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Budget, tuition increase contingent on state support

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In the face of uncertain state funding, the Board of Regents July 15 approved a 2.8 percent tuition increase for in-state undergraduate students at the Ann Arbor campus.

The rate is consistent with the recent revision of the Detroit CPI at the state's May 13 revenue-estimating conference. The University made it clear, however, that the tuition rate will be contingent both on the state's ability to restore a portion of the base funding that was cut in mid-year, and on the tuition restraint incentives formally established by the Legislature.

Earlier this year, Gov. Jennifer Granholm proposed an appropriations incentive for universities that limit tuition increases to the rate of inflation. The state said it would return 3 percent of the mid-year funding cut to universities that adhere to the tuition increase guidelines. If the state follows through, it would mean that Michigan public universities, which saw a 10 percent cut in their base appropriation in fiscal year 2004, would experience an additional, but more moderate, cut of 2 percent for FY2005. The impact would be a $43 million cumulative two-year funding cut for the Ann Arbor campus.

"We support the plans of the governor and the Legislature to keep public higher education affordable for Michigan families, and we have worked hard to present a budget that includes additional spending cuts, a very low tuition increase, and a significant investment in financial aid," President Mary Sue Coleman said.

"However, I have said before that the choices we are faced with this year cannot be an effective long-term model for funding higher education. We must work together with the state to find a more sustainable model that achieves not only affordability but also continued excellence," she said. "Tuition restraint must be coupled with more robust and more predictable state support, in addition to an emphasis on financial aid. We cannot let this serious erosion of funding endanger the quality that our partnership with the citizens of this state has built over the past 187 years."

Before voting on budgets for the three campuses and the University Hospitals and Health Centers, several regents expressed concern about the state's involvement in setting tuition for Michigan colleges and universities. They noted that it is the board's responsibility to establish tuition rates, and that the state's role in this year's process raises constitutional questions.

"I don't like the way this is being manipulated this year," Regent Andrea Fischer Newman said. "I am going to support it, but I am troubled by the fact that it has happened this year."

The regents agreed this is the last year they will go along with such a plan.

"We need, as a state, to really reevaluate our priorities and realize that things with high value cost," Regent Katherine White said.

Board Chair Rebecca McGowan said the uncertainties caused by the lack of final action on the state budget make the difficult decision of increasing tuition even more troublesome.

"I appreciate the tough choices you had to make to support this tuition restraint," McGowan told the University executive team.

Provost Paul N. Courant, in presenting the budget to the board, noted that FY2004 and FY2005 together represent the most difficult budget climate the University has faced in more than 40 years. "Yet these budget pressures are happening at a time when our total volume of activity continues to rise. In the coming year we will teach more students and conduct a higher volume of research than ever before," he said.

Although University leaders hope the state will be able to support the proposed level of funding, the appropriations bill for FY2005 had not been passed at Record press time. The provost told board members that if the state cannot provide the resources described in its budget proposal, or if it enacts another mid-year cut in FY2005, he would come back to them with a request to increase tuition by the amount necessary to offset the shortfall.

"After two years in base and one-time reductions, we simply do not have sufficient budgetary or program flexibility to sustain another cut without additional revenue," he said.

The Ann Arbor campus budget approved by the board includes a 2.8 percent tuition increase for resident undergraduate students and a 5 percent increase in most other tuition rates including those for nonresidents. That means tuition and fees for a first-year student entering LSA will be $8,202. U-M's resident tuition increase is by far the lowest among Big Ten universities this year, both in terms of percentage (2.8) and in dollar amount ($226).

The total General Fund budget for the Ann Arbor campus—comprising state appropriations, tuition and indirect cost recovery on sponsored research—will increase 3 percent from FY2004 to FY2005. This modest growth is driven by increases in enrollment and research activity, Courant said. However, the increasing amount of instruction and research brings corresponding costs, he noted. For example, LSA has increased sections for the most high-demand course offerings to ensure students can get access to the classes they need to complete their degrees.

The budget encompasses $44.2 million in necessary cost increases and essential initiatives, including a modest salary program for faculty and staff, utilities, insurance, union contracts, staff benefits, inflation on purchased supplies, compliance with increasingly stringent research regulations, and responding to information technology security challenges. When combined with the $6.5 million cut in state funding to the Ann Arbor campus, Courant said, the campus is facing a budget gap of $50.7 million.

The gap has been closed by cutting $19.8 million in recurring expenditures from the General Fund budget in FY2005, on top of $37.5 million in cuts that were made last year. Courant said these cuts were made with the goal of preserving the excellence of academic programs to the degree possible.

"The size of the faculty and staff will again be reduced in the coming fiscal year; some of the elements of a Michigan experience will be leaner, and will be experienced as such by our students," he said. "But the essential breadth and depth of excellence in our academic offerings will be maintained. We are grateful for the efforts of thousands of faculty and staff across the University who have stepped up to the challenge of finding innovative ways to eliminate tens of millions of dollars of recurring expenses with minimum impact on teaching, learning and tuition rates."

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