Testimony of President
Mary Sue Coleman,
University of Michigan

The House Higher Education Appropriations SubCommittee presented in Lansing, Michigan

March 23, 2005

I want to thank Chair Stewart and the committee for the opportunity to address you today.

A few weeks ago I told a group of university tech transfer managers from across the country that it is “wake up call” time for America. We’re in a global race for economic strength, and the United States is losing ground. China and India are ramping up their investments in everything from R&D to the production of scientists. Five countries now spend more in research than the United States does as a percentage of gross domestic product.

And no state is feeling the pressure more than Michigan.

It is clear we have to continue to diversify our manufacturingbased economy. We must develop and apply new technologies so we can create brand new industries and more jobs. And we need a highly-skilled, college educated workforce to do it.

As the Cherry Commission showed us, right now only about 22 percent of Michigan adults have a B.A. degree— that’s below the national average and well below states that are prospering.

One of my colleagues on a national panel said we have to do everything we can to “out-innovate” the competition. Innovation is the key to aggressive economic development in the future. The University of Michigan intends to partner with the state to foster innovation and to fuel a strong economic engine.

As a baseline measure of our economic contribution, let’s take a quick look at the University in terms of jobs and revenues. About two years ago, several University of Michigan economists did a study on the University’s overall impact on the state’s economy. They found that the university’s operations created an additional 1.5 jobs for every person it employs. We have over 34,000 employees. All of that translates into about $4 billion in personal income and state tax revenue of $270 million a year.

Our operations alone have an important and positive effect on the Michigan economy. But the University means far more to Michigan’s economic vitality than simply its role as a large, labor-intensive employer.

Our most important contributions to economic development come in the form of research and technology transfer activities. Let me put this in some context for you:

The University of Michigan captures about twice as many federal research dollars as all other Michigan public institutions combined. Last year Michigan brought $536 million to the state in federal research money. About half of that funding, by the way, is attributed to research in the life sciences. All of it fuels scientific discovery and innovation at a rate that is among the highest in the country.

And in the last several years, we have focused on putting more and more of those dollars to work as we dramatically increase our technology transfer activities. The University’s goal is simple: we want to lower the barriers and increase the transfer of new knowledge into the business community quickly and consistently. I believe this is central to the mission of a public research university.

And our efforts are paying off: In Fiscal Year 2004 the University of Michigan recorded 13 new business startups, 73 new license agreements, and 285 new invention disclosures. In fact, on Monday the U.S. Patent and Trademark Office released its annual survey naming the University of Michigan 7th nationwide in total patents awarded to universities. It was a banner year, but we want to do even more.

We are working with the state and the regional business community to create a regional public-private partnership that puts more resources and a very focused effort toward technology-based economic development. We hope we can double the number of technology companies and triple the number of technology jobs in the next decade by leveraging our collective efforts.

But the loss in state funding is a serious situation for the University of Michigan. It has had a negative impact on our students and our operations. If the funding situation is not stabilized, it will begin to affect the quality of our entire enterprise and limit our ability to do just what the state needs most right now: educate students and foster innovation.

Here’s the reality of the situation: If the FY 2006 budget proposal is enacted, it will mean that the University of Michigan’s Ann Arbor campus will have lost more than $50 million from its General Fund in just three years. As you know, the General Fund is the primary source of support for undergraduate education, so this has been a significant strain.

To address the shortfall, we stepped up our ongoing work to drive business efficiencies. We introduced a new cost-sharing model for our health care benefits, which will save about $6 million from the General Fund this year. We’ve saved more than $9 million a year by installing energy-efficient lighting, heating, and cooling systems. We’ve introduced a number of e-business practices that led to reduced staffing, postage, and printing costs.

But the new cost-effective programs are not enough to make up for the dramatic loss of appropriations. And, of course, each year we face unavoidable cost increases in areas such as health care and energy.

So we have instituted across-the-board cuts. Last year we cut about 125 staff positions and eliminated 50 faculty positions left open from retirement or attrition. We increased some class sizes, reduced some course sections, and cut about 1,000 journal subscriptions from the library.

I could give you dozens more examples, but I’ll just say this: It is not a sustainable model. Our activity level, as measured by student enrollment, research, and tech transfer, is at an alltime high. I have promised the University community that our first priority must be and will be core academic quality. We cannot compromise on excellence.

There’s one more thing we can’t compromise: affordability. We have to reach out to students with financial need because our state and our country cannot afford to leave one talented student behind if the only barrier is a financial one.

For at least thirty years it has been the University’s policy to meet the full demonstrated financial need of every in-state undergraduate student. Sometimes people are surprised when they hear me say that. To protect that important value, we have increased the University’s own grant aid budget at an equal or greater rate than tuition each year.

But we need to do even more. Students are taking on more loans, and those students who are most financially vulnerable continue to be at greater risk. So three weeks ago I announced a major new financial aid program called M-PACT.

M-PACT will reduce loans and increase grants for almost 3,000 resident students. All together we are committing an additional $3 million dollars a year to the program. Depending on financial need, students will receive additional grants of $1500, $1000, or $500—and that will be a dollar-for-dollar loan reduction.

We will jump-start M-PACT with $9 million dollars from private gifts, and launch a major fundraising initiative to raise an endowment so we can sustain the effort over time.

Affordability and accessibility are top priorities for the University of Michigan. We know we simply have to do all we can in an era when state support and market challenges will continue to put pressure on tuition.

I want to offer one more thought on this: we need to focus on the overall affordability of an excellent college education, not simply on tuition. Whether or not college is affordable depends on several factors, including how much financial aid is available, and how much debt a student will have to take on in order to complete a degree. Students and families need accurate and understandable ways to assess the true costs of a college education.

In addition to increased financial aid, we are making other investments to help protect and enhance our academic quality even at a time of such constrained resources. As you can see with the M-PACT program, we are working very hard to leverage private gifts to the University in a way that builds on the foundation of critical state support we receive. We are investing in programs and facilities where we can enhance our academic strength, meet growing societal demand, or maximize new opportunities.

Possibly our most important investments for the future are those we are making in the life sciences. The Life Sciences Institute and our other research efforts have been a hallmark partnership between the state and the University, and already we’re seeing those investments blossom into new discoveries, increased research funding, and private support. We are recruiting stellar junior and senior faculty to our life sciences efforts, and we are paving the way for robust biotech activity in this state in the years to come.

In addition to the life sciences, we’re making significant investments in programs including public policy, teacher education, information technology, and the arts—all areas where we have a wonderful opportunity to connect more fully with the world around us.

Finally, we are focusing tremendous effort to enhance residence life at the University of Michigan. Today’s students do not live and learn like the generations before them. They operate in a digital, global, 24/7 environment. We believe student living and learning environments should be integrated and more seamless than ever before. We are planning an innovative new complex that blends a 500-room residence hall with technology-rich academic space. It is an exciting and much-needed project, part of a comprehensive plan to renovate and add residence and dining space on campus.

Thank you for your time today. Our handouts include more detailed information on all the topics I outlined in my remarks, but please contact us if you need additional materials. All three universities testifying today—Wayne State, Michigan State, and the University of Michigan—are collaborators and research partners; we are working closely together so we can bring our collective strength to the state’s greatest needs. And as for my university, I know that we have had a partnership with this state for 188 years—it is a partnership that was built on the shoulders of those who came before us, and one that we are responsible for preserving today.

I look forward to working with you, your colleagues in the Legislature, and the Governor to support public higher education in this state. We are at a watershed time, and we have important decisions to make.