General Fund budget includes $107 M for financial aid
A modest tuition increase and the largest investment in need-based financial aid in University history are highlights of a $1.41 billion 2008-09 General Fund budget approved June 19 by the Board of Regents.
The FY 2009 budget for the Ann Arbor campus, recommended by President Mary Sue Coleman and Provost Teresa Sullivan, includes a 5.6 percent tuition increase for resident and nonresident undergraduates, a 5 percent tuition increase for most graduate programs, and a 10.8-percent increase in centrally awarded student financial aid for undergraduates.
The budget will increase the number of faculty to help improve the student-faculty ratio and provide additional funds for graduate student stipends, new academic programs, research and technology initiatives, and facilities.
The regents, who in prior years approved the budget and tuition rates in July, moved the annual vote to June to give students and families more time to plan.
"Through a combination of innovation, ingenuity and hard work, we have been able to control costs and limit this year's tuition increase," Coleman said.
Tuition and fees for first-year undergraduates in LSA in 2008-09 will be $11,037 (a $590 increase from the previous year) for Michigan residents and $33,069 (a $1,768 increase) for nonresidents.
Financial aid can make a significant difference between the tuition rate and what people actually pay out of their own pockets. Nearly 80 percent of undergraduate students who are Michigan residents receive some form of institutional aid based on financial need, including grants, work-study and loans.
"This year's increase in financial aid allows us to continue our commitment to meeting the full demonstrated need of students from Michigan," Coleman said. "Compared with other top universities, the University of Michigan remains affordable for our residents, even at full price."
The University continues to increase centrally awarded financial aid at a higher rate than the tuition increase. The FY 2009 General Fund budget includes a 10.8-percent increase in financial aid for undergraduates, or nearly $6.7 million, for a total of $68.6 million. Centrally awarded financial aid for all students, both undergraduate and graduate, will grow by more than $8.5 million, an 8.6-percent increase, for a total of nearly $107.6 million.
In addition to centrally awarded financial aid, U-M's schools and colleges award merit and need-based scholarships, which directly reduce the loan and work-study amounts that students require to cover their expenses. Furthermore, the President's Donor Challenge, a matching program launched by Coleman, has raised more than $60 million in endowed funds for need-based undergraduate financial aid.
The General Fund supports teaching, research and public service. The main revenue sources for the General Fund are the state appropriation, tuition and indirect cost recovery from federally sponsored research. Although the exact amount of the state appropriation remains under discussion, U-M's FY 2009 budget assumes a 2-percent increase over last year's $323 million appropriation, or $330 million.
The newly approved General Fund budget represents a 4.5-percent increase over the previous year. The General Fund is one facet of the Ann Arbor campus' total FY 2009 operating revenue budget of nearly $5.1 billion, which also includes the U-M Health System, intercollegiate athletics, and programs supported by gifts and research grants.
Vice Provost Philip Hanlon said U-M has been able to moderate tuition increases through disciplined cost containment efforts. Each year for the past five years, the University has reduced General Fund spending by up to 2 percent through aggressive cost cutting and reallocations. As a result, U-M has trimmed more than $117 million in recurring costs and shifted the savings to high priority activities.
The University must continue to devote significant resources to recruiting and retaining faculty, Sullivan said.
"The excellence of our faculty is the single most important factor in determining the quality of our education and research," she said. "Only by increasing support for faculty compensation will we be able to continue to compete successfully with other top public and private universities for outstanding faculty members."
The budget includes first-time base funding to begin hiring 100 new faculty members. The new faculty hires will enhance the University's interdisciplinary teaching and research efforts, as well as reduce the student-faculty ratio over the next several years.
Sullivan said operating costs are driven by the fact that education as an industry is both labor- and capital-intensive, and those costs rise faster than in other parts of the economy for a number of reasons:
• Labor costs generally rise faster than other prices, and 65 percent of the University's total costs are for labor. Moreover, competition is strong for top talent, especially faculty members;
• Ongoing investments in state-of-the-art laboratory facilities and sophisticated technological equipment are required to keep students and faculty members at the leading edge of emerging fields;
• Work and infrastructure demands increase with expansion of research and instructional activities. Over the past six years, the number of students has grown 5 percent and research volume has increased 25 percent; and
• As the sum of human knowledge and creative expression grows each year, the costs to operate museums, libraries, and other repositories of knowledge steadily increase.
How is U-M able to mount competitive salary programs, invest heavily in financial aid, launch new initiatives, and recruit and retain excellent faculty in such a tough environment?
Cost reductions have enabled U-M to squeeze more than $117 million in recurring expenditures from the General Fund budget over the past five years. More than $19 million in reductions/reallocations are included in the FY 2009 budget, bringing the total to more than $136 million. Savings are reallocated to support the University's core values of academic excellence and student access and initiatives that will shape U-M's future.
Here are a few examples of recent cost containment efforts:
Purchasing: U-M has streamlined its procurement structure and processes and negotiated favorable rates with preferred vendors for everything from scientific equipment to software licenses. U-M's Strategic Supplier Program has grown from 18 suppliers to more than 100 since 2000. New contracts have resulted in annual savings of $610,000 for computer peripherals, $525,000 in food, and $30,0000 in materials, repairs and operating supplies.
Energy efficiency: U-M is introducing energy conservation measures in buildings across campus. Upgrades include room occupancy sensors, reduced ventilation fan schedules and low-flow faucets.
Health benefits: To counter soaring costs, U-M works with employees to contain growth in health care expenses by encouraging the use of generic rather than brand-name prescription drugs (saving $2.8 million in 2007 alone). The University also negotiated a new pharmacy benefit manager contract (a $4.3 million savings) and adopted new strategies for sharing health care premium costs, based on the market.
Information technology: The University uses technology-enabled business processes to reduce administrative costs and improve service. Recently, the Office of Undergraduate Admissions introduced a paperless process to review applications, eliminating nearly 300,000 pieces of paper an estimated 10 pages per application for more than 29,000 applications annually.
Other revenue sources: Some General Fund costs are supported by other revenue sources, including endowment funds. Shifting expenses to other funds allows U-M's academic enterprise to thrive while holding down General Fund expenses.
Staff productivity: Since 2002, total student headcount has grown more than 5 percent, and the University's research volume has grown by more than 17 percent. Units, large and small, have consolidated job responsibilities, found ways to make employees more productive through technology and, as a result, held staff growth to less than 1 percent during the same time period.
More efficient use of space and facilities: U-M launched its Space Utilization Initiative in 2006 to improve usage of instructional, research and administrative space on the Ann Arbor campus.
Investing in the future
The FY 2009 General Fund budget includes investments that reflect U-M's highest priorities and assure its leadership among top U.S. research institutions.
Examples of those investments include:
• A 10.8-percent increase in centrally awarded financial aid for undergraduates, or nearly $6.7 million more than last year, for a total of $68.6 million. Centrally awarded financial aid for all students will grow by more than $8.5 million, an 8.6-percent increase, for a total of nearly $107.6 million;
• Nearly $1 million in additional base funding to enhance aid packages for graduate students;
• Twenty-five new junior faculty in the initial phase of a five-year, $30 million initiative to add 100 junior tenure-track positions in areas that advance interdisciplinary teaching and research. Areas of study include data mining (learning and discovery) with massive datasets, energy storage, global climate change, global HIV/AIDS, microbial ecology, and social science and energy;
• Support for faculty recruitment and retention, including additional resources for competitive salaries;
• Expanded international efforts, with new investments in the African Studies Center and the Joint Institute supported by the College of Engineering and Shanghai Jiao-Tong University;
• More opportunities for students to study abroad through the Global Intercultural Experience for Undergraduates (GIEU) Program. Since 2002 GIEU has sent small groups of undergraduates and faculty members to locations in the United States and around the world for three to four weeks of academic study;
• More than $1 million in the University Library's collections budget to ensure that the library continues to be a national leader and an invaluable resource for faculty, students, the public and other universities;
• Additional support for the University's digitization project and University Library staff positions to capitalize on information technology opportunities;
• Networks, software and personnel that scientists and engineers need to take advantage of high-performance computers; and
• The new Business Engagement Center to advance partnerships between U-M and businesses and provide gap funding and other support to help University researchers take discoveries and inventions from the laboratory to market.