BUDGET AND FINANCE COMMITTEE. February 7, Minutes

Transcription

1 WAYNE STATE UNIVERSITY Board of Governors BUDGET AND FINANCE COMMITTEE February 7, 2014 Minutes The meeting was called to order at 11 :59 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 Pollard, Driker, Massaron, Nicholson, and Dingell; Louis Romano, Faculty Alternate Representative; Adham Aljahmi, Student Representative, and Erika Giroux, Student Alternate Representative Committee Members Absent: Charles Parrish, Faculty Representative Also Present: Governors Dunaskiss, O'Brien, and Trent, and President Wilson; Provost Winters, Vice Presidents Lessem, Lindsey, Nork, Ratner, Ripple, and Wright, and Secretary Miller APPROVAL OF MINUTES, November 22, 2013 ACTION - Upon motion by Governor Massaron and seconded by Governor Nicholson, the Minutes of the November 22, 2013 meeting of the Budget and Finance Committee were approved as submitted. The motion carried. CONTINGENCY RESERVE Mr. Kohrman reported there were no transfers requested from the Contingency Reserve, and the FY 2014 balance remains at $75,000. AUDITED FINANCIAL REPORT FOR THE FISCAL YEAR 2013 Vice President Nork presented the University's audited financial report and financial statements for the 2013 fiscal year ending September 30. The financial statements were completed and audited by WSU's external auditors, Plante & Moran, who issued an unmodified opinion (the new terminology replacing the former "unqualified" opinion) that the statements represent fairly the financial picture and operations of the University. The auditors' report and the financial statements have been reviewed and discussed in detail by the Board's Audit Subcommittee. Vice President Nork noted that the consolidated figures for FY 2013 showed essentially no difference between revenues and expenses. However, the Government Accounting Standards 1179

2 1180 Budget and Finance Committee Board (GSAB) adopted new standards that require the financials of the University Foundation to be shown separately, or discretely, from those of the University. As a result, the charts showed that the Foundation was actually up by $25 million while the University was down by $25 million. This represented a change from FY 2012 when, on a consolidated basis, the net assets grew by $13 million, also because of positive results in the Foundation. Mr. Nork reviewed some of the reasons for the change. Operating revenues increased by $19. 7 million partly because the tuition and fee increase offset the decline in enrollment, and also because a state grant was received late in 2012 and credited for Non-operating revenues were down $12 million, principally because of a decrease of $14.5 million in investment income. Operating expenses are up about $20 million, with the bulk in the compensation and benefits area. The unrestricted net assets, those funds designated for specific functions, have also declined about $19 million since FY Most of the decline was in the General Fund, while the Plant Fund and Designated Fund remain stable. The "Other" category mainly reflects the Auxiliaries and shows the investments made and the spending to refurbish parking facilities. Mr. Nork showed several graphs summarizing the University's financial position over a five-year period, with an emphasis on the Cash and Temporary Investments of the University. The cash balance declined slightly since its high in 2011 but still remains strong at almost $370 million. An additional $90 million represents the unexpended bond proceeds that were from the Series 2013 bonds issued in May Although unrealized gains and losses had a significant impact on the University's financial statements, realized investment income, that is, cash coming into the University, has significantly increased. Because of the change in the University's investment policy in 2012, investment income has increased significantly from about $2 million in FY 2011 to almost $9 million in FY 2012 and about $11 million in FY Governor Pollard asked for more specifics on the unspent bond money. Mr. Nork explained that about $90 million worth of bonds were issued at the end of May 2013 for the express purposes that include partially financing the construction of the MBRB, the Student Center renovation, a new science and engineering laboratory classroom building, the second floor of the Manoogian classroom building, and the A-TEC facility in Macomb. The only projects under construction at this time are the MBRB and the Macomb building, with about $10 to $12 million of the bond money spent on those projects. The remaining funds will be spent over the next two-and onehalf years as all the designated projects are completed. In the meantime, the funds are maintained in a separate account which is very conservatively invested and will not be subject to any market risk. Governor Driker said that most people outside the University community, those in Lansing, the media, and the general public, do not have a full understanding of why the University maintains such large amounts of cash and then requests tuition increases. He suggested that Vice President Nork and his designees have information available to explain what these resources represent and why the monies are not available to replace tuition. FISCAL YEAR 2013 YEAR-END REPORT Mr. Kohrman presented the FY 2013 Year-End General Fund budget performance report, as well as the budget calendar for FY In summary, there is an overall decrease in fund balance of $17 million, with revenues coming in $5.8 million, or one percent, below budget, and

3 Budget and Finance Committee 1181 expenditures and transfers at $11.2 million, or 1.9%, above budget. He attributed the negative showing to significant budget reductions over the last several years and the fact that the schools, colleges, and divisions have had to rely on one-time funds to help with the operations of their units. Mr. Kohrman explained the four categories of Revenue and how the actuals compared to the budgeted figures. State appropriation was up $200,000 because the University met tuition restraints in 2012 and the funds were allocated for FY Investment income and other revenues were up due to enhanced investment strategies and favorable market conditions. Tuition and fee revenue was down, however, due to a decrease in enrollment and in total student credit hours. Indirect cost recovery was down considerably, since research awards and expenditures dropped partly due to the federal climate. Expenditures increased in every category for FY 2013, with a total of $11.2 million over budget, but Mr. Kohrman focused on two in particular. Regarding Transfers and One-Time Spending, he explained that when funds are dedicated for a project and are shifted outside the General Fund to other funds, that is a transfer which results in a reduction in fund balance and a significant change in expenditure. In the Financial Aid category, there was a demand for additional need-based undergraduate financial aid of $2.2 million. Turning to the FY 2015 budget calendar, Mr. Kohrman discussed plans to present the housing rates at the March 21 meeting, the School of Medicine tuition rates on May 2, and the regular tuition rates as well as the General Fund and Auxiliary budgets on June 27. STATE BUDGET METRICS The FY 2015 budget represents the third year that performance metrics have been in place for the State of Michigan. Mr. Kohrman reviewed the history of the metrics and discussed concerns of how the metrics affect WSU funding. In 2011, the Business Leaders of Michigan (BLM) proposed seven metrics in four categories, including six-year graduation rates, first-year retention rates, total degrees and completions, institutional support, affordability and access (including Pell grants), and total research and development expenditures. In his FY 2013 budget, Governor Snyder came forward with four metrics and allocated about $36 million for all 15 universities. His metrics included the growth of undergraduate completions from 2008 to the three-year average of 2009, 2010, and 2011; three-year averages of undergraduate completions in STEM and health fields alone, and the number of undergraduates receiving a Pell grant; and keeping the tuition rates under a certain level. After discussion with House and Senate leaders, the final FY 2013 metrics were established: number of degrees in critical skills areas, six-year graduation rate, total qegrees completed, institutional support, research expenditures, and tuition restraint. Mr. Kohrman pointed out that the metric referring to Pell grants was eliminated. This was a disadvantage for Wayne State because the University serves a high percentage of students who have Pell grants. Wayne State's final allocation for FY 2013 was $1.36 million, or an increase of 0.7% over the previous year. The Governor's recommendations for FY 2014 included the same metrics but only a 2% increase rather than 3%. The final metrics for FY 2014 allotted WSU about $535,000, or 0.29%. Again, the Pell grants were not included. Another disadvantage was that the metrics used compared WSU to the Carnegie Peer group that includes Ohio State, Minnesota, Berkley, and Chapel Hill among others. This is not a comparable peer group. Wayne State will never have the total number of degree completions that Minnesota or Ohio State has, since each of these

4 1182 Budget and Finance Committee institutions have about 55,000 students, nor will it achieve the six-year graduation rates that Michigan and Chapel Hill have. Further, the Institutional Support metric is calculated by taking the administrative costs and dividing by the total base budget. The University of Michigan, for example, has a $6 billion budget, and its administrative costs will naturally be a small percentage of such a large denominator. WSU's administrative costs are about average compared to other MPU's using this measure. Wayne State did meet three components of performance funding - a dual enrollment credit policy, participation in three reverse transfer agreements with community colleges, and the Michigan Transfer Network. The FY 2014 budget highlighted three concerns th.at Wayne State has with the performance metrics as they are currently used. For FY 2015, WSU wants to make sure that the Pell grants are included in the metrics. Mr. Kohrman said he looked at the metrics used by other states, and almost all of them have a Pell metric in their performance funding; Michigan is an anomaly by not using Pell as a metric. Including a Pell metric would help WSU, since currently 49% of its undergraduate students, or 10,274, receive a Pell grant. The second concern is the appropriate use of peer groups. As mentioned earlier, Wayne State cannot compare to Carnegie Peer institutions such as the University of California-Berkley, Wisconsin, North Carolina, or Ohio State. It is suggested that the State of Michigan utilize each institution's Board-approved peer group instead of the Carnegie classification; this would include the University of Cincinnati, University of Illinois-Chicago, Temple University, and Michigan State University. The last concern is to have "Improvement" as a larger component of the metrics instead of comparison to peers. Currently 30% is based on improvement; the suggestion is to base 50% on improvement and 50% on peer comparison. Rewarding institutions more on improvement would lessen the impact of having the peer group as part of the analysis. Finally, Mr. Kohrman added that the tuition restraint proposed by the Governor was 3.2%. He said there is a possibility Wayne would receive about $500,000 to one million dollars. In any case, he said that WSU will not do well in any metric-based analysis from the State as it currently stands. Governor Driker repeated his earlier comment that the University should martial the right resources to convey its views on the metrics to the administration in Lansing. ANNUAL REPORT ON THE LONG-TERM INVESTMENT PROGRAM FOR FY 2013 Vice President Nork presented the above informational report. It was prepared by the Wayne State University Foundation's investment advisors, New England Pension Consultants (NEPC) and approved by the Foundation's board of directors on December 3, The total assets of the endowment at the end of the last fiscal year were $287.5 million, up by $28.5 million from the previous year. Mr. Nork explained that in evaluating performance, it is important to review both the absolute value of the results, how the University compared to its peers. The Foundation's one-year results placed it in the 69 th percentile, meaning that it is better than only 31 % of the other institutions, and about the same for the three-year results. Its performance is better in the longer term; the five-, seven-, and ten-year results placed it in the 35 th, 23 rd, and 33re percentiles, respectively. This was because the portfolio was structured rather conservatively compared to other institutions, and it helped the University get through the 2008 downturn without significant losses. However, because of the conservative structure, it has not been able to take advantage of the upturn in the last couple of years.

5 Budget and Finance Committee 1183 Recognizing this problem, Mr. Nork said it was determined to move the portfolio into a position to assume a little more risk. The portfolio now has a broader exposure to the equity markets and has split its representation among the S&P 500 index funds. It has also increased its diversity in the fixed income portfolio. A traditional pension or endowment portfolio of 60/40, equities to fixed income, will not give the yields necessary to maintain the purchasing power of the endowment fund. Therefore, the portfolio's exposure to fixed income has been reduced and new investment vehicles have been brought in which hopefully will increase the yields. Exposure to hedge funds has been practically eliminated, but there is now an AQR Gibraltar fund which mimics the hedge fund performance but at much less expense in terms of the fees that would normally be paid with hedge funds. In closing, Mr. Nork said that over the last ten years, the endowment fund has gone from a low point in 2004 of $175 million to its current level of $290 million. Governor Massaron asked about the Investment Committee of the Foundation and whether it is still in existence. He said that in the past, the Board sent letters of appreciation to representatives of the Committee who attended the Board meetings and contributed their time and expertise to the University. Mr. Nork replied that Mr. Paul Glantz is Chair of that committee, and Governor Driker added that the Investment Committee is still very active. He supported the idea of having the chair of the Board send a letter thanking them for their service. PURCHASING EXCEPTIONS Vice President Nork presented the report on Purchasing Exceptions. This is an informational report on sole source purchases over $25,000 that were awarded without competitive bids. Most of them reflect the scientific judgment of the principal investigators who requested the equipment. ADJOURNMENT There being no further business, the meeting was adjourned at 12:37 p.m. Respectfully submitted, t.~r~&- Secretary to the Board of Governors