Minutes of the
NIU Board of Trustees
FINANCE, FACILITIES AND OPERATIONS COMMITTEE
August 26, 1999

Acting Chair Boey recognized the University Advisory Committee representatives, Rich Becker and Jim Lockard. 

Agenda Item 6.a. – Periodic Summary of Transactions in Excess of $100,000
This summary provides a quarterly review of those transactions in excess of $100,000 approved by the university. According to Board Regulations, the President of the university is authorized by the Board to approve transactions up to $250,000 with the requirement that on a periodic basis those transactions between $100,000 and $250,000 would be reported in detail to the Board. By this report, Dr. Williams said, there were 19 such transactions over the reporting period, totaling approximately $2.45 million. The detail of those purchases was provided on pages 9 and 10 of the meeting materials.

Agenda Item 6.b. — Fiscal Year 1999 Annual Summary Report – Obligation of Transactions of Financial Resources – Year Ending June 30, 1999
This is the annual summary of obligations of financial resources for all transactions made by the institution for Fiscal Year 1999. There were 13,685 transactions during the fiscal year. Of this total, 13,560 were under $100,000. All transactions above $250,000 must be approved by the Board.

Agenda Item 6.c. – Annual Report of Transactions Involving Real Property
This item provided an annual report on real property. These are primarily leases that the university has entered into for space at various locations, Dr. Williams reported. The report indicated 17 such lease agreements with only one in excess of $100,000. These properties are located all over the northern Illinois area and are utilized primarily in support of our academic mission, Dr. Williams said.

Agenda Item 6.d. – Fiscal Year 1999 Annual Report on Capital Activities
We are pleased to report to the committee and to the Board that the university has been very much involved in improving our facilities, Dr. Williams said, allowing us to better address the needs of our students, faculty and academic programs, as well as provide a quality environment for all of our students. The bulk of this report focused on the three primary sources of funds available to the university to address capital needs. The appropriated capital process by which the university submits to the state various capital needs that are reviewed and evaluated by the Board of Higher Education. These needs are placed on a statewide priority list by the Board of Higher Education, and then recommended to the Governor for approval. This process has been used for at least 30 years, Dr. Williams said, and Trustee Skoien is probably very familiar with it since appropriated capital projects are appropriated to the CDB of which he has been chair. Another primary source of funds is the revenue bond authorization. That statute gives to the Board of Trustees on behalf of Northern Illinois University the authority to issue bonds for the construction and improvement of noninstructional facilities. This source has been utilized for improvements to Stevenson Hall and for the convocation center, which will be covered in further detail later in the meeting, Dr. Williams said. The third source is simply other forms of funding that may come to the university through grants or special programs that may be offered.

On Table 1, Dr. Williams pointed out, FY97 was a major year for the university because we issued approximately $50 million in revenue bonds that will be used for the improvement of our residence halls, primarily the Stevenson complex. Also included were the development of a childcare center, the construction of the Latino Center and West Campus improvements. In FY98, we received a major appropriation from the state in support of the rehabbing of Altgeld Hall, a $19.1 million project. Sources vary from year to year, and it is our goal to try to maximize all possible fund sources to help us address the capital needs of the institution. Table 3 showed an overview of the distribution of $50.9 million in revenue bond activity during FY99. There was also $7.2 million from the Capital Development Board, and $2.6 million from other sources of funds. Dr. Williams said these capital projects would be covered in more detail later in the agenda.

Agenda Item 6.e. - Update on Major Capital Construction
This is a very exciting time for our institution, Dr. Williams said. We have had the opportunity to address several of our key capital needs through these various funding sources. He invited all of the Trustees to take a tour of the campus so that they might have a first-hand view of some of these projects and what is being achieved through them. In a brief summary, Dr. Williams touched on some of the major projects being undertaken on campus at this time. Altgeld Hall is a $19.1 million project funded through state funds appropriated to the Capital Development Board on behalf of NIU. All the former occupants of the building have been relocated. Altgeld Hall dates back almost to the turn of the century. There are many code issues that have to be addressed in that building in order to upgrade it, Dr. Williams said, and to prepare it as a facility that can be utilized as we move into the new century. At this point in time, we have finished the planning and architectural design and have already bid the project. Demolition has begun on the interior, which should be completed in the next three to four weeks. Major rehab work will then begin on the interior of the building.

Another major project covered was the Campus Child Care facility, a $3.3 million project. This facility will provide childcare services to children of NIU students and staff. The childcare program has existed on the campus for many years, but has never had a proper facility. In the past, Dr. Williams said, classrooms have been renovated for use as a childcare center. This will be our first true childcare facility on campus. It allows for the changing demographics of NIU students, and the types of service needs they require. The new facility is a 20,000 square foot building located on Annie Glidden Road just north of Lincoln Highway, right behind Gable Hall. The new facility was designed by Burnidge-Cassell and will house from 150 to 180 children. Construction is underway, and the facility is expected to be ready for occupancy by the end of Spring 2000. 

A project that we are very pleased to report to you on is the Center for Latino and Latin American Studies and University Resources for Latinos, Dr. Williams said. This particular facility was designed by Campbell and Associations of Chicago. The project has a budget of $850,000 and provides approximately 7,000 gross square feet of space. The project has now been completed. The Latino and Latin American Studies program and University Resources for Latinos have moved into the new facility. The center is located on Garden Road right across from Anderson Hall. There were several upgrades in change orders, and construction was completed within budget.

The convocation center is one of the exciting projects that I personally am very gratified that the Board supported, Dr. Williams said. This will be a 213,000 square foot multipurpose facility. It will provide the university with the opportunity to offer major events — convocations, graduations, meetings, concerts — as well as athletic events. We are working with our developer team to finalize the concept in order to move into the construction drawing phase of the project. The facility will be on the university’s West Campus on the approximately 230 acres of land purchased by the Board a little over two years ago. The convocation center budget is set at $35.8 million.

A report was also given on NIU Naperville. Over the years, President La Tourette has followed a strategy to develop educational facilities where they are most needed to extend the services and academic programs of our university to those areas where placebound students otherwise would not be able to take advantage of them. Northern has facilities at Rockford and at Hoffman Estates. Now NIU Naperville is well underway. Utilizing some very innovative financing, Dr. Williams reported, we were able to issue $20 million in bonds on behalf of the university. Hamilton Partners is the developer, and Pepper Construction is the contractor. Both the foundation permit and building permits have been issued for the project. We are moving forward with final development of the specifications and plans, he said. The facility will be approximately 113,000 gross square feet on an 11.2 acre site on Diehl Road, which is right in the heart of the Naperville area and all of the new R&D development in that area. We are very pleased with this location. You will be hearing more about this project as we move through the fiscal year. Groundbreaking activities and announcements will be planned for NIU Naperville to introduce its presence in the area.

The final project summarized by Dr. Williams was the Stevenson Towers renovation project. Phase I of the project included two towers and the core area of the residence hall, which included all of the food service areas. Phase I, which was an approximately $16 million project, was completed within the budget and within the schedule. Students are now occupying these towers and this facility. We are very pleased that we were able to deliver the project without any cost overruns or without any major problems in the schedule, Dr. Williams said. At this point, we are working on punch list items to finalize the project. The second phase of that project is to complete the two southern towers of the residence hall. That is an approximately $10 million project which has been designed and is underway. Anticipated completion is scheduled for December of this year so that students can occupy the facility beginning in January or the spring semester of 2000. When a rehab is done, there is always the possibility of running into problems as you tear out walls and so forth, Dr. Williams said. But we have not had any major surprises, so we are very pleased to report that we are well within our budget.

This is an overview of the major capital projects being pursued on campus at this time, Dr. Williams said. There are many, many more. In fact, in reviewing them with Jim Bryant, director of the Architectural and Engineering area, there are over 400 active capital projects now underway on the campus.

Acting Chair Boey reiterated Dr. Williams' invitation for the new Trustees to tour the West Campus. I know we all have busy schedules, he said, but it is well worth the effort. Present and future projects such as Stevenson Towers and the convocation center were taken on by the Board of Trustees and President La Tourette for a couple of reasons, Acting Chair Boey said. It is about improving the quality of life on campus, and, just as importantly, it is about marketing. We are the only major four-year public university in the northern Illinois region, a region that is rich with many customers to be recognized. But that area is not exclusive to Northern; all the other universities outside of our region also come into this area to do their marketing. So, this is a matter of getting our fair share of the market, and this is what we have to do. And in the process of doing it, he said, I think we are enhancing our future. So we invite you to come in and spend a little time to see for yourself what the changes have been, especially since you were last here as students.

Agenda Item 7.c. – Printing Services – Paper and Envelope Stock
Annually, an open order is provided for the purchase of paper stock to be used by university copiers and duplicators throughout the campus. As indicated, Dr. Williams said, over two million envelopes and 30 million sheets of paper are used. This is done in the form of an open order so that the university can request items as needed. Board approval of the $365,000 budget was requested for this open order. Acting Chair Boey asked for a motion to approve the Printing Services paper and envelope stock request. Trustee Vella so moved, seconded by Trustee Skoien. The motion was approved.

Agenda Item 7.d. – Business and Industry Services (BIS) Lease Amendment
This item provided for an amendment to the existing lease for NIU’s Business and Industry Services program. The BIS program is scheduled to move into the new Naperville facility. They will occupy approximately 14,000 square feet of space in the new facility and share in the utilization of other spaces. In the interim, the BIS program is currently under a lease in Oak Brook, which expires March 31, 2000. We have negotiated an extension of the current lease to expire on June 30, 2000, Dr. Williams said, allowing ample time for completion of the building and relocation of the program. Board approval of the lease extension with Carr America for the BIS program was requested. President La Tourette explained that BIS is a university operation that provides training services to corporations. Much of the work they do is sponsored by the Department of Commerce and Community Affairs (DCCA). They also use federal funds to enhance the training of people who are in business firms. The program is directed towards improving the competitiveness of industry in terms of the Illinois economy. So, they provide a whole range of services from education and training at the shop floor level up to the executive suite. One of the strengths of our organization is that the staff can come into a company and analyze the education and training needs for the whole company and develop a plan, which would then improve their competitive position and their bottom line. BIS has worked with small, medium and large manufacturing firms, and with major industry firms like McDonald’s. This is a very unique organization. There are not too many universities that have this kind of capability of bottom line influence in terms of the profitability for firms. So, they have to have a very quick turnaround, and in many cases, the firms BIS works with want to achieve measurable results in a very short period of time. So, we are very proud to have this affiliation with and to serve industry and business through our Business and Industry Services unit.

It is also a very successful program, Acting Chair Boey said, and is more than self-sustaining. He then asked for a motion to approve the BIS lease amendment. Trustee Vella so moved, seconded by Trustee Skoien. The motion was approved.

Agenda Item 7.e. – Fiscal Year 2000 Internal Budget
By Board Regulations, Dr. Williams informed the new Trustees, the university brings its internal budget for each fiscal year to the Board for approval. He mentioned that the university has several sources of funds. In Table 1 on page 26, he pointed out that appropriated funds had been identified as the university’s General Revenue Fund and Education Assistance Fund allocations. These two sources come from the state tax revenue base and are allocated from state revenues. This year, we are pleased to report to the Board that we have received an approximate 4.4 percent increase. This is one of the largest base increases that NIU has received over the last eight to ten years. The university income fund was listed under nonappropriated revenues. This remains an issue with the legislature, he said, but at this point, the university is allowed to retain its income fund. Right now, NIU’s income fund totals approximately $51.6 million. It is to the university’s advantage and is very important to the institution to maintain these funds locally. You will be hearing more and more on this issue as the year progresses. Bond revenue activity, auxiliary enterprises and local funds make up the balance. The overall budget for fiscal 2000 is approximately $272 million. Table 2 on page 27 indicated how these funds were distributed as line items. Normally, Dr. Williams said, the appropriation language for our bill provides for specific allocations to lines such as personal services, contractual services, commodities, travel and the like. This year, one of the things that occurred during the legislative process was that the university was given a lump sum appropriation by the Senate, which was later signed into law by the Governor. While this was done, we have been very cautious as we approached allocating the internal budget. What we have done through this allocation is to simply reflect the priorities that the institution had identified throughout the appropriation process, just keeping our priorities, our direction and our needs reflected in the allocation of our resources. Point of fact, the Senate was very concerned about deferred maintenance and, therefore, they lump-summed all of the budget other than our salary increase dollars in that particular line. We have tried in this budget process to reflect increases in the deferred maintenance area while also remembering that we cannot remain stagnant as an institution. We must invest in our programs and our academic faculty and research activities. So, Tables 2 and 3 give you some feel for how the budget has changed from FY99 to FY00. Board approval of the internal budget as presented was requested.

In a quick review, Acting Chair Boey said, Table 1 shows that the total budget is $272 million. This is a state university, and of that $272 million budget, $106 million comes from the appropriated revenue fund in Springfield. So, as a state university, we are basically about 40 percent supported by the state. We are on our own for the rest, and I think the university income fund at $51 million should be included there. That is primarily made up of the tuition fees collected here on campus. As the year goes on, he told the new Trustees, you will learn more about the income fund and the ongoing battle for control of it. I make this point he said, because a lot of people continue to think that being a state university, we are 100 percent funded by the state. We never were, and we never will be. He then asked for a motion to approve the Fiscal Year 2000 Internal Budget. Trustee Skoien so moved, seconded by Trustee Vella. The motion was approved.

Agenda Item 7.f. - Fiscal Year 2001 Appropriated Budget Request
Dr. Williams then reviewed the capital projects planned for Fiscal Year 2001 and explained the process. These recommendations will go to the IBHE. The IBHE will evaluate them and discuss them with our President. They will then formulate a statewide priority list combining our requests with those of the other universities and community colleges so that a single list will be sent on to the Governor and the legislature.

Dr. Williams then outlined the key project requests included in the FY01 appropriated budget request. The university’s number one priority recommendation is for completion of the Founders Library basement buildout. This is a project we have been working on for several years, he said. The options of building a new facility and utilizing the existing facility to its maximum potential have both been explored. It seems most appropriate, given the available dollars, to complete the basement area of the library adding stack space at a very economic cost. It is a $4.4 million request, and the legislature has already appropriated funds for the planning and design of the project.

The university’s second priority is the Hoffman Estates Education Center. This is also a follow-up of a $1.3 million appropriation NIU received for the planning and design of this facility. Dr. Williams explained to the new Trustees that while we already have the Hoffman Estates Education Center, that facility reached its capacity two to three years after its completion. The university has been honored by the gift of 20 acres of land along I-90 in the general vicinity of the current Hoffman Estates Education facility for the purposes of building an additional educational center. The 20 acres is valued at approximately $5 million. The state has appropriated $1.3 million in support of the planning and design. The university will be requesting $8.6 million to assist with the construction in 2001. That request will be part of a much larger funding strategy, which will include some amortized debt and will be brought to the Board at a later time.

Other priorities included the campus chilled water project designed to replace many of the university’s aging HVAC air-conditioning systems, many of them using coolants that have been eliminated by the EPA. We are on a timeframe to replace those refrigerants, Dr. Williams said, and many of the units themselves have far exceeded their useful life. This program brings to the campus a comprehensive plan that would have cooling centers located throughout the campus that would cover 11 to 12 buildings at one time. It is an efficiency move, and it is a practical move given the constraints of refrigerants and the status of the existing equipment. The Stevens Building renovation is an academic building that is in dire need of full renovation, and an $867,000 request is being made for planning money.

Given the history of carrying projects to the IBHE and through this whole appropriated process, Dr. Williams explained, if the top four priorities are funded, we would be very gratified. But, the other projects are also important to us, and they remain on our list. As projects are funded, the projects on the lower half of the list are moved up each year. We have a separate appropriation that involves capital renewal projects. These are projects primarily with a scope and a budget of well under a million dollars. They include tuckpointing, elevator projects and some general campus improvement projects. Approval was requested for both FY01 appropriated budget requests. 

Trustee Siegel commented that he was pleased to see that the Stevens Building has finally moved up on the priority list. He inquired as to what buildings were involved in the elevator rehabilitation and renovation in Priority 7 because someone had made comments to him about the unreliability of the elevators in Zulauf Hall. The write-up of that priority was given on page 34 of the meeting materials. The buildings involved are Zulauf, Faraday, Graham, Montgomery, Davis and Swen Parson Halls and the Health Center. These are major renovations, installing new cars and so forth. Dr. Williams pointed out that the university has an ongoing open order with an elevator firm for emergency repair service and replacement. Trustee Siegel asked if it might be possible to break that item down into individual projects, which might be funded more quickly. Dr. Williams said he appreciated Trustee Siegel’s comments. If we get to the point where a particular elevator has reached that diminishing point, he said, we do move to replace it. Two elevators were replaced in the Psych-Math building for the same reasons. The elevators are assessed on a month-to-month basis, and if such a case is found, it is addressed. Acting Chair Boey asked for a motion to approve the FY01 appropriated budget requests. Trustee Skoien so moved, seconded by Trustee Vella. The motion was approved.

Agenda Item 7.g. - Fiscal Year 2001 Nonappropriated Capital Budget Request
Dr. Williams stated that the 2001 nonappropriated capital budget is an annual request that includes capital projects recommended for facilities that are not covered by appropriated funding. These are primarily facilities constructed from revenue bonds issued by the Board over the years. Repair and replacement reserves are set aside annually for the maintenance and improvement of these facilities. The construction of the convocation center as a bond building and West Campus improvements are obvious requests on this list. The list also included deferred maintenance rehabilitation projects, including Holmes Student Center maintenance, the Oderkirk property and Douglas Hall, which is a residence hall. These are projects that are developed through consultation with the users, the physical plant and architectural engineering staff, who identify the most critical projects and then recommend them for approval. The projects on this list will be done, Dr. Williams said. Unlike appropriated capital requests that have to be approved by the IBHE, the Governor and the General Assembly, the Board of Trustees has the authority and the resources to address capital improvements for noninstructional facilities. Therefore, these projects are recommended from the university’s existing reserves, and all will be done sometime during FY01. Acting Chair Boey asked for a motion to approve the FY01 nonappropriated capital budget request. Trustee Vella so moved, seconded by Trustee Skoien. The motion was approved.

Agenda Item 7.h. – Intercollegiate Athletic Facilities Improvement Fund
In 1999, the legislature established a university capital athletic facilities improvement fund. This fund was designed to provide resources for the improvement, deferred maintenance and so forth of intercollegiate athletic facilities on university campuses. The fund was recommended by Senator Weaver, but at that time no dollars were allocated for these purposes. With the recent compromise and approval of the gaming legislation allowing for a Rosemont riverboat, the legislature included a mechanism by which this capital fund could be funded. It is anticipated that $4 to $5 million will be deposited into this account on an annual basis. The account is handled by the Board of Higher Education, and they are treating it as a regular capital project account, which means that each institution must submit a project request list that the IBHE would put in some priority order and then allocate resources. As a result of that, and working with our Intercollegiate Athletics program and Dr. Anne Kaplan, who provided leadership and direction on this issue, Dr. Williams said, we are recommending three projects, which total approximately $2.1 million, to the Board. The first is the construction of an outdoor track at $486,000. We hope to take the site of our old track and renovate it. This is pursuant to the institution’s commitment to Title IX compliance. The convocation center will have a 200-meter indoor track. The second item is providing lights for our soccer field, something we have been unable to do for the last 12 years because of limited resources. This would allow for intercollegiate athletic events to take place in the evenings, and the university would be able to offer the field for high school and other type tournaments occurring in the general region. The final item is the replacement of the artificial turf at Huskie Stadium. It is a $1.3 million request. Usually the artificial surface is guaranteed to last about 10 years. We are into our 13th year with the existing turf, and it is in need of replacement. If we are able to obtain funding for this through the state, it will help take the burden off the institution’s reserves. To answer a question from the UAC representatives, Dr. Williams stated that this fund can only be used for athletic facilities. The legislation states very clearly that it cannot be used for salaries or anything other than capital improvements of intercollegiate athletic facilities. A request was made for Board approval of these three projects to be submitted to the IBHE to be funded from the athletic improvement fund.

Acting Chair Boey asked if the $2.1 million for these three projects would come from the $4 to $5 million anticipated revenue total to be distributed among all the universities. Dr. Williams stated that it would. He explained that it is a limited fund, and it was uncertain how many of the institutions would respond since this is the first year this fund has been made available. Because of that, we wanted to put a substantial list together, he said. These are all items that we will be seeking funding for at some point. Acting Chair Boey asked for a motion to approve the Intercollegiate Athletic Facilities Improvement Fund request. Trustee Skoien so moved, seconded by Trustee Vella. The motion was approved.

Agenda Item 7.i. - Chicago Art Gallery Lease Renewal
The university, through its College of Visual and Performing Arts, has operated an art gallery in the Chicago area for at least 10 to 12 years, Dr. Williams said, and this location has been a very successful one. It has provided not only an opportunity for citizens to see some of the work of NIU faculty and graduate students and various art exhibits that may be circulating throughout the region, but it has also served as a functional space for our Alumni Association and Development teams. The landlord is very content with the existing arrangement and has asked us simply to renew the existing lease. In accordance with Board Regulations, Board approval of this lease renewal for another year was requested at the current rate of $6,116 per month. These funds are already a part of our base budget, Dr. Williams said, and would be allocated from our general revenue sources. Acting Chair Boey asked for a motion to renew the Chicago Art Gallery lease. Trustee Skoien so moved, seconded by Trustee Vella. The motion was approved.

The Governor also signed House Bill 325, which creates the Public University Tuition Statement Act. This legislation represents a new policy for all of higher education at the state level, particularly at the universities. Basically, it requires each public university to provide undergraduates with a statement at the bottom of their tuition bills showing the average tuition subsidy that each resident undergraduate full-time public university student received from the state to offset the full cost of tuition. This was initiated and passed at the legislative level. I think it is a very good policy, Ms. Swanson said, and I think the Governor recognized it as such. This will enable the students that attend the public university system to see how much money is appropriated by the General Assembly for higher education and university operation. In addition, every year they will have a number that represents an average state subsidy for their tuition, which will show that the full cost of tuition is not borne by the students at any state university in Illinois. That will be a very positive change and one which we are eager to comply with, Ms. Swanson said. It should help all of the universities and the legislators in the General Assembly deal with this issue of university costs more directly in the future. This legislation was signed by the Governor about a month ago.

The university received a 4.87 percent increase to our general revenue base this year, Ms. Swanson said, which is a very healthy increase. The increase represents a statement from the Governor indicating that he is very concerned about funding not only K-12, but also higher education in Illinois. When the Senate received the Governor’s budget, they made some cuts to the higher education institutions during the appropriation process. Northern’s share of $367,000 was cut from the Governor’s increment. That represents a fairly low percentage compared to some of our sister institutions, she said. I would say that we held our own in that process thanks to the administration and the Trustees’ presence in Springfield as we dealt with some of those budget issues in the General Assembly and the appropriations process. Along with that cut of $367,000 from the increment, Ms. Swanson continued, the Senate recommended lump sum funding for all the universities. At the same time, tied to the lump sum funding was an effort to remove the power of the universities to retain their income funds locally. That effort failed in the last 48 hours of session, she said, but it is an ongoing effort that we will have to address during the next session. There are many different perspectives on university budgeting in Springfield right now — the effort to lump sum and then retain the income funds at the state level, and an effort in the opposite direction, to line-item. One of the legislative leaders has indicated an interest in filing legislation this year, Ms. Swanson said, and will probably come back again next year with a more aggressive effort to attempt to line-item each university’s budget in very significant detail. Such line-itemming would also prohibit a system like those at Southern Illinois University or the University of Illinois from being able to transfer appropriated funds within campuses. Obviously, that would have a significant impact on the way those two systems operate. After the Board acts on the budgets at its September 9 meeting, the Board of Higher Education will be coming to campus to sit down with the administration to talk about budget parameters for 2001.

The Finance, Facilities and Operations Committee was recessed at 11:00 a.m.

This joint meeting of the FFO Committee and the AASAP Committee was called for the specific purpose of discussing a major development affecting the State Universities Retirement System and the university.

Mr. Cunningham reported that in June 1999, the Board approved the total 5 percent merit increment guideline for Fiscal Year 2000. The university distributed the increment in accordance with that approved guideline. The total increment base for FY00 across all faculty, staff and civil service was $97 million, Mr. Cunningham reported. All increments were distributed according to merit evaluations. The university also implemented an increase to faculty promotional rates that added another four-tenths of a percent to the faculty increment, bringing the total increment for faculty to 5.4 percent. The annual increment is one of the most significant budgetary and employee relations issues that we undertake in any given year, Mr. Cunningham said, because we try to be very competitive with salaries at Northern, and that is always a challenge. Each year we try to maintain our market standing and an effective merit program. We also work to allocate resources to ameliorate the effect of cost-of-living increases, which we experience in this area as the region develops. The FY00 increment has already appeared in paychecks for those employees on 12-month contracts; it will appear in the September 1 paycheck for academic employees on 9-month contracts. In answer to an inquiry from Trustee Siegel, Mr. Cunningham replied that this increase is for nonnegotiated employees. However, negotiations with the instructors resulted in a 5 percent salary increment for Fiscal Year 2000.

Dr. Waldeland reminded the Board that the legislature allocated a 3 percent increment and then an additional one percent increment for the purpose of retaining critical faculty and staff, which the university matched. We are very appreciative to the Board members, Kathy Swanson and others who lobbied hard for that additional salary money as a key priority of the university, she said. We matched that one percent increment with an internal reallocation to get to the 5 percent increment. We are underscoring the high priority we assign to faculty and staff salaries.

Agenda Item 6.b. - Changes to SURS Early Retirement Without Discount Option (ERO)
Dr. Waldeland asked Anne Kaplan, Vice President for Administration, to provide some context for a recent development in the SURS early retirement program.

Dr. Kaplan noted that personnel issues are often dealt with in both the AASAP and FFO Committees. Most of the personnel items that require Board approval come up through the faculty governance system. They include things like tenure and promotion, sabbaticals and appointments with tenure. Those issues go first to the Academic Affairs, Student Affairs and Personnel Committee. Also, we typically take benefit changes or personnel policy changes to the AASAP Committee as employee relations issues. On the other hand, when those kinds of changes have an unusual financial impact, we try to present the same item to the Finance, Facilities and Operations Committee as an information item. Salary guidelines, as part of the budget, go to the FFO Committee for action and to the AASAP Committee for information. Certainly, this item affects both policy and budget, and it is entirely appropriate that we are discussing it as a joint committee.

In anticipation of the discussion of the SURS ERO item, Dr. Kaplan said, I think it is important for the Board to understand that you are about to receive more information on the details of this option and the legal issues surrounding it than is available at any other campus in the state. There are two reasons for that. One of them is that Northern, unlike any of the other campuses in the state, has a consolidated Human Resource Services unit, which means that unlike the other institutions, we deal with personnel issues affecting all classes of employees in one organization with one set of staff. So, when we try to react to something, we do not have to pull a cross-divisional committee together to figure out what to do. That is a great advantage, and it has been a particular advantage in this instance. Second, we are very fortunate in having three people on this campus, Mr. Davidson, Mr. Cunningham and Ms. Romano, who bring to retirement issues a great deal of expertise and experience. They have worked very hard for a number of weeks in putting this information together and getting it out to people on campus. It is an unusual degree of expertise on this kind of issue, Dr. Kaplan said, and I think we and the rest of the universities in the state owe them considerable appreciation. Dr. Kaplan then called on Mr. Cunningham to give a detailed explanation of the SURS ERO benefit option.

Mr. Cunningham also acknowledged the assistance of Kate Romano and Ken Davidson. Kate is the chair of the statewide SURS Member Advisory Committee. Ken Davidson has been of great assistance in helping interpret the many tangled legal issues surrounding this issue. Mr. Cunningham said he would provide a brief outline of the relevant provisions of the Pension Code, what the ERO is and how Mattis affects the ERO, and then briefly discuss the university’s management strategy.

The Illinois Pension Code has a section that is specific to SURS, and in this section there are a number of formulas that apply to participant retirements. Employees may retire under the Rule #1 formula, also known as the General Formula. This formula provides that the annuity calculation will be 2.2 percent per year of service multiplied by the highest four-year average salary of the participant. This formula was upgraded through Public Act 90-65, an initiative in which Northern was very involved in 1997. The General Formula represents the minimum benefit employees will receive under the SURS. An alternative calculation is called the Money Purchase Formula, Rule  #2 of the SURS Pension Code. This is a distinguishing benefit under the SURS. Not all public pension systems have a money purchase benefit, Mr. Cunningham said, and especially one that operates as this one does. State contributions are made to the employee‘s SURS account every year. Employee contributions are posted to the account, and employer contributions are posted at a rate of 1.4 times the employee contributions. The Retirement System then posts an annual rate of interest to the account. One of the good features about SURS for our employees is that our retirement system is allowed to post market rates to that account. This year a rate of 10 percent was applied. So these funds will compound over time, resulting in a sum of money in the account. At the time of retirement, the money purchase rate is calculated, and this sum is divided by an annuity factor. There is a table of denominators that vary by age. However, this calculation is independent of length of service. These are the two primary calculation methods under the SURS. When an employee retires, both of these calculations are undertaken, Mr. Cunningham said, and whichever one results in the highest amount becomes the annuity for the employee.

Because the Rule #1 provision, the General Formula, specifically relates to length of service and does not already have an age effect built into the actuarial table, there is a reduction of the annuity of one percent per month that the employee is less than age 60 should the retirement occur before age 60.

Also in Section 136.2 of the statute is the Early Retirement Without Discount Option, or the ERO. This is a provision that sunsets. It was initiated in 1981 and is renewed on a five-year basis, and the current authorization extends until September 2002. This provision establishes a method where employees contribute seven percent of their salary per year that they are less than age 60 or have less than 30 years of service, whichever is less. The employer then makes a contribution at the rate of 20 percent per year that the employee is less than age 60. For example, a 59-year-old retiree would generate a 7 percent employee and a 20 percent employer contribution. A 55-year-old retiree would need a 35 percent employee contribution and a 100 percent employer contribution at the employee's final salary. Thus, these contributions can result in considerable outlays for the employer. For that reason, this section of the Pension Code also has a provision where each employer can limit participation in the ERO during any given fiscal year to 15 percent of those eligible, allocated on the basis of seniority and service with the employer. That is the way the system has operated since 1981. Essentially, Mr. Cunningham explained, the ERO provided a means by which contributions would be made to the Retirement System to offset the liability, the increased length of time that the Retirement System would have to pay the pension in the case of an employee retiring without penalty or without a reduction prior to age 60.

The Mattis situation arose, Mr. Cunningham said, when an SIU law professor named Bryan Mattis elected the ERO. The 20 percent employer and 7 percent employee contributions were made to the SURS. Dr. Mattis argued that ERO contributions were no different than the normal contributions made in any given year by the employee and the employer and that once those contributions were posted to the account, a new money purchase calculation should be conducted including those contributions. SURS denied his request in its administrative review process. (The Pension Code also designates the SURS as the agency to interpret state statutes pertaining to the SURS.) Mr. Mattis appealed his case to the trial court, which affirmed the SURS decision. He then appealed it to the appellate court, where SURS was reversed, primarily because there was no provision in the Pension Code that specifically excluded ERO contributions from the types of calculations that apply to the normal contributions. On October 6, 1998, the Supreme Court refused to accept the SURS appeal of the appellate court decision, so that appellate court decision became active law, which meant that our ERO program changed from being simply payments made to avoid a penalty or a reduction to a potential enhancement for participants in ERO because these contributions would now be incorporated into the money purchase benefit.

The calculation methodology was sent back to the trial court to make final decisions, Mr. Cunningham said, and the court has yet to finalize the actual way the so-called Mattis calculation would be made. We know that it will probably at least include the methods that were asserted by Mattis and that were considered by the court — that the 20 percent and the 7 percent contributions would be included in a new money purchase calculation. This has considerable implications, Mr. Cunningham said, in that it could create increased employee participation in ERO. Formerly, we have had three or four participants in this program per year. Only a few people found it worthwhile to make the contributions to avoid the penalty. Now that there is a potential enhancement involved, the potential exists for a considerably larger participation, and this has a number of implications. First, it has considerable budgetary impact. Were we to experience a 15 percent rate of participation, we estimate that the employer contributions would amount to $3 million, he said, and the law requires that these come from our personal services budget during the fiscal year during which the retirements occur. In addition, those retirees would generate approximately $2 million in sick leave and vacation payouts. So, under the most limited participation assumptions, Mr. Cunningham said, we have potentially a $5 million issue, which is equal in magnitude to the Fiscal Year 2000 increment, as you saw from the last agenda item.

Mr. Cunningham said that there is considerable variation in outcomes among employees with respect to this Mattis calculation. We have undertaken extensive modeling, as has the SURS, and there is really not a pattern or a general principle that can be used. There are many variables that influence the effect of this new money purchase calculation — age, length of service, time in the system, time that has been purchased in the system, salary history, any variation of the salary history. So we will be working with each individual in this group to give each one a very informed picture of what this would mean for them based upon the latest information from the courts and from the SURS. Our policy would also give us an organized method to counsel with our employees, Mr. Cunningham said, and then to allocate participation in this program during Fiscal Year 2000. Mr. Cunningham stated that the university was seeking Board approval to implement the 15 percent limit on participation in accordance with Section 136.2 of the Pension Code.

Chair Boey wanted to make clear that the optimistic projection was the 15 percent cap, which could result in a $5 million impact on the budget. If more were to participate, Mr. Cunningham said, the picture would worsen.

Dr. Waldeland asked if Mr. Cunningham could give the Committee members an idea of the number of faculty and staff who are now within the parameters of the Mattis case as we understand them and how many we are talking about if it is limited to 15 percent. A number of criteria define eligibility, and these are fairly important because they specify the size of the pool, Mr. Cunningham said. First, the employee must be a General Formula retiree, because the penalty only applies to that group. SURS will assist the university in making those determinations. Second, they must be between ages 55 and 60 years in order for the penalty to apply, have at least eight years of service to be eligible to retire and not be covered by the so-called "30 and out" provision. The "30 and out" provision is a phased-in new provision of the Pension Code, which started as a calendar year phase-in in 1998, that allows employees to retire at any age without the penalty if they have 30 years of service. So, during 1999, it is 33 years with no penalty, and as of January 1, 2000, it will be 32 years. Once those thresholds are reached, the employee is no longer eligible to participate in the ERO. Based on those broad specifications, the largest pool at NIU would be approximately 476 people, and 15 percent of that would be about 71 individuals. Once we begin to go over employee records and research the time they may have in the Retirement System, as well as the elimination of the Money Purchase retirements from this group, that number may be reduced. We know that we would be looking at between 50 and 70 individuals under the best circumstances, Mr. Cunningham said.

President La Tourette said that if 400+ employees left, the budget impact would be somewhere around $30 million. That would be $20 million for the payouts to SURS and about $10 million for sick leave and vacation pay. This puts in context why the 15 percent cap is a necessity for our operation because you can imagine the damage that would be done to the university if that number of people were to leave all at once. If NIU’s budget is about $156 million between state funds and the income fund, as we just reviewed, he said, $30 million from that budget would be an enormous impact in one year. Even $5 million is a difficult challenge when the university has already begun the academic year and would have a very limited period of time to adjust the budget to meet the payouts that would be required by June 30, 2000. 

Chair Boey asked for a motion to approve the cap of 15 percent of eligible employees for participation in the ERO in FY00. Trustee Vella so moved, seconded by Trustee Siegel. The motion was approved. 

Trustee Joyce asked if this would be an ongoing problem if the legislation is renewed. President La Tourette answered that it would. If the legislation does not sunset on September 1, 2002, the university would have to deal with it through the year 2004. So, even if we are successful in holding to the 15 percent cap, we could still have a $5 million payout for each year. Mr. Cunningham stated that no university under the previous rules had ever approached 15 percent.

Dr. Sue Ouellette said the Faculty Senate would be meeting the following week to discuss this matter. I think that faculty is just now becoming fully informed on the issue, she said, and it seems to be imperative to stem the tide in any way that we possibly can. The steering committee of the University Council has expressed agreement that this is an important step to take. Dr. Ouellette said that UAC would give a full response later.

President La Tourette asked Interim Provost Lynne Waldeland to speak to the programmatic impact of this legislation. We have quickly focused on the potential financial impact, he said, and I think we should also understand the programmatic impact on academic programs because it will be severe in some situations.

Dr. Waldeland said that the President and other administrators had met first with the University Council Steering Committee composed of faculty representatives and representatives from the supportive professional staff and the operating staff. Since then, Mr. Cunningham and others have been going around to each college council to discuss the issue as well. Dr. Waldeland said that the faculty are very concerned because the university has just come out of a period of faculty downsizing to bring the budget of the university in line with enrollment and resources. We have only this year begun to be able to restore some positions, and we are doing it under very rigorous rules in which the departments and the colleges have to show that this is a position that meets the needs of the future. We are moving well beyond the idea that we need to replace the retiring faculty member with someone exactly like him or her. We are entering an extremely good period of departmental and college planning for staffing, and I think the matter has been a real blow to departments and colleges. One of the things that people who have been engaged in this consider is the fact that retirements do not occur evenly across the campus. They will not be spread across all of NIU’s 39 departments. Approximately half the eligible group that Mr. Cunningham referred to is faculty, so about 35 faculty will be in that top 15 percent. It could happen that a small department of seven or eight faculty could have two or three eligible for retirement. That would be a devastating blow for that department because there will be the payouts to handle, and we usually have to leave positions open to cover them. People seem anxious that we control this situation so that we do not lose our momentum in planning for faculty coverage of our programs.

One point I would like to share with the new Board members, President La Tourette said, is that the decline in enrollment occurred at the end of the Baby Boom, and that was a statewide phenomenon. On Tuesday, the Board of Higher Education reported that between 1992 and 1995 there was a drop of 30,000 in enrollments in the public universities. NIU had its share of that drop. When that occurred, we had to cut back on some of our staffing, he said, and bring it in line with our enrollment and budget. It has taken some time to do that, so that we have now reached the point of an equilibrium situation. We are now prepared to fill in some gaps in our programs, as Dr. Waldeland indicated. At the same time, our enrollment is growing again. So, the Mattis problem comes at a time when we thought we had everything under control, the President said, and thought we would have a normal pattern of retirement to work with and adjust to over a period of time. You can see now that with this decision at the court level, we could have a bunching up of retirements that would cause us to have some real gaps in our academic programs. To meet that kind of budget figure, even if it is the 15 percent cap and the $5 million, positions will have to remain open for some period of time in order to cover the payouts and adjust our budget.

Dr. Waldeland stated that NIU’s enrollment and retention are both up this year. These are things we worked very hard to achieve, and if we do not have the faculty and staff in place to accommodate more students, all of that work could be rapidly undone.

Student Trustee Anderson asked what, if any, negative ramifications could arise from a 15 percent cap. Whenever you have any limited participation, obviously there are some, Mr. Cunningham replied. The program as designed will involve more than just the top 15 percent in the retirement counseling process. The variations will be great and affect individuals differently. We may work through the entire list and not reach 15 percent. We would like to have this option in place in case there is a great deal of interest. With the combination of the 15 percent rule and extensive counseling to inform each employee exactly what his or her individual situation will be, Mr. Cunningham said, we should be able to stem the rumors that they have to decide to participate before the statute sunsets.

Chair Boey said that was a good question. It is equally important, he said, to ask about the consequences if we do not have the 15 percent limit. The risk to the university becomes unacceptable since without any sort of limitation, we could be looking at numbers like 470 people and a $30 million exposure. Those are the pros and the cons that we, as Trustees, have to look at. 

Trustee Siegel asked what the procedure would be for determining the 15 percent. In allocating this eligibility, Mr. Cunningham replied, the statute requires that that we do it in order of seniority at the university. Once the pool is set in order of seniority starting with the first 15 percent, we will give them opportunities to counsel with our insurance staff. Following their decisions about participation, we will then move on down the list until we have either gone through the entire list or reached a level of 15 percent, whichever comes first.

President La Tourette asked Mr. Cunningham if he could indicate how much time this process would take. Mr. Cunningham stated that because of the variations in the way this affects employees, they will be provided customized information and counseling services. Also, preparation time is needed to receive information from the employees in the group, analyze that information and then conduct the sessions. Mr. Cunningham said that after consulting with Ms. Romano, they anticipated three hours or more per session.

It is obvious from our modeling of the potential pool of 400 some people, President La Tourette said, that the benefits from this decision vary greatly. I want to emphasize that because in some cases it is zero, and in some cases it is a very substantial increase in the pension. It all depends on several variables, he said, so it is very difficult to determine what the benefit will be without a great deal of information, analysis and calculation.

Dr. Williams commented that he would urge the Board and the Committees to view the 15 percent as a minimal action. Even under that scenario, he said, the institution facing a $5 million payout in a given fiscal year is a very serious crisis. To put this in context, when we had tuition shortfalls generated by the reduction in enrollment, we addressed a $5 to $6 million reduction over several years. Even under the 15 percent cap, we would still be in a serious position. I would suggest that this action be only the first of many steps that the Board may need to take in order to get the legislature and others to focus on this issue, Dr. Williams said. However the courts end up and however the class is defined and the calculation made, we must get the state legislature to focus on assisting the institutions in addressing these retirements. The $5 million per year is bad enough, Chair Boey said, but the most unkind act of all is to have it come out of this year's appropriated budget funds.

In reply to a question from Trustee Siegel, Mr. Cunningham said that the statute specifies no less than 15 percent. Trustee Vella asked how long he estimated it would take to find out how many people would take this option. Mr. Cunningham said they should complete the counseling for the first group within a five- to six-week period. January 1 is the anticipated date by which the members of that group would need to make their decisions. During the interim period, anticipating that not everyone in the first 15 percent will elect to retire, others farther down on the list would also be counseled. After counseling with our first group, Mr. Cunningham said, we will have a much better idea whether or not this is something in which employees are going to participate in great numbers. As we move down the list, the situation changes. Those people have fewer years of service and their Money Purchase accounts are proportionately less compared to the General Formula. Chair Boey asked for a motion to approve the SURS Early Retirement Without Discount Option 15 percent participation provision. Trustee Vella so moved, seconded by Trustee Siegel. The motion was approved. President La Tourette said the university would be calling on Board members to assist in getting this issue to the attention of the legislature.

Trustee Joyce asked when the trial judge was anticipated to reach his decision on how the calculations are to be figured. Mr. Cunningham said that the trial judge is going to retire and has announced that he does not anticipate this issue being resolved during his term. Recently, the SURS sought a motion for the court to accept the method of calculation that was considered by the Appellate court, which was simply putting the 20 percent and the seven percent into the Money Purchase calculation. The court did not accept that motion, he said, so that keeps the issue fluid, and SURS may appeal the outcome. Trustee Joyce also asked what the statewide implication would be. Mr. Cunningham said the court determined that this would be a class action, though they have yet to clarify the class. It would involve approximately 3,000 people who have retired between 1981 and October 6, 1998. Those pensions will eventually be recalculated. If there are additional benefits, those would come from the SURS fund because the employer and employee contributions have already been made in those cases. The extent to which this will affect those employees who have yet to retire or who retired during the interim will also depend on the final calculation method. As President La Tourette indicated, there are about 5,000 ERO-eligible employees statewide. This could amount to about $30 million a year during the remainder of the ERO authorization. One of the best methods to influence participation is fully informing employees and providing the counseling necessary for them to know exactly what this would mean to them. In many cases, I think we will find that they are not ready to retire and would realize the same benefit in a couple of years by staying.

Chair Boey asked for a motion to adjourn. Trustee Skoien so moved, seconded by Trustee Siegel. The motion was approved. The joint meeting of the Committees was adjourned at 12:10 p.m.

Respectfully submitted,

Sharon M. Mimms
Recording Secretary