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« New UMD Chancellor Announced | Main | Strategic Reductions Key to Balanced Budget »

May 19, 2010

Year-End Budget Update

Dear Colleagues,

State budget negotiations ended this month with no real surprises for the University. Although the Minnesota Supreme Court ruled against the governor's unallotments from last July, the outcome for the University in the budget bill passed on Monday did not change. This means that the University's base budget from the state has been cut from $703 million to $591 million—the lowest level in a decade—in just two years. And with Minnesota facing a state budget shortfall of $4 billion to $6 billion in the 2012-13 biennium, the budget pressures we face today are likely to last for the foreseeable future.

These challenges are real and substantial—but they are not unmanageable. Although the reduction in state funding as a result of the global economic downturn was sudden and unexpectedly rapid, we had anticipated the declining role of state funding in the University's budget when we launched strategic planning in 2004. We began at that time to make long-term decisions that are resulting in substantial savings today. In the same way, the long-term decisions we are making today will yield real results in the next biennium.

Many of our past decisions—from college redesigns to health care changes; construction management reforms to energy use strategies—continue to help the University reduce or avoid tens of millions of dollars per year in overhead and operating costs. These examples, along with our proactive efforts over the past two years to use a retirement incentive option (RIO) and significantly restricted strategic hiring practices to reduce our workforce through voluntary means and normal attrition, and our strategic application of federal stimulus dollars as temporary bridge funding, are the reason the University of Minnesota has not been forced to announce dramatic cuts to employees or academic programs. Like several of our peer institutions, we spoke recently to an external consulting group about optimizing our efforts to reduce costs and overhead at the University of Minnesota. This initial consultation was free, and the consultants confirmed that we were already taking the strategic actions they would recommend. We declined their offer to assist us with implementation, choosing instead to save that money and rely on our own expertise, resources, and strategic plan to continue to guide us forward.

Our long-term financial framework is founded on that same strategic plan, although our efforts have been refined and accelerated to meet the new economic realities we face. In the final year of my presidency, we will focus our financial planning efforts on the following four long-term financial strategies. (The University's senior administrative team will communicate additional details and specific examples pertaining to each of these strategies throughout the coming months.)

First, we must continue to set clear priorities and invest our resources accordingly in order to protect the academic quality, productivity, and impact of the University. We cannot cut our way to the future, but reductions as deep, sudden, and sustained as we currently face make it necessary to re-examine and adjust literally every budget in the University. Every unit has difficult decisions to make regarding what should be strengthened, maintained, reduced or consolidated, and eliminated.

It is important to note that, although all academic and support units were given consistent budget targets and expected to reduce spending both this year and last, actual reductions were not the same across the board. We are making, and will continue to make, strategic choices based upon the long-term best interests of the University, its students, and its mission.

To that end, the provost has charged each college to form a "blue-ribbon" committee to address these issues. A similar charge and effort was undertaken within the AHC and across the University's statewide system. Senior Vice Presidents Sullivan, Cerra, and Jones have informed me that more detail regarding academic reshaping, reductions, and reinvestment will be available this fall, when these recommendations are finalized and shared.

The process of evaluating and disinvesting or reinvesting in academic programs and departments necessarily takes time—particularly where students are involved—but long-term efforts like these will produce significant savings over the next few years. 

Second, we must continue our efforts to reduce overhead, operating costs, and projected cost increases. Since June of 2008, we have cut or reallocated more than $36 million from central administration. This year, we have cancelled or deferred $200 million of planned capital projects, and three buildings are slated for demolition, avoiding $4 million in renewal expenses plus additional operating costs. Recommissioning of buildings and voluntary efforts by the University community to reduce energy consumption are saving more than $2 million this year alone, and the recent strategic procurement initiative should save nearly $3 million a year in the near term, and much more down the road. In big and small ways, all of us are making every dollar go farther—and this work must continue at all locations and levels of the University.

Third, we must stabilize, protect, and leverage state support by making a compelling case for the essential role of the University in Minnesota's future. We are Minnesota's economic engine—a primary developer of our state's human capital and a premier source of new knowledge, innovation, and jobs—as well as a cultural center for the state. While we recognize the deep financial challenges the state will face in the next biennium, we must continue to make the case for the University's fundamental value to the state and its citizens.

Our goal in the short term is to protect the funding we have as best we can—and I believe this electoral season is a prime opportunity to engage state leaders on this critical issue. Over the longer term, we need to establish a new covenant with the state of Minnesota, based on a common vision; agreed-upon goals, expectations, and metrics; and adequate resources.

I have no illusions about the state's ability to fund the University at the levels of the last century, but I do believe that by reinforcing the economic argument; by continuing to preserve Minnesota history and advance the arts and humanities; by better demonstrating the value of the education, innovation, and outreach we provide; and by presenting an integrated and responsive view of higher education that acknowledges the unique roles and strengths of our various systems and campuses, we can advance a higher education agenda that benefits students, citizens, colleges and universities, and the state.

Fourth, we must grow non-state revenues while preserving our land-grant mission, shared values, and affordability. We continue to refine our strategies for garnering sponsored funding and private support—areas in which we have been incredibly successful in recent years, despite the economic downturn. We are also creatively leveraging real estate and other assets, most notably at UMore Park, to increase future financial support for the University's academic mission.

Our top priority heading into the next biennium must be to find ways to generate new tuition revenue (our most stable source of operating funds) while maintaining affordability for our students. It is worth mentioning that, although tuition rates have increased significantly in the past decade, the net price for Minnesota undergraduate students has gone up an average of just 3 percent per year.

Even so, we know that tuition rates cannot continue to climb as quickly as they have. I believe we can achieve an increase of 10 to 20 percent in annual tuition revenue by expanding our educational services to include enhanced e-education offerings; evening, weekend, and summer courses; and more. I have asked the appropriate University leaders to work together on these issues, and I look forward to their progress in the coming months.

In addition to these long-term strategies, we are taking essential short-term actions to balance next year's budget. These adjustments—especially insofar as they impact compensation—are not easy to make, but they are enabling us to avoid additional job losses and preserve employee benefits. Addressing the economic challenges posed by the "new normal" will require ongoing and persistent effort, but I believe we have the right principles and framework in place to guide our efforts.

I would like to thank you, not only for your hard work in achieving our budget goals, but for your essential role in delivering on our mission. Last year the University again garnered approximately $700 million in sponsored research funding and nearly $100 million from patent and licensing activity, creating tens of thousands of jobs for Minnesota. And in just the last month, the University graduated approximately 14,000 leaders, lifelong learners, and engaged global citizens. While I make every effort to congratulate our students on their achievements, I would be remiss not to congratulate you as well. Our students and our state benefit from your dedication to the University, and I am personally grateful for your support.


Robert H. Bruininks