Special Meeting of the Board of Regents
                          June 10, 2003
                            3:00 p.m.
                           UMS Office

Chairman Kendall called the special meeting of the Board of
Regents to order at 3:13 p.m.  Those in attendance were:  Regents
Kendall, Finan, Florestano, Houghton, Johnson, Marcus, Nevins,
Rosapepe, Tydings, Wood; Regents Canter and Chapman via
telephone; Chancellor Kirwan, Vice Chancellor Vivona, Interim
Vice Chancellor Boesch, Associate Vice Chancellor Bryce,
Presidents Dudley-Eshbach, Gira, Lowe, Mote, Hrabowski, Heeger,
Dr. Malinda Orlin and Dean Donald Wilson (UMB), Don Reznikov,
(UMBI), Donald Paddy, UB, Ronnie Holden, UMES, David Harnage,
Towson, Assistant Attorney General Anderson, Ms. Ryan, USM staff,
other interested individuals and members of the press.

A.   Regent Kendall:  The Purpose of the meeting was to discuss
the anticipated $50 million budget cuts to the FY 2004 budget; to
gather information; to give guidance to the Chancellor for the
allocation of funds; to discuss principles for distribution, and
to look at a the "big picture."  No decisions were made and no
votes were taken.

Regent Kendall thanked the presidents for providing their
thoughts and concerns for their campuses and the System as a
whole in their written materials.

B.   Overview of FY 2004 by Chancellor Kirwan.

     Chancellor Kirwan stated that we are expecting further cuts
to the FY 04 budget.  It is important that everyone understands
where we are and the decisions we have to make over the next
three weeks.  This session is important so that everyone receives
relevant information; asks questions; and gives guidance to our
decision-making.  Our Presidents are having an extraordinarily
difficult time with the cuts; addressing the situation while
still maintaining morale is most difficult.  We owe a debt of
gratitude to  them.

The FY2004 budget, through legislative reductions and mandatory
increases, has been reduced by $166.2 million dollars. The
reductions have been addressed to date as follows:
  • Reduction in salary and wages (including elimination
    of 770 positions and approximately 150 layoffs systemwide
  • Reduction in operating expenses
  • Reduction in facilities renewal
  • Additional tuition increases
  • Indirect cost recovery revenue
  • Use of fund balance
$ 2.0M
With the additional additional cuts of $50 million (7-1/2%), there are three issues that need to be considered over the next three weeks:
  • Guiding principles for the distribution of reductions between tuition and further cuts;
  • Timing of tuition decisions if to be raised (must give General Assembly 45 days notice before raising tuition);
  • Guiding principles for allocation of cuts among the institutions.
C. Presentation by Vice Chancellor Vivona: The General funds are dropping. The decisional framework comes about in two stages: Stage 1: Immediate consequences that come from legislative appropriation where the reductions are known and considerations for the next possible reduction to cure the FY05 budget deficit. The report that was sent to the legislature 2 weeks ago will handle Stage One of any revenue decisions that the Board has to make. The state budget is down 6.5 percent; the university's budget in general fund terms is down 13.2%. The university represented about 17% of all state reductions; university represents 7.5% of the total state supported budget. We are now at the 2001 funding level. What will come before the Finance Committee and the Board of Regents are the suggested rate changes of 9% tuition increase, which would require Board approval, plus a look at increases for UMB and UMUC. At the current funding levels, we have moved below the FY1996 state funding levels for FTEs. Stage 2: Further Reductions: 1. Consideration of funding guideline achievement; 2. Consideration of historic enrollment. System has grown by 11,200 FTE students in last three years; 3. This demand is happening on a demographic level. This is a natural consequence of the high school graduating classes which are growing as a result of the Baby Boom Echo. The major issue is future enrollment growth. 4. Budget equivalencies: What this means is what is generated toward a bottom line when you take a 1% cut among general fund or reduce funding guideline or increase tuition 1%. A one percent tuition increase generates $6.1M - would have to be in the 7-8% range if $50M would be covered exclusively by tuition. If we take budget reductions as the general fund is reduced, every time we take 1% of this 7.5 percent it would generate about $7.8M in savings. Regent Florestano: explain a furlough day VC Vivona: a furlough day system-wide against all ranks including faculty would generate about $3M. A reduction in force or layoff of one non-faculty FTE, would generate about $45,500 per year. 5. Decline/weakening of USM balance sheet: One important item is the relationship between outstanding debt and available cash. As a benchmark number we set that at 50%; for every $2 of debt we like to have about $1 dollar in reserves which includes the quasi-endowment as well as fund balances from all sources. With the next bond sale we will drop below that threshold. We have presented Wall Street with our corrective action plan. We will hear from them in the next month; we plan to go to the market in July and to do the official statement. We will get a preliminary indication from Wall Street and then if the news is not favorable, we will consider taking further corrective actions. Regent Finan: Does the threat of the additional $50M reduction come into Wall Street's decision? VC Vivona: It does weaken the balance sheet in that we will miss our reduction targets and then rely on fund balance to balance the budget. If cash reserves are utilized overtly or it happens because we assumed we would achieve savings by a certain set of layoffs, or achieve revenue by a tuition increase and don't achieve it, at the end of the end of the year we will to balance the budget using the fund balance. Your reserves are reduced. 6. Management's Tool Box for use by Presidents/Chancellor
  • Reduction in Salary and Wages
Funded vacant positions eliminated Layoffs - will take on a greater share of reduction Furloughs - an option but not a major mechanism to achieve savings for FY2004
  • Reduction in operating budgets - not a major mechanism
  • Tuition - an open option
  • Use of Fund Balance - off the table
  • Effectiveness and Efficiency Initiatives - will be looking for new ideas that will come from Regents/Presidents to deal with cuts now and in the future
If the Thornton succeeds and the number of high school graduates continues to increase at a greater rate, the following items will likely happen:
  • Time to degree will be lengthened
  • Decrease in retention
  • Loss of research monies will affect all institutions
Regent Florestano: Do I understand that the Legislature could declare that there are insufficient resources to meet the Thornton Commission mandates. They have an "out." VC Vivona: Yes Other items affected:
  • Medical, dental, law social work clinical programs for needy
  • Agricultural Extension Services will be cut back
  • OCR agreement not fulfilled
  • Fail to fund maintenance
  • Bond rating in jeopardy
4. Principles and Guidelines for Budget Reductions: Chancellor Kirwan: What factors should guide a decision in making and allocating additional cuts? In making such decisions, we need to be mindful of the governance priorities. Bill 682 lists the following areas as important: 1. Enhancing the flagship institution 2. Enhancement of academic health center and education research programs in the Baltimore area 3. Enhancing undergraduate teacher preparation at the comprehensive institutions 4. Towson mentioned as state's largest comprehensive institution 5. Importance of enhancing he HBCU's 6. Regional Centers and the need to maintain access to System programs through the centers 7. University College and its importance as the State's center for on-line and distance education Other items that need to be considered: 8. Inter-institutional variance in funding guidelines - a measure in some sense of the adequacy of the funding to the institutions in relation to their peers. It gives a measure how well institutions are funded. It's not a perfect measure. 9. OCR Agreement - There is an agreement that the State has reached with the Office of Civil Rights and there is an expectation that the State will meet its commitment to enhance the HBCU's. Right now, the funds are being allocated to these institutions by MHEC. The Gov and Legislature have appropriated the funds in MHEC's budget to enhance the HBCU's. They are getting increments to their budgets - $2.2M in '03 and $4M in '04. 10. Low/no tuition institutions - UMCES/UMBI limited source of revenue - they receive general funds but do not have tuition dollars. If they receive a cut of the same magnitude as the teaching institutions, they are disadvantaged because they can't turn to tuition to raise funds. It can be argued that if you mitigate their cut, then you are increasing the cut to the teaching institutions who will have to raise tuition higher to offset that higher cut. 11. Regional Centers - expectation on the part of Regents and General Assembly that these centers will be maintained. System must take regional centers into account. 12. Minimize financial impact on students - some of our institutions are open access institutions that serve populations that come disproportionally from low income families. If they receive a cut of same magnitude as more selective institution that can afford to raise tuition, again there is a disadvantage. Another consideration are those institutions that are experiencing significant enrollment growth. How do we take that into consideration as we make these decisions? This is a very complicated set of choices we have to take into account - an over constrained problem. Which means that there is no unique or optimum solution to this problem! We have to weigh these various factors and end up with appropriate cuts to the institutions. Emerging Concerns:
  • Tuition revenue exceeds general fund appropriation at several institutions as source of revenue;
  • Access - must be certain that we set aside funds to fund need-based financial aid
  • Possible enrollment caps - it is clear from the data that we are going to have a huge enrollment increase unless we take action, we will have a 255 increase by 2010. If the State does not provide adequate state funds and we allow that enrollment to take place, we will grow ourselves into mediocrity.
  • Bond rating
Possible Time line scenario: June 10, 2003- Today's Discussion June 23 - BOR Finance Committee June 27 - Meeting of the Board of Regents July 1 - Advisory to students regarding budget situation August/September - preparation of FY 2005 Budget E. CUSP Overview President Gira stated that there was not 100% consensus point of view from the presidents about what to do next regarding the budget cuts. Our budgets have been cut systemwide 13.2%; those cuts range from 8.4%- to over 15% - they have not been administered across the board. Cuts that range from 8-10% at the low range included two HBIs and the three institutions that do not have a revenue source - UMBI, UMCES and the System Office. Those that ranged in the middle area, 12-13%, included institutions that had grown and UMES; 14-15% cuts include Towson, Frostburg, UMB and UMBC. Seven presidents are recommending, given the level of cuts that have been administered to date, that the next cut be administered across the board - Towson, Frostburg, UMUC, UMBC, UMCP, UB and UMES. The other six institutions are not of one voice. There are at least two institutions that are saying make funding guidelines the primary or exclusive basis on which to look at further cuts. There is at least one that is very strongly opposed to any cuts across the board. The presidents are saying that the cuts have ranged from 8 to 15 percent and some institutions can be pushed over the edge if those that were funded at the higher level or are not in a privileged class. There are three institutions that don't fall into any of those categories: Towson, UB and Frostburg. Regent Wood: Did the presidents take into account where their institutions stand with respect to their particular peers in taking the position they took on the distribution of the cuts? President Gira: The funding guidelines include tuition as a variable. Funding guidelines will reflect the relative tuition and state appropriations for our peer institutions. One of the things about funding guidelines that hasn't been mentioned is that institutions that grow are penalized. FSU controlled enrollment for 3 years because we had two major buildings out of service. The result was we did well in funding guidelines but institutions like SU and UMBC that had significant growth dropped in the funding guidelines. F. Regent Discussion: Regent Kendall: When you look at the funding guideline, some institutions are penalized by current funding guidelines and also those that raise tuition seemed to be penalized. We need to look at funding guidelines. Do you have any suggestions on how these might be addressed to reflect more current circumstances? Regent Wood: Do the institutions look at the tuition of their aspirational peers in determining what their tuition rate and revenue should be? VC Vivona: They do not. We do not pick peers based on the relative position in tuition. Regent Wood: It would be helpful for the Board to know what tuition is charged by our peer institutions to see if we remain competitive. VC Vivona: Tuition is much more determined by the state/region in which the institution resides. Tuition in the East is historically high; we are 7th in the nation. One indicator is how we fare in the region in tuition rates - we are now at a high point in the region. Regent Florestano: We have always been a high tuition state and it is not a factor that affects whether we are ranked nationally or not. I have come to the conclusion that the funding guideline needs to be adjusted. But I don't think they should be the only rationale on which to base the cuts. Regent Nevins: I agree with Regent Florestano's comments. This is a complicated issue and it seems that funding guidelines are important but we can only use them as one of many tools that we have. Otherwise we are giving disincentives rather than incentives. We need to balance funding guideline, tuition, and enrollments. Regent Canter: When we talk about tuition, we talk about a relatively small percentage of the total burden that the State has put on us. We also need to consider the total cost of education - fees such as dining, housing, athletics, health center, parking and technology. I hope institutions will communicate with students as soon as increases are decided so that they can plan for the increases. Personally, I'm in favor of enrollment caps. We need to consider leaving executive positions open for a longer period of time - need to show that everyone is taking the burden. Regent Tydings: I think that President Gira's recommendation for cuts to the seven institutions is the only fair way to go; we need to face the issue of enrollment in the next 2-3 years and designate the institutions. We need to advise the legislature and the governor that we must have enrollment caps and must set date specific and institution specific. Regent Kendall: We need to be proactive and develop a plan for the future. President Dudley-Eshbach presented the concerns of Salisbury University. The University System has not done well by Salisbury - tuition revenue is about to exceed general fund revenues. Salisbury is requesting an increase above and beyond whatever across the board approach is taken. I cannot get the State appropriation I need to operate. I've got to have the revenue from some source. I have submitted a plan that would turn some of the funds back to financial aid for students that would face a hardship of a major tuition increase. It seems ironic that it is impossible to apply the funding guideline. In my experience, when there is a funding guideline or formula, it is applied. If it is not going to be used it should be thrown out. If I am not going to receive the State appropriation, then I need the freedom to raise tuition to the level that is required. I don't want to sacrifice the quality of SU. I'm asking for relief. Regent Wood: What are you asking for? President Dudley-Eshbach: If there is a guideline, apply it. If we are not going to use it, throw it out. I want to set my own tuition. Regent Nevins: I just want to make sure I understand your points: you want as much State appropriation as possible, greater flexibility to set tuition rates to make up for what you don't receive from the State and selective growth caps. President Dudley-Eshbach: Yes. Dean Wilson, UMB Medical School: UMB requested that the Regents keep the funding guideline to help build campuses. We have a unique campus - with professional schools and graduate school where most of the revenue comes from tuition and the School of Medicine and Dentistry where tuition is a very tiny part of the revenue. What we need is flexibility to do what we need to do. The Medical School generates 93 percent of the budget; only receive 7 percent comes from the State yet 98 percent of our problems are having to deal with the State. We have institutions that are not tuition dependent; we can't increase the number of students; can't delete departments. For institutions like UMB where we have to compete on the open market for everything, we need flexibility to deal with the problem. Regent Florestano: You need to work with us on the BOR in terms of regulations that you think could be eased to make life easier in running you kind of program. I think our status as a pubic corporation should help us move to that goal. It won't solve the current problem, but we need to look at this. President Boesch, UMCES: We have a particular problem - a new building coming on line. There needs to be common sense on how we approach these problems. Wisdom and judgment are required. Need to look at disparity of current services budgets for the institutions, where we are in respect to state general funds presently, where we've been able to fill the gap, not the programmed increases of 4% year but the additional increases in tuition, and use that gap as a partial part of the guidance of making the decisions. It relates to all institutions in the System. Regent Rosapepe: As was pointed out, we rank 7th in tuition; 5th in personal income and 32 in state support. The state is not investing in higher education. The cuts that we have already taken take us back 10 years on a per student basis. In the current fiscal year we were cut more than twice as deeply as the rest of state government. The advice I would like to give is for the Chancellor not to propose additional tuition increases and not to propose additional budget cuts unless and until there is a legal decision by a legally constituted body of the State of Maryland requiring a cut in our budget. I understand from the Governor's staff that the Governor intends to propose cuts, but the Attorney General's opinion dated May 20th states: "University funds cannot be unilaterally withheld by the Secretary of the Budget at the direction of the Governor for an indefinite period. If appropriated funds are held indefinitely, the authorization to withdraw the funds from the Treasury must be canceled." "As head of the executive department of the government, the Governor can request executive branch agencies to reduce their spending of appropriated and allocated funds. Such a request would not be legally binding." The reality is: the governor and the legislature are in political disagreement. The governor had revenue proposals for slots and the legislature had some revenue proposals in taxes. They haven't come to an agreement. To do permanent damage to our System without the Board of Public Works and the Governor having come to an agreement on this, I think is dangerous. I would urge the Chancellor not to come to the Finance Committee or the Full Board with the recommendation of tuition increase or further cuts unless the Board of Public Works has voted consistent with the law to cut our budget. President Hrabowski: The longer we wait to make a decision; the deeper the cuts we will have to make. Prudent managers have been working on their campuses to decide how the cuts will be handled. 1. The reason so many of us agreed on the pro rata approach, is that we recognize that we don't need to be fighting each other. 2. Focus on Tuition Task Force. 3. Rely on experts as we make these critical decisions. I'm thinking of Joe Bryce and the Chancellor who will be working with the Legislators and Governor. We have to be careful not to come across as adding fuel to fire. My concern is we should be communicating with our students. In talking to my students, they said make sure we have classes, hire more teachers, keep the libraries and technology available. Regent Florestano: Across the board is good but there are still certain things we have to take into consideration such as the research institutions. New capital facilities coming on line have to be considered. I feel the President of Salisbury should have the ability to raise tuition to what she thinks the market will bear. President Hrabowski: My concern is the response is reaction of legislators if we raise tuition too much and end up with a backlash. President Florestano: I'm surprised that there no backlash from anyone else in the State regarding the cuts higher education is experiencing. President Hrabowski: The citizens have spoken - they don't want more taxes. We are seen as fat, we have to prove that we are more accountable and more efficient. I think it is up to us to figure out ways to survive in this climate. Regent Johnson: Two points: (1) a real question in that we don't have overt language to explain the role of the Legislature or the Governor in terms of how public higher education gets funded. How do we start to develop what the legal guideline is to figure out what the State's role is to be? (2) Trying to maintain OCR settlement. If we get to the point that all the funding that comes in from MHEC goes to fill the holes of other cuts, I think we are going to see that we are in violation of the spirit of that agreement. That is another issue that the State has to deal with. President Gira: Frostburg has taken a 14.9% cut and can't afford any additional cuts. We have a new science center opening with no money to operate the facility. The institutions have been treated fairly by the System; differential cuts have been made but enough is enough! Vice President Destler (UMCP): President Mote is in support of pro rata of distribution of cuts because UMCP has done worse than pro rata both when funds were given to our institution in recent years and now that funds are being reduced. Regent Florestano: Mote's memo said: "The only ethical course is to allocate increased tuition money collected, from students and their families to replace state cuts to student programs, not to fund state service functions which include outreach function such as agriculture extension." Is that what the campus is going to do? Destler: Absolutely. We have no choice. We have already begun to take an approach to the entire year's reduction. We can't be in the position of charging exceptionally high tuition to our students and offering lower quality services. The students will not come at some point. We are going to reduce all of our programs by the full amount of the reduction in our general fund appropriation and only apply tuition dollars back toward those programs that support our core academic and research mission. Regent Rosapepe: We are a public institution of higher education; not a group of private institutions. I hope we don't lose track of that as we go through this debate. All these discussions are at the margin about the way we can rearrange the deck chairs. We are losing site of the fact that we are moving away from having public higher education in the State. Regent Kendall: Thank you to everyone for participating. The Regents take this issue very seriously and are very concerned and understand the concerns you raised. The outcome won't be to the liking of many; System Administration, Presidents and the Board will try to do the best we can for System. The System will continue to go forward. The System has done a magnificent job in the last 10 years of elevating itself. We need to work to see how we can elevate the System further - we have not reached the pinnacle of success. Chancellor Kirwan: I thank all for their participation today although there are not common views, the issues we face have been put on the table very effectively and appreciative of the fact that we talked both about the near term and long term issues that we need to begin to address. Meeting adjourned 5:14 p.m.