FIRST QUARTER REPORT ON INVESTMENTS

The first quarter (third calendar-year quarter) investment report of the Pooled Endowment Fund of the Oregon State System of Higher Education for the period July 1, 1996, through September 30, 1996, prepared by R. V. Kuhns and Associates, investment consultants, is included within the supplemental materials.

(No Board action required)

PURCHASE OF WILLAMETTE BLOCK BUILDING IN PORTLAND, UO

Summary

The University of Oregon requests authority to purchase and renovate the Willamette Block building located in downtown Portland, Oregon. The University has occupied portions of the building since 1986 for its Continuing Education program, Alumni/Foundation, Bookstore, Athletics, and the Labor Education Research Center (LERC).

Staff Report to the Board

Officials at the University of Oregon have forwarded to the Office of Finance and Administration a request to purchase the Willamette Block Building at 722 SW Second Avenue, Portland. For the past ten years, the University has leased portions of the building for various programs and currently is leasing approximately one-third of the building, or 11,499 square feet out of a total of 34,110 usable square feet. The building owners have indicated a willingness to sell and have offered the building to the state for a price not to exceed $2,250,000. The final purchase is contingent upon an appraisal of the building to determine the fair market value, acceptable findings of an environmental and hazardous assessment, a building/fire code inspection, and the receipt of a title insurance policy providing for title to the property, free and clear of all encumbrances.

While the property is not on the market, the owner has offered to sell it to the University, provided the closing can occur by March 1997, and at a discounted purchase price if closing can occur by year-end 1996. This is an opportunity for the University to meet its strategic goals for the Portland area. The programs offered at the Willamette Block building address the University's educational and development goals for meeting the needs of working professionals as students and alumni.

The Willamette Block building is a refurbished historic building located in the heart of the Portland downtown area. The building is well served by surrounding retail establishments and by the Portland rapid transit system, all of which are needed to serve the UO programs in the building. The building consists of 44,704 gross square feet within four floors and a basement. The building was extensively renovated in the mid-1980s and since then has been updated regularly. The building is owned by Goldbelt, an Alaska-based organization affiliated with the Alaska Native Corporation, created by the Alaska Native Claims Settlement Act.

The University is currently leasing 11,499 square feet, primarily used by Continuing Education for classrooms and offices with the Alumni/Foundation, Bookstore, Athletics, and the LERC occupying the rest of the space. It is planned over the next two to five years that the Law School and School of Architecture and Allied Arts will occupy up to an additional third of the building in space now occupied by other tenants. The remaining third of the building space may be occupied by other UO programs, or the University can elect to extend the leases of current tenants or to secure new tenants. The building has had a very low vacancy rate, averaging below three percent over the past five years.

The lease payments being made by the UO and the other tenants would be sufficient to pay the debt service on the building as well as the annual operating costs. Eventually all of the debt service and operating costs would fall on the UO programs within the building. This rental rate, however, would be significantly lower than the current and projected rates per square foot if the building were to continue to be leased.

Funds required for the purchase of the property and costs to provide renovation of the building would come from Article XI-F(1) bonds with debt service payments on the bonds paid with rental revenues from the tenants and programs occupying the building. The property would be purchased under authority of Chapter 538, Oregon Laws 1993, Sections 1(3)(e) and 7.

Staff Recommendation to the Board

Staff recommends that the Office of Finance and Administration be authorized to purchase the Willamette Block building from Goldbelt for a price not to exceed $2,250,000 and to spend up to $250,000 renovating the building.

BOARD ACTION:

CONFIRMATION OF INSTITUTIONAL DEGREE LISTS

Staff Report to the Board

In accordance with Board regulations, the following members represented the Board in approving candidates for degrees and diplomas for the graduating classes at the designated institutions during the 1995-96 academic year and summer session:

Les Swanson

Tom Imeson

Gail McAllister

Diane Christopher

April Waddy

Jim Willis

Esther Puentes

Diane Christopher

Mark Rhinard

Jim Willis

Bob Bailey

Rob Miller

Staff Recommendation to the Board

Staff recommends the Board confirm the actions of the Board members in approving degrees and diplomas.

BOARD ACTION:

SOLUTION TEAM ON COLLEGE OF ENGINEERING, ACADEMIC PROGRAMS, & INDUSTRY RELATIONS

Oregon Statewide College of Engineering and the Future of Oregon

Executive Summary

Technology is driving the world today. It enables many of the changes we are seeing in the global social and economic fabric.

Oregon, fortunately, has nurtured a strong technology base. As forest products wavered as the state's economic foundation during the past two decades, technology has more than filled the void. Today, 54,000 people are employed directly in the technology sector and annual wages average $46,000 -- by far the best-paying and most rapidly expanding industry in Oregon. Technology companies make significant contributions to the state's tax rolls through nearly $2.5 billion in annual direct payroll, in addition to corporate income and property taxes. The network of service and manufacturing companies required to support these companies is significant, adding further to the industry's contribution to Oregon.

Oregon's support of the expansion of this sector has resulted in the state being among the top five in the nation in economic growth. Even so, much of the growth of technology of the past decade would not have been possible without the in-migration of technical talent. The in-migration was necessary to support the expansion of the intellectual capital needed as the foundation for high-technology's health.

Increasingly, the health of Oregon's technology sector is the health of Oregon's economy. Many experts believe this will be the reality for years to come. High-technology companies need knowledgeable workers to function -- people with bachelor's and advanced degrees in a wide range of areas, from marketing to finance, from human resources to manufacturing, and especially from engineering.

The state has a serious problem. The majority of the skills and knowledge driving its most critical industry comes from outside its borders. Oregon high-technology companies hire from out of state fully 80 percent of the engineers they need (even though virtually all of the state's engineering graduates quickly get jobs). In addition, these companies rely heavily on out-of-state sources to fill their continuing education needs. Oregon does not have sufficient technology education to support the industry that offers the state its most attractive growth.

High-technology brings many advantages to the state:

Oregon's economy is becoming increasingly dependent upon well-educated employees, particularly engineers. To compete on a global basis, Oregon needs internationally competitive education to keep the skills and knowledge of the state's technical workforce world class. These programs are essential to the state's economic health and must be delivered efficiently and flexibly to meet diverse needs throughout Oregon.

Engineering Education in Oregon Today

Most of the engineering education in Oregon is conducted at Oregon State University and Portland State University.

OSU and PSU, together and separately, deliver continuing education and professional development programs to several thousand engineers each year.

Engineering Research at Universities

A significant amount of research is conducted at the two universities. At PSU, annual research expenditures in engineering from external funding sources total approximately $1.3 million. OSU's external research expenditures total approximately $14.0 million in the College of Engineering and $20.0 million in other engineering-related research on the campus, for a total of $34.0 million annually.

National Ranking of Oregon's Engineering Programs

In the most widely viewed national ranking of engineering colleges (the recent Gourman Report), OSU's College of Engineering was ranked as "strong" as an undergraduate program (75 of 250) with five program areas of sub-areas in the "leading institution" category.

The four undergraduate program areas at OSU ranked in the "leading institution" category are:

Chemical Engineering, 49 of top 54

Civil Engineering, 39 of top 55

Mechanical Engineering, 47 of top 58

Nuclear Engineering, 21 of top 58

PSU was ranked as "adequate" as a college (207 of 250). No undergraduate programs at PSU were ranked in the "leading institution" category.

At the graduate level, the National Research Council ranks the top doctoral-granting programs in the country (1995). Six graduate programs at OSU were ranked as top programs by the National Research Council, as were two from the Oregon Graduate Institute (OGI) and one each from PSU and UO. These programs with national ranking in 1995 are:

OSU Chemical Engineering, 77 of top 93

OSU Civil Engineering, 52 of top 86

OSU Industrial Engineering, 37 of top 37

OSU Mechanical Engineering, 81.5 of top 110

OGI Computer Science, 43 of top 108

UO Computer Science, 64 of top 108

OSU Computer Science, 70.5 of top 108

OSU Electrical Engineering, 63 of top 126

OGI Electrical Engineering, 115 of top 126

PSU Electrical Engineering, 120 of top 126

These external evaluations are remarkably high considering the relatively low current level of public support for engineering and all of higher education in the state of Oregon. Among the top 25 universities identified in the most recent ranking in the U.S. News and World Report, other states spent an average of $31,000 per student per year. The State of Washington spends more than $15,000 per student. In contrast, Oregon spends between $7,500 to $9,000 per student. Overall, the State of Oregon funds OSSHE institutions at a rate 30 percent less in state funds than the average of its national peer institutions.

The Task of Expanding and Enhancing Engineering

OSU and PSU produce a significant number of engineering graduates. In 1995-96, OSU and PSU produced 276 graduates in electrical engineering and computer science, accommodating slightly more than 25 percent of the new job opportunities in the high-technology sector. This is a very conservative estimate of graduates from the industry since graduates from many other disciplines also accept technological jobs in high-technology businesses. Nevertheless, because of the state's rapid growth in high technology over the past seven years (but not during the previous ten years), still more graduates are needed to meet the needs of Oregon businesses and to ensure the state's competitive advantage in the future.

To respond to the engineering needs of Oregon, a solution team of the Oregon State Board of Higher Education has developed plans for a Statewide College of Engineering. The purpose of the Statewide College of Engineering is to:

The design of the Statewide College of Engineering was developed by an interinstitutional team with members from OSU, PSU, and private industry.

The Statewide College of Engineering

The Statewide College of Engineering is a new and innovative model with enormous flexibility and responsiveness to the industry. The structure is very fluid so students have many options for educational programs, and the industry becomes a partner to the program to an unprecedented degree.

The goal of the Statewide College of Engineering is to create by the year 2005 a Statewide College of Engineering consistently ranked in the top 25 of the nation's public, doctoral-granting engineering colleges. The College will achieve this goal by taking a series of very deliberate steps in its undergraduate and graduate programs, its research program, and its continuing education and professional development programs.

Bachelor's Degrees

The College will increase its educational capacity to graduate more students: to double the annual number of graduates in the high-technology disciplines within the next six years and to increase the number of graduates by 50 percent in the other engineering disciplines. This will be accomplished by:

Graduate Degrees

The number of master's and doctoral students receiving graduate degrees in the high-technology fields will be doubled and engineering graduates in other areas will be increased by 50 percent. This increase will be reached in a period of no more than six years and will be accomplished by:

Research Programs

Annual research expenditures at the two universities are currently more than $35 million. However, this research program can be expanded and connected more effectively with the industry by:

Continuing Education and Professional Development

OSU and PSU currently provide continuing education and professional development programs. However, they meet only a small proportion of the needs of the industry. More of these needs will be met by:

Performance Standards

Each of the programs will have specified performance standards, developed in partnership with the College's customers. The performance of the College will be measured against these standards every two years.

Management of the College

The Statewide College will operate in a new organizational manner, with great programmatic flexibility and in close association with the industry. Key components of the College organization are:

Budget

The budget for the Statewide College will require additional investment from the State of Oregon and from the business community. The purposes of these investments will be clearly defined and the College will be accountable for performance based on these investments.

Undergraduate Programs

Graduate Programs

Research

Continuing Education and Professional Development

The continuing education program will require subsidy. Once operating and marketed, the professional development programs should be financially self-sustaining. Cost $1.0 million for continuing education. Source: State support.

Facilities Upgrade

Facilities will need continuous upgrades. $4.0 million. Source: State and industry support.

New Building and Major Renovation

There will be requirements for major renovation of existing space and for new laboratory and classroom facilities. However, this request will be made through capital funds, and will require additional analysis of the space needs and consideration of various funding options.

Total Annual Budget Request

State Support: $19.56 million in first year; $23.82 million in second year.

Industry Support: $9.71 million in first year; $10.27 million in second year.

The Benefits of the Innovative Statewide College of Engineering

There are many potential benefits of the Statewide College of Engineering.

Benefits of Increased Stature and Reputation

  1. Integrating and combining the existing engineering colleges instantly increases Oregon's standing in national comparisons and allows strategic planning to build its reputation even higher over time.
  2. Students, faculty, customers, the business community, and the State of Oregon all benefit from an engineering program with a stronger national reputation.
  3. The fact that Oregon has made this innovative step will increase the recognition and reputation of engineering in Oregon and the Statewide College.

Organizational

Because faculty talents and engineering programs are combined, students have access to a greater range of programs and to more faculty. This expansion will be especially beneficial for part-time and nontraditional students.

The Statewide College will provide one-stop shopping for all engineering education, including students in traditional, part-time, continuing education, and professional development programs.

Student recruitment and support services are already in place to attract and support additional students.

Community college and high school students have easy access to the Statewide College through existing transfer processes and with the advice of counselors who know the universities.

Undergraduate students within the Statewide College can begin graduate studies while completing their degree and, as undergraduates, can gain research experience working with graduate students and their faculty advisors.

Students will pay less for their education than in private organizations because of the economies of scale in OSSHE.

Undergraduate and graduate engineering students can acquire a broader education where, in addition to engineering courses, they can take courses and conduct research in science and other technical fields (e.g., agriculture, atmospheric science, biology, chemistry, forestry, mathematics, physics, and geography).

Financial

A more effective and geographically significant allocation of resources is possible. Financial resources are invested into one organizational unit and thus can be moved around and used to benefit the geographic areas of greatest need. Also, resources can be shared and leveraged in different disciplines and projects within the single College, thus increasing the effectiveness of investments.

Decisions about the amounts and directions of future investments can be targeted within the combined strengths and needs in engineering. There will no longer be a necessity to make an a priori decision about which separate school of engineering would provide the greatest return on investment.

The Statewide College does not require new funding procedures; rather it uses existing mature mechanisms with all the required checks and accountability.

Customer

Industrial customers will greatly benefit from access to a top-level engineering program.

Customers have a single and convenient access to the entire suite of engineering education and research capabilities and programs.

Responsiveness will be increased by focusing on technologies of highest value with presentations of courses and location of research where and when needed.

Through the Industry Advisory Council, the customer becomes a true partner in the Statewide College, participating in the setting the directions of the College and evaluating its performance.

The biennial work plan will permit the customer to understand the College's goals for each two-year period, how resources will be allocated to meet these goals, and the criteria that will be used to evaluate the effectiveness of the resource allocation decisions.

Staff Recommendation to the Board

Staff recommend that the Board adopt the report of the Solution Team on College of Engineering, Academic Programs, and Industry Relations and direct the Solution Team and staff to continue future study and planning for implementation of a Statewide College of Engineering. Further, it is recommended that the Board direct staff to review the Board's obligations, if any, under the Public Employees Collective Bargaining Act and to pursue any necessary actions consistent with the Board's direction. Finally, staff recommend that the Solution Team report to the Board any recommendations for final action based on these directives no later than the Board's April meeting.

BOARD ACTION: