Minutes

Charles Speaks (chair), Prince Amattoe (via teleconference), Brittny McCarthy Barnes, Jean Bauer, Stanley Bonnema, Gary Jahn, Wendell Johnson, Michael Korth, Eric Kruse, Elo Charity Oju, Richard Pfutzenreuter, Terry Roe, Susan Carlson Weinberg

Charles Campbell, David Chapman, Daniel Feeney, Stephen Gudeman, Rose Samuel, Michael Volna, J. Peter Zetterberg

Professor Jeffrey Kimpton (School of Music), Professor Michal Kobialka (Theater Arts and Dance), Philip McDonald (University Services)

none

[In these minutes: (1) status of capital projects and budget; (2) six-year capital plan (how buildings get on the list, how the process works); (3) a capital projects subcommittee; (4) money for Northrop Auditorium capital improvements, uses of the auditorium]

Professor Speaks convened the meeting at 2:15 and began by welcoming Professor Gary Jahn, who has agreed to serve as chair of the Subcommittee on Twin Cities Facilities and Support Services. Professor Speaks then turned to Vice President Kruse to provide the Committee with an update on the status of capital projects.

Mr. Kruse presented to the Committee a series of slides that had also been used to provide this same report to the Board of Regents. He began by noting that for fiscal year 2001, there were 376 approved projects valued at $962 million. During the fourth quarter, 70 projects ($52 million) moved from "in progress" to "complete"; for the year, 181 projects ($227 million) were completed.

The number of projects completed the last three years has increased significantly: in 1999 there were 131 ($110 million), in 2000 there were 115 ($148 million), and in 2001 there were 181 ($227 million).

190 projects remain in process, with a value of $730 million. $323 million has been spent thus far on these projects. Of the $407 million left to spend, 83% will go for 18 projects such as Architecture, Art Teaching and Research, Bierman, Coffman, Frontier Hall, Griggs Hall (UMD), Hockey/Tennis, Kiehle (UMC), Middlebrook, Microbiology and Plant Genetics, Molecular and Cellular Biology, Plant Growth, Riverbend Commons, Science (UMM), the steam plant, Walter Library, and the Weber Music Performance building (UMD). Mr. Kruse assured the Committee that Riverbend Commons will not be yellow when it is finished. Both Mr. Kruse and Mr. Pfutzenreuter told Committee members they will be astonished at the restoration of Walter Library.

Professor Speaks inquired what percentage of projects were design-build. Mr. Kruse said that of 35 major projects, approximately 15 were design-build and approximately 20 were the more traditional design-bid-build. He said that the success rate for the design-build process was far higher than for design-bid-build; the latter includes using an architect and general contractor on separate contracts and, in his judgment, ends up with a lot of finger-pointing when there are problems. With the design-build process, there is one contract for the design/build team that works directly with the University and is responsible for the entire project. Whose permission is required to use the design-build process, Professor Speaks then asked? If the project is University-funded, the University decides, Mr. Kruse told him; if there are state funds involved, then special permission is required from the state.

Professor Speaks then recalled that the Committee had inquired of Vice President Jones last year the amount of money coming from the Office of the Executive Vice President and Provost for the Coffman Union remodeling project. It had never received an answer. Mr. Pfutzenreuter said the University was supporting the debt service and the cost of operating the faculty club part of the building.

Of the $34 million in amendments to capital projects during 2001, 44% was due to inaccurate pre-design estimates and 54% due to an increase in the scope of the project (the remaining 2% was due primarily to discovery of hazardous wastes). Is there any review of the "scope creep" process, Professor Speaks asked? He and Mr. Pfutzenreuter are trying to make the process more rigorous, Mr. Kruse said. What happens if the architect makes an error--to what is that attributed, Professor Speaks asked? Without knowing specifics of a case, Mr. Kruse said, he could not answer.

The remaining 172 projects (the 190 minus the 18 that account for 83% of the $407 million left to spend) have an unexpended value of $69 million with an average value of $400,000. These projects, however, often take as much time as the large projects, Mr. Kruse said.

Asked if the University seeks to recover funds when mistakes are made, Mr. Kruse said the design professionals are required to carry an "errors and omissions" insurance policy and the University does go after firms when it can prove mistakes. That, however, is very difficult; the University is also using AIA contracts but is working with the General Counsel's office to develop contracts more favorable to the University. Whether anyone would sign such a contract is an open question. And there is a threshold below which the University will not bother to pursue recovery, Professor Korth pointed out.

Professor Speaks thanked Mr. Kruse for his presentation.

Professor Speaks turned now to Mr. Pfutzenreuter to lead a discussion of the six-year capital plan. Mr. Pfutzenreuter distributed two multi-page handouts to Committee members, one focused on the six-year capital plan process and the other the "wish list" of capital projects from the units as well as a detailed HEAPR list (Higher Education Asset Preservation and Renewal) list (code, fire- and life-safety improvements, maintenance). The six-year capital plan totals $774 million; the "wish list" totals an additional $3.1 billion.

Mr. Pfutzenreuter recalled that the President had decided, with the assent of the Regents, not to propose a new formal six-year capital plan but to instead take a "time out" to get a status report on capital projects since 1998. He reviewed again the capital improvements since 1998 and noted that of the $1.02 billion spent during the four years, about half went for new facilities and half for renewal. Of that $1.02 billion, the University took debt obligations for 37%, the state provided 27%, and the remaining 36% came from fund-raising and other University sources.

As he has reported to the Committee in the past, Mr. Pfutzenreuter noted that the Board of Regents directs the administration to prepare annually a six-year capital plan. The first year of the plan consists of the projects already approved and funded--the capital BUDGET for the year--while the remaining five years are the plans for projects not yet funded and include the state requests for the following two biennia. There is a six-year plan in place, from last year.

It is not possible to plan for the items on the "wish list" totalling $3 billion; how is the list to be narrowed down, Mr. Pfutzenreuter asked? There has to be a manageable list developed that goes to the state (which is the big player in funding academic buildings but not facilities for parking, housing, and so on, which are self-funded). Narrowing the list is a monumental task.

One recent innovation in capital planning was development of the precinct plans for the Twin Cities campus. Before they were introduced, one went from the campus master plan to a specific building, which made it difficult to relate the building to other costs and how it fit into the area. When was the Twin Cities campus master plan last adopted, Professor Speaks asked? 1996, Mr. Kruse said; the precinct plans are the updates to it.

Mr. Pfutzenreuter then related how the capital plan is developed. A unit makes a proposal (with a loose cost estimate). Advancing it to the "planning and feasibility" state is the first screening. There are $3 billion in proposals, most of them academic, but the University is lucky to get $100 million in any one capital appropriation (every other year). One factor that affects whether a proposal will get to the "planning and feasibility" (predesign) stage is the University's financial capacity. The University also cannot do predesigns for $3 billion worth of projects; too many of them would sit on the shelf and become outdated.

President Yudof's first year in office was a successful capital year, Mr. Pfutzenreuter agreed, but on average the University receives about 15% of any state bonding bill. The screens for projects advancing to predesign include not only financial capacity but also the priorities of the President and Board of Regents. In the last four years those priorities have been in biological sciences and medicine and digital and other technology, with less emphasis on the humanities (except for Art) and the physical sciences. The President has driven the capital plan and he drives what gets into the planning and feasibility stage.

Once a project has an approved predesign, it then moves into the resource acquisition stage. If the source of funding is fund-raising, the unit is authorized to raise the money. If the state is the source of funds, the project goes onto the capital request.

Mr. Kruse spoke about cost management in the capital process. The cost of making a change in a project increases once the project starts, which is why the predesign process is important. Once a project is through the schematic design (about 5% of the way to completion), there is no further ability to save money by making changes.

Past challenges in the capital process have included a lag time between predesign and construction (people, projects, and codes change), changes in project scope (they are working hard to tie down a project), the local construction market (which is very hot, and some projects have received no bids), difficulty with project estimates at all phases (so the University is seeking two estimates on projects), difficulty with maintaining the schedule (because it is difficult to get materials or labor), and environmental issues.

Improvements in the process include more extensive project scope reviews to ensure predesign documents include all program requirements and infrastructure costs, requiring two cost estimates for predesigns (there must be a change in the culture of design, because some believe the University will always find the money if more is needed), requiring that designs be within the established budget, using contingency plans, and improving the working relationship between Facilities Management and the Department of Environmental Health and Safety. Before a project goes to the President for approval, who is responsible for ensuring the predesign budget is accurate, Professor Speaks asked? Mr. Kruse said it is the dean/chancellor, vice president, Executive Vice President, him, and Mr. Pfutzenreuter.

Professor Speaks said he did not recall that the design process includes parking needs, so later Mr. Baker comes to the Committee and says a parking rate increase is needed because a new ramp must be built. Mr. Kruse said that any time a building takes space occupied by a surface parking lot, it will be necessary to build a ramp that costs 10-12 times as much as the surface parking.

There are at this point many key activities that will affect the development of the next six-year capital plan, including the legislative riders, the Plan, Performance, and Accountability Report, new financial assumptions, constituent wishes, and so on. This is a good time to figure out where the University should go next on capital matters, Mr. Pfutzenreuter concluded.

How much interaction is there on the Board of Regents about the priorities, Professor Roe asked, and are those priorities likely to change? They are not, Mr. Pfutzenreuter said; the Board interacts with the President on the priorities and agrees with him on what they are. The money that has gone into capital projects in the period 1998-2002--a huge amount--reflects the priorities of the Board of Regents. On the list of priorities, is there a joint football stadium with the Vikings, Professor Speaks asked? Mr. Pfutzenreuter said no stadium can be found on the list.

Is the procedure for capital projects understood by deans, chancellors, and others at the University, Professor Korth asked, or does it change every two years so one can never master the process? In the past it has seemed to change about every two years. There have been different rules for different people in the last 10-12 years, Mr. Pfutzenreuter agreed. There should not be, he added; the process they described here is an attempt to achieve consistency in the rules. A new president, however, could have a different set of priorities.

Professor Speaks next asked Messrs. Kruse and Pfutzenreuter for their views on the relative responsibilities of the Capital Improvements Advisory Committee (CIAC) and the Capital Oversight Group. Mr. Pfutzenreuter said the CIAC had its roots in a time when the President was not deeply involved in making priority choices in capital projects; the CIAC tried to put a structure on the process. It served its purpose because it filled a void. Then President Yudof decided renewal of physical facilities was a high priority for him and that decisions about capital projects would not be made by a committee of staff. As a result, the CIAC is less important in the process and is probably no longer needed.

He and Vice President Kruse started the Capital Oversight Group (COG), which consists of their staffs, a cross-functional group to deal with the day-to-day management of projects; there was so much construction under way that COG had to have weekly meetings. It does not advise on which projects should be part of the capital request, Professor Speaks asked? It plays a critical role in the process, Mr. Pfutzenreuter said, in terms of identifying locations for new buildings, what is to be done with old buildings, and so on. COG does not, however, set academic priorities or strategic directions; those are set by the President and Board of Regents.

Professor Speaks now asked the Committee for its thoughts about a proposal to establish a capital projects subcommittee. He said he had spoken with the President about the lack of faculty/staff/student participation in the establishment of priorities in the capital request or in determining if there is an appropriate alignment between capital and academic priorities. Faculty, staff, and students may not be well informed about political or geographic matters, but it can advise on academic priorities. The President seemed receptive to the idea, Professor Speaks said; a subcommittee would not make decisions but would be a source of advice.

He said he did not believe the full Committee could perform this role. The question is whether a subcommittee should be appointed to serve in an advisory capacity to the Committee, which in turn would forward advice to the Faculty Consultative Committee in order that it could advise the President. Professor Speaks outlined a proposed subcommittee, to include administrative representation, upon which Committee members then commented.

One challenge is determining what "consultation" is, Mr. Pfutzenreuter commented. He said he was as frustrated as anyone about the process but the term consultation is overused. If the subcommittee is to evaluate projects in terms of academic priorities, the administrative representation should come from the academic side, such as Drs. Bruininks and Cerra, rather than him and Mr. Kruse. Professor Speaks recalled that up until a few years ago, the CIAC would have hearings with every dean and vice president and chancellor about their capital projects and how the proposals satisfied the mission of their unit; those hearings were very helpful. He agreed, however, that it is hard to nail down "consultation," although the process with this Committee is much better than it was in previous years.

The Committee discussed how a subcommittee might do its work and the extent of the work that might be required. Professor Speaks suggested that the best use of a subcommittee's time might be to react to 20 or 30 proposals being considered by the President and Board of Regents, rather than wading through the $3 billion worth of "wish list" items; he also said it should have appropriate representation from all parts of the campus and system so it could consider whether a project makes sense in terms of what the University wants to become. Mr. Pfutzenreuter said that the subcommittee would probably want to look at the six-year capital plan and would have to assume that whatever was presented by the deans and chancellors had been consulted on within the unit; the subcommittee, he said, would likely not want to venture into questioning a dean's priorities. Professor Speaks agreed.

Some Committee members expressed doubt that a subcommittee could perform the tasks envisioned for it and suggested instead that this Committee take on the tasks. In that event, Professor Speaks said, it might say to the President and other senior officers that when they are close to deciding what should be in the capital request, this Committee should hear about why projects are in it. Professor Speaks said he would ask one other Committee member to join him in a discussion with Messrs. Kruse and Pfutzenreuter about the most reasonable and effective way the Committee could play a role in the capital process.

Professor Speaks now welcomed Professors Jeffrey Kimpton (Director of the School of Music) and Michal Kobialka (Chair of Theater Arts and Dance) to join a discussion with Vice President Kruse and Philip McDonald (from University Services) about the capital request for Northrop Auditorium.

Mr. Kruse said his office has spent the last year studying how to develop a business plan for Northrop Auditorium and in the process consulted many people inside the University and in the Twin Cities community. The focus of the study was on four areas: program and performance opportunities, facility improvement, service improvement, and revenue enhancement.

In terms of program opportunities, Northrop must first be a place for University events. It represents the entire institution and is an icon of the University; it should be seen as an academic icon. Right now usage is low; about 40% of available dates are used. There needs to be a connection created between the name of Northrop Auditorium and world-class artist programs. They solicited proposals for events at Northrop and received responses from two major producers; the University has agreed on a five-year contract with JAM Productions.

In terms of service, there are new signs, fresh flowers, and usher uniforms for events. The goal is brand awareness of Northrop service, Mr. Kruse said. A visit to Northrop is the only point of contact with the University for many people; the goal is to make it a first-rate service experience. Parking is a problem; they are working with Parking to guarantee parking so that when a patron buys a ticket to an evening or weekend event. Patrons can also buy a parking ticket for a specific parking location. They are also looking at VIP seating, a club room, and the like.

In terms of the facility, there is not much that can be done with a 75-year-old building without changes to the building itself. It is a "tired" building that needs help to be more welcoming and successful. The plans are to phase in changes over time; the initial $25 million capital request would be invested in updating the infrastructure, code requirements, air quality, additional restrooms, lighting, and seating. It is important to keep the seating at 4800 because that fits an important niche between the 1500-2500 seats of the local theaters and the 17,000+ that can be seated at places like the Target Center and Xcel Center.

In terms of revenue enhancement, the goal is to increase revenue to a level that will sustain the program and pay for the debt service on the University's 1/3 portion of the $25 million capital request. The JAM contract is a first step; JAM is the largest private producer in the Midwest. Such agreements between venue owners and promoter/producers are common in the entertainment industry; Mr. Kruse said; the two parties work together to benefit each other. He said he was confident there could be more shows at Northrop (now there are about 15 per year; by the fifth year of the contract, there should be about 36). Those additional shows would add sufficient revenue to cover the debt service and the improvements. The contract includes a profit-sharing agreement, he affirmed.

Professor Speaks noted that the DAILY article mentioned costs of $20 - 80 million for Northrop; was that correct? It was, Mr. Kruse said; the long-term master plan calls for about $80 million with the first phase being $25 million.

What about the acoustics, Professor Speaks asked? They had an expert study the acoustics, Mr. McDonald said. Northrop will NEVER be appropriate for natural sound, which gives an indication of what kinds of performances should be avoided; one cannot have the same kind of experience with natural sound that one would have at Orchestra Hall. One would hate to see a lot of money put into Northrop without improving the acoustics, Professor Speaks said.

Professor Speaks now asked Professors Kimpton and Kobialka for their views.

Professor Kimpton said he agreed that Northrop was not appropriate for live orchestra or symphonic music. Northrop is also the wrong niche for the School of Music. Typically the School gets between 300 and 1100 people at concerts and recitals, which is just a fraction of the house in Northrop. That is why Ted Mann theater was built, and it also has the best acoustics in the Twin Cities. The School of Music has no real use for Northrop except for the Marching Band concerts and organ concerts, since Northrop is the site of the University’s only organ. On the other hand, Northrop serves a valuable purpose in the life of the University and needs to be available for state occasions and important university events.

Professor Kobialka said he had spoken with his predecessor and learned there was no previous consultation about Northrop with his department. He said that 4800 seats are more than most of their shows can fill. An extremely important question, he said, is if this is a University facility, what kinds of shows will appear there? The focus of the School of Music and Theater Arts and Dance is in the arts quarter on the West Bank; anyone who has attended a cultural production at Northrop realizes that the auditorium is only 1/3 to 1/2 filled.

Professor Kimpton said the School of Music does have a vested interest in Northrop because of the pipe organ, which is one of just 270 organs listed on the National Register of Historic Organs and is one of the best examples of its kind in the country. They are concerned what will happen to it during renovation. The organ itself needs to be renovated, which will cost about $1.25 million. It must be protected during renovation. The Marching Band has been in the basement of the auditorium for 50 years and would have no home if the building is renovated. They do need a place for those 300 students per year and their equipment. He told the Committee that the Marching Band facilities are abysmal, horrible; the band members are loyal but the space is bad. The band can be in the new joint stadium, Professor Speaks commented wryly.

A number of factors motivated this discussion, Professor Speaks said. One Committee member said that given the magnitude of the cost, the University should not assume that just because Northrop is there it should be fixed. Has there been any consultation with the local arts community? Finally, is it unreasonable to think about a parallel between a proposed joint-use stadium with the Vikings and a joint-use auditorium with JAM Productions?

In scheduling events at Northrop, University events will have first choice of dates; they are usually scheduled 9-12 months in advance. Northrop Presents will have second choice of dates, Mr. Kruse said; their events are usually scheduled 6-9 months in advance. Popular shows will have last choice, and they are usually booked 60-90 days in advance.

A new revenue stream to fix Northrop is a great idea, Professor Kimpton said, but if the University is going to invest a lot of money and then have rock concerts, one must worry about the wear and tear on the building. The Ted Mann concert hall has a decibel limit (120) and will therefore reject certain shows. The shows could be rock, country, Broadway, etc., Mr. Kruse said; JAM Productions produces a wide variety of shows. The agreement would not prevent other promoters from also having shows in Northrop, and the contract is set up so that there is no revenue-sharing until Northrop receives revenue equal to the average of the previous three years. There is no apparent downside to the contract, Mr. Kruse assured the Committee.

Mr. McDonald said that the predesign for Northrop had been done in the context of the campus master plan and leaves open the possibility of more development later. There is a question about whether it would be cost-effective to invest more money in the building. The $25 million is mostly for infrastructure and some amenities.

The capital request totals $240 million; Northrop is the 12^th of items for $2 million in design funds, Professor Speaks noted. It is likely the legislature will cherry-pick the list or will it follow the priorities? Historically the legislature has cherry-picked the list, Mr. Kruse said. What are the chances of Northrop being picked? It is difficult to tell.

Professor Kimpton said he has heard about the plaster falling from the ceiling in Northrop; what happens if nothing is done? There has been no HEAPR money for Northrop, Mr. Kruse said; the University replaced the roof because it had to. They will try to avoid falling plaster--but it might still fall down. There is also a sway in the balcony--it was designed that way, but before the advent of amplified music, so it must be strengthened.

It is obvious Northrop absolutely must be remodeled, Professor Kobialka said. With the information available, people should be aware what is envisioned and be supportive of the priorities Mr. Kruse described (i.e., first priority for institutional events). He said he was wary about the project, however, because of problems that arise with theater renovations; they end up scheduling completely different kinds of events in order to finance the renovation. As long as the priorities are retained, it is important that Northrop be revitalized.

Professor Kimpton agreed and said there is much more to Northrop than the auditorium. It would cost $2 million to replace the organ. There seems to be a shortage of meeting space on campus for conferences and symposia. There is also a need for smaller spaces that can draw people to the building other than in the auditorium; people are constantly looking for conference spaces and approach the School of Music all the time about using Ferguson Hall for conferences. The Gateway Center is very expensive and other facilities are always booked. It would help bring people to Northrop and make it a center of campus life if there were smaller-use spaces. It is also true that one needs huge crowds at Northrop; even with 2000 people in the auditorium it looks empty.

Mr. Kruse said there will be some smaller spaces but they tried not to make it a conference center because the campus will have both the Earle Brown Center and Coffman Union.

Professor Speaks thanked everyone for coming and adjourned the meeting at 4:10.

-- Gary Engstrand

University of Minnesota