UB has "all the elements-medicine, engineering, law, pharmacy, dentistry, a large, solid, arts and sciences core-that you need to be a top, comprehensive research university," Capaldi said in opening her "Academic State of the University Address." The future of research universities, she stressed, lies in interdisciplinary work, citing as an example the joint effort of medical and pharmacy schools in drug discovery.

UB also has, in the State of New York, "a state who has given us the opportunity to move ahead and succeed," she said, adding that the state, the SUNY system and UB all want the same thing: for UB to focus on research and graduate education, to improve the quality of the undergraduate student body and to be a highly rated research university.

In concrete terms, Capaldi said, SUNY wants UB to freeze the size of its freshman class; the university can expand its transfer-student population, if it desires, and can increase enrollment "as much as we want at the graduate level."

At the doctoral level, the university needs top-notch students because they will become the future researchers, teachers and faculty members in the United States, she said.

"We want to have our students competing for the top jobs whenever there is a job opening in a university.," she said, noting that UB must offer high stipends and multi-year packages to get the best students.

But, "this is an expensive proposition," she said. To offer stipends to attract the best students, "you need to have the finances to do that. To be as good as we want to be in general, we need more money than the state will provide us."

While the best public institutions get less state money than UB, they receive more funding from non-state sources, such as private donations, patent and licensing income, and online and continuing education activities, she pointed out.

"We can do all of these things, and we must; that's how we're going to have the money to invest to be as good as we want to be. Quality costs," she stressed. "You need to have a way to generate the income that you need to become as good as you want to be."

Capaldi noted than on the various dimensions of a quality university, such as grant money and faculty awards, UB is about two-thirds of the way down the list of institutions in the prestigious Association of American Universities. But UB is small compared to the top universities in the country.

"We are way down in terms of faculty size; it's very hard to compete with universities that have twice as many faculty members," she said. While UB is considered big within the SUNY system, it is considered small nationally, she said.

One of UB's highest priorities, she said, is "to grow faculty size." The university wants to hire the best faculty, "giving us a tremendous opportunity to improve in quality as we grow in size," she added.

Since the state is willing to fund graduate-level enrollment growth-and since doctoral programs are expensive-"it's graduate growth at the master's level that gives us our opportunity to move forward.

"We make money on master's students," she said bluntly, pointing out that the state funding and tuition UB receives for a master's student is less that the cost to teach that student.

Master's students will produce the master's-educated citizens the state needs, she said, noting that the master's degree has become the entry degree in may fields.

"It's our mission to do this; our mission is to produce education at both the undergrad and grad level."

Because UB can grow at the master's level, "that will give us the funding to hire the additional faculty and also to attract the terrific doctoral students that we need," she said.

Capaldi also briefed senators on a reorganization of the budget process that UB plans to have fully implemented by next year.

Universities have a complicated budget process-with money coming from many different sources-and the traditional fund accounting system that is taught in business schools is, quite frankly, "useless" in this context, she said.

"It doesn't say, 'Did you do a good job with the money; Did you spend it on teaching? Did you teach well? Did you produce any research with that money?

"You need some kind of measurement of outputŠso you know you spent it in the best place.

"There shouldn't be any secrets here; we have the money, how it was spent, and whether we got goodness for it"-teaching and research, she said.

"Our purpose in life is not to make money; our purpose in life is to do teaching and research, and to do a terrific job in teaching and research.

"That means you have to measure how you did in teaching and research; you have to have some kind of output measures here to say 'here is the money, this is the teaching we produced, how much; this is the research we produced, how much; this is the teaching, how good; this is the research, how good.'

"Then you have a mechanism to see how you did and also to show how you improved," she said.

Besides clarifying a complicated process, the new system provides a better idea "where it spent its money and what it got for it."

It also provides a better explanation to the public of how the university spends its money, she added.

The aim of the process, she said, is "to get a global budget, to ultimately get output measures so that we then can see where we are investing our money and measure improvement."

She shared with senators several "principles for budget management," some of which already have been implemented:

- The university has a global, all-funds budget, including all income and expenditures.

- The budget expresses the academic values and mission of the university. "The first value we used this year was that the academic side of the university was the most important. To the extent we could, we put all of the new money into the academic side of the university; remember, that's what we're here for-teaching and research.

- When marginal funds are available, both improvement and high levels of quality and productivity should be rewarded. Quality and productivity are evaluated by comparison to the best programs in the nation in public research universities. Capaldi noted that the individual schools are working on that now, to be in place by next year.

- Decentralized financial management principles have been adopted. Authority has been given to the deans "to make their programs terrific and to run their budgets," she said.

- The university is responsible for the costs of university-wide programs, "the common-good kind of things that the university must do."

- The university provides incentives for marginal growth in enrollment and indirect-cost generation.

Specifically this year, UB was able to eliminate the structural imbalance "because we had enough money" due to tuition returned to the campus and monetary incentives for UB's increased enrollment, she said. In addition, "every unit contributed something" to help offset the imbalance, either by taking less of an increase or by taking a cut.

The administration also funded fully the teaching and support costs in the College of Arts and Sciences-"the college didn't overspend; the college was underfunded"-as well as the merit scholarship program; met all commitments made by previous provosts, and funded costs associated with approved fee increases, increased enrollment to the units, the libraries' acquisition price increases and the university-wide priorities.