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Board of Regents considers the financial future of the U


Future Financial Resources Task Force plans for the "new normal"

By Adam Overland

Regents Seal


October 14, 2009

The lion's share of the discussion at the Oct. 8 and 9 Board of Regents meetings dealt with the financial future of the University of Minnesota. Cochairs of the Future Financial Resources Task Force, Richard Pfutzenreuter and Steven Rosenstone, detailed for the board what President Bruininks referred to as "the new normal"—and what the University must do to meet its long-term challenges.

The system-wide financial task force has spent the past year studying the U's financial outlook, and its message was clear: the new fiscal reality is a dramatic and permanent shift in the University's revenue sources. "Falling state support, the increased importance of tuition, rising costs, increased competition—they all represent a paradigm reset of the University's finances. These are permanent changes—they are not short-term fluctuations—and if we do not meet these challenges in new, decisive ways, quality will slide," said Rosenstone, vice president for scholarly and cultural affairs.

The report cited a decline in state funding as a significant challenge, noting that the share of the U's budget provided by the state has dropped from 43 percent in 1978 to 21 percent in 2010. "The task force [doubts] that state support will grow in the future, at even the bottom 2.2 percent annual rate of growth that the U has experienced over the last decade," said CFO Richard Pfutzenreuter. He noted the potential for a $7.3 billion state budget shortfall in the next biennium as one factor. Changing demographics, including an aging population, will also shift the state's allocation of funds.

The task force noted that because of this the U's commitment to prepare the next generation of leaders in health care and other professions is at risk. "At the same time that the state needs more doctors, nurses, pharmacists, and dentists to care for our aging population, resources from the state are compromising our ability to deliver," said Pfutzenreuter. Fully 70 percent of all health professionals working in Minnesota are trained at the U.

Solutions

The task force suggested a number of measures to meet the financial challenges of the future:

  • Grow tuition revenue, the core "business' of the University, while ensuring financial access for qualified students from families with modest financial means.
  • Develop a larger, more diversified portfolio of revenues through sources such as private giving, intellectual property, and real estate.
  • Substantially increase administrative and academic effectiveness and reduce costs, in part by increasing standardization and coordination among U-level operational units and moving toward innovative, effective, and more cost-efficient models of learning. 
  • Articulate what is distinctive about the U and narrow the scope of the U's mission to advance areas of excellence.
  • Develop and execute long-term financial plans.

In order to meet basic yearly incremental costs and fund a modest level of academic investment, the U has historically needed $80 million in recurring funding each year. It's a massive budget with considerable impact on the state, including thousands of new jobs resulting from the new knowledge and innovation generated by the University’s research enterprise.

Bruininks said it's important that the entire U community be engaged in thinking about solutions. "We need everyone asking, 'What should be strengthened, what should be maintained, and what should we eliminate [or] substantially reduce?'" he said.

He noted examples of the U's progress in controlling costs. Health care cost increases at the University are trending at about half the market rate, and administrative overhead increases trail other institutions in the state. Additionally, said Bruininks, the U has so far avoided approximately $80 to $100 million in construction costs in recent years, and has implemented a major energy conservation effort.

"If I had a basket full of problems like these, I'd want to be at the University of Minnesota, because everyday I come to work and I get a chance to work with some of the most creative and entrepreneurial people in the world," said Bruininks. "You ask them to save money, and they come to you and tell you 'Do you know if we change light bulbs in a different way we can save $1.5 million a year?' The solutions to the things we're talking about are embedded into the DNA of this place," said Bruininks. (He was referencing information found in the U story, "Light on the subject.")

In other board action:

2010 State Capital Request
The Board of Regents approved the 2010 State Capital Request, including a $2 million reduction to the request for the renovation of Folwell Hall to $34.5 million due to a favorable construction climate.

The request asks the legislature for $193.3 million in state bonds (matched by $46.7 million in University bonds). The request includes $100 million in HEAPR funding for maintenance to existing facilities, the Folwell Hall renovation, a new physics and nanotechnology building on the UMTC campus, a new American Indian Learning Research Center on the UMD campus, $10 million in general lab renovation, and improvements to the Itasca Biological Station. For more information, see Capital Request.

2009-10 enrollment

Provost Tom Sullivan presented the board with a report on 2009-10 enrollment. Sullivan said UMTC earned a record retention rate in 2008, with 90.6 percent of last year's freshman class returning. He cited the quality of incoming academic classes, a strengthened advising program, and Welcome Week and other programs that help students adjust to the University. Sullivan also noted that the fall 2009 class has a record 112 National Merit Scholars.

UMore Park

The board approved the creation of a UMore Park LLC and a legacy fund that will manage any proceeds from the development.

UMC Evergreen Hall dedication
Some members of the board visited the UMC campus for the dedication of Evergreen Hall, the first residence hall in the U system to receive Leadership in Energy and Environmental Design (LEED) certification. Otter Tail Power Company formally announced at the dedication that it would work with UMC to reduce electric energy consumption on the campus by as much as 15 percent, as part of the company's Campus Energy Challenge.