Business and finance budget fixes include cost cutting and savings
The University's business and finance units will implement a variety of steps to meet a 2 percent reduction in their general fund appropriation in fiscal year 2005, while protecting service levels as much as possible, says Executive Vice President and Chief Financial Officer (CFO) Timothy Slottow.
Decreased service was unavoidable in certain areas. Employees will see changes, for example, in the schedules for maintaining and cleaning facilities. The office avoided actions that simply would transfer costs to the unit level, Slottow says.
"We have been able to wring new efficiencies from the system and make intelligent use of technology, but it is inevitable that some services are being lost because of the magnitude of the cumulative budget cuts imposed by the state," Slottow says. "My office has been working with academic and administrative units throughout campus to identify ways to reduce costs in ways that have the least possible impact on campus units."
Slottow says the CFO's area will cut expenditures by $5 million in FY05, and eliminate 60 positions through a combination of attrition and reductions in force. The FY05 reductions are in addition to an $8 million reduction in spending that occurred in the CFO's area in FY04, producing a $13 million decrease in expenditures, and the loss of more than 100 positions, in two years.
Steps being taken to close the FY05 budget gap include:
• Building services staff are being transferred to the day shift to eliminate the expense of afternoon shift premium pay. In addition, offices will be cleaned every other week instead of every week. All employees will see the impact as offices are cleaned during regular working hours, but less frequently. The two changes are expected to save $881,000;
• Overtime will be eliminated in several areas. The change will affect off-hours maintenance of the swimming pool, general maintenance and on-call coverage for various services. As a result, campus may see longer waiting times for service. Users of the pool will find that it is closed during certain periods to accommodate maintenance during regular working hours;
• Almost $150,000 will be saved by reducing the use of U.S. Mail. Later this year, for example, the payroll office no longer will mail direct deposit stubs. Instead, employees already are able to print a stub form from the Web;
• Michigan Administrative Information Services will eliminate professional and office positions, implement process improvements and reduce vendor costs, for a loss of 9.5 full-time equivalents and cost reductions of $867,000.
Cost-cutting initiatives implemented in FY04:
• During calendar year 2003, the University implemented a new prescription drug program. Design changes and cost efficiencies in the program saved the University nearly $5.7 million. By consolidating the drug plan with a single pharmacy benefit manager, the University also avoided $3 million in premium costs. The rate of increase in prescription drug costs to the University was 2.8 percent, compared to the 13.4 percent increase projected across the board by the federal government. Employee co-pays and deductibles were not increased in calendar year 2004;
• A communications campaign designed to draw greater attention to Flexible Spending Accounts (FSA) resulted in increased utilization by employees in the current yeara 33.7 percent increase in FSA usage for health care and 6.7 percent increase for dependent care. FSA reduces taxes paid by employees, and the greater utilization saved the University more than $100,000 in FICA contributions;
• U-M negotiated an agreement with a vendor for services to enhance the management of the University's portfolio of leased space. Annual portfolio savings could range from $1-3 million
• The implementation of electronic AVI devices in University parking structures, completed this year, eliminates the need for most enforcement and reduces the administrative costs associated with annual renewals, for an anticipated savings of $239,000.
Cost-cutting programs implemented in recent years:
• Ongoing cost containment programs include the multi-year development of the Energy Star Program that has reached an estimated $9.5 million in annual cost avoidance, and has reduced thermal energy usage by 15 percent and electricity usage by 20 percent;
• Construction project cost containment has saved a total of $8.2 million to date in equipment and other building components;
• A program of fixed price contracts for utilities, which has saved more than $3.4 million annually, was expanded to include U-M-Flint;
• Savings from the strategic supplier program administered by Purchasing Services will reach a projected $7.8 million in FY04, including new savings of $920,000 from two contract renegotiations;
• Pollution prevention and waste minimization programs affecting teaching and research laboratories will save more than $80,000 a year;
• Cash management initiatives on a variety of fronts, designed to maximize the amounts that can be invested for short-term yields, have produced more than $600,000 per year.