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Published October 08, 2009, 08:07 PM

U of M Has Big Revenue Problem

MINNEAPOLIS (AP) — The budget shortfall at the University of Minnesota could soar to $1 billion by 2025 if the school doesn't overhaul its financial structure to slash costs and manage declining state support, according to a new report released Thursday.

By: Chris Williams, AP

MINNEAPOLIS (AP) — The budget shortfall at the University of Minnesota could soar to $1 billion by 2025 if the school doesn't overhaul its financial structure to slash costs and manage declining state support, according to a new report released Thursday.

Without sweeping changes, the state's flagship university could face a $50 million shortfall by 2012 and see its costs skyrocket in the next two decades. The report cited the steady decline in state funding as the primary culprit. The findings came in a yearlong study by a task force of top university officials.

"It is about money, but for me it is about more than money," President Robert Bruininks told regents during a workshop session Thursday afternoon. Any changes can't sacrifice quality, he said: "We have to protect the future of this great university."

The changes could mean steadily rising tuition and employee layoffs as the school turns to outsourcing to save money. The report also predicts that some academic leaders could get more resources while others lose out as the university narrows its focus.

State funding was once the university's largest source of revenue, but now accounts for only 20 percent of the operating budget. The slip comes as costs for salaries, health insurance and facilities increase faster than revenues. The cost of providing fringe benefits — including health insurance — alone have risen 7.6 percent annually since 1994.

To reduce costs, the report said the university must look through its hundreds of centers, institutes, degree programs, departments and colleges for ways to outsource some functions and stop others. It also must narrow its mission in areas where it can excel, though those areas weren't specified.

"Every unit must identify what it will stop doing — even if this means eliminating some things that universities typically do and that the University of Minnesota has been doing for decades," the report said.

Cost increases aren't expected to stop, particularly as the pool of students graduating from high schools around the country shrinks in the next decade. Universities will have to spend more money to lure them.

Attracting students will be ever more important because tuition has overtaken state support as the largest revenue stream, accounting now for only 26 percent of revenue. The task force calls it the revenue stream with best potential for long-term growth.

Growing tuition while ensuring financial access for students of modest means is one of the top priorities of the task force. The university assumes tuition revenue will need to grow by at least $35 million a year if it's to meet half of the projected annual increase in costs.

Under one scenario in the report, tuition would increase 5 percent annually starting in fiscal 2012 for undergraduates on the Twin Cities campus, 3 percent a year for undergraduates at other campuses and 5 percent annually for all graduate and professional students.

At the same time, the university would try to lure more out-of-state students who pay higher tuition by sharpening the university's marketing, among other efforts.

"We must do a better job of saying what's so darn special about a University of Minnesota education," said Steven Rosenstone, vice president for scholarly and cultural affairs.

But there are obvious problems to hiking tuition, the report said. Students might not be willing to pay and the university may be unable to compete with other universities that have lower tuition. Campuses at Morris, Crookston and Duluth are already overpriced for their areas and significant tuition increases may not succeed in the region, the report said.

Outside of tuition, the report suggests growing other sources of revenue including private donations, the university's intellectual property and its 27,000 acres of real estate.

Several task force members said they weren't giving up on persuading the Legislature to send more money.

"State support remains absolutely critical to the University of Minnesota," Rosenstone said.

There were few questions from the regents after Rosenstone, Bruininks and Chief Financial Officer Richard Pfutzenreuter presented the report, beyond a request for Bruininks to come back soon with more specific cost-cutting moves. Several praised the report for laying out all the university's financial problems in one place.

"We've been to the doctor. We know what the diagnosis is. Now we've got some work to do," said board Chairman Clyde Allen.

Copyright 2009 The Associated Press.

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