ANN ARBOR—The University of Michigan remains strong and vibrant despite a significant decline in state support for higher education, sharp increases in employee health care and energy costs, and competition from private universities with large endowments for faculty and students.

How is U-M able to mount competitive salary programs, invest heavily in financial aid, launch new initiatives, and recruit and retain excellent faculty in such a tough environment?

Cost reductions have enabled U-M to squeeze more than $117 million in recurring expenditures from the General Fund budget over the past five years. More than $19 million in reductions/reallocations are included in the FY 2009 budget, bringing the total to more than $136 million. Savings are reallocated to support the University’s core values of academic excellence and student access and initiatives that will shape U-M’s future.

Here are a few examples of recent cost containment efforts:

Purchasing

U-M has streamlined its procurement structure and processes and negotiated favorable rates with preferred vendors for everything from scientific equipment to software licenses.

U-M’s Strategic Supplier Program has grown from 18 suppliers to more than 100 since 2000. Recently negotiated new contracts have resulted in annual savings of $610,000 for computer peripherals, $525,000 in food, and $30,000 in materials, repairs and operating supplies.

Energy efficiency

U-M is introducing energy conservation measures in buildings across campus. Upgrades include room occupancy sensors, reduced ventilation fan schedules and low-flow faucets. A one-time investment of approximately $175,000 for such measures in the Fleming Administration Building is expected to produce an annual savings of $124,000, about 25 percent of the building’s annual utility expenses.

Health benefits

To counter soaring costs, U-M works with employees to contain growth in health care expenses by encouraging the use of generic rather than brand-name prescription drugs (saving $2.8 million in 2007 alone). The University also negotiated a new pharmacy benefit manager contract (a $4.3 million savings) and adopted new strategies for sharing health care premium costs, based on the market.

Information technology

The University uses technology-enabled business processes to reduce administrative costs and improve service. Recently, the Office of Undergraduate Admissions introduced a paperless process to review applications, eliminating nearly 300,000 pieces of paper?an estimated 10 pages per application for more than 29,000 applications annually.

Students are now matched electronically with scholarship award criteria, replacing a manual, paper-intensive process that previously resulted in some scholarships not being awarded because of difficulties finding qualified students.

Other revenue sources

Some General Fund costs are now being supported by other revenue sources, including endowment funds. Shifting expenses to other funds allows U-M’s academic enterprise to thrive while holding down General Fund expenses. Recently, the University has raised funds to endow 20 new professorships, undergraduate need-based financial aid and graduate fellowships by matching donors’ gifts with non-General Fund resources.

Staff productivity

Since 2002, U-M total student headcount has grown more than 5 percent, and the University’s research volume has grown by 17 percent. Units, large and small, have consolidated job responsibilities, found ways to make employees more productive through technology and, as a result, held staff growth to less than 1 percent during the same time period.

More efficient use of space and facilities

U-M launched its Space Utilization Initiative in 2006 to improve usage of instructional, research and administrative space on the Ann Arbor campus. The initiative focuses on using classrooms and other instructional spaces more efficiently, promoting campus-wide sharing of high technology facilities, and adding greater rationality and discipline to decisions about major capital projects.

Investing in the future

The University of Michigan’s FY 2009 General Fund budget includes investments that reflect U-M’s highest priorities and assure its leadership among top U.S. research institutions.

Here are examples of some of those investments:

? A 10.8 percent increase in centrally awarded financial aid for undergraduates, or nearly $6.7 million more than last year, for a total of $68.6 million. Centrally awarded financial aid for all students will grow by more than $8.5 million, an 8.6 percent increase, for a total of nearly $107.6 million.

? Nearly $1 million in additional base funding to enhance aid packages for graduate students.

? Twenty-five new junior faculty in the initial phase of a five-year, $30 million initiative to add 100 junior tenure-track positions in areas that advance interdisciplinary teaching and research. Areas of study include data mining, (learning and discovery) with massive datasets; energy storage; global climate change; global HIV/AIDS; microbial ecology; and social science and energy.

? Support for faculty recruitment and retention, including additional resources for competitive salaries.

? Expanded international efforts, with new investments in the African Studies Center and the Joint Institute supported by U-M’s College of Engineering and Shanghai Jiao-Tong University.

? More opportunities for students to study abroad through the Global Intercultural Experience for Undergraduates (GIEU) Program. Since 2002, GIEU has sent small groups of undergraduates and faculty members to locations in the United States and around the world for three to four weeks of academic study.

? More than $1 million in the University Library’s collections budget to insure that the Library continue to be a national leader and an invaluable resource for faculty, students, the public and other universities.

? Additional support for the University’s digitization project and University Library staff positions to capitalize on information technology opportunities.

? Networks, software and personnel that scientists and engineers need to take advantage of high-performance computers. U-M recently invested in the Michigan Academic Computing Center, a 10,000-square-foot data center in the Michigan Information Technology Center, to create a state-of-the-art machine room that meets the energy and cooling requirements of high-intensity research computing.

? The new Business Engagement Center to advance partnerships between U-M and businesses and provide gap funding and other support to help University researchers take discoveries and inventions from the laboratory to market. The investment expands U-M’s long-standing commitment to technology transfer and economic development initiatives.