These minutes reflect discussion and debate at a meeting of a committee of the University of Minnesota Senate; none of the comments, conclusions, or actions reported in these minutes represents the views of, nor are they binding on, the Senate, the Administration, or the Board of Regents.

Minutes

Senate Committee on Finance and Planning

Tuesday, February 6, 2006

2:30 – 4:15

238A Morrill Hall

Present:

Judith Martin (chair), Rose Blixt, Rachel Curtiss, Daniel Feeney, Steve Fitzgerald, Darwin Hendel, Lincoln Kallsen, Thomas Klein, Joseph Konstan, Michael Korth, Mikael Moseley, Kathleen O'Brien, Kathryn Olson, Richard Pfutzenreuter, Michael Rollefson, Nicholas Treat, Warren Warwick

Absent:

Justin Revenaugh, Terry Roe, Karen Seashore, Thomas Stinson, Michael Volna, George Wilcox, Aks Zaheer, John Ziegenhagen

Guests:

Associate Vice President Michael Berthelsen (Facilities Management), Jerome Malmquist (Director of Utilities and Engineering)

[In these minutes: (1) athletic finances; (2) biennial request update; (3) update on utilities and energy management]

1. Athletic Finances

Professor Martin convened the meeting at 2:30 and reported that an issue had arisen at the Faculty Consultative Committee because several of its members had received a mailing from an alumnus asking why the faculty voice was absent when so much money was being spent in athletics (the stadium, coaches' buyouts). She said she would like Committee members to have an opportunity to talk about these issues, later.

2. Biennial Request Update

Vice President Pfutzenreuter began the biennial request discussion with a lesson in biennial math. Imagine a department budget of $100 last year and $105 this year.

$100 in 2005-06

$105 in 2006-07

____

$205 for the 05-07 biennium

$105 in 2007-08

$105 in 2008-09

____

$210 for the 07-09 biennium, or a 2.4% increase.

But the more realistic approach is to double the spending for the second year of the previous biennium; the department was spending $105 in 06-07, so a flat budget of $105 for each of the next two years would not be seen by those in the department as any kind of increase at all. This kind of math, however, allows those in St. Paul to inflate the numbers so that they appear to be delivering more than they are. They do this with the spending side but not with the tax side.

The Governor's recommended 07-09 biennial budget for the University is, by biennial math, a 15.2% increase. It includes $38 million for the partnership with Mayo, which has traditionally been in another part of the state budget, not higher education. It also includes non-recurring money. The more realistic math suggests he has recommended an 8.8% increase. The University requested 9.5% each year of the biennium.

Professor Konstan asked how the state share of the University's budget would fare under the University's request and the Governor's recommendation. Mr. Pfutzenreuter said the total budget is about $2.6 billion, of which state funds are about 26% and tuition about 19%. The University's request would have slightly shifted the percentage supported by state funds, but not much, given the size of the base. The Governor's recommendation probably leaves the state's share at about the same level. The University's peak year for state funds was 2002, when it received $628 million. In the current year it received about $620 million, so it is still $8 million below the peak (and those are unadjusted dollars). Had the University received funds to maintain the same purchasing power as in 2002, it would have $132 million more in state funds than it does this year. To make up the difference there have been a wage freeze, budget cuts, increase in employee health care costs, and tuition increases.

Mr. Pfutzenreuter reviewed the numbers on the biennial request. It was split into two parts, "Sustaining Quality and Competitiveness" (funding the core operations of the University), and "Creating Minnesota's Future" (competitive compensation, health workforce and clinical sciences, science and engineering, and environment/agricultural systems/renewable energy). The Governor recommended no increase for the core operations and full funding for the "Creating Minnesota's Future" portion. One question is how the University is to fund new activities when it cannot fund the core. Another is how it can target salary increases to a small group of faculty when it does not provide general salary increases? If the only funding the University receives is what the Governor has recommended, it is unlikely the legislature would require that the funds be spent in the way he proposed.

Professor Hendel asked how the Governor's request for the University compared with that for MNSCU. They are about the same, Mr. Pfutzenreuter said; MNSCU would receive about $8-9 million more, and their request included a large amount for technology—money the University has already spent (PeopleSoft, the new financial system, etc.). Both systems are recommended for a $25 million performance bonus; in neither case did the Governor recommend compensation increases. (He did, however, recommend 2% for salaries for state agencies.)

Professor Feeney recalled that there was a concern at the time that the money for the Mayo partnership would dilute the University's funding. Is the $38 million now considered part of the University's appropriation—to its detriment? Mr. Pfutzenreuter said the Governor at the time promised that the money would not flow through the University budget, that it would be elsewhere in the state budget; now he has included it in the University's recommendation. So the worst-case scenario has come to pass, Professor Feeney concluded. No one apart from those who were in the FCC leadership a few years ago now recalls the agreement, Professor Martin commented, so it apparently doesn't count.

What about the University of Minnesota Rochester, Professor Konstan asked? The Committee was told that the campus would grow only if there were new dollars provided, but it appears the campus is growing without new University funding. Funding that would have been available to the rest of the University is now going to Rochester. Mr. Pfutzenreuter said that was not quite true. In the non-budget year (last year), the University received a supplemental appropriation for Rochester; that supplement was added to the University's base budget and will be available going forward. The University received $5 million; next year the amount will increase to $6.3 million. But, Mr. Pfutzenreuter said, if there is a capital request for Rochester, that will be part of the University's total capital appropriation.

Mr. Pfutzenreuter said he did not see a large change likely in the state revenue forecast, next due in March.

The University just finished a strategic positioning exercise and set a goal of being among the top three, Professor Feeney observed. The success or failure of the exercise is dependent on the ability of the University to obtain funding.  The President sought the funding and scheduled the dinner, but the Governor cancelled the caterer.  Mr. Pfutzenreuter said the Governor would probably say that the University just needs to cancel a couple of hors d’oeuvres.  The choices are to raise tuition, cut more, or phase in investments.

This does raise again the question of the ability of the University to achieve its goal of being in the top three, Professor Martin observed. Mr. Pfutzenreuter said it won't be able to do so without state support. Professor Feeney asked if University Relations is preparing any kind of statement on the issue; if there is no reminder, all will be forgotten; someone needs to say something, he said. Professor Konstan said the statements need to come from the Regents, not those on the University's payroll. Board members are connected to the legislature; if they do not speak up, the goals they have articulated for the University will be undermined. Mr. Pfutzenreuter assured the Committee that the President is making the case as forcefully as he can.

Professor Martin thanked Mr. Pfutzenreuter for the discussion.

3. Update on Utilities and Energy Management

Professor Martin asked Vice President O'Brien to begin a discussion about energy and utilities. Ms. O'Brien noted that it has become the practice to provide an update to the Regents on utilities, which cost the University over $100 million per year. She introduced Associate Vice President Mike Berthelsen and Jerome Malmquist, Director of Utilities and Engineering. The University is the 7^th-largest purchaser of electricity from Xcel Energy, so a big customer. It is important that faculty governance, and the Student Senate, have an understanding of the University's utilities and energy use.

The University has three guiding principles when it comes to utilities: reliability, stewardship and environmental sustainability, and cost control. Mr. Berthelsen said they try to pay attention to all three, because if they do not, the University will not get what it wants. He explained that for the Twin Cities campus, his office is responsible for the coordination and delivery of all utilities—steam, electricity, hot water, cold water, natural gas, etc. They also provide assistance (utility engineering) to the coordinate campuses. They also rely on Asset Management to use the University's buying power in utilities.

-- Does the University get a good deal because of its size? For the most part, no; any organization can do what the University does.

-- How does the University do on management of risk? Any buying has risk; if the University does not take steps to mitigate the risk, it is at the mercy of the market without protection. The University tries to hedge in order to gain price certainty in order not to pass along large price swings to the colleges.

Mr. Berthelsen and Mr. Malmquist reviewed several PowerPoint slides with Committee members and made several points.

-- Weather-normalized data demonstrates that there has been about a 5% drop in BTU per square foot in the University from 2005 to 2006. There are data available by building.

-- Natural gas and coal remain the two major energy sources for the Twin Cities steam plants, although they have begun to burning oat hulls, with a 25% reduction in greenhouse gas emission. No more than 30% of the campus BTUs come from coal and fuel oil, and at least 70% come from natural gas and biofuels.

-- Savings in water consumption are saving significant amounts of money, as is energy conservation (e.g., the St. Paul campus chiller plant will produce savings of about $2 million per year). There is also a pilot recommissioning program under way that has been used for three buildings thus far; in just one of them (MCB), the estimated savings will be between $600,000 and $1 million per year (money that the college would not have to pay, under the new budget model). They are adding to the utility engineering staff so that more recommissioning can be done; they have learned that there are savings to be had by recommissioning buildings about once every four years, which means doing about 50 per year on the campus. They have also commissioned outsiders to do some of the work, but then those people take the knowledge with them, so they have begun to use internal staff more. Engineering designs on paper at times do not work as well as planned after being constructed and adjustments are required.  Sometimes the program need for building utilities and space environment are over-estimated and additional building performance efficiencies can be gained by adjusting to the real program needs. So the recommissioning process repairs and tunes things up. When it comes to what to pay for, they must decide between what they want and what is possible.

-- The reliability of the electrical system has slipped recently due to problems both at the University and at Xcel Energy. They have learned a lot and have taken steps to remedy the problems. On the other hand, the reliability of steam service has increased significantly; Mr. Berthelsen surmised that may have had something to do with a new bonus performance contract.

-- They are hiring students from IT (at present 13), a way of "growing our own"; two of their full-time employees are former students in their program. They have also, in a difficult market, been able to hire people who perhaps want to leave consulting or who were early retirees elsewhere (e.g., 3M). The student workers are doing excellent work for them. (The priority they insist on, with the students, is "grades first.")

-- They are developing a new Utility Master Plan, to replace the one prepared in 2001 (because of increasing energy demands, rising fuel costs, campus development and growth into areas it has not been before, greater environmental responsibility, and investigating strengths and weaknesses in existing systems). There has been a tendency to put up buildings first and then put in utilities; it is better to do it the other way around. (Professor Martin said that private developers do the same thing.) They are looking at a baseline assessment of assets (capacity, volume, strength) and a 20-year vision that can help lay out the needs for the six-year capital plan. They are working with, for example, the Office of Information Technology to ensure that needs for the data/video network will be integrated into utility plans. One can focus on engineering up to the building and engineering in the building itself; the master plan process is focusing on engineering up to the building. This effort will not stop other activities with respect to designing buildings with a "smart-energy" footprint, and the energy-efficiency staff want to see a zero increase in campus energy use. There are ways to generate energy and get the most out of BTUs before increased energy consumption is required.

Professor Martin noted that the University's need for electricity is increasing; is there anything that will allow it to be less reliant on Xcel Energy? Only if it generates its own power, Mr. Malmquist said, and they intend to look at that possibility in the master planning process. If the University is to be among the top three, it may need to be an island in terms of power (the top universities are).

Professor Martin said that Messrs. Berthelsen and Malmquist have a very positive story and the word needs to get out. She commended them for hiring and training University students to learn these skills, and thanked them for the presentation. She then adjourned the meeting, at 4:15.

-- Gary Engstrand

University of Minnesota