These minutes reflect
discussion and debate at a meeting of a committee of the
Minutes
Senate Committee on Finance and Planning
Subcommittee on Capital Projects
238A Morrill Hall
Present:
(SCFP) Charles Campbell
(chair), David Chapman, Thomas Klein, Lincoln Kallsen, Michael Korth, Ian
McMillan, Cleon Melsa, Kathleen O'Brien, Diane Parker, Richard Pfutzenreuter,
Terry Roe, Charles Speaks, Kate VandenBosch, Warren Warwick, Susan Carlson
Weinberg
(SCP) Art Erdman (chair), Susan Carlson Weinberg,
Brian Swanson
Absent:
None counted for a summer meeting
Guests:
Senior Vice President Robert Jones; Associate Vice
President Michael Perkins, Chris Frazier (Office of the Executive Associate Vice
President)
Others:
Jon Steadland (Office of the Board of Regents); H.
Jeannie Taylor (Office of the President)
[In these minutes: (1) biennial request; (2) six-year capital
plan; (3) large capital project approval process]
1. Biennial Request
Professor
Campbell convened the meeting at
Senior
Vice President Jones reviewed the discussions that have been taking place to
frame the biennial request and identified the principles that have been
developed. He noted the groups that have
been appointed to lead the discussions, including an over-arching
administrative group that is working with the President and a strategy group
(which includes faculty) that has been meeting weekly to develop the outline of
the request; the latter group has been consulting widely. He described the strategy that the two groups
are considering in approaching the state.
Vice
President Pfutzenreuter described in more detail the conceptual framework that
has been proposed. He noted that the
amount the University eventually receives will depend in part on the revenue
forecasts. The biennial request
principles will be brought to the Board of Regents in September; the Board will
review and act on the actual request in October and November. He also said that it is likely the Board will
include a request for capital projects that were not acted on in the 2004
legislative session.
Committee
members discussed with Dr. Jones and Mr. Pfutzenreuter various elements of the
strategy being proposed and planning for various possibilities.
Professor
Campbell thanked Senior Vice President Jones and Mr. Pfutzenreuter for their
report and comments.
2. Six-Year Capital Plan
Professor
Campbell turned next to Vice President O'Brien and Associate Vice President
Perkins to begin a discussion of the six-year capital plan.
Vice
President O'Brien began by explaining that capital planning effort is a
partnership effort that includes Vice President Pfutzenreuter, Executive
Associate Vice President Al Sullivan, and herself. Ms. Frazier is at the meeting to report on
Dr. Sullivan's behalf and Mr. Swanson is present to report on Mr.
Pfutzenreuter's behalf (Mr. Pfutzenreuter had to leave the meeting to go to the
Capitol for a meeting with the Department of Finance).
Ms.
O'Brien distributed a handout of several pages that included a chart of the
capital improvement planning process as well as the capital plan itself
(including the lists of potential projects being sought for 2004--now
2005--2006, and 2008). The Regents will
adopt the six-year plan later in the year.
That plan (Stage 1 is review of the potential projects) she related, is
driven by academic program needs and by facility conditions. Stage 2 constitutes preliminary review and
program analysis, and the major criteria include academic priorities, facility
conditions, financial constraints, student experience, project logistics, and
other considerations; the review and analysis is conducted by academic and
financial staff.
At
this point Ms. Frazier reported briefly on the compact planning process. The process has been in place since 1997 and
is intended to improve the alignment between the University's goals and the
investments it makes, but there are new elements to it. One element of the process includes
identifying the impact of any programmatic initiatives on facilities and
description of "other pressing space management issues (including
classroom availability)." A new
feature is "Major Capital Investment Priorities," calling on colleges
to "identify and reconfirm the unit's highest priority facility needs for
consideration in the six-year capital plan.
Beginning with this compact process,
projects will not be considered for inclusion into [sic] the six-year capital
plan unless the project has been included in the final compact for a college or
unit" (bold face in original).
Mr.
Swanson spoke about the financial parameters of the plan. There are two parts to it: the state portion and the non-state
portion. The original plan covered 2004,
2006, and 2008; it will now be revised to be 2005, 2006, and 2008. They will not yet make plans for 2010 because
that is too far out. Vice President
Pfutzenreuter will look at various factors to determine what the University
might reasonably plan on for state capital appropriations in each of the three
years of the plan. For the non-state
portion of the plan, the biggest issues are how much money a unit has in hand,
how much debt will be required, and the impact on the University's debt
load.
Vice
President O'Brien reported that the administration is now consulting on the
capital plan. Do they plan to
communicate with the deans and others, Mr. Klein asked? The "current process" page, with
four stages identified, is a clear explanation of the process. Sharing it with
deans, department heads, faculty and staff would help people understand the
process and where they have opportunities to participate. It would be like a
"you are here" sign in a large store that helps people figure out the
process. Vice President O'Brien affirmed
that they do intend to communicate with the deans and others. In the past, they used the capital budget to
identify projects costing $1 million or more, Mr. Swanson said, but those
projects are now also in the compacts.
Ms. O'Brien said the University is trying to develop a disciplined and
transparent process; it will be made available in pamphlet form as well as on
the web so that all can understand it, but the full process of how a building
is obtained is under development.
Professor
Speaks asked if the 2004 capital request is in priority order and whether the
President determines the rank-ordering.
If so, he asked, who advises on that rank-ordering? The academic decisions are made between the
dean and the senior academic officers, Ms. O'Brien said, and ultimately by the
President. Vice President Pfutzenreuter,
Vice Provost Sullivan, and she make recommendations for the other category,
facility conditions. Both elements are
incorporated in the six-year plan, which the President must finally
approve. Is there any faculty committee
participation, Professor Speaks asked?
Vice President O'Brien responded that the capital projects subcommittee
reviewed the plan, but inclusion of capital projects in the compact process
adds a new element. Some colleges are
more organized than others when it comes to the compact process, Professor Roe
observed; does that affect the quality of the information available? Each college has its own culture and process,
Ms. O'Brien said. The deans have been
briefed and understand the importance of compacts to the six-year capital
plan. What processes do the deans use,
Professor Roe asked? He answered his own
question by surmising that the process varies by college. Ms. O'Brien said that Vice Provost Sullivan
could give the Committee a sense of the range and provenance of compact capital
requests. Mr. Kallsen observed that the
compact document is required to include a report on the consulting that took
place in developing it.
What
is the role of the subcommittee on capital projects, Professor Erdman
asked? The administration wishes to
consult with it at the start of the process, Ms. O'Brien said. Professor Speaks said he wanted to repeat a
point he made at the last meeting. As
everyone talks about capital requests, they always want to align them with
academic priorities. Given that, it is
strange that there is so little faculty participation in the process. He recalled serving on the Capital
Improvements Advisory Committee (CIAC)--on which he was the only faculty
member--that reviewed the capital requests from every unit. CIAC was replaced by a committee that had no
faculty, so this Committee--Finance and Planning--created the capital projects
subcommittee, but it is not clear that anyone listens to it. There must be a way to arrange for an
important segment of the University--the faculty, staff, and students--to be
listened to.
Professor
Roe said he thought Professor Marshak's view was that there have been different
attempts over time to do this, but that competing interests want part of the
capital plan so there is no unified recommendation. As a result, the matter is turned over to the
administration. The approaches in the
past have not led to a recommendation that provides direction to the
administration. Professor Speaks said he
has heard that complaint and does not disagree.
The CIAC evolved from the good-old-boys club to the point where every
dean and vice president with a project had to have a written plan and an oral
presentation that specifically linked the project to academic priorities. He said he believed the CIAC evolved to as
neutral a process as it is possible to have and it worked until President Yudof
said he did not want it. Professor
Speaks said he believed the University was headed in the wrong direction in
terms of development of the capital plan; he said he hoped that the
subcommittee on capital projects could have an influence it has not had in the
past.
This
process decentralizes decisions more than in the past, Professor Roe observed,
and some colleges take the issues to the faculty. Then the administration is the agglomeration
problem. It would help if the
subcommittee were to look at the compacts, Professor Campbell suggested.
There
are two ways to get a building, Professor Erdman opined. One is to get on the six-year capital plan;
the other is illustrated by the list of non-state-funded projects, which is to
get a big donor. Mr. Swanson said that
any project, whether state-funded or not, and whether or not it includes a big
donor, should be included in the compact.
Vice President O'Brien agreed.
When a project is on the non-state list, it is not expected to compete
with state dollars. Once it is part of
the plan, the unit is authorized to do a predesign and raise money for the
project. After the predesign is complete
and the money raised, the project moves to stage 4, which is approval and
implementation.
Professor
Erdman noted a number of AHC projects on the non-state capital list. He asked if one can assume that if a group
comes in with a significant amount of money, it is more likely to get on the
list even if that creates an imbalance on the list? Mr. Swanson said that projects on the
non-state list tend to move independently of the others on the same list. They
tend not to have an impact on each other and typically move at the speed at
which dollars can be obtained. So there
are two different ways of obtaining buildings that behave differently,
Professor Erdman concluded.
Professor
Campbell recalled that frequently one will see projects go to the top of the
list without even being on the list previously; projects seem to just jump onto
the list. There were times when a former
Governor helped items jump onto the list, Vice President O'Brien pointed
out. If the University found someone who
would give the faculty-student share of a new football stadium, would it jump
to the top of the list, Professor Speaks inquired? There is no football stadium in the six-year
capital plan but everyone knows it is a priority. Vice President O'Brien pointed out that this
is last year's list. Why should all
these other needs, and the people behind them, work to get to the top of the
list and the stadium not, Professor Speaks asked? It seems to be treated differently from all
other capital projects. Vice President
O'Brien said she was confident that the stadium was in the intercollegiate athletics
compact and that it was not being treated differently, but she agreed that it
is high-profile. There are also external
pressures with respect to the football stadium, Mr. Swanson added.
Professor
Campbell thanked Ms. Frazier, Vice President O'Brien, and Mr. Swanson for their
comments and report.
3. Large Capital Project Approval Process
Professor
Campbell turned again to Vice President O'Brien, this time in concert with
Associate Vice President Perkins, to continue the discussion of capital projects,
this time focusing on the approval process.
In this case, Ms. O'Brien said, they wish to talk about changes in the
process.
Mr.
Perkins began by saying that his interest is in developing the best possible
programmatic application of facilities. He
made a presentation to the Board of Regents earlier in the month, and another
to the deans, to suggest improvements in the capital planning process. The intent is to improve, simplify, and
streamline the process.
Mr.
Perkins explained that at present the Board of Regents receives a lot of
information about capital projects. At
present, they review design guidelines and schematic design for projects of $5
million or more and for projects of $1 million or more if they have external
(visual) impact. They are proposing to
keep the $5 million threshold but to raise the other one to $2 million, which
would mean bringing to the Board those projects with the greatest priority and
with the greatest risk to the University--which this Committee and Facilities Management
would help to identify.
They
would also like to propose a change in the design and construction process, Mr.
Perkins told the Committee. At present
only 2% of project planning funds are spent before a proposal goes to the
Regents and the legislature. (In
general, project planning funds account for about 10% of the total project
cost.) They suggest instead that 15% of
the funds be spent, so that schematic designs are completed, before projects
are taken to the Board and legislators.
This would mean they would get much further into the process before a
project is approved. For example, in a
$20 million project, Vice President O'Brien said, $2 million would be for the
cost of project planning, with about $50,000 of that spent for predesign and
about $300,000 for schematic design.
Another
change being proposed is to raise the threshold for capital projects requiring
Board approval from $100,000 to $250,000 (which is the same level required for
purchasing) or $500,000.
Professor
VandenBosch said she could understand the rationale for increasing the $100,000
to $500,000, but why the increase from $1 to $2 million for projects with
visual impact? It is the same
rationale, Mr. Perkins said, and relates to the level of detail provided to the
Board. There are guidelines for the
planning process that lead to presentation of thick reports to the Board to
assure them everything is acceptable.
This streamlines the process so that if a project is more than $2
million, or if it deviates from the campus master plan, it will be brought to
the Board for approval. Even if a
project did not meet the proposed thresholds, Mr. Perkins said, he would bring
it to this Committee and others for guidance if there were questions.
Professor
Speaks observed that the six-year capital plan for 2004 called for $189
million, but that does not include all the small projects that do not go to the
Regents. How can the Committee give
advice about what should be done that includes not only what is presented to
the Regents but all that will be funded?
The six-year plan is programmatic funding, Vice President O'Brien
responded, not a budget list. The
capital budget will be about $44 million this year, without state funds; with
state money, it would have been about $220 million. Many of the items in the capital budget, she
said, are not itemized in the general request such as HEAPR funds (asset
preservation and renewal).
Professor
Warwick asked what the advantages were to the proposed changes. The new cut-offs are higher than what would
have been called for by the rate of inflation.
Will there be more administrative efficiency? Will this take items out of common view? Mr. Perkins assured the Committee that
removing some projects from common view would not mean they would not do their
homework and the required due diligence.
What the changes affect is the documents that are prepared for
presentation; all projects receive the same internal consideration. The question is how best to use the Regents'
time for oversight and evaluation of risk, Ms. O'Brien said. These proposals are designed to put regental
focus on oversight and risk, not where there is no value added. Moreover, she said, they are required to
bring quarterly reports to the Regents' facilities committee; they are
suggesting that the reports be made twice per year so they can be done better
and provide a more thorough information summary.
Mr.
Klein inquired what the cut-off point for board involvement in capital projects
is at American Express; Mr. Perkins said it was about $5 - 10 million. Vice President O'Brien said that at Wells
Fargo it is $50 million. Mr. Perkins
said that even with a simplified system, there will be 30-50 pages going to the
Regents, but they will be spending more time on big projects; that does not
mean his office will be spending less time on projects. He said he hopes that the result is less
busywork.
Moving
the schematic designs earlier in the process will mean doing them 12-14 months
earlier than at present. It also means
that if they spend 15% of planning money, rather than 2%, they will likely do a
better job of planning a project as well as increase the chance for success as
long as the University's priorities remain the same. Earlier schematic plans will also make it more
likely they will be able to complete a project on time and within budget. There is the risk that the money will be
spent but the project not funded, or not funded when expected, which would
require that the designs would need to be updated later, but Mr. Perkins said
he believed that is a risk worth taking, given the benefits. How would the additional costs be
funded? One possibility would be
creation of a central fund that could be tapped, based on priorities from the
planning process, or ask for pre-funding from the legislature.
Mr.
Perkins said he has talked with a number of groups at the University about the
change, and all seem to be enthusiastic about it. Once he is done, he will make a
recommendation to the President. He
asked Committee members if they had any additional questions.
Is it
possible that because of very good planning, a $10-million project might only
cost $9.5 million, Mr. Klein asked? Is
the total budget spent or do savings reward good planning? This does happen, Mr. Perkins said, but it
also happens that some projects are not as well-planned as they should be and
require additional money. Mr. Swanson
noted that there is a difference between state-funded projects, which are
limited by the bond language, and projects funded in other ways. It may be that savings from some projects
could be used to fund schematic designs, Professor Roe suggested.
Mr.
Perkins noted that the first time a revised process could be used would be with
the 2006 capital request, because it is possible that with the failure to adopt
a bonding bill in 2004, and adoption of one in 2005, there could be a
reordering of the priorities, so he would not want to do schematic designs for
items in the 2004 request until a bonding bill is adopted in 2005.
If a
fund to pay for schematic designs is created, the money will have to come from
somewhere, Mr. Swanson observed. That is
his question, Professor Campbell said; how much would be needed? It would need to be about $2.5 million on a
$200 million request, but it would not be needed for all projects, Mr. Perkins
said. Some of the projects (e.g., HEAPR
funds) the University can do itself and would not need schematic design in the
same way. Mr. Kallsen pointed out that
the University is already spending money on schematic design, so it is really a
question of funding mechanism. The fund
would need to be replenished, Professor Campbell observed.
Vice
President O'Brien thanked the Committee for learning about some rather
"dry" matters, because they are nonetheless important. Professor Erdman said he thought the proposed
changes were a good idea.
Professor
Campbell thanked Mr. Perkins, Vice President O'Brien, and Mr. Swanson for
joining the meeting, and adjourned it at
--
Gary Engstrand