Office of the Vice President for Global Communications

Tuesday, September 8, 2009

Coleman discusses financial outlook during 'fireside chat'

In one of her regular “fireside chats,” President Mary Sue Coleman met with about three dozen students Tuesday afternoon to explain the financial pressures facing the university community in these difficult economic times.

Coleman outlined a variety of budget realities, shared frustration over state funding uncertainties, and offered a few bright spots for students facing their own financial restrictions.

President Mary Sue Coleman answers a question during a "fireside chat" with students. (Photo by Scott Soderberg, U-M Photo Services)

Throughout the informal discussion in the Michigan League’s Henderson Room, Coleman repeatedly emphasized that U-M would be ill-served by using 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 said. “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 explained, is steady and increasing sources of funds, from endowment or the state, for example, that allow the university to keep pace with rising costs.

At the same time, the university continually looks for ways to cut recurring costs. This is why U-M recently introduced a plan to increase employees’ share of the cost of health benefits next year, and established a one-year waiting period before new employees can share in U-M’s matching retirement fund, Coleman said. “These are tough decisions,” she added.

Vice President for Student Affairs E. Royster Harper joined Coleman and also fielded questions from students on a variety of topics. The meeting with students was the latest part of the administration’s effort to share the university’s financial outlook with the campus community. On Monday Provost Teresa Sullivan met with the faculty’s Senate Assembly to address some of the same issues.

And next week, the university will unveil a concise, online tutorial for people seeking information about the intricate workings of U-M’s budget, said David Lampe, vice president for communications.

Regarding a topic at the top of many students’ minds — tuition costs — Coleman said the university has not yet determined whether students will see an increase in the 2009-10 academic year. That piece of the funding puzzle depends critically on the Michigan Legislature’s higher education appropriations budget, and it will be announced when the administration presents its proposed 2009-10 budget to the Board of Regents in June.

Coleman made it clear that in the face of rising costs and the likelihood of declining state aid, the university must look to student tuition to make up the difference. But she also emphasized that the university always increases its financial aid budget at a rate higher than tuition hikes.

Coleman offered some good news to students in the form of three federal programs designed to help offset increasing costs:

• People earning less than $80,000 a year, or $160,000 for couples filing jointly, could receive a $2,500 tax credit for education expenses paid in 2009 and 2010. That is up from $1,800 under current education tax credits. Coleman said the American Opportunity Tax Credit will benefit as many as 22,000 U-M families.

• The federal Pell Grant, which Coleman said benefits between 3,200 and 3,300 U-M students a year, will increase to $5,350 this year. It goes up to $5,500 in 2010.

• The university will receive $1.6 million more to fund federal work study, which means another 440 job opportunities for students meeting work-study criteria.

Coleman said U-M’s commitment to managing its finances carefully and willingness to make difficult cuts have kept the budget “structurally sound,” despite the fact that the state of Michigan has been in a recession since she arrived at the university in 2002.

In those same seven years, the state’s annual allocation to U-M has fallen from approximately $365 million to about $320 million. That $45 million shortfall grows significantly when inflation is factored in, Coleman said.

Coleman repeatedly stressed the importance of maintaining a sound budget, rather than resorting to gimmicks such as tuition guarantees or other funding techniques that may be popular on their face but erode the institution’s financial foundation in the long run.

“I cannot recommend a structural deficit,” Coleman said. “At U-M, we have paid for everything as we go and that has benefited everybody in this room.”