Minutes of the

NIU Board of Trustees

LEGISLATION, AUDIT AND EXTERNAL AFFAIRS COMMITTEE

March 5, 2002

CALL TO ORDER AND ROLL CALL

The meeting was called to order by Chair Myron Siegel at 9:05 a.m. in Room 206 of NIU‑Hoffman Estates.  Recording Secretary Sharon Mimms conducted a roll call of Trustees.  Members present were Trustees Catherine Adduci, George Moser, Gary Skoien, and Chair Siegel.  Also present were Committee Liaison Kathryn Buettner, Board Parliamentarian Kenneth Davidson and President John Peters.  With a quorum present, the meeting proceeded.

VERIFICATION OF APPROPRIATE NOTICE OF PUBLIC MEETING

Confirmation of Open Meetings Act public notice compliance was given by Board Parliamentarian Ken Davidson.

MEETING AGENDA APPROVAL

Trustee Moser made a motion to approve the agenda.  It was seconded by Trustee Skoien.  The motion was approved.

REVIEW AND APPROVAL OF MINUTES

It was moved by Trustee Adduci and seconded by Trustee Moser to approve the minutes of the December 13, 2001 meeting.  The motion was approved.

CHAIR'S COMMENTS

Chair Siegel welcomed everyone to the Legislation, Audit and External Affairs Committee Meeting.  He recognized UAC representatives Judy Burgess, Sue Willis and Beverly Espe.

Because of the very fluid budget situation in Springfield over the last few months, Chair Siegel said, I thought it important to call this meeting to discuss the budget issues for the FY02 and FY03 in more detail as well as get a sense of any new substantive legislation filed since January 1 that might impact university operations.

Chair Siegel thanked Kathy Buettner and Kathe Shinham for the work they did on the Taxpayer Relief Act issues federally since 1997.  Kathe Shinham will deliver a final report on this issue later in the meeting.  They have done a yeomen’s job by first recognizing this issue and then carrying the torch for all higher education, he said.  And, finally, they have relieved NIU from an onerous mandate thrust on all higher education institutions as a result of the policies set forth in establishing the HOPE Scholarship and Lifelong Learning Tax Credits.  It is a win for students, institutions and taxpayers.  I would also like the record to reflect this committee’s and the university’s appreciation to Congressman Don Manzullo of Rockford for his willingness to lead the fight in Congress for the repeal of this mandate while protecting the tax credits for students and parents everywhere.  We owe him a debt of gratitude for his perseverance over the last four years to help NIU and other higher education institutions.

PUBLIC COMMENT

The Chair asked Board Parliamentarian Kenneth Davidson if any members of the public had registered a written request to address the Board in accordance with state law and Board of Trustees Bylaws.  Mr. Davidson noted that no timely requests had been received for public comment at that Board meeting.

UNIVERSITY REPORT

92^nd General Assembly Report

Agenda Item 7.a.(1) – Substantive Legislation

Ms. Buettner asked Assistant Director for State and Federal Relations Ken Zehnder to brief the Committee on a few new bills that had been filed in Springfield.

The bills we are most interested in tracking are appropriation bills, Mr. Zehnder explained, which the House will hear on March 14 and the Senate on April 8.  There are several bills relating to the Open Meetings Act, which will affect the operations of the Board, and I will mention three of them.  House Bill 3098 originally stated that minutes would have to be recorded verbatim.  That has been amended to provide that a presiding officer verify that the statutes were not violated.  Since it was passed in that form, the Governor has amendatorially vetoed it to now provide that the presiding officer affirm that the correct procedures were followed to the best of his knowledge.  Senate Bill 1756 extends the posting period for meeting notices and also requires that those notices be put on the public website if one exists.  House Bill 3682 provides that security measures relating to public or private property can be considered in closed session.

There are a couple of bills we are monitoring containing what we consider to be mandates.  One is for window guards on all buildings, and another would require that carbon monoxide detectors be placed in all buildings, which would include the university residence halls and the classrooms.  While both of these bills are good ideas, Ms. Zehnder said, they would add considerable expense.  There are several bills that impact scholarships, some that waive tuitions for certain students and others that encourage students to go into teaching.  Another bill would require a 75 percent balance between full‑time and part‑time faculty.  NIU is already in compliance with that bill and actually exceeds the requirements of the proposed legislation.  Senate Bill 1707 was introduced by Senator Sieben.  This bill will provide an alternative for teacher certification.  NIU has been working with the school superintendents in the northwest part of the state on this prototype bill, he said, and we feel it would be an excellent opportunity for experienced individuals who are entering a master’s program.  They would be able to obtain their teacher’s certificate by completing their masters degree and teaching at the same time.  The university has worked with the State Board of Education and the Illinois Education Association (IEA) to adjust the language, and that bill should pass out of committee next week.

Agenda Item 7.a.(2) – Fiscal Year 2002 Budget Update

As you will recall, Ms. Buettner said, the Governor imposed FY02 budget requirements totaling about $70 million for all of higher education collectively.  Northern’s share of that is $4.8 million, and we have made provisions to turn this money back to the state.  The President has set up four different guidelines, which are listed on page 14, to be used as the campus community deals with this rescission.  First, there should be little or no disruption of student academic programs.  The health and safety of the campus community must not be compromised.  There will be no reduction in faculty or staff salaries as part of these cuts.  There will be no layoffs or furloughs of university employees instituted as part of the FY02 rescission efforts to comply.  We have met those efforts, she said.  We were able to do so through rescissions across the university, because we had a significant central resource that included a carryover from the previous year.

Fiscal Year 2003 Governor’s Budget Overview

Agenda Item 7.a.(3)(a) – Fiscal Year 2003 Operating Budget

The Governor delivered his budget message on February 20, Ms. Buettner said, and most of you have read a great deal about what he said in the newspaper.  The state is in a serious financial bind.  When Governor Ryan set the 2002 budget, the Economic and Fiscal Commission predicted $894 million in growth.  They now say that tax revenues are going to grow by just $90 million compared with last year.  The Governor is predicting about $200 million in growth for FY03.

The Governor announced across the Board agency budget cuts by three percent, cutting 3,800 state positions and closing four facilities on February 20.  We received notification from the Governor on the general parameters of what their higher education budget contained.  But until the past few days we had not heard what the impact of that budget address was going to mean for the universities.  That is because, while the general parameters were outlined in the Governor’s budget, the Board of Higher Education did not receive the details from the Governor.  We are now facing a significantly higher budget problem than we realized a couple of weeks ago.  Ms. Buettner then asked President Peters to address that issue in further detail.

This is my seventh major budget cut in higher education, Dr. Peters said, and it never gets easier.  There is pain here.  Let me just say a little bit about the midyear rescission.  I am very proud of the way the university handled a $4.9 million dollar rescission with minimal disruption.  With that large a number, there is always disruption.  But, luckily, we had central funds from utility savings and some fund balances that permitted us to take most of that centrally.  Of course, a one‑year rescission is not a permanent base reduction.  Permanent base reductions, as we are facing, the President said, are much more significant.  And yet, as we go into Fiscal Year 2003 to make a budget, the same principles that I enunciated in November will apply.  That is, we want as minimal disruption as possible to student and academic programs.  We do not want layoffs if we can help it.  We do not want to cut existing faculty/staff salaries or benefits.

This morning, President Peters said, I will be posting an e‑mail to every student, faculty and staff member and then putting out a press release that will detail what I am about to tell you.  Basically, we have approximately a $9 or $10 million gap to make up for the FY03 budget, and it is composed of the following elements.  On our General Revenue (GR) side last year for FY02, our GR funded appropriated budget was $118 million.  The GR portion this year will be cut by $4 million, the president said, so we start with $114 million.  In addition to that, the state has asked us to pick up our share of health insurance increase premiums, which for four‑year higher education is $45 million.  So, add a minimum of $3.54 million to the $4+ million in the base cut.  In addition to that, we have unavoidable increases in utility costs and new building maintenance and an increase in liability insurance and other things that will total around a million dollars.  Therefore, we have a $9 million gap to make up.  We have been working on what is the best way to do this.  There is no best way.  So, I will be asking everyone in the university community – administration, staff, faculty, students – to shoulder some of this responsibility so that we can maximize our goals and do as little disruption to the quality of our academic programs as possible.

Obviously, there is no new program money, President Peters continued, and, obviously, there is no new money for an annualized fiscal year salary increase.  However, I am an optimist, and I see the signs of the economy turning around.  I believe this situation is short‑term, meaning, one or two years in duration, and our strategies for meeting this reduction are predicated on the fact that the economy will bounce back.  This state is committed to higher education, and I believe the funds will begin to flow in.  Putting this in perspective, the President said, the states around us are, perhaps, in more trouble than we are.  We hear stories in Ohio and Michigan of tuition increases in the 20 to 30 percent range.  In Ohio, there were midyear tuition increases.  Iowa cut its base budget in the neighborhood of 20 percent last year.  So, if it is any consolation, we are in better shape.  I know that Northern Illinois University will rise to this occasion.  Things could change, but we must plan right now.  We want to maintain our operations.  We want to maintain our progress.  It will be slowed.  There will be some initiatives we cannot pursue.  But Northern Illinois University has been well‑managed over the years, the President said, and that will help us to get through this.  And, we are still affordable.

Agenda Item 7.a.(3)(b) – Fiscal Year 2003 Priority List

Ms. Buettner referred the Committee to pages 16 and 17 of the Committee report, which contained the capital list for higher education.  She pointed out the column containing the Board of Higher Education recommendation and budget as of December 2001.  The final column listed the Governor’s allocation and budget that went to the legislature.  Northern Illinois University’s College of Business building at Barsema Hall was listed as project number 8.  The Governor and the Bureau of the Budget extended a policy decision to decrease by 20 percent any equipment programs in the state.  Consequently, whether it was a corrections facility or whether it was a higher education facility did not matter.  Anything that was equipment related was cut by 20 percent in an effort to continue the progress of the state on construction while trying to deal with the budget problems we are facing.  So, will receive $4 million instead of $5 million to equip Barsema Hall.  Project #21, NIU’s Stevens Building renovation and addition project has not been funded at this point by the Governor’s Office.  Project #32 on the list is the construction money for Stevens.  The IBHE separated the construction and the planning money.

Agenda Item 7.a.(4) – SURS and Pension‑Related Issues

Ms. Buettner asked Steve Cunningham to address the Committee on the status of the SURS and pension‑related issues.  Along with the state budget, Ms. Cunningham reported, the retirement system has also suffered some significant ill effects from the economic climate.  Over the last 18 months, the funding ratio of assets to liabilities has gone from almost 80 percent, which is the statutory target, to the current 67.5 percent as of December.  That is over a billion dollars in valuation from the retirement system, and that slowly will be made up.  That is on about a $7 or $8 billion base.  But it is substantial.  Because that is spread over a long actuarial curve, there are no immediate affects for benefits to employees; but it will marginally increase the state contributions to the SURS as required by law to reach the target of 80 percent funding over a 20‑year actuarial period.  Given that environment, it has been very difficult to have any substantial legislation with respect to SURS benefits.  We have talked about he expiration of the ERO (Early Retirement Option) and the 30‑and‑out provision.  Both of these relate to penalties that employees must pay if they retire prior to age 60 and if they retire under the General Formula.  SURS has two primary formulas, a Money Purchase Formula and a General Formula, and both calculations are done.  The Money Purchase is based on the value of the retirement account.  The General Formula is 2.2 percent per year of service.  For employees who retire under the General Formula, about half of them now, there is a penalty of one‑half percent per month that they are less than age 60, and that is substantial.  The Early Retirement Option allowed employer and employee contributions to basically buy away that penalty, and those were seven percent per year that they were less than age 60 for the employee and 20 percent per year for the employer.  We have talked about the Mattis case, which contested the way Money Purchase calculations were made after these contributions had gone to the system.  Basically, the case says that the value of those contributions should go into the Money Purchase calculation, and if that is higher, allow the employee to participate under Money Purchase instead of General Formula, which substantially changed retirement benefits for employees who retired under the Early Retirement Option.  Last year, the legislature passed an amendment to the Pension Code that clarified legislative intent with respect to the ERO, but that was recently declared unconstitutional by a circuit court in Champaign County.  So, given the uncertainty about this case, there is very little likelihood that the legislature will reauthorize the Early Retirement Option that expires as of September 1, 2002.  So, our employees who are less than age 60 and interested in retiring have great concern about that.  We are communicating with them and providing retirement counseling.

The other provision that also eliminates the penalty is 30‑and‑out, Mr. Cunningham said.  Basically, if an employee has 30 or more years of service, they can retire at any age without penalty.  For example, a 48 year old who took a job with the university at age 18 – and we do have people like this, and many of them are maxed out at 80 percent in the retirement formula – could retire without the age penalty under 30‑and‑out.  This provision sunsets as of January 1, 2003.  We are actively involved in attempting to have that renewed for at least a five‑year period, if not permanently, especially since the ERO was not reauthorized.

There were two bills last session in both the House and the Senate that failed to be concurred in the other chamber, Mr. Cunningham reported.  There is another bill, Senate Bill 1842, that recently was passed out of the Senate Insurance and Benefits Committee that is a stand‑alone 30‑and‑out bill.  So, there are three bills that have this provision contained in them.  We are going to continue working on that, but, given the budgetary crisis, this session may not be the session.

Federal Report

Agenda Item 7.b.(1) – Taxpayer Relief Act of 1997 – Final Status Report

I am going to ask Ms. Kathe Shinham to give a final report, Ms. Buettner said, and after almost four years of work I am very glad to say “final” report, on the HERRA legislation, the Higher Education Reporting Relief Act and efforts to deal with this mandate that was presented as part of the Taxpayer Relief Act of 1997.

When we last met, Ms. Shinham said, this legislation had passed the House.  Since that time and prior to the holiday break, it also passed the Senate by unanimous consent.  It was presented to President Bush as he returned from Texas after the holidays and was signed into law on January 16.  NIU has received some very good press in national tax publications that are not limited to higher education, as well as in higher education business publications.  President Peters and I also received copies of the Congressional Record with very nice notes from Congressman Manzullo thanking us for our efforts.  You will notice that Northern Illinois University, former President John La Tourette, current President John Peters and I are cited for our contributions to this effort, Ms. Shinham said.  It is very nice to be able to say that we were successful.  Now we are waiting for Treasury to issue some proposed regulations.  Those regulations are expected to be issued anytime now, certainly by the end of this month.  We will see then if there is a need to have any discussion at all with IRS and Treasury.  She thanked President Peters for his efforts.  It was a year ago you testified in front of the Treasury and IRS staff, she said, and it was very unusual to have a university president do that.  It is also one of the reasons we were successful.  Thank you.

Congressman Manzullo has informed me that on May 30, IRS Commissioner Rossotti will be in Rockford to commemorate this agreement, President Peters said, and NIU will share the stage.  Congressman Manzullo did a good job for all of higher education.

Agenda Item 7.b.(2) – Fiscal Year 2003 Administration Budget Overview

I would like to give a brief synopsis of the federal budget situation, Ms. Buettner said.  The President and I were in Washington last week, beginning our annual visits to the congressional delegation offices, talking with them about different research issues facing the university, different substantive issues that are pending in Washington and how they would affect the university, and it was a very good visit.  The federal budget year is October 1 to September 30.  And, as you know, most of the time we go into continuing resolutions.  We will keep you apprised on the discussions with the congressional delegation.

Ms. Buettner gave the Committee a synopsis on where the university is with the federal budget.  President Bush unveiled a $2.13 trillion budget proposal for FY03 that provides significant increases for defense and homeland security, she said, which is no surprise after September 11.  Federal student aid programs received no increases while priority areas, including the National Institutes of Health, received a significant increase.  There was a goal set five years ago under the Clinton administration to double the NIH budget, and the Bush administration has continued that goal.  At the end of 2003, if Congress maintains the President’s budget request for NIH, the budget for research will have been doubled over the last five years, something that universities, collectively, across the country are very pleased with.  According to President Bush, total federal spending in education is going to rise by 2.8 percent, which is about $1.84 billion under the White House proposal.  However, most of the new funds for that effort are targeted toward elementary and secondary education.  Federal funds for basic research are going up about 9 percent, which is a total of about $25 billion.  Just to put this in context, she said, about 60 percent of all federal dollars for basic research are awarded to colleges and universities.

The news on student aid is not quite as good, Ms. Buettner said.  If President Bush’s plans are approved in Congress, the maximum Pell Grant will remain at $4,000, and there will be no spending increases for College Work Study, the Supplemental Educational Opportunity Grants, Perkins Loans, TRIO or Gear Up.  One of the issues that will affect Illinois most directly is the Leveraging Educational Assistance Partnerships (LEAP) program, which matches each state dollar that is committed to need‑based aid.  This program is scheduled to be eliminated under the President’s budget.  There are two policy changes in the President’s budget proposal that will affect higher education and require congressional approval, she said.  The first will seek the authority to shift the responsibility away from Congress to the Secretary of Education in setting the maximum Pell Grant each year.  The second attempts to require an annual appropriation for student loan administration.  Currently these funds are an entitlement.  Both are measures that higher education institutions have concerns about. 

The SEVIS system, which is the INS system for tracking foreign students who come into this country to study, has been discussed briefly in past meetings.  The biggest news that has occurred since last December, Ms. Buettner said, is that the federal government is now interpreting the law that passed in October a little differently.  It says, basically, that while the INS has a compliance deadline of January 1, 2003, the universities and colleges across the country will have a later compliance deadline.  That was a big issue because the universities and colleges across the country did not think they could have the required computer systems and staff in time to meet a January 1, 2003 deadline to comply with all the legislation and the USA Patriot Act.  There is still a lot of discussion about what the visa fee will be.  The visa fee proposed is $95 for a foreign student coming to study in the U.S.  Right now, the administration would like to see the institutions collect the fee and then return it.  That, of course, is problematic.  Higher education would like the consulate offices in the different areas to collect and keep the fee.  So, we are still discussing that issue with them in detail, and it will take several months to work out.

OTHER MATTERS

I do not have a question so much as a request, Trustee Adduci said.  As we look at the budget shortfalls and, unfortunately, the cuts in the General Fund as well as the increase in the health insurance premium, it is even more unfortunate with the capital fund decrease as well.  What I would like to request, if it is possible and if it is not too much work, she said, is an historical look at what Northern Illinois University has requested on the capital list and what we have received over a seven‑year period.

We should be able to have that in time for the next Committee meeting, President Peters said.

NEXT MEETING DATE

Chair Siegel announced that the Committee would be notified of the committee’s next meeting date.

ADJOURNMENT

Chair Siegel asked for a motion to adjourn the meeting.  Trustee Moser so moved, seconded by Trustee Skoien.  The meeting was adjourned at 9:42 a.m.

Respectfully submitted,

Sharon M. Mimms