The University of Minnesota has more than $11 million of administrative costs to cut by the end of the year to accomplish one of President Eric Kaler’s major priorities.
Kaler’s plan to reduce administrative costs by $90 million over six years was announced in 2013 following reports that the University was one of the leading culprits of overhead spending in the nation. Although the program is expected to exceed its goal, some say the cuts don’t go far enough.
These spending cuts come in the form of reallocations of administrative funds to other areas within the University’s budget.
“We’re halfway through the year, and they still have some work to do to deliver that,” said Board of Regents Chair David McMillan.
Julie Tonneson, associate vice president of University Finance, said she anticipates the school will exceed its goal by around $1 million.
But University Regent Michael Hsu said the dollar amount doesn’t reduce administrative spending enough.
“It’s almost embarrassing that we’re talking about $90 million over six years, which is only $15 million a year, and if you do the math on that it’s chump change for the University,” Hsu said. “If you look at that, $15 million a year is trivial. And I think we need to look deeper.”
More than $8 million of the remaining cuts will be reallocated using state appropriations and tuition, while around $3 million will come from outside funds like sales, fees, gifts and endowments.
Reallocations in University’s budget
Cuts are made “in every single unit of the University,” Tonneson said. These units include individual colleges, out-state campuses and other services.
A unit that has seen one of the biggest administrative reallocations over the six years is Auxiliary Services on the Twin Cities campus, which manages University housing, food services, parking and bookstores. The Office of Information Technology, the University’s Medical School, University of Minnesota-Duluth and Facilities Management on the Twin Cities campus have also seen large reallocations. Tonneson said these units had some of the largest budgets to begin with.
All units get a target from the budget office to reduce their administrative costs. They vary from year to year, usually from $11-20 million.
“This is a very iterative process,” Tonneson said.
Most often, administrative costs are shaved when a position change occurs, appointment times decrease or someone is hired to fill a gap at a lesser salary, Tonneson said.
“If we have someone retire, for example, we might choose not to replace that position. So, I have saved that salary and fringe money [we] can spend on the other cost increases,” Tonneson said.
The University’s budget goes up every year, meaning administrative funds are reallocated to accommodate growing expenses for other needs, she said.
“We are not, in total, spending less across the University from year to year across the system,” Tonneson said. “But, the reallocations present us an opportunity to pay for those cost increases without having to raise tuition as much, without having to go to the state for additional fund to cover that and so on.”
Lawmakers respond to cuts
The University has an $87 million biennial budget ask for fiscal year 2020-21. Some of this allocation would go toward administrative cost, which Hsu said could affect how the University fares in the state’s budget.
“[The operational excellence commitment] was one of those things where it looks good on paper but does it really affect anything? And I think the Legislature is catching up to it,” Hsu said.
Rep. Bud Nornes, R-Fergus Falls, a member of the House Higher Education Finance and Policy Division, said the University’s decision to reallocate funds instead of cutting funds entirely has worried some of his colleagues.
“[Reallocation has] been what’s concerning, for some they’d be very suspicious,” Nornes said. “When the U comes with a request, I assume it’s what they need.”
Sen. Jason Isaacson, DFL-Shoreview, said while the University may still have wasted administrative spending, he is more concerned about the school’s total state appropriation being big enough.
“Don’t get me wrong, there very well could have been clear waste,” Isaacson said. “But I am not as concerned about administrative waste, especially with the amount of effort that’s gone into getting better.”
Looking ahead
While the operational excellence program will conclude this year, the University still plans on allocating money within the budget. Tonneson said units have already been given targets for fiscal year 2020.
“Now we’re at the end of [the program], I think we really need to look harder at how effective it was, and how much more can be done,” Hsu said. “To your average person, if you didn’t know how big the University budget was, you’d be happy the University is saving anything. Whereas it’s not really even a savings at all, we’re just moving that money somewhere else. Theoretically, outside of the administration.”
