Focus, Government, and Higher Education

Universities innovate, cut costs as state aid drops

There is concern for future of federal student aid as Congress prepares budget.

February 8, 2013
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LANSING — Public universities in Northern and West Michigan are trying to become smarter with their money as state appropriations continue to decline and other revenue sources fail to pick up the slack.

Money-saving efforts range from reducing energy use at Grand Valley State University to smarter energy purchasing at Northern Michigan University and Ferris State University to paperless offices at Northern and controlling administrative costs at Grand Valley.

All revenue sources, including state appropriations, federal spending on research and student aid, endowments and philanthropy, are declining. Tuition revenue is also down at some universities, higher tuition rates have not been able to make up for lower enrollment, and there’s no light at the end of the tunnel, according to a recent report from Moody Investors Service.

Public university officials agreed that shrinking state funding is their biggest revenue problem.

Total appropriations have declined almost $400 million since 2002, not adjusted for inflation, according to the Presidents Council, State Universities of Michigan.

The past 10 years have been bad for Michigan and that put pressure on the state budget, but universities took a bigger hit than they should have, said Rep. Sean McCann, D-Kalamazoo, a member of the Higher Education Appropriations Subcommittee.

In contrast to most of its peers, Northern Michigan received a slight increase in state funds this year after about 10 years of decline, said Cindy Paavola, director of communications and marketing.

State aid to Grand Valley paid for about 17 percent of the institution’s budget. In 1988, it was about two-thirds, said Matt McLogan, vice president for university relations.

“When I was in college in the ’70s — not at Grand Valley, but in Michigan — the state provided 75 percent of funding,” he said. “Now we’re racing toward a single digit.”

McCann said, “Universities have gone from state supported to state assisted. We’ve lost sight of how much the public benefits from higher education.”

In 2011-12, the Legislature cut higher education funding 15 percent across the board.

McCann said he doesn’t expect more than a slight increase for universities in 2013, perhaps just enough to cover inflation. In 2012, there was a small increase, but not enough to make up for big cuts in 2011.

Decreases, fluctuations and uncertainties about other funding sources have inspired new efficiencies and money saving projects.

For example, Ferris has tried to make up its loss with tuition, but it hasn’t risen more than 6.5 percent in one year since 2004-05 because students and their families are frustrated when they see tuition go up every year, said Marc Sheehan, communications officer for the university president.

Northern’s tuition revenue decreased this year because enrollment went down slightly, although tuition per student increased 3.5 percent, Paavola said.

Last year, all 15 public universities limited their tuition hikes to get a portion of one-time incentive money from the Legislature, but it might not have been worth it, said Jim Bachmeier, vice president of finance and administration at Grand Valley.

“The incentive wasn’t large,” Bachmeier said. “We gave up a lot more in tuition.”

The university received $338,500 for restricting its tuition increase to 3.74 percent. Ferris raised tuition only 2.59 percent and received $1.269 million. Northern received $507,800.

Although the Moody report said that federal aid was down nationally to universities and to students, it has been on the rise for many Michigan students.

But the future of federal student aid concerns university officials.

Bachmeier said he’s “very worried” about it as Congress prepares to make budget cuts.

Sheehan said since the Great Recession began, more students qualify for Pell grants. The possibility of aid drying up is “kind of scary” and would result in big problems.

The number of Pell recipients at Northern increased by almost 1,000 between 2009-11, but Paavola said numbers for 2012 are down.

Endowments and philanthropy — revenue from investments and alumni contributions — have been volatile since the recession began, with donations and the reported net value of the Ferris Foundation fluctuating between 2007-11.

The endowment fund and private donations at Grand Valley also have risen and fallen since 2007, according to a university report.

University officials across the state said they have been working on cost savings for many years.

Sheehan said that Ferris is making sure there are no program overlaps and eliminating outdated or under-enrolled ones, such as calligraphy, which would have been widely studied 100 years ago.

The university saved $2.8 million in energy costs between 2004-10 by using the Natural Gas Purchasing Consortium, which buys natural gas on behalf of universities and other state entities, Sheehan said.

Bachmeier said Grand Valley’s energy use per square foot is down 20 percent compared to 10 years ago.

Northern cut costs by going mostly paperless and deferring maintenance and technology updates, Paavola said. It also is investing in biomass fuel so that it doesn’t have to rely on natural gas and can “play the markets.”

Northern and Grand Valley have restrained administrative costs by cutting staff, not filling positions when people retire and spreading new work among existing staff.

Bachmeier said Grand Valley does the best job in the state at restraining administrative costs, keeping it to about 15 percent of the budget.

And Paavola said Northern has raised fees for community use of its facilities, which used to be free or inexpensive.

“We can’t be a good neighbor to that extent anymore,” she said.

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