This is good for the engineering department but bad for the math department--instead of eight professors all teaching one non-major course each, you could have two lecturers teaching four non-major courses each, with the attendant loss of prestige, funding, and political clout for the department.

Would the university really stop subsidizing Math and Physics dept's to the same degree if it weren't for their "service" obligations? I don't think this is right - I think the administration is broadly happy with the status quo, in terms of prestige, etc. If the department has two full-time lecturers, the only consequence is that they will also hire a bunch of full-time researchers to balance things out. By contrast, the "service" role is probably a lot more important politically for departments which teach lots of fluffy GenEd courses.