At the Sept. 20 Board of Regents meeting, Eastern Michigan University’s Chief Financial Officer John Lumm reported that the university was suffering from a $4.6 million deficit and recently, he sat down with The Eastern Echo to provide further insight into EMU’s budget.
Lumm explained the deficit was due largely to oversights in enrollment assumptions.
“When we pulled together the budget, [given] the enrollment growth we had the prior two years, 4.3 percent in FY ‘10 and 2.1 percent in FY ‘11, we built our budget based on continued enrollment growth of 1.75 percent,” Lumm said. “Through summer and fall semesters, the enrollment was actually down 1.5 percent year-to-year.”
The next board meeting is today at 12:30 p.m., at which point the regents are expected to comment on the financial health of the university. Previous forecasts
said the deficit could increase to $5-6 million by next June.
President Susan Martin said the school won’t know until the end of the fiscal year.
“We won’t know if we have a deficit until we close the books at the end of the year but during the year we must monitor our revenues and our expenditures,” she said.
Despite this, Lumm said the appropriate measures have been taken to return balance to the budget.
“We have been working very hard and have identified through spending referral, under runs, reduced budgets in some areas, a number of actions, we have fully offset that and we’re back in balance for the year,” Lumm said.
According to a 2011 auditor’s report, 73 percent of the university’s operating revenue comes from tuition and fees. This means a balanced budget depends heavily on enrollment.
Bernice Lindke, vice president of student affairs and enrollment management, said it was too early to make predictions about winter enrollment.
“The number enrolled will change as many students wait until after their finals are over before registering for the next semester,” she said. “We always see a huge rush at the end of the year. We also expect a spurt in enrollment during the first week of January since the winter semester begins on Jan. 9. At this point it’s really too close to call.”
In speaking of the deficit, Lumm and Martin consistently pegged it at around $3 million instead of the $4.6 million announced previously. Lumm said $3.1 million of the deficit was from low enrollment and the remaining $1.5 million was due to a drop in market value of Eastern’s assets in the equity market. Lumm said the value of those assets has improved dramatically.
“When I speak of the roughly $3 million dollar shortfall five months into the year, that compares the actual tuition and fee revenues that we had in summer and fall semester to what we were budgeting,” Lumm said. “Our investment income on our cash portfolio, based on market conditions, had started off the year pretty poorly.
“We actually had quite a good year in investment income last year. But the markets
from July to September were pretty ugly. They’ve improved handsomely since then. So our investment income position is much better than where it was when we were
talking about this a couple months ago.”
Bunsis: ‘These deficits are based on a couple things that make them illusory’
One of the most outspoken critics of EMU’s administration and its handling of the
budget is Howard Bunsis, professor of accounting and faculty treasurer to the American Association of University Professors. Among Bunsis’ many criticisms is that the deficits the university claims refer only to the general fund and not the university as a whole.
“These deficits are based on a couple things that make them illusory,” Bunsis said. “It only looks at the general fund and not all of the different funds of the university. They’re taking out about a quarter of the university, which makes no sense. We’re one university. We’re not ‘General Fund University.’ That’s all we are, with 300-something million dollars in total revenues and expenses.”
Bunsis found this especially relevant because the university as a whole made a profit of over $20 million last year, but the general fund only achieved a surplus of a few hundred thousand dollars.
“What typically happens is that administrators get overly pessimistic,” he said. “They under-predict revenues and they overestimate expenses going forward. When you include all of the funds, all of the revenues come in and all of the expenses get paid out, we seem to wind up with a profit most years. These things get blown out of proportion.”
Lumm said the large surplus during FY ‘11 was due to an increase in net assets resultant of renovations to Pray-Harrold.
“Because we reflected a receivable from the state for Pray-Harrold, our net asset position actually improved by about $23 million,” Lumm said. “But we fully anticipated that because we knew the money was coming.”
He explained the focus on the general fund by contextualizing the university’s funds.
“The general fund is 80 percent of the total,” he said. “It’s the fund where the state appropriations and all of the tuition and fee revenues are. It’s how we pay our operating bills.The other funds are designated funds, which are primarily related to grants, research and game guarantees.
“The designated fund, in terms of its revenues and expenditures during the course of the year is about $5 million. It’s not very big. One of the reasons you don’t talk about it very much is that designated fund revenues are based on grants and you don’t spend the money unless the grant comes in.”
Martin: No evidence of impact on faculty salaries
Bunsis’ major concern was that hyper-conservative budgeting would lead to cuts to the core academic mission, as he said it has in the past. Most explicitly, he expressed concern for program cuts and reduced spending in faculty.
Martin argued there was no evidence to warrant this concern.
“We continue to hire faculty,” she said. “We just authorized 20 more searches this year. We hired 29 faculty last year. They had a 2 percent pay increase in their contract. I don’t see any evidence that there’s been any impact on faculty salaries or their pay increase.
“We’re looking very closely at our academic programs and we want to strategically provide the type of opportunities in our curriculum that are going to be exciting for our students and attract more enrollment and attract employers to hire our graduates.”
Upon hearing the president’s comment, Bunsis remained critical.
“That’s administrative speak for, ‘We’re going to cut programs,’ “ he said. “We should not make any cuts to the core academic mission here based on these illusory deficits.”
The archived academic catalogue is available online. The catalogue for years 2007-2009 lists 331 programs, whereas the 2009-2011 catalogue lists 309 programs.
Rhonda Longworth, Interim Associate Provost and Associate Vice President of Academic Programming, claimed the difference between those numbers doesn’t accurately represent the number of programs that were actually dropped between those years.
“There are general reasons why are there are differences in the numbers of programs from catalogue to catalogue. In [that] period there are a small number of programs that were eliminated. But the general difference can also be because programs are restructured, where they set them up as concentrations instead of individual majors,” Longworth said. “Those kinds of changes change the numbers even though our overall offerings are not substantially different. So from catalogue to catalogue, we did not eliminate twenty programs. Some of those were eliminated, but a lot of those were restructured, repackaged, or presented in different ways.”
Bunsis spoke of this year’s deficit scare as though it was nothing new. He said every year there tends to be an induced “budget hysteria.” Consequently, he said the faculty is consistently sent edicts to make cuts.
Despite his firm stance that this level of paranoia is unnecessary and counterproductive to the school’s future prosperity, Bunsis speculates it is due largely to the administration’s desire to appease officials in Lansing. This motivation is one he said he has observed at many universities.
“I think some of it’s political,” he said. “The presidents of all universities think they need to show the state legislatures, ‘Look we’re cutting costs. We’re sharing in the pain. We’re laying people off. Even though we may not need to, we’re doing it anyway.’ A lot of it is a nod to politicians, because they think that’s what politicians want to see.”
Bunsis offered his own strategy for balancing the budget: reducing administrative expenses.
“If there’s ever a budget problem, the first place, the second place and the third place to look is administrative costs,” Bunsis said. “There are too many administrators making too much money. If they’re going to cut anything,
administration has to be cut first. The administration will say they’ve done that. They haven’t even scratched the surface of cutting administration here. They haven’t even begun what they need to do.”
Lumm said they have.
“If you look at the budget for this current year, it’s $283 million. Last year it was $281 million. Bottom line, it stayed roughly the same,” he said. “If you look at academic affairs as a division, which is faculty and the administrative people on the academic side, it increased. It was up by $4-5 million. Student financial aid was increased year-to-year by a little over $3 million. We only went up $2 million in total. So those increases were offset by reductions in the budgets of all the rest of the costs to run the university, primarily staff.”
Bunsis argued that the true nature of Eastern’s budget is available only in the school’s yearly financial statements. He said the cuts to administration were deceptive, saying many of the positions eliminated this last summer were vacant to begin with and ultimately administrative expenses increased.
“What matters is not what they say happens,” he said. “What matters is what actually happens in the audited financial statements.”
According to the financial statement for FY ‘11, comparing 2011 to 2010, expenses due to instruction increased from $114,485,059 to $122,248,658 and those due to institutional support increased from $31,820,605 to $32,585,530. This means instruction expenses increased by roughly 6.8 percent while institutional support expenses increased by 2.4 percent.
The expense categories are defined in Financial Accounting and Reporting Manual for Higher Education’s Functional Expense Classifications.
Instruction expenses are operationally defined to include “all activities that are part of an institution’s instruction program. Expenses for credit and noncredit courses; academic, vocational, and technical instruction; remedial and tutorial instruction; and regular, special, and extension sessions should be included.”
Institutional support expenses are operationally defined to include,” central, executive-level activities concerned with management and long-range planning for the entire institution, such as the governing board, planning and programming operations, and legal services; fiscal operations, including the investment office; administrative information technology (when not accounted for in other categories); space management; employee personnel and records; logistical activities that provide procurement, storerooms, printing, and transportation services to the institution; support services to faculty and staff that are not operated as auxiliary enterprises; and activities concerned with community and alumni relations, including development and fundraising.”
Lumm: Diversification is important
One of the issues that generated press this year was the percent contribution of tuition and fees to Eastern’s revenue. According to the FY ‘11 financial statement, the school relies on it for 73 percent of its operating budget.
Lumm said Eastern recognizes the importance of diversifying its portfolio in order to foster stability and said the university is looking for ways to do so.
“Whenever you have more diverse sources, it helps stability – no question about it,” he said. “We recognize that we do need to diversify our revenue sources.
“I think one of the big pushes is in fundraising. That’s an important source of revenue. It’s not just tuition and fees or state appropriation. We’re also looking into little things, not really powerful things. [We’re wondering] can we use our facilities better to generate income? Those are not big dollars, but they all help.”
One of the administration’s major points of pride for the last few years has been its tuition restraint, which it has shown in spite of significant reduction in state appropriations. Lumm said Eastern’s average tuition increase has been much lower than other schools. He said he feels this warrants recognition from the state.
“We’ve averaged over three years 2.5 percent whereas other universities have
averaged close to 6 percent,” he said. “We believe it’s important to look at tuition restraint and to look at it retrospectively, not just prospectively. We have been the leaders in tuition restraint over the last couple of years. We believe that should be rewarded by the state.”
When asked if budget concerns would lead to tuition increases next year, Lumm said it was too early to tell.
“We have certainly started thinking about the next fiscal year and years beyond, as we always do. But it’s very much premature to make any comments about [next year’s tuition].”
