Budget includes moderate tuition increase and major investment in financial aid
The Board of Regents unanimously has approved a $1.35 billion 2007-2008 General Fund budget for the Ann Arbor campus that includes a moderate tuition increase and invests significantly in financial aid.
The FY 2008 budget recommended by President Mary Sue Coleman and Provost Teresa Sullivan includes a tuition increase of 7.4 percent for both resident and nonresident undergraduates, a 5 percent increase for most graduate programs and an 11.5 percent increase in centrally awarded student financial aid for undergraduates. The budget also includes additional funds for faculty recruitment and retention and for a few new initiatives--both made possible through the reallocation of resources resulting from systematic cost containment.
The new budget anticipates a state base appropriation of $320 million, identical to the FY 2007 appropriation at year-end. The University began FY 2007 with a larger base appropriation, but the state reduced it in May by $5.6 million. The budget also anticipates that the state will make a payment in October of $29.6 million. This payment was due in August as the final installment toward the FY 2007 appropriation.
“We are confident state leaders and taxpayers understand the importance of investing in higher education and U-M’s role in transforming the state’s economy,” Coleman said. “This budget supports the University’s core values of academic excellence and access despite the state’s budgetary challenges. It will allow us to continue to recruit and retain outstanding faculty and invest in a modest number of new initiatives, technology and facilities that ensure U-M remains a worldclass research university.”
The General Fund budget supports the primary missions of the University—instruction, research and public service. The total General Fund budget for the Ann Arbor campus will increase about 4 percent from FY 2007 to FY 2008. The majority of new funds will go to academic units, with small increases to administrative units. Ann Arbor’s total FY 2008 operating revenue budget, including the U-M Health System, athletics and programs supported by designated gifts and grants, is $4.78 billion.
“This is the sixth consecutive year the state has reduced the University’s appropriation, either in base or as part of a mid-year rescission,” Sullivan noted. State support has declined each year since FY 2002 when it was more than $363 million. This includes base cuts of more than $43 million and one-time rescissions of $47.9 million.
“Yet, U-M’s activity level has never been higher,” she said. “Projected enrollment for fall is up, reflecting the confidence students and their parents have in the University, one of the state’s leading assets.”
The three main sources for General Fund revenues are the state appropriation, tuition and indirect cost recovery. Tuition dollars and state appropriations are the primary sources that can be allocated as needed.
Since 1960, state support as a percentage of the U-M Ann Arbor General Fund budget has dropped from 78 percent to 24 percent. During the same period, tuition as a percentage of the General Fund budget has increased from 20 percent to 62 percent.
The total academic year tuition and all required fees for first-year undergraduates in LSA will be $10,447 (a $724 increase) for Michigan residents and $31,301 (a $2,170 increase) for nonresidents.
Before voting, regents praised the University's work to raise funds for need-based scholarships and to reduce costs, but urged more be done to increase revenues.
"We cannot continue to go this way," Regent Chair S. Martin Taylor said of years of declining or flat state funding and increased costs that have impacted tuition rates. "We need to focus even more on taking care of ourselves," he said.
Regent Laurence Deitch said the University has been a responsible steward but that it is time for new solutions to the funding problem. "Our state is undergoing structural changes and we're paying the consequences," he said.
Regent Julia Donovan Darlow added that she hoped the headlines surrounding the University budget story would declare what she called an "extraordinary commitment" to increasing financial aid for in-state students, and Regent Andrew Richner praised the University for what he said was a "modest proposal" regarding tuition.
Student access remains a top University priority. U-M will continue its longstanding policy of meeting the full demonstrated financial need of all Michigan residents, Coleman said.
As in the past, U-M will increase centrally funded financial aid at a higher rate than its tuition increase. The budget calls for an overall increase of more than $8.1 million in centrally awarded financial aid, an 8.95 percent increase over FY 2007, for a total of more than $99 million. This includes a nearly $6.4 million or 11.5 percent increase in financial aid earmarked for undergraduates. In addition to centrally awarded financial aid, academic units award both need- and merit-based scholarships.
U-M also continues to invest significantly in faculty recruitment and retention. “Faculty excellence is the single most important factor contributing to the quality of our academic enterprise,” Sullivan noted. “To maintain our level of excellence, we must compete successfully with other top universities, public and private, for faculty and students.”
Gifts and other non-General Fund sources are increasingly important to the University’s bottom line. The Office of University Development raised more than $300 million in new gifts during FY 2007, setting a new U-M record. The University has invested significantly in fundraising in recent years and will continue to do so, including support for its alumni database, international fundraising and a parents and families program.
“Although a vast majority of gifts are restricted by donor intent, some General Fund dollars are being freed up by undesignated gifts and endowments that support professorships, faculty salaries and programmatic initiatives,” Sullivan said.
“The quality of our academic enterprise drives our budget strategy and associated allocations,” Sullivan noted. Variations in rates of growth for individual academic units’ budgets reflect changes in instructional or research activity within the units. Academic units experiencing enrollment growth include the College of Engineering, College of LSA, College of Pharmacy, Gerald R. Ford School of Public Policy and School of Information.
“The University’s revenue situation remains challenging,” Sullivan said. “The state’s uncertain financial circumstances combined with constrained federal research funding require a balance between fiscal discipline and the need to invest in the future.”
“If the actual state appropriation amount differs significantly from what we are assuming, we may seek a revision from the board at the appropriate time,” she added.
Key Initiatives for the University of Michigan Ann Arbor Campus
The FY 2008 budget selectively supports new research, instructional programs and facilities that promise to keep U-M at the forefront. Among the University’s key initiatives are:
- Improved student access through increased financial aid, outreach and recruitment
- Enhanced undergraduate education, including a program that enables students to earn a bachelor’s degree from the Gerald R. Ford School of Public Policy and the development of an interdisciplinary concentration in Informatics that focuses on the intersection of people, technology and information systems
- Faculty recruitment and retention
- The Michigan Memorial Phoenix Energy Institute, founded in September 2006 to support and increase research leading to clean, affordable energy
- Technology that will allow the School of Dentistry to move to a chair-side electronic health record system
- Expansion of the Michigan Nanofabrication Facility’s (formerly the Solid State Electronics Laboratory) clean room, resulting in a state-of-the-art facility for new micro-fabrication techniques
- Increased outreach to industry to enhance technology transfer, including creation of a fund to develop research results that have commercial potential
- A School of Information pilot project (Virtual Space Interactive Test Bed) to improve interactions between and among faculty and students and to facilitate formal and informal meetings between North and Central campuses through the use of OptiPortals
- Technology infrastructure such as technology security and wireless capabilities across LSA and enhancement of CTools, U-M’s Web-based coursework and collaboration system
Cost Containment Efforts
While U-M has been aided this year by relatively low fixed cost increases, primarily due to the decline in natural gas prices and utilities purchasing strategies, it continues to deal with a competitive faculty recruitment and retention environment and flat federal support for research.
Over the past four years, U-M worked diligently to achieve cost reductions and reallocations of $95.7 million. This year’s budget incorporates the removal of an additional $21.3 million in General Fund expenditures through increased efficiencies, eliminating lower-priority activities and moving expenses to other revenue sources.
Several significant long-term cost containment efforts also are underway, including:
- Administrative units, schools and colleges are working together to explore the utilization of space and facilities on the Ann Arbor campus and to develop a plan to make best use of the physical resources that support U-M’s core mission.
- A campuswide Energy & Environmental Initiative is addressing energy conservation, construction and design standards, and alternative transportation.
- Administrative and support functions are being centralized where appropriate.
Examples of planned budget reductions in the FY 2008 budget include:
- The College of Engineering is streamlining student support activities and consolidating research and graduate affairs under a single dean.
- LSA is achieving savings through energy conservation, deferral of facilities maintenance and upgrades, reduced funding for unit initiatives and elimination of the remaining research cost-sharing budget.
- The Law School continues its plan to reduce annual Law Library expenses by $1 million over the next few years.
- The Medical School consolidated its basic science departments’ administrative functions, leading to shared personnel and standardization of business practices across the units.
- The Horace H. Rackham School of Graduate Studies downsized selected offices and reallocated funds from lower-priority activities to increase support for student research and professional travel.
- U-M reduced insurance premiums by $460,000 through loss prevention strategies and higher investment returns.
U-M Procurement Services continues to expand its strategic supplier program to obtain quality goods and services at the lowest cost. Examples include:
- $120,000 in annual savings through bulk-contract pricing of custodial supplies.
- $240,000 in savings on computer peripherals.
- Almost $60,000 in savings during the first four months of new contracts for carpets and flooring materials due to lower prices.
Business and Finance units identified $3.5 million in cost reductions for FY 2008, including
- $1.4 million through the consolidation and elimination of staff positions.
- $1.1 million through negotiation of more favorable vendor contract terms.
- $800,000 in non-salary cost reductions through technology enhancements, the extension of equipment replacement cycles and management of inventory.
- $200,000 through leveraging new technology to eliminate manual processes.
University units continue to reduce costs and improve efficiency through technology-enabled solutions such as paperless applications, a paperless system for student academic advising and checking progress toward degrees, a tool to match students with scholarships and a new process for evaluating cross-campus transfers.