BUDGET AND FINANCE COMMITTEE February 3, 2010 Minutes

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1 Board of Governors BUDGET AND FINANCE COMMITTEE February 3, 2010 Minutes The meeting was called to order at 11:17 a.m. by Governor Massaron in the Assembly Hall of the University Center Building at the Macomb University Center, Garfield Road, Clinton Township, Michigan. Secretary Miller called the roll. A quorum was present. Committee Members Present: Governors Bernstein, Dunaskiss, Massaron and Pollard; (via teleconference - Governors Abbott and Driker); Michael McIntyre, Faculty Representative, Louis Romano for Charles Parrish, Faculty Alternate Representative; Jason Reed, Student Representative and Anthony Leo, Student Alternate Representative Also Present: Governor Dingell, Governor Miller (via teleconference) and President Noren; Provost Barrett and Executive Vice President Dickson; Vice Presidents Davis, Hollins, Lessem, Ratner and Ripple; Secretary Miller APPROVAL OF MINUTES, DECEMBER 9, 2009 There were no objections or corrections to the Minutes, and the Minutes of the December 9, 2009 meeting were adopted as submitted. LAW LIBRARY BUILDING: ELEVATOR MODERNIZATION PRENTIS BUILDING: ELEVATOR MODERNIZATION MOTT CENTER BUILDING: ELEVATOR MODERNIZATION DEMOLITION OF FORMER PUBLIC SAFETY BUILDING AND AND WOODWARD RETAIL BUILDINGS OAKLAND CENTER: DISASTER RECOVERY FACILITY FOR COMPUTING AND INFORMATION TECHNOLOGY Governor Massaron suggested that the agenda items listed above be acted on in one motion, since they were all deferred maintenance items and straightforward in their purpose. It was not his intent to hinder discussion, and he asked if anyone had questions before the vote was taken. He himself opened the discussion by asking about the construction proposed at the Oakland Center. Vice President Davis said that the construction will be internal to the building and will not increase the building s footprint. Professor McIntyre commented that Vice President Davis told the Academic Senate Budget Committee to expect five more elevator repairs in the near future in addition to those mentioned above. Mr. Davis replied that although several more elevators need repair, he could not at this point say how many more such proposals will be submitted to the Board. 3057

2 3058 Budget and Finance Committee Mr. Reed noted the demolition of buildings and the installation of green space. He asked if the administration has calculated the cost of maintaining the green space. Mr. Davis said that they have not calculated the cost of lawn maintenance and irrigation; however, the cost of security lights and monitoring are included in the funding requested in the recommendation. Governor Massaron questioned the meaning of a monumental sign as stated in the document. Vice President Davis said that monument signs of brick and stone, usually eight to ten feet tall, exist in several places on campus and serve as entry points to the campus. A similar monument will be placed at the Warren-Woodward intersection. Governors approve the recommendations presented regarding the following agenda items: 1. Law Library Building: Elevator Modernization 2. Prentis Building: Elevator Modernization 3. Mott Center Building: Elevator Modernization 4. Demolition of Former Public Safety Building and and Woodward Avenue Retail Buildings 5. Oakland Center: Disaster Recovery Facility for Computing and Information Technology The motion carried. The individual motions read as follows: Governors authorize the President, or his designee to design, solicit bids, and award contracts for the modernization of the elevator in the Law Library building for a total project budget not to exceed $425,000. Funding for this project will be provided from reserves for deferred maintenance projects. The motion carried. contracts for the modernization of the elevator in the Prentis Building for a total project budget not to exceed $470,000. Funding for this project will be provided from reserves for deferred maintenance projects. The motion carried. contracts for the modernization of both elevators in the C.S. Mott Center for Human Growth and Development for a total project budget not to exceed $810,000. Funding for this project will be provided from the reserve for deferred maintenance projects. The motion carried.

3 Budget and Finance Committee 3059 contracts for the demolition of the former Public Safety Building located at 76 West Hancock, and the commercial and retail buildings located at Woodward and Woodward for a total project cost not to exceed $725,000. Funding for this project will be provided from accumulated net rental proceeds from the commercial and retail properties on Woodward, $550,000, and from the Reserve for Depreciation, $175,000. The motion carried. contracts to construct a Computing and Information Technology Disaster Recovery Facility at the Oakland Center for a total project cost not to exceed $500,000. Funding for this project will be provided from the strategic planning portion of the omnibus fee budget allocation. The motion carried. AUDITED FINANCIAL REPORT FOR FISCAL YEAR 2009 Vice President Davis presented the audited financial report for FY 2009 for Board discussion and approval. The financial statements had been previously discussed and approved by the Audit Subcommittee. Mr. Davis introduced Mr. Paul Edwards, a partner at Plante Moran, to comment on the financial report. Mr. Edwards indicated that Plante Moran is nearly ready to finalize the audit and will be issuing a clean or unqualified opinion, and that the financial statements present fairly the financial position of the University and its financial operations as of September 30, That is the highest level of assurance that an outside auditor can provide under the standards of the profession. Mr. Edwards then reviewed the audit process followed by Plante Moran, and indicated that the external auditor met with the Audit Subcommittee of the Board of Governors to review the results of the audit as well as communication with management on required topics of discussion. That information is included in the materials submitted to the Board, but Mr. Edwards briefly highlighted certain areas. The total operating revenue of the University decreased by about $24 million, while operating expenses increased by about $7 million. The balance sheet of the University as of September 30, 2009 represents a snapshot of the University s financial position, which remains stable. The assets of the University increased slightly by about $4 million, while its total liabilities decreased by about $11.4 million. Overall, the net financial position of the university, that is, the assets of the University less its liabilities, were at $895 million, an increase of about $7.5 million over FY Governor Massaron recommended that Board and Committee members look at the charts provided in the written documents, especially at the comparisons with the benchmark peer group. Governor Driker asked that Vice President Davis provide the Board additional information on how WSU s bond ratings compare with the Financial Statement Presentation Benchmarking Peer Group (FSBG). The nine universities in the group include Georgia

4 3060 Budget and Finance Committee State, Michigan State, Portland State, Temple, University of Cincinnati, University of Houston, University of Pittsburgh, University of Wisconsin-Milwaukee, and Virginia Commonwealth University. Professor McIntyre presented a question about the Code of Ethics, which has been a topic of rather heated discussion on campus over the last several weeks. He brought it up at this point in the meeting because it was his understanding that the Audit Subcommittee brought out the Code of Ethics for discussion as a result of certain provisions required by Sarbanes Oxley. Given that explanation, he wondered why it was not included in the auditor s report. Vice President Davis replied that the Code of Ethics is not part of the financial statements audit process and is therefore not included in the current document. Professor McIntyre had earlier requested information about the Code, and Mr. Davis will send him the materials immediately following the meeting. Governor Massaron reviewed the history of the Code of Ethics during the years that he has served on the Audit Subcommittee. When the Audit Subcommittee adopted a charter five years ago, members of the subcommittee suggested that there should also be a code of ethics that dealt with the question of financial responsibilities, abiding by rules and regulations with respect to federal grants and student loans, and possible financial conflict of interest. He did not recall that there was any discussion of not allowing criticism of any individual or group. In any case, any policy on ethics would have had to come back to the Audit Subcommittee for approval before it was sent to the Board, and the Code has not been presented to the subcommittee. The appearance of the sections on speech in the draft and the emotional discussion that followed at first surprised him, but Governor Massaron said that there seem to be efforts to deal with and resolve the issue in a more rational manner. Governor Bernstein agreed with Governor Massaron on the importance of codifying rules and regulations regarding financial issues and conflict of interest. He said, however, he had tremendous difficulty with the sections of the code that dealt with speech. The entire essence of a university is freedom of speech, and he stated that people should be able to say what they want, whenever they want, about whomever they want, and on any issue that they want to discuss. He added that under the proposed code, criticism of the Board of Governors could be interpreted as an attempt to impugn Wayne State University. Such an atmosphere would stifle academic freedom, and he wanted to register his strong belief that no one on the Board or other areas of campus should support those sections of the code. Governor Miller suggested that the discussion return to the audited financial report. She referred to the section on Capital Assets on page 12 of the document from Plante-Moran, specifically the reference to the completion and/or renovation of the South University Parking Structure. Vice President Davis explained that the parking structure is a new construction that was completed in 2008; there was no renovation with respect to that structure. Mr. Edwards added that for purposes of management s discussion and analysis, two or more years of projects or expenditures are compared, which explains why the FY 2008 projects are included in the FY 2009 audited report. Governor Massaron noted that the audited report did not include the federal report on A-133 or the audited report for WDET-FM Radio Station. He expected that both reports will be presented to the Committee at a meeting in the near future.

5 Budget and Finance Committee 3061 ACTION Upon motion by Governor Dunaskiss and seconded by Governor Massaron, the Budget and Finance Committee adopted the audited financial report for fiscal year The motion carried. CONTINGENCY RESERVE The administration requested a transfer of $150,000 to fund search activities for the Provost and Senior Vice President for Academic Affairs. The Board approved the transfer by telephone vote and will ratify the action later in the agenda. The remaining balance in the Contingency Reserve Fund for FY 2010 is $350,000. PARKING STRUCTURE NO STRUCTURAL REPAIRS Vice President Davis presented a recommendation to approve certain repairs on Parking Structure I. A structural evaluation of all parking structures, except for the newest structures No. 7 and No. 8, was commissioned in 2009, and the major recommendation was to begin renovations to P.S. No. 1 as soon as possible. In response to Board members questions, Mr. Davis added that the Parking Department has closed off about 75 or 80 spaces where there is a possibility of falling concrete or of corrosive chemicals dripping onto the parked cars. Professor McIntyre presented the Academic Senate s objection to the recommendation. When the issue of an increase in parking fees arose during the previous academic year, the Academic Senate objected on the grounds that there had not been appropriate consultation with the Parking Advisory Committee, and that the Committee and administration had not yet followed the Senate s recommendation to adopt a business plan before proceeding with any increases in revenue or expenditures. At the time, the Advisory Committee did not want to postpone the parking increase any further because of revenue issues, but it did concur that there should be appropriate consultation in the future. The administration is now presenting a proposal to spend $6 million, revenue that was raised by increasing parking fees for students, faculty, and staff. Professor McIntyre noted there is still no business plan formulated for dealing with maintenance issues. The Academic Senate Budget Committee, therefore, passed a motion asking that the issue be deferred until the administration can convene the Parking Advisory Committee and have them review a business plan to deal with future maintenance. Professor McIntyre added that the problem of maintenance is not limited to the parking division, where proper maintenance could have avoided the extreme damage suffered by Parking Structure 1 that now requires a large expenditure of funds to correct. He could apply the same question to elevator repairs or chiller replacements, where a business plan that provided for proper maintenance could perhaps have lessened the expenditures for repairs or replacement. Vice President Davis replied that the Parking Advisory Committee was very involved with the selection of the consultant and had reviewed the report. Executive Vice President Dickson added that a PowerPoint presentation on the consultant s report was circulated to everyone on the Committee last September, and the recommendation on Parking Structure 1 clearly stated immediate repairs. When Professor Woodyard resigned from the Committee, she understood that the Academic Senate would choose a replacement.

6 3062 Budget and Finance Committee Nevertheless, she put in a request in writing that a replacement be assigned, as instructed by Professor Wolfson. Ms. Dickson explained that the consultant s report outlines all the maintenance on the parking structures, and graduates the amount of funding that would be needed over several years. Ken Chelst, from the Industrial Engineering Department, is engaged in a year-long project with his graduate students to assess the operations of the Parking Division, and the administration is actively putting together a business plan that will be reviewed with the Parking Advisory Committee. The repairs to Parking Structure 1, however, are not discretionary and must be dealt with as soon as possible. Governor Bernstein said there seems to be agreement that repairs to the parking structure must be done immediately. His concern is with process and whether the Parking Advisory Committee was properly consulted so that they had access to the information they needed and that they were allowed sufficient input into the decisions. Professor McIntyre said that Professor Woodyard declined to accept a position for the current academic year because he felt that his recommendations regarding a business plan and cost structures had been ignored. He added that the Academic Senate received the letter requesting a replacement for Professor Woodyard just a few days ago. Professor McIntyre stated it was not his intention to oppose repairs to Parking Structure I, but rather to delay repairs until a maintenance program and a business plan are in place. A meeting of the Board of Governors provided the best opportunity to register objections to the lack of a plan. Governor Massaron indicated that, given the information regarding the parking structure s condition, the Board should approve the recommendation for repairs. However, he agreed that the administration should also adopt a business plan and maintenance program, as well as a proper consultation process with the Parking Advisory Committee and the Academic Senate. The next regularly scheduled Board meetings will be held on March 24, and Governor Massaron advised that the administration present at least a draft of a business plan at that time. Governor Miller commented that many of the buildings on campus were not structurally built properly in the first place, but she is grateful that the College of Engineering is now involved in maintenance and structural studies and believes that with their help buildings will not deteriorate so quickly in the future. ACTION Upon motion by Governor Pollard and seconded by Governor Dunaskiss, the Budget and Finance Committee recommended that the Board of contracts to implement additional major structural repairs on Parking Structure #1 for a total project budget not to exceed $5,775,000. Funding for this project will be provided from the Parking Department s plant fund reserve. The motion carried with a vote of 6-1, with Professor McIntyre voting No. BUDGET UPDATE: FY 2010 FY 2011 Associate Vice President Kohrman provided an update to the FY 2010 budget, with a review of enrollment and state revenue figures, as well as a projection for FY 2011.

7 Budget and Finance Committee 3063 Total enrollment numbers for Winter Term 2010 were positive, with undergraduate headcount projected to be at a ten-year high, at about 19,488, or 2% over budget. Mr. Kohrman said the even more impressive statistic is the fall-to-winter retention rate, which was close to 94%, also a ten-year high, and up from 90% last year. He said the retention rate is due to the work of Howard Shapiro, Michael Wright, and Joe Sawasky, who incorporated the technology, marketing, and use of learning communities to encourage students to register for the Winter term. With respect to graduate enrollment, budget projections expected that enrollment would fall slightly for Instead, it remained stable, with Fall-Winter retention rates at a fiveyear high of 95% for graduate students. In total, the Fall Headcount was about 3% over budget, and the Winter headcount estimated about 2% over budget. Credit hours were also up about 4.5%, but an increase was budgeted into FY 2010, so that the actual impact of increased credit hours is closer to 2.5 or 2.75%. In terms of dollar revenue, the overall impact of the increased enrollment is about $4.5 million in additional revenue. Reviewing the state revenue situation, Mr. Kohrman said that projections for the FY 2011 general fund revenues will be about the same as for FY 2010, but that it does appear that the state has hit the bottom of the recession. He added that interestingly, where Michigan dropped about $2 billion in revenue, 21 other states experienced percentage decreases in their general fund budgets that were greater than that of Michigan. Additional statistics were that the state had lost over 200,000 jobs in 2009 alone. Also, after adjustment for inflation, Michigan s projected revenue for 2010 and 2011 is at about the same level as it was in the 1960s. The major challenge that the state will be facing in 2011 is that its revenue over expense will be out of balance by about $1.5 billion, unless budget cuts are made or substantial changes to the revenue steam occur. Mr. Kohrman added that Michigan again remains 49 th in terms of average dollar investment in higher education over the last five years. Governor Massaron asked if there is any updated information on state appropriations for higher education, in particular for Wayne State. Mr. Kohrman replied that some of the state agencies are preparing for a 20% budget cut; if that percentage were applied to higher education, it would mean a $43 million reduction for Wayne State. Vice President Hollins added that a report from the Senate Fiscal Agency suggests a reduction of at least 12.6% or more for higher education, and that the 20% reduction could still apply to higher education, depending upon what happens in the State Legislature. Responding to Governor Pollard s request for more information on the revenue estimating conference, Mr. Kohrman said they expected the rate of job loss to slow significantly, and perhaps even see some small job gains by The conference members were more optimistic about the potential success of Ford s business plan than they were of GM and Chrysler. In addition, many of the economists stressed that Michigan must begin budget planning for at least two or three years out into the future, rather than budgeting just one year at a time. Vice President Hollins added that on the federal level, Congress is now working on the $23 billion jobs initiative. Some of those funds will target K-12 and possibly higher education,

8 3064 Budget and Finance Committee thus offsetting the budgets in some states and giving them more flexibility. Currently, the House and the Senate are each working on their own versions, and the two different versions must then be reconciled. Governor Pollard asked about President Obama s stand on higher education. Vice President Hollins said that the President has suggested that universities be more frugal in terms of their expenditures. At the same time, however, he has stressed several times the importance of research and investing in research, and also the importance of community colleges. FY 2009 YEAR END REPORT Mr. Kohrman next presented the year-end report for FY The General Fund budget ended with a positive balance of about $6.2 million, with revenues up about $1.9 million over budget and expenditures down $4.3 million. The variances were due primarily to increases in indirect cost recovery and decreases in utilities and operating expenditures. Governor Massaron noted that for FY 2009 state appropriations represented about 25% of the total budget revenue and not quite 40% of the General Fund budget revenue, while the previous year they accounted for about 42% of the General Fund revenue. Professor McIntyre related two points that were discussed during the Academic Senate Budget Committee meeting regarding the year-end report. The first was the disposition of $8 million available for discretionary use. The funds were distributed by the administration with no consultation from the Board or from faculty committees. The second point was the disposition of $23 million General Fund balance. Professor McIntyre understood that most of these funds were committed and thus not available. Some of the committed funds, however, were for such items as faculty set-ups. Since many schools, including the Law School, have experienced difficulty hiring faculty because of the slow Michigan economy, some of the set-up funds might be available to provide some budget flexibility. Governor Massaron noted that in a difficult budget year when discussions in Lansing may result in a $43 million shortage in the University s budget, it is important to slow down spending and to put money away in the Rainy Day Fund. However, the issue of consultation seems to be a long-standing problem, and he hoped that the administration and faculty would soon find a solution to the problem. ADJOURNMENT There being no further business, the meeting adjourned at 12:22 p.m. Respectfully submitted, Julie H. Miller Secretary to the Board of Governors

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