These minutes reflect
discussion and debate at a meeting of a committee of the
Minutes
Senate Committee on Finance and Planning
Tuesday, March 8, 2005
2:30 – 4:15
238A Morrill Hall
Present:
Charles Campbell (chair), David Chapman, Arthur
Erdman, Daniel Feeney, Steve Fitzgerald, Lincoln Kallsen, Thomas Klein, Joseph
Konstan, Ian McMillan, Kathleen O'Brien, Diane Parker, Richard Pfutzenreuter, Terry
Roe, Charles Speaks, Kate VandenBosch, Susan Van Voorhis, Warren Warwick
Absent:
Calvin Alexander, Kendal Beer, Rose Blixt, Scott Fine,
Michael Korth, Thomas Stinson, Alfred Sullivan, Michael Volna
Guests:
none
Other:
Leslie Krueger (Office of the Vice President for
University Services)
[In these minutes: (1) budget forecast; (2) athletic financial
matters; (3) long-term budget strategy; (4) Twin Cities campus master planning]
1. Budget Forecast
Professor
Campbell convened the meeting at 2:30 and turned to Vice President
Pfutzenreuter for a discussion of the budget forecast.
Mr.
Pfutzenreuter distributed copies of a handout.
The revenue forecast is up by $175 million. Current law allocates the entire $175
million: $25 million is restored to the
budget reserve and $150 million goes to K-12 education (in a complex
transaction). The net effect is that
instead of a $700 million deficit, the state faces a $466 million deficit. Those figures do not include inflation. Steady growth in the GDP is expected through
2007. There are surpluses projected for
the February and November 2008 and 2009 revenue and spending estimates.
How
do things really look, after including inflation, Professor Chapman asked? The $700 million was really about $1.5
billion, Mr. Pfutzenreuter said. So the
state is still in trouble, Professor Chapman commented. Yes, Mr. Pfutzenreuter said, unless it wishes
to ignore inflation.
Professor
Chapman also inquired if the under-funding of K-12 education and welfare
programs would have an effect on the legislative response to the change in
revenue forecast. It certainly will, Mr.
Pfutzenreuter said.
Professor
Campbell thanked Mr. Pfutzenreuter for his report.
2. Athletic Financial Matters
Professor Speaks next reported on athletic matters
that he had been asked to inquire about in his capacity as the Committee's
representative on the finance subcommittee of the Advisory Committee on
Athletics. In general, he said, he was
impressed and that things look reasonably positive.
First,
he had been asked about monitoring and supervision, especially financial, of booster
clubs. Professor Speaks reported that
"external auditors examine booster club activity; it is not an official
audit, but substitutes for one," that "all spending that is specific
to the athletics program goes through CUFS," that "for all spending
on the clubs themselves, athletics co-signs the checks," and that "any
expenditures on athletics programs must be pre-approved by intercollegiate
athletics."
Second, he had been asked to inquire about
financial information concerning the most recent bowl game in which the
football team participated. He cautioned
first that one should not pay a lot of attention to what one reads in the paper
about what a great financial bonanza a bowl game is. The revenue from the game was $780,000; the
expenditures for the game were $775,025, so the "profit" was $4,975. The largest expenditure was $431,184 in travel
(air, ground, meals for team, staff, band and cheer squad); the second largest
expenditure was $149,885 in coaches bonuses, as provided in the athletics
department bonus policy.
Third, he was asked to report to this Committee on the
financial situation for athletics for this year and next year. For this year, ending
Finally, projections for next year: the department expects a $500,000 decrease in
revenue, an expenditure increase of $1.2 million, so a projected financial
challenge of $1.7 million. The challenge
will be met by a combination of reduction in expenditures AND increased revenue. The department will not request additional
subsidy from the University nor will it request forgiveness of the agreed-upon
decrease in the central subsidy. If they
have a new stadium by the 2008 football season they project a revenue increase
of $3.5 million annually (from suites, clubs, sponsorships, ticket prices, and ticket
volumes).
Professor Erdman recalled that last year athletics had a
positive balance at the end of the year.
Of the $1.7 million challenge, $400,000 is a reduced central
administration allocation and $900,000 to fund sports that were saved a few
years ago with external fund-raising:
the external funds have been used up but the costs continue. Professor Speaks added that there is no
discussion now about cutting teams; they have and will retain 25 teams. The focus for fund-raising is the football
stadium and the goal of endowing all athletic scholarships. The department is following the President's
lead on raising funds for student aid, Professor Erdman said, and endowing
scholarships will eliminate one recurring cost.
Will the endowment cover the cost or just some of it,
Professor Konstan asked? When originally
endowed, the funds cover the entire cost, Professor Erdman said, but
significant tuition rate increases have required that some funds be added to
those that are already endowed.
What is the total athletic budget, Professor McMillan asked? About $50 million, Professor Erdman
said. Are these shortfalls significant
problems, Professor McMillan asked? The
department is managing them and expects a positive balance this year, Professor
Speaks reported. To him, manage means
not end the year with a deficit and not ask for any change in the subsidy
reduction. The shortfalls are about 5%,
typical of what a number of support units had to absorb, Mr. Kallsen
reported. Professor Speaks said it is
his understanding that the athletic department administration believes it can
handle the challenge.
This is an opportunity for the Committee to be sure that
information reaches more people, Mr. Klein said: here is an organization in the University
that is living within its limits in tough times and upholding standards
expected of the rest of the institution.
It serves as a model for others and the Committee should commend the
department for sticking with its commitments.
When former Vice President Tonya Moten Brown first provided the
information about the financial status of athletics and the size of the
institutional subsidy, he was outraged, Professor Speaks recalled; now, he
said, he has a very high comfort level with the way athletics is being managed.
Professor Campbell thanked Professors Erdman and Speaks
for their report.
3. Long-Term
Budget Strategy
Professor Campbell turned now to Mr. Kallsen to present a
discussion of the University's long-term financial strategy. This is Part I, Mr. Kallsen said; Part II is
being presented to the Board of Regents this week and will be brought to the
Committee in the near future. Mr.
Kallsen distributed a handout with a number of tables and graphs.
The administration wanted a mechanism to look at the
University's finances beyond the annual budget, Mr. Kallsen told the Committee.
They did not want to get too far ahead
of events at the Capitol so the discussion has been split into two parts; the
first part is a review of the big revenue and expense drivers. The point of the exercise is to "improve
understanding of the financial impact of strategic policy choices, changes in
key external environment variables, and investment aspirations" and to
"align and integrate financial projections with decision making processes"
(e.g., strategic positioning, the biennial budget, the six-year capital plan,
the annual capital budget, and the compacts).
The "how" is to "provide decision makers a forward vision
that projects the future impact of decisions and is flexible and adaptable to
different assumptions." He reviewed
a diagram illustrating how these various elements are linked and identified the
elements of the two parts of the exercise.
The key assumptions initially were that the effort is
system-level, looks at "education and general" revenues and expenses
(that is, not sponsored funds, auxiliaries and internal service organizations),
focuses on the major revenues and costs, and forecasts in the context of
academic, operational, and capital plans (e.g., the Regentally-approved
six-year capital plan). The Board,
however, asked that sponsored research and auxiliaries be included, so they
will be. Professor Roe asked what share
of the revenues would have been excluded if those latter two items were not
included. Mr. Kallsen said that
auxiliaries total about $200 million and sponsored research about $500 million;
the largest revenue sources for the University are state funds, tuition, and
sponsored research, so the Board requested that the sponsored research be
included.
Historical revenue trends are that there is a recent
decline in state support, tuition has increased both in rate and volume, there
has been a growth in the importance of external funds, and there have been
declines in small but important revenue streams (i.e., important locally in
units, such as private practice income in the Medical School). The handout included a graph of nine
different revenue sources since 1994.
They are about what one expects, Mr. Kallsen commented: state funds rose during the period through the
early part of the decade and then declined noticeably; tuition revenue
increased slowly and then dramatically over the last three years.
Professor Speaks asked if the graphs of state funds and
tuition would be very different if the lines were plotted college by college; Mr.
Kallsen said they would be. Tuition
makes up nearly 72% of the revenue for CLA, Professor Speaks commented. Professor Konstan asked if the lines on the
graph would be different if the amounts were plotted in constant rather than
nominal dollars; Mr. Kallsen said they would.
State funding in nominal dollars returned to the 1998 level but to an earlier
level if calculated in constant dollars.
A histogram (with 1994, 1999, and 2004 data points)
illuminated more starkly the changes in revenue sources. State appropriations have declined from 48 to
45 to 35%; tuition has increased from 21 to 22 to 29%; externally-generated
funds (gifts and endowments, grants and contracts, external sales, ICR) has
increased from 20 to 23 to 26%. (These
are percentages of a total that does not include sponsored research or
auxiliaries). The externally-generated
category is becoming more and more important, Mr. Kallsen observed; tuition and
state funds are core, but this category is growing in importance. Professor Konstan asked whether the funds are
double-counted (e.g., a grant pays tuition for a graduate student; is the money
counted both as sponsored income and tuition revenue?). Mr. Kallsen said he did not believe so but
would have to defer to Mr. Volna for an explanation. He said that Professor Konstan was correct,
the lines and numbers would change if items are double-counted, but even so the
trends would remain: the University is
less reliant on state funds and increasingly dependent on outside revenues
beyond tuition.
There is also a small category of "other"
revenues that has not in total changed significantly over the period that
includes such things as the private practice income, direct federal
appropriations, and the like.
Mr. Kallsen reviewed graphs of the various
externally-generated funds and the rise in tuition and fees and also one that
plotted student enrollment. There has
been tremendous enrollment growth, he said—undergraduate enrollment is up 19.9%
over the ten-year period and graduate/professional enrollment is up 31.2%. The University is running on marginal
revenues over marginal costs, but the increases raise the question of how much
the revenues can continue to grow on the volume side; his view, Mr. Kallsen
said, is "not a lot."
A graph of the CPI and the HEPI (higher education price
index) from 1961 to 2003 showed that the two remained about the same until the
mid-1980s, at which point the HEPI increased at a faster rate than the
CPI. The costs increased because higher
education buys a different basket of goods from those in the CPI, Mr. Kallsen
said, and because it is a heavily people operation. As personnel (salaries and especially fringe
benefits) go up, so do costs. Higher
education also has elements in its basket of goods that are unique, such as
plant and capital costs, heavy infrastructure (utilities, greenhouses, etc.),
and libraries. Professor McMillan asked
why the two lines on the graph diverged in the mid-1980s. The HEPI increase was driven largely by
health-care costs, Mr. Kallsen said—it is about then that they started to
increase dramatically. Professor Roe
said that the CPI shows the increased productivity effects in manufacturing;
there have not been comparable gains in the non-manufacturing sectors of the
economy. Mr. Kallsen agreed; he said
universities cannot substitute capital for labor. Or substitute cheaper foreign labor for local
labor, Professor Konstan added.
Professor McMillan asked Mr. Kallsen if he expected the two lines to
continue to diverge; Mr. Kallsen said he thought they would. Is that a problem, Professor McMillan
inquired? It is to the extent that
universities cannot explain it, Mr. Kallsen said, which involves justifying
tuition increases that are greater than inflation—and the need to do it in a
15-second sound bite.
"Education
and General" expenditures at the University have increased on average
about 5% per year, and the University rate of increase corresponds
approximately to the increase in the HEPI.
Facilities costs continue to grow in importance.
Ms.
VanVoorhis asked if Mr. Kallsen has broken out expenditure and revenue trends
by campus. There are significant
differences between them, she observed.
They are starting to work on that, Mr. Kallsen said.
Mr.
Kallsen then turned to a pie chart illustrating expenditures by category. The percentage spent on compensation has
remained about the same, he said, but the cost of fringe benefits has grown as
a percentage of the compensation category.
It could be that student aid money is also counted as salary dollars,
Professor Konstan said; it is difficult to disambiguate the figures and there
is a need to acknowledge if there is any double counting.
A
histogram of facilities, utilities, debt, and repairs and renovation showed
bars steadily increasing in height from 2000 to 2011 (based on the current
six-year capital plan). The two largest
costs are debt and utilities, Mr. Kallsen said, and the latter is a growing
concern because they are projected to grow considerably. As a percentage of total expenditures,
however, there has been no change in the total category, Professor Speaks
observed. Professor Roe said the
histogram reflects the comments of Dr. Curry about how critical it is that the
University deal with space costs because they continue to chew up dollars.
Mr.
Kallsen then briefly reviewed the "heat maps" with analysis of risks
and impacts of financial projections in various areas. The next step will be to focus on (1) revenue
sources that are both high risk and high impact: state funds, tuition and fees, non-sponsored
grants and contracts, and ICR funds, and (2) expenditures that are high-risk
and high-impact: utilities, fringe
benefits, student aid, salaries, and facility repairs and maintenance.
Professor
Campbell thanked Mr. Kallsen for his presentation and said the Committee would
return to this subject in the near future.
4, Twin
Cities Campus Master Planning
Professor Campbell turned next to Vice President O'Brien
for a report on Twin Cities campus master planning. Vice President O'Brien distributed a handout
and began by saying this would not be a one-time discussion nor would it be the
last time the subject is discussed.
The Twin Cities campus master plan was adopted in 1996
after a two-year process; about two dozen faculty, staff, and students served
as the advisory team. The plan had
eleven guiding principles, included physical elements (buildings open spaces,
etc.), viewed the campus as fifteen precincts and a corridor, and contained
implementation recommendations. It was
really a land-use plan, Vice President O'Brien said, comparable to city and
county comprehensive plans. One of the
original master plans for the University, of course, was the vision developed
by Cass Gilbert, which set a template.
The effort now will be focused on building a campus, not building
buildings, on envisioning the way the campus works. Research suggests that the way a campus is
designed can contribute to the success of the academic enterprise.
One vision of the 1996 plan was to "engender pride
in the people who study, work, and live on the campus and for those who visit
it." Ms. O'Brien observed that the
University learned during the years that Mark Yudof was president that investment
in beauty and appearance matters and it affects the recruitment of faculty and
students. The way the campus looks is
important.
Vice President O'Brien reviewed the guiding principles of
the plan and then discussed how to update the 1996 plan. About a year ago it was recognized that it
had been nearly ten years since the plan was developed; it is supposed to be a
living document and it was time to update it, recognizing that there could be a
new football stadium, light-rail transit, a growing research community on the
east end of the campus, and so on. In
January, 2004, she convened a Master Plan Work Group with the charge to review
the current plan and its development, consult with those who were involved in
it, explore how other institutions develop master plans, assess the current
plan, and make recommendations on revising the plan. The membership of the working group included
her, Professors Judith Martin and Lance Neckar, Jan Morlock, Al Sullivan,
Harvey Turner, and Lori-Anne Williams.
The group addressed a series of questions (should there be a new plan or
an update, what process should be used, what form should the plan take, should
it be aspirational or a design, who will use it, what is it for, and when does
the University make the transition to the new plan).
Following work last year, the Work Group concluded the
1996 plan should be retained and updated, should be linked and aligned to
University operations across the campus, and should be used as a living guide,
referred to frequently. They decided not
to hire an overall consultant but to convene a master planning committee
including faculty, staff, students, and community representatives, ensure broad
consultation, and invest in the process.
They may, Vice President O'Brien said, hire consultants on specific
areas, such as traffic, but intend to rely more on faculty and staff
expertise. The process will take about
two years and will require some one-time money.
The components of the plan will include focusing on
growing a campus, not building buildings, instilling the principles of
sustainability, recognizing "the
Professor McMillan asked what an emphasis on the river
would mean in practical terms. It would
mean several things, Ms. O'Brien said.
Before the recent renovation of Coffman, the University turned its back
on the river and it was difficult to get to.
As they surveyed faculty, they learned that many of them use the river
for classroom instruction (geology, geography, architecture, etc.) and the
second-largest intercollegiate athletic team (women's crew) uses it for
practice and competition. The President
believes there should be access to the river for the University community—it is
a cultural icon and an international landmark.
For the University to be perched above the river and not use it is a
loss. In addition, all that the
University does affects the river (e.g., storm runoff). As stewards of the environment, the
University must manage storm water and plan campus operations to protect the
river.
Professor Van den Bosch asked how ideas in the various
precincts related to academic planning that affect campus master planning will
get to the master planning committee and be taken into account. The master plan will need to incorporate
ideas that appear in the compacts, Vice President O'Brien said—the University's
leadership will decide the outcomes of the compact process, which will in turn
guide the six-year capital plan. For
those units that do not do compacts, how do they voice their concerns, Ms.
VanVoorhis asked? They are using not
only the compacts, Ms. O'Brien said, but also the Facilities Condition
Assessment; units need to be sure their administrators bring issues to the
central officers.
Mr. Kallsen said there is a revitalized interest in the
campus master plan, not necessarily in the buildings but in the transportation
and infrastructure issues—elements of the plan that usually do not have
champions. The master plan has been very
building-centric up to now. Vice
President O'Brien agreed that there are significant issues in transportation
and infrastructure. Mr. Fitzgerald said
that it is important there be a linkage between the master plan and University
operations that is consistent with the strategic planning process. Master plans are often strong on theory and
short on application.
Professor Warwick said he liked the concept of the campus
as a village, which Vice President O'Brien had mentioned, and asked about the
possibility of building vertically along the river, on the cliffs. They are too steep to use, he said; has any
thought been given to building on them rather than spreading the campus
out? The University does not own the
land along the river, Ms. O'Brien said, which is why it has built as it
has. The ability to get to the river
will be the subject of discussion but it is not likely the University can build
up to the river bluffs because of land-use rules.
There are dilemmas of space, Professor Konstan said, the
flexibility of space versus the customization of space. Buildings used to be built for a department
and called by the name of the field; others are built as cubicles with walls
that are easy to move. Some campuses
have flexibility and lack customized space but they have no warmth in the
buildings. Will the campus master plan
address this issue? Space utilization is
not part of land use planning, Ms. O'Brien said, but it is part of the budget
model and strategic planning. If the
University were being built from scratch today, it would not build 28 million
gross square feet of space; the question is how to capture and design space for
reuse.
A land-use question is the issue of smaller buildings that
house one department versus large buildings that house several departments,
Professor Konstan said. Campus master
planning will identify 6-7 major themes that need attention, Ms. O'Brien said,
but she does not know what those themes are now. She said she did not know if master planning
would present an opportunity to advance space utilization or if another effort
that is defined in strategic planning would do so. She did believe space utilization was a major
issue that needs to be addressed. Mr.
Klein said that without a discussion of the space utilization question in the
context of the discussion with John Curry of MIT, space issues will gnaw away
at the campus master plan. Curry’s point was that space is a major investment
for the University and that a more efficient use of space is an essential
component of a plan for successfully operating in a time of tight financial
resources.
Vice President O'Brien introduced her chief of staff,
Leslie Krueger. Professor Konstan (who
had taken the chair for the last half-hour of the meeting) welcomed her and
then adjourned the meeting at 4:20.
--
Gary Engstrand