University of Minnesota cuts $90M in overhead costs — but critics say it's not enough

More than 600 positions on five campuses, a plant pathology library and the water coolers in the law school are among the overhead the University of Minnesota cut to keep a pledge its president made to lawmakers six years ago.

As the U reaches a goal of trimming $90 million in administrative expenses this spring, officials say one of President Eric Kaler's signature efforts made the university leaner and ushered in new budgeting discipline.

But critics on the U's governing board and others counter that the savings are puny in an almost $4 billion budget, and they argue that the cuts largely spared upper management at the expense of lower-paid employees who more directly support students and faculty.

Although Kaler vowed to channel the savings into teaching and research, some of the money has likely gone to boost administrators' pay and hire new ones. Overhead costs at the U continue to rise, though at a slower rate than in previous years.

University leaders say that increase reflects growing research and undergraduate enrollment. Still, champions of Kaler's bid to rein in administrative expenses say the effort must continue under Joan Gabel, who takes over in July.

"We are not stopping just because we have hit that $90 million number," said Brian Burnett, the U's senior vice president for finance.

Minnesota lawmakers demanded action after a late 2012 Wall Street Journal story that made the U a case study in a national ballooning of campus administrative costs. University officials disputed the article and paid almost $550,000 for two outside reports that suggested overhead was in line with other public institutions. Still, Kaler promised to make cuts and pour the savings into the U's core mission: teaching, research and community outreach.

This spring, the university reached more than $91 million in such cuts. Gone are campus centers and offices — perhaps most symbolically the office for system academic administration. More than $9 million in savings came from renegotiating contracts and streamlining the U's dorm, dining, parking and bookstore services. Last year, the medical school cut almost $1 million in food, alcohol, travel and entertainment expenses.

These efforts have slowed — but not arrested — the growth of administrative costs. According to data the U reports to the federal government, the systemwide costs of managing the university jumped by 30% in the four years leading up to Kaler's initiative. It increased a more modest 5% in the following four years. The number of management positions rose to more than 930, a 6% hike.

Leaders say the university is growing — an expansion fueled not only by tuition increases but also by undergraduate enrollment, philanthropy, research grants and more.

When discussing overhead at the Capitol and elsewhere, U officials often focus on what they describe as "leadership and oversight," which takes up about 8% of its budget. But to arrive at the $90 million in trims, they also cut into "mission support" and facilities, which consumes another roughly 35% of the budget.

Mission support staff members don't teach or do research, officials say, but they give students academic and mental health advising, police and maintain the campuses, ensure the U complies with federal and state mandates and more.

Officials say the way the U budgets — with administrative savings going into a pot of new revenue for the following year — makes it impossible to say just what the university did with the $90 million. It is likely, though, that some of the money went to hire new administrators, with different job descriptions. And, says Associate Vice President of Finance Julie Tonneson, "sometimes cuts help increase the salary or benefits of other administrators."

Faculty such as James Cotner in the ecology department say some cuts went too far in eroding support for professors. The College of Veterinary Medicine in the Twin Cities cut 14 full-time positions as part of $1.7 million in reduced overhead. At the same time, it added administrative positions as new research grants and donations have helped swell its budget to $126 million.

At the school, which runs one of the country's busiest animal hospitals, the cuts have meant more work — from copying exams to filling out grant paperwork — that takes up teaching and research time, said Dean Trevor Ames.

On the U's Duluth campus, Chancellor Lendley Black said some efforts to keep cuts away from the classroom have had unintended consequences: Smaller facilities staff has had to scale back upkeep, causing "a snowball effect" that increases maintenance costs down the road. Cuts in student counseling have increased caseloads.

"We've gone from what was a pretty lean operation to one that is stretched thin," he said.

Regent Richard Beeson said the initiative has been a success, helping the university dodge larger tuition increases and cultivating a culture of accountability without crimping growth.

The U has made headway on reining in overhead, Kaler says.

"We've done a lot, but there's more that needs to be done," he said.

But to Regent Michael Hsu, the amount the university set out to trim was "trivial." And with administrative costs creeping back in after cuts, he said, "my concern is we did not fulfill our promise."

Hsu thinks the U should strive to actually shrink the percentage of leadership and mission support costs in the budget.

The university's $15 million a year goal also seems underwhelming to James Farnsworth, a human resource major who serves on the Twin Cities undergraduate student government. Over the years, the administration has failed to make a case that the effort has benefited students, he said.

Low-level administrators were affected disproportionately, says Cherrene Horazuk, who leads the U's clerks union. The union, which had shrunk by about 180 positions in the years leading up to the initiative, has lost almost 200 members since, according to U payroll data. That was mainly through attrition but with some layoffs as well.

U officials, who cannot say what portion of the cuts were in "mission support" and in "leadership/oversight," note those decisions were left up to university departments.

Even as U leaders have pointed to a competitive market for higher education talent, questions about senior administrator salaries have continued to dog them. Vocal critics such as attorney and alumnus Michael McNabb invoke public service and compare the salaries of top U administrators to lower ones of state government officials. In the past five years, the number of employees who make more than $300,000 has jumped to 50, up from 33 five years ago.

Kevin McClure, a University of North Carolina professor who studies administrative spending, says that while campuses across the country grapple with how to rein in those expenses, the U deserves credit for setting a specific goal and a deadline. And though the public should scrutinize overhead and executive pay, much greater culprits for the increase in tuition are employee salaries and benefits and state disinvestment in higher education.

U officials said they are already seeking another $10 million to $15 million in administrative reductions in next academic year's budget. Students and regents are gearing up to pitch ideas for a leaner U to Gabel.

At the Capitol, some Republicans wanted to tie increased state support to a requirement to lop off another 10% from the university's administrative bill. DFL Gov. Tim Walz, a proponent of public education, said recently that Kaler has failed to fully explain what's driving cost increases.

State Rep. Bud Nornes, R-Fergus Falls, a veteran of the House higher education committee, said he did not support the push to impose cuts on the U. But, he said, "it was a message to the university that we are not done with this never-ending quest to rein in costs."