OREGON STATE BOARD OF HIGHER EDUCATION
MINUTES OF SPECIAL MEETING
ROOMS 327/8/9, SMITH MEMORIAL CENTER
PORTLAND STATE UNIVERSITY
PORTLAND, OREGON

November 16, 2001

CALL TO ORDER

Chair VanLuvanee called the meeting to order at 9:03 a.m. Prior to this, he announced that the recent Board nominee to replace Mr. Willis, Patricia McCaig, withdrew her name from consideration for the appointment. She cited personal reasons for her decision to decline the offer.

ROLL CALL

On roll call, the following Board members answered present:

Mr. Roger Bassett
Mr. Tom Imeson
Ms. Leslie Lehmann
Mr. Jim Lussier
Dr. Geri Richmond
Ms. Erin Watari
Mr. Bill Williams (via telephone)
Ms. Phyllis Wustenberg
Mr. Tim Young
Mr. Don VanLuvanee

Absent: Mr. Jim Willis (business conflict)

BUDGET REDUCTION PLANNING AS REQUESTED BY THE GOVERNOR

Staff Report to the Board

Vice Chancellor Anderes reviewed the documents prepared by his office, which outlined budget reduction scenarios. The latest materials provided further background in response to questions that arose at a conference call meeting on November 9, 2001. Dr. Anderes reminded Board members that the budget plan needed to be submitted to the Governor's Office no later than Wednesday, November 21.

OUS principles and priorities, explained Dr. Anderes, were the drivers representing the framework behind which staff made decisions, with the emphasis being on resident undergraduates. "That is the single most important factor in influencing this plan, in terms of making resident undergraduate education a key item that would be reduced as little as possible as late in the process as possible," Dr. Anderes said. He went on to say that also heavily weighted in the decisions made by staff were the Governor's and legislature's biennial funding recommendations.

That being said, Dr. Anderes indicated that areas being looked at for reductions included limiting nonresident subsidies; statewide public services; targeted programs; nonenrollment-based programs; small school allocations (albeit limited); and administrative costs, both centrally and on campuses. Strategic enrollment planning and management by campuses was also another area cited for review. Dr. Anderes indicated that a measured approach would be taken, using tuition dollars as the only funding source, to best accommodate anticipated growth. One area that was intentionally avoided in the reduction process, reported Dr. Anderes, was that of deferred maintenance. He said that reducing the "meager" amount of funds currently allocated for a situation already millions of dollars behind seemed less than meaningful.

Dr. Anderes reviewed in greater detail the ramifications of various reductions between the two and ten percent levels. "The choices aren't good ones," he observed. Mr. Young, noting a request from the meeting on November 9, asked about alternatives to impacts on research. Citing a memo sent to Board members on November 14, Dr. Anderes said if fifteen percent were added back, an $800,000 increase would be realized. He further explained that amount would have to be absorbed through graduate programs or through a variety of targeted programs, including top-tier engineering.

Noting that cuts made in 2001-2003 affect decisions made in the 2003-2005 biennial budget, Mr. Imeson questioned the assumptions used in moving forward. "The question becomes, 'do you try to take some things out entirely, as opposed to having them limp along at a lower level? As you make cuts, do you try to do it in a way that you're actually trying to strengthen some programs that we think are critical to Oregon's future?' I would bet that's not a real safe assumption," said Mr. Imeson. Chancellor Cox indicated that part of the challenge was dealing with the uncertainty of the amount of the structural deficit, not questioning that it would carry forward into the next biennium.

Pointing more specifically to the Central Oregon campus, which was supported by the Board in early 2001, Mr. Imeson asked if perhaps that kind of decision may ultimately hinder the ability to fund existing programs now and into the future. The Chancellor indicated that, in conversations with campus leadership, impacts to that level would be realized at the 8-10 percent level, but not so much at the 5-6 percent level. However, the lower amount would still most certainly create a level of difficulty for campuses to maintain programs. Building on Mr. Imeson's earlier observations, Mr. Bassett said that he felt the budget reductions were structured with an "optimistic view of how things are going to play out the next two or three years."

Chancellor Cox agreed with Mr. Bassett's assertion, saying that the reduction exercise was initiated from the lowest point in the scale (two percent). Vice Chancellor Anderes added that, if faced with permanent reductions of three to four percent, staff would have approached the problem differently. However, he said he thought the scenarios well-reflected a long-term approach. Referring to the Board's priorities going into the initial biennial budget planning in 2000, Ms. Lehmann pointed out the Board would have likely created a different set of priorities for 2001-2003 given the current situation. She added that, personally, she would have had difficulty approving the Central Oregon campus. Reiterating his earlier point about future budget ramifications, Mr. Bassett urged further discussion and planning about how the Board should make its decisions. Chancellor Cox reminded Board members of the February 2002 strategic planning session, adding that the timing was most appropriate to discuss those issues.

Ms. Wustenberg looked for clarification on how the cells are fully funded if student enrollment projections are below actual numbers. Confirming that per-student contributions are reduced if growth is realized beyond projections, Dr. Anderes said that it gets back to the question of quality, and at what point the scale gets tipped in the wrong direction. To address that question, each campus worked with Chancellor's Office staff to develop a cost-growth strategy to plan for those reduced levels of support. Ms. Wustenberg pointed out that the Board must come to the realization that growth isn't always positive if quality is compromised. Concurring with her comment, Dr. Anderes noted the short period of time the Resource Allocation Model (RAM) has been in place, and the existing incentive to grow under the model.

Moving ahead with his presentation, Dr. Anderes pointed out that campuses may support program reductions of varying levels, as long as they stay within the budget set forth. He hoped that Board members would not get the impression that there are discrete line items in all budgets, adding that the bottom line would be reached only after a broad series of discussions. Chancellor Cox said that, while there was freedom in allocating funds on campuses, staff at all campuses were well aware of their accountability to the legislature on specific targeted investments.

Dr. Anderes went on to incrementally describe potential impacts. At the conclusion of his report, Chair VanLuvanee asked institution presidents for their assessment of the effects of the potential budget reductions.

University of Oregon

President Frohnmayer agreed broadly with the approach taken by the Chancellor's Office, but noted that he thought the breadth of percentage reductions should not have been as large as presented. He advocated for a no greater than 20 percent difference between institutions when looking at core instructional program reductions, citing the issue of institutional equity as his reasoning.

Expressing concern about the levels of cuts in research and graduate schools, President Frohnmayer pointed out that UO would be at risk of losing millions in federal research dollars, a leveraging agent for out-of-state monies and, in turn, increased income tax receipts. He also objected to the "continuing erosion" of the endowment match. "There was a commitment from the state," he said, adding that those dollars should not be compromised.

While supporting the staff's limitation of not lowering cell values in the RAM below 81 percent, President Frohnmayer indicated that there was still a lack of clarity about how General Funds would be distributed since the full fall term enrollment figures were not yet calculated. Given that fact, he was unable to fully articulate the impacts on UO. Recalling the impacts of Measure 5, President Frohnmayer explained the "double cut" that occurred because of negative perceptions on top of program cuts, both of which deterred students from enrolling.

Concluding his remarks, President Frohnmayer said that presidents are not "crying wolf" and that everyone involved in the reduction exercises did their best to protect the instructional core. He hoped for some relief from the Governor and the legislature, understanding the long-term economic value the investment in higher education has on the state.

Western Oregon University

President Youngblood explained that cuts at the four to six percent level would be "serious" and that anything above five to six percent would mean "very, very major impacts." She pointed out that teacher education was of particular importance to WOU, and critical in light of the current statewide shortage. The impacts on access, recruitment, and retention, said Dr. Youngblood, were also of great concern.

Other related areas, said Dr. Youngblood, include impacts on WOU's Honor's Program; special education; the sciences; foreign languages; academic support, including academic advising; distance education; capacity to produce grants; and supplies and services. She also said that reductions in plant services would affect the number of students able to work on campus. "That will have an impact on access because many of our students are first-generation college students, who in many cases are challenged by the tuition and fees we already have," Dr. Youngblood observed.

Portland State University

President Bernstine concurred with the comments of Presidents Frohnmayer and Youngblood. He added that any cap on enrollment at PSU would adversely affect the institution, noting the effect of limiting graduate education in a time of recession, which could be a major growth area.

However, President Bernstine agreed in principle with the proposed reduction increments outlined by Vice Chancellor Anderes, saying that it was important for institutions to maintain some level of flexibility to manage those reductions. He said that PSU's plan would be to lessen research and public service spending at the greater budget reduction levels. Two fundamental principles, pointed out President Bernstine, are to maintain student access for all undergraduates and continue to have a diverse curriculum. He also hoped to protect the library's materials and acquisition budget as well as continue collaborations with community colleges, OHSU, and other educational partners serving the metropolitan region.

Mr. Young, referring to a comment by President Youngblood on teacher education, suggested that it be presented as a targeted program.

Oregon Institute of Technology

President Dow started with OIT's "break point," which she estimated at between four and six percent. As with other presidents, Dr. Dow supported the emphasis placed on undergraduate education. Since OIT's budget is 47 percent inside targeted programs, Dr. Dow explained that in the reduction exercise, particular attention was paid to how to best protect those programs. However, she added that quality and hands-on instruction would be compromised at even the four percent level, and at the two percent level, equipment expenses would be affected, which are key to the quality of lab programs and library services.

Discussing the success of OIT's Portland initiative, Dr. Dow noted that targeted numbers have been realized, and that the target was even extended, an increase that OIT is prepared to balance. She pointed out that, in her opinion, the key to Oregon's economic viability is in the health and engineering technologies. "In cutting noninstructional programs, even at four percent, we are limiting OIT's ability to engage in the economic development activities that we've been so successful at the last several years in the southern rural region of Oregon. Our state needs that," said Dr. Dow.

Oregon State University

President Risser noted that if he were in the Chancellor's Office, he would have made similar decisions regarding the reductions, but that he objected to them nonetheless. He pointed out that, at the four percent level, 49 percent of the cuts were from public statewide programs.

Describing the recent growth at OSU, Dr. Risser indicated there should be no doubt that education was paramount to the institution. However, research and outreach also are top priorities. He added that one in three Oregonians are somehow touched by the outreach programs such as the agricultural experiment stations, which have generated, through research grants, approximately $120 million to the state's economy.

Hoping to diffuse what he felt was an assumption that statewide programs are separate from OSU, President Risser explained that every faculty member in those programs has a faculty appointment. He categorized taking such a narrow focus to cut the statewides as "wrong" and described the negative impacts of such a decision to be long term to the System as a whole. He urged the Board to further contemplate the future ramifications of all budget decisions.

Southern Oregon University

President Zinser opened with a couple of general observations about comments made by her colleagues. She indicated that the issue of perception, as described by President Frohnmayer, was a particularly poignant issue for SOU, because of its long-term struggle to regain a level of enrollment growth. Also related to the issue of perception, Dr. Zinser hoped that the open and inclusive process of defining how to best address budget shortfalls instills confidence in the public that all options have been fairly reviewed.

More specifically to SOU, Dr. Zinser indicated that, as with other institutions, any cuts would be looked at from a strategic perspective, adding that access will remain the critical litmus test when examining program reductions. Also of top priority are quality of programs and faculty, from the perspective of the job opportunities for graduates as well as the capacity to successfully transition to graduate and professional education. Additional variables include a program's capacity to raise additional monies from other sources and the ability to leverage dollars through strategic alliances and partnerships with business, government, and nonprofit organizations to name just a few. Collaborative endeavors with other institutions are also of the utmost importance, said Dr. Zinser. "I think that we have to be very creative and very entrepreneurial about alliances among our institutions," she observed.

In looking at a four percent reduction, Dr. Zinser said that SOU would need to make program realignments, and possibly reduce some programs and services. Higher reduction levels would have serious implications for the institution, she said, in terms of the overall mission and direction of SOU. She also expressed concern on how reductions would impact quality because of potential loss of good faculty.

Eastern Oregon University

President Creighton highlighted campus statistics, noting that in the last biennium under the RAM, EOU received the lowest percentage of funding of all institutions, while at the same time achieving growth in enrollment, revenue, and reputation.

He explained that if a six percent cut was imposed, it would translate to an estimated loss of 107 student, representing five percent of EOU's student body. "This represents a long-term consequence," said Dr. Creighton, referring to Mr. Imeson's earlier comments. Continuing, Dr. Creighton described the ramifications at the eight and ten percent levels. He urged special consideration for the smaller institutions, noting that while the range of proposed cuts are similar, the impacts are not.

Representative Jeff Kropf

Speaking in opposition to the System's proposed budget cuts, Representative Kropf outlined his reasons for supporting President Risser's comments regarding the reduction of statewide services. Saying that the cuts did not reasonably balance the priorities of the legislature, Representative Kropf pointed out that, in his opinion, the proposal devalues OSU's land grant mission and that it assigns disproportionate cuts to programs that serve Oregon's economy, and more specifically rural communities.

Representative Kropf, outlining some of the specific drawbacks of cuts to the statewide services, used statistics from Oregon's agricultural base as an example. He went on to express concern over the cutbacks and the potential effects on studies relating to bioterrorism and food safety, especially in light of the attacks of September 11. Saying that the value of applied field research provided by OSU's public service programs was imperative to the survival of some key Oregon crops, Representative Kropf cited numerous examples of how the programs support both present and future farmers (via 4H programs) statewide.

Concluding his remarks, Representative Kropf expressed what he said were the sentiments of not only himself, but of other rural lawmakers statewide. "We are not happy. We do not like this. I urge you to please modify this portion of your proposal to be more fair and equitable. To ask Oregon State University to bear 50 percent of your burden is unconscionable in my view."

Following a break and a summarization of earlier comments by Board Secretary Vines, Chair VanLuvanee asked Board members and presidents to put their concerns in writing and submit them to the Chancellor's Office staff. Continuing, while notng that he wasn't suggesting anything should be done differently, Mr. VanLuvanee asked staff to review the issues relating to statewide services to ensure the appropriate compromises were being made.

Ms. Wustenberg, speaking as a former faculty member at the Agricultural Experiment Station, categorized every person who uses those services as a student. Using that analogy, she said that by cutting those services, it cuts student instruction.

While congratulating the Chancellor and his staff for their efforts, Mr. Imeson remarked that, as he weighed the issues brought to the table, the question remained the timing of an expansion of a branch campus in Bend. Ms. Lehmann again said that, had the current budget information been known earlier, she would not have voted for the Central Oregon expansion.

Chancellor Cox asked for Board guidance on how to soften the impact on some segments of the plan. Agreeing, Chair VanLuvanee asked for comments from all Board members present.

Reminding her colleagues about recent statements she made regarding the Board's priorities (the first being access and the fourth being new programs, including Central Oregon and tier one engineering), Dr. Richmond questioned if those priorities have shifted.

Mr. Lussier, who said he was an advocate for innovation and change even in times of austerity, expressed concern over inadequate planning for how to address the realignment of resources in troubled times for the Central Oregon campus. "I think we skipped that step because we didn't think we had to do that in a time of plentiful resources. On the same day I came to a recent meeting to discuss OUS budget cuts, I received a refund check in the mail for excess taxes. There is something confusing going on in the system that we need to address," Mr. Lussier observed. He went on to say that he hoped the reduction exercise would force a closer examination of a more appropriate system design.

Ms. Watari concurred that perhaps the Board's priorities were slightly off because of the proposals submitted by the Chancellor's Office. "I really think that one of our biggest priorities should be the current service level before we expand and add new things," she observed.

Indicating that the Board should pay close attention to legislative input and support for certain programs, Ms. Wustenberg said that she clearly understood that cuts were nevertheless necessary.

Mr. Young, as with several other Board members, questioned the choices offered between new initiatives and the current service level. While the programs may have merit, he said, the overall effects of cuts in an area, such as teacher education, affects the entire spectrum of education in the state. Overall, he felt that a reevaluation of the Board's priorities was in order.

Mr. Bassett, concurring with Dr. Richmond's comments regarding Board priorities, remarked that either the reduction proposal or the priorities needed to be changed. Speaking personally, he said that he would realign the proposal in favor of the Board's priorities.

Noting the Board's responsibility to explain its priorities in the form of recommendations to the Governor, Mr. Imeson said that he supported maintaining increases in engineering because of the effect on the state's economy. However, he expressed concern for geographic expansion in the current climate. That being said, Mr. Imeson suggested that the Board not support the new branch campus, but rather ask the Chancellor's Office to determine ways of putting it on hold or winding it down. "We're in a very serious situation," he surmised.

Whatever is done, observed Mr. Williams, it needed to be done well and efficiently. After listening to the input from his colleagues and institution presidents, Mr. Williams indicated that he would be inclined to maintain his support for the Bend campus and the statewide engineering programs. However, the top tier status could and should be put on the back burner. Without knowing the history of statewide public service funding, Mr. Williams said that, based on his impression of the situation, the disproportionate cuts should stand. He concluded his remarks by saying that the OSU Veterinary School expansion falls under the definition of something that is not being done well or efficiently, and that it really needs to fall one way or the other (i.e, make a commitment or not do it at all).

"These are times when if you're comfortable you're probably not listening to what is going on," observed Chair VanLuvanee. He suggested that Vice Chancellor Anderes and his staff rework some of the proposed reductions based on the meeting's discussions and submit them to Board members by midday on Monday, November 19.

Referring to Mr. Williams' remarks about top tier engineering, Mr. Imeson said he didn't believe that issue needed to be "mixed" into this year's budget. He added that the amount earmarked for the proposal was relatively small, and that private fundraising was also a consideration. "I would be personally hesitant to do anything to diminish that in light of what we're going through now," observed Mr. Imeson. Continuing, he urged further discussion about the Board's priorities. Chancellor Cox suggested a telephone conference call meeting to continue the discussion. Chair VanLuvanee agreed to such a meeting prior to the November 21 deadline.

Ms. Watari suggested that staff compile a set of options for Board consideration. Mr. Imeson said that a position must be taken, and that multiple options could possibly cause confusion among lawmakers about the Board's recommendations. Agreeing with Mr. Imeson, Ms. Lehmann pointed out, "I think the last thing we want to do is give them [the legislature] the signal that they can fund the cell values at an even lower level and expect us to continue to deliver in an acceptable way." Commending the work accomplished by staff and presidents, Chair VanLuvanee said that a final decision should be made based on the recommendations expressed during the day's deliberations.

Thinking in terms of how presidents must respond to situations more entrepreneurially, Ms. Wustenberg urged efficiency and consolidation when making programmatic decisions. Chancellor Cox confirmed that was how scenarios were approached by his staff and presidents. Mr. Imeson said that the Board should not abdicate its responsibilities in its strategic approach to the situation.

Mr. Lussier expressed frustration over his perception that the Board tended to do strategic planning based on availability of dollars. He added that he hoped for more creativity in looking at new funding opportunities.

Following a discussion about a follow-up meeting, Vice Chancellor Anderes pointed out that, regardless of how staff recallibrates the proposed reductions, there will a constituency that opposes them. While saying that the exercise was still worthwhile, Dr. Anderes added that the ultimate focus will be on access.

Chair VanLuvanee indicated that he thought perhaps some focus on the Board's priorities was lost. Agreeing, Mr. Bassett said that the ultimate task is to align a final decision on those earlier priorities in order to avoid a negative public perception about the Board's work.

OSU FISCAL ISSUES

President Risser updated the Board on efforts being undertaken by staff to address a $19 million budgetary shortfall. He admitted that staff erred in not tracking very well the incremental shortfalls from last year. He committed to a balanced budget by the end of June 2002, as well as in coming years. New checks and balances in OSU's system include: 1) new alert systems by Mark McCambridge, recently appointed as OSU's vice president for Finance and Administration; 2) monthly reporting to the campus cabinet, including deans; 3) improved communication with Vice Chancellor Anderes and his staff; and 4) quarterly statements prepared by Vice President McCambridge that President Risser intends to share with outside sources.

Describing the newly-formed Redesign Group at the University, President Risser explained that its charge was to determine how OSU can best accommodate decreasing state resources, while at the same time addressing increased student demand. "The question is," said Dr. Risser, "can we continue to operate this institution in exactly the same way as we have for the last 125 years, or do we need to look at it differently?" The institution will be examined from top to bottom in an effort to make determinations about where changes are most needed. Mr. Bassett complimented President Risser for his commitment to strategically confront the future.

Vice Chancellor Anderes indicated that his staff looked forward to working with OSU to address current budgetary concerns. In order to fully understand OSU's situation, Chancellor's Office staff will be actively involved in arriving at a solution, as well in developing stopgaps to ensure that history does not repeat itself.

Following up on prior budgetary issues with OSU's Athletic Department, Ms. Wustenberg requested an update. President Risser reported that the $12 million debt from several years ago has been reduced to $4 million.

PUBLIC INPUT SESSION

No one signed up to speak during the meeting, but Board Secretary Vines indicated for the record that Mr. Les Ruark submitted a letter to the Board relating to his concerns about the Chancellor search procedures.

COMMENTS FROM BOARD MEMBERS

Mr. Young pointed out that the Interinstitutional Faculty Senate (IFS) groups at several institutions recently passed resolutions regarding the Chancellor search procedures. Chancellor Cox indicated that he was responding to each IFS group individually on the matter.

INVESTMENT COMMITTEE REPORT

Ms. Wustenberg, Chair of the Investment Committee, reported that the Committee recently initiated a formal search for a manager to oversee the fixed-income allocation of the Pooled Endowment Fund.

Concluding the meeting, Chair VanLuvanee commented on the UO's recent release of an Oregon atlas in commemoration of the institution's 125th anniversary. UO Executive Vice President and Provost Moseley, noting that it was "spectacular," said that the book has received rave reviews from cartographic societies, including the National Geographic.

ADJOURNMENT

The Board meeting adjourned at 12:09 p.m.

Diane Vines
Secretary of the Board


Don VanLuvanee
President of the Board