U seeks state help with tuition shortfall, potential merger fallout

The governor’s budget targets are out, and they include an increase for education. The University of Minnesota is hoping some of that increase will help it offset a tuition shortfall at its Twin Cities campus.

Tuition revenue there is coming up more than $17 million short, and the gap comes as the university is also asking for $950 million to buy and operate medical facilities it currently runs with Fairview Health Services ahead of that company's proposed merger with Sanford Health.

So what's behind the tuition shortfall and what’s the university's case for this infusion of funds? Senior Vice President for Finance and Operations Myron Franz joined All Things Considered host Tom Crann Tuesday to talk about it.

Hear their conversation using the audio player above or read a transcript of it below. Both have been lightly edited for clarity and length.

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I want to start with the tuition shortfall. What's behind that?

There are a number of factors, but first of all, it's important to recognize that it doesn't show a reduction in demand for the Twin Cities campus. The last two academic years, we have had the largest freshman classes in the history of the university, also with the largest percentage of Minnesotans and the most diverse. Demand is also really high for the University of Minnesota Rochester.

What happened was a reduction in the continuing students. And you might not be surprised, when there's a reduction in community colleges and other colleges around the state, our transfer numbers go down. Another factor was that there are more Minnesotans in this class, reducing the tuition that we receive. Also, more students are graduating sooner. That's a good thing, but it does reduce tuition.

We knew all these factors were out there, but they just exceeded our expectations this year, and that's why we came forward in February to the committee and said this is bigger than we thought it would be.

How much of this is attributable to the pandemic?

That's one of the things we're studying. What we want to do is make sure that as we go through our forensic analysis of this, we understand exactly what happened. We're pretty convinced that some of it obviously directly relates to COVID.

Does the recent increase in tuition 3.5 percent have any impact on this?

Tuition has always impacted students. One of the things we do is try to make sure that we have scholarship programs to make the actual cost of coming to school as affordable as possible. But I'm sure everyone is looking at prices these days with inflation going up and tuition rates going up, so it's always a factor you have to be concerned about.

I want to talk about the issue of reacquiring your medical facilities. So who owns those and the land underneath?

The four facilities we're talking about on the University of Minnesota campus include the east bank hospital, which was transferred to Fairview in 1997; there's the west bank hospital that was owned by Fairview before and continues to be owned by Fairview; there was a Masonic Children's Hospital, which is owned by Fairview; then there's a clinic and research center that's owned by the university on university land and leased to Fairview for some operations. So the goal is to have all four of those campus facilities returned to university control, governance and operations.

But we also have to have a strategic partnership. You really can't have one without the other. We're not interested in really just acquiring buildings; we're interested in acquiring the operations. And then we want to have a really good partnership with a community health system like Fairview to run that system, where we have patient referrals and our doctors can practice in their clinics like we do now.

What kind of price tag are we looking at there? It's been in the hundreds of millions, right?

Well, that's a good question and one of the things that's interesting. So in 1997, when the academic health system was devised with Fairview, at that point, all of these assets became dedicated to the public mission of the academic health system. And it's our position that the current merger should not go through because under the current merger, on May 31, those facilities would then become under the control of a South Dakota entity. We believe that under Minnesota law, those facilities have to be dedicated, run and governed by the state or, in this case, the University of Minnesota.

So there's a question about whether there's any price at all to be paid for those transfers, because we want to make sure they continue to be dedicated for their original purpose.

However, I'm sure you're involved in negotiations with Fairview and Sanford and there are agreements in place with Fairview. Can that be done without a price tag?

We are in continuing negotiations with Fairview and Sanford. We believe it's our obligation to work with them to determine what, if any, kind of agreement we can come up with.

The current agreement with Fairview lasts until Dec. 31, 2026, so under the current scenario, Sanford would be obligated to operate under that agreement. But we believe that if we were able to reach an agreement on the transfer of these facilities and a new strategic partnership, we might, at that point, redo the entire agreement structure and come up with a new plan. But you're right. I mean, they have different views of this and we're going to continue to discuss and negotiate with them in good faith.

The last report says that Fairview was willing to sell the properties. So if that's the case, do you go to the state to come up with the money?

That's what we've done. In fact, Fairview and Sanford issued a letter where they agreed to our five point plan. But their their concept of sell is different than our concept of transfer. And so I think that's one of the things we're just going to have to work out — very quickly, I might add. We're under extreme time pressure.

I noticed you said your “concept of transfer” and “their concept of sell.” You didn't say “your concept of buy” versus “their concept of sell.”

Correct. Our point of view is that these are academic health assets, dedicated to the public mission of the University of Minnesota's academic health system, and they must continue to be dedicated for that purpose. And so as long as they're within that system, it doesn't really matter who has them on their balance sheet. But that's something we'll have to continue to discuss.