Sunday, October 21, 2012

On The Cost of Administration Part III

"When I use a word," Humpty Dumpty said in a rather scornful tone, "it means just what I choose it to mean--neither more nor less."
"The question is," said Alice, "whether you can make words mean so many different things."
"The question is," said Humpty Dumpty, "which is to be the master--that's all."
Lewis Carroll, Through The Looking Glass (1871) 

          Added December 30, 2012:
An article that is in many ways complementary to this one has now appeared in the Wall Street Journal - on the front page: "Deans List: Hiring Spree Fattens College Bureaucracy—And Tuition."

On The Cost of Administration Part III

President Kaler recently declared that compensation for persons in positions of "administrative oversight" was limited to 11% ($208,545,279) of the total compensation paid to all University employees ($1.9 billion) in fiscal year 2012.  See the October 12, 2012 report in the Star Tribune.
The headline for the report was What's in a Name?  In this case the answer is hundreds of millions of dollars.
The compensation for those in "administrative oversight" does not include the compensation for the administrative staff who carry out the tasks that are directed and overseen by the administrators.  Here is the breakdown for the compensation for administrative staff for fiscal year 2012:

See p. 17 of the October 11, 2012 report presented by senior administrators to the Regents on Cost Definition & Benchmarking.
The overall cost of administration includes more than the compensation of administrators and their staff.  In fiscal year 2012 the administration spent $131,590,695 on administrative supplies and services and an additional $35,175,423 on equipment for administration.  The administration also spent an astounding $34,815,696 on consulting and professional services.  (Why is the administration spending tens of millions of dollars on outside consultants when it has the expertise of its own faculty at its command?)  These "non-personnel expenditures" (the term used by the administration) add up to $201,581,814. 
Here is the total cost of administration for fiscal year 2012:

In fiscal year 2012 the total expenditures of the University were $3,059,632,119.  So the cost of administration consumes 28% ($852,039,094) of the University budget. 
Is 28% in administrative overhead excessive?  There is no accurate national system for comparing administrative costs at universities so we have to look at the world outside the campus.  With an administrative overhead of 20% American private health insurance companies have the highest administrative costs of any health insurance system in the world.  See T.R. Reid, The Healing of America (New York:  Penguin Press 2009) at pp. 36-38.
The Affordable Health Care Act now requires health insurance companies to send rebates to consumers if the company spends more than 20% of its premiums on administrative costs.  See the July 23, 2012 Star Tribune report on Insurers Sending Rebate Checks.
The U of M administration increased spending from $2 billion in fiscal year 2002 to $3 billion in fiscal year 2012.  The fuel for this billion dollar explosion was skyrocketing tuition that soared from $293 million in fiscal year 2002 to $634 million in fiscal year 2011.  See Ten Year Review of University Inc.
The administration has proposed a freeze on tuition (for undergraduate students only) for the next two years on the condition that the state increase appropriations by $91.6 million.  See the September 14, 2012 Star Tribune report.  The prospect of an increase in state appropriations appears remote with the legislature facing a projected deficit of more than $1 billion when the $2.4 billion state IOU to school districts for K-12 education is taken into account.  See the October 15, 2012 Star Tribune commentary by former governor Arne Carlson.
Substantial reductions in tuition are possible without any increase in state appropriations.  There should be substantial reductions in the cost of administration at the University.  Reducing the cost of administration from 28% to 20% would save $240 million.
The savings should  be used to reduce tuition and the crushing debt that the administration has imposed on students and their parents.  The senior administrators and the Regents must restore public support for the University in the old-fashioned way--they must earn it.   
Michael W. McNabb
University of Minnesota B.A. 1971; J.D. 1974
University of Minnesota Alumni Association life member

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