UM Tuition, Budget Increases Cause Concern

Mary Morgan — Sun, 19 Jun 2011 17:24:10 +0000

University of Michigan board of regents meeting (June 16, 2011): Despite dissent from two regents, the board approved tuition and fee increases for the coming school year, as part of its FY 2012 budget. Regents Denise Ilitch and Larry Deitch objected to the increase, saying it would become more difficult for middle- and working-class families to afford a Michigan education.

University of Michigan regent Denise Ilitch, who was elected chair at the June 16, 2011 meeting, listens to local resident Tom Partridge, a frequent public commenter at meetings of various governing boards in and around Ann Arbor. He did not sign up to speak during public commentary at the regents meeting, but approached regents individually before the start of the session. (Photos by the writer.)

Tuition and fees will increase 6.7% for most in-state first- and second-year undergraduates at the Ann Arbor campus, for a total of $12,634 per year ($6,317 per term). Most out-of-state undergraduates will pay a total of $37,382 per year ($18,891 per term).

Voting against the tuition increases were regents Denise Ilitch and Larry Deitch. Ilitch has voted against increases for three straight years, but this is the first no vote for a tuition proposal that Deitch has cast in his 19-year tenure on the board. He objected to the higher percentage increase that in-state students were bearing compared to out-of-state students, as well as to the state-level budget process, which threatens additional state funding cuts for public universities if they raise tuition by more than 7%. He contends that the “cut-and-cap” approach results in tuition increases that are higher than they might otherwise be.

This is the second wave of increases for students this fall. At their May 19 meeting, regents had voted to raise residence hall rates at the Ann Arbor campus by 3%. The rate increase for Northwood Community Apartments – housing primarily for graduate students and families on UM’s north campus in Ann Arbor – is 1% for the 2011-12 academic year.

In presenting the budget at the June 16 meeting, university officials emphasized the context for these increases: The FY 2012 budget reflects a $47.5 million cut in UM’s state appropriation down to $268.8 million – a decline of 15% compared to FY 2011, and the lowest amount of state aid received since FY 1964, when adjusted for inflation. The budget attempts to soften the tuition hike by adding $9.2 million in student need-based financial aid.

Tuition makes up a large portion of the general fund operating budget. For the Ann Arbor campus, the budget of $1.58 billion in FY 2012, which begins July 1, reflects a 2.2% increase from FY 2011.

Regents also approved the FY 2012 budget for the UM Hospitals and Health Centers – revenues are projected at $2.169 billion, with a $23.5 million operating loss. The loss is due in large part to $89.4 million in costs related to the new C.S. Mott Children’s and Von Voigtlander Women’s Hospitals, which open in November.

UM athletic director Dave Brandon gave a briefing on the athletic department budget, though it doesn’t require separate regental approval. The budget calls for a $11.4 million surplus and projected revenues of $121 million, including $45.5 million from ticket sales.

In addition to budget items, the board conducted other business during Thursday’s meeting, approving several construction projects – including a major renovation of Yost Ice Arena – and electing new officers: Ilitch as chair, and Deitch as vice chair. In her first action as board chair, Ilitch asked to enter a statement into the record. Though she didn’t read the statement or refer to its topic at the meeting, it was a response to a May 27, 2011 editorial in the Detroit Free Press about a resolution approved at the regents’ May 19 meeting. The resolution supported the right of graduate student research assistants to unionize.

That issue also arose at the meeting during public commentary. Dan Benefiel – a member of the Willow Run Tea Party Caucus and the Washtenaw County Republican Party executive committee – told regents he’s concerned that their decision will eventually lead to the unionization of college athletes. He called the vote a “leftist intrusion on American educational institutions.”

Budget Overview

Tim Slottow, UM’s chief financial officer, began the budget presentations with an overview of the university’s financial status, to provide a broader context for the changes. The university has $14.8 billion in assets – in non-capital and capital assets combined – and $4.7 billion in liabilities, resulting in net assets of $10.1 billion. It’s a healthy ratio of overall assets to liabilities, he said, and of financial assets to debt. (Total debt is $1.67 billion.) On the down side, many of the university’s assets have long-term, restricted uses – primarily for things like endowed professorships, scholarships, and capital projects, among others. That limits the university’s flexibility, he said.

Slottow noted that what’s not on the balance sheet is about $600 million in deferred maintenance on the institution’s 33 million square feet of facilities. In the past, UM has relied on state support for this purpose, Slottow said. In the 1980s, the university got about $250 million for capital outlay. That dropped to about $200 million in the 1990s, he said, and from 2000 to 2010 UM got about $30 million. “We are not depending, going forward, on the state,” he said.

Slottow moved on to a list of “things that keep me up at night.” Those include categories that can be reasonably quantified, he said – deferred maintenance of buildings, retirement health benefits and increasing future debt liabilities – as well as a raft of things that can’t be controlled. In that latter category, he cited the volatility of capital markets, the state and national economy, rising health care and energy costs, and competitive pressures like faculty retention and recruitment, and research funding.

Tim Slottow, UM's chief financial officer.

Turning to long-term strategies, Slottow reminded regents that to help absorb reductions in state appropriations, the university began an effort six years ago to increase endowment support for the general fund. The general fund endowment now provides about $12 million in annual revenue to support general fund activities, such as scholarships, professorships and academic programs.

He outlined several other strategies to increase revenues for the general fund. They included: (1) increasing the indirect cost rate paid to the university by federal research grants, bringing in $11 million; (2) directing a portion of Big 10 TV revenue – $2 million – to support financial aid; and (3) restructuring or redirecting non-general fund revenues to support general fund activities – bringing in $5 million from late fees, vending machines, parking and other sources. They’re continuing to beat the bushes for new revenue, he said.

Slottow reviewed the physical plant of the Ann Arbor campus, as a reminder of the infrastructure that the university supports. That includes:

25 miles of roads and 4.7 million square feet of sidewalks, steps, and plazas
7 miles of utility tunnels and 150 miles of fiber optic cable
280 acres of parking lots/decks
33 million gross square feet of buildings and core infrastructure
602 buildings, 1,894 classrooms and instructional labs, 1,160 study rooms, and 6,166 research labs/rooms
580 elevators and escalators
14,200 trees and 13 million square feet of turf
106,000 network desktop computers

Related to facilities, Slottow highlighted the university’s commitment to sustainability, saying “it’s become part of the fabric of what we do.” Planet Blue – a campuswide energy-saving initiative – has resulted in significant declines in energy demands, he said: BTUs per person/per square foot have dropped 22% since 2004; energy usage for UM’s campus vehicle fleet has decreased 7.7% from FY 2009; and water use has decreased 3% from FY 2009 – the lowest water usage in the last seven years.

And though emissions increased 12% compared to 2009, Slottow noted that when normalized for the amount of building square footage, emissions have dropped 0.6% since 2004.

People are the university’s most important asset, Slottow said. For all three campuses, the university employs 29,355 regular staff – up from 28,809 a year ago – and 7,133 instructional, clinical and research faculty, compared to 6,967 last year.

As of March 31, 2011, the university’s debt totaled $1.67 billion – up 5% from $1.58 billion a year ago. Slottow said a prudent debt management policy has helped the university earn the highest possible credit rating, which was affirmed in April: Standard & Poor’s AAA, and Moody’s Aaa.

He concluded by noting that despite enduring the state’s worst economy in 50 years and other pressures, the university’s financial position remains strong.

Budget, Tuition, Financial Aid: Ann Arbor Campus

Phil Hanlon gave his first budget presentation as provost – he was promoted last year following the departure of Teresa Sullivan, who’s now president of the University of Virginia. Hanlon had briefed the media for about 30 minutes prior to the start of Thursday’s regents meeting.

It was the most challenging year he can recall, Hanlon told regents, and he thanked his staff for their help – several of them attended the meeting, and received a round of applause from the regents and university executives.

UM provost Phil Hanlon led the budget process for the Ann Arbor campus, and presented the FY2012 budget presentation at the regents June 16 meeting.

The FY 2012 operating budget for all three campuses – Ann Arbor, Dearborn and Flint – totals $6.02 billion, including $1.788 billion for the combined general fund. For the Ann Arbor campus alone, the FY 2012 general fund budget is $1.587 billion, a 2.2% increase from FY 2011. Tuition and fees account for the bulk of revenues – $1.09 billion. [.pdf of Ann Arbor campus budget report]

State appropriations of $268,803 mark a 15% drop of $47.5 million from FY 2011. It’s slightly more than the amount that the university received in 1991, he noted. And when adjusted for inflation, it’s the lowest amount of state aid received since FY 1964 – and ”I think we have a few more students than in 1964,” he quipped.

Hanlon pointed out that in 1960, state appropriations accounted for 78% of the university’s general fund revenue, with tuition and fees making up most of the remainder. Now, tuition and fees provide 69% of general fund revenue – state appropriations have dropped to 17%, with other revenue sources accounting for the rest.

Hanlon emphasized the university’s commitment to academic quality, despite the budgetary challenges. He also noted that the budget calls for a 10.9% increase of $9.2 million in undergraduate, need-based financial aid, to a total of $137 million. This is the amount for centrally-awarded aid, he said – additional financial help is offered by individual units of the university.

He cited other investments as well, including an ongoing effort to hire 150 new faculty members in order to reduce the student/faculty ratio, an increased budget for library collections, and upgrades of technology and facilities.

[Responding to a question at the media briefing, Hanlon also said that the budget includes a 3% increase for the faculty merit salary program, or about a $9 million increase. The budget calls for a roughly $8 million increase for staff salaries. The university's executive officers are also budgeted for an average increase of 2%. In that category, the largest percentage increase is for the vice president for communications – that budget is getting a 5.33% increase, to $5.56 million. The office is overseen by Lisa Rudgers, who was hired effective June 1 as the new vice president for global communications and strategic initiatives. Several other executive officers and units have significantly higher budgets, but will receive lower percentage increases. The largest executive office budget – $168.86 million, overseen by chief financial officer Tim Slottow – gets a 2.5% increase in FY 2012.]

Increased financial aid and other planned investments are only possible because of cost containment, Hanlon told the regents. They’ve cut expenses by nearly $200 million over the past eight years, he said, and are shifting nearly $44 million in FY 2012 to fund priority initiatives. The university plans an additional $120 million in cuts from 2013-2017.

To date, most of the expense reduction has been operational, Hanlon said. The university has shifted a larger portion of health care costs to its employees, who will be shouldering 30% of the costs, compared to 5% in 2003. UM also has expanded its energy conservation efforts, and changed its retirement policy to institute a one-year waiting period before it begins contributing to the retirement benefits for new employees.

However, this year the cost containment is affecting academic units as well, he said. Several units will be closed or downsized, including the Center for Ethics in Public Life, the Substance Abuse Research Center, the Center for Advancing Research and Solutions for Society, and the Autism and Communication Disorders Center. [During the media briefing, Hanlon said there would likely be layoffs associated with these and other changes, though he said the university will try to address the downsizing through retirements and attrition.] The university also will be eliminating courses with low enrollments.

Within this context, Hanlon recommended a 6.7% tuition and fee increase for in-state “lower division” undergraduates – the equivalent of freshman and sophomores – and 4.9% for both non-residents undergraduates and for most graduate programs. The 6.7% increase means students will pay $797 more per year, for a total of $12,634 ($6,317 per term). Out-of-state students will pay a total of $37,382 per year ($18,891 per term), a $1,781 annual increase.

In some cases, tuition and fees for specific UM schools and colleges vary widely. For example, lower division in-state students in the school of music, theatre and dance will see an 11% tuition and fee increase, to $13,136 per year. [.pdf of tuition and fee list for all units on the Ann Arbor campus]

UM president Mary Sue Coleman, left, talks with Sally Churchill, vice president and secretary of the university, prior to the start of the June 16 meeting.

Hanlon showed three charts that compared UM tuition and fees to other institutions, noting that not all had set their rates yet. A selection of other public universities nationwide – including UCLA, Indiana University and the University of North Carolina (Chapel Hill) – showed a range of increases for first-year in-state tuition, from 4.5% (Purdue) to 8.9% (University of Virginia).

Only five of Michigan’s public universities had set tuition by Thursday’s meeting – Oakland University showed the highest increase at 7%, with Western Michigan at the low end with a 6.4% increase. [The following day, Michigan State University's trustees approved a 6.9% tuition increase. Eastern Michigan University has not yet voted on tuition rates.]

Hanlon concluded by saying the recommended budget enables the university to manage the largest state appropriation cut in its history, while significantly cutting costs and putting a priority on investing in academic programs.

The budgets for the Flint and Dearborn campuses were presented separately by UM-Flint chancellor Ruth Person and UM-Dearborn chancellor Daniel Little. UM-Flint proposed a 6.8% increase for in-state undergraduate tuition and fees, and 4.9% for graduate students. UM-Dearborn proposed a 6.9% increase for both undergraduate and graduate tuition and fees.

Budget, Tuition, Financial Aid: Fee Increases

Royster Harper, UM’s vice president for student affairs, gave a brief presentation on a proposal for various student fees:

$7.19 per student per term to fund the Michigan Student Assembly (unchanged from FY 2011)
$1.50 per student per term to fund school/college governments (unchanged from FY 2011)
$8.50 per student per term for Student Legal Services ($2.50 increase from FY 2011)
$172.40 per student per term for the University Health Service ($1.20 increase from FY 2011)

Harper said that current fees for Student Legal Services didn’t cover its costs, and that additional fees for the University Health Service were necessary to cover expenses, including a 2% salary increase.

Budget, Tuition, Financial Aid: Regents Discussion

Before voting, several regents gave statements about the proposed tuition increase.

Denise Ilitch began by noting that amid all the other changes that are taking place at the university, one thing remains the same – the dramatic escalation of tuition costs, for the 14th year in a row. And this year, she said, the percentage increase is higher for Michigan students than for out-of-state students. She quoted an editorial from the Detroit News that called it a “destructive cycle.” Ilitch said she remains firm in advocating for affordable, accessible, quality education, and she’s concerned that it’s becoming out of reach for middle-class and working-class families. With each dollar that tuition is increased, they limit the ability for everyone to share in UM’s unparalleled education.

Acknowledging that the university has made great strides in cost containment and financial aid, Ilitch said they need to look deeper to find savings from academic enterprises. ”Our decentralized structure comes at a high cost, as it leads to inefficiencies,” she said. They need to develop a strategic plan and seek new sources of revenue – it can be done without compromising standards and quality, she said. Ilitch concluded by encouraging the university to act boldly and encourage change.

Larry Deitch spoke next, saying this would be his 19th budget and tuition vote, and the first time he would vote against it for the Ann Arbor campus. He didn’t want it to be interpreted as a criticism of the provost or his staff – Deitch said he respects them. But he doesn’t like anything about this year’s budget process at the state level. The “cut and cap” approach is resulting in many institutions raising tuition near the capped level, he said. [The budget proposed by Republican Gov. Rick Snyder set a 7.1% cap for in-state tuition increases – universities that raise their tuition more than that would be subject to deeper state appropriation cuts.]

Secondly, Deitch said he’s concerned about the allocation of tuition increases – 6.7% for in-state students, and 4.9% for non-residents. He would prefer a 5% increase for Michigan students and 5.8% for non-residents, but could have lived with an equal 5.6% increase for both. His concern is for the middle-class and working-class family, with several kids in college, who might not qualify for financial aid – or who might qualify for only minimal aid. The quality of a UM education is one of the things that attracts people to live in this state, he said. It’s expensive, but still a bargain for in-state students – it needs to stay that way. He said he would support increases at the Dearborn and Flint campuses, because they don’t have the resources that Ann Arbor has.

Deitch also took issue with comparisons to tuition increases at Big 10 schools. Most of the time, UM compares itself to institutions like Princeton, he noted, but for purposes of comparing tuition, “we compare ourselves to Indiana.”

Andrew Richner said Deitch made a compelling case, and he asked Hanlon for a response. Hanlon explained that there were two considerations in setting a lower percentage increase for non-residents. Anecdotally, he was hearing from deans and admissions officers that the cost for non-residents was having an impact on UM’s competitiveness with other institutions. Secondly, he’s concerned about the socioeconomic diversity of non-resident students – there’s a clear decline of students at the lower income levels. UM isn’t able to meet the financial aid needs of non-residents as much as it can for in-state students, so that’s a factor, he said.

Deitch agreed with the concerns about socioeconomic diversity, but said he had a different view. A few hundred dollars per year won’t make a difference in someone’s decision, he said, but it’s a question of who best to bear that cost.

Andrea Fischer Newman said she’d like to see some non-anecdotal data about how out-of-state students make their decisions. Hanlon reported that they’ll be doing a survey of admitted students, including those who ultimately decide not to come to UM, and that question will be addressed.

Newman defended the comparison with Big 10 schools, saying Michigan does get compared to them when students are making choices. She observed that she can’t always be counted on to support tuition increases – she voted against the increase last year – but this year she’d vote in favor of the proposal. The deep cuts UM has seen from state appropriations are impossible to recover without raising tuition, she said – and she agreed with cuts that are being made in the state’s budget. Though she worries about pricing students out of an education, Newman said that as a regent, she has to put the interests and future of the institution ahead of those concerns.

Julia Darlow also spoke in support of the budget and tuition increases. It’s important to look at the actual dollar amounts of the increases, not just the percentages, she said. By that measure, out-of-state students are paying double the increase – $1,781 more per year for non-residents, compared to $797 more for in-state students.

One of the main reasons she supports the increase is because of the increase in financial aid, Darlow said. In-state students from families with incomes of $80,000 or less will end up paying less than in 2004. Darlow noted that this income level is well above the state’s median income. [Michigan's median household income is about $45,000.] It’s important to her that students who need financial aid won’t be impacted. That said, Darlow added, they do need to turn their attention to non-resident tuition and the issue of diversity. She also noted that the rate of increase isn’t sustainable. Last year’s 1.5% tuition hike was “refreshing,” she said, but now they’re heading back up, and can’t stay at that rate.

Libby Maynard was the final regent to speak, also voicing support for the tuition increase. She said it does point to the need for stepped up efforts to fundraise for financial aid to students, both in-state and out-of-state.

Outcome: In separate consecutive votes, regents approved: (1) the overall operating budget for FY 2012; (2) the Ann Arbor general fund budget; (3) the Ann Arbor campus tuition and fee rates; (4) the Dearborn campus general fund budget; (5) the Dearborn campus tuition and fee rates; (6) the Flint campus general fund budget; (7) the Flint campus tuition and fee rates; (8) fee assessments for the Michigan Student Assembly, Student Legal Services, and school/college governments; and (9) the University Health Service fee. They also approved the University of Michigan Hospitals and Health Centers (UMHHC) operating budget – see the section below for details of that budget.

Regents Denise Ilitch and Larry Deitch voted against the Ann Arbor campus tuition and fee rates. Ilitch also voted against the tuition and fee rates for the Dearborn and Flint campuses, and the proposed budgets (except for the UMHHC budget)~~, and the fee assessments for the Michigan Student Assembly, Student Legal Services and school/college governments~~.

Budget, Tuition, Financial Aid: Michigan Student Assembly

Later in the meeting, DeAndree Watson, president of the Michigan Student Assembly, addressed the tuition increases in his monthly report to regents. Though he expressed confidence that regents and the administration would do everything they could to help students in light of tuition increases, many students have deep concerns about the issue. There’s a diversity of needs on campus – he noted that he is one of the students who relies on scholarships and financial aid.

The concern is that a degree from UM will eventually be out of reach to many students. That’s why he ran on a platform partially dedicated to reducing the financial strain on students in two ways: (1) advocating for lower tuition costs; and (2) working with the state legislature to establish a grant that will subsidize the cost of higher education for underrepresented minority students, and to protect the diversity that defines the campus community.

Watson urged regents to consider the implications of their decision to raise tuition. ”One of the things that makes Michigan special is that it has a longstanding tradition of providing a world-class education, at or above Ivy League standards, for students like me who wouldn’t otherwise have such an opportunity due to financial limitations,” he said. “We are a flagship institution that produces great leaders by making education accessible to all members of our community, and it is my hope that the University of Michigan can continue to provide that service and hold that special place in our society.”

UM Hospitals and Health Centers Budget

Doug Strong, CEO of the UM Hospitals and Health Centers, made a presentation on the FY 2011 budget, which ends June 30, as well as a budget plan for FY 2012. He began by noting that UM stands alone in terms of its reach – it’s the only health system in Michigan that serves people in every county throughout the state.

For the current fiscal year, revenues are expected to reach $2.097 billion, with a 2.1% positive operating margin of $44.7 million. This will mark 15 straight years of positive operating margins for the three hospitals – University Hospital, C.S. Mott Children’s Hospital, and the Von Voigtlander Women’s Hospital – and 40 outpatient locations. Though they have a solid financial base, Strong said, they were disappointed in the lower-than-expected operating margin this year. [At last June's board meeting, Strong told regents that FY 2011 projections called for a surplus of $83 million, for a 4% margin.] They took on nearly $8 million in expenses this year related to hard-to-recruit staff and other items for the new children’s and women’s hospitals, which impacted the FY 2011 operating margin, Strong said.

Doug Strong, left, CEO of the UM Hospitals & Health Centers, talks with athletic director Dave Brandon before the start of the June 16 regents meeting. Both executives presented summaries of their organization's budgets during the meeting.

While revenues are projected to increase to $2.169 billion in FY 2012, an operating loss of $23.5 million is anticipated. The loss is due in large part to $89.4 million in costs related to the opening of the new C.S. Mott Children’s and Von Voigtlander Women’s Hospitals, which will open this fall. Strong noted that the system’s operating margins fluctuate historically, and downturns are tied to the opening of new facilities – like the Cancer Center in the mid-1990s, and the Cardiovascular Center in 2007 – or to changes in payment rates, such as Medicare and Medicaid reimbursements.

The system faces several challenges and uncertainties in the coming year, Strong said. Those include budget reductions at the state and federal level, the pace of economic recovery in Michigan, and levels of patient activity, which impact revenues.

Financial performance is tied to three things, he said: patient activity levels, revenues per case, and expenses per case. Though activity levels continue to rise, they’re now being paid at rates reflecting the overall rate of inflation, not the health care rate of inflation, which is higher. They need to adjust to a new reality of revenue levels, he said.

Personnel accounts for the highest expense, Strong said, and they’ll need to keep up the pace of productivity improvements to reduce the cost per case.

Strong outlined several major projects that will be completed in the coming year. The new children’s and women’s hospitals will open in November, followed in January 2012 with expanded adult emergency services. In early 2012, the adult nursing Unit 8A will be moved to cancer services, and later in the year, ambulatory care will be expanded in the Taubman Health Center.

Following FY 2012, Strong said he expects operating margins to improve – the new hospitals will be open, and they also expect to see additional productivity gains. Strong expects to return to 3% or better margins in future years.

Members of the Michigan Nurses Association, wearing red T-shirts, attended the June 16 UM board of regents meeting.

Strong concluded by noting that the system remains financially strong, though revenue pressures will continue. Finally, he noted that there were roughly 13,000 FTEs in the UMHHC alone, and many more in the health system as a whole. The largest group of employees are nurses – he noted that nurses were well-represented at the regents meeting that day, and said he was proud of their work.

[More than a dozen nurses wearing red shirts with the Michigan Nurses Association logo attended the regents meeting. The union is currently in negotiations with the university. No one from the union spoke during public commentary. Katie Oppenheim, chair of the UM Professional Nurse Council, had made a statement at the April 2011 board meeting, asking regents for their support. On Thursday, members of the union told The Chronicle that they were at the meeting to remind regents of the ongoing negotiations.]

Outcome: As part of a series of budget votes, regents unanimously approved the UMHHC budget for FY 2012.

Athletic Department Budget

In beginning his presentation, UM athletic director Dave Brandon – a former regent – joked that compared to the scope and scale of the other budgets, ”I think I’m comedic relief.”

He provided an overview of the department’s finances, noting that they’re projecting a surplus of $11.4 million for FY 2012, after allowing for $4.5 million for deferred maintenance. Revenue growth is positive, budgeted for an increase to $121.2 million in FY 2012, he said – 15% more than the amount budgeted for FY 2011. The largest piece of that comes from ticket sales, which are budgeted at $45.6 million, up from $38.6 million in FY 2011.

Breaking down the revenue side of the budget, Brandon said an extra home football game this fall is expected to increase revenues by $4.6 million. An increase in football ticket prices will add $5.1 million in revenues. Brandon noted that premium seats at Michigan Stadium are sold out, with a waiting list – that’s expected to bring in an additional $3.7 million, compared to FY 2011. Other revenue sources include conference distributions ($21.9 million), priority seating and gifts ($26.1 million), corporate sponsorships ($14.3 million) and licensing royalties ($8.4 million).

The only negative on the revenue side is that they aren’t holding a Big Chill event next year – an outdoor hockey game between Michigan and Michigan State, which brought in about $2.2 million for the current fiscal year.

The $109.8 million in expenses for FY 2012 includes $39.2 million in compensation, $17.3 million in student financial aid, $18.1 million in team and game expenses, $9.8 million in facilities expenses, and $13.2 million in debt service. Debt service payments will increase by $2.2 million, related to Crisler Arena projects.

An expense line item in the FY 2011 budget – for $1.9 million in restructuring costs – won’t recur in FY 2012.

A summary of UM's athletic department budget for FY 2012. (Links to larger image)

Several projects are in progress, Brandon noted, including a major renovation of Crisler and Yost arenas, plus installation of scoreboards at those venues and at Michigan Stadium – in all, totaling more than $134 million of investments.

The department expects to end FY 2011 with $310 million of net assets, with an endowment of roughly $65 million as of March. Total debt of $197 million will increase to $234 million due to the Player Development Center and Crisler Arena projects, which regents have previously approved.

Brandon said they’re aggressively investing and aggressively fundraising to support their current and future capital projects. Financial forecasts show that the department has the capacity to absorb the two new varsity sports it recently added – men’s and women’s lacrosse – with minor financial risk and significant upside fundraising potential for capital and endowment.

UM athletic department projects. (Links to larger image)

Brandon also talked about the department’s strategic planning process, saying that the outcome sets a high level of accountability for individuals and units within the department. The mission statement for Michigan athletics was developed from this process, he said: “Relentlessly Striving to Make Michigan Athletics the Leaders and Best in Every Way.”

A set of guiding principles shapes their decisions, Brandon said, and at the top of the list is integrity. ”We don’t hope for it. We don’t wish for it. We demand it,” he said. Given the context nationally, he added, it’s important to send a loud, clear message that Michigan athletics demands integrity in everything they do. [This was likely an allusion to NCAA investigations into rules violations under former UM football coach Rich Rodriguez, who was fired by Brandon earlier this year, or the more recent resignation of Ohio State football coach Jim Tressel, who resigned amid an NCAA rules violation investigation.]

Brandon wrapped up his presentation by outlining a set of long-range goals for the department:

Compete for championships in a minimum of 29 Division I sports.
Achieve annual revenues of $160+ million.
Achieve a top five ranking in the Director’s Cup for three consecutive years, and a top three finish in at least one of those years.
Achieve a two-year combined fundraising total of $100+ million, grow the department’s endowment to $100+ million, and grow Victors Club membership to 25,000+ active members.
Achieve the No. 1 national ranking in licensing revenues and total football attendance in the same year.
Achieve an upper quartile score on the top 12 measures of a department-wide Denison Survey, which evaluates corporate culture.
Be among the top three in the multi-year Academic Progress Rate rankings for each of the university’s individual teams that compete in the Big Ten Conference. APR is a metric used by the NCAA to evaluate the progress of student athletes toward graduation.
Complete all key projects identified as part of the department’s master facilities plan.

Athletic Department Budget: Regents Discussion

Andrew Richner asked how many Division I athletic departments rely on financial support from their institution’s general fund. Brandon said that 12 Division I athletic departments are self-supporting. Of those, many rely on general fund support for capital projects, he noted. UM is unique in that its athletic department as a whole is self-supporting and doesn’t use general fund support for capital projects either, he said.

Richner then clarified that adding the two varsity sports won’t jeopardize the budget in any way. Brandon confirmed that the athletic department could absorb the expenses.

Andrea Fischer Newman pointed out that not only did the athletic department support itself, it also gave money back into the general fund. Brandon said the FY 2012 budget includes a $1.8 million contribution to the general fund for student scholarships. “We’re very proud of that,” he said. Tim Slottow, the university’s chief financial officer, added that the scholarships are for non-athletes.

Brandon noted that the department pays full tuition for athletes, and that 74% of UM athletes are recruited from out of state – meaning that the tuition paid by the department for those students is at the higher, non-resident rate.

He closed by saying that this is all possible “thanks to that really big stadium” and many generous donors.

The athletic department does not use general fund dollars and does not require regental approval.

Election of Officers, GSRA Coda

One of the first actions taken at Thursday’s meeting was to elect new officers – an event that happens annually in accordance with the regental bylaws. In unanimous votes, vice chair Denise Ilitch was elected chair, replacing Julia Darlow. Larry Deitch was elected vice chair. Both positions are effective July 1, 2011.

In her first action as board chair, Ilitch asked to enter a statement into the record – she did not read the statement or indicate what it concerned, and there was no other discussion.

After the meeting, university officials clarified that it was a statement responding to a May 27, 2011 editorial in the Detroit Free Press about a resolution approved at the regents’ May 19 meeting. That resolution supported the right of graduate student research assistants to unionize. The editorial was critical of the decision itself, and of the way it was introduced as a last-minute agenda item: “This was sandbagging, for sure – an expansion of union membership without much thought to the consequences at the university.”

The statement issued on Thursday was signed by the six regents who had voted in favor of the resolution – the two Republicans on the board, Andrew Richner and Andrea Fischer Newman, had dissented. The statement lays out the rationale for the vote, and begins:

To be clear, the Regents of the University of Michigan did not vote to allow graduate student research assistants to form a union. Rather, we voted to support the right of these 2,100 employees to choose whether or not they wish to be represented by the existing Graduate Employees Organization, which has represented graduate student employees within the University for more than 30 years. The effect of our action was merely to terminate the University’s efforts (in a proceeding before the Michigan Employment Relations Commission) to stop the graduate student research assistants, or GSRAs, from even considering the question. We did this because we believed that there is no defensible factual basis for preventing their right to choose.

[A truncated version of the statement was published in the Free Press on Thursday. The statement in its entirety was posted the following day on the University Record website.]

For Chronicle coverage of the issue as discussed at the May 19 regents meeting, see: “UM Grad Researchers Get Right to Unionize.”

Construction Projects

Regents unanimously approved several construction projects during their meeting, without comment.

Construction Projects: Yost Renovation

Yost Ice Arena was originally built in 1923 as a field house, and was converted in 1973 to its current use as a venue for the UM hockey team, with seating for more than 6,600 people. The $14 million renovation of Yost, approved by regents on Thursday, is the third overhaul to a UM marquee sports venue – a massive expansion of Michigan Stadium was completed last year, and a major upgrade and expansion at Crisler Arena is underway. And at the regents’ January 2011 meeting, they also had authorized a $20 million project to install video scoreboards at Michigan Stadium, Crisler and Yost.

The Yost project approved on Thursday includes replacing seating on the east, south and west sides of the rink, improving accessibility and emergency exits, converting the west side media balcony into a series of loge boxes, adding a new level five on the west side for media, and constructing new corner and stair platforms for additional seating. The project will be paid for out of athletic department revenues.

Regents also approved hiring Rossetti Architects Inc. of Southfield, Mich. to design the project. Regents will be asked to approve a schematic design for the project at a future meeting.

Construction Projects: ISR Expansion

Regents authorized staff to issue bids and award contracts on a $23 million addition to the Institute for Social Research building. The regents had previously approved the project’s schematic design at their July 2010 meeting, and had given initial approval of the overall project in April 2010.

A four-level addition is planned, adding 44,700 square feet to the existing building at 426 Thompson St. Another 7,200 square feet will be renovated. The project will be paid for in part by federal stimulus funds via a grant from the National Institutes of Health. The expansion will allow the institute to house its research programs under one roof.

Construction Projects: Med Sci II Building

Regents approved a $2 million renovation to the sixth floor of the Medical Science Unit II building. The project includes modernizing roughly 5,200 square feet of research labs for the UM Medical School, with upgrades to heating, ventilation, air conditioning, plumbing, and electrical systems, and installation of new energy-efficient lighting.

The project’s design will be handled by UM’s Department of architecture, engineering and construction, with a projected spring 2012 completion date.

Outcome: Regents unanimously approved projects for Yost, ISR and the Med Sci II Building.

Health System Items

In addition to approving the FY 2012 budget for the UM Hospitals and Health Centers, regents acted on several other items related to the health system during Thursday’s meeting.

Health System Items: Facilities Projects

Regents were asked to authorize two facilities projects for the UM Hospitals and Health Centers. One involved an estimated $5 million demolition of the Parkview Medical Center and Scott and Amy Prudden Turner Memorial Clinic buildings. According to a staff memo, the operations formerly housed in these buildings have been moved to the W.K. Kellogg Eye Center and Brehm Tower. In addition to tearing down the buildings, the project includes renovating the existing east side of the Kellogg Eye Center that connects to these buildings, adding a new entrance, and expanding the parking lot, for a net gain of 75 parking spaces.

Regents were also asked to approve an $8.5 million renovation of a patient food kitchen on level B2 of the University Hospital. The kitchen, which serves the hospital and cardiovascular center, will shift from a “cook-chill-reheat” production to an on-demand “room service” approach. During construction, food service operations will be relocated to the North Campus Research Complex facility. As part of this project, regents also authorized the hiring of the architectural firm Integrated Design Solutions to design the renovation.

Outcome: Regents unanimously approved both demolition and renovation projects.

Health System Items: Michigan Health Corp.

Regents were asked to approve the FY 2012 annual report and business plan for the Michigan Health Corp. MHC is a nonprofit founded in 1996 that is part of the UM Health System, with 10 subsidiaries. The subsidiaries are operated as partnerships with other entities statewide. [.pdf of annual report and business plan]

Changes highlighted in the plan include a decision to leave the Central Michigan Community Hospital Radiation Oncology venture. MHC officials are also considering participation in the Particle Therapy Institute of Michigan, and possibly establishing gastroenterology and/or geriatrics joint ventures. MHC is also investigating moving UMHS nurse managed centers to MHC, in preparation for achieving the federally qualified health plan status.

For FY 2011, several MHC units are projecting losses or lower-than-anticipated gains, according to the report. Excess revenue from consolidated operations is projected at $1.4 million for FY 2011, compared to a budgeted $2.76 million.

Outcome: Regents unanimously approved the FY2012 Michigan Health Corp. business plan and annual report.

Health System Items: Bylaws

Regents were asked to amend bylaws of the UM Hospitals and Health Centers executive board, as well as the regents bylaws – in both cases adding the position of UM Health System’s chief medical officer as a voting member of the HHC executive board, effective July 1, 2011. The current CMO is Darrell Campbell Jr.

According to a staff memo, the CMO is responsible for communication between the medical staff, the HHC executive board and UMHS executive leadership, and for educating these entities on clinical quality performance, expectations and necessary revisions to practice and policy.

Regent Libby Maynard commented that she thought this was an excellent decision.

Outcome: Regents unanimously approved the bylaw amendments adding the UM Health System’s chief medical officer to the UMHHC executive board.

Conflict-of-Interest Disclosures

Regents voted on eight items that required disclosure under the state’s Conflict of Interest statute. The law requires that regents vote on potential conflict-of-interest disclosures related to university staff, faculty or students. Often, the items involve technology licensing agreements or leases.

This month, the items included three licensing and four option agreements with various companies, including several based in Ann Arbor, and the reassignment of international patent rights. The items related to the following companies and individuals: Electric Field Simulations Corp. (formerly known as EngXT); FlexDex; ImBio; NanoBio Corp.; ONL Therapeutics; Xondas; and Dr. Richard Laine.

There was no discussion on these items, which were considered as a block.

Outcome: Regents unanimously authorized the conflict-of-interest disclosures.

IAS Lawsuit Settled

Each month, regents receive an update on litigation involving the university – they typically do not discuss these items.

This month’s report notes that the university has settled a lawsuit with Internet Applications and Solutions Inc. (IAS), which filed the suit on May 16, 2011 in Washtenaw County Circuit Court. From the report by UM general counsel Sue Scarnecchia:

Plaintiff IAS leased space from Michigan Information Technology Center (MITC) at the data center on 1000 Oakbrook in Ann Arbor. After the University purchased the data center assets of MITC, Plaintiff claimed it had a vested, ongoing right to continue use of the computing capacity, alleging it had lease rights. Plaintiff sought to continue the use until December 31, 2011.

The case was settled, according to the report – terms were not disclosed. Although the IAS website features a photo of the MITC building on its home page, the site does not indicate an address for its operations. [Previous Chronicle coverage of IAS from late 2008: "Local Groups Scramble after IAS Eviction"]

At their July 15, 2010 meeting, University of Michigan regents had approved a $1.25 million purchase of assets from the Michigan Information Technology Center Foundation (MITC), located in the South State Commons on Oakbrook Drive. The sale was made through a voluntary turnover foreclosure. Tim Slottow, UM’s CFO, told regents at the time that MITC “is not succeeding in their mission.” The center opened in the spring of 2005, and marketed itself as an “information technology industry accelerator.” UM was already a tenant in South State Commons, and the purchase allowed it to expand its operations and data center there.

Public Commentary

Three people spoke during public commentary at the end of Thursday’s meeting.

Douglas Smith warned regents of legal issues facing the university. He noted that he has previously warned them about other issues – problems with the UM Dept. of Public Safety oversight committee, about the misuse of trespass warnings, about the mistreatment of Andrei Borisov, who Smith said was a whistleblower trying to report fraud and plagiarism. In all cases, Smith said, regents ignored him and have ended up revising their policies or being sued – they recently settled a lawsuit involving Borisov for $550,000, he said.

Now, he was there to warn them that the administration is abusing another whistleblower, Yusong Gong. “I am afraid that you are headed to another seven figure verdict against the university,” he said. Gong was a research staff member who worked for Martin Myers, an associate professor at the UM medical school. Smith described discrepancies in research publications and poster presentations by Myers and one of his students, which Gong pointed out. She was retaliated against, Smith said, and though she contacted several UM administrators about the situation – including UM president Mary Sue Coleman, vice president for research Stephen Forrest, and regent Andrea Fischer Newman – she received no help.

Gong has been told she must attend a disciplinary review conference, and she expects to be fired, Smith said. This has caused her emotional distress, and she’s been hospitalized twice for severe depression. He urged regents to demand an inquiry, as required by university and federal policy.

Bill Kauffman called for the abolishment of UM’s Dept. of Public Safety, saying there are too many aspects of it that are similar to the Gestapo and other totalitarian instruments of terror. He accused Wei Shyy, former chair of UM’s department of aerospace engineering, of terminating the education of U.S. students who were studying defense-related technologies. There’s a pattern among UM administrators that includes plagiarism, exporting technology, and retaliating against whistleblowers, he said.

This behavior results from a lack of supervision and accountability for the UM business enterprise, he said. There’s been no oversight of DPS, and the current board of regents seems to give carte blanch endorsement of the administration’s policies while “bamboozling the electorate through the alleged democratic selection process at the two major party conventions,” he said.

Kauffman pointed to the website www.china-threat.com, saying it provides documentation “regarding the diabolical commonly occurring activities” of the UM administration and regents. He concluded by noting that two other people who wanted to speak during public commentary were prevented from doing so by the “totalitarian Coleman regime,” even though it violates their First Amendment rights and the Open Meetings Act, he said.

Dan Benefiel of Ypsilanti Township told regents he was a member of the Willow Run Tea Party Caucus and the Washtenaw County Republican executive committee. He spoke on two topics. First, Benefiel expressed concern over the resolution passed at the regents May 2011 meeting that supported the right of graduate student research assistants to unionize. He noted that the vote had been clearly partisan. [The two Republican regents, Andrew Richner and Andrea Fischer Newman, had voted against it.] He’s concerned that it will eventually lead to the unionization of college athletics and athletes, and called it a “leftist intrusion on American educational institutions.”

Secondly, Benefiel echoed sentiments expressed by Kauffman regarding China, and said he believes academic institutions like UM are “selling our country out on the altar of commerce.” He quoted a statement by Kauffman that UM is giving away technology to China that can be used for military purposes. He called for thorough investigations of the relationship between the university and several companies, including Ardesta, Discera and NeoPhotonics. [Ardesta is a venture capital firm founded by Gov. Rick Snyder. Discera and NeoPhotonics are among its investments, and have business connections to China.]

Benefiel also questioned why the university hasn’t investigated technology transfers involving Wei Shyy, former head of UM’s aerospace engineering department who returned to China to become provost of Hong Kong University last year.

Benefiel noted that two regents seats will be on the ballot in 2012, and said they should be filled by people who can give guidance for UM’s academic future. [The terms for Martin Taylor and Libby Maynard end on Jan. 1, 2013 – those seats will be on the November 2012 ballot.]

Present: Mary Sue Coleman (ex officio), Julia Darlow, Larry Deitch, Denise Ilitch, Olivia (Libby) Maynard, Andrea Fischer Newman, Andrew Richner, Martin Taylor, Kathy White. Deitch left the meeting soon after the budget and consent agenda votes.

Next board meeting: Thursday, July 21, 2011 at 3 p.m. at the Fleming Administration Building, 503 Thompson St., Ann Arbor. [confirm date]

Purely a plug: The Chronicle relies in part on regular voluntary subscriptions to support our coverage of public bodies like the University of Michigan board of regents. Click this link for details: Subscribe to The Chronicle. And if you’re already supporting us, please encourage your friends, neighbors and colleagues to help support The Chronicle, too!

The Ann Arbor Chronicle » Yost Ice Arena

$2M Increase for Yost Renovation OK’d

UM Regents OK Athletics Dept. Projects