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July 21, 2005

U-M budget for Ann Arbor campus to increase tuition, financial aid

Summary of Budget Cuts, FY2004 to FY2006

Summary of New Expenditures, FY2006

Budget charts (.pdf)

Tuition charts


ANN ARBOR, Mich.—Saying the University of Michigan is at a "crossroads" with respect to declining state funding, U-M President Mary Sue Coleman proposed a budget to the Board of Regents today (July 21) that relies to a significant extent on increasing tuition.

"Last year we had three strikes against us on the funding front: another reduction in our state appropriation, artificially restrained tuition and then an unexpected midyear cut," Coleman said. "At that time I said such a combination couldn't continue without jeopardizing the ability of this University to provide a high-quality education.

"The unprecedented loss of state appropriations over the past several years now threatens to compromise the University of Michigan's core academic excellence. As we look ahead to the fourth year of likely cuts in state support, it is clear we are at a crossroads which will define Michigan's future strength."

In FY2002 the state's appropriation to the Ann Arbor campus was about $363 million; under the governor's proposed budget that figure would decline to $314 million for FY2006. That $49 million decline amounts to a decrease of more than $1,500 per student at the Ann Arbor campus, and has been coupled with nearly $21 million in one-time cuts.

Provost Paul Courant noted that if the state's funding support over the four-year period had simply kept pace with inflation as measured by the Consumer Price Index, the University's appropriation for FY2006 would be $396 million, an $82 million gap which the University has managed largely by making cuts in expenditures. (See attachment for details.)

"The accumulated effects of these budget cuts are enormous," Coleman said. "We cannot hope to make it through another year of low salary increases and minimal investment in our academic programs without resulting damage to our core business. I am particularly concerned about the threat to faculty and staff recruitment and retention as we compete with the best universities in the country. Also, we must continue to provide the services students need, address pressing issues such as manageable class size and course availability, and make investments in curriculum renewal as well as innovative new programming.

"Our students, alumni, donors and state invest in U-M and share our expectation that Michigan will continue to remain at the forefront of academic and research excellence," she added. "My most important obligation as president is to ensure that quality continues to be the number-one return on our stakeholders' investment."

The proposed budget considered by Regents includes a 12.3 percent tuition increase for resident undergraduates, and a 6 percent increase for undergraduates from out of state. At the same time, the University plans to increase centrally budgeted financial aid in the General Fund by 14.5 percent for resident undergraduates and 6.3 percent for nonresidents. The M-PACT program launched by the University in February adds to the General Fund amount, meaning that U-M's new commitments to financial aid will result in an overall increase in grant aid for resident undergraduate students of 28.6 percent.

Under the proposed budget, a first-year Michigan resident student entering the U-M College of Literature, Science and the Arts would pay $9,213 per year for tuition and all required fees, an increase of $1,012, while a nonresident student would pay $27,601, an increase of $1,574—before calculating financial aid support.

Despite this year's increase, the University of Michigan's average tuition increase over the past five years is lower than all public universities in the Big Ten and close to the lowest in the state.

"We worked hard to restrain our tuition increases over the past few years in the hopes that the state funding picture would improve," Courant said. "Those improvements haven't materialized, and instead we have sunk into one of the worst consecutive four-year periods for state support in our history. Now we have to catch up, in contrast to many of our peer institutions who have sought greater tuition increases in the past or have seen state support recover, or both."

Coleman and Courant said the decision to recommend significant tuition increases was not an easy one, particularly in light of concerns that a U-M education remains affordable for students of modest means. "This University has consistently placed financial aid at the top of our priority list," Courant said. "In this budget, as in past years, we have increased financial aid at a rate greater than the increase in tuition, so that our most vulnerable students will not suffer an undue burden.

"Our financial aid packages will continue to ensure that all Michigan resident undergraduates will receive a combination of grants, loans and work-study awards that cover their full financial need, including not only tuition but also room and board, books and related expenses."

The University will allocate nearly $85 million in its General Fund to centrally budgeted financial aid for FY2006. M-PACT will provide an additional $3 million per year in grant assistance to low- and moderate-income students who are Michigan residents. As a result of these programs, the lowest-income in-state students—those who receive a full Pell grant—will receive total grant assistance of more than $13,000 per year. M-PACT grants also will go to Michigan resident students whose families earn a bit more—typically in the range of $50,000 to $70,000. Raising money for financial aid for both in-state and out-of-state students is a major goal of the University's current fundraising campaign, The Michigan Difference.

The total General Fund budget for the Ann Arbor campus—with revenues comprised primarily of state appropriations, tuition, and indirect cost recovery on sponsored research—will increase 4.9 percent from FY05 to FY06. The budget allocates the majority of new funds to the academic units, with smaller increases to administrative units.

"Once again, as in recent years, we expect to enroll a record number of students and conduct a greater amount of research than ever before," Courant said. "As our teaching and research continue to grow, these activities bring with them corresponding costs. It is essential that we find ways to support this growth if we are to help the state achieve its goals of increasing college attainment and developing the research discoveries that contribute to a robust economy and improved quality of life for all our citizens."

The U-M's Ann Arbor campus enrolled a record freshman class last year of 6,040, and expects another large incoming class this fall. Total undergraduate enrollment also set a record in 2004. The University brought $536 million in federal research funds into the state of Michigan in 2004.

University of Michigan Ann Arbor Campus
Summary of Budget Cuts, FY2004 to FY2006

Over a three-year period from FY2004 to FY2006, cuts in state funding have required the U-M's Ann Arbor campus to make a total of $77.4 million in budget cuts. Of those cuts, $37.5 million were made in FY2004 (a year in which state appropriations were cut 10%), $19.8 million were made in FY2005 and $20.1 million will be made in FY2006.

The following are highlights of the actions the University has taken in the past two years, and will continue to take in the coming year, to reduce expenditures. These items include cuts in activities and personnel as well as efficiencies and cost avoidance (reducing growth in expenditures from what they would otherwise have been).

More than 400 staff positions will have been eliminated from the General Fund over FY04-FY06, partly through attrition and partly through layoffs.

Nearly 100 faculty positions have been eliminated through attrition. The workload for teaching, advising, student mentoring and committee work has increased because departing personnel are not always replaced.

Course offerings have been eliminated and some courses are now offered less frequently. Class size has been increased for a wide range of courses across the schools and colleges.

Departments have reduced funds for faculty travel for research and scholarly purposes, to support internships and workshops, and to bring visiting professors and distinguished guest lecturers to campus.

Service hours have been reduced in the libraries and in some offices and departments.

The libraries have reduced acquisitions, cutting subscriptions for thousands of journals and monographs.

Information technology services have been trimmed, and departments have limited technology-related purchases and extended computer replacement cycles.

The business and operations units reporting to the Chief Financial Officer have made $13 million in budget cuts in the past two years, with another $4.4 million in cuts planned in FY2006.

The frequency has been reduced for cleaning and routine maintenance in campus buildings, as well as maintenance of lawns and landscaping.

Computer machine rooms, housed in numerous campus locations, are being combined to save on infrastructure costs.

The use of U.S. mail has been reduced and more of the University's regular business activities are being conducted electronically, including sending student tuition bills by e-mail and producing employee pay stubs online.

Construction project cost containment has saved a total of $11.7 million to date in equipment and other building components.

Strategic supplier contracts are saving University departments several million dollars per year in the cost of purchases, with a specific savings of $10.6 million in FY2005. Through these contracts, the University has negotiated lower prices for items such as office supplies, lab supplies and equipment, furniture and computers.

The University's commitment to energy-efficient measures through the Energy Star Program has reached an estimated $8.7 million in reduced energy costs per year. Through this program, thermal energy costs have been reduced by about 15 percent and electricity usage has been reduced by 20 percent from what they would otherwise have been.

The University introduced a new process for leasing off-campus space, a change that is expected to save at least $1 million per year in rental costs.

A revised structure for employee health insurance premiums has dramatically slowed the growth in University-paid employee health care costs, estimated to save at least $6.5 million in the General Fund for FY2006.

The University began contracting with a prescription drug benefit manager, which has slowed the growth in University-paid prescription drugs expense. In calendar year 2003, for example, this new approach saved the University approximately $8.6 million in expenses. Savings have not yet been calculated for 2004 and beyond.

University of Michigan Ann Arbor Campus
Summary of New Expenditures, FY2006

Following is a short summary of how the U-M Ann Arbor campus will direct incremental revenues in its FY2006 budget**:

Faculty and staff recruitment and retention is a very high priority in this year's budget planning. A total of $4.5 million will be targeted for recruitment and retention of outstanding faculty.

Moderate increases in salaries for faculty and staff will increase costs by $18 million. Rates of increase will vary by unit, but will be in the range of 2 to 4 percent. Benefits costs will increase by $6.8 million.

The increasing cost of utilities, including a 28-percent increase in the price of natural gas, will require an allocation of $11.7 million.

New facilities coming online during FY2006 will add $3.7 million in maintenance and related costs (in addition to some increased expenses for utilities which are included above). Two notable examples are the Biomedical Sciences Research Building, which will add much-needed life sciences research laboratory space, and the Undergraduate Science Building, which will provide an innovative, technology-rich instruction facility for undergraduate students. Both are scheduled to open in January 2006.

This budget continues the University's longstanding commitment to meet the full financial need of all Michigan resident undergraduates, and increases centrally-budgeted financial aid within the General Fund at a rate greater than the increase in tuition for an incremental expenditure of $6.7 million. This figure does not include M-PACT, which is an additional $3 million commitment in the coming year from private funds.

The University will direct $11 million to new academic initiatives. Examples include the Detroit Center, which will support and coordinate faculty and student projects in Detroit; a major transformation of teacher preparation programs in the School of Education; and the new Michigan in Washington program, which will enroll its first students this fall in coursework and internship placements in Washington, D.C.

**NOTE: This list is not exhaustive, and reflects internal budget cuts and reallocations of $20.1 million as well as net incremental revenues.


U-M Budget Update

U-M Board of Regents


Contact: Julie Peterson
Phone: (734) 936-5190