Chancellor's Report

to the Board of Trustees

July 16, 2003

Chair Farar, I, too, want to join you in welcoming Trustee Alice Huffman and Alex to the voting status as a student. I look forward to working with you this year.

We have several new presidents, and you have introduced them, and I look forward to working with them. I am going to miss the folks that are stepping down or retiring. But I will continue to count on their counsel and advice. This will be an interesting year. We will conduct four presidential searches. Nothing that this board does is any more important than that. We will really step up the work in presidential searches this fall.

As Chair Farar mentioned, this has been an extraordinarily difficult year because of the budget. Richard, the presidents and I have been many, many times to Sacramento. Almost every time we went, the news got worse rather than better. In fact, there was a proposal to cut the CSU an additional $200 million but it failed yesterday.

However, what is concerning is that the CSU is in the discretionary area of the budget. The first week after this board offered me a job, Bill Hauck and his colleagues brought me to Sacramento and really taught me a lesson. I learned that only 14% of California's budget is discretionary and the remaining 86% of that budget is earmarked. We live along with several other important functions within that 14%. I think that the CSU and the University of California are about 2nd or 3rd in priority, so therefore we will just continue to be at risk until we get a budget. The longer the Legislature goes without a budget, the more at risk we become. So that that's kind of where we are.

Just to put this in perspective — When we talk about a $330 million or greater reduction, that's an amount equal to the General Fund budgets at San Diego State and Cal Poly Pomona combined. When you think about the total number of students that they have, the number of faculty, staff, their equipment--that's equivalent to the dollar amount that we're taking out of the system this year. So that's not going to be easy.

I regret some information that was presented here this morning about how we have not consulted with labor. Richard and I and others had a meeting set up for the afternoon after this board adjourned at Fullerton. The Labor Council cancelled the meeting at the last minute. And we were prepared to be there the rest of that afternoon. I didn't understand that, but that was their decision. Every month the Budget Advisory Committee has met, and the Labor Council has two members on that committee. So we have continued to do that regardless of what someone said here today.

Now I need to say this: Our presidents and the senior staff in the Chancellor's Office have been working on this budget and the downturn for the past eighteen months. Generally the presidents come to this office every other month, but that has not been the practice this year. We have brought the presidents to this office four more times this year. And the other two times we have done it by conference call. So about every three or four weeks for the past 18 months we have been planning for this reduction. And in planning for this reduction maybe we have done too good a job. We had a plan last year in September after the legislature adjourned with a budget, knowing that there would be further reductions. Then in December we anticipated what the governor was going to reduce. These presidents and their senior staff have done an outstanding job on their campuses in serving every student. This year we served about 8, 000 more students than we were funded for. And as far as I know, we provided almost all of the classes and sections to serve those students. The presidents and their staffs have done this without affecting instruction that much and without laying off faculty or staff. Now we have laid off a few people, but we have stuck with our primary goal: To serve as many students as we could with quality, and not to lay off CSU faculty. And we have held to that for the last 18 months. We will continue next month to meet with the presidents, to look at how we're going to put enrollment targets in place as of January 1st, and to anticipate what we're going to do this next year.

You heard Patrick say this morning that we have reduced the Chancellor's Office budget by 15.1%. By comparison, the reductions at the campuses will probably end up at 11.4% or 11.5%. In addition, we tried to protect Channel Islands and the Maritime Academy because of their size.

Some of the changes at the Chancellor's Office have to do with eliminating positions. You know that Louis Caldera has become the president of the University of New Mexico. We will not fill his position and other positions because we have reorganized the Advancement function. I've assigned half of the Advancement function to Richard and the other half to myself. And we will pick that load up for the rest of this year and until such time that we can see some turnaround with the budget.

Also, we have shifted two of our auditors and the audit functions and we are going to spread that cost out to all of the auxiliaries. That's going to save us another $188,000. I called Trustees Mehta and Pierce and told them that in these hard times, we need to maintain the current staffing for the audit function. This way we were able to do that. We had made cuts in every department in the Chancellor's Office, but we will shift that cost for the Audit function. In good times, we'll come back and talk about shifting it back the other way, but we needed to do that and I needed to report that to the Board.

Also, we've also kept our salary commitments for this year. As of July 1 we're going to spend $45.5 million on annualized costs for faculty salary increases and faculty health benefits increases for 2003/04. At the same time, we are not going to provide any compensation raises to any management, to any president, to any vice chancellor or chancellor this year. So that's what we're doing on the budget.

Let me shift gears to some really good news. After about nine years I want to be the first to congratulate Peter Smith on CSU Monterey Bay recently receiving their full accreditation from WASC. The CSU has invested millions of dollars into a new institution with a new outcomes-based academic model. The WASC team wrote in their summary and I quote, "As an institution attempting to build the bicycle while riding it, the university now stands on the verge of being a national model." Ralph Wolfe called me and said he would like for the president and faculty at Monterey Bay to conduct some workshops for people around the country that want to come there to see what they have done. So, Peter, congratulations to you, your faculty and staff.

Next: In 1998, this board provided and delegated the authority to the chancellor, the vice chancellor and the president of CSU Northridge to negotiate an agreement with MedTronic/Mini-Med, which is a bio-tech company that manufactures on some property at Northridge that we have leased to them. President Koester has re-negotiated that lease agreement and the opportunity to do that the lease agreement indicated that they could request additional parking space, and in requesting the additional parking space that gave us the opportunity to open up everything. So we will charge them $112,000 per year so that they can continue to have that parking that is contiguous to their building. In addition, during the next five years they will provide $200,000 a year for faculty-student research projects and they will complete an endowment of $250,000 for scholarships. I think CSU Northridge did as well as you could do in re-negotiating a very difficult contract. President Koester, I invite you to add anything to that.

KOESTER: Just two points of additional clarification. The original lease agreement had an option provision and when we were in discussion on the option provision we took that opportunity to try to give greater definition and specificity to the educational partnership provisions of the original lease. Those educational partnership provisions were somewhat unspecific, they were the rationale for the university entering into such an agreement, so the additional negotiations that were just about ready to sign off on with this company include specific dollars coming to the university for the full term of the lease. And the dollar amounts that the chancellor referenced will also be increased as the CPI increases. We're very pleased that we have some very concrete measurable and in this case, dollars that will come to the university to support the educational partnership with this bio-medical company.

REED: Next, President Lyons has asked me share this with you. He has confirmed that the Home Depot Center, which is now pretty close to a $150 million investment on the Dominguez Hills campus, will host the championship game of the Women's World Cup this October. This event will provide unprecedented worldwide exposure for CSUDH. The only thing that President Lyons indicated to me is that if you wanted to get in his box, give him notice early.

Lastly, I want to recognize a recent award given to San Diego State University for its Fraternity Row complex. The facility that this board approved received the Gold Nugget Award of Merit from the Pacific Coast Builder's Conference for the best public/private special use facility in the West. I want to congratulate the Foundation, Trustee Pierce and others for bringing on that development as a model.