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Last modified: Wednesday, December 16, 2009

IU hits $177 million in cost reductions as part of ongoing effort

Dec. 16, 2009

BLOOMINGTON, Ind. -- Indiana University has achieved $177 million in operating expense reductions as part of an ongoing university-wide cost-containment effort, university officials announced today (Dec. 16). Over the next decade, officials added, IU will realize nearly $1 billion in cost savings from this effort.

Michael McRobbie

Michael McRobbie

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IU President Michael A. McRobbie said that although the spending cuts have come at a time when university-wide enrollment has increased by some 5,000 students, they have been accomplished with no harmful impact on the quality of academic and research programs on any campus.

"We have looked across the entire operation for opportunities to reduce costs and become more efficient," McRobbie said. "In these difficult times, it is imperative that we do everything within our power to find ways to use our tax and tuition revenues as wisely as possible. We will continue these efforts, and I am confident we will achieve even more savings in coming months."

McRobbie said the reductions achieved to date will help the university adjust to a 6 percent cut in state support for higher education recently announced by Indiana Gov. Mitch Daniels earlier this month.

"All of us at Indiana University must recognize that the recession is placing new and difficult demands upon us," McRobbie said. "Although some of the spending reductions we put in place may bring short-term pain, the efficiencies and improvements we are making will bring long-term positive impacts to the university."

The cuts include $98 million in recurring expenses that will carry into future budget years and an additional $79 million in one-time cuts that can be applied to this year's budget.

"As we continue to look for more ways to cut costs and improve efficiency, we are focusing on such areas as centralizing more of our administrative functions, finding additional ways to decrease health care costs and eliminating unnecessary and duplicative operations," said Neil Theobald, vice president and chief financial officer.

Here is summary of the $177 million in cost-reductions made to date:

  • Salary freeze: Over $25 million. For the first time in at least 50 years, IU froze salaries in 2009-10, which resulted in one-time savings of $25.2 million.
  • Travel budget cuts and non-faculty hiring reductions: $9.6 million achieved to date and on target for $23.3 million this fiscal year.
  • Refinancing debt: Nearly $35 million in one-time costs as a result of refinancing IU's bonded indebtedness to lock in low interest rates.
  • Information technology: Over $40 million per year in recurring costs and $15 million in one-time reductions. The recurring savings are a result of IU's unmetered software licenses with Adobe and Microsoft, which enable students, faculty and staff to download essential software at no charge. During the last academic year, over 76,000 Adobe products and 104,000 Microsoft products were downloaded under these agreements. The one-time savings come from IU's partnership with Kuali Financial Systems to create an open-source financial system that will save IU more than $15 million in implementation costs as well as $300,000 per year in operating costs.
  • Prescription drugs: Over $20 million per year. IU has reduced prescription drug costs by nearly $20 million annually under its Wellpoint/Anthem prescription drug contract, which provides medications at discounted prices to IU employees. The contract for next year will lower the current $37.6 million annual cost for prescriptions to $36.4 million next year -- a 3.2 percent decrease at a time when national spending for prescription drugs is increasing at nearly 9 percent per year.
  • Reduced retirement benefits: Over $9 million per year. Since 1999, university contributions to the retirement plan were reduced from 12 percent to 10 percent of base salary for new participants, resulting in $58 million in cost reductions through 2009, with an additional $13.4 million expected next year.
  • General administrative costs: Over $4 million per year. The Degrees of Excellence Initiative, announced in President McRobbie's inaugural address, has cut ongoing spending for administrative operations by $4.2 million, with these savings reallocated to financial aid and other programs to increase degree completion.
  • Self-funding of employee health care plans: Over $2 million per year. IU manages the underwriting of its employee health care plans internally, reducing expenses that would otherwise be paid to an insurance company. This resulted in over $2 million in savings in calendar year 2009.
  • IU's excellent credit rating: About $4 million. IU entered 2009 with one of the highest credit ratings among public universities in the country and, in March of this year, became one of a handful of universities that Standard & Poor's gave a "positive outlook" for future financial performance. In justifying this rating to Wall Street, Standard & Poor's cited the skilled responsiveness demonstrated by IU's Board of Trustees and financial team during last fall's turmoil, which leaves IU well-positioned for the future. The reduced financing costs since the rating upgrade will save approximately $4 million.