Schools steer much of own funds

by Matt Graham

While students know they have to pay tuition for classes, many may be surprised to see where their money actually goes.

The process for funding individual colleges is not as simple as a student writing a check and the University cashing it.

While University officials provide oversight to individual academic units, the organization of the institution is too vast and complex for central administration to manage all money, said University Chief Financial Officer Richard Pfutzenreuter. Instead, individual colleges are granted a degree of autonomy in securing their own revenues and deciding how those funds are used.

That is because each college at the University draws its revenue from a variety of different avenues, he said, with the sources of those funds varying as much as the academic missions of the colleges themselves.

For example, the Medical School draws only about 9 percent of its $500 million budget from state funds, while other schools are funded almost entirely by that revenue, said Peter Mitsch, the school’s finance and administration director.

“Most colleges strive to have their faculty salaries supported by state dollars,” Mitsch said. “That hasn’t been the case at the Medical School for a long time.”

‘Two flavors’

“There are two flavors of money at the University – sponsored and non-sponsored,” Pfutzenreuter said.

Sponsored funds consist of money from outside sources for specific research projects and make up about 20 percent of the University’s $2.5 billion budget. Researchers usually apply for sponsored money.

They write grant proposals to institutions which award money, like the National Institute for Science, and any money they receive goes to their respective colleges.

The other 80 percent of University revenues are non-sponsored funds, which include money from the state, tuition and fees, gifts and intellectual property sales.

Each college draws its revenues from a mix of both flavors, but research-heavy colleges like the Institute of Technology, the Medical School and the School of Public Health rely on sponsored funds more than most schools, Pfutzenreuter said.

But most University revenue is non-sponsored, and tuition is a primary source of that money.

Tuition distribution at the University is designed to benefit colleges with higher enrollment. Twenty-five percent of all tuition money a student pays for a credit goes to the college in which that student enrolls. The other 75 percent goes to the college that offers the class the student is taking.

For example, for every credit taken by a student enrolled in the College of Liberal Arts, the college automatically receives 25 percent of the tuition money.

But if the CLA student takes a class in the Institute of Technology, 75 percent of the money paid for those credits would go to the Institute.

If that same student takes a class in the College of Liberal Arts, 100 percent of the tuition money for those credits goes to that college, said Karen Dewanz, assistant director of fiscal administration for the College of Liberal Arts.

This allows students’ tuition to go directly to their own instruction, which is the single biggest expenditure at the University, Pfutzenreuter said.

Tuition money is especially important to the College of Liberal Arts, which doesn’t conduct much research but has a large student body. Tuition accounts for about 70 percent of the College of Liberal Arts’ $148 million budget for the current fiscal year.

In comparison, the Medical School, which has the largest budget of any University college, draws only a small percentage of its revenues from tuition.

The Medical School takes in far more from contracts and grants, and is unique in that it draws about one third of its funding from the general practice of medicine, Mitsch said.

But the research schools are turning to tuition as a greater source of revenue as well.

“Our school is becoming more and more tuition reliant,” said Madonna Monette, Institute of Technology finance director.

While the costs of running colleges continue to increase, less money is coming in from both the federal and state governments.

This forces students to shoulder the load, as tuition has increased at a double-digit rate several times in recent years.

But despite the funding cuts, state money is the other major contributor to the University’s pot of non-sponsored funds, as the University still accounts for about 4 percent of the state’s total budget. However, that number has fallen over the last 15 years, Pfutzenreuter said.

Money from the state falls into two categories. The first category is state specials, which are allocated by the state to specific programs within the University. The second is operations and management funds, which come from a general pot of money divided among various programs by the administration.

One of the biggest recipients of state special funds is the Minnesota Agricultural Experiment Station, which is largely funded by such money. The University’s extension service, designed specifically to benefit state residents as a part of the University’s required commitment to the public good, is another major recipient.

The Medical School also receives large amounts of state special money, with $14 million for the current fiscal year. But this is in comparison with the $30 million in operations and management funds that the school also received this year, Mitsch said.

While the state special money levels are consistent from year to year because the University is mandated by the government to spend that money, the operations and management funds can vary widely depending on how much the state allocates and what programs the administration decides to fund.

From the bottom up

While the colleges have significant autonomy in pursuing their own projects, certain University undertakings can’t be funded by any one school.

To pay for such projects, the University instituted a program called Institutional Revenue Sharing, Pfutzenreuter said.

Each college must pay a portion of its total revenue to a central fund, in what amounts to a yearly 8.5 percent income tax on the colleges. That figure is up from 1 percent during the 1999-00 academic year, when the policy was first put into place.

The money goes to what Dewanz called “global goods,” such as the University Library System.