Faced with the toughest economic times since the Great Depression, the University of Michigan Board of Regents voted to approve a general fund budget that calls for $118 million in centrally awarded financial aid, including an 11.7 percent increase in financial aid for undergraduates.It is the largest investment in central need-based financial aid in U-M history.The $1.46 billion FY 2010 general fund budget proposed by President Mary Sue Coleman and Provost Teresa Sullivan is part of a forward-looking budget planning process to ensure U-M remains financially and academically strong and continues to provide students access to a high-quality education despite economic uncertainty in the state and nation.The budget assumes the U-M in FY 2010 will receive $316.6 million in state support, the amount it received in 2006 and $10 million less than it received this year. The state agreed to maintain support for higher education at 2006 levels as a condition for receiving federal stimulus money. Based on state revenue forecasts, U-M budget planners must prepare for uncertain state support for higher education by FY 2011.”These challenging economic times call for a historic response from the University of Michigan. We know this is a difficult period for our students and their families and, for some, the economic recession is affecting their ability to cover educational costs,” Coleman said.”The economic downturn has only reinforced our commitment to ensuring a U-M education is accessible to students,” Coleman said.The budget continues the university’s ongoing commitment to meet the full demonstrated financial need of all undergraduates who are state residents, and to continue to boost financial aid at a greater rate than tuition. It includes a 5.6 percent tuition increase for resident and nonresident undergraduate and most graduate programs.Tuition and fees for first-year undergraduates in the College of Literature, Science, and the Arts in 2009-2010 will be:

• $11,659 (a $622 increase from the previous year) for Michigan residents, and
• $34,937 (a $1,868 increase) for nonresidents.

Sullivan said that with the encouragement of the regents, the university has considered a longer horizon in preparing this budget to project revenues and expenditures, which will give U-M time to make adjustments and help it avoid the severe upheaval and double-digit tuition increases that some universities have experienced.”We continue to pursue a very disciplined approach to our budgeting,” Sullivan said. “We have been cutting expenses for the past seven years and continue to look for ways to enhance revenue and contain costs.”The university’s fiscal planning process calls for $36.5 million in budget cuts over the next three years. Units were asked to pare their budgets by 1 percent for FY 2010, resulting in $15.2 million in savings through elimination of some positions, not replacing equipment and other operational efficiencies.”We have several difficult years ahead,” Sullivan said. “However, the U-M is better positioned financially than many universities because of our pay-as-you-go policy, prudent investment strategy, highly diversified portfolio and conservative endowment-spending rule that reduces the effect of market volatility on our endowment funds.”In recognition of the difficult financial situation, Coleman has requested that she receive no merit salary increase from the Board of Regents in FY10. In addition, her leadership team of executive officers as well as U-M’s 19 deans will forgo any merit salary increases in FY10. The budget does include resources for a modest merit salary program for faculty and staff so the university can maintain its competitive position among peer institutions.U-M also competes for the best students and is committed to making the U-M financially accessible to academically qualified students. The average rate of growth in U-M tuition over the past five years has been among the lowest among public universities in Michigan and in the Big Ten.Nearly 80 percent of in-state undergraduate students and about 55 percent of nonresident undergraduates receive some financial aid.Sullivan credits generous donors for the U-M’s ability to increase the amount budgeted for financial aid at a rate higher than tuition again this year.In U-M’s recent capital campaign, donors contributed $545 million for student support, including nearly 2,000 new endowed scholarships valued at $260 million. These funds are in addition to increases included in the general fund budget approved today.In 2009-2010, thousands of U-M students will receive more in grant aid and have fewer loans to repay than previously:

• As many as 3,300 U-M students will benefit from increases in the federal Pell Grant program. Maximum grant awards will increase from $4,731 last year to $5,350 this year and are proposed to increase to $5,500 in 2010.
• Approximately 22,000 U-M families will benefit from the American Opportunity Tax Credit for an individual earning less than $80,000 a year, or $160,000 for a couple filing jointly. The tax credit for money paid to cover education expenses increased from $1,800 in 2008 to $2,500 in 2009 and 2010.
• U-M will receive $1.6 million more for work study—another 440 job opportunities for students meeting work-study criteria—under the federal stimulus package.

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Cost savings add up

The university’s fiscal plan calls for $36.5 million in budget cuts over the next three years, says Vice Provost Philip Hanlon.Cost-saving measures launched in FY 2009 in several areas—health care, energy and use of university space—are reaping benefits now and will continue to do so in coming years. Already costs are stabilizing or going down in these areas, he noted.For FY10, every unit was required to cut costs by 1 percent. Collectively, the actions to be taken by units totaled $15.2 million in savings. Steps include:

• Eliminating more than 63 funded positions through attrition or eliminating vacant positions for a savings of $6.8 million.
• Eliminating some equipment replacement costs and other operational efficiencies for a total savings of $8 million.

Hanlon said other cost-savings measures new in FY10 will save $9 million to $10 million annually in recurring costs when fully operational and include:

• Reducing U-M contributions for employee health benefits.
• Introducing a one-year waiting period for U-M to contribute to retirement savings for new employees.
• Consolidating several IT organizations and replacing a large number of computer servers with fewer centralized, less-costly, virtual servers.
• Discontinuing U-M’s public television operation.
• Restructuring the University Press to become a digital-only operation.

In the past six years, the U-M has saved and reallocated $135 million from the general fund budget through the following budget saving measures:

Purchasing

• U-M streamlined its procurement structure and processes and negotiated favorable rates with preferred vendors for everything from scientific equipment to software licenses.
• U-M’s Strategic Supplier Program grew from 18 suppliers to more than 100, resulting in thousands of dollars in savings for computer equipment, food, materials, repairs and supplies.

Energy efficiency

• U-M introduced energy conservation measures in buildings across campus. Upgrades included room occupancy sensors, reduced ventilation fan schedules and low-flow faucets.

Health benefits

• To counter soaring costs, U-M works with employees to contain growth in health care expenses by encouraging the use of generic rather than brand-name prescription drugs. The university also negotiated a new pharmacy benefit manager contract.

Information technology

• Technology-enabled business processes helped reduce administrative costs and improve service. The Office of Undergraduate Admissions introduced a paperless process to review applications, eliminating nearly 300,000 pieces of paper—an estimated 10 pages per application for 30,000 applications annually.
• Students are now matched electronically with scholarship award criteria, replacing a manual, paper-intensive process that previously resulted in some scholarships not being awarded because of difficulties finding qualified students.

Staff productivity

• Units, large and small, have consolidated job responsibilities, found ways to make employees more productive through technology and, as a result, held staff growth to less than 1 percent during the past seven years.

More efficient use of space and facilities

• U-M launched its Space Utilization Initiative in 2006 to improve usage of instructional, research and administrative space on the Ann Arbor campus. The initiative focuses on using classrooms and other instructional spaces more efficiently, promoting campus-wide sharing of high technology facilities, and adding greater rationality and discipline to decisions about major capital projects.

Background about the general fund

The general fund pays for teaching, services and administrative support for the university’s academic operations. General fund money comes from student tuition and fees (about 65 percent), state support (22 percent) and indirect cost of sponsored research and other revenue (13 percent).The general fund represents about one-third of the U-M’s total operating budget. Auxiliary funds—self-supporting funding units that pay their own way and receive no state appropriated funds—comprise more than half of the U-M’s $5.4 billion budget. The largest auxiliary units are the U-M Health System, Intercollegiate Athletics, Student Housing, Student Unions and U-M Parking Services.Click here for more information about the general fund budget.

Background about the endowment

U-M’s endowment provides steady financial support for the university’s academic programs and other needs. Endowment funds are invested for the long-term, and earnings from those investments help support outstanding faculty, innovative programs and student scholarships.U-M’s endowment is a collection of 6,500 separate funds. Each fund must be spent as specified by the donor. One-fifth of the total endowment is earmarked for student scholarships and fellowships. More than one-fourth of the endowment was given for the U-M Health System and can only be used to support research, patient care or other purposes identified by donors or sponsors. Similarly, money donated for buildings cannot be used for other purposes.Although U-M’s endowment is the seventh largest among all universities in the country and third largest among public universities, U-M ranks 108th in endowment per student, lower than many private peers with much smaller enrollments.