U-M will absorb a historic $47.5 million cut in state funding in the fiscal year 2012 budget, the largest in the university’s 194-year history. The cut lowers U-M’s state funding to its fiscal year 1964 level, when adjusted for inflation.

To manage this record cut in state support, the university will ask employees to pay more for health benefits, close several centers, reduce operational staff through attrition when possible, and reduce and implement a host of other cost-cutting measures campuswide.

Despite this, U-M is making a record $137 million contribution to centrally awarded financial aid. The schools and colleges separately provide a significant amount of additional need- and merit-based financial aid. The university also is investing strategically in such vital resources as its library collection, top-flight faculty and educational technology to preserve a world-class academic experience.

“This dramatic level of reduction requires making difficult decisions across campus in order to protect our core priorities,” said Provost Phil Hanlon.

The $1.59 billion fiscal year 2012 General Fund budget for the Ann Arbor campus, approved in a 6-2 vote, maintains a commitment to meet the full demonstrated financial need of Michigan undergraduate students with a 10.9 percent increase in centrally awarded financial aid for undergraduates. This extraordinary amount of support means a typical Michigan resident undergraduate, with a family income of less than $80,000, pays less today than in 2004. The graduate student financial aid budget will increase by 4.9 percent.

The budget also increases in-state undergraduate tuition and required fees by $797 more per year (a 6.7 percent increase), and out-of-state undergraduate tuition and required fees by $1,781 per year (a 4.9 percent increase).

Regent Denise Ilitch said she did not support the tuition increase because it greatly affected working-class and middle-class students and their families.

“With each dollar of an increase, we limit opportunities to participate in an unparalleled education,” she said.

Regent Laurence Deitch said he feared budgetary changes indicated a “shift to privatization.” He also suggested reallocating more of the tuition increase to out-of-state students.

“I don’t like anything about this year’s budget process,” Deitch said in reference to the state’s budget planning. “My concern is for middle-class families in Michigan who won’t qualify for financial aid. Lots of folks don’t qualify and take the burden (of full tuition).

“When in doubt, the benefit goes to the Michigan people.”

Regent Julia Donovan Darlow said she supported the budget because of the financial aid protection it provided to students.

Regent Andrea Fischer Newman said tuition increases need to be decided upon on a year-to-year- basis. “This year we need to support an increase,” she said. “Everyone has to sacrifice.”

President Mary Sue Coleman and Hanlon presented the budget proposal, for the fiscal year that starts July 1, to the Board of Regents during a June 16 meeting on the Ann Arbor campus.

“This budget demonstrates our collective steadfast commitment — a commitment from our leadership, our deans and our board — to the academic quality of the University of Michigan even in the face of historic reductions in state funding,” Coleman said. “While we continue to control costs, we are driven by the fundamental missions of academic excellence and affordability. On this we cannot and will not compromise. This generation of students expects their Michigan education to be the same quality and deliver the same positive impact in their lives as all those who have come before. Our job is to deliver on that promise.”

The approved budget is based upon the $268.8 million in state funding for the Ann Arbor campus approved last month — a $47.5 million (or 15 percent) cut from last year’s appropriation. The cut reduces the Ann Arbor campus appropriation to slightly more than the amount the university received two decades ago, in nominal dollars.

Hanlon, the university’s chief academic and budget officer, said U-M has been able to avoid the severe cuts and double-digit tuition increases experienced elsewhere in the country because of its prudent long-term plan.

“Facing diminished state support, we have been confronting the realities of the state’s economy for a number of years,” Hanlon said. “It is difficult and disruptive, but we have been aggressive in planning for it.”

U-M cost cutting is saving tens of millions of dollars annually through such measures as reducing energy consumption and asking employees to contribute more to their health benefit programs. By the end of 2009, these measures had helped the university reduce General Fund annual recurring costs by $135 million. This year, the university also is closing some centers and offering some classes less frequently. It now is in the midst of a more intensive program to reallocate another $100 million by 2012 and to identify $120 million more in annually recurring savings by 2017.

Still, the university’s long-term planning has allowed it to continue to invest in the academic enterprise, including continuing to hire new faculty members to reduce class sizes to remain competitive with other top universities, investing in global initiatives for the Stephen M. Ross School of Business, allocating funds for the library’s collections budget and adding cutting-edge technology for student use.

“Our campus community has responded to the state’s economic climate by pledging to contain costs, to remain affordable, and to protect the academic enterprise to ensure a vibrant tomorrow,” Coleman said. “When talking about the financial challenges facing our state, including the funding of higher education, we often talk about shared sacrifice. I want to suggest an additional approach: Let’s start talking about a shared commitment — to strong public universities and an educated citizenry.”

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