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Oregon State Board of Higher Education
Committee of the Whole
Room 1026, CAPITAL Center
Beaverton, Oregon
December 15, 2000

Minutes

Budget and Finance Committee members: Chair Don VanLuvanee, Tom Imeson, Geri Richmond, Bill Williams, and Tim Young.

System Strategic Planning Committee members: Leslie Lehmann, Jim Lussier, Jim Willis, and Phyllis Wustenberg.

OUS Presidents: Phil Creighton, EOU; Martha Anne Dow, OIT; Paul Risser, OSU; Dan Bernstine, PSU; Sara Hopkins-Powell, SOU; Dave Frohnmayer, UO; and Betty Youngblood, WOU. Lesley Hallick, provost at OHSU, was also in attendance.

Chancellor's Office staff: Joe Cox, Chancellor; Tom Anderes, Vice Chancellor for Finance and Administration; Marilyn Lanier, Deputy Vice Chancellor for Finance and Administration; Lynda Swanson, Director of Capital Construction, Planning, and Budgeting; and Patti Snopkowski, Director, Internal Audit Division.

Meeting participants also included other institutional representatives, other members of the Chancellor's Office staff, and interested observers.

The meeting was called to order by Board President VanLuvanee at 8:45 a.m.

Governor John Kitzhaber spoke to the Committee via videoconference concerning his budget recommendations for the 2001-2003 biennium.

Budget Highlights

Vice Chancellor Anderes provided a brief overview of the 2001-2003 Governor's Recommended Budget and its impact on the Oregon University System. He reminded the Committee that there are three levels of review for the 2001-2003 Biennial Budget: (1) the Agency Request, (2) the Governor's Recommended Budget, and (3) the Legislatively Approved Budget. During these three stages, the budget continues to be refined. Although the overall State of Oregon budget has increased by 13 percent, OUS' budget allocation, including policy packages, will increase by only one percent. With the exception of the state funding for the current biennium, this continues the decline of OUS' state General Fund appropriation that began in 1987 and moves OUS further from the peer goals set in the Resource Allocation Model (RAM). Among the areas impacted are: elimination of General Fund support for 1999-2001 salary increases, PEBB increases, and corresponding carry-forward; elimination of all inflationary increases, contributing to a reduction of cell values from 87.9 percent to approximately 80.9 percent in the RAM; elimination of a significant number of targeted programs; elimination of the RAM reserve to cover enrollment fluctuations; elimination of funding related to 1999-2001 Statewide Public Services' enhancements; and the necessitation of significant tuition increases to replace lost state General Fund support. Chancellor Cox stated that the salary reduction is directed toward 1999-2001 salary actions requested as part of the CSL, separate from the state employees' general increase recommended by the Governor to be held by the Emergency Board for 2001-2003. Selected policy packages that are supported in the Governor's recommendation include $1.3 million for OWEN and Secretary of State Audit assessments; an $8 million increase for small school support; $20 million for engineering enhancements; $17 million to support anticipated enrollment growth; and $7.2 million to initiate the branch campus in Central Oregon (Bend).

Although the Governor's recommended budget for 2001-2003, including policy packages, reflects a 1percent increase over the 1999-2001 Legislatively Approved budget, the Current Service Level (CSL) in the Agency Request is decreased by 11.9 percent. Policy packages enhance the budget, but do not contribute to CSL shortfalls. Of the OUS Board prioritized policy packages ($251.5 million) requested for the operating budget, only $53.5 million was included in the Governor's Recommended Budget. Of the $176.3 million in state General Fund requested for the capital budget, no funds were recommended by the Governor.

As a result of the 2001-2003 CSL shortfall, OUS must confront many issues:

OUS' goal is to attain the median of its peers. This biennium, OUS was funded at about 88 percent of the median of its peers. However, the Governor's recommendation will reduce this level to 80 percent of the median. An increment of $45 million is needed to restore the cell value funding to 87.9 percent (i.e., the 44th percentile of its peers).

Chancellor Cox stated that "there is no denying that there is a hole in this budget." The Governor has stated that the larger issue is identifying statewide areas requiring continuing support. OUS must identify where it falls within this level of support. There are also a number of public policy decisions that must be made by the Governor and Legislature which would impact agencies (e.g., moving from the natural resource industry to high tech industry). With respect to engineering, the Governor is raising the question of what portion is the state's obligation and how much must come from the private sector. The Governor surmised that the state's responsibility is to fund the ETIC portion, and industry must fund the remainder. Director VanLuvanee stated that, given where we are in the budget process, the Governor's recommendations should not cause inertia within OUS, but rather sustain the momentum and continue the budget discussions. Director Imeson agreed and stated that, although OUS improved its standing with its peers in the last biennium, there is no guarantee that OUS will achieve peer parity within one or two biennia. Chancellor Cox noted that for the 1997-1999 biennium, legislatively-approved funding was $645 million, which was $120 million less that before Measure 5. However, the 1999-2001 biennial budget restored OUS funding to the level prior to Measure 5.

Director Lussier asked, from the Governor's perspective, how the revenue numbers would change as the legislative session progresses. Grattan Kerans advised that the revenue projections were flat and the Governor expects some increase in available revenues but not to the level experienced in the 1997-1999 biennium. Additional resources can be found in agency budgets and will be available by the end of the legislative session.

Director Williams asked for a timetable in which decisions will be presented to the Governor. Mr. Kerans advised that these decisions, including how program cuts impact campuses, must be made available to the Governor as soon as possible.

Director VanLuvanee noted that the biggest challenge will be in maintaining a constructive process. Over the next 30-45 days, the Board will be asking campus leaders to look at what choices they and the System should make to advance the needs of OUS. Again, Chancellor Cox stated that this is a long and multi-step process and we must not lose the momentum and morale on the campuses.

Director Imeson asked if, under SB 271, there will be opportunity for cost reductions associated with state assessments. Chancellor Cox noted that, subsequent to SB 271, OUS has reduced the majority of assessments. The fear is that those gains are being eroded, and a series of assessments are being set for services that OUS does not use. OUS has closely watched the gains OHSU has achieved since its establishment as a private corporation. Director VanLuvanee noted that OUS should view this as an invitation to "break out of the box."

Director Lussier asked that staff develop criteria by which the Board can look at this issue from the System's viewpoint. Chancellor Cox stated that OUS will make every effort to enhance the state General Fund allocation and make efficiency decisions before proposing tuition increases. Director Williams stated that, from a private enterprise viewpoint, this is a similar situation to what is faced in private enterprise (recession). There is an analogy in an education sector recession (reduced revenues) to private industry wherein the System may have to scale down temporarily so that it may advance when the recession is over. Director Wustenberg added that the Governor states that his priority for instruction and enrollment is at an all-time high. We must look at ourselves to effect efficiencies; it is not prudent to raise tuition before looking at what areas can be improved and consolidated. Director Lehmann observed that it is important to, both internally and externally, understand how and what the Board is doing in relationship to other statewide priorities. All policymakers must understand the larger product. Director VanLuvanee concluded that the Board is looking for a plan from the Chancellor and his staff on how these issues can be addressed.

Adjournment

The Committee of the Whole adjourned at 10:15 a.m., following a 20-minute break.