November 11, 2003

Ms. Mary A. Lannoye
State Budget Director
State of Michigan
Post Office Box 30026
Lansing, Michigan 48909

Dear Mary,

This letter responds to your invitation to provide information to the State in support of the fiscal year 2005 budget development process.   We are happy to share with you, as requested, information about our general fund revenues and expenditures, performance measures, and

a description of our comprehensive cost containment measures.   We recognize that the State continues to face difficult financial circumstances that are likely to result in a lean budget for fiscal year 2005.   In light of these circumstances this is perforce a time of constraint for both the State and this University.   We have been a willing partner in the State's cost-cutting and fiscal restraint measures in FY03 and FY04, sharing in efforts to increase efficiency, reduce costs, and in all ways to do more with less.   We have aggressively sought ways to cut budgets even at a time when costs and enrollments are increasing.

There has been much discussion in recent months about the cost of higher education and about the responsibility of institutions of higher education to be accountable for the money that they spend.   We believe that we provide extraordinary value to the people of the State of Michigan, the United States, and the world.   Our students acquire skills that lead to productive lives and careers.   Our research leads directly to economic innovation and economic growth effects that are increasingly visible in applications of new technology and in the life sciences.   Our teaching and our research bring hundreds of millions of dollars of direct expenditure into Michigan each year from the rest of the country and the world, as does our medical center.   As we do all we can to contain the costs of higher education, we must also focus on the benefits that we provide.   Our purpose must be to provide value to our students and to the people of the State—not merely economic value, but also enhancement of the quality of life.   For nearly two centuries, the people of Michigan and this University have succeeded in this mission.   It is vital that we continue to do so.

Expected Expenditure Budget 2005

Attached please find the Summary Budget Request table.   The final two columns are not completed because we are not able to provide FY 2005 estimates at this time.

The planning process for FY 2005 is beginning now, but we are a long way from knowing the best outcome.   For FY 2004, we spent over six months working with the campus and the Board of Regents to accommodate a base cut of 10% in state appropriations and constrained revenue growth from tuition.   We think that holding our tuition increase to 6.5% last year was a remarkable feat, given the fiscal circumstances facing us and the range of responses made by other universities in the State and in the nation, as they faced similarly sized cuts in state support.   We worked hard to find ways to be able to hold the line as we did because we recognize the burden that increasing tuition represents; yet we also know that our students and their parents demand that the educational experience be of the highest quality and contain all of the elements that they expected when they made their choice to attend the University of Michigan.   Our planning for FY 2005 will incorporate the same goals, but must be accomplished in an environment where we have already pared down our academic programs in a way that we are not sure is sustainable.   Our task is challenging; and further cuts will be more difficult to identify, agree on, and implement.

While the table is a helpful summary, it is simply a display of numbers that by themselves tell an incomplete story of the University's budget.   To place these numbers in context, we have also provided, as an appendix, a narrative that describes the breadth of the University's activities and responds to key items in your letter.  

Funding Request

We recognize that making a substantial request of the State is not possible even with the increasing demands that we face and the importance of our contributions to the State's economy.   We are willing to share in the belt-tightening along with other state-supported activities.

At the same time, all of our costs continue to rise—salaries of faculty and staff, benefits, information technology, library acquisitions and more.   Further, international and national events have increased the cost of providing security and safety on the campus, and of course we must respond to the increased threat and to new regulations regarding international studies.   Our overall level of activity is increasing, as I describe in more detail in the appendix, and we expect that it will continue to do so.   The life sciences initiative, improvements in information technology, and continuing progress on undergraduate initiatives are all essential to the success of our students and of great value to the State's economy.   Internal reallocation and cost containment cannot by themselves provide the resources necessary to meet continuing growth in demand and in costs, while at the same time providing the resources to support the vital innovation that is a defining characteristic of this great University and its contributions to the State.

We believe that excellent public education is one of the essential keys to the well being of the people of Michigan.   Education and higher education in general, and the University of Michigan in particular, are investments that pay returns to the State long after the initial expenditure.

As you know, our current State appropriation is ten percent less—$36.4 million—than the appropriation that we received in FY 2002, which puts our state funding back to the level it was in FY 1999—but even to make a claim of equivalency to that year ignores our growth since then.   We are teaching more students than we ever have, conducting more research than ever before, and expanding into new areas like the life sciences.   This is not heedless expansion, but rather the University rising to the demands that are placed upon us.   At the same time, we have acted in good faith in controlling our expenditures and restraining tuition.

We recognize that the State is not in a position to restore the funding that has been rescinded.   We simply ask that the State recognize the key role that the University plays in ensuring the future vitality of Michigan, and refrain from imposing additional cuts.   If the State further reduces University funding in FY 2005, we have grave concerns that some elements of a Michigan education, as well as our ability to contribute to economic growth in advanced manufacturing, the life sciences, and information technology, are at risk.

Conclusion

We recognize that there will be many competing demands for the State's resources and difficult choices must be made.   However, no activity is more critical to our State's future than the development of its human capital, and the State-supported university system, including the University of Michigan, is vital to that task.

We renew our pledge to serve as responsible stewards of all the resources entrusted to us—to strive simultaneously to improve the overall quality of our instructional, research, and service programs; and to provide those programs at the lowest possible cost.

Sincerely,

Mary Sue Coleman

MK/jr
Enclosures