The economics of UM-Flint

A birds-eye view of the UM-Flint logo painted on the ground in front of French hall.

Luis Martinez, Writer

At a critical and vital time that Chancellor Debashish Dutta has made with the Strategic Transformation plan, it is important to observe the economic landscape to which Dutta and the transformation plan will seek by to improve the University. 

Dutta and the plan have highlighted that revenue is expected to drop because of low enrollment with, as the transformation plan slides states, “2023 budget gap is estimated to grow to $13.9M”. The plan seeks to make not just the short-term increase in revenue but for the revenue to continue to increase and rise in the long term. Or as Dutta and President Mary Sue Coleman state, “Financially viable”. 

To achieve such viability, the specific goals state, “recruit and retain students, diversify revenue streams, control costs, make programmatic and budgetary changes, and fund initiatives through reallocation of resources.” 

The slides also include that the data that will be collected and used to critically analyze the university and its condition are based on market demand analysis in line with businesses. With most of the revenue for UM-Flint coming from tuition costs, Dutta argues that recruiting and retaining students is important to keep the university viable and competitive with other universities. 

According to Coleman’s charge letter, UM-Ann Arbor is to make a “one-time investment” into the institution that is aligned with whatever the plan produces. However, such investments will be dispersed if, “milestones are achieved”.

When it comes to the economics of the University, the budget and other financial statements can help find where the economic interest and methodology adhere to. This can help give more of an explanation to terms such as financial viability and such. The economics of a university is quite peculiar because of its role as a public good. 

In basic economics, there are inputs and outputs in production. A great investment is needed for inputs of, generally, labor and capital. Capital can vary but generally, it is deemed as a fixed cost and usually is machinery owned by the capital owner/business person. Labor and capital meet in the production process and the labor of the worker (which is sold to the capital owner usually at the capital owner’s will of what wage to set) is able to produce a commodity to be bought and sold in the market. This is the output of the production, however, the realization of this output (the sale of the commodity) is divided into the costs of production, which include wages, and profit. 

At UM-Flint the input is a great many things, it is not just the labor services required from the professors but as well as other services such as custodial services and CAPS, etc. However, going back to our basic economic summary, investment is a big part of economic growth. But the investments must be allocated to maximize the output so more returns on investment input can be garnered to spur up more investment. Much of this is the current economic growth strategy. 

UM does follow a maximization of returns on their investment, as stated in their consolidated financial statement of 2021-2022, “The University will continue to employ its long-term investment strategy to maximize total returns, at an appropriate level of risk, while utilizing a spending rate policy to preserve endowment capital and insulate the University’s operations from temporary market volatility”, essentially the University will make investments to maximize the return on it whilst avoiding investments that can potentially harm the financing of the University. 

For public education such as UM-Flint, as stated earlier, a large chunk of output is in tuition that is being paid by the students. This is why the recruit and retaining students is a point that Dutta and Coleman have emphasized for long-term viability. 

Public education is tricky to maximize returns as the public good of the institution runs contrary to business strategy. Economists such as William Baumol have pointed out that labor service-heavy firms (stagnant sector) like education rise higher in costs than less labor service-heavy firms (progressive sector) as it is harder to automize, which can increase output, whilst keeping or enhancing the quality of the labor service heavy firms. For example, there is no single fixed-cost machinery that can teach and grade papers of the same quality that could bring costs down and maximize returns from the output.