University of Minnesota-Duluth tries to dig out of budget mess

DULUTH – After a year like this, it's no wonder that the billboards are getting on Lendley Black's nerves.

As chancellor of the Duluth campus of the University of Minnesota, he's been struggling with a budget crisis that was triggered, in part, by plunging student enrollment.

Now a rival, North Dakota State University, has planted highway signs across town, trying to recruit students in his own back yard.

"If I see one more billboard …" Black joked at a packed campus meeting on Thursday. Well, put it this way, he said. "If something happens to one of those billboards, I had nothing to do with it."

The crowd, mostly faculty and staff, laughed sympathetically. By all accounts, they share his frustration.

The Duluth campus, which has more than 11,000 students, has been reeling since last summer, when officials revealed that it was facing a $12 million budget hole — about 8 percent of its operating funds.

The discovery took almost everyone by surprise, says history Prof. Steve Matthews, one of the leaders of the Faculty Council. "That's how it came down — suddenly we had a financial crisis," he said.

The news was so sudden and unexpected that it fed suspicion that the U's second-largest campus was being shortchanged by decisionmakers back in the Twin Cities.

But on closer examination, officials discovered a series of missteps that put the campus on shaky financial footing and prompted a year of cutbacks and voluntary buyouts, with more tough decisions to come.

"In honesty, I wish we could have seen it coming," said Black, who has been chancellor since 2010. "I wish we could have taken some action sooner."

Only four years ago, the Duluth campus, with its majestic view of Lake Superior, was riding an enrollment high of nearly 12,000 students. "We had so many students we couldn't fit them in the dorms," said Michael Pfau, a communications professor who is president of the faculty union.

"We were flush with students. That meant we were flush with tuition money."

That school year, the campus took in nearly $110 million in tuition — more than ever before.

Over the next two years, though, enrollment plummeted. By the fall of 2012, the campus had 550 fewer students, a net loss of nearly 5 percent of its student body. With them went their tuition dollars.

'Living beyond your means'

It shouldn't have come as a surprise, admits Andrea Schokker, the vice chancellor. With a shrinking pool of high school students, many colleges have started seeing a drop in freshman classes. But at Duluth, when enrollment starting falling, a number of festering problems came to light. A "perfect storm of things," as she put it.

Among other things, they discovered that departments were spending more on part-time instructors than they had budgeted. When enrollment was surging, they used surplus tuition dollars to cover those bills, but by 2013, the surplus had disappeared. "I liken it to the dot-com bubble," Schokker said, "where everything looks good" until it bursts. "It's kind of just living beyond your means without realizing it."

Then, she said, "the fringe thing was uncovered." Campus officials discovered that they had miscalculated $2.3 million in fringe benefits.

Most of the mistakes occurred before Black became chancellor, though he says he's hesitant to assign blame. By the time UMD officials added everything up last year, the shortfall came to $11.9 million.

Timing bred suspicion

The news was especially unnerving, said Pfau, the faculty union president, because it broke at the same time the state Legislature was increasing funds for the entire U system for the first time in years. "People were saying, 'We're getting more state money. How is this happening?' "

One set of numbers particularly rankled. University records showed that, since 2009, Duluth's share of state funds dropped 42 percent, compared to a 23 percent drop on the Twin Cities campus.

Last summer, Pfau wrote a letter calling on U President Eric Kaler to "rectify this injustice." In February, Duluth Mayor Don Ness voiced his dismay on Facebook: "The facts are simply embarrassing when you look at the massive disparities," he wrote. "UMD students are being punished by the Twin Cities bias — this has got to change."

University officials, meanwhile, said the critics were comparing apples to oranges. "They were not unfairly treated," said Vice President Richard Pfutzenreuter, the U's chief financial officer, who made several trips to Duluth to address the budget crisis. He noted that the Twin Cities' budget includes departments that serve all campuses, and houses some of the university's most expensive programs, such as the medical school.

But in the wake of the outcry, Kaler has proposed a $4.2 million increase for the Duluth campus next year to help ease its budget problems.

In the meantime, Duluth officials say they've pared their projected deficit by more than half, to $5.5 million, through program cuts, voluntary buyouts and other changes.

"I have to give full credit to our chancellor" for involving the entire campus in the process, said Pfau. "I do feel much more optimistic, because $5.5 million is much better than the alternative." At the same time, he said, many faculty members are worried that the next round will cut deeper into academic programs.

Black, the chancellor, vows that "we're not just going to cut our way out of this problem." He said he's also looking for ideas for programs to attract new students, and more income. "The conversation is not just what you are going to get rid of, but what can we add in that plays to our strengths?"

In the meantime, he's set a goal of three years to solve the budget problem.

"It's been challenging," he said, but "we're in a much better place than we were."

Maura Lerner • 612-673-7384