The University Record, March 22, 1993

Salary program a priority in tight budget

By Jane R. Elgass

Gov. John Engler’s budget recommendations last week contained good news and bad news for the University.

The good news: $89 million for capital outlay projects focusing on Central Campus renovations and the College of Engineering complex on North Campus. This is the first time in a decade that the U-M has been targeted to receive capital outlay funds. Details of these projects are outlined in an article on page 9.

The bad news: zero increases in higher education appropriations for operations for fiscal years 1993–94 and l994–95.

In his budget message Engler noted that, in contrast to other states, Michigan’s universities were protected from cuts in fiscal years 1992 and 1993.

As a result, his budget message noted, the state’s standing in per-student funding rose from 31st nationwide to 21st.

“No increase is better than a cut,” says Provost Gilbert R. Whitaker Jr., and in spite of the level funding, he hopes to hold true to his promise of an overall salary program for the coming year. This year, only individuals making less than $25,000 on an annual basis received merit increases through a special $800,000 program.

Whitaker, who also is the University’s chief budget officer, notes that in reality the level funding results in a loss since costs over which the University has no control—such as health care and other benefits program and utilities—will continue to increase. It also will be difficult for the University to address increases in inflation. State appropriations account for approximately 40 percent of the University’s General Fund budget.

The bad appropriations news did not, however, catch the University unaware. Units were asked eight months ago to plan for an overall 10 percent cut over the next five years.

“This is not an emergency. We had forewarning and have been planning since September for the possibility of level or decreased funding from the state,” Whitaker says, “and I am confident that we have made adequate provisions for this situation. Units were warned to plan for decreased funding and to reduce expenditures in an organized way.”

For the coming year, “a salary program is our highest budget priority,” Whitaker stresses. It won’t come about, however, without some sacrifices.

“The bottom line in funding even a modest salary program will be expenditure reductions, no new programs and some increase in tuition. Any salary program will be administered in the usual merit-based approach.”

A tuition increase will provide the University with additional income, but it does not come free of charge.

“Maintaining access and competitiveness are always key elements in our tuition proposals. Maintaining access means increasing financial aid by at least the percentage of tuition increases, so this will be a cost that must be covered in some way.”

Other musts include covering increases in benefits costs, which Whitaker says “rise faster than any salary program,” and increases in utilities, as well as operating costs for new or renovated facilities.

“These elements all are in competition with other needs and they get done first. What remains is distributed to other priority needs. Beyond these fixed obligations, salary is our top priority this year.”

To make matters even more difficult, the bad news is not restricted to state funding.

“We face a contingent threat of a reduction of $3 million to $10 million in indirect cost reimbursements.” This is over and above a $3 million to $5 million loss already sustained by a change in reimbursement rates. Should we face additional revenue losses at the high end of this contingent threat, targeted cuts would have to be an important part of the plans to deal with the problem.

“The effects of this reduction are being widely discussed in Washington and widely challenged.” Whitaker says.

“The higher education associations in Washington are working with policy-makers to help them understand that these [reimbursements] reflect real costs. If the costs are not recovered through grants, they will have to be addressed in some other way.”