Editor’s note: The University faces a multimillion-dollar budget gap between the cost to run the University and incoming revenues. This is the second part in a three-part series that addresses three questions: why the University’s costs are rising faster than the rate of inflation, where the funding comes from to pay for these costs and how the University plans to resolve the budget issue — a resolution that includes a proposed tuition increase.

As the nation’s third-largest university, the University of Minnesota requires a large chunk of change to run itself. This year alone, the University will spend $1.6 billion on its operating budget, not including sponsored research.
The University’s four campuses serve 51,835 students. It offers 370 degree programs, more than any other university in the country. And the University is one of only three top-30 research institutions in the nation to support both a medical and an agricultural school.
But unlike Minnesota’s most expensive four-year private university, Carleton College — which charged its students $23,469 this year for tuition and fees — the University depends on the state for 40 percent of its revenue.
As the state’s land-grant university, the University relies on the state as its primary revenue source. In turn, the University serves the state with research, teaching, outreach and public service.
University tuition, $4,649 this year for full-time Twin Cities undergraduates, covers only 15 percent of the University’s budget.
Housing, bookstores, intercollegiate athletics, parking and other enterprises add another 11 percent to University coffers.
The rest of the University’s funding comes from gifts, endowment interest, internal service organizations and money provided to address research expenses not already covered with grants.
Pieces of the pie
State funding, though increasing in amount, has decreased in proportion during recent years.
Two-thirds of the University’s instructional costs used to be covered by the state in the mid-1980s. That has since dropped to 50 percent, said Peter Zetterberg, University institutional research and reporting director.
“The state is changing demographically,” said Zetterberg, noting the state’s increased commitment to investments in prisons, welfare, K-12 education, property-tax relief and tax rebates.
In the mid-1980s, 15 percent of state money went to the higher education budget — to be shared among the University, Minnesota State Colleges and Universities and the Minnesota Higher Education Services Office. Though the dollar amount has increased, the portion has dropped to 11 percent.
“It would be ridiculous to think the state would spend its money the same way as 15, 30 or 100 years ago … things change,” Zetterberg said.
However, the funding changes have been perplexing to some.
Last year, when University officials went to the state Legislature for its funding request, they were surprised by an allocation that shorted the University, including inadequate funding for a 3 percent faculty salary increase.
In addition to funding given to the University to spend for two years — close to $1 billion — the University requests an increase every two years to cover rising costs.
Last year, the Legislature significantly downsized the University’s $161.8 million request to $104 million. It left the University scrambling to cover faculty salaries, tuition, academic programs, technology and facility costs.
In years past, the University could readdress and sometimes resolve the issue during the off-year of the two-year legislative appropriation cycle with an emergency request.
However, this year the governor has made it clear he won’t consider additional requests, Yudof said. “The fix is for the appropriations process to respond to the genuine needs of the University,” he added.
Marvin Marshak, a University physics professor and legislative liaison for the Faculty Consultative Committee, said the Legislature does not view University needs as pressing as they were three years ago, when University tenure concerns surfaced and the state gave the faculty a raise.
At this time, Marshak said, legislators generally perceive University President Mark Yudof to be doing a “wonderful job” at the University and have moved on to worry about other state problems.
Tuition trends
The University is not alone in the shifting tides of funding.
Nationally, from 1980 to 1995, state government higher education funding dropped from 31 to 23 percent and federal government funding decreased from 15 to 12 percent, according to the College Board’s Annual Survey of Colleges.
And tuition went up.
Since 1980, college prices rose at twice and sometimes three times the consumer price index, according to the survey.
Ten years ago, a University College of Liberal Arts undergraduate paid $2,087 for a year of study.
Today, students pay $4,172.
“State funding failed to keep pace with inflation,” Zetterberg said.
University tuition and required fees grew by 77 percent during the past 10 years and the other Big Ten universities averaged 79 percent growth.
Yet partly because of a shift to a single undergraduate rate and discounted courses for students who take more than 12 credits, this year’s seniors experienced the lowest tuition increase in more than 30 years between their freshman and senior years — 15.2 percent.
“Any generation thinks its tuition is the highest … but it is not really true,” Zetterberg said.
The impact of a tuition increase depends on several factors, including the amount of student aid available.
In 1997, undergraduates attending Minnesota post-secondary institutions received $944 million in grants, loans and earnings from work study and campus jobs. And more than half of Minnesota undergraduates who completed their programs borrowed money to pay for their education.
“There is a philosophy, nationally, that students should bear a greater responsibility for higher education than in the past,” Zetterberg said.
The trend in expectations and dollars is toward student loans, rather than grants, to offset rising costs for education.
Beseeching a billion and other budget solutions
Students get aid from several sources — work study, grants, private and government loans and sometimes from the University itself.
Last year, the University spent 4 percent of its budget on student aid.
More money might come from the University in the future as a result of a $1.3 billion fund-raising campaign announced in October. In addition to addressing the rising costs of the University, faculty and staff pay, building and renovation, the donations would go to supporting top-notch University students with scholarships.
At this time, only 4 percent of University revenues come from gifts and endowment interest.
In addition to considering tuition increases, state money and fund raising for increased revenues, the University initiated a tax on individual colleges as a way to pay for services used by the University. It is also looking for ways to cut costs.
Yudof told regents earlier this month that everyone must share in the budget solution. “We don’t have to be in the lap of luxury … but we don’t have enough money to be doing all the things we think we ought to be doing.”
Part three in this series will address funding and budget challenges the University faces this year and in the years ahead.

Kristin Gustafson covers University administration and federal government and welcomes comments at [email protected].