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Updated 11:00 AM October 30, 2008




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U-M leaders: U finances are sound

As the upheaval on Wall Street continues, University leaders say U-M finances remain sound.

That message first was offered last week in a memo to campus by the president and several other leaders, and was emphasized again Oct. 23 by Board of Regent's Chair Katherine White, who said U-M's "diversified investment strategy, its conservative debt situation and its prudent cash management policies" are to be credited for the University's strong financial condition.

"It is clear that not only has U-M invested wisely, it has also worked to contain costs to improve the efficiency of its operations," White said. "At the same time, we are assured that the administration is keeping a watchful eye on the effects of further developments in the regional, national and international economies."

As the situation nationally has evolved, U-M leaders have heard from a number of concerned community members. To answer some of the most frequently asked questions, they offer the following:

How is the U.S. financial situation affecting U-M's daily operations?

U-M is financially sound, thanks in large part to the prudence of our financial management policies and practices. Current income and expenditures continue to be in line with the budget the regents adopted in June.

Our investment, debt and cash management policies are structured to withstand significant volatility in the financial markets. Our ongoing focus on operations, cost containment and flexibility will enable us to move forward with fiscal year 2009 plans and maintain our focus on excellence in all teaching, research, clinical, and auxiliary operations and initiatives.

As we plan for the next fiscal year, we will monitor how the crisis plays out and will develop contingency plans as necessary to ensure we sustain and enhance excellence across campus.

Will this financial upheaval stall campus construction projects?

So far, the U.S. financial situation has not had a significant impact on U-M construction. That's because almost all University projects are paid for through donations, earnings on investments and other U-M resources.

Since all funding sources must be in place before construction begins, our funding risks are lessened. We're moving forward on all our projects, including the new C.S. Mott Children's Hospital and Women's Hospital, the largest building project in the University's history.

Debt financing — the sale of bonds — also has an impact on capital projects. U-M has obtained the highest rating from both Moody's (Aaa) and Standard & Poor's (AAA). Such high ratings improve the marketability of our debt and allow the University to borrow money at a favorable interest rate. The AAA rating is based on several factors, including U-M's national reputation for excellence and its competitive position for students, research and patient care. Because investors are confident U-M will repay its debts, the University is able to sell bonds that are paying an average effective interest rate of 3.4 percent in 2008, one of the lowest interest rates among its public higher education peers.

When Lehman Brothers started experiencing financial difficulty, the University transferred its variable rate bonds underwritten by Lehman to J.P. Morgan. Those bonds successfully have been remarketed.

How is tight credit affecting student loans, and what is U-M doing to help students?

So far we have heard of only a small number of students whose parents are having financial problems related to the crisis, and we were able to help those families. Families facing severe financial problems due to job loss, foreclosure or business declines should contact the Office of Financial Aid for a financial aid eligibility review and to discuss their situation with a financial aid officer. A drop in family income may make a student eligible for more financial aid.

U-M always encourages students to fill out the Free Application for Federal Student Aid (FAFSA) so they can take advantage of all need-based financial aid programs. FAFSA, which is used by schools across the country, determines financial need and how much money a student's family should contribute to his or her education.

Students may still apply for loans for the current academic year. The Office of Financial Aid has found that Federal Direct Stafford Loans offer the best options for interest rates and borrower benefits. The Federal Direct PLUS Loan for the parents of undergraduate dependent students and the Federal Direct Grad PLUS Program for graduate students also are good choices for students who need to borrow more money.

Tight credit can make it harder for students and families to borrow money from private lenders for education. Early on, a number of lenders informed the Office of Financial Aid that they had stopped or temporarily suspended their private loan programs or planned to raise their credit requirements. The office continues to refer students to lenders who are able and willing to make private loans.

What about U-M employee retirement savings?

Market volatility is of greatest concern to retirees and employees close to retirement.

Employees and retirees are encouraged to visit Web pages provided by Fidelity Investments and TIAA-CREF. The two investment firms used by U-M provide investors with their perspectives on the current U.S. financial situation and the importance of long-term diversified investing.

Counseling also is available. Both TIAA-CREF and Fidelity provide one-on-one counseling for clients, and U-M retirement counselors are available to meet with employees who are close to retirement.

Staff, faculty, retirees and their immediate family members also may turn to U-M's Faculty and Staff Assistance Program for short-term counseling and/or referral to community resources regarding personal difficulties encountered at home and work. For more about FASAP, go to

Similar confidential services are available for Health System employees through the U-M Health System Employees Assistance Program,

Can employees withdraw money from their 403b retirement savings account before retirement?

Faculty and staff who are currently employed cannot withdraw money from their Basic Retirement Savings Plan (5 percent of salary employee contribution and 10 percent University contribution), according to U-M rules, which are explained at

U-M and employee contributions to the Basic Retirement Savings Plan are intended to provide long-term financial support after retirement, which is achieved by the value of compounded growth over time. Early withdrawals interrupt the growth of savings and make it very difficult to achieve long-range financial security in retirement.

Employees who contribute to a Supplemental Retirement Account (SRA) can access their accumulations or take a loan from their SRA under specific circumstances, including hardship and disability. Contributions to SRA accounts are not matched by U-M.

What impact has the economic downturn had on fundraising?

U-M has not experienced a corresponding drop in giving. The Michigan Difference campaign, the largest and most successful fundraising effort in U-M history, ends Dec. 31. The $2.5 billion campaign was publicly launched in 2004; as of June 30, $2.9 billion had been raised. We are grateful that despite the difficult financial situation nationally and in Michigan, donors continue to give generously to the University.

Thus far we have not seen any impact on the campaign except on an individual basis where a donor might decide to lengthen his or her pledge payments.

History has shown that fundraising and giving continue even during difficult financial times because people see the need and support the University's mission. One form of giving that helps the University ride out down economic times are bequest intentions — gifts that come to U-M when donors die.

In 2007 U-M received nearly $39 million in donations because of decisions made five, 10 or 20 years ago by donors who included the University in estate plans.

What will be the effect of the U.S. financial situation on research funding?

Research spending at U-M reached $875.8 million in 2007-08, an all-time high and a 6.4 percent increase over the previous year. U-M is a strong competitor for research funding and consistently ranks among the nation's top five research universities based on R&D expenditures.

It is too soon to see the impact of the financial crisis on research expenditures because current activities are the result of agreements made six months ago or longer. We do know, however, that for the current fiscal year federally sponsored research budgets are flat compared with last year.

Even before the recent crisis, U-M anticipated federal research funding may stagnate due to the rising U.S. deficit and slow economic growth.

Although U-M's research expenditures have increased steadily, federal support for research has been declining as a percentage of University research expenditures: 73.5 percent in FY 2005, 73.4 percent in FY 2006, 72.4 percent in FY 2007 and 69.8 percent in FY 2008. Investments by the University, industry, foundations and the state accounted for most of the observed growth in research expenditures in recent years.

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