These minutes reflect
discussion and debate at a meeting of a committee of the
Minutes
Senate Committee on Finance and Planning
Tuesday, May 10, 2005
2:30 – 4:15
238A Morrill Hall
Present:
Charles Campbell (chair), Rose Blixt, Arthur
Erdman, Daniel Feeney, Lincoln Kallsen, Michael Korth, Ian McMillan, Kathleen
O'Brien, Charles Speaks, Alfred Sullivan, Kate VandenBosch, Susan Van Voorhis, Warren
Warwick
Absent:
Calvin Alexander, Kendal Beer, David
Chapman, Steve Fitzgerald, Thomas Klein, Joseph Konstan, Richard Pfutzenreuter,
Terry Roe, Thomas Stinson, Michael Volna
Guests:
Assistant Vice President Michael
Berthelsen, Associate Vice President Stephen Spehn; Scott Martens, Director of
the Office of Service and Continuous Improvement, Meredith Fox, OSCI
[In these minutes: (1) fuel choices; (2) Office of Service and
Continuous Improvement; (3) various items]
1. Fuel Choices
Professor
Campbell convened the meeting at 2:30 and welcomed Messrs. Berthelsen and Spehn
to discuss fuel choices.
Vice
President O'Brien began by commenting that University Services staff have been
working very hard to understand how the University can control utility costs
and deal with price volatility. The
presentation made to the Committee at this meeting is one that was also
provided to the Board of Regents earlier in the spring.
Mr.
Spehn distributed copies of a set of PowerPoint slides. He spoke with the Board of Regents in
November, 2003, about facilities and in February, 2005, about energy
(management, principles, and issues, which included where the University should
be in the energy market, how the University makes financial decisions about
energy purchases, and what should be the standards for reliability and
redundancy). The services provided by
Energy Management include steam, electricity, chilled water, water, and
sanitary and storm sewers. They also
provide engineering (on both the capital projects and maintenance sides) and
commissioning and recommissioning of buildings.
They
are particularly proud that the energy consumption per gross square foot of
space on the Twin Cities campus has declined markedly since 1988. Is this a result of global warming, Professor
Campbell asked facetiously? Mr. Spehn
said it was due to energy conservation, and even with new high-energy-use
buildings, the trend line remains down.
The TOTAL energy consumption is about the same as it has been in the
past, but distributed across more space.
Mr. Berthelsen explained that the steam plant produces heat more
efficiently, distribution lines have been improved so there is less energy
loss, and buildings have improved so there is more efficient distribution
within them and with better controls.
What
if the data were changed to graph expenditure per BTU, not per gross square
foot, Professor Campbell asked? Then the
line on the graph would go up, Mr. Spehn said.
But that cost would have been substantially greater if the University
had not made the improvements it has, Mr. Berthelsen pointed out.
Mr.
Spehn noted the annual costs for energy ($75 million), $61 million of which is
for steam and electric service. The
numbers reflect full cost, including debt service, Mr. Berthelsen added. Professor Campbell observed that
administrative costs appear to be about 2-3% of the total. Is that typical? Is it going down? It includes more than utilities support; it
also includes engineering support, so it is difficult to tell how the numbers
compare with other Big Ten schools.
Professor
Erdman said the slides were impressive.
It appears the University has picked the low-hanging fruit; is there
more that can be done? Mr. Spehn agreed
that the low-hanging fruit has been picked; much of what they have done has a
payback of a year or less. Now they are
doing things that have a 5-6-year payback.
They still find projects with shorter payback periods, but the costs of
making the changes are higher. As energy
prices increase, however, it was said, the payback gets faster.
Mr.
Spehn reviewed the cost of various fuel costs and the volatility of commodity
prices. The price of natural gas since
January 2001, for example, has varied between $2 and $10 per million BTUs. Mr. Berthelsen explained the facilities cost
modeling they do and noted that fluctuations in energy prices have a
substantial impact. He said the
University has established purchasing objectives to help control its
expenditures. They have established a
fuel advisory group to identify the tools the University is willing to use to
achieve financial risk control, which includes using the financial markets as
tools. They develop an Annual Energy
Purchasing Plan, developed in the offices of the Vice President for Finance and
Vice President for University Services, that provides an assessment of market
conditions, authorized purchasing tools, purchasing authorities and approvals,
fuel mix and timing, risk limits, purchase points to take advantage of the
market, and a price ceiling for energy for 1-2 fiscal years in advance. Implementation issues with respect to risk
and cost management include environmental permits, how to establish contracts
for fuel pricing and biomass materials, and energy purchasing plans. The system, Mr. Berthelsen concluded, is
thoughtful and planful in approaching what to buy, how to buy it, and how to
manage costs.
The
Committee discussed briefly the possibilities for using biomass as an energy
source.
This
report is about the Twin Cities campus, Vice President O'Brien commented, but
it has implications for the UMM biomass project approved in the 2005 capital
bill—and for UMC in the long term if it upgrades its heating plant. There are policy questions about what biomass
is (agricultural products) and what waste is (i.e., the latter requires a
garbage-burning permit). As one
envisions the University as a leader in renewable energy use, issues such as
these will need to be addressed. She
noted that she and Professor VandenBosch were at the dedication of the Morris
wind turbine, which will generate about one-half the electricity needed on the
UMM campus.
Professor
Campbell thanked Messrs. Berthelsen and Spehn for an interesting presentation.
2. Office of Service
and Continuous Improvement
Professor
Campbell now welcomed Mr. Martens from the Office of Service and Continuous
Improvement (OSCI) to talk about his office and what they are doing. Mr. Martens began by introducing Meredith Fox
from his office; she formerly worked for the State of
Mr.
Martens distributed copies of a set of slides he presented to the Executive
Committee about a month earlier.
OSCI
serves as an internal resource and consulting group, Mr. Martens explained, and
helps University leaders within compact areas fulfill their management
goals. They services include:
-- opportunity
identification (how service to the University can be improved, the clients they
serve, cost structure/productivity, revenues)
-- knowledge
dissemination (this is a large organization across campuses and the state; it
is necessary to be aware of what is going on in different departments that can
be highlighted to foster innovation)
-- culture
building (how to build a culture of continuous improvement)
-- project
support coaching
-- communications
(getting the word out; there are two constituents, within the University and
without, for information about the University as a good steward of resources)
-- metrics
(key indicators the University looks at to manage operations).
The point of these activities is to free
up resources to reinvest in core University activities.
Mr.
Martens used a slide with boxes to illustrate the relationship of his office
with a number of activities around the institution (with the most impact in
enhancing and using effectively resources and infrastructure and promoting
"an effective organizational culture that is committed to excellence and
responsive to change"). These
goals, within the strategic positioning process, include cultural
transformation, operational transformation, and financial transformation. Cultural transformation includes promoting an
organizational culture committed to excellence and responsive to change;
operational transformation means identifying key indices, how to capture
information, and providing feedback; financial transformation includes doing
projects to improve service and productivity and increase revenue. The point is to free up funds to reinvest in
core University activities.
Mr.
Martens reported on the progress to date in the three areas. In cultural transformation, they set up a
website that provides project profiles and how-to's—tips and techniques on
building a business case. They are
working with Vice President Carrier on employee training to take them to the
next level in skills. They are putting
improvement spotlights in BRIEF and developing the liaison group (the first
meeting of which will be June 21). With
respect to operational transformation, they are piloting an electronic
scorecard and strategy mapping system (Duluth Academic Life & Student
Support, Vet Med Clinic) and worked with the Provost's office in revising 2006
compact instructions (specifically requesting goals be measurable and
time-bound and requesting that units which have performance indicators list them). In financial transformation, they have hired
an improvement leader, using Carlson School MBA interns (working with
Purchasing and Facilities Management), and working on both a space revenue and
space utilization project.
They
have an advisory committee that meets bi-monthly composed of individuals half
from inside the University and half from the corporate world; those from inside
the University include faculty members, Mr. Martens told the Committee. The corporate leaders (e.g., from Cargill,
3M, etc.) have been through transformational efforts and can help the
University navigate the speed bumps.
Mr.
Martens explained the concept of an "improvement liaison." His office will develop a network of
individuals in order to bring people together to talk about their experiences
(e.g., how to overcome resistance to change).
The network can magnify OSCI's contributions and increase the
probability of success in the strategic positioning effort. It can also provide support to units by
sharing knowledge about quality and service improvement tools, lessons learned,
and so on, by allowing units to identify opportunities and facilitate
partnerships, and refine skills and connect units to improvement
resources. The liaisons will focus on
continuous operational and service improvement, will have quarterly meetings,
and provide ongoing communication.
On
the horizon, Mr. Martens said, are scorecard system demo, first liaison
quarterly meeting, executive leadership sponsorship of BRIEF features,
improvement recognition program, a quality fair (to showcase the great work
that units are doing), an improvement project database, and aligning University
metric requirements.
Professor
Korth said it was not clear how projects were chosen; who brings them
forward? To date, projects have come through
members of the President’s team, Mr. Martens said. Going forward, the work of the office will be
in direct support of strategic positioning initiatives—both academic and
administrative. There are seven themes
in the administrative strategic positioning recommendations; his office should
be working on all of them. Are senior
administrators designating projects, Professor Korth asked? Through the President's office staff, Mr.
Martens said.
Ms.
Blixt asked if Mr. Martens's office would be involved if academic program
changes are adopted by the Board of Regents.
There will be implementation task forces; would he be involved with
them? The academic changes will not
happen in isolation, Mr. Martens said, and will also affect the administrative
side. He said his office would be a
resource to help drive the academic changes.
Do
other universities have an office similar to his, Professor Campbell
asked?
Vice
President O'Brien recalled that President Yudof started the service and
productivity initiative; President Bruininks has expanded it to OSCI, which was
something the report from Vice Presidents Carrier and Muscoplat discussed. It talked about strengthening the service
focus and achieving cost savings, and those preparing the report realized it
would be helpful to have an internal consulting office rather than having
administrators go outside. This provides
inside expertise for the entire University, she said.
Professor
Campbell thanked Mr. Martens for joining the meeting.
3. Committee Business
Professor
Campbell reported that several items bore mention.
1. Did the Committee have a statement on
strategic planning that it wished to submit to the Regents forum?
Most of the reports have dealt with
the academic side of the process and few have responded to the administrative
recommendations. Professor Feeney was
not sure the Committee should say anything, unless there is a danger that the
administrative recommendations would not be adopted. Professor VandenBosch said she had requested
time to comment positively on the effort and the involvement of faculty in the
process. Professor Campbell said it
would be a good idea if, as she suggested, she spoke for the Committee. Professor Speaks said the Committee should
endorse the recommendations; Professor McMillan concurred.
Ms. Blixt said that civil service
employees are not sure what the recommendations mean. If someone is in a unit that is merged or
closed, and must look for a job, will the functions in the old unit be
eliminated in the new one? It is unclear
how the changes will affect people.
Professor Korth said that from the
perspective of a coordinate campus, the process and the perspective is wholly
unsatisfactory and he would not be thrilled about supporting the
recommendations. He said he had no
specific objection, but it is not at all clear what the recommendations mean
for coordinate campuses. They appear to
have the status of an afterthought.
Professor Warwick moved that the
Committee endorse the administrative strategic planning recommendations. The Committee voted 5-1 in favor of the
motion; there was one abstention.
2. The question of the stadium fee keeps
arising. Professor Campbell noted that
Professor Speaks had written to the President asking about the fee support; he
asked that a small group of Committee members be authorized to draft a
statement to submit to the President.
Professor McMillan noted that
Senator Marty had written a letter concerning the stadium; it struck him that
building the stadium would cost roughly $1 million per game but there has been
no description of potential benefits. Is
that true? It is not, Vice President
O'Brien said. The Committee has had
several discussions over several years about the costs and benefits; Senator
Marty was equating the $7 million in annual debt service to funding 7 home
football games per year. The point would
have been more accurate if it also noted that that it would cost $7-10 million
per year to operate the Metrodome. The
question could be seen as whether the University pays the operating costs of
the Metrodome or the state helps fund the debt to bring football back to the
campus, she said. The costs are there
regardless, unless the University abandons football. While the stadium will be primarily for
football, it will also accommodate soccer and the marching band. There will also be facilities on the inside,
on one side of the stadium, that can be put to other uses.
Professor Speaks said that he was
not arguing either against or for an on-campus football stadium but that he did
wish to note a few points. Some things
are not being reported in a completely accurate way; the state will not put in
$94 million versus the University's $___ million. Part of the numbers are construction cost,
part is debt. Second, there has been
much said about the cost of staying in the Metrodome; staying there or building
the new stadium could be a financial wash.
But if it costs $7 million to operate the Metrodome, the legislature is
not going to give the University that money; it would have to come from
intercollegiate athletics. Third, other
uses of the stadium are not relevant; the University would not spend $235
million for a soccer stadium; this will be an on-campus stadium for
football. His concern is transparency. All that is required is a simple statement
from the President to the Committee; he said he did not know what to believe
about what he reads in the newspapers.
He said he remains concerned that student support for the new stadium
will be folded into the University fee, and thus part of costs for graduate
students on grants or receiving financial aid.
He said he also wants it called a stadium fee so that students know what
they are paying for—it should be open and not folded into the University
Fee. He said he would like the President
to tell the Committee that is what would happen.
Professor VandenBosch agreed,
particularly with the concern about rolling the stadium contribution into the
University Fee. She said it would be
inappropriate to include stadium costs in fringe benefit rates. She said she was also worried about passing
the cost on to graduate students because it would erode their compensation at a
time they have been losing graduate students due to uncompetitive
compensation. The stadium would not
benefit graduate students as much as undergraduates.
Professor McMillan added
that if the fee were to be incorporated in the rates charged for graduate
students, that would possibly provoke a reaction from NSF and NIH.
The solution is simple,
Professor Speaks said, and that is to levy a fee that is not folded into other
University charges so it would not create problems.
Where would the Committee
express its views, Professor VandenBosch inquired? To the President, Professor Campbell
said. Vice President O'Brien said the
decision will be made when the project is approved; for next year, only
planning money has been approved. There
will be no fee money involved until the legislation providing state assistance
is passed.
Professor Speaks said that the
discussion of this issue has fluctuated considerably. He first heard about the fee from Vice
President Pfutzenreuter; it would be/would not be part of the University Fee,
it might be $50, or more, or less. He
sent a letter expressing concern about use of the University Fee and was told
the question was answered in the newspaper.
The amount of the fee has gone from less than $50 to $50 to more than
$50 and seems to have settled at $50.
The DAILY reports incorporating it in the University Fee is still an
option. But Vice President Pfutzenreuter
says that no academic dollars will flow to the stadium. The only source of information, however, is
the newspaper.
It was agreed by unanimous
vote that the Committee should make inquiries of the President.
[Subsequent
to the meeting, Vice President Pfutzenreuter affirmed that the fee would not be
part of the University Fee but would be a stand-alone fee. It may not be called a "stadium"
fee per se, as it could be a fee that also has non-stadium/non-athletic
benefits (cultural events) associated with it in terms of 'benefits.' "I assure you that the fee supporting
the stadium will not be buried within the existing University Fee. It
will have its own title and be reviewed and approved by the Board of Regents
after consultation with students and the University community."]
3. There was a good discussion with the
Provost about the priority of salaries, especially when the University is
aspiring to lofty heights. The Committee
needs to consider again the goal that should be set.
4. The Committee has had no report on the
budget for the next fiscal year.
5. The Committee on Educational Policy is
concerned about a proposed policy on the rental of University space by
outsiders and the possible impact on classroom availability should the policy
be enacted.
Professor
Campbell asked Committee members to think about what the University's faculty
salary objective should be, and adjourned the meeting at 4:25.
--
Gary Engstrand