MSU’s great challenge is continuing to increase academic excellence while keeping costs under control.

MSU is better able to respond to these and other challenges because we have been working for increased high quality and cost control for a number of years.

Because MSU has been financially well-managed over the long term, we can weather economically uncertain times. We have insisted that funding be identified before bonding and building. We make a practice of using recurring dollars for recurring expenses. We also have prudent investment and endowment policies with a carefully diversified portfolio to serve us over the long-term.

Record levels of private giving over the last six years have also contributed to our stability. Total annual giving has tripled since 1995. Last year, giving to MSU exceeded $200 million for the first time in university history. This is due to the hard work of deans and faculty along with our development staff.

MSU’s long term planning is producing long-term benefits. The Board of Trustees recently approved our 2020 plan to maintain campus beauty, increase safety and improve our land use. It will help avoid costly sprawl over the next 20 years. Similarly, GIS (the Geographical Information System) allows us to project and control costs better by anticipating campus repair and replacement needs.

Increased research productivity has yielded a 48 percent increase in research and external funding over the last nine years. We have also been realigning some research priorities to meet national needs as well as funding opportunities following Sept. 11. At the same time, on the average, faculty are teaching 12.4 percent more sections per faculty member than they were in Fall 1993. Our faculty has been working hard over the long haul to keep pace with changing demands on the university, and I very much appreciate it.

Consistent with our Guiding Principles, we have addressed changing program needs by internal reallocations - about $20 million over the last seven years - as well as new money. We have strengthened music, plant sciences, nuclear physics, engineering and other academic areas this way. Careful reviews of administrative processes and technology also help to control expenses. We continue to use our $10.4 million technology fund for new technology each year. This has meant over $70 million since the state granted us this recurring money.

In the face of rising energy costs, we developed an energy conservation plan in October. We have already reduced electrical consumption by 5 percent from a year ago. We must continue these efforts to ensure that reductions hold and savings increase.

A partnership with CATA has brought savings and enhanced bus services. Reorganizing the Student Health Center generated $1.5 million in savings while expanding services. Renegotiating travel discounts with carriers is expected to save MSU $500,000 annually.

Long-term efforts help us deal with our special challenges as well. We have been working at health care issues for some time. In this current year it was necessary to reduce campus budgets by $5.5 million to address healthcare cost increases. The UCFA proposal currently under consideration results from much discussion, hard work, and long-term thinking by faculty and the administration. Not just cost control, but the principled rebalancing of salary and benefits is in the long term interest of the faculty and the university.

The labor coalition has met for some time with the administration to develop a compensation model, including healthcare, as part of collective bargaining agreements. We have signed a tentative agreement with the coalition on this matter. And I anticipate and I want to point out long discussions we’ve had and how much I appreciate the day-in, day-out hard work of our staff.

We understand how important healthcare is to members of our community. We will continue to be sensitive to these needs.

We have also prepared for the future by increasing faculty salaries 5 percent each of the last three years. Faculty salary increases that are market competitive will be of the highest priority next year. The board, the provost and I expect to work very diligently on this next year and in years to come so we can keep our total compensation near the middle of the Big Ten.

In keeping with the MSU Guiding Principles and with the Tuition Guarantee, until last year Michigan State has held its tuition to an average of 2.8 percent annually over seven years. This is a record that few universities around the country can match. Last year, the Tuition Guarantee was suspended because of low state appropriations; however, our commitment to tuition constraint remains very strong.

Michigan State has long felt the close connection between state appropriations and our ability to contain tuition costs. The governor and legislative leaders have proposed not to reduce our appropriation with the expectation that tuition increases will be restrained. This is in the spirit of the informal covenant of responsibility that we have advanced for some time.

Our successful long-term commitment to excellence in undergraduate education continues:

We are also continuing to review and strengthen graduate education programs, including TA training. Our nationally ranked programs have increased from five to 24 over the last seven years.

Distance learning is also increasing as part of our land-grant outreach commitment. Enrollments in MSU’s online course and program offerings grew 50 percent last year.

Strong fiscal management in pursuit of excellence has allowed us to continue building up-to-date facilities. Our new Biophysical Sciences Building opens a new age of teaching, research and discovery. Our Henry Executive Development Center, dedicated this year, provides the entire university a leading-edge facility for professional development and life-long learning programs.

The expansion of the Cyclotron was also completed this year. We are now seeking to become the site for the nation’s Rare Isotope Accelerator that will be the world’s most powerful research accelerator facility. We expect broad support for this because it is not just an MSU project, but one for all of Michigan. We are pleased that the governor has made it a state priority.

When you step back and look at what we’ve achieved both in terms of increasing high quality and cost containment over the years, we can be very proud. Balancing these objectives in the face of many challenges is not easy, and the job is never done - but by prudent financial practices and a vigorous commitment to increasing excellence, Michigan State continues to accomplish what some said was impossible. MSU is an excellent investment in quality as well as cost. Recently, U.S. News & World Report recognized Michigan State University as one of this country’s best values in higher education and the best value among all public institutions in the Big Ten.

I want to be sure to emphasize that the leadership and support of the Board of Trustees has been central in our long-term commitment to increasing quality and cost control. I continue to be very appreciative of the fine relationship I have with the board. We will miss retiring Trustee Bob Weiss and his contributions to MSU. We are pleased to welcome new Trustee Randall Pittman and look forward to his contributions as a board member.

As we ponder the significance of Sept. 11, other very difficult issues come to mind. I’d like to talk with you now about some other important challenges for all land-grant universities. Meeting these challenges also requires long-term commitments.

While it is certainly no excuse or justification for terrorism, a great international issue at this time is the inequity in quality of life between the haves and the have-nots. If there is any single problem that demands our attention following Sept. 11, it is our need to deal with poverty in developing countries.

President Konare of Mali, talking about the tragedy of 186 million hungry people in Africa, said, “Those figures