BUDGET AND FINANCE COMMITTEE January 22, 2009 Minutes

Transcription

1 Board of Governors BUDGET AND FINANCE COMMITTEE January 22, 2009 Minutes The meeting was called to order at 9:04 a.m. by Governor Massaron in Rooms BC in the McGregor Memorial conference Center. Secretary Miller called the roll. A quorum was present. Committee Members Present: Governors Bernstein, Driker, Dunaskiss, Massaron and Pollard; William Volz, Faculty Representative and Charles Parrish, Faculty Alternate Representative; Eric Tomaszewski, Student Alternate Representative Committee Members Absent: Seneca Brookins, Student Representative Also Present: Governors Abbott, Dingell, Miller, and President Noren; Provost Barrett and Executive Vice President Dickson; Vice Presidents Davis, Hollins, Lessem, Ratner and Ripple; Secretary Miller Governor Massaron welcomed Governor Gary Pollard to his first meetings of the Board. Governor Pollard was elected on November 2, 2008, and Governor Massaron was reelected for his second term. APPROVAL OF MINUTES, December 3, 2008 ACTION Upon motion by Governor Dunaskiss and seconded by Governor Pollard, the Minutes of the Budget and Finance Committee for December 3, 2008 were approved as presented. The motion carried. AUDITED FINANCIAL REPORT FOR FISCAL YEAR 2008 Vice President Davis presented the audited financial report for FY 2008 for Board discussion and approval. The financial statements had been discussed and approved by the Audit Subcommittee, which will meet again to compare Wayne State s numbers with those of other urban universities and of the University of Michigan and Michigan State. Mr. Davis introduced Ms. Vicki VanDenBerg, a partner in Plante Moran, to comment on the financial report. Ms. VanDenBerg noted that the statement of revenue and expenses is based on all the funds of the University, not just the General Fund. For the purpose of the financial 2985

2 2986 Budget and Finance Committee statements, the operating revenue is defined as all transactions that are exchange in nature, such as tuition and sale of royalty rights. These showed an increase of $45.2 million. Operating expenses such as compensation, depreciation, and scholarships also increased by $34.2 million. Past construction projects began depreciating this year, which accounted for the $4.1 million increase in expenditure. The non-operating revenues of the University are defined as non-exchange transactions such as state appropriations and investment income. The latter will be discussed thoroughly in the Long-Term Investment Report, but Ms. VanDenBerg noted the decrease of $75.3 as a result of the losses in the financial markets. There was also a $14.7 million termination fee on the refinancing of the security bonds. Ms. VanDenBerg also noted that Wayne State was the only university that actually received any state capital appropriation funds, specifically the $10 million for the Danto Engineering Development Center. Proceeding to the balance sheet, she then listed the University s liabilities and assets. The University s overall net assets increased by $15.5 million to $887.5 million, including an increase of $39.3 million in the General Fund, but a decrease of $24.4 million in the endowment fund. Vice President Davis said that the financial statements are obviously long and comprehensive, including the auditor s report, management analysis, the balance sheet, and supplemental information. He suggested that the Board read especially the management analysis because of the breakdown of information, and also to read the notes that go along with the financial statement. The notes discuss the accounting principles followed by the University and provide specific information about the various operating lines of revenues and expenses. In the supplemental information section, Vice President Davis reviewed the various funds held by the University and noted a reference to an independent operations fund. He explained that it is a fund that is important to the University but not part of its core mission, and the only such fund is WDET. It had formerly been listed under the Auxiliary funds, but about six or seven years ago the national accounting organization, NACUBO, suggested it be moved to independent operations. Governor Miller called attention to the decrease of $24.5 million in student loans and asked about changes to the School as Lender policy. Vice President Davis replied that on April 30, 2008, the Board approved the conversion of the School as Lender policy into the Federal Direct Lending program. Under the former program, the loans were carried on the books until they were sold; for FY 2008, the $24.5 million in loans were carried for about three to four months and then sold to an outside agency. Under the Direct Lending program, such loans are never carried on the University s books. Governor Miller said she wanted to be sure that all students who need to borrow money to attend the University are able to do so. Provost Barrett indicated that the University now has its own call center with its own trained employees talking to students, so she is confident that students are getting the proper information on loans and financial aid. The University has held workshops and events to educate students on access to direct lending and has conducted training sessions for employees. She would be glad to prepare a presentation on the topic if Governor Miller so wished. Governor Driker commented that the Audit Subcommittee spent considerable time looking at language in the report that in past years may have been just lightly reviewed. Because of the events in the financial markets and the economy during the past year, matters such as depository institutions, custodial risks, and where cash is invested have taken on significant importance, whereas in the past they would have resulted in a turn of the page. He also called attention to a management statement regarding alternative investments such as

3 Budget and Finance Committee 2987 hedge funds and limited partnerships. In the past that may have been glossed over, as a decision to be judged by management and not the auditors. However, given the current market conditions and the publicity about endowment funds at other universities, the matter warrants more attention by the Board, management, and the auditors. Governor Massaron recalled that the Board took action about a year ago to control its debt policies and the use of variable interest rates. (See Official Proceedings for January 30, 2008, Debt and Debt-Related Derivatives/Swaps Management Policy.) The move cost $14 million, but most of the University s debt is now in fixed interest rates rather than variable rates. He said it was a tribute to President Irvin Reid, Vice President Davis, and the University s financial consultants that they moved quickly enough so that the University did not experience the financial beating that so many other institutions have experienced. Governor Massaron added that the auditor s report is also an accountability document that provides a history of the University in real time and shows the impact of the financial crisis and economic problems of society. It is, in addition, useful because it informs Board members of matters they may be unaware of, such as the ongoing dispute with the Detroit Medical Center and the issue of salary reimbursement and method of payment with the University Physicians Group (UPG). He hoped the Audit Subcommittee would eventually receive a complete report of that matter. It is important that the Board be aware of issues in order to formulate the kinds of questions it should be asking and to establish accountability. Professor Volz commented that the financial statements reflect a healthy, well-managed institution that is in the midst of several challenges. He noted that the service fee on the long-term debt is about $27 million, and although it is not an extreme percentage of the general fund, it nevertheless calls for cautious and thoughtful investment in the future. In that respect, Governor Driker said that Wayne State s debt service is now 2.6% of revenue compared to the University of Michigan at 4.5% and other urban universities that are over 3%. He said it was a relief to realize that Wayne s debt service is in good shape, and the Audit Subcommittee will schedule a meeting in the near future to examine the issue more closely. ACTION Upon motion by Governor Driker and seconded by Governor Bernstein, the Budget and Finance Committee approved and accepted the Audited Financial Report for FY The motion carried. ANNUAL REPORT ON THE LONG-TERM INVESTMENT PROGRAM FOR FISCAL YEAR 2008 Vice President Davis presented the annual report of the University s long-term investment program for the fiscal year ending September 30, Given the current turmoil in the financial markets, he said it would be helpful to hear a formal presentation by the investment advisor, New England Pension Consultant (NEPC), used by the University Foundation s investment committee. Mr. Paul Kenney, a partner in the firm, made the presentation, and Ms. Brenda Ball, Chair of the Foundation Investment Committee, was present to answer any questions the Board may have about the portfolio. Mr. Kenney structured his presentation with first a short summary of the major issues with regard to investment, followed by a background discussion describing the investment cycle,

4 2988 Budget and Finance Committee how peers are performing, and other issues with regard to asset allocation. He noted the concerns expressed in the previous discussion about hedge funds and liquidity, and he would try to address some of those concerns. At first glance, the investment results for the Foundation for FY 2008 are disheartening. At the close of FY 2008 it was down about 13%, and the months of October and November saw it fall an additional 11.4%. The market decline has been dramatic, and essentially all pension funds and foundations were down about 12.2% for the first quarter of Mr. Kenney reassured the Board that, when compared with the performance of other foundations, the Wayne State Foundation ranked above median, in the first or second quartile, in all time periods. The Foundation has faced several challenges during the year. Although it did not have exposure to Madoff, there was a fraud problem with one manager, Gottex, which resulted in a loss to the portfolio of roughly 1/10 th of one percent. Several managers also underperformed their benchmarks. In some ways, though, the Foundation is better positioned than many college endowments to weather the present storm. The Foundation is very liquid, but not in the position where it would have to fund capital calls, which would be a drain on its resources. Mr. Kenney explained that the entire process is one of balancing risks and return, to be more strategic than tactical, but willing to make changes to the portfolio over time based on the current market conditions. Over the past several years, the Investment Committee has reduced equity exposure which, in turn, has helped reduce volatility and helped the Foundation out-perform its peers. Using a slide presentation, Mr. Kenney discussed in detail the performance of the Foundation within the context of market results. The last several months have been clearly volatile, with the first quarter of FY 2009 even worse than the last quarter of FY 2008, but the Foundation has had minimal exposure to Lehman s bankruptcy. Although the fund experienced a loss of 13.1% for the last fiscal year, its positive rates of return for the previous years helped to achieve the target return of 8% over a five-to-seven-year period. Mr. Kenney referred to questions about the necessity to diversify the portfolio or the wisdom of investing in hedge funds. The question actually should be: where should one have placed the assets? All equity markets were down from 15% to 30% just for one month; the hedge funds, on the other hand were down roughly 5.6% for the fiscal year end. Therefore, even though the losses were greater than expected, they performed better than the typical equities, helping the Foundation outperform its peers. He also touched on the argument for investing conservatively in a relatively risk-free instrument such as ten-year Treasury Notes that give a return of 2.5%. That would not cover the spending policy of 5% and would not protect against the potential of inflation eroding the value of the Foundation s assets. Mr. Kenney then progressed to a discussion of the asset allocation of the fund, or how the funds are actually invested across the portfolio. The goal is to have no one single slice of the pie dominate the risk of the portfolio. The hedge funds are roughly 15%, and equity allocation across the fund totals about 47.4%. These numbers are a bit lower than the Foundation s peers, but cause less risk than with a typical endowment foundation. A graph showed the Foundation s results over a ten-year period compared to a universe of 100 other endowments and foundations. The WSU Foundation in each case placed in the first or second quartile, placing its performance well above the median. Again, Mr. Kenney stressed the importance of putting investment returns in context. Reaching the target return of 8% is easy some years, when the return was 18%, and virtually impossible when the

5 Budget and Finance Committee 2989 capital markets were in a downspin. However, when the market returns to more normal footing, staying the course sometimes has double-digit benefits as it did in the years from 2000 to Mr. Kenney quoted Warren Buffet to support his statements, such as, Be fearful when others are greedy, and be greedy when others are fearful, and Today people who hold cash equivalents feel comfortable. They shouldn t. They have opted for a terrible long-term asset, one that pays virtually nothing, nothing and is certain to depreciate in value. Mr. Kenney stressed again the necessity of taking the long-term viewpoint and avoiding an overly conservative approach. Mr. Kenney said that the infrastructure and the process are in place, and improvements are always being made on the margin. Market dislocations are providing opportunities to invest in higher rates of return. The Foundation made a good decision by getting out of the real estate market in July, but it now has the opportunity to buy back some of those assets at much cheaper prices. The Investment Committee asks many hard questions about hedge funds, transparency, cash investment, and Mr. Kenney believes his company is doing a good job of keeping them informed and working with them to assess the risks in the portfolio. Governor Driker began the discussion by asking for more details about the fraud perpetrated by one of the investment managers. Mr. Kenney explained that a manager called Gottex, a portable alpha manager, oversaw the portfolio of 70 individual hedge fund managers, and one of the managers they selected was a manager by the name of Peters. This person produced fraudulent invoices from companies like Best Buy and others in the retail industry that one of the other hedge fund managers was actually financing. The Foundation s loss was about $200,000. The investment manager is trying to pursue any funds available at this point, but the matter will probably be tied up in the courts over the near term. Vice President Lessem said he has not attempted to get involved in the litigation, since the University would probably spend far more in the process than it would recover. Governor Driker said he understood market risks, but was not willing to accept fraud risk. There are other ways of seeking recovery besides litigation, such as negotiation and demands. Mr. Kenney replied that the easiest way to handle the situation would be to essentially piggyback on the efforts of Gottex and other funds. Mr. Davis said the administration will report to the Board on any further developments. Mr. Kenney then addressed the question of transparency on hedge funds that had been broached earlier during the discussion on the audited report. He described three different levels of accounting standards in terms of transparency. Level 1 means they are publicly traded investments with a clear indication of pricing because of the high level of transparency. Level 2 deals with comparable investments. For example, if a company had a publicly traded bond and also a privately issued bond, one can assume they both have the same terms and conditions and that the pricing for the public bond would be a good proxy for the value of the private bond. The third level deals with assets where transparency or valuations are hard to find because there is no public market or comparable security. Mr. Kenney characterized Level 1 as very liquid, Level 2 as reasonably liquid, and Level 3 as less liquid. He gave as an example a detail review of a fund with about 90% of its assets in the Level 1 category. If those assets are applied to 15% of one s portfolio, that is not a significant amount of liquid assets and there is a limited transparency in one s portfolio. Governor Miller called attention to a statement in the document that indicates that a significant number of endowments have liquidity issues. She asked if the reference was to

6 2990 Budget and Finance Committee the Wayne State Foundation or to other universities. Mr. Kenney replied that the reference was to the more sophisticated endowments and foundations such as Harvard and Yale. Both universities have had to issue debt to help fund the capital calls for some of their private equity investment. He gave an example where 20% of a portfolio is tied up in liquid investments. In the current financial environment, the portfolio s asset levels go down, increasing the liquid assets and reducing the amount of flexibility. A situation can arise where a large endowment not only has to meet the 5% spending, but also the 5% payout just to fund capital commitments. They will then find themselves unwillingly liquidating assets in order to fund the capital commitments and to finance the spending policy. Governor Driker asked if any of Wayne s investments are subject to capital costs, and Mr. Kenney replied that only one investment is in that category, about $10 to $12 million out of a base of roughly $200 million. Governor Driker stated that a process should be in place that would alert the Foundation Board or the Board of Governors before an investment is made that is subject not only to loss but to writing a check. Mr. Kenney explained that he misspoke, and that the investment was not a capital call on the assets, just a follow-through with a commitment. Vice President Davis said that the Committee made a decision to invest a specific dollar amount of $10 million, but had to put in only the $3 or $4 million at first, with the understanding that they would be informed when the remaining funds would be called for. Mr. Kenney said that the situation with Harvard is similar, with the difference being one of magnitude. They made commitments that were too large for the size of the portfolio. The Wayne Foundation s investment in question is roughly 2.5% of the total assets of the fund and is generating a significant amount of income. Professor Volz asked whether the term global in phrases such as global investment and global asset includes both non-u.s. and U.S. equities. He also asked whether the term international is synonymous with global or if it is non-u.s. only. Mr. Kenney replied that the meaning of global is actually broader. Global asset allocation allows the managers to invest in both domestic equities and fixed income as well as global equities and fixed income. It provides the flexibility to move funds around to take advantage of relative value in one market, relative to another. The term international, on the other, hand is viewed as non-u.s. Professor Volz commented that he attended a presentation by the Harvard management company and noted that their U.S. equities are about 13% of the portfolio, while the Wayne s Foundation are at 30%. Mr. Kenney said that the person who ran the Harvard endowment and foundation spoke at a conference recently and basically described the endowment in terms equivalent to a hedge fund. The size and scope of their assets allows them to be much more flexible and creative than funds such as Wayne s. At the same time, the Wayne Foundation probably has more equity than the Harvard endowment. Governor Miller called attention to the names of members of the Foundation s Investment Committee and noted that some individuals come from banks or from the University administration. She recommended that faculty members who are experts in the area, such as from the School of Business Administration, be considered for membership the next time there is an opening. Governor Massaron asked about the process used to replace Investment Committee members, and Mr. Davis replied that he, Vice President Ripple, and other members of the Foundation Board make suggestions to the Foundation s Executive committee. Those nominated could be members of the Foundation Board or individuals from the outside with special expertise in finance or investment. He noted that the list of Committee members provided in the Board s documents also includes their background and affiliation. A few Board and Committee members noted that the process lends itself to the

7 Budget and Finance Committee 2991 creation of a self-perpetuating committee. President Noren, therefore, suggested that Vice Presidents Davis and Ripple review the nominating policy with the Board at a subsequent meeting. Governor Massaron said it would be appropriate for the Board to send a letter of thanks to the individuals who volunteer to work on the Foundation Board. The financial climate no doubt has been difficult for them, and he thought their work should be acknowledged. Mr. Davis said they make a significant contribution of their own time; they meet regularly and often call extra meetings and hold conference calls in between the regularly scheduled meetings. Governor Miller noted that the category core fixed income brought in a return of +4.6, the only positive return. She asked who decides how much of the money goes into that fund. Mr. Kenney replied that the decision is made through the asset allocation process that is approved by the Committee each year, taking into account the consultant s recommendation and feedback from Committee members. Currently about 25% of the portfolio is in core fixed income such as Treasury and government security investments. Money has been flowing into that market because people have been reducing their risks. Governor Miller asked if a larger percentage of funds should go into the core fixed income, in order to have more income for increasing the number of scholarships. Mr. Kenny explained that core fixed income is currently yielding a return of about 4% or 5%. The more money that is put into that area, the further away the portfolio wanders from the target return of 8%, and more money would have to be placed in riskier assets to balance that return and achieve 8%. A corporate bond may yield 7 or 8%, which may be preferable to owning the equity of a company, but these issues will be discussed by the Investment Committee. ACTION Upon motion by Governor Pollard and seconded by Governor Dunaskiss, the Budget and Finance Committee accepted the Annual Report on the Long-Term Investment Program for the Endowment Funds for the fiscal year ending September 30, The motion carried. REPORT ON UTILITIES CONSERVATION EFFORT INFORMATIONAL REPORT Mr. James Sears, Associate Vice President for Facilities, Planning, and Management, was scheduled to give a verbal report on conservation efforts and cost improvements in the utilities area. A written document had not been included with the Board materials distributed in advance of the meetings, and Governor Massaron suggested that the topic be postponed and placed on the agenda for the meeting in March. He asked that henceforth written documents be supplied to Board members in advance so they would have time to read the reports and be prepared to ask questions at the meeting. CONTINGENCY RESERVE There were no transfers from the Contingency Reserve, and the balance remains at its original allocation of $500,000.

8 2992 Budget and Finance Committee BUDGET UPDATE FY 2010 OUTLOOK, FY2009 UPDATE, FY2008 YEAR-END REPORT Associate Vice President Kohrman presented a budget report for three fiscal years; specifically, an outlook on FY 2010 and a report on the January state revenue conference; an update on FY 2009 focusing on state appropriations and the impact of enrollment on the budget; and the year-end report for FY FY 2010 Outlook Mr. Kohrman began his outlook on FY 2010 with an examination of higher education appropriations in the various states from 1997 to The national average increase for the states over the 12-year period is about 67%, or 5.6% per year. Mr. Kohrman singled out North Carolina, which in 1997 had the same level of state appropriations for higher education as did Michigan, about $1.7 billion. Since that time, North Carolina has invested an additional $2 billion, and Michigan only $300 million. State appropriations have a direct impact on tuition rates. Annual tuition at the University of North Carolina at Chapel Hill is currently about $5400, an increase of about $3000 over the 1997 rates. During that time, Wayne State has increased rates by $4400, the University of Michigan by $5000, and Michigan State by $5800. There is obviously a direct correlation between state investment and tuition. Mr. Kohrman added that without state investment, quality deteriorates because students cannot be relied upon to bear the entire cost of their education. The second chart examined just those states that had more than $1 billion in investment in higher education in 1997, and the increase in appropriations during the subsequent 12-year period. The average increase has been $1.3 billion, with Michigan at $300 million. The charts from the State s January revenue conference present a picture of declining revenue. The state s general fund revenue for FY 2009 was expected to be about $917 million less than the $9.4 billion revenue of FY Secondly, the $8.6 billion revenue for FY 2009 is now expected to come in at about $600 million less than projected earlier. For FY 2010, the general fund revenues are also expected to be $372 million less than earlier projected. In addition, the unemployment rate for is expected to increase to about 11.3%. Mr. Kohrman recalled that at an earlier presentation, he stated that higher unemployment rates usually lead to a decrease in enrollment at Wayne State, not good news for Wayne if the unemployment rate continues to rise. In an effort to be optimistic, discussion at the revenue conference compared the unemployment rate to the 1982 rate, which was 15.2%. Governor Abbott commented that the population of the state of Michigan in 1982 was higher than it is currently, which would have magnified the actual numbers. Governor Massaron noted that the situation in 1982 was completely different from the current situation. In 1982 there was always the possibility that people would eventually be called back to work, while the current trend is toward a decline in the number of employers and a general decline in the economy. Another topic discussed at the conference was K-12 enrollment. About 30,000 fewer students are expected to enroll in the K-12 system for 2010 than were enrolled in This poses a potential problem because the K-12 enrollment serves as the pipeline for higher education. Although the largest decreases are in the urban districts, it was pointed out that of the 552 public school districts in the state, 400 are experiencing declines in enrollment. In response to Governor Dunaskiss, Mr. Kohrman said the decline was caused partly by people moving out of the state and partly by a lower birthrate. Other components

9 Budget and Finance Committee 2993 are that inflation is basically flat, at 1/10ths of a percent, and the real disposable income in Michigan is expected to decrease by about.5% in This will, of course, affect the ability of families to pay for tuition. The one positive note is that the Executive Order issued in December did not cut the appropriations for higher education, at least for FY 2009 Update Focusing on enrollment and its impact on the budget, Mr. Kohrman showed a chart representing the fall enrollment report of the 15 Michigan Public Universities (MPUs) prepared by the Michigan President s Council. It compares undergraduate headcount from one fall term to the next. Wayne came in second to the last, with a 4.8% drop. Of more concern to Mr. Kohrman was the second chart showing the change in the First-Time-in-Any- College (FTIAC) headcount from year to year. Wayne State came in last, with a 9.4% drop in the freshman class. The reason for his concern is that a smaller freshman class, combined with retention and other issues, will result in smaller numbers of students as they go through the pipeline. This will, in turn, have a negative impact on tuition revenues as that small class goes through the system. Mr. Kohrman compared the drop to increases in FTIAC enrollment of 11.6% for Michigan Technological University and Grand Valley State, and 45.2% for UM-Flint. Board members described the 45.2% increase in freshman enrollment at UM-Flint as incredible, and a discussion ensued. Economically, Flint in many ways is similar to Detroit, but Governor Abbott pointed out that many of the laid-off workers returned to college because of money provided by the 21 st Century Fund. Vice President Hollins said it provided funds for worker retraining and could provide some relief to potential Wayne State students as well. He and Mr. Kohrman added, however, that what also helped U-M Flint was that the university built a residence hall for 500 students and then successfully filled it. In addition, the student body at U-M Flint is much smaller in actual numbers, so that the addition of 500 students would result in a higher percentage that is probably a little deceiving. Governor Dingell commented that the numbers of laid-off employees will continue to grow in the next weeks, and that the 21 st Century Fund should be used as an example for dealing with the problem. The economic stimulus package will send federal dollars to Michigan, and the state should be very pro-active and develop programs that will provide for worker retraining and education. The next chart showed headcount enrollment, both in percentages and in raw numbers, for the schools and colleges for the Winter 2009 term, with comparisons to the Fall 2008 term. As of January 17, 2009, there is a drop of 3.3% in total undergraduate enrollment, and a 5.4% drop among the graduate student population. Registration for the Winter term will close on January 26, and Mr. Kohrman expected an additional students to register for classes by that date, so that the final percentages may be a little lower than shown on the chart. This development would signify that the Transfer Thursday and other efforts initiated by Associate Provost Shapiro to increase registration have been successful. Governor Bernstein said that he teaches about 200 students at the U-M Ann Arbor, and he questioned why students would be allowed to enroll three weeks into the semester. Coming in so late into the term, they would be considerably behind the other students and at a distinct disadvantage. Mr. Kohrman explained that the registration deadline is the tenth day of class, since the term officially began on January 12. He said most institutions have a

10 2994 Budget and Finance Committee drop/add period that extends after the beginning of classes, so that Wayne State is not unusual in this practice. Governor Miller asked if any statistics were available on enrollment of veterans, and if there were any numbers available by gender. Mr. Kohrman replied that he currently did not have veteran enrollment numbers available. Enrollment by gender was included in a comprehensive enrollment report presented by Dr. Shapiro for the Fall 2008, and those statistics will be updated and finalized after the registration deadline on January 26. Provost Barrett said the administration is working with the VA Hospital to identify the various VA organizations in the area and thus to enable contact with individual veterans; she would gladly accept suggestions on how to approach the various veterans groups. The University has held sessions and workshops to give the veterans information on the benefit package that is available to them as well as the programs available at the University that they might find attractive. Governor Bernstein expressed deep concern about the underlying reasons for the dramatic enrollment decline and how it should be addressed. The Board must figure out what is actually happening and where and why students are being lost. It is important that the Board recognize that the decline must influence how it sets priorities, how the budget is formed, and how the University must move forward for the future. Mr. Kohrman replied that is precisely why President Noren put together an Enrollment Task Force to address all those issues. A full report and analysis should be available in March. He said it would also be helpful to develop a set of six to ten enrollment dashboard statistics that would help measure performance on a monthly or semester basis, rather than once or twice a year. President Noren said that the tactical objectives that were implemented to deal with the decrease in the fall enrollment reflect some modest success. More importantly, the Task Force is looking at strategic changes over the long term, such as recruiting differently than in the past. Strategic changes are more important and that would have more impact than the short-term tactical measures. Mr. Kohrman returned to his review of enrollment with the next chart showing a ten-year history of Fall and Winter headcount enrollment. He noted that if enrollment is studied over a ten-year period, the average growth rate for fall has been about.2% per year, while winter has been basically flat. What concerns him is the trend for the five-year period between academic years 2005 and He suggested that the data for Fall 2007 and 2008, which posted slight increases, were essentially anomalies compared to the general five-year downward trend. Professor Parrish countered that the chart could be interpreted as a straight line across for a four-year trend from 2005 to 2008, leaving the question open on reasons for a decline for Mr. Kohrman replied that the largest change was a decrease from 2008 to 2009, and that the average change for the academic years 2005 through 2009 was a negative.8%, and that is the trend that concerns him. He said the Task Force is studying the details of the various categories. One very clear feature was a significant dropout in the part-time enrollment. Governor Massaron said he hoped the enrollment drop in 2009 was a fluke, and that enrollment strategies could be adopted to result at least in a flat line, if not an increase. President Noren noted that the enrollment correlation at Wayne with unemployment rates is just the reverse of all other Michigan public universities except for Eastern. The issue of the 21 st Century Fund and other initiatives designed to deal with unemployed workers is the main focus of the Enrollment Task force and strategic planning efforts. Wayne State is well placed to respond to such a challenge. He certainly hoped that the enrollment decline for FY 2009 was an anomaly, but nevertheless the administration

11 Budget and Finance Committee 2995 must respond to the specific change and how it affects Wayne differently than the other MPUs. Mr. Kohrman closed this section of the presentation with a discussion of the repercussions the enrollment shortfall had on the budget. The Fall 2008 enrollment decline caused cuts of $8 million in the budget for FY If the preliminary enrollment for Winter 2009 holds, and the summer numbers come in as revised, there will be no need for additional budget cuts for FY The State may be able to avoid additional cuts if it utilizes all of their carry-forward from 2008, gets some help from the federal government, and if the January revenue projections hold through May. Mr. Kohrman said he is making no promises for 2010, but hopes to avoid further budget cuts for FY FY 2008 Year-End Report In a summary review of FY 2008, Mr. Kohrman noted that the Current Funds experienced an increase of $46.3 million in net assets over those of FY 2007, while the General Fund specifically had an increase of $39 million. The primary reason for the increases included the $22 million of state appropriations and $9 million from contingency fees and additional tuition revenues. Other significant changes consisted of an increase over budget of $7.5 million in the indirect cost recovery and an increase in investment income of $3.2 million. On the expenditure side, utilities came in about $3.8 million below budget, but the total net expenditures were $511 million or $6.8 million higher than budgeted, leaving a net asset of $39.3 million. Mr. Kohrman reviewed the designated commitments against the year-end balances, including the Rainy Day Fund of $16.8 million, protected carry-forward commitments of $13.9 million, and Project Funds commitments of $48.9 million. The total designated commitments came to $111.9 million. This number, compared to the General Fund balance of $117.3, leaves $5.4 million in uncommitted funds. Mr. Kohrman explained that typically the Cabinet and the President go through a process of expending year-end money for onetime projects. However, because of the uncertainty with the state economy this year and next year, funding was provided for only two projects. One was for the development of the Macomb Initiative, and the second was the relocation of the Computer Science Department. The remaining balance will be held by the President until the state budget picture is clarified. Governor Miller asked about the status of the Rackham Building and whether the University is considering its purchase. Vice President Davis said that the building is jointly owned by the University of Michigan and the Engineering Society of Detroit, and Wayne State is leasing it for one dollar per year, with the lease expiring in He just received an updated appraisal, and once the Engineering Society completes its own appraisal process, the two sides will discuss the status of the building and the possibility of its purchase by Wayne State. In terms of construction, the University received a grant to expand and renovate space for the Department of Speech Communication and Disorders, and the Board approved the most recent construction at its meeting of April 30, Additional renovations will be planned in the future, but currently there are no more funds left in this year s budget for any further renovation. Mr. Kohrman closed his presentation with a proposed schedule of budget agenda items for upcoming meetings of the Board and its committees through July On March 4, there will be a discussion of various tuition structures, a request initiated by Governor Driker. At

12 2996 Budget and Finance Committee the April 22 meetings, Mr. Kohrman will present the second-quarter report for the FY 2009 budget and will also discuss the FY 2010 tuition rates for the School of Medicine. On June 17, the administration will present the FY 2010 tuition rates for the remainder of the University. Mr. Kohrman noted that it may be more advantageous for Financial Aid and for Marketing if tuition rates were adopted earlier than in July. This will bring Wayne in accord with other institutions in the state and give students more information in making their financial plans. Finally, the General Fund and the Auxiliary Fund budgets would be brought to the Board for approval at the July 29 meeting. ADJOURNMENT There being no further business, the meeting adjourned at 11:09 a.m. Respectfully submitted, Julie H. Miller Secretary to the Board of Governors