U pare: The need to cut administrative costs at the University of Minnesota

This legislative session, the University of Minnesota administration is presenting a proposal for almost $1.4 billion in state appropriations for the next biennium. This would be an increase of 6.7 percent ($87 million) over the current level of state funding. (See p. 63 of the February 2019 FIN Docket.)

Minnesotans should examine this proposal in the context of two recent reports submitted to the Board of Regents by the administration: the Administrative Cost Benchmarking Report (See pg. 156, December 2018 FIN Docket) and the U of M Compensation Report.

In fiscal year 2018, the university administration spent more than $313 million on "leadership & oversight" and more than $720 million on "mission support." These costs of administration exceeded $1 billion and consumed 27 percent of the $3.7 billion university budget.

This calculation of the costs of administration is conservative, as it excludes expenses in the mission support category for student personnel, campus operations, the costs of facilities (repairs, utilities, etc.), leases and debt service. (See details below.)

The administration claims credit for a $90 million reduction in the costs of administration over the past six years. But this has simply reduced (slightly) the rate of increase. In June 2017, the administration informed the regents that "total administrative expenditures over the last four years have grown at a slower pace on an average annual basis (2.8%) than total expenditures (3.2%)." (See p. 12 of the June 2017 FIN Docket.) An annual reduction of $15 million is a small speed bump in an annual budget that is rapidly approaching $4 billion.

In February 2019, the vice president for human resources presented the annual report on senior leader compensation (See pp. 180, 189-191 of the February 2019 FIN Docket) to the regents. The report explained that compensation of state officials is not considered a comparison market for the university's "senior leader talent" due to the "unique nature of business" in higher education.

We should examine this premise.

Here are the base salaries for four university senior administrators:

General counsel: $359,000.

Senior vice president, finance: $420,700.

Vice president, Equity and Diversity: $240,000.

Chief auditor: $217,000. (See pg 180, 189-191 of the February 2019 FIN Docket.)

Now here are the salaries of their counterparts in state government:

Attorney general: $121,248.

Commissioner, Management and Budget: $154,992.

Commissioner, Human Rights: $144,991.

Legislative auditor: $147,500. (See chapter 4 and chapter 5 of the Minnesota Legislative Manual).

These senior positions at the state require similar qualifications and involve similar duties to their counterpart positions at the university.

Clearly, we need a mechanism to reset the priorities of the university administration.

The federal Affordable Care Act requires health insurers in large group markets across America to send rebates to customers if their administrative costs and profits consume more than 15 percent of premiums. ("Health insurers must pay up or pay back," Aug. 16, 2014.)

In a similar manner, the Legislature should require the University of Minnesota administration to send rebates of general appropriations to the state treasury to the extent that the costs of administration exceed 15 percent of the total costs of operation.

In fiscal year 2018, the total expenses of the university were $3.7 billion. Spending 15 percent of that amount on administration would consume $555 million. Just over half a billion dollars is more than reasonable to cover administrative overhead.

This is not a proposal to reduce state appropriations to the university. Rather, it is a mechanism to induce the university administration to make substantial reductions in overhead costs and to use the savings for tuition relief, for rebuilding the crumbling academic infrastructure, and for instruction, research and public service.

It would be up to the university administration to decide where to make the cuts. But the starting point should be the compensation of senior administrators.

The final contract for the current president is Exhibit A. The more one studies it, the harder it is to accept the terms of compensation in the agreement approved last summer:

• $625,250 for his final year as president ending June 30, 2019 — plus a "supplemental" contribution of $225,000 to his retirement account. Plus free housing.

• $625,250 for one year as president emeritus ending June 30, 2020 — plus a "supplemental" contribution of $325,000 to his retirement account.

• $156,312 for a six-month "transitional leave" period ending Dec. 31, 2020.

• $312,625 for one year as a tenured professor commencing on Jan. 1, 2021.

(See pp. 5-6 of the August 2018 BOR Docket.)

The "comparison market" used by the university is a closed club of executives at large universities — an elite fraternity of "senior leader talent" far removed from the economic lives of students, parents and citizens who are called upon to support this market.

Allow me to end on a personal note. I received my undergraduate degree (1971) and my law degree (1974) from the University of Minnesota. My fee statement for my senior year in law school shows that the total amount for tuition and fees for the entire year was $917. That total would translate into $4,953 in today's dollars (using the Bureau of Labor Statistics inflation calculator).

This year, the total cost for resident tuition and fees for the law school is $44,914. There has been a real increase by a factor of nine within a generation.

My family has personal experience with the skyrocketing costs of higher education. My wife, Paula, and I have seen our eldest daughter, identical twin daughters and eldest son all receive their undergraduate degrees or professional degrees (medicine, law, and dentistry), or both, from the U.

We need to develop a different way to operate and to finance higher education.

In December, the University of Minnesota administration released its Administrative Cost Benchmarking Report for fiscal year 2018. The expense summary in the report is a list of expenses for three broad categories: (1) direct mission activities (instruction, research and public service); (2) leadership and oversight; and (3) mission support and facilities. Here are the administrative expenses for leadership and oversight and for mission support:

Personnel: $266,428,000

Supplies and service: $40,387,000

Equipment: $6,687,000

Audit/financial/IT/legal: $199,626,000

Administrative clerical (25% of total clerical): $19,713,000

Coordinators: $8,000

Skilled generalists: $26,530,000

Other support: $191,174,000

Temporary/casual: $17,275,000

Consulting/professional services: $42,666,000

Supplies and services: $180,071,000

Equipment: $43,146,000

Total: $1,033,711,000

(See p. 156 of the December 2018 FIN Docket.)

Note that this $1 billion tally of the costs of administration does not include the expenses for the direct mission activities of instruction, research and public service or for student aid. Nor does it include expenses in the mission support category for student personnel, campus operations, the costs of facilities (repairs, utilities, etc.), leases and debt service. (The administration actually includes all of the expenses in the mission support & facilities category in its definition of administrative costs. See Cutting Administrative Costs at https://twin-cities.umn.edu/cutting-administrative-costs).

The total operating expenses of the university for fiscal year 2018 were $3.7 billion. (See p. 21 of the 2018 Annual Report ). So the $1 billion costs of administration account for 27 percent of those total expenses.

Michael W. McNabb, of Lakeville, is an attorney and lifetime member of the U of M Alumni Association.