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:
Judith Martin (chair), Rose Blixt, Steve Fitzgerald,
Marcie Jefferys, Thomas Klein, Joseph Konstan, Michael Korth, Ian Macmillan, Mikael
Moseley, Kathleen O'Brien, Kathryn Olson, Richard Pfutzenreuter, Karen
Seashore, Charles Speaks, Thomas Stinson, Warren Warwick, Aks Zaheer, John
Ziegenhagen
Absent:
Daniel Feeney,
Guests:
Interim Associate Vice President Michael Berthelsen;
Richard Howard (Director, Institutional Research)
[In these minutes: (1) State of
1. State of
Professor
Martin convened the meeting at
Professor
Stinson distributed copies of a handout and began by noting that the headline
number for the state's projected surplus is $2.170 billion. Many believe that having that much new money will
make the budget decisions easy, but it will not. He outlined four keys to understanding the
surplus. (1) The 2006 legislature left $737 million on the bottom line for
2008-09. That balance would be there even
if there were no change in the revenue forecast. (2)
FY2006 revenues were $451 more than forecast. That is the portion of the surplus that is
money in the bank. The rest is a
projected change. (3) There is little change in the economic
outlook. (4) The expenditure estimate for FY2008-09 has
not been adjusted for general inflation (probably about $1 billion).
The
forecast projects that revenues in the current (2006-07) biennium will exceed
expenditures by $1.038 billion. The $2.17 billion surplus is obtained by adding
that projected balance for 2006-07 to the $737 million balance for 2008-09 left
by the legislature and a $394 million increase in the revenue and expenditure
forecast for 2008-09. It is important to
note that not all of that balance can be spent on continuing expenditures. If
the full $1.038 billion were to be spent between 2007 and 2009 on recurring
expenditures, the state would be short by $1 billion in 2010. As a result, it would be prudent for the
state to spend that portion of the surplus on one-time items.
Professor
Stinson reviewed the categories of revenue and how they are predicted to change. Special note was made of corporate tax
receipts due to the large, approximately 18 percent in both biennia, percentage
increases from the prior forecast.
Corporate profits have been very strong, he noted, and the expected loss
to the state from a court decision has been revised down by a total of more
than $166 million over the entire 2006-09 forecast horizon. Corporate profits have been this high as a
proportion of GDP only once since the end of WWII. There are a number of reasons those profits
could come down, and should they decline state revenues would also fall.
If
one carries projections through to FY 2011, the structural balance appears to
be positive: when adjusted for
inflation, revenues and spending are nearly the same—but that balance assumes
there is no increase in spending. The
state's Council of Economic Advisors has also recommended that the state not
use the CPI to calculate inflation on expenses but instead use the implicit
price deflator for state and local government services, which runs about
one-half percent higher than the CPI. If
that change were to be made expenditures, after adjusting for inflation, would
likely exceed expenditures.
Professor
Konstan asked if, with the dedicated funds going to transportation and the
decline in housing starts, there has been any thought at the state level about
borrowing against future revenues to begin construction projects to stimulate
the economy. Professor Stinson said
people are thinking about it, but it takes a long time to get money into the
economy. When the legislature passes a
capital budget, only 15% of the money is spent the following fiscal year, and
only 25% in the following fiscal year, so half the money does not get spent for
more than two years. In addition, skills
are not that transferable from housing to heavy construction.
Professor
Martin asked how accurate projections 3-4 years in advance are likely to
be. Professor Stinson said it depends;
they can be way off or close. If
something bad happens in the first year of the projection, the numbers may be
way off.
Professor
Konstan asked how much of the $16-billion state budget is labor (salaries/wages
and benefits). Professor Stinson said he
did not know and it would be tricky to measure since much of state expenditures
involve the pass through of funds to local government. For example, basic education spending for
elementary and secondary education is the largest state program. The portion going for state salaries is
trivial, but much of that funding goes for teachers' salaries paid by school
districts. Professor Konstan then said
that he wondered if there was a chance of all these employees advocating
for using the projected surplus to change the system to project inflation in
expenses. That would presumably help them (since future cost of living
raises wouldn't require staffing reductions or other cuts). Professor Stinson said he had not heard
anyone making that case. Most see a
broader set of needs to be met, not just a need to pay higher salaries to government
employees. The public policy reason for
leaving inflation out of the expenditure forecast is to force bargaining and budget
decisions to start from the current level of spending. If inflation were included all the salary bargaining
and the budget debate would starts at that higher level. Stinson also noted that the current
requirement that the expenditure forecast
not be adjusted to reflect inflation results in the state's financial
situation appearing better than it actually is, particularly when times are
tough.
What
size reserve is the state required to have, Professor Martin inquired. There is no constitutional requirement Professor
Stinson said; the legislature determines the level of reserves. Currently
What
opportunities are there for the University in this budget situation, Professor
Zaheer asked? Professor Stinson said
that Vice President Pfutzenreuter should really answer the question, but his
advice would be to focus on one-time expenditures and not seek a lot of money
for permanent increases such as salary increases, tuition reduction, etc. Requests for one-time funds are more likely
to be successful than requests for large ongoing appropriations.
This
is relatively good news, Professor Stinson concluded, compared to what has
happened the last several years.
Professor
Hendel asked how the University's situation compares with that of other
research universities—what are other states doing? Professor Stinson said he did not know. Other states in general should be doing
modestly well and the federal government is doing well. Multi-state corporations pay the same tax
across states, so corporate taxes should be up in most states.
Professor
Martin thanked Professor Stinson for the presentation.
2. Facilities Management Budget
Professor
Martin turned next to Vice President O'Brien and Acting Associate Vice
President Michael Berthelsen for a presentation on Facilities Management. She noted that this presentation is a change
from the past; now service unit compacts are being brought to the appropriate
Senate committees for discussion.
Naturally, this Committee considers Facilities Management.
Vice
President O'Brien began by commenting that she believed it important they
consult with the Committee on the Facilities Management budget. It is unique in that it has two cost pools of
its own as well as being part of the administrative cost pool ("cost
pools" are the charges levied against academic and some service units for
operating expenses; the charges are determined by various formulae in the new
budget model). One of the benefits of
the new budget model, she said, is that it ensures open discussions between
Facilities Management and the people and units it serves. In future years there will be a more
iterative process: are they delivering
the right services, at the right level, at the right cost?
Mr.
Berthelsen presented a series of slides and began by putting Facilities
Management in the context of the budget model.
He reviewed the purpose and mission and summarized the breadth of its
activities (for the 23 million square feet of space on the Twin Cities
campus). Space, he reminded the
Committee, is not a free good, and everyone must pay attention to this equation
in order to meet expectations: Resources
(a University decision) times Productivity (Facilities Management
responsibility) equals Service Level (the agreed-upon outcome). There are five major components to the
Facilities Management budget: (for the
same level of service) compensation, new building costs, and utility rates; (for
increased/restored service levels) Facilities Management transformation and
repair and replacement.
Mr.
Berthelsen reviewed the Facilities Management cost pools (utilities, facilities
and operations, and the administrative cost pool) and their contents. For example, the utilities cost pool includes
steam, electricity, and (next year) district chilled water. He noted that the University will spend $86
million on utilities during the current year:
$72 million on steam and electricity (which comes out of the utility
cost pool) and the remainder on water, chilled water, and gas (which comes from
the O&M administrative cost pool).
Rates for steam are expected to increase slightly next year; rates for
electricity are projected to decline slightly (after an increase of 29% since
2004). The utility cost pool is
calculated by projecting fuel and electricity rates and metering each building
for consumption; costs are allocated by assignable square feet in each building
and the costs summed for colleges or other budget units based on their share of
each building. There are about 13-14
million assignable square feet; the common spaces in a building are assigned in
proportion to the percentage of assignable square feet allocated to a unit in
that building.
When
will the University get windmills to help lower utility costs, Professor Martin
asked? Those are not free, Mr.
Berthelsen commented; they need an initial subsidy—but as rates increase, at
some point the lines will cross on the graph and windmill-generated power will
be more economical. If colleges cut
costs, Professor Martin said, the numbers could change. Mr. Berthelsen agreed, and reported that the
The
University is trying to mitigate fuel cost increases. It has contracts in place that have saved
$3.3 million over market prices, and they are working with Asset Management on
purchasing protocols and an annual energy purchasing plan. There are potential savings of $2-4 million
per year from burning oat hulls at the steam plant, although the full savings
have not yet been achieved. Energy
conservation/efficiency has also saved about $6.8 million per year (based on
comparisons with 1997-98 consumption rates).
Normalized for weather, energy use on the Twin Cities campus (BTUs per
square foot) has declined significantly since 1991.
The
operations and maintenance portion of the Facilities Management budget, $83
million, includes maintenance, custodial, non-billed utilities, repair and
replacements, and a few other items.
This budget is compiled by an annual review of service costs, which are
totaled and billed to each college/budgetary unit based on assignable square
footage totals. The repair and
replacement money is not HEAPR funds; this is money the University spends in
addition to HEAPR funds. Cost increases
in the O&M portion of the budget include compensation and the addition of
new buildings as well as non-billed utility cost increases.
The
administrative cost pool includes BSAC (
They
use an extensive consultative process in developing the budgets, Mr. Berthelsen
said, including use of a collaborative group of users, the faculty governance
system, individual meetings with deans and vice presidents, and with the Twin
Cities Deans' Council. Are there squeaks
in the consultation system, Professor Seashore asked, or just the normal noise? Vice President O'Brien said a major concern
is the consistency of service delivery; some units are very happy with their
service while others are not. Units are
happy with service when it is provided, Mr. Berthelsen added but there is a lot
of concern about communication about when a job will be done and about
clarifying expectations (who pays, who is responsible). They want to work to a single point of
contact.
Is
there variation among colleges in driving costs down to departments, Professor
Seashore asked? Mr. Berthelsen suggested
that question should be addressed to Ms. Tonneson. Some of the perceived inequities could be due
to deans, not Facilities Management, Professor Seashore commented.
When
they can identify an area in which conservation can occur, they can tell the
dean about it, Professor Speaks observed, but how can they get faculty and
staff to buy into it (e.g., turn off your computer)? Mr. Berthelsen said he was not sure. Vice President O'Brien said it is important
to ensure that people have information about the real costs of things so that
they understand the behavior implications.
They also intend to start a major conservation drive. She said she believes that when people have
information they will be good citizens.
A number of Committee members expressed doubt that Vice President
O'Brien's belief was justified. Professor Seashore pointed out that a lot of
people recycle; Committee members pointed out that a lot of people don't,
also.
Professor
Zaheer asked Mr. Berthelsen where he wanted feedback, since he had come to the
Committee for consultation. Where is he
undecided? What can the Committee
contribute? Mr. Berthelsen said it would
be helpful to know if the Committee had the same or a different view about poor
communication, a lack of accountability, service inconsistency, and decisions
not made on the basis of good data.
Professor Zaheer surmised that much of what they are hearing may be
driven by the new budget model. Mr.
Berthelsen said he did not believe that was the case. Professor Konstan said he thought Mr.
Berthelsen was focusing on the right issues:
communication, what can be expected when someone from Facilities
Management comes to an office, and incorporating a measure of efficiency
(labor). He asked if Facilities
Management should not be expanded in some areas; for example, it would be more
efficient if some information technology staff were moved to Facilities
Management so that when telephones must move or slide projectors are broken,
they would fall within the ambit of Facilities Management.
Professor
Hendel asked about aggregating data from student evaluation forms about the
physical condition of classrooms; Mr. Fitzgerald assured him that the Office of
Classroom Management does collect the information and providing it to
Facilities Management.
Mr.
Berthelsen drew the attention of the Committee to one slide in particular, the
"as is" communication map (which had a profusion of arrows to and
from custodial, capital planning, BSAC, utilities, parking, public safety,
deans, departments, vice presidents, faculty, centers, etc. There could be many
more boxes on the map, he said. The
"to be" communication map has the services on the left side
(Facilities Management, Environmental Health and Safety, Capital planning,
public safety), with a single point of contact for facilities, it has the users
on the right (deans, vice presidents, departments, centers, faculty) and a
single point of contact for customers; the service level agreement mediates the
interaction between the two individuals.
They intend to have smaller teams, with a team lead, responsible for an
entire building. All issues will go to
one person. The problem is that when
each support unit owns a part of a building, all step in to try to do a good
job when there is a problem; there is a need to clarify roles, he said. They are asking each dean to appoint a single
point of contact, a person who becomes expert on the facilities and who becomes
part of their customer advisory group.
Mr.
Berthelsen said that to implement their plans, it may be necessary for
Facilities Management to do things differently and to add people. The direction they wish to go is not the way
that facilities management departments have been built in higher education—it is
the way property management firms in the private sector have functioned, as a
complete service. Professor Martin said
this makes sense and the plan should start with the zones. If there is one person responsible to check
in with, it should be department administrators. The person should not have to find a dean or
deal with individual faculty. They are
looking at multiple partnerships, Mr. Berthelsen said: a team leader, the daily contact for a
building, for each college, and a strategic perspective at the dean level.
Professor
Speaks asked if it would be helpful to have the endorsement of the
Committee. Professor Martin said she
supported what had been presented; the more information they can get to the
users, the better. Professor Konstan
agreed on the condition that the new plan did not eliminate individual
relationships (e.g., one wants to be able to leave a note for a staff
member)—everyone in the organization must be a customer service
representative.
Vice
President O'Brien said that the slides Mr. Berthelsen presented represent two
years of work to transform Facilities Management, an effort he ably led. She said she believed Facilities Management
is at the point it can make qualitative changes and that she was glad the
Committee senses the changes that can come.
Because
Mr. Berthelsen was unable to finish his presentation due to time constraints,
Professor Martin asked that he return in the future to finish providing
information and have time for a more thorough discussion. She thanked him and Vice President O'Brien
for the presentation.
3. Strategic Positioning Key Financial
Indicators
Professor
Martin welcomed Dr. Howard to the meeting and apologized that the previous
agenda items had taken more time than predicted.
Dr.
Howard distributed copies of a handout and explained that he served as chair of
the Metrics Steering Committee, which includes Professor Roe from this
Committee, a group appointed to a two-year effort to follow up on the Metrics
and Measurement strategic positioning task force recommendations.
The
first page of the handout listed the metrics that had been agreed on for the
University as a whole, a group of 18 indicators that includes the nine measures
from the
The
list of metrics was developed by members of the Metrics Steering Committee
talking with vice presidents and others responsible for various parts of the
University. The Board of Regents limited
the list to 20 items. The
Dr.
Howard asked that Committee members look at the metrics and the Committee give
him its reaction to those that have been chosen (noting that the measures from
the
Professor
Martin promised to reschedule Dr. Howard as soon as possible, and adjourned the
meeting at 4:25.
--
Gary Engstrand