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), Jon Binks, David Chapman, Darwin
Hendel, Joseph Konstan, Kathryn Olson, Richard Pfutzenreuter, Justin Revenaugh,
Michael Rollefson, Gwen Rudney, Warren Warwick
Absent:
Rose Blixt, Steve Fitzgerald, Lincoln Kallsen, Thomas
Klein, Mikael Moseley, Kathleen O'Brien, Terry Roe, Thomas Stinson, Michael
Volna, George Wilcox, Aks Zaheer
Guests:
Vice President Charles Muscoplat, Carla Carlson
(Office of the Vice President for Statewide Strategic Resource Development)
[In these minutes: (1) 2008-09 budget; (2) Regents' Finance and
Operations Committee work plan; (3) UMore Park; (4) committee discussion]
1. 2008-09 Budget
Professor
Martin convened the meeting at
Vice
President Pfutzenreuter first reviewed the timeline. Instructions went to support units early in
September; by late November or early December support unit budget materials
will be presented to the President for approval. After that the cost-allocation rates will be
incorporated into academic unit instructions.
Academic-unit instructions will go out in late December, meetings will
be held in late January and February, and the President will present a
recommendation to the Board of Regents in April for review and in May for
action. This is an accelerated schedule,
Mr. Pfutzenreuter said, because next spring the new Enterprise Financial System
is scheduled to go online—and the same people who do the budgets are the ones
who must be trained on the new system.
The
budget planning numbers are these; Mr. Pfutzenreuter emphasized that they are
for planning purposes, not etched in stone:
Investments
(in $ millions, increase over 2007-08)
3.3 student
aid
34.7 general
compensation (3.25% plus fringe benefits, subject to collective bargaining
agreements)
15.3 facilities
(new buildings, utilities, leases, debt service)
13.6 new
investment pool
66.9 total
Resources
(in $ millions, increase over 2007-08)
4.8 balance
from 2007-08
14.3 new
state appropriation
39.4 tuition
and fees (based on a 7.5% tuition increase for all campuses and programs)
8.5 University
internal reallocation
66.9 total
The internal reallocation figure is slightly higher
than earlier projected in order to have an investment pool of sufficient size,
Mr. Pfutzenreuter said.
Will
the Regents support a 7.5% tuition increase, Professor Martin asked? They have been told it is part of the budget
plans, Mr. Pfutzenreuter said. Professor
Chapman suggested that 7.5% will be seen as quite high. Mr. Pfutzenreuter agreed but pointed out that
for
Mr.
Pfutzenreuter noted that no units are being asked to prepare a compact this
year because they will only be done on a biennial basis, but units are being
asked for a 1-2 page update. The
University may have to revisit the years the compacts are prepared because the
compact process is to inform the biennial budget process, compacts should be
prepared the year the biennial budget is being developed; the compacts now are
a year old.
The
new investment pool is expected to be about $13.6 million. Support and academic units are being allowed
to request these funds and will be focused on compelling financial needs. The compelling case must fall into one of
three categories: legal, contractual,
compliance, or safety issues identified; start-up funding was provided in
2007-08; or an essential and critical need is identified. They will be pretty stingy because there
isn't a lot of money; this second year of the biennium will be tight, Mr.
Pfutzenreuter said. There is also a
concern about the November revenue forecast.
Of
the $8.5 million in internal reallocation, some will be born by the support
units. The support units will be
expected (in the following target amounts) to achieve cost reductions or
generate revenue that will reduce the overall cost of the pool; the
"owners" of each cost pool will be assigned the responsibility to
achieve the target amounts.
680,000 Senior
Vice Presidents & Chief Financial Officer
360,000 Vice
President & Chief Information Office (technology infrastructure)
470,000 Vice
President, University Services (facilities, utilities)
125,000
135,000 Vice
President for Research (research administration)
220,000 Libraries
70,000 Dean
and Vice Provost (student services, all students)
110,000 (student
services, undergraduates)
30,000 (general
purpose classrooms)
Mr. Pfutzenreuter clarified that these reductions
would be expected after the 3.25% in salary and fringe benefit increases had been
provided, so the actual increase in a unit might less than otherwise expected.
What
kind of diminution of services is likely to result, Professor Martin
asked? They will find out when they meet
with the units over the next couple of months, Mr. Pfutzenreuter said. It may be, for example, that University
Services will achieve energy savings to make up part of its obligation, so
there would be no reduction in services in that case. Professor Konstan asked about potential cost
increases; Mr. Pfutzenreuter said the result will be increased charges to
academic units, which they can cover with tuition, reallocation, or central
administration can provide funds to cover the increases (a decision that would
be made on a unit-by-unit basis).
Professor
Chapman inquired of Mr. Pfutzenreuter if, based on his experience, this will be
perceived as an austerity budget.
Between the tuition increases and the cuts, it looks pretty austere to
him, he said. Mr. Pfutzenreuter said it
is austere. A $13.6-million compact pool
is not small per se, but it is small relative to the entire University budget,
and the $66.9 million in increased resources for next is lower than the usual
average increase of about $80 million.
Salaries eat up a lot of the increased funds, and after paying legal,
compliance, utility, and other obligations, the $13.5 million is not a lot for
an organization this size. Professor
Martin said there is no sense of this coming austerity in the University
community after all the discussion about how much support the legislature
provided for the biennium. This will be
a big surprise, she said.
Professor Konstan asked if there is any way to measure
reallocation costs; is the University spending $5 million in time from its
faculty, staff, and administration to squeeze out $2+ million in
savings? No, but it is a lot, Mr. Pfutzenreuter replied. This is a
model where everyone is squeezed every year, Professor Konstan said; the
University is "in a juicer" so everyone both spends substantial time
worrying about what to cut and then asks for something new to try to
get funds back. One could imagine a system in which strategic cuts are
made every five years or so, but without the slow drain on funds
across-the-board, so there is some stability. This squeezing is not
inherent in the budget model. Who would make the decisions, Mr.
Pfutzenreuter asked? Professor Konstan said that it is within
the President's prerogative to reallocate state funds, since all units are
subsidized. It seems inherently inefficient to squeeze every unit every
year. Professor Martin reminded Professor Konstan that while the
University can get rid of a college, it cannot get rid of the faculty, who hold
tenure in the University. It seems, however, that the University has
closed units and not saved money, Professor Konstan said. He
clarified that he felt the message coming out of the consolidations was that
any savings were going back to the merged colleges, which may encourage
them to save, but doesn't reap the ability to reallocate to strategies
university-wide. Later, Professor Konstan asked
whether the universities it seek to join--top public institutions
like
Mr.
Pfutzenreuter said he had proposed the approach of putting the burden on the
cost-pool owners. Last year they were
told to talk to their customers; this year they have an obligation to reduce
costs or find more productive ways to do business—and not, for example, by
closing four libraries. At some point
almost all at the University will say there is nothing more that can be done
more efficiently, Professor Martin commented, and people may be close to that
point now—and cannot respond in a rational way to directives for greater
efficiency.
Professor
Konstan said, apropos the schedule, that if the administration goes to the
deans with the cost-pool numbers in late December and require a budget in
February, how much consultation in the college can occur, especially when many
people are not on campus? The biggest
cost-saving a department can make, if it is doing a search, is not to fill the
position, Professor Chapman said. Departments
need to know now, because a lot of offers will go out in December and
January. If the deans do not have the
message until late December, that will be too late, even though they may not
want to fill positions.
Professor
Martin recalled that the Committee learned last year that several major
colleges have a structural deficit. The
Provost said they would be fixed. Were
they? There are a couple of colleges
that have significant structural imbalances, Mr. Pfutzenreuter said, and a
couple more that have workable problems.
Are they fixed? No. The problems were addressed in the last
budget but some will require multi-year plans to fix.
Professor Konstan
related that his back-of-the-envelope calculation was that his
department spent $20,000 in faculty time debating whether to hire a faculty
member into an open slot versus saving that slot to offset an
uncertain upcoming cut. Multiplied across the University, that's a
lot of research, teaching, and service not being done that could lead towards
top-three status. "We may be spending more time and energy to
find cuts than the resulting savings yield in gains. Would
we be better off telling the legislature that our funding level doesn't
let us do everything, and make a few substantial targeted cuts?"
(Echoes sounded about the results the last time that was tried.)
More generally, Professor Konstan asked, is $8.5 million in reallocation
providing more advancement of the University towards the top-three goal
than the amount that University-wide agonizing, stress, and wasted
effort over these cuts moves it away from the goal? Mr.
Pfutzenreuter agreed that the University may be trying to invest too much in
new programs or activities. Professor Konstan said it would be wonderful
to use productivity gains to achieve the reallocation, but productivity gains
often mean cutting service and transferring the burden
elsewhere; eventually, there is little room left in units for substantial
productivity gains. There is some room, Mr. Pfutzenreuter maintained.
2. 2008-09 Regents' Finance and Operations
Committee Work Plan
Vice
President Pfutzenreuter next distributed copies of the work plan for the
Regents' Finance and Operations Committee and reviewed the items that would be
coming to the Board during the next year.
The
Committee agreed it wished to hear, at upcoming meetings, from Mr. Mason on an
overview of the invested assets of the University, about new indebtedness, how
the University's returns on its investments compare to its peers, and financing
the future of the University.
3.
Professor
Martin turned now to Vice President Muscoplat and Ms. Carlson to provide the
Committee with an update on the
Dr.
Muscoplat related that they have been working on
Dr.
Muscoplat reviewed the six activities that are currently underway through the
University's
As
for (1) and (2), no one has fully envisioned what a University-founded
community is, Dr. Muscoplat commented, but there are about 100 faculty working
on it through six academic mission task forces.
The six are pursuing the broad areas of education, environment, energy,
health, interdisciplinary opportunities, and transportation. If they do not bring the University to this
community, it will be no different from any other suburban development. The Board of Regents has declared that the
project should not proceed without academic programs as part of it. With respect to (3), the preliminary
assessment is that there is $65 million in proven reserves of gravel; a more
intensive analysis of the geology is underway because it is important the
University know the location, quantity, and quality of the gravel before it can
begin development of the site. (4) is
general land-use planning for the number of people, utilities, etc., that does
not preclude University options. Part of
the site is a former defense plant; (5) involves asking the federal government
to assess what is underground; it is known there are miles of pipes and
hundreds of tons of concrete. The
assessment by the MPCA will be available next year. They are developing a master plan (6). The University and the DNR are jointly
developing a master plan for the southern Vermillion Highlands, which will
remain natural open space forever (6)
He
has been asked a number of times how to pay for this, Dr. Muscoplat related;
the goal is to make a lot of money for the University that would be captured in
an endowment to support University's academic mission, but it must spend some
money to make money. There is several
million dollars set aside for
Professor
Martin asked if the expectation is that within 15-20 years some money would go
towards the academic mission. Dr.
Muscoplat replied that the Board of Regents has decreed that 100% of the money
will go to the academic mission.
There
are two good things about this idea, Professor Konstan said: it may help provide ways to fund the academic
mission and it will provide an asset for research and outreach. But this feels like another Twin Cities
suburb; has there been discussion of higher-density living? Professor Martin said there has; the
community will consist of 20,000 – 30,000 people but they will not be evenly
distributed because there will be green spaces as well. Will there be building for University use,
such as graduate student housing (assuming transportation will be in place to
the Twin Cities campus)? The
Metropolitan Council transportation plan for 2030 has no transportation
anywhere near
Dr.
Muscoplat said he has talked with Dean Bailey about whether the University
could develop a different educational system at
Mr.
Rollefson asked about the community of Jonathan, which was not successful. The problem was that it was way out in Chaska
at a time when access was not easy, Professor Martin said, and did not become
what was expected because of transportation problems. Transportation is critical.
The
Stanford development is all leased; has the University thought about that, Mr.
Rollefson asked? That is not likely, Dr.
Muscoplat said, but if the University does not do SOMETHING with the land, it
will lose, because there will be easements, eminent domain, etc. How much would be given up in initial resources
if the University were to sell 60-90-year leases, preserving flexibility for
the University, Professor Konstan asked?
The land could be worth a lot more in 100 years. Dr. Muscoplat said he was not qualified to
answer that question; a market-research and financing analysis will address
it.
Professor
Martin said that is part of the problem.
This requires a major planning effort going forward because there will
be about a million more people in the Twin Cities in the next 25 years, and it
is not unreasonable to believe that some of then could end up in this
area. The question is whether the
University keeps some long-term control, Professor Konstan said, or just gets
cash for its endowment now. There is a
lot of benefit to the University to invest in real estate as a growth vehicle;
the Harvards of the country are doing it.
That is a political decision that the Board of Regents must decide,
Professor Martin said, but the University does not have a good record as a
landlord.
The
University might likely keep ownership of the public and retail space, Dr.
Muscoplat said. There would be 10,000 –
15,000 homes that would be paying taxes; the University could negotiate to own
some of them so it would not be just a one-time real-estate transaction. But it is a couple of years too soon to know
the answer to that question. If it is
just like every other suburban community, there will be no price premium.
They
are holding six public listening sessions, Dr. Muscoplat reported; the first
one was the night before this Committee meeting and drew 115 people. The sessions are being well-publicized in
The
big challenge is to have a University vision that is adventurous and visionary
enough that it stretches beyond where it is now, Professor Martin said.
Professor
Martin thanked Dr. Muscoplat and Ms. Carlson for joining the meeting.
4. Committee Discussion
At what point should the University do
things differently in the budget process or budget model, Professor Martin
asked? This is usually discussed at the
wrong level, Professor Konstan commented.
It could be brought to FCC or SCC if they are interested; it would be
worth hearing the President's rationale on why this is the right
direction. It would be an interesting
discussion, he said. Professor Martin
said she would speak with Professor Balas and ask if FCC wished to consider the
issue. She said she has been involved in
many budget-related discussions in the last 5-6 years and there is not a lot of
enthusiasm in the central administration for the central administration to be
making all the decisions, but it is an appropriate question if things could be
done differently. With respect to the
top-three goal, if the University does not have the financial foundation to
make it work, it is unwise to pursue the goal.
Only the
Professor
Konstan said it would help to identify what the top-five institutions do,
whether they have continuing stress. If
they have financial stability, the University is in a losing game.
Professor Martin adjourned the meeting
at 3:40.
--
Gary Engstrand