On the basis of financial support, as well as on the spiritual foundation embodied in the famous "Religion, Morality, and Knowledge" clause in the Ordinance of 1787, the University of Michigan was a national university for thirty years before the time the state accepted responsibility for its support — indeed, for forty-one years if the Detroit period be included. Until 1867 the institution's maintenance, with one controversial exception, was derived from the two townships of land finally granted in 1826 by the Federal Government and in minor degree from student fees (see Part I: The University of Michigan and State Education).
The one exception was involved (in the true sense of the word "involved") in a loan of $100,000 made by the state to the University in 1838. This loan was secured as to both principal and interest by a pledge of income from the federal land sales. By 1852 the loan had been fully repaid, the settlement being aided, it is true, by the state's acceptance of its own depreciated securities at their face value. Within a year or two thereafter, in response to criticism revolving around the administration of the federal land grant, the state began to pay interest to the University on the sum of $100,000 thus exacted. Finally, in 1877, the full amount of $100,000 was placed in the University funds, and at that time it became without question a contribution by the state to the University. Previously it had been first a loan and then a repayment thereof, with a curious history of interest payments first by the institution and then by the state. It cannot be disputed that if the University lands and the proceeds of their sale had been properly protected by the state the University would have been in no need of the loan in the first place.
The proceeds of the sale of the University's federal land grant have remained for some years at the sum of $548,744.40, and this doubtless will prove the ultimate total. On this the state pays interest to the Regents at the rate of 7 per cent per annum. During the early years when the all-important element of Page 268the University's support lay in the proceeds from land sales, the history of the handling of the land and the money derived therefrom bears out the principle that a political body, subject to all sorts of pressure groups, is never a safe trustee. Nobody can doubt that the funds, provided by the national government as an endowment for the University, were hindered and minimized in their accumulation, or that these accumulations were used by the legislature for other than University purposes. On the other hand, the state's obligation was early admitted and has never been seriously questioned, and the annual interest payment at 7 per cent has been fully accepted as one of the state's responsibilities. Further, the two townships of land, 46,080 acres, were sold at an average price of $11.90 per acre, which is believed to be more than twice the price secured for any other educational lands in the Northwest Territory. By the standard of contemporary comparison, therefore, the state of Michigan did not fare so badly.
In 1867 the legislature provided operating support through a tax of one-twentieth of a mill on the taxable property of the state. The proceeds of this tax did not in fact become available until the biennium 1869-71, along with an approximately equal amount, namely, $15,000 a year, which was voted by the legislature of 1869. Also, a building appropriation in 1871 resulted in the erection of University Hall, the first building provided by the state.
It was in 1873 that the legislature of Michigan made what is doubtless its greatest contribution to the University's sustained, vigorous life when it established on a continuing basis the so-called mill tax (see Part I: Constitutional Status and Angell Administration). Nearly fifty years later, in 1920, President David Kinley of the University of Illinois laid down the following essentials of revenue for a state university, a set of specifications to which the mill tax seemed built to order:
- 1. The source must be adequate.
- 2. It should increase steadily from year to year at a rate approximately the same as the growth of the university.
- 3. It should have a broad base, instead of being tied to a single interest or industry.
- 4. Fluctuation from year to year must not be great.
- 5. It should be related to the progress of the state in population and wealth and to the returns from education as far as ascertainable, so that the assignment of the particular source of revenue will commend itself.
- 6. It must be such as to command the approval of the legislature and the people.
The state of Michigan mill tax for the support of its university continued unchanged (except for increases in the rate) from 1873 to 1923, and to it much of the substantial, steady growth of the institution must be attributed. In 1923 (along with an increase in both the rate of tax and the valuation of the state) a limit was placed on the proceeds of the tax. The reason alleged for such limitation was that, as the equalized value of the state could and in fact did increase, the proceeds of the mill tax could increase above the amount which the legislature was willing to vote to the University. In 1927 the limitation on the proceeds of the mill tax was removed, with the new provision that the valuation basis to which the mill-tax rate should be applied would be the valuation next preceding the latest session of the legislature. However, under the influence of the great depression the limitation was reimposed in 1931. Since the abolition of the state real-estate tax in 1935 there has still continued a "mill tax" as a "measuring stick" of the amount to be provided from funds in the state treasury without regard to source. There is thus preserved Page 269the idea of a continuing appropriation based on the wealth of the state.
Student fees throughout later history have accounted for 20-25 per cent of the operating income of the University, exclusive of the University Hospital. The Hospital earns its own way by charges against patients.
Income from endowments and from gifts has become increasingly important in recent years. As of June 30, 1940, the University's endowment funds, in addition to the proceeds of the federal land grant, amounted to $14,215,379.26, with $1,709,735.95 of trust or gift funds additional held for disbursement for certain specified projects and $589,491.60 of student loan funds. Almost all, however, of these types of funds are available only for projects specified by the donors and not for the general needs of the institution.
Income for buildings has been derived since 1873 from the state (either by direct appropriation or through savings from the mill tax), from private benefactions, and, in the case of buildings used for athletics, from income arising out of admissions to athletic events. The Student Publications Building was earned and paid for by the Michigan Daily and other publications. A number of residence halls have recently been erected in part from federal grants and in part from issues of revenue bonds.
Probably the two most detailed discussions of the income of the University, up to the dates of their publication, are parts of the early chapters of Hinsdale's History … (1906) and, especially, "The Financial Support of the University of Michigan; Its Origin and Development," by Price.