary reserve ratio and refers to assets the institution can access quickly to spend on operations and debt. Restricted funds are not considered expendable net assets because they cannot be used for operations or debt. Assets such as property are not considered expendable net assets because it is unlikely an institution would sell property to meet operating expense needs.

Operating Budget: The “all-funds” budget that encompasses all activity necessary to operate the institution on a day-to-day basis. The operating budget consists of the general fund, designated funds and restricted funds.

  • General Fund: The portion of the operating budget where most activity occurs. Sources are tuition, fees and unrestricted endowment funds. Uses are not restricted beyond the normal legal, ethical and policy restrictions.
  • Designated Funds: Funds that have been designated for a specific purpose by the institution. The source is most often the General Fund. Uses are internally restricted to expenses associated with the designation.
  • Restricted Funds: Funds that have been designated for a specific purpose by a person or entity external to the institution. Sources can include gifts, grants, and endowment distributions. Uses are restricted by the source of the funds (e.g. donor or grantor).

Performance Requirement: The financial requirement for each unit. For revenue generators this is the contribution. For revenue supporters this is their budget.

Primary Reserve Ratio: The primary reserve ratio is the measure for sufficient reserves. The ratio is calculated as expendable net assets divided by total expenses. The ratio indicates how long the institution can operate at its current expense level without income. A ratio of 1 equals twelve months, a ratio of 1.5 equals eighteen months, etc. The ratio helps track increasing size (total expenses) and the need for expendable assets to increase proportionally.

Strategic Investment Fund: A budget expense item used to take advantage of opportunities at the discretion of the president. These funds are often used as seed money for initiatives that advance the strategic plan.

Units: All major divisions of the institution. Units can be subdivided between Revenue Generators and Revenue Supporters.

  • Revenue Generator: Units within the institution whose primary activity is directly connected to the generation of tuition. College of Liberal Arts, Atkinson Graduate School of Management and College of Law.
  • Revenue Supporter: Units within the institution whose primary activity is to support the revenue generators. President’s Office, Advancement, Academic and Student Affairs, and University Communications and University Services.

Budget Authority and Responsibility

  1. Each unit has authority over its budget. A unit may make decisions regarding the use of funds allocated to them. This includes funds allocated both for labor and non-labor expenses . Decisions still must comply with university policy and law. A unit’s budget authority is not absolute. Willamette University is comprised of interdependent units and decisions made by one may impact another. The President and Senior Vice President for Finance and Administration have the authority to intervene. In addition, the Senior Vice President for Finance and Administration has ultimate responsibility for assuring that the institution maintains balanced budgets and remains financially healthy.
  2. Managing the financial resources of the institution is a process that requires regular and frequent consultation with a unit regarding that unit’s performance.
  3. Each unit has responsibility for its budget and it is not acceptable to overspend a budget. Each unit will be held responsible for budget deficits that were within their authority to prevent.

Budget Management

Institutional Financial “Bottom Line”

It is Willamette University’s policy that annual budgets are balanced. Accordingly, if reasonable forecasts indicate expenditures are greater than revenue resulting in an operating deficit, then budget cuts must be made to achieve a balanced budget. It is assumed that such a forecast would already account for reasonable revenue production, therefore the only way to a balanced budget would be through expenditure cuts.

If the forecast indicates revenues are greater than expenditures resulting in an operating surplus, then the budget must be evaluated for:

  • An acceptable contingency budget.
  • A strategic investment fund.
  • Reduced endowment spending.
  • Sufficient funding of the capital budget.
  • Reduced tuition increases.


Contingency is a budgeted expense item that exists primarily as a hedge against missed enrollment (revenue) and secondarily as a hedge against unforeseen mandatory expenditures (e.g. legal, compliance, catastrophic).

Contingency is budgeted in “General University” because it exists to protect the whole institution. Units may budget their own contingency to protect their operations against annual variances.

The contingency budget should equal a minimum of 1.5% of net revenue.

Contingency can be released for other uses if we determine that it will not be needed for the primary and secondary purposes.

Preferred uses for unspent contingency include the following (not in priority order):

  • Increasing reserves
  • Refunding the endowment
  • Strategic investment
  • Infrastructure repair and replacement

The President has discretion over the use of unspent contingency funds.


Reserves exist to cushion the institution from variability in revenue and expense over time.

Willamette University will use the primary reserve ratio as one measure of appropriate reserve levels. The Council of Independent Colleges identifies a primary reserve ratio of 0.4 as indicating financial health. Willamette University’s primary reserve ratio should be between 1.0 and 1.5.

Willamette University also aims to have unrestricted net assets available for operations between 5% and 15% of total revenues.

If either measurement falls below the threshold, a budget line item must be created to replenish reserves to within the acceptable range.

If either measurement rises above maximum, the Senior Vice President for Finance and Administration should evaluate the rationale for the savings and recommend a plan to the President. The plan may be to maintain high reserves if there are legitimate reasons to grow reserves or plans that require the build-up of resources.

Carry Forward

  1. Once a performance requirement has been established for a unit, that unit may retain the amount above the performance requirement, but only if all other units have at least met their performance requirements.
  2. The institution must address a unit’s failure to meet its performance requirement timely and within the context of the financial environment.

Carry forward will be moved into designated funds for each unit. Each unit has the discretion to keep carry forward aggregated at the unit level, budgeted at the department level, or some other allocation. The preferred method is that carry forward be aggregated at the unit level to prevent some departments with large budgets from building excessive carry forward while smaller departments may never build carry forward (i.e. creating “haves and have-nots”).

Carry forward accounts may never be over-spent. Any expense beyond a unit’s carry forward amount will hit the unit’s general fund budget.

In certain financial situations the institution may need to sweep or freeze the use of some or all carry forward (e.g. low reserves, or contingency was insufficient to meet a catastrophic event). Other means to address such a situation will be considered first, but the President retains the ability to sweep or freeze carry forward.

Budget Formulation Process

The institutional budget formulation process begins in August and ends in May with an adopted budget.

Each unit is responsible for its own budget process. That budget process should be informed by the budget landscape, current and past year budget to actual reports and detailed staffing/compensation plans. In the unit budget process, each unit should establish its priorities. These may be investment or reduction priorities.

Once the final budget has been adopted by the Board of Trustees in May it is loaded into the financial system and will remain unchanged at the institutional and unit level. Units have the freedom to make net-zero budget adjustments throughout the year within their unit budgets.

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