President Coleman responds to questions from Michigan House Subcommittee on Higher Education

March 2, 2011

The Honorable Bob Genetski
State Representative
Post Office Box 30014
Lansing, Michigan 48909-7514

Dear Representative Genetski:

I am taking this opportunity to provide you with this written response to the questions posed in your letter from last week.

1. Beginning with total FY 2010-11 university appropriations minus the reductions in the governor’s FY 2011-12 budget, if a funding formula were designed for all 15 universities with the remaining funds, what should that formula look like? Please address the following considerations: How would the formula be fair to TAXPAYERS, fair to all university students in Michigan, fair to what your students/graduates will contribute to the Michigan economy through a viable major that will compete for a real job in the student’s area of study, fair based on the number of students, and fair to your institution?

Michigan’s 15 public universities play unique roles; each fills a specific and important niche. Together they comprise a broad set of institutions that can be responsive to the State’s diverse needs. That is why the question’s emphasis on fairness is so appropriate. Funding formulas do not fairly address the key differences between these institutions.

Consider the breadth of activities at a research-intensive institution like the University of Michigan. In addition to the excellent programs we offer for our 27,000 undergraduates and 15,000 graduate students, our scope encompasses such activities as:

  • Professional education, including a medical and dental school
  • A comprehensive academic medical center providing both patient care and research
  • A substantive institutional investment in research, including the life sciences
  • A critical mass of respected faculty, clinical researchers, and state-of-the art laboratories
  • Significant expenditures from grants and contracts for research
  • Expansive library holdings and museum collections
  • A physical plant sufficient to support a wide range of activities

These activities are expensive, but they are appropriate to the University’s size and strengths, and they enhance the educational experience of our undergraduates. Yet they are sufficiently unique to an intensive research university that they could not be adequately captured in a formula meant to fund all fifteen state institutions. Nor, conversely, would other institutions be treated fairly by a formula designed for research universities. This is well-illustrated by the last attempt at constructing a formula funding model by the legislature: Even after drafting a formula specific to the state’s three research universities, additional caps and adjustments had to made because the volume of research differed so widely between U-M, MSU, and Wayne State. In the end, the effort did not succeed.

A fair formula is one that recognizes the contributions the University makes to the State of Michigan, and honors the substantial investments the people of Michigan have already made to U-M’s excellence. U-M is one of the top public institutions in the United States, its school and colleges are routinely ranked in the top ten in the country by many independent organizations. It is globally recognized for its excellence in balancing its dual roles as a preeminent research university and a top-ranked undergraduate institution. As an internationally-renowned research institution, the University of Michigan attracts over $1 billion in federal and other research dollars, as well as top faculty and graduate student scholars in disciplines across the campus. But the University is also recognized as one of the leaders in undergraduate education and is highly ranked on many measures of undergraduate quality. Its programs of study prepare students for a variety of valuable contributions to the State, nation, and world, including the arts, education, business, health professions, engineering, and other high-tech fields which will lead the way in Michigan’s new economy.

2. What exact and specific functions at your institution have been privatized? What are the estimated annual savings amounts from privatizing each of those functions?

Privatization and outsourcing can be a valuable strategy to cut costs, and the University of Michigan – Ann Arbor has adopted this approach where careful analysis has indicated it is appropriate. In all of our cost-containment efforts, we aim to protect our core educational and research missions, remain competitive for the best faculty, staff, and students, leverage our size and scale, and remain accessible to qualifiedstudents regardless of their background. Since privatization is just one of many cost-containment efforts on our campus, we invite the committee to visit our budget website, referenced in the response to Question #3, for information on our extensive cost containment efforts.

Determining the activities that should be considered for outsourcing requires thoughtful and thorough analysis. Functions to consider outsourcing include:

  • Functions that are not core to our mission of teaching, research, and patient care
  • High volume transaction activities
  • Functions for which quality, proven providers exist in the market

Examples of outsourcing successes at the University of Michigan – Ann Arbor include the following:

  • Window washing
  • Snow removal
  • Roof repairs
  • Emergency clean up
  • Collection of parking fines
  • Security guards and event security
  • Moving services
  • Maintenance of on-line catalogs of goods for purchase
  • Warehousing and distribution of commodity supplies
  • Commercial printing
  • Flexible spending accounts claims administration
  • Criminal background checks
  • Benefits data warehouse
  • Storage of system backup tapes

Below are listed several specific examples of the way privatization was considered and adopted in three core services.

Food Service
Over many years the University of Michigan has made strategic decisions to outsource certain aspects of food service while self-operating other aspects of food service. Dining services within the student residence halls is self-operated, whereas retail foodservice across campus is mostly privatized. For example, our University Unions lease space to high-quality food vendors ranging from national chains like Subway to unique locally-owned restaurants such as the Glass House Cafe. The national corporation Aramark supplies food services for the Executive Residence Dining Hall in the Ross School of Business, and also manages the café in the main Ross building.

Self-operation of residence hall dining services allows many advantages, including, for example:

  • Employment for over 1,200 students
  • A high degree of responsiveness to medical, allergy and special dietary needs
  • Ability to make immediate changes based on student feedback (e.g. hours of operations, menu changes)
  • Opportunities to teach students about healthy eating through nutritional and behavioral seminars
  • Financial return for reinvestment in campus residence hall facilities

This combined approach has worked very well for the University, and we are known nationally as being highly successful with our food service operations.

Procurement
Several years ago, Procurement Services closed MStores, our large inventory and distribution operation. MStores sales were approximately $70 million annually. Commodities that were stored here included food, paper and computer supplies. In addition to storage, MStores “redelivered” office supplies from OfficeMax, which were cross-docked at this facility. All of these products are now delivered directly to the end user by the vendor, at no additional cost to campus. This closure resulted in a $1.1 million recurring savings to the University. This savings is calculated through the elimination of inventory carrying costs, reduction in product costs, and salary savings of 72 employees.

Campus Telephone
In 2009, the Ann Arbor campus engaged an outside consultant to evaluate our telephone services for outsourcing and to determine if there were cost savings opportunities if maintained internally. The consultant concluded that there was no financial benefit to outsourcing and that the operations and the processes of the existing, internal organization were best practice.

3. Are your budget and expenditures posted on a website that’s easy to find and read, with expenditure recipients’ names, amount of expenditure, and dates listed on that site? Don’t the taxpayers of Michigan deserve this?

Information on the University’s budget can be reached at http://www.vpcomm.umich.edu/pa/key/budget/ a direct link to which also appears on U-M’s main webpage. In addition to our financial report, it includes several tutorials to help stakeholders better understand University budgeting and expenditures. University of Michigan expenditures are listed in broad categories. We do not list individual expenditures by date; the list would run to millions of transactions including the health system’s multi-billion dollar enterprise.

We believe that the taxpayers of Michigan deserve to know that the public universities are spending public funds appropriately. U-M meets that goal through annual public reports, adherence to best practices in accounting and budgeting, and maintaining key units on campus devoted to the management of University resources. For example, the Office of Internal Controls administers procedures to ensure effectiveness and efficiency of operations, compliance with laws and regulations, and reliability of financial reporting. In addition, U-M’s Office of University Audits provides a rigorous independent auditing and consulting to increase assurance and accountability at all levels of the University. The office reports directly to the University of Michigan’s publicly elected Board of Regents. The University contracts with independent auditors, such as PricewaterhouseCoopers LLP, to certify our financial reporting and compliance with accounting principles.

The University is also answerable to state and federal agencies, private foundations, and even foreign governments, due to our expenditure of state and federal aid dollars, grant programs, and over $1 billion in sponsored research. For example, in FY10 the State of Michigan conducted its periodic audit of the Kings-Chavez-Parks program, examining both the programmatic initiatives at U-M and expenditures of appropriated funds. In FY10 and FY11 the University has handled site visits and inquiries from the Department of Energy and General Accounting Office, both related to the federal stimulus funding U-M successfully obtained. Financial reviews of random transactions by our campus are conducted by federal agencies that provide research funding, such as the NIH and NSF. Finally, included in our PricewaterhouseCoopers audit each year is our OMB A-133 Compliance report, which is an independent audit of our administration of federal assistance and grant programs.

In sum, there are in place a wide range of controls, providing oversight and assurance that the University expends public funds responsibly.

4. Is your credit transfer policy posted online? Where? Is whether or not a credit with a grade of a C or C (or better) clearly articulated in that policy? EXACTLY and SPECIFICALLY, how does your online credit transfer policy compare with that of Indiana University South Bend’s (http://www.iusb.edu/~admissio/)?

Our Office of Undergraduate Admissions maintains a website to direct transfer students to information they need about transferring credits. This information includes basic guidelines (such as the requirement that a student earn a C or better at an accredited institution) as well as very specific information about which courses will transfer, the equivalent course in the U-M catalog, and which distribution or degree requirement the course will meet.

We believe that our online policy information about transfer credits compares favorably to that provided by Indiana University South Bend (IU-SB). For students transferring credits from a school outside of Indiana, IU-SB offers no specific information online. Students must wait up to 4 weeks for their transcripts to be evaluated. For students transferring from public institutions within Indiana, IU-SB refers students to a resource provided by the Indiana Commission for Higher Education called TransferIN.net. The Core Transfer Library on that website shows courses which will transfer between Indiana public institutions only.

The University of Michigan-Ann Arbor makes available several transfer course guides, tailored to the student’s academic background and aspirations at U-M. Prospective transfer students can consult a centralized course guide that allows them to choose their institution from a drop-down menu, enter a course number and name, and learn what the equivalent course would be in six of U-M’s undergraduate schools or colleges. Our College of Engineering provides similarly comprehensive information, with credit information for 58 two- and four-year schools within Michigan, 136 international universities, and 399 institutions in the other 49 states, from Adams State in Colorado to Youngstown State in Ohio.

We are particularly proud of our Community College Transfer Portal. On this website, applicants from any of Michigan’s 28 community colleges can find transfer guides specific to their institution. A student transferring from Alpena Community College, for instance, can readily consult a page showing how 126 of Alpena’s courses will fulfill requirements at U-M. The portal’s resources are comprehensive, providing advice, answers, and encouragement to students making this transition. It is part of our larger effort to facilitate transfer from community colleges, including partnerships, outreach, and innovative programs. For example, Michigan - Pursuing Our Dreams (M-POD) is a partnership with Washtenaw Community College. Coordinators on both campuses provide counseling, mentoring, and easy credit transfer. One of our newest initiatives is the Michigan Community College Summer Fellowship Program, in which community college students come to campus to conduct research. Participants earn a stipend while working side-by-side with U-M faculty, gaining invaluable experience.

5. Please explain the factors contributing to your six year graduation rate vs. the rates of the other 14 public universities. (See attached table.) What specific efforts is your institution making to improve both first year completion rates and bachelor’s degree completion rates?

The University of Michigan’s retention and graduation rates are exceptional and are well above state and national norms. In part, this is because students who apply and are admitted to the University of Michigan tend to have ambitious degree aspirations and have generally taken a strong college preparatory program throughout high school.

However, U-M makes significant investments to facilitate students’ timely progression to degree. This includes making sufficient course offerings available, providing excellent advising and mentoring, and ensuring that resident students who demonstrate financial need are awarded sufficient financial aid.

Each of our undergraduate schools and colleges have developed initiatives to prevent problems and help students who face impediments to their retention or completion, as we ask units to report on these activities every year. They monitor student performance in key courses, require additional academic advising for students in poor academic standing, and provide academic support services and programs accessible to all students. Those include departmental tutoring, study skills workshops, mentoring, and resources like the Sweetland Writing Center and the Science Learning Center.

6. What amounts do your employees pay for health insurance deductibles, co pays, and contributions toward insurance premium costs? What is the average price of a health insurance policy at your institution for an individual? For a family policy?

The University of Michigan’s aggressive efforts to contain health care costs started more than five years ago, as we knew that these costs needed to be addressed for the long-term fiscal health of the University.

Increasing the employee contribution to their health care costs has been an important component of that effort. U-M now aims for an aggregate cost-sharing ratio for health care costs of 70 percent contribution from the University and 30 percent contribution from employees and retirees. This total health cost target includes health premiums plus member out-of-pocket expenses such as copays. Changing from an 80/20 ratio to a 70/30 ratio saves the University an estimated $31 million each year.

We also made the decision to carve prescription coverage out of health plans to manage those costs separately. We estimate that in the seven years since we made that change, the University has saved $56.9 million in costs.  These savings were achieved by various plan design changes, assertive formulary management, drug intervention and switch programs, improved methods of pricing accuracy and, most importantly, an increase in the generic dispensing rate from an initial 42% in early 2003 to 76% by the end of 2010.

U-M continues to face the escalating health care costs seen nationally. Our efforts have helped us to slow the rate of growth. National trends since 2005 show health care premiums have risen, on average, 11.4% annually. Over that same period our premiums have risen 6.4% per year. Our careful management continues to pay off; we estimate our 2011 increase will be less than 3%.

Co-pays vary by the health plans we offer, but most conform to the co-pays of our most-popular managed care plan, U-M Premier Care: $20 for office visits, routine exams, and physical therapy sessions; $75 for emergency-room visits; and $5-$35 for prescriptions, depending on their tier. Our managed care plans have no deductible for care received within the physician network. Staff who select our comprehensive major medical plan have a $500 per-person deductible.

The average price of a health insurance plan is $5,548 for an individual and $15,111 for an employee and their family, with the employee paying a portion. The University uses three salary bands to help make costs more affordable to lower-wage employees, but on average, the share for employees is 30%.

7. When was the last time your full time tenured faculty took a pay cut? Saw their pay remain static for more than one year?

We feel it is imperative that U-M retain faculty who are so vital to fulfilling its missions and maintaining its quality. Units at the University therefore budget carefully to accommodate promotions through the faculty ranks, retain valued faculty who are being directly recruited by the private sector or our well-endowed private peers, and provide modest salary increases. In five of the last ten years, average pay increases for instructional staff—including increases associated with promotions--have been within 1% of the consumer price index.

Campus-wide pay freezes are uncommon. The last time faculty salaries were held static across the University was FY93. There are several important reasons for this. In addition to the important retention concerns, one of the guiding principles of our faculty compensation policy is to be flexible across academic units. Schools and colleges can best measure factors such as performance, promotions, and competitive market pressures. Therefore, in any given year pay increases will vary from unit to unit. Every year there are faculty who see no increase; in FY2011, for example, all faculty in U-M’s School of Nursing had their salaries frozen.

U-M faculty have also had their compensation effectively cut by increases in their share of health care benefits, and in reductions in retiree benefits.

8. What provisions will you be making this year, and long term, to protect Christian students from harassment and being dismissed from your programs of study for their religious beliefs?

For generations, the University of Michigan has been deeply committed to ensuring that all of its students, regardless of their religious beliefs, may pursue their academic goals and interests in an environment free of harassment and discrimination. The University has clear policies and procedures that prohibit such harassment or discrimination, as well as policies that make explicit our commitment to tolerance of all religious beliefs within our community. (See, http://www.hr.umich.edu/oie/cc/discrimination.html;
http://www.hr.umich.edu/oie/cc/religious.html).

These mandates reaffirm the constitutional protections guaranteed to all members of our society and have helped the University to be successful in avoiding the type of discrimination described. The University remains steadfast in its commitment to sustaining an environment that respects the beliefs and value systems of all members of the University community.

9. If I am looking at earning another graduate degree and I am a bargain shopper, who really does not need a new graduate degree but loves to learn, how can you compete regarding the following? I am looking for something in the policy/public administration/social studies realm. I hate paying to park and parking hassles. I really do not need this degree to advance at my job. I want to learn worthwhile substantive information. I found two programs just south of the state line with these costs: $420 per graduate credit hour at the University of Notre Dame and $543 per graduate credit hour at Indiana University South Bend (out of state rate). I am not looking to pay for Division I football, do not need an exciting campus experience, and prefer face to face instruction. I would like my new master’s degree to be from a program of acclaim.

We recognize that a variety of factors go into a student’s decision of where to pursue his or her studies.  In our experience, students are well informed and research their choices carefully. At U-M, we offer enormous breadth and our programs are widely recognized as very high-quality. This includes our public policy and social science programs, which feature faculty who are recognized as some of the best in the world. Students with an interest in these areas benefit from U-M’s interdisciplinary strengths, excellent libraries, and ties to world-class resources such as our Institute for Social Research.

Other aspects of U-M also prove attractive to students looking for a well-rounded experience. Whether it is strolling through an outstanding museum, hearing a world-renowned guest speaker, cheering at a gymnastics meet, or performing community service, U-M students have many opportunities to supplement their academics.

For those students who find U-M is the right fit for their aspirations, we invest resources to make our programs accessible. Just as we offer excellent aid to undergraduates, we make substantial financial aid available to graduate students.

10. How many employees does your university have in each of the following categories and what is the average salary per employee for each category? When was the last time employees in each of those categories received pay raises? When was the last time employees in each of the categories received pay cuts?

Category

Count

Average Annual
Full-Time Rate

President

1

$570,105

Provost

1

$470,000

Vice President

9

$365,337

Vice Provost

6

$280,974

Associate Vice Provost

6

$171,922

Assistant Vice Provost

7

$122,534

Associate Vice President

17

$213,563

Assistant Vice President

1

$113,490

Dean

20

$330,775

Senior Associate Deans

3

$280,575

Associate Deans

31

$169,262

Assistant Dean

2

$148,319

In two of the last six years (FY04 & FY10), the President, Provost, Vice-Presidents, and Deans received no pay increase. Also, as with U-M faculty, the executive leadership have had their compensation effectively cut by increases in their share of health care benefits, and in reductions in retiree benefits.

11. What amount in prevailing wage costs was spent on your last three major building/renovation protects? What was the funding source for each project?

Building Name Prevailing wage cost Funding Source

Thompson St. Parking Structure & Addition

$7,441,911

Parking Resources, Investment proceeds. No student fees or tuition utilized

North Quad Residential & Academic Complex

$93,354,477

Housing resources, LSA resources, Office of the Provost, Investment proceeds. No student fees or tuition utilized

Michigan Football Stadium Expansion & Renovation

$123,122,843

Athletic Department resources; gifts. No student fees or tuition utilized.

 

12. Specific to Central, Oakland, and Western: Thus far, we are led to believe that the building and set up costs for your new medical schools will be all privately funded. Long term, what is the plan for funding ongoing expenses? Will they be entirely covered by medical school tuition? Will having a medical school affect undergraduate and or graduate tuition levels? Will facility operations costs (lighting/heating/etc.) be covered out of medical school tuition or other sources?

n/a

 

I hope that these responses to your questions provide you with useful information as you proceed with your challenging but important work on appropriations. Our partnership with the State is very valuable to us, and I welcome these opportunities to share our perspectives with one another.

Sincerely,

Mary Sue Coleman
President