President's Budget Advisory Committee

Minutes February 25, 1997

Approved by PBAC March 6, 1997

Members Present:

Staff Present:

Members Absent:

Guests Present:

Meeting Agenda

Materials Distributed with Agenda Packet

Approval of the Agenda

Don Farish convened the meeting at 8:09 AM by asking for a motion to approve the Agenda. A motion was made by Dennis Harris. A second was obtained from Bill Barnier. The minutes were then approved unanimously.

Distribution of the Minutes of February 20, 1997

Farish then asked for a motion to approve the Minutes of February 20, 1997. A motion was made by Harris. A second was obtained from Jose Andrade. Larry Furuakwa-Schlereth informed Members that he had incorporated recommended changes transmitted to him. The Minutes were then approved unanimously.

Legislative Analyst's Report

Farish then asked Schlereth to provide a report on Agenda Item III, an Update on the Legislative Analyst's Office (LAO) Report. Schlereth referred to the materials supplied with the Agenda Packet (Packet) and commented that 4 specific items were raised by LAO that had potential significance for SSU. These included:

  1. Concern by the LAO over a lack of enrollment data submitted in the Trustees' budget;
  2. The LAO's recommendation that $13,500,000 for technology support be removed from the CSU request;
  3. The LAO's recommendation that funds be removed from the CSU request in an amount equal to productivity improvements previously made the CSU as part of the Governor's compact with the CSU;
  4. The LAO's recommendation that the CSU request be lowered by an amount equal to funds moved from the general fund as a result of student fee dollars generated in the CSU Student Health Centers.

Schlereth noted that the LAO report was silent on the SSU Information Center which, he noted, was a positive sign.

Update on the 1996-1997 Structural Deficit

Schlereth then proceeded to Agenda Item IV, an Update of the 1996-1997 Structural Deficit. He noted that the campus had received word from the CSU indicating it would receive $240,000 of new money in 1996-1997 as a result of savings generated by the Public Employees Retirement System (PERS) related to retirement costs for the various state agencies served by PERS. Schlereth indicated that this allocation would reduce the 96-97 structural deficit from $422,000 to $182,000. He went on to explain that it was unclear what this impact this would have for the 97-98 budget but that he was confident that the $240,000 would be added to the campus base budget for benefits. Clarity, however, needed to be obtained regarding actual benefit costs for 97-98.

Kathryn Crabbe asked for clarification on when the structural deficit was discovered for 1996-1997. Schlereth responded that the deficit was discovered in late August, 1996. He noted that during a Cabinet Retreat held in August, 1996, Cabinet Officers were made aware of the problem.

CSU EXECUTIVE ORDER -- CAMPUS AUXILIARY ORGANIZATIONS

Schlereth then proceeded to Agenda Item V and informed Members that included with their Packet was the Table of Contents of the CSU Manual regarding the operation of campus-based auxiliaries. He noted that the Manual was available in his office for review and encouraged Members to meet with either himself or Steve Wilson if they had questions regarding CSU directives related to auxiliaries - particularly in the area of budget development, fiscal affairs, and/or human resource management.

FINANCIAL STATUS: SONOMA STATE ENTERPRISES INCORPORATED

Letitia Coate then moved to Agenda Item VI, a continuation of the financial status of the Sonoma State Enterprises (SSE). A variety of questions were raised. Victor Garlin asked Coate to comment on the make-up of SSE's accounts receivables. Coate noted that she did not bring the detail on this account with her and promised to supply the information to Garlin. Farish questioned why, if a portion of SSE's receivables were from the SSU Housing Program, were they not paid as of 12/31/96. Schlereth responded by offering two possible explanations, including (1) competing priorities in the Financial Services cluster and (2) the possibility that Housing's cash balance may not have permitted payment of the receivable at the date in question. Rand Link asked for information regarding the impact of tripling on SSE. Alan Murray and Schlereth noted that this was most obvious in the Dining Services component of SSE. Schlereth specifically noted that approximately $100,000 of additional profit was generated by SSE due to the tripling decision but noted that this profit was somewhat offset by increased staffing created by the Midnight Grill, the Grab and Go program and modest renovations in the campus Pub. Garlin and Harris raised issues related to strategies SSE would follow if unforeseen items developed. Harris was particularly interested in the SSE Board of Director's Policy with respect to Reserves.

Schlereth indicated that SSE was established as a self-sustaining entity on campus. Unforeseen items would have to be handled from SSE's internal resources. He noted that a prudent reserve would approximate 33% of an annual operating budget or about $2,600,000. He pointed out that the cash and liquid investments in the Enterprises at 12/31/96 totaled approximately $600,000.

Murray then outlined challenges facing SSE in 1997-1998 and beyond including:

  1. On-going salary increases related to the CSU Bargaining Agreement;
  2. The need for new cash registers and a related point of sale system;
  3. Fire safety violations in SSE vending areas;
  4. Annual equipment replacement needs;
  5. $800,000 of new annual debt service for a new bookstore or $1,500,000 of new annual debt service for a University Center.

Murray also informed the PBAC of pending litigation against the CSU systemwide regarding a claim by the California Department of Rehabilitative Services (Department) regarding profits from vending machines on state property being legally owned by the Department. Murray noted that the resolution of the case could have implications for SSE's financial condition and future plans.

Schlereth reflected on the relationship between the proposed University Center and SSU's desire to expand its Residential Community to accommodate more freshmen students. He suggested that adding 550 new on-campus residents would require a facility to accommodate the recreational, social, retail, and dining needs of these new students. Farish concluded the discussion on SSE by noting that while SSE was an $8,000,000 gross revenue operation, it did not appear that SSE was in a position to be of material assistance to the University in 1997-1998. Schlereth concurred and added that a stable volume of sales coupled with the mandates of the SSU bargaining agreement made it difficult for SSE to materially enhanced its profitability such that support for the campus could be enhanced.

FINANCIAL STATUS: ASSOCIATED STUDENTS INCORPORATED

Farish then turned to Agenda Item VII, the Financial Status of the Associated Students (AS). He asked Coate to brief the PBAC on this item. Coate introduced Larisa Mara, the Executive Director of the Associated Students. Coate then highlighted the financial statements for the AS which were included with the Packet. Mar then outlined challenges facing the AS in 1997-1998 and beyond including:

  1. A flat revenue base
  2. Salary Increases related to the CSU Collective Bargaining Agreement
  3. A need to technology improvements within the AS.

She noted that the AS Board would need to struggle with these issues as it developed a balanced budget recommendation for the President for 1997-1998. Wilson asked if this process could result in an impact to the SSU General Fund. Mar and Tracy Terrill noted that this was possible since one method the AS could utilize to balance its budget for 97-98 would be via the reduction of funding to Programs financed by the AS, including a some Programs also supported by the SSU General Fund or Programs which had, at one historical point, been completely funded by the General Fund. Garland asked why the AS was only projecting a 3.4% salary increase for 97-98 when 4.0% was more likely. Schlereth noted that this was his fault since he had asked the AS to prepare a budget projection based on the Trustees Budget which reflected the 3.4% figure. Wilson commented that he was particularly concerned about the operations of the Children's School and that program's financial needs. Mar concurred that this was indeed a problem both for the AS and the Student Union citing concerns related to needed repairs in the Children's School facility and on a salary schedule for Children's School employees that was incompatible with the SSU bargaining agreement. Schlereth concurred with Mar's observations. Farish concluded the discussion on the AS by noting that the financial condition of the AS could result in obligations for the SSU general fund.

FINANCIAL STATUS:STUDENT UNION CORPORATION

Farish then turned to Agenda Item VIII, the Financial Status of the Student Union Corporation and asked Coate to provide highlights on financial materials provided with the Packet. Coate introduced John Wright, Executive Director of the Student Union Corporation and then took the PBAC through the financial data. At the conclusion of Coate's presentation, discussion ensued with clarification being provided on the accounting concept of depreciation, the details of a loan provided by the Foundation to the Union for the Student Recreation Center and the break-even financial aspects of the Recreation Center in the Union budget.

Garlin then noted that while he found the financial data related to the four auxiliary corporations to be very informative, he had difficulty in understanding how it was relevant to the President's charge to the PBAC related to ascertaining potential methods to finance unfunded items in the SSU General Fund. Terrill responded by indicating that he saw the processes an important educational effort for the PBAC reminding Members of suspicions raised during the Partners for Excellence campaign regarding how the campus and its auxiliaries utilized their budgets. Wilson concurred with Garlin's sentiments but noted that he hoped the PBAC would recognize the auxiliary corporations at SSU were not a realistic method to solve SSU's general fund financial problems. Farish noted that he felt that process provided useful information regarding the auxiliaries. He indicated that he did not see the auxiliaries, with the exception of the Sonoma State Enterprises who could, perhaps, engage in further entrepreneurial activities, as being viable vehicles to create more money for the campus. Terrill added that he felt it was important for the PBAC to understand the challenges faced by each auxiliary and their potential impact on the SSU general fund.

John Wright then outlined the challenges faced by the Student Union in 1997-1998 and beyond including:

  1. On-going salary increases mandated by the CSU Bargaining Agreement;
  2. Needed repairs in the Children's School;
  3. Debt Service Increases from the CSU;
  4. Impact of the Student Union Bond Pay-off on the Student Fee level.

Harris asked Wright about expenses paid by the Union which were previously financed by the SSU general fund. Wright responded that two such expenses existed, including 50% of the Student Program Advisor (about $25,000) and 100% of the Inter-Cultural Center Coordinator (about $50,000). Clark asked Wright if the proposed University Center would have an impact on the Student Union. Wright answered affirmatively.

Garlin then asked Farish to comment on enrollment projections for the campus over the next five years. Farish responded indicating SSU was slated to increase its target from 5550 FTES to 5600 FTES in 1997-1998. He also explained that because SSU was already teaching about 5800 FTES revenues calculated in the auxiliary corporations for 97-98 would likely actually be less than in 96-97 since the campus planned to reduce its enrollment from 5800 FTES actually achieved in the current year to 5600 FTES in 1997-1998.

ADJOURNMENT

Farish reminded the PBAC that the time for adjournment was approaching. Barnier suggested that for future meetings, detailed presentations to the PBAC on the financial data not be made. Instead, he urged Members to read the provided materials ahead of the meeting time and come prepared to ask questions. He did indicate that where the Co-Chairs felt it was important to highlight certain key points, that this should be done. The PBAC, by consensus, agreed with Barnier's suggestion.

Clark asked if the revised list of unfunded items would be prepared by March 6, 1997. Farish indicated that this was the target date.

Farish then adjourned the meeting at 9:46 AM.

Minutes prepared by Larry Furukawa-Schlereth


PBAC minutes 1996-1997
Updated 2007-12-14
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