Office of the Vice President for Global Communications

Friday, March 23, 2012

Leaders outline university financing at meeting with students

The university's top two budget officers met with students Thursday to explain where university funding comes from, how it is spent and how a shifting financial picture — particularly in the area of state appropriations — affects them and the tuition they pay.

Offering both a big-picture overview and answers to specific questions from students in the Michigan League's Henderson Room were Phil Hanlon, provost and executive vice president for academic affairs, and Martha Pollack, vice provost for academic and budgetary affairs.

The presentation was the second such program Hanlon and Pollack have given to students this month and is part of a series of lectures offering opportunities for the campus community to engage in conversations about activism and involvement.

The administrators outlined how the university meets its three main goals of: ensuring student access, maintaining educational excellence and responsible stewardship of U-M's financial resources.

"Every time we're thinking about whether we should allocate money or space, we're always asking, 'How does that line up with our academic mission?'" Pollack said.

Pollack explained the various funds that make up the university's $5.77 billion budget for fiscal year 2012:

• The general fund, which covers instruction, research and public service, and the use of which is not restricted by outside sources.

• Expendable restricted and designated funds, made up of gifts, grants and sponsored programs. That money is used according to the purposes specified by those who give it.

• Auxiliary funds — the hospital system, athletics, housing, transportation and parking, and student publications — which are self-funded by the revenues they generate.

Of those funds, the general fund has the most impact on student tuition because its revenues come primarily from tuition and fees (68.7 percent this year) and state appropriations (16.9 percent).

Hanlon focused on the combination of tuition and state funding, using a series of graphs to illustrate how, as state funding has dropped, tuition has increased. The amount allocated to U-M by the state Legislature has fallen from $363 million in FY 2002 to $269 million in FY 2012. That $94 million gap grows to $166 million when inflation is factored into that 10-year period.

The effect on students is a tuition bill that has gone up an average of 5.56 percent in each of the last 10 years. To offset that, the university has continually increased centrally awarded financial aid — a record $137 million in grants and scholarships this year. Such increases mean a typical Michigan resident undergraduate, with a family income of less than $80,000, pays less today than in 2004.

Hanlon said that without the reduced state appropriations and the subsequent increase in financial aid, the average yearly tuition increase would have been much less.

"So the way you should be thinking about your tuition growth is that about 2.35 percent (per year over the last decade) was required to cover university cost increases, and the rest was investment in financial aid or lost state appropriations," Hanlon said.

But the budgetary picture is not limited to revenues. Hanlon also described how U-M has worked to contain costs over the past decade, cutting $135 million in recurring expenses between FY '03 and '09, another $100 million between FY '10 and '12, with plans to trim an additional $120 million by FY '17.

He outlined the various ways such savings have been achieved including energy efficiency, better use of space, self-insurance and purchasing strategies. "We've figured out how to leverage our size and scale," Hanlon said. "We're a big organization. That actually allows us to do things to operate more efficiently."

Responding to student questions, Hanlon covered a variety of topics, including:

• Athletics, which is self-funded, actually provides the general fund with more than $1 million a year, money that is used for need-based financial aid.

• Tuition dollars are spread among the university's schools, colleges, centers and institutes according to formulas specified in a budget model that considers the amount a unit teaches and the number of students it enrolls.

• The undergraduate population consists of 64.5 percent Michigan residents and 35.5 percent non-residents. Although non-residents pay higher tuition and receive less financial aid, ability to pay is not a factor in admission decisions.

• Cost containment has led to downsizing in some administrative areas, and limited growth in others. Hanlon said that between FY '03 and '08 enrollment increased by 5 percent, research expenditures were up 20 percent and the amount of staff paid from the general fund grew by less than 1 percent.

"The point is it's not only a matter of there being areas where we've reduced our staffing, we've also increased the productivity of our existing staff," he said. "We're doing more with the same number of people."