Leaders explain budget process
Planning a university budget in times of economic stress is a daunting task rife with uncertainty. U-M officials are reaching out to the campus community to shed light on the process.
In meetings last week with student and faculty groups, President Mary Sue Coleman and Provost Teresa Sullivan offered their outlook for the 2009-10 fiscal year that starts in July, and sought to explain some of the myriad factors that have driven university revenues and spending for the past several years.
Meanwhile, a new Web site provides a concise, online tutorial for people seeking information about the basic workings of U-M's budget, focusing in particular on the general fund budget, which is the source of support for the university's educational enterprise. "University of Michigan Funding: A Snapshot" can be accessed from the U-M Gateway at www.umich.edu.
Overall, Coleman and Sullivan say, the university remains on solid financial footing, largely because it has met declining revenues with a series of cost-containment measures and revenue enhancements that are built into the permanent spending plan.
In recent years, U-M has trimmed $135 million in spending, and has increased revenue streams such as gifts and endowment income and support from auxiliary enterprises like the U-M Health System and athletics. These measures have helped the university avoid long-term damage that can be spawned by one-time, stop-gap techniques.
Coleman is adamant that U-M should not look to one-time federal stimulus aid to temporarily offset long-term budget pressures.
"In 2012, that money goes away," forcing the university to face an even greater shortfall, Coleman told students Tuesday during her final "fireside chat" of the academic year. "I don't want to use money that goes away in two years to cover costs that are going to keep increasing."
What is needed, she explains, is steady and increasing sources of funds, from endowment or the state, for example, that allow the university to keep pace with rising costs.
Coleman meets regularly with a small group of students for the chats, and during this one she and Vice President for Student Affairs E. Royster Harper invited participants to come and share concerns about finances.
One question from many students is what will happen with tuition rates, but Coleman says that it is too early to determine if a tuition increase will be needed. She says that although tuition for in-state undergraduate students has increased an average of about 6.7 percent a year over the last six years, financial aid has increased by an average annual rate of 12 percent during the same period.
One of the major factors casting uncertainty over the budget, and therefore tuition rates, is declining state funding, made even more critical by Michigan's sagging economy.
Coleman and Sullivan say they appreciate the competing pressures for fewer and fewer state dollars, but such uncertain funding makes it increasingly difficult to plan how the university will educate students for the types of jobs that are needed to pull the state out of its economic malaise.
"It's difficult to plan a budget without knowing what the state's part of the handshake is," Sullivan told the faculty's Senate Assembly last week.
In their respective presentations, Coleman and Sullivan both pointed to U-M's state appropriation, which Sullivan says has fallen from $363 million in 2002 to $327 million in 2009. That gap grows to about $100 million when inflation is taken into account, she says.
"This will be the leanest budget that I have been associated with at the university," Coleman adds, referring to the spending plan that will go before the Board of Regents in June.
Michigan has avoided several pitfalls that have plagued other universities, Sullivan says. For instance, even though U-M's endowment felt the stock market's tumble, "our losses were actually on the low side compared with other schools," she says. Nor has Michigan had to borrow money to cover operating expenses.
Going forward, Sullivan says, additional savings will be sought in a variety of activities, including large-scale purchasing, postponing new capital projects for which funding has not been identified, energy efficiency, better use of information technology and greater staff productivity.
She says each year deans are asked to start their budgeting process by cutting 1 to 2 percent from things they don't need to do anymore and are told to reallocate that money to high-priority items.
The cost containment reaches down to such specific items as telephones and Post-It notes, Sullivan said. The university is reviewing voice telephone service in areas where service remains but phones are no longer used, and it is seeking to limit vendor options to save money. She suggested that even something as simple as paring the number of available Post-It note colors from 28 to 14 can shave costs.
The budget Web site was created to help students, faculty and staff better understand where university funding comes from and how the money is used, says David Lampe, vice president for communications. It also is designed to dispel misconceptions about university funding, ranging from how the endowment works to which operations are funded through the general fund and which are self-supporting.
"It is very important, especially in these troubled times, to be transparent about our finances," Lampe says. "We want everyone to understand where the money comes from and where the money goes."