There’s still plenty we don’t know about the financial picture for the coming academic year, but campus leaders want to make sure everyone is in the loop about the approach they're taking for balancing the budget. To that end, Chancellor Domenico Grasso recently led a virtual town hall to break down the financial challenges ahead and share how the university plans to address them. Below, we’ve summarized some of the major themes from the event, in case you missed it.
A quick primer on revenues and expenses
All budgets boil down to revenues, which is the money coming in, and expenses, which is the money going out. Revenues at UM-Dearborn are pretty straightforward and come almost exclusively from two major sources. Tuition accounts for about 82 percent of the General Fund budget, while state appropriations account for another 16 percent. The upside of this is we are free from many of the pandemic-related challenges faced by universities with more diverse revenue streams. Because we are a lean, efficient commuter campus without things like big athletics programs, large research operations and residence halls, we simply don’t have to find ways to cope with the financial hit those areas took this spring/summer and are likely to take in the fall.
Importantly, revenues from tuition and the state fall under what’s unknown as the General Fund. This means the university can spend that money on strategic initiatives that directly impact student success. We also have Non-General Fund revenue, which includes federal financial aid, research grants, investments and endowment and gifts. This money has to be spent on the purpose for which it was designated. Notably, the General Fund is much larger than the Non-General Fund. In fiscal year ‘20 (FY20), the former was about $159 million and the latter was $25 million.
So how does UM-Dearborn spend its General Fund revenues? Check out these two pie charts. The first one breaks down expenses by category; the second, by unit.
The three big uncertainties impacting the FY21 budget
Most of the uncertainties around the fall budget relate directly to the nature of our revenues. We simply won’t know what our final fall tuition revenues will be until students are actually enrolled in classes, and the pandemic could still impact enrollment forecasts. Similarly, the state has not yet announced what its appropriations will be for Michigan’s 15 public universities, but the state is facing an estimated $3 billion shortfall for both this and next fiscal year.
Expenses related directly to our COVID-19 response add another layer of uncertainty. Modifications to building HVAC systems to improve ventilation, supplying faculty, staff and students with PPE, and costs associated with switching to remote learning all represent expenses we could incur to keep everyone safe.
Though there isn’t yet clarity on these issues, decreased revenues for FY21 are almost a certainty. Right now, the university is planning for revenues to be down $4 to $20 million compared to FY20. Some of the biggest factors include a projected 20 percent decline in enrollment among international graduate students, who may face challenges with travel restrictions directly related to the pandemic; and a potentially sharp decline in state funding. One piece of good news: Enrollment for incoming first-year students is forecasted to be up slightly.
How will budget decisions get made?
The university has, in fact, already taken several steps to prepare for a tighter financial situation next academic year. These include increased strategic admissions efforts and financial aid leveraging, leadership salary reductions, staff redeployment, postponing and reducing construction projects, a hiring freeze, and reductions in travel, supplies and event hosting. Going forward, administration is empowering individual units to make their own cost savings plans. While leaders will be taking a broad look at every aspect of our spending, reductions in staffing and salaries are not being seen as a preferred way of cutting expenses at this time.
Importantly, all cuts made will be considered permanent, and the university does not plan to tap into reserves to make up for any shortfalls in the FY21 budget. Whatever our revenues end up being for the coming year, we’ll have to find a way to make them match our expenses.
The timeline for a final budget
So what happens next? Right now, leaders are putting the finishing touches on a proposed FY21 budget, which will then go to the U-M Board of Regents for approval. The Regents are expected to vote on the budget in June, and the university will begin implementing the budget in July. In September, we’ll have our final numbers on net tuition revenue. The final piece of the puzzle is the amount of the coming year’s state appropriation. The legislature has not yet announced when they will make that decision.
Relatedly, university leaders are also finalizing a plan for fall instruction. Chancellor Grasso is reviewing that now; after that, it will be reviewed by the University of Michigan’s COVID-19 leadership team, then President Schlissel, and finally the Board of Regents. We expect approval on a plan by late June.
Want to explore the FY21 budget in more detail? Check out Chancellor Grasso’s slideshow from the virtual town hall. Faculty and staff may also send anonymous cost-savings ideas directly to the chancellor.