By Paige Pearcy, Daily News Editor
Published January 23, 2012
With the help of a three-phase cost containment model, University officials have devised a long-term plan that will save the University an estimated $355 million by the end of fiscal year 2017.
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Ongoing cost containment efforts, which first began in fiscal year 2003, have kept the University financially sound amid the difficult economic climate in the state of Michigan, said University Provost Philip Hanlon in an interview with The Michigan Daily.
“I think this kind of fiscal discipline is one of the things that separates us from the other elite universities in this very difficult period,” Hanlon said. “The University of Michigan ... remained on a stable upper trajectory through the collapse of 2008, the financial collapse ... because of the fiscal discipline we introduced.”
The first phase of the containment model — held during fiscal years 2003 through 2009 — saved the University approximately $135 million in recurring costs by increasing energy efficiency, changing health care benefit strategies and increasing productivity of staff members.
Currently, the University is in phase two of the model, which will be completed by the end of the current fiscal year and is expected to save the University an additional $100 million.
Phase three, projected to save an additional $120 million, will commence at the beginning of fiscal year 2013 and end in fiscal year 2017. The entire model will result in a total savings of about $23.7 million per year by the end of fiscal year 2017.
Hanlon said long-term planning for savings is what makes the plan successful.
“The winner for us is the fact that we have this annual effort, this annual commitment to cut between 1.5 to 2.25 percent out of our budget,” Hanlon said. “We know that we need to do that in 2013 to 2017, so we’re already putting in place the programs which may take a long time to develop.”
In an interview with the Daily, University President Mary Sue Coleman said a major reason for implementing cost containment plans was to combat against the increasing likelihood of funding cuts from the state than when she first came to the University in 2002. Last year, the University received $47.5 million less from the state, and over the past 10 years, funding has decreased by about 30 percent.
“It’s just a good practice, being as efficient as you possibly can and making sure you’re using best practices,” Coleman said. “Certainly, the pressures from the state and our desire to keep tuition as low as we possibly can, the increases in tuition as low as we possibly can, have really prompted us to do some really far reaching initiatives."
Coleman added that savings have been implemented in areas that will not negatively impact academic standards.
“Through every single thing that we’ve done, we’ve tried to protect what happens in the classroom,” Coleman said. “We want to make sure that we don’t cut (extracurricular) programs back because we think they’re so important to the education of students."
Coleman said the containment plans have ultimately resulted in more efficient work at the University.
“We sort of transformed the system,” Coleman said. “By transforming the way we look at that and having groups of facilities people be responsible for a certain part of the campus, we’ve really made the work more efficient and better. So there’s some ways in which our cost cutting has created better systems than we used to have.”
Some of the planned savings in each phase will also be incurred from changes to health benefits for University employees and retirees, totaling yearly savings of about $30 million. The University recently changed its health benefits coverage for current employees, who now have to pay about 30 percent of their benefit costs. Additionally, the University has begun to self-insure, rather than paying outside companies to provide benefits.
In 2013, retirees will also begin paying more for benefits, which would result in an estimated savings of $9 million a year by 2020 and ultimately, $165 million a year by 2040, for the University.
The Committee on Retiree Health Benefits, which was appointed by the office of the Provost in 2009, recommended the change in retiree benefits last February. Laurita Thomas, associate vice president for human resources and a member of the committee, said the change was made after comparing benefits offered by the University to peer institutions and found that the benefits the University offered were very competitive.
“Our retiree health benefit was one of the best in the nation and it was also the most expensive for the employer,” Thomas said. “There was an opportunity to save resources so that we could control the cost increase for tuition and other revenue resources, so we decided to make that change with lots of input and consideration from our community, current retirees and current faculty and staff.”
Thomas added that employees who will be mostly affected by the change are those that are not yet hired, since the change will be more gradual for current employees and retirees.
“We wanted to protect current retirees and those close to retirement,” Thomas said.
In addition to the cost containment initiative, the University's space saving initiative, which started in 2007, has saved the University about $462 million in construction costs and $18 million in annual costs by increasing current space utilization efficiency and decreasing requirements for construction expansion.
Before the space saving initiative started, the University's average growth rate in square feet was 2.02 percent. Since the initiative started, however, the rate decreased to .43 percent, which has helped save costs.