These minutes reflect
discussion and debate at a meeting of a committee of the
Minutes
Senate Committee on Finance and Planning
238A Morrill Hall
Present:
Charles Campbell (chair), Brittny McCarthy Barnes,
David Chapman, Daniel Feeney, Steve Fitzgerald, Joseph Konstan, Michael Korth,
Timothy Nantell, Terry Roe, Charles Speaks, Thomas Stinson, Alfred Sullivan, Kate
VandenBosch, Susan Van Voorhis, Warren Warwick, Susan Carlson Weinberg
Absent:
Calvin Alexander, Stanley Bonnema, Thomas Klein, Yi
Li, Cleon Melsa, Richard Pfutzenreuter, Rose Samuel, Michael Volna
Guests:
Carole Fleck (Director of Debt Management, Office of
Budget and Finance)
[In these minutes: (1) update on University debt; (2) policy on
use of royalty income to support technology commercialization]
1. Update on University Debt
Professor
Campbell convened the meeting at
Ms.
Fleck explained that she is the Director of Debt Management and has been in the
Office of Budget and Finance since 1992; she reports to Associate Vice
President Pfutzenreuter in his capacity as Treasurer of the University. She distributed copies of a handout
containing a series of tables and explanation of the various kinds of debt the
University incurs. The University's
total outstanding debt on
Ms.
Fleck then explained the allocation of the University's debt between fixed and
variable interest; the combined rate of the total is 4.26%. The State has also issued bonds on behalf of
the University (the University's one-third share of capital debt service) at
5.07%; this debt accounts for about 9% of the University's total debt. The total outstanding debt does not include
the obligations of affiliated organizations (e.g., Gateway, Foundation, etc.)
but rating agencies do look at the debt of those groups when rating the
University's debt.
The
University's projected outstanding debt at the end of the current fiscal year (
The
Committee next looked at the amortization schedule of the University's current
debt. The histogram depicted a debt
level declining from its current level to zero in about FY31. That chart is tied to the assumption that
there will be no additional debt, Professor Speaks observed; what would the
chart look like if predicted new debt were included? There would still be a line that slopes down,
Ms. Fleck said. The prediction is for
$692 million in debt as of
The question, Professor Roe said, is
whether the approximately $700 million is a steady state for debt. In addition, he asked, where does the money
come to pay off the bonds? The debt
increased quite a bit during the years that Mark Yudof was president, Ms. Fleck
said, but it is within the University's debt capacity. That capacity depends on a number of factors
and it could rise. She said she did not
believe the University's debt level would decline drastically in the near
future. The source of the funds is about
50% from central funds (state money, University fee, etc.) and 50% from
auxiliary services (parking, housing, etc.)
When debt is issued, is there a
statement on how it will be paid, Professor Campbell asked? That is built into the plan, Ms. Fleck
said. In the case of the Data Network,
the Office of Information Technology (OIT) will pay one-third and the central
administration will pay two-thirds.
Whence the one-third from OIT, Professor Campbell asked? The funding is built into their base, in
anticipation of the need for equipment replacement; it is somewhat parallel to
equipment depreciation. Since OIT
funding is central money, all of the funding for the Data Network is from
central funds, is it not, Professor Speaks asked? It is, Ms. Fleck said, but the point is that
NEW central funds are not needed for the OIT portion of the debt payment.
Are there long-term guidelines on
University debt, Professor Stinson asked?
The State has a limit on how much debt it will issue; does the
University? The question is not debt
capacity, not how much it CAN borrow, but what the University thinks is reasonable. They are working on that right now, Ms. Fleck
said; there are three Board of Regents' policies that are to be revised by May
that deal with this issue. When the
University talks to rating agencies, it never says that the debt will not
exceed X, as the state does, Professor Stinson asked? It does not, Ms. Fleck affirmed; it talks
about the financial situation, enrollment, and so on.
What effect does the debt have on the
rising cost of tuition, Professor Warwick asked? Since 50% of the debt is paid from central
funds, Ms. Fleck said, it is part of the overall costs of the institution. It is a "must do" but it is only
part of a much larger set of costs. If tuition
in part pays for the debt, would the tuition increases
stop if the debt were eliminated, Professor Warwick then inquired? Ms. Fleck said one cannot isolate it that
way; debt is only one component of the "budget challenge," and only a
small part.
Professor Speaks said he had a more
general question: It seems as if the
University focuses on capital budgeting every other year, and the biennial
request the other years, rather than looking at them in tandem because of the
tails that each have. At what point,
when the capital request is prepared, does the University say it wants a
facility but fail to ask if it can afford it?
That is an important point that needs to be discussed in future
meetings, Professor Campbell responded.
Dr. Sullivan said that every project he
reviews has an estimate of operating costs.
That is a significant improvement, Professor Speaks agreed, but his
question was about the implications of the biennial request. Professor Roe said that part of the decision
about a facility (debt) is the revenue stream to pay it off. Some units (e.g., Parking) have a revenue stream
that can be identified; others do not.
In the case of the latter, it would be helpful to know how the decisions
are made. What process do they go
through when they are told an amount is needed, Professor Speaks added; does it
depend on the interest rate? They look
at what impact borrowing funds for a new building would have on the rates the
University must pay, Ms. Fleck said, but she said she could not lay out a
step-by-step process.
It was agreed that Ms. Fleck would
provide the Committee with the proposed debt guidelines and the proposed
revisions to Regents' policies.
Professor Campbell thanked her for joining the meeting.
2. Policy on Use of Royalty Income to
Support Technology Commercialization
Professor
Campbell turned now to the draft Regents' policy on the Use of Royalty Income
to Support Technology Commercialization.
He noted that the Committee had discussed this issue twice at previous
meetings, it had held an informal discussion, and that it has been discussed
twice at the Senate Research Committee and twice at the Faculty Consultative
Committee. These several discussions
have raised many questions. It was only
at the last meeting of the Senate Research Committee that any body took action;
the Research Committee voted to endorse the concept embodied in the policy but
not the specific wording of the policy.
There
was a good discussion at the last meeting of the Faculty Consultative
Committee; it is looking to this Committee and the Senate Research Committee to
promulgate language or a resolution on the issue, Professor Campbell
reported. The action could be a motion
for the Senate or simply a statement from this Committee. He said, however, he hoped that the Committee
could make headway on delivering a motion.
Ms.
McCarthy Barnes asked about the role of students in the creation of patents and
copyrights; she said she assumed students could obtain them and asked if there
is a reason to include them in any policy.
Professor Konstan said that students who create
intellectual property as employees are treated like faculty, entitled to a
share of the income. In courses or on
their own, students own their intellectual property and the University has
nothing to do with it. A tricky question
arises with something like independent study which includes University funding;
his department treats those students as though they are covered by the
University policy that applies to faculty.
One can see reasons why students would be interested in this because the
funds could go to things like fellowships.
Ms. McCarthy Barnes agreed that the word "other" covered
students but suggested they should be included; Professor Konstan pointed out,
however, that one must be careful because no one wants to create the idea that
the University has an interest in what students create.
That
gets to the question of when there should be a general policy statement and
when identification of mechanisms to make decisions, Professor Roe said. There is nothing about a budget guideline in
the policy; a lot of resources are involved and there is need to look at the
opportunity costs of the money; that should be part of the policy
statement. This is a new initiative and
it is hard to see what might come in the future; should there be a long-term
policy or a short-term policy that is later revised? The Research Committee asked if there could
be a sunset clause, Professor Campbell recalled, and was told that it was
unlikely the Board would agree to such a clause. Regents' policies are generally very trim and
very broad; the next step is like adding bylaws to a constitution, and it is in
that part of the process that the governance system can play an important role.
Professor
Konstan said he had a difficult time with the policy. He believes in the concept, he said, and wants
to support it, but the policy is not well-drafted. If technology commercialization is consistent
with the University's mission, the policy is unnecessary and should not be
bothered with; if it is not, the policy will not make it so. This is a very defensive policy and so
narrowly tailored that it is apologetic.
What he would like from the Committee, he said, is to know whether it
believes commercialization and technology transfer is an important mission of
the University and supports the ideas behind the policy but also believes the
policy is flawed, and it would volunteer to work with Vice President Hamilton
to improve it. The administrative
policies and procedures will be critical, and the Committee should express
strong views about the need for the President and Vice President to work with
governance system in developing them--because a poorly-implemented policy is
worse than no policy.
Professors
Roe and Speaks agreed with Professor Konstan.
Professor Campbell reported that Professor Martin will make comments
about this policy to the Board of Regents next week when she makes her
quarterly report, and she hopes to hear from this Committee before she does
so. He said he did not know if the
Committee would have any opportunity to modify what the Regents will vote on in
March; it is a pity there is not more time, he said.
Professor
Feeney noted that he is on the committee that is dealing with institutional
conflict of interest, and there will be a parallel mechanism for
implementation. The faculty
have to face the fact that there is a need for money and there is the
Bayh-Dole Act, both of which are playing into how this is playing out. This is a mechanism for technology, which he
said he believed FCC supported; the question is the process of implementation. Board of Regents' policies
do not specify how they are to be implemented. His question, he said, is whether this
Committee is concerned about the concept or about the details. If the concept, it should say so. It was his sense that the Vice President for
Research thought it would be acceptable to put money into an incubator that
would become self-propagating so that it did not bleed more central funds from
the University. That is clearly the
hope, Professor Campbell said, although there is certainly no guarantee, and
there is committee skepticism about the likelihood.
That
is already a bad compromise, Professor Konstan said. If this is the right thing to do, it should
not have handcuffs on it. The policy
says that royalty money will be used--but those are University funds that could
be used for other things at the University.
He said he believed it is the right thing to do and it can be said that
technology transfer is appropriate for the University, so it can spend its
money on the activity. It must be sure
that its policies and procedures ensure that the money is not spent
improvidently. But there are handcuffs
on the policy by limiting it to royalty income; what if there is a year with
low royalty income but some great idea that needs funding? The Committee would quickly be consulting on
a change to the policy.
Professor
Konstan proposed a motion to be adopted by the Committee, which it was agreed
would be amended and edited by email the day after the meeting and then sent to
the Faculty Consultative Committee. The
statement adopted unanimously by the Committee read as follows:
The Senate Committee on Finance and Planning supports
technology transfer and the commercialization of University intellectual
property as an integral and appropriate part of the University's mission. The Committee also supports the idea behind
the proposed Board of Regents' policy allowing the expenditure of University
funds in furtherance of that part of the mission.
The Committee believes, however, that the current
draft of the proposed policy requires careful revision, in part because it is focused too narrowly on only one model of
supporting technology transfer, and offers to work with the
administration to revise the policy and to promote this part of the
University's mission.
Moreover, the Committee recognizes that the way in
which the policy is implemented is critically important. A transparent
process is needed to legitimize such expenditures and to ensure that University
resources are allocated most effectively to further the University's mission,
balancing technology transfer objectives with competing uses for the
funds. The Committee asks the
President and the Vice President for Research to work with this Committee and
the Senate to develop appropriate administrative
policies and procedures for implementation of the Regents' policy.
The
implication, Professor Roe said, is that this is not necessarily a program run
out of the Office of the Vice President for Research; it is an office within
the broader University mission. The
mechanism for implementing the policy will be important because it will
determine how the University evaluates opportunity costs.
Why
is the policy tied to royalty income, Professor Van den Bosch asked? Professor Campbell said he believed the
thought was that since University intellectual property generates royalty
income, it makes sense to use that income stream to promote the
commercialization of intellectual property.
That limitation avoids concerns that tuition money, for example, might
be used to help start a company.
Professor
Campbell said the draft motion would be forwarded to Professor Martin and the
Faculty Consultative Committee.
Professor
Warwick returned to the issue of conflict of interest that had been raised by
Professor Feeney. He said he was
bothered when the concept is applied only to financial matters; it also applies
to getting grants, promotions, honorary awards, and so on, and sometimes the
conflicts in non-financial areas can be greater than in financial areas. He said he did not know where this subject
would fit into the discussion
Professor
Campbell said that Vice President Hamilton will be presenting a
conflict-of-interest policy to the Board of Regents; he has not seen it. It would come through the Senate Research
Committee. This was raised at the
Federal Demonstration Partnership meeting, Professor Konstan reported; in
response to federal mandates, only NIH and NSF look closely at them, and then
only at financial conflicts. A big
conflict of interest is when an assistant professor gets students to publish
something that helps the assistant professor get tenure--but no one cares about
that. Some disciplines, such as
Psychology, do care, but most do not.
There are a number of academic misconduct policies that deal with
conflict of interest, Professor Campbell said.
But there are no elaborate procedures to review the conflicts as there
are with financial conflicts, Professor Konstan pointed out. That is because the potential conflicts are
so varied, Professor Roe maintained; it would be difficult to have a policy.
Professor
Feeney clarified that the committee he is serving on is dealing with
INSTITUTIONAL conflict of interest--the University owning stock in a company
that it is doing business with, and so on.
This has nothing to do with individual conflicts of interest. There is nothing available for discussion
yet; the Board of Regents will discuss it this month and they needed something
to discuss. The Board wanted to weigh in
early because there is a high level of expertise on the Board on this
subject. What was the instigation,
Professor Roe asked? National events,
Professor Feeney said.
Professor
Campbell thanked the Committee for sending him flowers while in the hospital
and then adjourned the meeting at
--
Gary Engstrand