BUDGET AND FINANCE COMMITTEE. September 21, Minutes

Transcription

1 BUDGET AND FINANCE COMMITTEE September 21, 2005 Minutes The meeting was called to order at 9:05 a.m. by Governor Massaron in Room BC at McGregor Memorial Conference Center. Secretary Miller called the roll. A quorum was present. Committee Members Present: Governors Bernstein, Driker, Hardy, Massaron and Washington; Michael McIntyre, Faculty Representative, Charles Elder, Faculty Alternate Representative; Marcus Lee, Student Representative, Jason Pearsall, Student Alternate Representative Also Present: Governors Abbott and Miller, and President Reid; Provost Barrett and Executive Vice President Gibbs; Vice Presidents Burns, Davis, Hollins, Lessem, and Oliver; Secretary Miller APPROVAL OF MINUTES, July 20, 2005 There were no objections or corrections to the Minutes, and the Minutes of the July 20, 2005 meeting were adopted as submitted. CONTINGENCY RESERVE There were no transfers from the Contingency Reserve, and the balance remains at $500,000. The report was received as presented. AUXILIARY ACTIVITY BUDGETS, FY2006 The University s auxiliary operations include ten units that provide non-academic essential services to students, faculty, staff, and the community, and the administration presented the proposed budgets for FY 2006 for each of the units for approval. Executive Vice President Gibbs began her discussion of the units with WDET-FM Radio Station. She introduced Mr. Michael Coleman, the station s new general manager, who previously served as deputy general manager at the University of Michigan s Public Radio station, WUOM- FM, and has considerable experience in public radio and television. Over the next six months, he will be gathering feedback from listeners, donors, volunteers, and station staff, and will also study the programming changes that were put into effect earlier this year. Vice President Gibbs said the budget proposed for WDET is basically a continuation budget. It reflects a projected increase of 9% in gifts, in anticipation that Mr. Coleman s experience in fundraising will prove helpful to the station. 2709

2 2710 Budget and Finance Committee Governor Miller expressed her hope that the budget would be flexible enough to allow for new programming. Professor McIntyre looked forward to more historical data that would show WDET s progress over an extended period of time, similar to the presentation done for the bookstore last year. Vice President Gibbs then moved to the auxiliary units within the Division of Administrative Operations, consisting of the major service areas of the University. These units are doing well, with an anticipated contribution back to the general fund of over $6 million for FY In accordance with the Board directive, all are now self-sufficient with the exception of utilities and parking. Vice President Gibbs explained that self-sufficiency means the units are paying for their direct operational costs from their incoming revenues and that administrative overhead costs are determined using the federal formula for indirect share. In addition, more of the personnel expenses will be covered through auxiliary operations. For example, a portion of Vice President Gibbs salary and a share of Assistant Vice President Nabelah Ghareeb s salary will be paid from the auxiliary operations for the time they spend with those units. This practice, followed by at least 95% of universities, would in effect reduce the general fund subsidy of the auxiliaries. Nabelah Ghareeb, Assistant Vice President for Business Operations, continued the presentation. Ms. Ghareeb listed the units classified as auxiliaries the Bookstore, McGregor Memorial Conference Center, Parking and Transportation, the Mort Harris Recreation Fitness Center, and Student Center. Business operations and contract services include copying and printing services such as Kinko s, the AVI Food system which is the vending operation, and some other small units such as the pouring rights with the Pepsi Bottling Company, and other internal services such as typewriter repair and other maintenance. Ms. Ghareeb said the operations are run efficiently and have generally become self-supporting. In the past, utilities and maintenance costs for the units were paid by the General Fund, but for the past few years the units have assumed increasing responsibility for their own expenses, so that this year they will be fully self-supportive. The one exception is Parking and Transportation, which will achieve that status by Ms. Ghareeb explained the new method for paying administrative overhead costs, which in the past were paid out of the General Fund. Using the federal formula for indirect costs, the auxiliaries now reimburse the General Fund for services received, which include among others payroll, purchasing, public safety, information systems, General Counsel. For example, Parking & Transportation alone reimbursed the General Fund over $200,000 for those services. Ms. Ghareeb also discussed revenue performance of the auxiliaries. Most units saw a 5-10% increase in revenue sales, with a 4% increase across the board. The Bookstore, unfortunately, suffered a decline of 3% in sales, but this is a national trend. Students are becoming very creative in obtaining books online, from each other, or from countries such as India. To counteract this trend, the Bookstore is examining how to diversify its retail operations and increase student services. Gross revenue from the units is also strong, as represented by commissions received from some auxiliaries. For example, the Bookstore paid a commission of $842,500 back to the General Fund. Ms. Ghareeb illustrated two success stories. The Mort Harris Recreation and Fitness Center will not receive any general fund subsidy for FY 2006, but will be fully operated by income from membership and student fees. The facility is used to full capacity, averaging about 1600 students per day. Ms. Ghareeb commented that she was amazed that young people do get up

3 Budget and Finance Committee 2711 before noon, because the facility was packed at 6:45 a.m. To help with the space problems, the pool will be covered and floor space will be expanded on the first floor and the lower level, providing at least 12,000 additional square feet of space to expand the cardio and exercise rooms and aerobic dance studios. The new Towers residence hall also provides fitness facilities for its resident students, and a new satellite recreation center at South Hall will be constructed for use by North Ghafari and South Hall residents. The Parking and Transportation Services unit has also experienced several successes. A new shuttle bus was introduced this academic year, and there were 3,592 riders the first week of September. That means the bus was a success with the students, and plans are to expand the service for the second semester and provide additional vehicles on the routes. The sale of semester parking passes is also at a record high, with 2,978 sold in September of 2005, 800 more than a year ago. With the cooperation of Facilities, Planning and Management and others on campus, the unit has completed approximately 80% of its five-year plan for improvement in parking structures and lots. These successes place the unit well on its way to self-sufficiency. In conclusion, Ms. Ghareeb said there still are several challenges ahead, but in general the units have had a strong year and are working hard to exceed their goals and objectives for the upcoming year. Executive Vice President Gibbs commented that the auxiliaries good budget performance and contributions to the General Fund over the last two years has helped the University considerably during its struggle with reductions in state funding and budget cuts. Governor Miller asked whether health services to students are considered part of the auxiliary units. Ms. Ghareeb replied there will be a proposal later in the meeting about constructing a health clinic in the DeRoy Apartments to accommodate students living on campus and would be operated by the School of Nursing. Vice President Gibbs said a pilot program with health services was conducted last spring with positive results. The ultimate goal will be to have a full service health clinic for all students, and the DeRoy construction geared toward residential students will be the first step towards that goal. Professor McIntyre said the Academic Senate Budget Committee expressed concerns about auxiliary budgets and the general fund. He noted that the line for faculty awards and graduate stipends still comes out of the Bookstore s auxiliary fund budget, even though the Academic Senate had previously indicated that it is inappropriate for these areas to be funded with Auxiliary money. Since these funds are the Bookstore s reimbursement of the General Fund and in effect general fund money, a simple accounting procedure would be necessary to show that the faculty awards and graduate stipends are paid out of the General Fund. The Academic Senate also questioned the status of the Fitness Center and the Dean of Students Office. Since both units are now funded almost solely with student fees, it could be argued that neither should be listed as an auxiliary activity but rather a general fund activity. Governor Driker asked Ms. Ghareeb to comment about the service level and how the students view parking, the food service, and the bookstore. Ms. Ghareeb responded that surveys of students, faculty, and staff are performed once or twice a year. She said that students regularly focus on the issue of costs, but in general are pleased with the bookstore operations and the food service. They would like to see more fast food and longer hours, with places open past midnight. Faculty and staff would like to see free parking, which Ms. Ghareeb said would cause difficulty in conducting operations. Everyone seems to be pleased with the shuttle bus service, the newly renovated parking lots, and the improved lighting. There is always room for improvement, of course, and Ms. Ghareeb said that the survey results will be used for building goals for the upcoming years. Executive Vice President Gibbs added that a discussion was

4 2712 Budget and Finance Committee held recently with student representatives regarding service issues, and as a result there will be a regular dialogue with respect to AVI and the food service. Both AVI and Wayne State want to offer good service. Therefore, an advisory committee in the residence halls will be reinvigorated to monitor and evaluate the issue of food service. Governor Washington asked what can be done to shore up the decline in bookstore revenue. Ms. Ghareeb said the trend is a national one. Barnes & Noble has been developing ideas to increase their retail presence beyond textbooks, and the Wayne State bookstore will be part of that discussion. Discussion ensued about the shuttle bus and campus transportation in general. The shuttle is currently free to all students, faculty, and staff when they show their OneCard. The route is predesigned, and last year the medical campus was added to the route upon request by the medical students. Ms. Ghareeb just recently received a request from Dr. Raymond Novak, Director of the Institute of Environmental Health Sciences, to extend the service to the Michigan Center for High Technology. As demand increases, the number of buses may be increased to three or four from the current two in operation. Mr. Lee asked if the number of shuttles would be expanded or if the buses would lbe arger to accommodate more students per trip. Ms. Ghareeb replied that the shuttle bus size would be maintained so as to not require additional certification or licensing of the driver; it would be a matter of increasing the number of shuttles and routes. Governor Washington asked that the Board receive written information on and maps of the shuttle routes. Governor Bernstein expressed his pleasure with the shuttle service, but believed that it should be only the first step in solving the larger problem of transportation. A recent survey of over 6,000 Wayne State University students found that about 80% drive by themselves to school, and many are facing financial difficulties with the increased costs of tuition and high gas prices. Based on this survey, Governor Bernstein is proposing a resolution that will be placed before the Board later in the day. The resolution would establish a work group to study problems students face at Wayne State in contending with the tuition increase and high gas prices, and hopefully look at the long-term outlook for transit at Wayne State University. As primarily a commuter school with over 33,000 students, Wayne State should lead the dialogue on the subject of mass transit. Governor Bernstein said he has conducted discussions with DDOT and with SMART, which has a number of park-and-ride options that could help students. Both systems have indicated their willingness to work with the University. In addition, the University could set up a web site for students to log onto and arrange carpools with each other, as well as consider a number of other near-term, no-cost solutions. He expressed hope that the administration will look at the work group as a model of how a university can work with public transportation systems to coordinate better transit for southeast Michigan. President Reid said there have been requests for a shuttle for many years, and the purpose of establishing the routes was to see to what extent it would be used. The shuttle is not inexpensive. However, the students have used it, and to his surprise so have the faculty and staff. A faculty member described to him this past summer how the shuttle bus facilitated meetings with his research group between the School of Medicine and the College of Engineering. Rather than struggling with parking or foregoing meetings altogether, they used the shuttle to get from one building to the next. President Reid said the shuttle will have a broader impact on the campus as service is expanded. Governor Driker described a scene which impressed him because he had never before seen it at Wayne. He was returning from Orchestra Hall one night around 10 o clock and drove along

5 Budget and Finance Committee 2713 Anthony Wayne Drive. Students were sitting outside the Starbucks and Jimmy John s restaurant, with a crowd of people out on the street, so that obviously there is a demand for later hours for food service. Ms. Ghareeb said it has become a vibrant campus, with evening activities beginning around 7 p.m. President Reid said that an interesting development is that the commuting students stay on campus longer. The movies and other activities that are planned for the residential students are also attracting the commuter students. Governor Massaron asked for a review of the process used in determining the auxiliary budgets. He specifically questioned the doubling of the expenditure budget in the McGregor Memorial Conference Center. Vice President Gibbs explained that all the auxiliaries experienced a large increase in reimbursement of personnel costs to the University, in addition to the overhead administrative costs which are pegged at 9%. Ms. Ghareeb provided further detail regarding the Center s reimbursement to Wayne of salaries and fringe benefits for two employees, as well as the $23,000 charged to McGregor for services provided by senior administrators and staff within the Business Operations division. In addition, 2006 represents the first year that the University is reimbursed by the auxiliary unit for the cost of utilities, totaling $82,000. The same pattern is followed in the budgets of all the auxiliary units, with utilities and personnel representing the largest differentials from FY 2005 to FY Governor Massaron then referred to Professor McIntyre s question earlier in the discussion about the Dean of Students budget treated as an auxiliary activity. He wondered what the practice was at other universities. Provost Barrett said that up until this year at Wayne, the Dean of Students program support budget was embedded in the Student Center budget. Everyone involved with the Dean of Students office and the Student Center finances felt it would be appropriate for the Dean to have more autonomy in reporting to Academic Affairs, and consequently his portion of the Student center fee was moved into a separate line. The Provost said that because the origin of these funds is the Student Center fee, they cannot be moved into the general fund the way tuition funds are moved, but are allowed to remain in the auxiliary funds. Governor Driker asked about the status of the University Press, whether it is a viable operation, and if it is serving its mission. Provost Barrett replied that Jane Hoehner is a remarkable and efficient press director. The financial position of the Press has improved, and the advisory board and the editorial board help with the acquisitions of new manuscripts and scholarly activities. The Friends of the Press have contributed with fundraising activities, and community interaction with the Press has strengthened considerably. In general, the image of the Press has greatly improved both in terms of its visibility and the quality of materials that are received. ACTION Upon motion by Governor Driker and seconded by Governor Washington, the Budget and Finance Committee recommended that the Board of Governors approve the proposed FY 2006 budgets for the auxiliary units as presented. The motion carried. JOSEPH F. YOUNG, SR. PSYCHIATRIC RESEARCH AND TRAINING PROGRAM PROPOSED BUDGET FISCAL YEAR 2006 Provost Barrett presented the proposed budget, totaling $5,605,900, for the Joseph F. Young, Sr. Psychiatric Research and Training Program for FY Since FY 1993, the State has

6 2714 Budget and Finance Committee provided recurring funding to the Psychiatry Department in WSU s School of Medicine to support the Program. In April 2005 the state appropriation for the Program was moved to the Department of Community Health budget, paid via Federal Medicare funding to the Detroit Medical Center (DMC), and the University s appropriation was reduced by the equivalent $5.6 million. A contract between Wayne State and the DMC is being initiated regarding transmission of funding for the Program. Governor Washington asked whether the move would make the funding of the program more secure or precarious. The Provost responded that funding for this program has always been precarious, even though it serves a need in the community as well as a need for the training of psychiatric personnel. The funding from the state has been reduced over the past several years by relatively small amounts, and the University has had to cut back on some of its public service activities. Governor Miller said it would be interesting to have a study on the results of the closing of the Lafayette Clinic and the impact on psychiatric research conducted in the School of Medicine. ACTION Upon motion by Governor Hardy and seconded by Professor McIntyre, the Budget and Finance Committee recommended that the Board of Governors approve the proposed FY 2006 budget for the Joseph F. Young, Sr. Psychiatric and Training Program as presented. The motion carried. DEMOLITION OF 51 WEST WARREN BUILDING DEMOLITION OF 71 WEST WARREN BUILDING Vice President Davis presented a recommendation to demolish the buildings located at 51 and 71 West Warren. The Psychology Department was housed in 71 West Warren, and 51 West Warren housed the English, Philosophy, Linguistics, Humanities, and Africana Studies departments. All the departments were relocated during the summer of 2005 to the former Maccabees Building on 5057 Woodward. Vice President Davis said the space would be used for parking until decisions are made for redevelopment of the sites. Governor Massaron noted that the funds for the demolition projects on the agenda total $1,536 million and are to be withdrawn from the Depreciation Reserve in the Plant Fund. That would leave a balance in the Reserve of $734,000. He asked about the source of the funds and whether they are replenished on a regular basis. Vice President Davis said there was a significant transfer several years ago from the general fund into the Depreciation Reserve, and any interest earned on the balance also stayed in the account. The Reserve is not replenished on a regular basis. If there is available money at fiscal year-end, some of it is used to replenish the fund, but not nearly to the extent of its original amount. President Reid asked if there is an amount recognized as the minimum that should be maintained in a depreciation reserve or plant renewal fund. Vice President Davis replied that none of the professional organizations have established that figure, although there is a guideline that suggests that 2% of the fair market value of an institution s holdings should be set aside for deferred maintenance. In Wayne State s case, that would total $35 million, or 8% of the total general fund. Governor Massaron noted that the buildings do not appear to be eyesores, and asked about the implications of closing them down and maintaining them. Professor Elder also questioned the necessity of demolition, given the space problems that exist on campus. President Reid said that although the buildings may look acceptable from the exterior, the inhabitants of the

7 Budget and Finance Committee 2715 buildings would certainly say otherwise about the interiors. Considerable funds would have to be spent to rehabilitate them. Leaving them standing boarded up is also not an option, since it is very difficult to keep people out of vacant buildings. Governor Washington agreed, noting that there would be liabilities involved with buildings that are boarded up. She will make a statement at the Board meeting later in the day about the faculty s reaction to moving from these two buildings to 5057 Woodward. ACTION Upon motion by Governor Hardy and seconded by Governor Driker, the Budget and Finance Committee recommended that the Board of Governors authorize the President, or his designee, to proceed with the design, solicitation of bids and the award of contracts for the abatement of hazardous materials, demolition of the building at 51 West Warren, and subsequent site improvements for a cost not to exceed $460,000. Funding for this project will be provided from the Depreciation Reserve in the Plant Fund. The motion carried. ACTION Upon motion by Governor Hardy and seconded by Governor Driker, the Budget and Finance Committee recommended that the Board of Governors authorize the President, or his designee, to proceed with the design, solicitation of bids and the award of contracts for the abatement of hazardous materials, demolition of the Psychology building at 71 West Warren, and subsequent site improvements for a cost not to exceed $576,000. Funding for this project will be provided from the Depreciation Reserve in the Plant Fund. The motion carried. DEMOLITION OF FEDERAL MOGUL BUILDING Vice President Davis said the third building the administration is proposing to demolish is the Federal Mogul Building at 4455 Cass, which is currently used primarily by the Geology Department for departmental space and to store its rock collection. The Geology Department space would be relocated to 6001 Cass Avenue, and its remaining storage to 5959 Woodward. In response to Governor Washington s concern, Vice President Davis reassured the Board that none of the buildings on the list for demolition have historic designation. ACTION Upon motion by Governor Washington and seconded by Governor Driker, the Budget and Finance Committee recommended that the Board of Governors authorize the President, or his designee, to proceed with the design, solicitation of bids and the award of contracts for the demolition of the Federal Mogul Building for a cost not to exceed $500,000. Funding for this project will be provided from the Depreciation Reserve in the Plant Fund. The motion carried. STUDENT HEALTH CENTER BUILDOUT HELEN DEROY APARTMENTS Vice President Davis presented a recommendation to construct a Student Health Center on the first floor of the DeRoy Apartment Building, in space previously occupied by the Housing Authority offices. President Reid said that since January 2005 the university sponsored an experimental health care service for residential students that was housed in South Hall. It was highly successful and

8 2716 Budget and Finance Committee well received by the students, and President Reid thanked the volunteers from the College of Nursing and the School of Medicine for their contributions. The current proposal will expand the facilities considerably so that all WSU students will have access to health care. Governor Massaron asked if students were charged for health service. President Reid responded that there was no charge for the test program, but the expanded program will probably involve a fee. Executive Vice President Gibbs said the residential students will be charged an annual student health center fee, a customary practice at universities to cover the health center. She expects that the fee will be nominal, probably less than $100. That compares to Michigan State University s fee of $250. In response to Mr. Lee s question, Vice President Gibbs said the new facility will be about square feet, compared to the 400 square feet of the test facility. Mr. Pearsall asked how many medical staff would be available. Dean Redman of the College of Nursing said the Nursing Practice Corporation, the College s practice plan, has sponsored the staffing for the test program along with financial assistance from the Provost s office. A nurse practitioner is available part-time, operating with physician back-up as required by Michigan law. The DeRoy facility will have expanded hours as well as a larger number of practitioners to provide immediate health care advice. Governor Miller asked how chronic illness care and maintenance will be handled, and whether there will be a working relationship with the DMC that would allow students to be treated there without charge. Dean Redman replied that referral relationships will be established because obviously this is a program care clinic and it cannot do anything very sophisticated in one small space. Students with chronic illnesses such as asthma and diabetes can receive primary care at the student health clinic. Many students do have insurance and have relationships with their own primary care providers. Those who do not can get regular care at the clinic, but would have to go to Detroit Receiving or other hospital in case of an emergency. Foreign students in the residence halls would also receive care and would be covered since they are required to carry an insurance policy. ACTION Upon motion by Professor McIntyre and seconded by Governor Hardy, the Budget and Finance Committee recommended that the Board of Governors authorize the President, or his designee, to proceed with the design, solicitation of bids and the award of contracts for the renovation of a portion of the first floor DeRoy Apartments to house the Student Health Clinic for a cost not to exceed $150,000. Funding for this project will be provided in equal amounts from the Provost s Office and the Depreciation Reserve in the Plant Fund. The motion carried. AUTHORIZATION TO SELL BONDS Vice President Davis presented a resolution authorizing the issuance of up to $180 million of general revenue bonds, including forward starting swaps if and where appropriate with a term of up to 30 years. The bonds would be issued for the following three projects: 1. Construction of new boiler plants that will serve 50 buildings at various locations across campus, including the Michigan Center for High Technology. The estimated cost for this project is $46,245,000, including $3,245,000 for capitalized interest and bond issuance costs.

9 Budget and Finance Committee Renovation of the building at 6050 Cass Avenue for the University s Public Safety unit. The estimated cost for this project will not exceed $5,750,000, including bond issuance costs. 3. Renovation of space within the Recreation and Fitness Center to remove the swimming pool and convert the space to an area to be used for exercise equipment. The estimated cost for this project will not exceed $2,550,000, including bond issuance costs. Vice President Davis said the remaining bonds would be issued to refund the 1999 Series bonds. Approximately half of those bonds were for new projects, and they could be refunded now if the University chose to do so. The remaining 1999 bonds were designated for refunding of the 1993 bonds, and cannot be refunded until The administration proposes to either refund the new money bonds from 1999 now or issue a forward starting swap so they could be refunded in This would give more flexibility with approximately the same savings on a present value basis. With respect to the remaining bonds that cannot be refunded until 2009, the administration proposes to issue the forward starting swap in order to lock in the current interest rate that is favorable to the university, under the assumption that the interest rate will be increasing over the years. Vice President Davis said the only way refunding will work is to issue synthetic fixed rate bonds; it would not be in the University s favor to issue natural fixed rate bonds. Vice President Davis provided a summary of the debt service for the bonds. The boiler bonds would be approximately $2.95 million, and would be funded by savings from purchasing steam from the central plant. The annual debt service for the renovation of 6050 Cass is estimated at $390,000 and would be paid from the General Fund. The debt service on the renovation of the Recreation & Fitness Center would be about $170,000 and would be paid from the savings on the operation of the pool. The refunding of the bonds would yield a net savings for the University of about $500,000. Mr. Davis introduced Mr. Jerry Rupley from Miller Canfield, who is the University s bond counsel, and Mr. Johan Rosenberg from Sound Capital Manager, the firm that serves as the University s financial adviser on these types of bonds. In addition, Roger Kempa, Assistant Vice President for Debt and Risk Management, is working directly with the outside advisors to put the bond package together. Governor Driker had questions about the steam project. Since the Board approved the project in the spring, natural gas prices have risen and the Michigan Public Service Commission (MPSC) has issued a ruling on Detroit Thermal that is higher than what the administrative law judge recommended. He asked Mr. Davis if the economics are still in the University s favor to invest $50 million in the project. Mr. Davis responded that the administration is still studying the implications of the MPSC ruling, but nevertheless believes it would still be to the University s benefit to continue with the project. Natural gas prices will impact Detroit Thermal to a greater extent than it will Wayne State; they must use more power to generate their steam because of the loss between downtown and the campus. Governor Driker also questioned the proposal to spend almost $6 million on renovating a building and said he had not yet seen any details of the proposal. Vice President Davis replied that the administration will present a project recommendation for 6050 Cass within the next two or three months, but that the bond proposal had to be presented as soon as possible. The building is on the corner of Burroughs and Cass. Most of the former occupants have been relocated, and the mailroom will soon move to 5057 Woodward. The building has a garage in the back of the first level, and the front part of the first floor and the entire second floor will be

10 2718 Budget and Finance Committee used for the actual office operation. President Reid said the move would provide an opportunity to substantially upgrade the technology of the Public Safety Department. He understands that Homeland Security requires that a police department meet certain standards in order to be included in the national network. President Reid introduced Chief Anthony Holt to add to the discussion. Chief Holt said most police stations have several locations to house specialized operations such as communication sections and evidence storage. Wayne State s Public Safety has one building that serves not only as a police station, but also as the central station for the University in terms of all alarms coming in, environmental patrols, and opening and closing of the buildings. In addition, in order to be eligible for Homeland Security grants, the Department must meet certain technology standards, which would be impossible to achieve in the current location. Governor Massaron said the campus police are the first and possibly the only responders in most cases. The Department must be modernized and upgraded, starting with a new building and updated technology. Governor Driker stressed he did not question the need for a new facility or the importance of public safety. He questioned the amount of the proposal and that the Board had not yet seen any information on the project. Professor McIntyre said the Academic Senate s Budget Committee would like to be involved since there are many faculty concerns about public safety. President Reid said that once the project is ready, it will go to the budget committee and faculty representatives will have input into the funding process and other substantive issues. Professor Elder expressed concern about the risks involved in effecting a forward starting swap. Mr. Rupley explained that the financial relationship between parties entering into a forward starting swap is not necessarily a risky win-lose situation. Often the counterparty is someone who is similar to the University and has a particular need for the relationship that the swap provides. Mr. Rupley further explained that the University would be entering into a swap in which it would issue the variable rate bonds and receive a variable rate payment, but pay a fixed rate payment to the swap counterparty. There is always the possibility that the variable rate received would be higher than the fixed rate the University would be paying out. However, it is necessary to look at the long-term strategy. It is important to achieve a fixed rate exposure now because fixed rates are historically at low levels, and the effective rate that can be obtained on the swap will be lower than if the University simply issued fixed rate bonds on the market. Governor Driker asked what is the maximum loss the University would suffer if the interest rate swaps go the wrong direction for the University. Mr. Rosenberg replied that in a case of a swap to fixed interest rates, as the University is anticipating doing, the market value will go against Wayne State if rates decline, and there would be a negative market value on the financial statements. If rates increase beyond their current value, it will result in a positive market value on the University s financial statements. The interest rate environment is currently as low as it was in the 1960s, so that it is hard to anticipate rates going lower, although that is not an impossible scenario. To illustrate, if bonds were issued at $100 million and the interest rates decline, WSU would have a $10 million negative market value on the books. Conversely, if rates rise, it would result in a positive market value of $10 million. Mr. Rosenberg indicated that the Federal Reserve again raised short-term interest rates just a day earlier. Although the bond swap is affected by long-term interest rates, there is an upward pressure on the rates, and it would be advantageous for the University to capture the lower rates as soon as possible. Historically, there is a greater probability that rates will rise and WSU s market value will have a positive number.

11 Budget and Finance Committee 2719 Mr. Rupely added that the change in market value is merely a book change and would not be realized unless the swap was actually terminated. Although there are circumstances when that might occur, he does not anticipate a termination of the swap. The risks do exist, but if the transaction is structured properly, the savings that can be generated as a result of using the swap outweigh the risk profile. Governor Driker said what he wanted clarified is the largest possible realized loss the University could suffer in this transaction. Mr. Rosenberg replied that if interest rates go to 0, theoretically the greatest realized loss would be $35 million. Also, if Wayne State was significantly downgraded, for example to a BBB rating, the contract could terminate early and the University would also suffer a loss. Vice President Davis noted the University is currently at AA and would have to suffer considerable financial losses to fall to those low levels considered non-investment grade. Governor Abbott asked when the debt would be paid. Mr. Rosenberg said the bonds will be amortized and completely paid by They will have the same duration and maturity rate as the 1999 bonds, but at a lower interest rate. Governor Miller asked what factors accounted for the revisions to the 1993 and 1999 bonds in a short period of time, and what are the University s expectations of the total. Vice President Davis replied that the auxiliaries assumed a little over $500,000 of the debt service from the general fund which was not reflected on the original schedule. ACTION Upon motion by Governor Washington and seconded by Governor Driker, the Budget and Finance Committee recommended that the Board of Governors adopt the resolution as presented authorizing the issuance of up to $180 million of Wayne State University general revenue bonds, including forward starting swaps if and where appropriate, with a term of up to 30 years. The motion carried. PURCHASING EXCEPTIONS The Committee received the quarterly report on purchases made over $20,000 without a competitive bid process. Governor Driker said he normally relied on the scientists judgment for most of the purchasing exceptions, but noted in this report that there are significant contracts that do not appear to be emergencies, and asked for an explanation of why there are unbid contracts worth $250,000. Vice President Davis replied that the construction project for $118,000 was for the renovation of the steps to the Community Arts building in time for the May 24 kick-off the Capital Campaign. Two contracts are listed under the Executive Officer Waiver of Bid Process, which is a procedure for special types of contracts for relief services to a unit; if a unit believes that they have worked with a vendor that provides a unique service to them, they may ask the Executive Vice President for a rollover bidding process. Executive Vice President Gibbs said criteria are set out in the University Policy for reviews of such contracts, and she personally reviews and signs off on any exceptions. Governor Massaron asked for a written report on one of the exceptions, the WSU Project CARE ACT Pilot Project.

12 2720 Budget and Finance Committee ADJOURNMENT There being no further business, the meeting adjourned at 10:45 a.m. Respectfully submitted, Julie H. Miller Secretary to the Board of Governors