Minutes of the

NIU Board of Trustees

LEGISLATION, AUDIT AND

EXTERNAL AFFAIRS COMMITTEE

May 28, 2002

The meeting was called to order by Chair Myron Siegel at 9:05 a.m. in the Clara Sperling Sky Room of Holmes Student Center.  Recording Secretary Sharon Mimms conducted a roll call of Trustees.  Members present were Trustee Gary Skoien and Chair Siegel.  Not present were Trustees Catherine Adduci and George Moser.  Also present were Committee Liaison Kathryn Buettner, Board Parliamentarian Kenneth Davidson and President John Peters.

Confirmation of Open Meetings Act public notice compliance was given by Board Parliamentarian Ken Davidson.  Due to the lack of a quorum, Mr. Davidson said, the Board is authorized to consider information that the administration may wish to present as it would in a regular meeting.  He recommended that no action be taken on any of the items, and that they be presented for consideration and action at the next meeting of the full Board of Trustees.

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.

Approval of the meeting agenda was forwarded to the full Board for resolution at its June 20 meeting.

Review and approval of the March 5, 2002 Meeting Minutes will be considered at the next meeting of the Legislation, Audit and Externals Affairs Committee.

Chair Siegel welcomed everyone to the Legislation, Audit and External Affairs Committee Meeting of the Board of Trustees of Northern Illinois University.  We thank all of you who are here for your interest in the matters that will be dealt with today.  He then recognized UAC representative Judy Burgess.  This will be my last meeting, Ms. Burgess said, and I want to thank you for having me at these meetings for the past three years.  I have certainly learned a lot.  We will miss you, Chair Siegel said, but we thank you for being here today and for all the support you give to NIU and our Board of Trustees.

Since we last met as a committee in March, Chair Siegel said, much has happened in Springfield and at the federal level.  Kathy Buettner will give us an overview of NIU’s FY03 operating and capital budgets as they currently stand in Springfield.  The state fiscal crisis has provided us with many issues and opportunities.  All of our Trustees were actively involved in representing NIU’s interests the past few weeks.  I personally contacted and visited several senators and representatives.  President Peters, Kathy Buettner and Ken Zehnder were actively involved in our legislative matters as well.  It has been an exceedingly difficult year budgetwise for the state as a whole, and higher education has been forced to sustain heavy reductions to its operating budgets.  Revenues are falling far short of what is required to meet the current budget.  Higher education in general, and NIU specifically, have taken enough cuts and cannot take any more.  We supported the proposed NIU budget at the Governor’s current level of funding.  Following the budget report, Steve Cunningham will address the Committee on pension and SURS legislation.

You will note that we have two resolutions requiring Committee approval this morning, both of them awarding the Distinguished Service to Higher Education Award to Congressman Donald A. Manzullo and IRS Commissioner Charles O. Rossotti.  Both of these federal leaders were active and responsive to NIU’s concerns over the unfunded mandate portion of the 1997 Taxpayer Relief Act.  Over the last four years they worked with Kathy Buettner, Kathe Shinham and others from NACUBO and the University of California, to negotiate relief from the more onerous portions of the federal mandates in TRA97.  These resolutions and awards will be presented to Commissioner Rossotti and Congressman Manzullo at a reception at NIU‑Rockford on Thursday, May 30, at 3:45 p.m.  We have another action item, amending Board Regulations to comply with the federal Health Insurance Portability and Accountability Act (HIPAA) of 1996, another unfunded federal mandate.  Ken Davidson will provide a brief report on this issue to the Committee.  Finally, the FY01 Financial and Compliance Audit has been released by the Auditor General’s Office since we last met.  While I note that four findings were reported, I am pleased to see that there were no repeat findings.  Kathe Shinham will provide a report on the FY01 Financial and Compliance Audit.  And, if we have a quorum, we will go into executive session to discuss a few matters.

92^nd General Assembly Report

Agenda Item 9.a.(1) – Substantive Legislation

Ms. Buettner gave a brief overview of the substantive legislation pending or dealt with this session in Springfield.  House Bill 3098, the Open Meetings Act bill that we have been following, was amendatorily vetoed by the Governor on March 6 and appears to be dead at this point.  The Governor changed some of the language in the bill involving the role of the presiding officer to make it a little less onerous on the presiding officer of each board across the state.  Many of these people are volunteers and may not be trained as lawyers, so the Governor wanted to be sure that there was sufficient protection in that legislation.  It does not appear to have been picked up yet by the General Assembly.  It has been a very quiet session on the substantive side; however, we have been tracking a few issues.  One of them was House Bill 4122, which involved the addition of carbon monoxide detectors in facilities across the state.  That bill has been referred to the House Rules Committee.  While it is a very good idea, Ms. Buettner said, obviously it would be extremely expensive, as there are thousands of buildings in the state that would need to be monitored.

I have been keeping this committee, as well as the President, faculty, staff and student leadership, informed about what is going on in Springfield, Ms. Buettner said, in order to keep them up to date.  We also have a web site where we try to provide an up‑to‑date analysis of what is happening in Springfield.  So any employee, student or staff member can check, on or off campus, and find readily available information about what has transpired or is transpiring in Springfield.

Most of the attention in the General Assembly has been focused on the budget, Ms. Buettner said.  The legislature has not yet resolved the FY03 budget, which is constantly changing.  We have been faced with all kinds of plans.  When I left Springfield last Thursday night, the House Republicans had just announced a plan late that afternoon that would have cut $118 million out of the higher education operating budgets across the state.  It is a very fluid situation.  The Governor addressed the General Assembly last night and laid out a new version of his FY03 budget, which updated his February version.  I am pleased to say that at this point the new version of the budget does not seem to cut any higher education operational lines thus far.  They would be left at the level he proposed in his FY03 budget in February.  That is very encouraging for us.  It does, however, cut about $62 million additionally in higher education – $50 million in the MAP program; $2.5 million eliminating the Art Quern Scholarship program; $3.7 million out of adult education which, basically, goes back to its FY02 level – that primarily affects the community colleges which took over the adult ed programming at the state level last year; cuts outreach and professional development entirely by $2.5 million; and it reduces 28 percent of the HECA Grant program for the state, which will go from $13.4 million to $10 million.  We cannot tell exactly how deeply the MAP cuts extend in the program; we do know that this budget calls for eliminating the fifth year of MAP funding.

As far as the other miscellaneous, related‑type cuts in the budget, Ms. Buettner said, CMS has been instructed to cut another $40 million in group health insurance.  That includes the substantive legislation which would allow employees to opt out of the CMS plan.  Right now there is no choice.  When that legislation passes, it should save about $15 million for the state through employees opting out because their spouse or someone else has insurance that they can access.  There are 6,500 cuts to the state employee lines via layoffs, attrition and early retirements.  DCCA is cut by $25 million, $7 million of that comes from the ITP program, industrial training, which will affect the NIU BIS program.  Agriculture was cut $9 million, a very significant cut to the agricultural budget.  The health care cost containment council is completely eliminated at the state level, which results in about $1.5 million in savings.

This is just a sample of what the Governor has proposed, Ms. Buettner said.  This budget has four days of deliberation left in the regular General Assembly.  At this point it is not clear what is going to happen.  I am very encouraged by it, judging by what has come out the last few months.  But we do not know how the General Assembly will react.  Obviously, there will be changes.  The Governor has said that if there are any changes in terms of new spending, they have to be met dollar for dollar with either a new revenue source or a cut, or he will use his veto power to amendatorily veto or item veto that portion of the budget.

Taking a bottom line view of where we are in our FY03 budget, President Peters said, the FY02 rescission is accommodated, even though the state still has some issues to close its books.  I do not believe we will be asked to participate in any further rescission for FY02.  Based upon the Governor’s initial recommendation and other obligations that we had, we have a budget based on a $9 to $10 million shortfall.  As you remember, that included the Board of Trustees approval of an 8.75 percent tuition increase.  We are waiting for final action by the legislature, hopefully by this Friday, and then action by the Governor to determine the rest of the story.  Based on the Governor’s recently revised budget, those initial preparations stay in place.  So, we still have to find $9 to $10 million of shortfall.  That is in place.  The question has been, will there be additional cuts to our operating budget.  It looks as if, based upon what the Governor proposed last night, that there are no additional reductions or cuts in our FY03 base.  At this point, there is $62.1 million in cuts proposed to higher education in the student grant award program and some other areas, but not in operating.  The Senate was to meet in Committee of the Whole last night and today.  They will act and pass their budget on to the House, which will also act in Committee of the Whole.  Then there will be votes by the end of the week if they can resolve some of the larger issues of revenue and cuts.  So, anything can happen.

The Governor’s revised budget provides for $165 million in capital for higher education, Ms. Buettner said, and we have it on good authority that our Barsema furniture, fixtures and equipment is accommodated in those budgets.  So, we will be vigilant.  If the legislature does not reach agreement by Friday, then a supermajority is required to pass the budget after June 1.

As Chair Siegel said, the NIU community has been very responsive, especially the Trustees, students and staff, in making the case as best one can in these tough times.  We really need to maintain where we were so we do not lose any ground and have to wait for the economy to come back.  It is apparent to me that that message got through at least to the level of the Governor, and we are much appreciative of that.  We will be going to Springfield to monitor the situation because there are a lot of details left in this budget.  But our plans are solid, and our priorities are straight.

Since we do not have a quorum, Chair Siegel said, we can deal with some of these items in a slightly different way.  The Chair asked if there was any objection from the Committee to forward Agenda Items 6.a., 6.b. and 9.b.(1) with the Committee’s endorsement.

     6.a.        Resolution and Award for Congressman Donald Manzullo

     6.b.        Resolution and Award for Commissioner Charles O. Rossotti

     9.b.(1)    Policy Statement Concerning Privacy of Protected Health Information

There was no objection.  These items will be forwarded to the Board with the endorsement of the Legislation, Audit and External Affairs Committee without objection.

Agenda Item 9.a.(3) – SURS Legislative Update

The status of SURS legislation, like the budget, is somewhat in disarray and has been all year, Steve Cunningham, Associate Vice President, Administration and Human Resources reported.  There is a great conservatism with respect to legislation on one hand because of the budget and the long‑term liabilities on the other hand, there is, as the Governor spoke last night, an interest in having early retirement initiatives to help prompt turnover to save short‑term dollars in the code agency budgets.  The report in your Board report describes the status of events at the time this report was made.  I also have a supplemental update with respect to the code agency legislation that Kathy Buettner mentioned in her report.  The one piece of legislation that did pass the General Assembly during the session was a SURS bill, and the SURS bill contains the long‑sought‑after 30‑and‑out provision for higher education employees.  In summary, this provision allows an employee to retire at any age without the penalty in the general formula for retirement prior to age 60.  That is a stiff penalty.  It is one‑half percent per month that the employee is less than age 60.  A phased 30‑and‑out provision was initiated five years ago leading to the sunset of the current 30‑and‑out as of the end of this calendar year.  So this year, calendar year 2002, we have actually been participating in a 30‑and‑out environment.  However, with the sunsetting of the bill, this would prompt a lot of employees who have not already availed themselves of this bill to go ahead and retire.  In higher education, that is more of an issue than it is in some other agencies because many of these employees are mid‑career and it is likely that it would cost us as much or more to replace these employees who have not left already than would otherwise be the case.  So, to avoid a distortion of retirement decisions simply because of the sunset, this is an action that higher education has supported for many years.

Additionally, the Early Retirement Option will expire as of September 1.  That is another provision that allows employees to opt out of retirement between ages 55 and 60 without being exposed to the penalty under the General Formula.  But it has required both an employee and an employer co‑pay to buy away that penalty and basically put enough money into the retirement system to bring, actuarially, the balance up to cover them retiring at a younger age.  This provision of the Pension Code was the subject of litigation, the SURS v. Mattis case, which really caused a lot of confusion with respect to how the ERO operates.  We have communicated a lot about that to the campus.  But given that level of uncertainty, the legislature has elected to let this bill sunset.  So the 30‑and‑out became even more important with the sunsetting of the ERO.  The 30‑and‑out, to give you a context with respect to cost, adds .48 percent of new liabilities to the system funding ration.  Currently that funding ration is at 66.6 percent.  Two years ago, it was at 89 percent, almost approaching the 90 percent goal of the statute with respect to funding of the retirement systems.  So, while the 30‑and‑out measure adds very little to that, any addition to it has an affect on the higher education budget, because additional payments have to be made out of that budget every year on a formula basis to bring it up toward the 90 percent ratio.  And that is where there are great implications for the so‑called five‑and‑five.  There was a bill, HB2671, that implements a five‑and‑five for the Teacher’s Retirement System and the State Employee’s Retirement System, the code agencies.  For SURS, the cost of the five‑and‑five would be $676 million.  That is about 12 percent of the current valuation of the system.  It has similar affects in the SERS and the Teacher’s Retirement System.  Those systems are still being affected by the previous five‑and‑five legislation that was enacted ten years ago.  It is something to carefully watch for higher education.  Higher education generally has not sought five‑and‑five.  Instead, we work in more customized ways with our retirements.  In the code agencies, there are step plans, seniority.  Employees are often paid and compensated on the basis of their seniority.  The great majority of them are civil service employees.  An early retirement initiative has a different sort of effect in that environment than it would in higher education generally.  So, we are watching that carefully.  That bill does call for a nine‑year payback scenario to those retirement systems for the increase in liabilities.  Given the level of funding that would require, even though it doesn’t start until 2004, that payback would definitely have a big effect on the state budget.  So, from the higher education perspective, we want to watch that very carefully with any retirement legislation that we support.  So, as of today, it may change.  In answer to a question, Mr. Cunningham stated that the 30‑and‑out bill had been referred to the Governor, but has not been signed yet.

Agenda Item 9.b.(3) – Higher Education Reauthorization Act Issues

Every five years, Congress has to pass a reauthorization of certain bills, Ms. Buettner said, whether it is transportation, education, etc.  Congress just finished elementary and secondary reauthorization legislation this past year.  In FY03, which starts October 1 at the federal level, they are going to be working on the redraft of the higher education reauthorization bill, and it is going to involve a lot of time and effort on our part at the administrative level.  The higher education reauthorization legislation has not been filed yet, but the Bush administrative strategic plan is in its draft form, and it calls for many of the same accountability and performance standard measures in higher education that we saw in the elementary and secondary situation.  We are going to have to work with the Bush administration and the leaders in Congress to make sure that the reauthorization program goes according to what is best for students and in the higher education system across the country.  So, that is an issue that will occupy the administration, this Board’s and this Committee’s time over the next 15 months.

Agenda Item 9.c. – Fiscal Year 2001 Financial and Compliance Audit Report

As Chair Siegel said, we are very pleased that there were only four findings, Kathy Shinham reported.  None of them were repeat findings, and we do not expect any to be repeated for 2002.  The first finding related to the processing of Title IV refunds and repayments.  Dr. Wheeler’s staff has assured us that they have instituted procedures to eliminate any redundancies in the system.  The second finding related to the computation of federal work‑study payroll.  As of last July 1, new time sheets were instituted which automatically add up the time on those sheets so there cannot be any human error.  The third finding related to the way we had recorded the revenues resulting from the Pepsi contract.  This was a very involved issue that Dr. Williams spent over a year on working with the auditors.  We will be reporting some of the Pepsi revenues on the university’s books, which will satisfy the auditors, so that should not be a repeat.  The fourth finding related to how we report the personal use of university‑provided automobiles.  Mr. Cunningham’s staff has assured me that procedures are in place so that this will no longer be a problem.  Perhaps most significant is the fact that we provided a response to the executive director of the Legislative Audit Commission last week.  She immediately responded that she believes, based on this, that the 2001 Audit Report will be on the consent calendar for their July meeting. 

I want to first thank all the Trustees, Chair Siegel said, and especially the Trustees that are on this committee, for all their efforts the last few weeks.  I want to thank our staff, faculty and students for their support and understanding of the fiscal issues that are presently pending. 

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

There being no Other Matters, Chair Siegel adjourned the meeting without objection at 9:42 a.m.

Respectfully submitted,

Sharon M. Mimms

Recording Secretary