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July 19, 2007

U-M budget includes moderate tuition increase, major investment in financial aid

ANN ARBOR, Mich.—The University of Michigan Regents today (July 19) approved a $1.35 billion 2007-2008 General Fund budget for the Ann Arbor campus that includes a moderate tuition increase and invests significantly in financial aid.

The FY 2008 budget recommended by U-M President Mary Sue Coleman and Provost Teresa Sullivan includes a tuition increase of 7.4 percent for both resident and nonresident undergraduates, a 5 percent increase for most graduate programs and an 11.5 percent increase in centrally awarded student financial aid for undergraduates.

The budget also includes additional funds for faculty recruitment and retention and for a few important new initiatives, both made possible through the reallocation of resources resulting from systematic cost containment.

The new budget anticipates a state base appropriation of $320 million, identical to the FY 2007 appropriation at year-end. The University began FY 2007 with a larger base appropriation, but the state reduced it in May by $5.6 million. The budget also anticipates that the state will make a payment in October of $29.6 million. This payment was due in August as the final installment toward the FY 2007 appropriation.

"We are confident state leaders and taxpayers understand the importance of investing in higher education and U-M’s role in transforming the state's economy," Coleman said. "This budget supports the University's core values of academic excellence and access despite the state's budgetary challenges. It will allow us to continue to recruit and retain outstanding faculty and invest in a modest number of new initiatives, technology and facilities that ensure U-M remains a worldclass research university."

The General Fund budget supports the primary missions of the University—instruction, research and public service. The total General Fund budget for the Ann Arbor campus will increase about 4 percent from FY 2007 to FY 2008. The majority of new funds will go to academic units, with small increases to administrative units. U-M Ann Arbor's total FY 2008 operating revenue budget, including the U-M Health System, athletics and programs supported by designated gifts and grants, is $4.78 billion.

"This is the sixth consecutive year the state has reduced the University's appropriation, either in base or as part of a mid-year rescission," Sullivan said. State support has declined each year since FY 2002 when it was more than $363 million. This includes base cuts of more than $43 million and one-time rescissions of $47.9 million.

"Yet, U-M's activity level has never been higher," she said. "Projected enrollment for fall is up, reflecting the confidence students and their parents have in the University, one of the state's leading assets."

The three main sources for General Fund revenues are the state appropriation, tuition and indirect cost recovery. Tuition dollars and state appropriations are the primary sources that can be allocated as needed.

Since 1960, state support as a percentage of the U-M Ann Arbor General Fund budget has dropped from 78 percent to 24 percent. During the same period, tuition as a percentage of the General Fund budget has increased from 20 percent to 62 percent.

The total academic year tuition and all required fees for first-year undergraduates in the College of Literature, Science and the Arts will be $10,447 (a $724 increase) for Michigan residents and $31,301 (a $2,170 increase) for nonresidents.

Student access remains a top University priority. U-M will continue its longstanding policy of meeting the full demonstrated financial need of all Michigan residents, Coleman said.

As in the past, U-M will increase centrally funded financial aid at a higher rate than its tuition increase. The FY 2008 budget calls for an overall increase of more than $8.1 million in centrally awarded financial aid, an 8.95 percent increase over FY 2007, for a total of more than $99 million. This includes a nearly $6.4 million or 11.5 percent increase in financial aid earmarked for undergraduates.

For a typical middle or low-income resident undergraduate, the increased cost of attending U-M will be offset by additional grant aid. The University therefore expects no increase in loan burden due to the tuition increase for these students. In addition to centrally awarded financial aid, academic units award both need- and merit-based scholarships.

The President's Donor Challenge, which was launched in October 2006, has increased the endowment for need-based student financial aid by $32 million and continues to grow. As part of the challenge, Coleman uses U-M funds to match gifts earmarked for student aid. Another financial aid program, the M-Pact Program, launched three years ago, continues to provide need-based grants to Michigan residents, decreasing the loan burden for students. More than $4 million was disbursed to over 2,480 students through M-Pact in FY 2007.

U-M also continues to invest significantly in faculty recruitment and retention. "Faculty excellence is the single most important factor contributing to the quality of our academic enterprise," Sullivan noted. "To maintain our level of excellence, we must compete successfully with other top universities, public and private, for faculty and students."

Gifts and other non-General Fund sources are increasingly important to the University’s bottom line. The Office of University Development raised more than $300 million in new gifts during FY 2007, setting a new U-M record. The University has invested significantly in fundraising in recent years and will continue to do so, including support for its alumni database, international fundraising and a parents and families program.

"Donor support remains an essential component of our financial strategy that makes the difference between a good university and a great one," Sullivan said. Although a vast majority of gifts are restricted by donor intent, some General Fund dollars are being freed up by undesignated gifts and endowments that support professorships, faculty salaries and programmatic initiatives.

"The quality of our academic enterprise drives our budget strategy and associated allocations," Sullivan noted. Variations in rates of growth for individual academic units' budgets reflect changes in instructional or research activity within the units. Academic units experiencing enrollment growth include the College of Engineering, College of LSA, College of Pharmacy, Gerald R. Ford School of Public Policy and School of Information.

"The University’s revenue situation remains challenging," Sullivan said. "The state's uncertain financial circumstances combined with constrained federal research funding require a balance between fiscal discipline and the need to invest in the future."

"If the actual state appropriation amount differs significantly from what we are assuming, we may seek a revision from the board at the appropriate time," she added.

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