A practical, research-based theory about how colleges and universities allocate resources among budgetary units is proposed. The theory was developed from interview responses at six institutions as well as questionnaire results. In phase one, interviews were conducted with 26 key administrators centrally involved in budgetary decisions at the six institutions. A second study phase concentrated on 74 budgetary units within three of the institutions. Five theoretical concepts were proposed: centrality, resource allocations, environmental power, institutional power, and resource allocation strategies. In addition, propositions were developed about relations among concepts. Attention was focused on the interactive effects of a department's centrality, its ability to tap needed environmental resources, and the strength of its institutional roots on the share of budget funds it acquires. Two kinds of organizational power, a unit's environmental power gained by its relative ability to tap into external resources needed by the organization and a unit's institutional power gained through the strength of its internal roots in the organization, combined to explain about two-fifths of the variance in budget allocation changes. Differences between core and peripheral units were also explored. (SW)