REPORT OF THE FINANCIAL AFFAIRS COMMITTEE. October 13, 2016

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1 Approved by Committee January 19, 2017 REPORT OF THE FINANCIAL AFFAIRS COMMITTEE October 13, 2016 The Financial Affairs Committee met at 1:00 p.m. on October 13, 2016, at the University of New Hampshire in Durham, NH. Present were Committee members: Joe Morone (Chairman), Alex Walker (Vice Chairman), Kassandra Ardinger, Bob Baines, Todd Black, Ted Dey, and Wally Stevens; Trustees: Shawn Jasper, Tim Riley, John Rist, Megan Lang, Chris Pope, John Small, Ken Moulton, Cathy Conway, Pamela Diamantis, President Donald Birx, President Mark Huddleston, President Anne Huot, President Mark Rubinstein, and Chancellor Todd Leach, A number of faculty, staff, and students were also in attendance. Chairman Morone called the meeting to order at 1:00 p.m. He gave a brief description of the items on the agenda noting the need for a non-public session to address several items at the end of the meeting. He called on Vice Chancellor Provencher for the presentation of the Bradford K. Perry award. I. Presentation of Bradford K. Perry Award Vice Chancellor Provencher presented Karen Benincasa, USNH Director of Finance and Treasury, with the Bradford K. Perry award and thanked her for her outstanding contributions to USNH. She said Ms. Benincasa has been instrumental in making positive change in restructuring the treasury, budget and financial planning areas of the Chancellor s Office. Chairman Morone described the items on the consent agenda and there being no questions asked for a motion to approve. II. Approval of Consent Agenda (Moved on recommendation of Trustee Dey and duly seconded). The Committee took the following action: VOTED, that the Consent Agenda be approved. (The Committee voted unanimously to approve this motion) The Items on the Consent Agenda are listed below: A. Approve minutes of June 23, 2016 meeting B. Approve Suspension of enrollment limitation of out-of-state students at UNH

2 MOVED, on recommendation of the Chancellor, that the following motion be presented for consideration by the Board of Trustees. MOVED, on recommendation of the Financial Affairs Committee that the Board of Trustees suspend for FY18 the limitation of 25 percent imposed by state statute RSA 187-A:10 on the number of undergraduate students enrolled at UNH from domiciles outside the state, it having been determined that such suspension benefits the state and UNH without impairing the opportunity for qualified students of the state of New Hampshire to attend UNH. C. Final update on UNH Separation Incentive (SIP) Plan End of Consent Agenda III. Items for Committee Discussion and Possible Action A. Board of Trustees Retreat Recap Vice Chancellor Provencher shared several slides that summarized discussions that took place at the September retreat. She said trustees discussed the Unrestricted Financial Resources (UFR) to Debt Target of 50% and the assumptions in the 2016 multi-year model as well as risks associated with those assumptions in such areas as enrollment and endowment returns. She said campuses shared their highest capital priorities noting the UNH biological sciences project was contingent upon State funding and Chairman Morone said that if the assumptions hold true, the projects should be able to be funded within USNH s debt capacity. He said it will be a challenge to find funding for any additional projects. B. Presentation on 2016 financial statements Trustee Black said the Audit Committee approved the financial statements at its meeting earlier in the day. He reported that USNH will be impacted by a new accounting standard in FY18 that will require recording a $60-$70 million liability for post-employment healthcare (OPEB). The Committee discussed the liability and its potential impact on financial ratios and cash flow. It was noted that USNH is working on strategies to further mitigate the liability if possible. Vice Chancellor Provencher shared financial highlights for the fiscal year ending June 30, She reviewed changes in recurring Revenues for FY12 to FY16. She urged Committee members to read the Management Discussion and Analysis section of the financial statements.. C. Update on Capital Planning 1. Annual Debt Report 2

3 Vice Chancellor Provencher referred to the materials provided by USNH s financial advisor The PFM Group. She gave an overview of USNH s current outstanding debt and standby bond purchase agreements (SBPA). She noted that USNH is reviewing all refinancing options because interest rates remain low and is also evaluating the current internal debt structure. The Committee discussed the impact of refinancing on USNH s financial ratios. Chairman Morone called attention to a slide which showed USNH s ratios and how they compare to those of Moody s higher education medians and peers. USNH s leverage ratio is better than most of its peers. The Committee discussed the refinancing opportunities for the 2007 Ecoline bonds and the Series 2009A bullets. It was noted that the five year financial model used an assumption of paying off the Ecoline bullet. Vice Chancellor Provencher said she expects to come back to the Committee with a recommendation in Because of the recent inappropriate behavior by Wells Fargo within the retail banking segment, the Committee discussed USNH s commercial business relationship with Wells Fargo and specifically a Standby Bond Purchase Agreement (SBPA) which expires in March Vice Chancellor Provencher described the staff time and expense that USNH would incur if it decided to go out to the market at this point rather than extend the SBPA with Wells Fargo. She said that she negotiated a reduction in fees to extend the agreement. In 2018, USNH would be able to package several refinancing transactions together, including this SBPA, to leverage and reduce the issuance costs as well as reduce staff resource requirements. Chairman Morone solicited comments from trustees and the Committee evaluated the financial and public risks associated with staying with Wells Fargo. There were no objections to extending the SBPA with Wells Fargo at the current time with the understanding that Wells Fargo is taking corrective action to address the issues identified but primarily because of the incremental costs to USNH if we were to go to market for a new agreement; however, there was a request that management review the broader relationship with Wells Fargo. 2. Update on deferred maintenance planning Vice Chancellor Provencher described the work the Facilities Working Group (FWG) has been doing on developing a request for proposals for a Facility Condition Assessment (FCA). She said an updated FCA will provide a detailed analysis of all existing building and infrastructure deficiencies and estimates for costs associated with renewal and repair. The report will also give the information necessary to not only identify and address current requirements but to improve facility renewal forecast and capital planning. The timeline and outcomes for the work were discussed. Chairman Morone requested that the FCA report be available next year in time to be incorporated into the updated multi-year plan. Trustee Moulton suggested that building utilization has been discussed before and should be reviewed on each campus. Mr. Purcell noted that the firms that does the FCA would not be the same firm to use for a space utilization study. UNH shared that they are in the midst of a space utilization study. 3. Report on Ongoing Capital Projects 3

4 Chairman Morone gave Committee members an opportunity to ask management for information if they had questions on the status of any of the projects described in the report. A request was made by Trustee Conway to include information on how the project progress is compared to budget and to include the original budget approved by the Board along with any Board or campus adjustments. Vice Chancellor Provencher said that each President has some level of authority to adjust a project budget without Board approval. IV. Ongoing System-Wide Initiatives A. Strategic Procurement Vice Chancellor Provencher described several initiatives in the procurement area including eprocurement roll out, business process review and results from the Deloitte Consulting Analysis. She said there would be a longer discussion at tomorrow s Board meeting on opportunity areas identified by Deloitte and current efforts underway. Vice Chancellor Provencher provided an update on progress in the restructuring of procurement resources and said significant progress has been made in the last week. She said all the CFOs conceptually agree that a more centralized model is needed and this will be discussed at the next Administrative Board meeting. Trustees expressed their strong support for changes in this area. Several points were made by trustees and management including: Leadership needs to fully support the effort Transparency and information is needed to make good decisions Some flexibility will be needed in certain campus-unique situations, but centralization is key and exceptions will make it harder People need to know what costs are being avoided and how that translates for our students A communication plan needs to be developed in situations that will likely be unpopular to affected parties Vice Chancellor Provencher said more information will be provided at the January meeting along with a project plan including timelines. B. Enterprise Performance Management system (EPM) Vice Chancellor Provencher gave Committee members an update on the EPM and project highlighting recent milestones including completion of a needs assessment, choosing Oracle s Planning and Budgeting Cloud Service or PBCS (Hyperion) as a technical solution and work with CampusWorks on business process review in the areas of the Chart of Accounts and Budgeting and Planning. She noted that all campuses and the system office are included in the process and continue to provide input and guidance on the project and decisions. She said progress has been slower than initially projected, due in part to turnover in the highest levels of the finance area and competing priorities. She said the goal is to be using the system by the end of the fiscal year. V. Nonpublic Session 4

5 At 2:30 p.m. the following motion to enter into nonpublic session was made by Trustee Morone. The motion was duly seconded and approved by show of hands. In addition to trustees, system and campus financial officers attended the non-public session. VOTED, that the USNH Board of Trustees Financial Affairs Committee go into nonpublic session for the purposes of (1) discussing personnel issues including matters relating to collective bargaining, (2) discussing the compensation of certain public employees, (3) discussing matters which if discussed in public could provide a strategic advantage to certain private interests, and (4) consulting with legal counsel, as authorized by RSA 91-A:2, I (a) and (b) and 91-A:3, II (a), (c), and (e). Return to Public Session Upon a motion to exit nonpublic session, made by Trustee Black, duly seconded, and approved, Chair Morone reconvened the public meeting at 3:43 p.m. and announced that no actions were taken while in nonpublic session. VI. OTHER BUSINESS A. Next scheduled meeting date is on January 19, 2017 B. The Committee adjourned at 3:43 p.m. 5