'Pain and progress' theme at MSU

Contact: Terry Denbow, University Relations, (517) 355-2262, denbow@msu.edu

May 09, 2003

EAST LANSING, Mich. - Noting that Michigan State University faces the "challenge but the opportunity as well" of financial problems, Interim President Lou Anna K. Simon today told the university's Board of Trustees that "both pain and progress await us."

At its May 9 meeting, the MSU Board discussed a number of decisions, as well as additional options, the university could choose should the budget situation not dramatically improve.

"All of our decisions will be based on our commitment to maintaining, indeed to enhancing, the character and quality of MSU," Simon said. "These are difficult times and we have to choose our courses of action wisely. The choices we make have generational implications."

Simon said there were a number of reasons why the university budget situation had become so critical:
A reduction in state appropriations of at least 10 percent.

A resulting budget gap of approximately $59 million when regular cost increases are added in.

A $38 million disparity in per-student funding from the state, as well as an $87 million shortfall compared to the average support provided to Wayne State University and the University of Michigan.

No state special maintenance funding for facilities since 1999. It's estimated that MSU will incur $500 million in infrastructure renovations and repairs within the next 10 years.

Because of the MSU Tuition Guarantee, MSU students have paid approximately $1,400 less per year from 1994-2001. That resulted in MSU having $45 million less than if rates were raised at the average of its Big Ten peers.

Compensation adjustments totaling $21.8 million, including $5 million for health care cost increases.

Simon said it's important to note that the university has already taken a number of steps to cut costs, including:
Have managed staffing and human resources, resulting in 140 fewer FTE's over the course of the last year and processing between 70 to 100 mid-year layoffs.

The discontinuation of 12 academic programs and a moratorium on 17 others, including audiology, urban affairs and the medical program in Saginaw.

A series of department-level budget cuts that have resulted in program realignments and reductions.

MSU Extension and the Michigan Agricultural Experiment Station have instituted incentive retirement programs, resulting in the elimination of 40 positions.

Expected increases in tuition and fees, and room and board rates.

More than $3 million in student financial aid increases, plus an additional $2 million for students with needs and those whose financial situations have worsened due to state and federal economic woes.

Highlights of Trustee Finance Committee Discussion of Budget Issues May 9, 2003

BACKGROUND

MSU has been committed to providing a high quality, accessible education: Tuition restraint over the last eight years resulted in MSU students paying approximately $1,400 less per year and MSU having $45 million less than if rates had been raised at average of Big Ten peers.

Financial aid funding has increased at a higher rate than tuition and fees over the last nine years.

$20 million in existing funds have been shifted for reinvestment in quality programs over the last seven years.

$13 million in existing funds were taken from unit budgets to address health care cost increases.

MSU efforts at cost control and tuition restraint have been appreciated but unrecognized by state funding support:
Peer institutions have increased tuition and added new undergraduate fees to cover state revenue reductions, while MSU has done neither.

MSU already operates within a $38 million disparity in per student funding from the established state funding floor and $87 million compared to the average support provided to Wayne State University and Michigan State University.

Michigan State University Extension and the Michigan Agricultural Experiment Station both face serious financial challenges:
Growing demand for expertise from Michigan communities and industries

Flat federal funding over the last decade.

State rescissions have increased financial pressures.

Effects of reductions are felt in vital research areas across campus in Agriculture and Natural Resources, Natural Science, Veterinary Medicine, and Human Ecology.

STEPS TO ADDRESS BUDGET SITUATION

MSU is doing its part to address state budget cuts and meet its responsibilities to current students, stakeholders, and future students. They include the following: Since these current fiscal concerns began, have discontinued 12 academic programs and placed a moratorium on 17 others, including audiology, urban affairs, and the medical program in Saginaw.

Have managed staffing and human resources carefully, resulting in 140 fewer FTEs over the course of the last year. We are processing between 70 to 100 midyear layoffs.

Incentive retirement program for Extension and Agricultural Experiment Station eliminated 40 positions.

Re-engineering of administrative units like the campus bus service, health center and enrollment services have generated resources to offset appropriation declines and tuition increases.

Eliminated the position of vice president for special projects, also eliminated position of Director of University Services.

BUDGET CHALLENGES FACING MSU

The budget must maintain MSU's quality and character and sustain its continuing commitment to accessibility at Michigan State.

A 10 percent reduction in state appropriations is expected:
This results in a budget gap of approximately $59 million when regular cost increases are added in.

This sets state support per MSU student back nearly a decade to $7,167, or back to 1995-96 levels, when enrollment increases are taken into account.

Addressing the $59 million budget challenge will require will require additional budget cuts, program realignments and closures, staff reductions and layoffs, and revenue enhancements - all tied to unit strategic plans to maintain quality and accessibility.

MSU faces a number of financial challenges:
MSU is facing over $500 million in facilities and infrastructure repairs and renovations.

To attract and retain a quality faculty that is internationally competitive and meet current contractual obligations to other employee groups, compensation adjustments totaling $21.8 million - including $5 million for health care cost increases - will be required.

To maintain accessibility and help students whose financial situations are disrupted by current circumstances, $3.4 million in student financial aid increases are required.

To maintain faculty-student ratios and class sizes amidst budget cuts, additional funds might be required.

Implementation of program closures and moratoria will require transition funding to meet current obligations to faculty, staff, students and stakeholders who are currently involved in these programs.

One-time funds will also need to be available to support revenue-based initiatives with a potential to help MSU be less reliant on state funding and student fee revenues.

NEXT STEPS

The State revenue conference scheduled for next week should provide an update on the state's fiscal health and future prospects.

House action on Higher Education Appropriations Subcommittee recommendations is expected mid- to late-week next week.

Senate hearing on higher education budget is scheduled for Friday, May 30.