Board of Governors BUDGET AND FINANCE COMMITTEE September 13, 2006 Minutes The meeting was called to order at 9:00 a.m. by Governor Massaron in Rooms BC at McGregor Memorial Conference Center. Secretary Miller called the roll. A quorum was present. Committee Members Present: Governors Bernstein, Driker, Massaron and Washington; Michael McIntyre, Faculty Representative, and Louis Romano, Faculty Alternate Representative; Andrew Ricketts, Student Representative Committee Members Absent: Governor Hardy, and Jason Pearsall, Student Alternate Representative Also Present: Governor Miller and President Reid; Provost Barrett and Executive Vice President Dickson; Vice Presidents Burns, Davis, Hollins, Lessem, and Oliver; and Secretary Miller President Reid introduced Professor Lou Romano, who will serve as the new Faculty Alternate Representative to the Committee. APPROVAL OF MINUTES, JULY 26, 2006 There were no objections or corrections to the Minutes, and the Minutes of the July 26, 2006 meeting were adopted as submitted. CONTINGENCY RESERVE There were no transfers from the Contingency Reserve, and the year-end balance is $225,000. The report was received as presented. Governor Massaron modified the agenda by dealing next with the Auxiliary Activities Budgets, to be followed by the FY 2006 General Fund Budget Third-Quarter Report. PROPOSED AUXILIARY ACTIVITY BUDGETS, FY2007 The University s auxiliary operations include ten units that provide non-academic essential services to students, faculty, staff, and the community, thereby supporting the academic and strategic mission of the University. Ms. Anjali Anturkar, Interim Budget Director, presented the proposed budgets for the auxiliary units for FY 2007. She indicated that the budgets 2759
2760 Budget and Finance Committee total $18.9 million in revenues and about $17.6 million in operating expenses, resulting in a net surplus of $1.3 million. About $280,000 of the surplus will be transferred to reserves, and $1 million will be used for various activities on campus. The revenue sources for the auxiliary funds are primarily student fees from the recreation center, sales, commissions, rentals for business and auxiliary services, gifts and pledges for WDET and University Press, and general fund support for The South End and the University Press. Ms. Anturkar said most of the auxiliary units are in good health and are on course to meet their budgeted targets for fiscal year 2006. The University Press has made a commendable turnaround from being in heavy deficit in fiscal year 2004 to balancing the budget. The other auxiliary units, namely the Bookstore, Parking, Contract Services, McGregor, Recreation Center, Student Center, are all meeting its revenue targets and continue to control cost. Two units, The South End and the WDET, have experienced decline in revenues. The South End has adopted several cost cutting measures to meet the challenges of declining advertising revenues. WDET has struggled to meet its revenue targets in FY2006, primarily due to staffing vacancies and a sluggish economy. After restoring various programs to its lineup, however, WDET has increased its market share and listeners and is anticipating a recovery in pledge revenue and a breakeven budget for FY 2007. Ms. Anturkar said that the auxiliary units have paid for all their direct and indirect operational costs since FY 2004, and in the FY 2007 budget, these costs represent about $7 million that otherwise would have had to come out of the General Fund. MOTION by Governor Driker and seconded by Governor Washington that the Budget and Finance Committee recommend that the Board approve the FY 2007 budgets for the Auxiliary Activities units as presented. Governor Miller noted that WDET-Radio s projected actual budget for FY 2006 was less than the approved budget. WDET projects the voice of Wayne State University to the outside community, and she was concerned that the University was not helping the financial status of the station. Since a similar disparity exists between the actual versus the approved FY 2006 budgets for The South End, she asked for an explanation of how decisions are made to revise the budget figures after they are approved. Governor Massaron added that it would be helpful to know how declining revenues may contribute to the difference between the two budget figures. Ms. Anturkar replied that the difference is due to cost-cutting and efficiencies by the unit, brought on by the decrease in revenues. For example, the General Fund subsidy for The South End in FY 2006 was $121,000, and the remainder of the $301,000 budget was to be made up of advertising revenue. When the anticipated advertising revenue did not materialize during the course of the year, the unit had to institute budget cuts. Revenue deficits are not made up by additional money from the General Fund. Governor Driker noted that The South End has had a full-time general manager for the past year and nine months, and that consequently there has been improvement in both the financial and editorial performance of the newspaper.
Budget and Finance Committee 2761 Governor Massaron asked for further information on WDET s financial status. Vice President Lessem replied that WDET does not receive any direct University support, but it does receive indirect support in the form of services provided by the University. The station has experienced considerable turmoil during the past year, and that has negatively affected both its listenership and its revenues. The recent format change seems to have reversed that trend. Listenership has increased significantly in comparison to the previous two quarters, and it is hoped that will translate into a successful fall fundraising. At the moment, however, WDET s budget is in deficit. The station has cut its budget and reduced its staff by six positions, but it now has competition from a new classical radio station that raised about $300,000 in a fund drive held about the same time as WDET s drive. Vice President Lessem said it is possible the Board will be asked to provide some support during the transition period until the new format is established. Governor Washington expressed her concern, adding that it is the University s responsibility to ensure the station s survival, even if it means providing extra funding during the year. She asked that the Board receive regular reports so that it can monitor the station s situation. In response to Governor Massaron s question about the station s 60 th anniversary, Vice President Lessem replied that the station was put on the air by the UAW in 1949 and transferred to the University in 1952, so the University has a few years to plan an observance. Governor Massaron said the 60 th anniversary should stress the link between the station and Wayne State University, and should also promote public radio and specifically WDET. ACTION Upon motion by Governor Driker and seconded by Governor Washington, the Budget and Finance Committee recommended that the Board approve the FY 2007 budgets for the Auxiliary Activities units as presented. The motion carried. FY2006 GENERAL FUND BUDGET PERFORMANCE THIRD-QUARTER REPORT Budget Director Anturkar presented a brief synopsis of the General Fund Budget Performance report for the third quarter of FY 2006. The report projects a small surplus in the General Fund of $350,000. As reported earlier, the University will have a one-time increase of $1.7 million in state appropriations and an estimated shortfall in tuition and fee revenue of $4.2 million. Other factors that had impact on the forecast are increases in investment income, course and lab fee revenues, Capital Campaign expenses, and a decrease in the projected fringe benefit expense. Based on the feedback received from the Board at the meeting of June 21, several changes were made in the presentation of the forecast. The objective of these changes is to simplify the projections and make them easier to compare with the budgets by aligning the revenues and expenses to where they are actually incurred. Ms. Anturkar reviewed the two schedules and noted the key changes in the calculations of the revised budgets. Schedule 1 is a summary of approved, revised, and year-end predictions for FY 2006, and FY 2005 year-end actual. Previously, the revised budget was presented as the approved budget plus unexpended balances carried forward from the previous year. Beginning with the third-quarter report, the carry-forwards will not be included as part of the revised budget.
2762 Budget and Finance Committee Although the carry-forward balances differ within the individual units, the overall fund balance has remained stable over the past several years. The second major change is the presentation of expenses for fringes and compensation. These are initially budgeted in central accounts and are then moved to the units based on the actual expenses after each payroll run, but previous performance reports have not reflected that process. In the current report for the third quarter, the actual compensation and fringe expenses are now included for the three quarters, and the estimation for the fourth quarter is reallocated to the respective units and reduced from the central accounts. Therefore, the projection shows a more realistic budget for central accounts. Ms. Anturkar emphasized that this change was made to simplify the presentation and make the projections more easily comparable to the budgets. Schedule 2 is included upon request by the Board at the June 21 st meeting. The schedule presents the actual year-to-date revenues and expenses for the period October through June for both FY 2005 and FY 2006. Ms. Anturkar said that, in general, the revenue and expenditure figures are projected to fall within budgeted amounts, with a few minor variances. Year-end unspent balances are possible, but they are difficult to project since they are dependent on many variables within the units. The third-quarter report anticipates a smaller savings in fringe benefits of only $600,000, compared to the $1.2 million estimated in the second quarter. Ms. Anturkar explained that fringe benefits are difficult to estimate; they are based on the composite rate, which the Department of Health and Human Services does not issue until the end of July, after the University s budget process is completed. The University does not expect a surplus in the compensation category. About $6.2 million has been paid in compensation increases as of June, and some significant payments were due in late August due to contractual agreements. The projections for debt service and utilities have not changed since the second-quarter report. Other central accounts such as the program enhancements, professional fees, research equipment funds, contingency reserve, deferred maintenance are all projected at their originally budgeted amounts. In summary, Ms. Anturkar said a very small surplus of $350,000 can be anticipated for FY 2006. The key components of tuition, state appropriation and compensation are more or less finalized, although expenses such as fringe benefits and utilities can still experience some variations. Professor Romano asked about the Schools and Colleges category in Schedule 2. The faculty expressed continuing concern about the percentage allocated to that category, which he indicated has declined over the past decade, and he noted that the absolute amount for FY 2006 is less than for FY 2005. Ms. Anturkar replied that she has been examining the figures for the last five years to determine the percentage of the budget allocated to the schools and colleges and whether it indeed is declining. It has not been an easy exercise because academic support is often distributed throughout several categories. Ms. Anturkar said she herself has not seen any decline, although she admitted others disagree with her conclusion. The budget analysts will continue meeting with the Academic Senate subcommittee to work on the problem, and she will report to the Board with the results of the study.
Budget and Finance Committee 2763 PURCHASING EXCEPTIONS The Committee received the quarterly report on Exceptions to the Purchasing Policy, an informational report on sole source purchases over $20,000 awarded without competitive bids. Governor Driker asked why a 2006 Ford Crown Victoria was purchased on an emergency basis for the Department of Public Safety. Vice President Davis explained that normally the University purchases its vehicles through the State of Michigan s contractor and the designated dealer. Last April, Wayne s Public Safety Department totaled one of its vehicles and at the same time had some vehicles out of service. The state s designated dealer, Gomo Ford, did not have any police vehicles in stock, and the Purchasing Department bought one from another dealer rather than wait for the state contractor. Governor Massaron referred to the service contracts performed by John Brewster and Harvey Ovshinsky. He asked whether the contracts dealt with consulting services or whether a written report was available for review. Vice President Davis indicated he will follow up and provide a report if one is available. Governor Massaron also asked about the source of funds used for a contract relating to the Wayne First Campaign. President Reid said that at its meeting of March 2, 2005, the Board had approved a Capital Campaign budget and financing plan which authorized the use of a line of credit from the University s cash pool. These funds would be used to pay expenses until the fee assessments on endowment funds and most gifts begin to generate sufficient funding. OTHER BUSINESS Governor Bernstein presented two items to the Committee for consideration and discussion. Tuition Timeline Governor Bernstein asked that the Board have an opportunity to discuss proposed tuition increases at a much earlier date than the current July time-frame. He understands that the administration would be unable to provide specific percentage figures in January, but suggested that the administration could present the range of tuition increases that are being considered. This would give the Board time to debate the budget especially as it would affect the students. MOTION by Governor Bernstein and seconded by Mr. Ricketts that the Board begin discussion of tuition increases in January. Governor Massaron asked whether it is possible to conduct budget and tuition discussions in January, given that no one has any information on state appropriations that early in the year. President Reid said it would have to be a very general discussion, especially because there are currently a great many uncertainties in the state appropriations process. Governor Washington said she was under the impression that such discussions had been held before July, when the Provost presented the budget model. The Provost replied that the budget model could be presented along with some scenarios of various levels of state appropriations and what the University s response would be to that funding.
2764 Budget and Finance Committee President Reid suggested that tuition and budget discussions be held in March or April rather than January. University presidents generally testify before the legislative committees in early spring, and he would then have a better sense of the legislature s attitude towards appropriations. Governor Driker said the tuition discussions would be most productive if the Board received the budget status report for the second quarter. There would be a clearer indication of budget trends for the first five or six months on which to base a discussion on tuition. President Reid added that even preliminary consideration of budget and tuition must be discussed with the Academic Senate, and an April date would provide more time for those deliberations. Governor Massaron suggested that rather than voting on a motion, the Board would agree to receive budget models and tuition proposals for discussion in April. The proposals would be based on budget performance reports for the fiscal year through the month of February. Governor Bernstein concurred with the suggestion and expressed satisfaction with the compromise. Delivery of Board Meeting Materials Governor Bernstein s second request dealt with the timely delivery of Board meeting materials. MOTION by Governor Bernstein that documents, particularly those referring to financial or budget items on the agenda, be forwarded to Board members at least 14 days in advance of the meeting. Governor Massaron seconded the motion. Governor Bernstein said that during his four years on the Board, he has found it very difficult to find the time to study documents that are delivered to Board members only four or five days before the meeting. The Board s primary function is oversight of the University. He believes Board members could better fulfill that role if they had about two weeks to review agenda documents, especially those dealing with the more complex issues of budget and finance. Governor Massaron said that his Board materials generally arrive five or six days before the meeting, and occasionally he finds that more time would be helpful to understand the more complex charts and documents. He wondered, however, whether a 14-day timeline for document delivery might not create problems for the administration, and whether a sevenday schedule would be acceptable for both parties. President Reid responded that the seven-day deadline for document delivery is much more manageable than 14 days. Secretary Miller agreed, indicating that the Cabinet has already discussed the seven-day format and has committed itself to having Board materials ready for delivery to the Board one week before the meeting date. Governor Bernstein accepted the compromise of a seven-day deadline. Governor Washington said she understood that the main reason Board materials are late is that some documents are not prepared in time for the deadline, and therefore the entire notebook is delayed. When such a case occurs, she asked that the budget and finance reports be forwarded to the Board separately from the complete Board materials.
Budget and Finance Committee 2765 Governor Massaron said that if there is no objection from other Board members, the matter would be settled by consent rather than a formal motion, and he would withdraw his second. It was agreed that the administration would forward meeting materials to Board members seven days before the meeting date. If after a period of time the administration encounters problems with the seven-day deadline, the matter can be brought back to the Board for further discussion. ADJOURNMENT There being no further business, the meeting adjourned at 9:45 a.m. Respectfully submitted, Julie H. Miller Secretary to the Board of Governors