Accomplishments

Michigan Tech has had adequate resources over the last ten years to accomplish its mission and purposes. Although the University experienced some financial difficulties in 1991 (see below), with the exception of the temporary rescission of 1991/92 salary increases, the University has never defaulted on a financial obligation or curtailed its educational or research activities. It has succeeded in keeping its tuition affordable and has enhanced access through a comprehensive financial aid program.

Four critical resources for achieving the University’s purpose of providing quality instruction are the faculty, staff, physical plant, and computing. Faculty and staff salaries and wages constitute the single largest expenditure and are the largest component of instructional costs. Although the University has yet to achieve salary parity with benchmark institutions, it is able to hire and retain qualified faculty and staff (see Chapters 6 and 9). It also has a well-maintained physical plant, recognized as the most efficient operation in the State of Michigan, with the lowest or near-lowest cost in all categories including deferred maintenance (see Chapter 11). Student computing is supported by access and course fees, which results in excellent student computing facilities and support (see Chapter 10).

1991 Financial Difficulties

In October 1991, the State of Michigan did not make a scheduled $4 million payment to the University for its 1991/92 appropriation. As a consequence of this action, the University laid off fifty staff, reduced salaries across-the-board by 4%, and borrowed $4 million against its line of credit to cover its obligations. Nearly all of the laid-off staff who wished to return to the University were eventually rehired, and the debt incurred has been repaid. By June 20, 1996, the University had cash and cash equivalencies totaling $23 million, a significant increase from the $12 million on hand on June 30, 1988, and the $4 million on hand on June 30, 1991.

Also in 1991, the then Vice President for Operations and Finance was making financial commitments on the basis of fund reserves which did not reflect actual cash balances. These actions, plus a transfer of $7 million from the General Fund to the Retirement and Insurance Fund to prefund the 1980s early retirement programs, resulted in a $7,866,000 General Fund deficit. The University has eliminated this deficit and has a positive general fund balance of $1,915,000 as of June 30, 1997.

One response to the 1991 financial difficulties was a complete reorganization of University financial operations (discussed above). Duties of the former Vice President for Operations and Finance were divided between the Executive Vice President and Provost and the Chief Financial Officer. Another response was improved financial management processes: A cash flow projection model to aid in the prediction and management of cash flows, quarterly financial statements, and a participative budgeting process (discussed above) to aid in the timely identification of actual or potential problems.

ESI/Ventures

A detailed discussion of ESI (the Educational Support Institute) and Michigan Tech Ventures, Inc. (hereafter referred to as "Ventures") is contained in the Lewiston Report [5.6A]. A brief overview of the relevant issues is provided here.

In the early to mid 1980s, the Michigan Tech Board of Control authorized the establishment of ESI and Ventures. In order to separate the management and operations of Ventures from the University, ESI was established, and ownership of Ventures was transferred from the University to ESI, making Ventures a wholly-owned subsidiary of ESI. These two organizations had three purposes: to benefit Michigan Tech by facilitating "the transfer of technology from the laboratory into the business world" [5.6A, p.3], to support the University's research and development activities, and to facilitate regional economic development. These purposes were laudable and several job-creating initiatives were successful. In particular, ESI/Ventures facilitated regional economic growth and job creation through aiding start-up or financially troubled companies such as Peninsula Copper and Main Street Inn (now Best Western - Franklin Square).

In 1990 and 1991, ESI and Ventures were named as defendants in several civil lawsuits that alleged nonpayment of debts. Shortly thereafter, two of Ventures' top officers pleaded no contest to tax evasion and the dissolution of ESI and Ventures began. As of June 1997, the dissolution is substantially complete, although ESI and Ventures both remain in existence pending final completion of their legal and business affairs.

The net effect of ESI/Ventures on the University was threefold: the loss of an indeterminate amount of assets that were transferred to Ventures, a tarnishing of MTU's reputation, and impairment of the University's ability to engage in profitable technology transfer. In particular, the ESI/Ventures events have impaired University fundraising efforts due to a perceived lack of integrity on its part. Fortunately, as ESI is a separate legal entity, the University should not be liable for any unpaid debts or obligations of ESI/Ventures.

While it is not within the University's power to institute policies that would prevent a similar series of events from occurring in the future, it is unlikely that similar incidents will occur in the future. The Board of Control has a heightened awareness of the need for effective financial management and control. Further, the University's counsel now attends all Board meetings to provide independent advice on Board actions, something that did not occur before 1991.

Current Funds Revenue and Expenditures

Revenues from tuition, State appropriations, and research grants have grown annually since 1988 (see Table 20). This has enabled Michigan Tech to maintain the high quality of its educational programs. Like most public institutions of higher education, MTU has successfully developed diverse sources of revenue, which include tuition and fees, sponsored research, and private gifts, instead of relying predominantly on State appropriations. For a comparison of revenue sources in 1988 and 1996, see Figure 22 and Figure 23. Although annual State appropriations to MTU have grown by 23.5% since 1988, from $34.9 million to $43.1 million in 1996, they now provide only 40% of current funds revenues, compared to 55% in 1988. Even so, at $7,416 per capita State funding in 1996/97, Michigan Tech is in the top tier of State-supported institutions in Michigan. In 1996/97, we received a 4% increase, plus a $927,000 supplement for technology-related expenditures in recognition of our high cost science and engineering curriculum. Another 4% increase was received in 1997/98.

Tuition provides the second largest source of revenue. Michigan Tech is committed to maintaining tuition at affordable levels. Our resident tuition and fees ($3,948) are low compared to upper-division tuition and fees at other Michigan research universities (University of Michigan is $6,438; Michigan State University is $5,306). Nonresident tuition of $9,231 is also competitive. One measure of affordability is our ranking by Money Magazine in 1996 as one of the ten best buys among scientific and technological universities and one of the top fifty "best values" among national universities by U.S. News & World Report. Fluctuating undergraduate enrollments since 1988 (see Figure 10 in Chapter 4 and Response to Concern 9 in Chapter 1) have negatively impacted tuition revenue and impaired our ability to meet all of our goals. Declining enrollments since 1993 have created concern across campus and led to several initiatives to try to reverse this trend (see Chapter 4). Because we have purposefully kept tuition and fees low, there may be potential for increasing tuition and fees to raise revenues.

TABLE 20. Current Fund Revenues

FIGURE 22. Current Fund Revenues: 1987/88.

Source: IPEDS Finance Surveys

FIGURE 23. Current Fund Revenues: 1995/96

Source: IPEDS Finance Survey

TABLE 21. Current Fund Expenditures

FIGURE 24. Current Fund Expenditures: 1987/88

Source: IPEDS Finance Survey

FIGURE 25. Current Fund Expenditures: 1995/96

Source: IPEDS Finance Survey

Related to tuition revenue is University expenditure on financial aid. Approximately 63% of Michigan Tech's students receive financial support, totaling $36.3 million annually. The University administers a comprehensive financial aid program that includes scholarships, grants, loans, and part-time employment. Financial aid is one of the tools to keep Michigan Tech education affordable for all students.

As we increase our graduate programs, we also look to increase external funding for research. Since 1988 annual sponsored research has increased 85% from $11.3 million to $20.9 million in 1996. We expend over $5 million per year to support graduate students and have made significant improvements in the physical facilities to support research (see Chapters 3 and 4).

Auxiliary Operations—Residential Services and Retail Operations—generate approximately $18 million annually in revenue, but expenditures equal about 90% of revenues. Auxiliary Operations thus does not represent a significant source of funds for core educational functions.

The Michigan Tech Fund is instrumental in generating new resources for the University through gifts and grants. More alumni involvement and increased solicitations have grown the Fund's assets fourfold since 1988, from $10.7 to $45.7 million in 1996. As a result, funds provided to the University for student scholarships and faculty development have more than doubled since 1988, to $1.2 million for each in 1996. Corporate support in the form of gifts, grants, and research funding has grown by 78% to $6.9 million in 1996. Major gifts since 1994 include $5 million from the Dow Foundation; $2.5 million from a private donor; and $1 million from the Ford Motor Company Fund in support of the Environmental Sciences and Engineering Building.

Other Indicators of Financial Condition

In 1995, our liquidity improved by $1.1 million over 1994. The University has periodically obtained short-term financing from Michigan Financial Corporation and has a $10 million line of credit from that institution.

In 1993 Michigan Technological University received a Moody's bond rating of "Aaa" and Standard and Poor's rating of "AAA" These excellent ratings reflect our success in meeting financial obligations. The University has debt of $3,070,000, the lowest of any public university in the State of Michigan. This represents $497 of debt per FTE student. This compares very well with Grand Valley University, which has the next largest total debt of $15,157,000 or $1,475 per FTE, and the University of Michigan–Ann Arbor, at $621,288,000 or $13,748 per FTE, the highest debtor.

Arthur Anderson, LLP, our external auditor, has given Michigan Tech an unqualified opinion on its financial statements for each of the past eight years. If, in the auditors’ opinion, there is substantial doubt about the university’s ability to continue as a going-concern for a reasonable period of time, they should issue an unqualified audit report with an explanatory paragraph to explain the nature of the university’s going-concern problems and uncertainties.

Operating Efficiencies

After salaries and wages, employee fringe benefits are the University's second largest expense. In an effort to control future costs, a Benefits Long-Range Plan was developed in 1995. Several initiatives have already been implemented to provide quality services at a reasonable cost: PPO network for delivering health care, a flexible benefits program (Tech Select), and a wellness program with a full-time coordinator. The former defined benefit retiree health care plan (estimated liability of $107,000,000) is being replaced with a defined-contribution plan (estimated liability of $6,000,000).

When President Tompkins arrived in 1991, he launched a total-quality initiative which included hiring a Manager of Quality Service Education. Operating efficiencies that resulted from the TQE initiative have been recognized in student recruiting and registration, scheduling, advancement, and the SDC (Student Development Complex) (see Chapter 9).

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