Advance planning puts U-M on solid ground
Op-ed for The Detroit News, June 11, 2010
The financial crisis facing our state guarantees sympathy. When I travel across the country and colleagues know I am from Michigan, the condolences flow. They may be facing a bad fiscal situation in their own states, but the University of Michigan, they assume, must be in far worse shape.
It gives me great satisfaction to report to them that an obituary is premature. Yes, the state’s fundamental economic base is shifting dramatically, but I explain we are hiring faculty, have had no furloughs or across-the-board layoffs, are investing in new programs for students, and are making record investments in need-based financial aid for Michigan families.
Unfolding in the midst of this economic turmoil is an ongoing strategy to achieve success for our students that will benefit the corporations and communities they join upon graduating.
Reshaping the infrastructure of a complex institution such as the U-M has been hard work, aided by the creativity and dedication of large numbers of people. What we have learned is that good ideas abound and many can be carried out. We offer these lessons learned to any organization or entity in the state that is determined to succeed in our economic times.
It is important to say without equivocation that state support for higher education remains a critical element of our general fund. But equally important is our obligation to protect a long-term future for our institution.
Several years ago, the decision to implement a multi-year budgeting strategy proved critical in accelerating our cost containment initiatives. This approach forces us to think long-term and eliminates the possibility of using one-time resources and budget shortcuts that may provide temporary relief but can derail steady progress toward long-term strength.
In total, we have eliminated $157 million in recurring general fund obligations, representing a 12 percent reduction in the budget that supports academic operations and employee salaries. Our administrative costs, at 8.5 percent, are the lowest among the state’s higher education institutions. We restructured health benefits on a tiered income scale, so that within another year, our employees will shoulder an average of 30 percent of health care premiums and co-pay costs, reducing our cost base by $30 million per year. We coupled this with robust preventative health programs and incentives for employees. We also assumed management of our prescription drug plans to create best-in-class cost performance, saving at least $10 million annually.
While our core academic activities continue to grow, we have aggressively managed use of our physical plant. Over several years we put into action a plan that reduced requests for new space from 1.8 percent annual growth to less than 0.3 percent. This change alone saves hundreds of millions of dollars in new construction and renovation costs, plus millions more in ongoing operating expenses.
The strategy continues with information technology, consolidating administrative and academic computing into a single unit and saving $7 million a year. We have developed energy and water conservation strategies that save more than $3 million annually, and we have in place a policy of 1 percent to 3 percent annual cost-saving targets in each of our 19 schools and colleges.
Most significantly, we have coupled all this and more with the slowest annual growth in resident in-state tuition increases among Michigan universities and most of our peers.
To underscore our understanding of the strain placed on families in paying for college, we have guaranteed accessibility for Michigan residents through financial aid programs. In addition, through prudent cost cutting, modest tuition increases and aggressive fundraising we have offered new academic programs, expanded undergraduate research and entrepreneurial programs and sustained a billion-dollar research enterprise that promises to help our state.
The overarching result is a fiscally sound public institution that produces talented graduates, as well as innovative research and technologies.
We know we have more work to do; changing the cost trajectory of higher education is an ongoing challenge into the foreseeable future.
It is especially challenging as we acknowledge the state’s important contribution to our success, but also confront the fiscal constraints. Dramatic change creates opportunity we previously may not have pursued.
We cannot accept the view that others outside the state may have of our long-term future.
Instead, sharing the steps along our journey may generate ideas for others in our state, and together we can claim that not only is Michigan alive and well, but thriving.
Mary Sue Coleman is president of the University of Michigan.