Faced with a looming $20 million budget deficit predicted for
the next fiscal year, the University has been taking strides to
avert a budgetary crisis without significantly raising tuition.

Last month, University President Mary Sue Coleman announced that
she planned to accept Gov. Jennifer Granholm’s proposal that
would keep tuition increases at 2.4 percent in exchange for a
reduction in state cuts from 8 to 2 percent.

Tuition for undergraduate state residents is $7,895 a year.
Assuming a 2.4 percent or less increase, tuition next year will be
$8,084. — the lowest tuition increase in at least 15
years.

While the drop in state appropriations last year was offset by a
6.5 percent tuition increase, the expected 2.4 percent tuition hike
will not make up for next year’s projected budget deficit
caused by the substantial cut in funding from the state.

“Thirty years ago, the state provided 70 percent of the
funding for instruction at our Ann Arbor campus,” Coleman
said. “Today, we receive less than 30 percent of our
instructional funding from the state. The burden of the cost of
education has dramatically shifted from state support to student
tuition.”

Despite these cuts, last year’s tuition increase was the
lowest among Michigan public universities. Overall tuition rate
growth over the last five years has also been the lowest in the
state.

In order to balance the budget, Coleman said the University
would be forced to reduce spending.

“We’re looking at every nook and cranny of the
University to see what we can do without and how we can save
money,” she said.

Although the severity of the budget deficit will require the
University to make cuts in virtually every department, Coleman said
academic departments will be relatively safe, while administrative
areas will bear the brunt of the budget shortfall.

In the past year, Coleman said the University has eliminated
more than 300 administrative positions, reduced its travel budget,
overhauled its prescription drug plan and reduced utility costs.
Beginning in 2005, the University’s health benefits plan will
also be restructured, which Coleman said will further increase
savings.

To compensate for rising tuition costs, Coleman said the
University has taken steps to ensure that students are still able
to pay for their education, consistently offsetting tuition hikes
with equal or greater increases in centrally budgeted financial
aid. This year there was an increase of 8.3 percent in financial
aid, compared to the 6.5 percent raise in tuition.

The University also raises large amounts of money through
private donations and endowments that go toward financial aid.

“Private fundraising is always important because without
that kind of fundraising, we just can’t generate enough money
from the state and tuition alone,” Coleman said.

The University will kick off a new capital campaign on May 14 to
raise money for scholarships, fellowships and endowed
professorships from private donors, Coleman said.

Coleman predicted this will be the largest such campaign in the
University’s history. The last capital campaign, completed in
1996, raised $1.4 billion over a six-year period.

In addition to the current $20 million deficit, the University
could potentially face another reduction in state appropriations,
depending on the outcome of next month’s state revenue
estimating conference.

The conference is organized by a group of people, including
state Treasurer Jay Rising and the directors of the Senate and
House fiscal agencies, who will determine the state’s
revenue, which will subsequently determine the state’s
budget. Legislators are required by law to balance the state
budget.

If the state’s revenues fail to meet expectations in May,
the government is likely to offset the deficit by further reducing
higher-education appropriations, Coleman said. “In the best
of circumstances, $20 million has to go,” she added.

“We’re facing much uncertainty in our own situation
because of the state’s uncertainty,” Coleman said.
“Maybe we won’t get another cut. The problem is that we
don’t know.

Regarding Granholm’s recent proposal to double the number
of college graduates in the state, Coleman praised the
governor’s initiative, but cautioned that the state will need
to invest more money in higher education if it wants a more
educated citizenry.

“I believe, in the 21st century, that having a
highly-educated workforce is going to be critical for the success
of the state,” Coleman said. “It’s right for the
state to want a more educated citizenry … but it will take
more money.”

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