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USC Board of Trustees
Executive Committee
October 17, 2003

The Executive Committee of the University of South Carolina Board of Trustees met on Friday, October 17, 2003, at 1:30 p.m. in Room 251 of the University Readiness Center at USC Spartanburg.

Members present were: Mr. Herbert C. Adams, Presiding; Mr. James Bradley; Dr. C. Edward Floyd; and Mr. Michael J. Mungo. Mr. Mack I. Whittle, Jr., Chairman, and Mr. William C. Hubbard were absent. Other Trustees present were: Mr. Arthur S. Bahnmuller; Mr. Mark W. Buyck, Jr.; Mrs. Helen C. Harvey; Mr. Toney J. Lister; Mr. Miles Loadholt; Mr. Robert N. McLellan; Mr. James A. Shuford, III; Mr. John C. von Lehe, Jr.; Mr. Eugene P. Warr, Jr.; and Mr. Othniel H. Wienges, Jr.

Others present were: President Andrew A. Sorensen; Secretary Thomas L. Stepp; Executive Vice President for Academic Affairs and Provost Jerome D. Odom; Vice President and Chief Financial Officer Richard W. Kelly; Vice President for Human Resources Jane M. Jameson; Vice President for Student Affairs Dennis A. Pruitt; General Counsel Walter (Terry) H. Parham; Vice Provost and Executive Dean for Regional Campuses and Continuing Education Chris P. Plyler; Chancellor of USC Aiken Thomas L. Hallman; Chancellor of USC Beaufort Jane T. Upshaw; Chancellor of USC Spartanburg John C. Stockwell; Dean of USC Lancaster John Catalano; Dean of USC Sumter C. Leslie Carpenter; Dean of USC Union James W. Edwards; Associate Vice Provost, Regional Campuses and Continuing Education, Carolyn A. West; Vice Chancellor for Business Affairs, USC Spartanburg, Robert Connelly; Vice Chancellor for University Advancement, USC Spartanburg, John Perry; University Architect and Director of Facilities Planning and Construction Charles G. Jeffcoat; Director of Planning Services, Facilities Planning and Construction, Donna Collins; Assistant to the Vice President, Office of Business and Finance, Ken Corbett; Associate Professor in the Department of Pharmacology, Physiology, and Neuroscience, School of Medicine, and Chair of the Faculty Senate, James R. Augustine; Professor of Biology, USC Sumter, and Regional Campuses Representative on the Faculty Liaison Committee, John F. Logue; Financial Advisor with A.G. Edwards & Sons, Inc. Dianne McNabb; Director of the Office of Public Affairs Russell McKinney, Jr.; and a member of the media.

Chairman Adams called the meeting to order and invited Board members to introduce themselves. Mr. McKinney introduced a member of the media who was in attendance. Chairman Adams stated that notice of the meeting had been posted and the press notified as required by the Freedom of Information Act; the agenda and supporting materials had been circulated to members of the Committee; and a quorum was present to conduct business.

Chairman Adams directed the attention of the Committee to the first agenda item and called on Mr. Parham.

  1. Contracts Valued In Excess of $250,000:
    JDA Software Group, Inc.: Mr. Parham presented for Executive Committee approval a proposed gift of educational software from JDA Software, Inc. to the College of Hospitality, Retail, and Sport Management. This company was the largest provider of retail software.

    The gift of specialized educational retail management software was used to train USC undergraduate and graduate students for retail management positions. Major retailers such as Wal-Mart, K-Mart, Proctor & Gamble, and Belk utilized it to plan the display of merchandise in their stores in order to maximize sales, to calculate sales per square foot and to calculate profits per square foot, etc. Mr. Parham noted that no other students in this country had access to the software.

    Under the terms of the gift, the College will receive licenses for 30 copies each of Space Planning Plus and Floor Planning Plus, and 60 copies of Efficient Item Assortment software for a period of 1 year beginning August 23, 2003 through August 22, 2004. The software was valued at $601,500; the College will not incur any additional costs in connection with use of the software. Mr. Parham commented that this gift was the continuation of 2 previous donations from JDA ($312,000 in October 2000 and $464,760 in December 2001) which were approved by the Board.

    Mr. Bradley moved approval of the JDA Software Group, Inc. gift agreement as presented. Dr. Floyd seconded the motion. The vote was taken, and the motion carried.

    Secretary Stepp explained that the agenda had listed another contract with Murton Roofing of SC, Inc. for Executive Committee consideration. It will be reviewed by the full Board as part of the Buildings and Grounds Committee report later today and did not need to be considered at this time.

  2. Capital Financing Plan for Deferred Maintenance: Chairman Adams recognized President Sorensen who remarked that during the June review process of the University's projected budget for FY 2003-2004, the Executive Committee had approved the sequestering of $2.5 million annually for deferred maintenance. At that time, total cost for deferred maintenance had been estimated to be approximately $154,000,000; since then, the number had risen to $200,000,000. It was originally anticipated that this sequestered funding would address the most urgent yearly deferred maintenance concerns. At that rate, it would require 80 years to meet only those needs. During the course of discussing this situation with the Chief Financial Officer, President Sorensen commented that Mr. Kelly had developed a plan to "creatively and ingeniously address these problems with an assumption of debt that is fiscally prudent and manageable." He asked Mr. Kelly to present this proposal to the Executive Committee.

    Mr. Kelly initially remarked that he will present a proposed three-year capital fund plan as well as examples of the manner in which the University will spend this money. The Buildings and Grounds Committee will be asked later today to approve three of the projects.

    Mr. Kelly referred to a chart which had been distributed to Board members outlining a proposed 3 year Capital Financing Plan and stated that the University had identified a total amount of money anticipated to be available during the next 3 years; that figure was estimated to be $126,470,000. As President Sorensen had noted, the Board had approved the yearly sequestering of $2.5 million to begin addressing the University's deferred maintenance. The SDI (Strategic Directions and Initiatives) Committee had recommended an annual recurring fund of $5 million of new money from the General Assembly for this purpose; current budgetary conditions prohibited this possibility.

    The plan entailed leveraging the $2.5 million during the second year to an estimated $31 million. This conservative figure was based on a 20 year bond at a 5 percent interest rate; lower rates would yield a larger return. Within the University's internal budget, $1 million was also available for use (a Renovation Reserve Allocation of $650,000 and a Renovation Reserve Unallocated Fund Balance of $350,000); these amounts had been carried across the three-year time frame.

    Mr. Kelly addressed the Energy Performance Contract as a source of funds:

    Currently the University of South Carolina has an annual utility budget (electric and gas) in excess of $10 million. We have an energy management company on our campus right now (Johnson Controls Inc.) that thinks there are things the University can do to reduce that $10 million budget (i.e., changing the light fixtures, caulking the windows, reglazing the windows, installing different windows, upgrading certain heating and air conditioning retrofittings, etc.) by $2 million a year.

    What we have tried to figure out is how to leverage that $2 million to bring more money to the table. Therefore, we talked to the State Engineer's Office, which is fully supportive of this process; monitored Winthrop University which is also doing a similar, but much smaller, type of contract; and went to the State Treasurer's Office to be sure that they understood what we are doing. They have a master loan program with several financial institutions and they tell us that if we take that $2 million and put it into the marketplace - and we used 15 years (my guess is that we will use a much shorter period of time than that simply because some of the energy projects we do will pay back a lot quicker than that) - the rate right now is slightly over 3.3 percent to borrow money for 10 years. We amortized that amount out and got $24 million.

    The issue with this type of decision is that in order to save $2 million per year, the University has to do some work. What is estimated is that of this $24 million, we will have to put $11 million into retrofitting. The good part of that is that much of our deferred maintenance would be addressed with that $16 million. We end up with $8 million of undesignated money - or the ability to raise $8 million of undesignated money. Because the energy needs on our campus are so severe, we would probably plug most of this money back into energy retrofitting and energy upfitting.

    Two other sources of funds included in the proposed Capital Financing Plan were the current Institutional Bond Capacity and the Institutional Bond Fee Unallocated Fund Balance. The University collected a $128 fee per student as part of tuition which was earmarked for institutional bonding. Mr. Kelly stated that currently the unused capacity totaled $14 million. However, state law only permitted leveraging 90 percent of the total of University fees; therefore the amount of $3,675,000 was the accumulated "10 percent" money which the University had not leveraged in the most recent bond issues.

    The Sodexho and Food Service Capital Funds offered another opportunity as a source of funds. Mr. Kelly commented that during the next two years, various food service locations on campus were scheduled for renovation using a total of $5 million of their money to spend on this campus; an $8 million refurbishment of the Russell House by Sodexho Food Service had been recently completed.

    Mr. Kelly also referenced a proposed capital bond bill for $20 million which the Senate did not approve this year. Using this resource, two USC Columbia buildings could be renovated as academic facilities. "We don't believe that there will be a bond bill this year, but we do want to keep this before you so that you will help us keep this before the General Assembly as one of our top priorities in addressing campus deferred maintenance needs."

    Mr. Kelly discussed the use of internal financing as a source of funds explaining that the University had a total fund balance in excess of $70 million. In particular, the Annual Leave Fund had approximately $12 million available. "It's where all of us who are state employees get paid for taking vacation time each year." Total accrual per year per employee equaled a maximum of 30 days, depending upon years of service, with a maximum carry forward amount per year of 45 days. Under previous administrations, the University had funded 100 percent of employee leave. After extensive discussions with financial advisors, University officials were proposing to raise approximately $11 million during the next three years by using a portion of that money; repayment will be funded through tuition dollars.

    And, finally, approximately $14 million of housing upgrades will be completed during this time frame.

    Objectives which guided the spending process included: (1) campus infrastructure improvements; (2) lack of parking which students had indicated was their primary concern; (3) campus environment improvements; (3) academic facilities "cosmetic" upgrades; and (4) on-campus residential life enhancements.

    Mr. Kelly briefly summarized the manner in which various areas of need would be addressed. In the area of parking needs, he noted that during the last two years and with the approval of the Board, the University had added more than 1,400 spaces. Of the nearly 12,000 parking spaces currently available on campus, 4,200 were configured as "deck parking spaces." The University was proposing the construction of a 1,000 space parking facility in the area of the Blossom and Bull Street garages; internal funding would be used to finance the structure. This particular site had been chosen because it was centrally located and had walkway accessibility to the Russell House, Thomas Cooper Library, and other strategic locations. The University would return in June with a proposed differential parking fee structure based on location; parking fees would be raised enough to fund the new parking facility. Mr. Kelly commented that the student government leadership had met earlier today with President Sorensen about this proposal; they were very enthusiastic.

    The Energy Performance Contract will address a myriad of concerns. Mr. Kelly explained that a detailed outline of this proposal will be submitted at a later time to the Buildings and Grounds Committee for consideration. He remarked that a new energy facility will need to be constructed on the west campus, the direction toward which the University was growing. The Coliseum would require extensive upgrading of its cooling system. And, many existing dormitories (i.e., Columbia Hall, Capstone) needed improvements.

    Mr. Kelly specifically addressed the Band Hall as an example of the academic use of these funds. It was the only facility in the proposed University Research Park area for which a relocation site of the occupants had not been identified. Under consideration was the possibility of constructing a new Band Practice Hall and a practice/intramural field on University-owned property currently occupied by Benson School, a former elementary school located on Pickens Street.
    To enhance the campus environment, it was proposed to use a portion of the Capital Financing funds to beautify the Wheat Street area of campus.
    Mr. Kelly hoped that the proposed 3 year Capital Financing Plan reflected that "academics are what we are all about." More than 50 percent of these funds would address the needs of academic facilities.

    Later today during the Buildings and Grounds Committee, the University will request approval of the following three specific projects:

    Mr. Kelly noted that the Koger Center, which was completed in 1989, was the most utilized University public facility other than Williams-Brice Stadium and the Colonial Center; the School of Music also used the building as an academic facility. Maintenance needs to be addressed included replacement of the roof, mechanical modifications to correct temperature control problems, installation of new piping and pumps, carpet replacement, painting of the theater, and modifications to the east parking area. Funding was currently available because the Board had approved the use of $2.5 million in the FY 2003-2004 budget for various Koger Center improvements.

    Chairman Adams stated that the University was requesting Executive Committee approval of a financing concept in principle, with three items to be referred to Buildings and Grounds and the Board later today. A refined plan, with the projects to be included, will be presented to the Buildings and Grounds Committee in November, and, if approved, to the Board of Trustees in December. Dr. Floyd moved approval of the 3 year Capital Financing Plan as Chairman Adams stated. Mr. Bradley seconded the motion.

    Responding to Mr. Lister's inquiry regarding the Koger Center's financial situation, Mr. Kelly indicated that adequate funds were not generated from performances and the use of the facility to cover the cost of the proposed improvements.

    Dr. Floyd asked for assurance from the University that parking revenues would totally finance the construction costs of the proposed parking garage; he believed that other needs on campus were of greater concern. Dr. Floyd further asked that the current motion be amended to stipulate that this facility "will be funded through the revenues from parking."

    President Sorensen remarked that earlier today he had met with the campus student government officers who had indicated that they supported the concept of differential parking fees "so that the prime location garages would pay more than the peripheral ones." During this meeting, one of the officers commented that a student who had complained about the USC Columbia parking fees had conducted a survey on the Internet of parking charges at other higher education institutions; he discovered that those fees were substantially higher.

    Mr. Mungo suggested that the motion be amended to include the submission of a detailed schedule of payments and fees which outlined the University's plan for the internal funding of this facility. Chairman Adams suggested that the Buildings and Grounds Committee specifically address this amendment rather than change the one before the Executive Committee. Secretary Stepp indicated that the motion presented before the full Board later today would reflect both of these conditions.

    Mr. Buyck believed that on campus students should be given priority for parking since the University was expanding residential facilities. Chairman Adams commented that off campus students were encouraged to park in the fringe areas. Mr. Kelly noted that approximately 8,000 surface parking spaces around the campus were available; most were located behind the Coliseum, at the BellSouth facility, or behind Bates Dormitory.

    With the support of the Student Government Association (SGA), the University hoped to increase the shuttle service. Currently, the length of time between designated stops was 15 minutes. The SGA had recently funded a GPS (Global Positioning System) system to be installed at the various pick up points around the campus which would indicate the location of these shuttles at any given moment.

    Mr. Bradley observed that "one of the interesting things about Mr. Kelly's proposal is that we are sitting here now with the State Treasurer holding $7+ million of our money that is earning us nothing. If we took that money and put it in to this parking project and put our fees at a proper price, we turn a non-income producing asset of $7+ million into an income producing asset. I think that is very significant in this proposal."

    The vote was taken, and the motion carried.

Since there were no other matters to come before the Committee, Chairman Adams declared the meeting adjourned at 2:15 p.m.

Respectfully submitted,
Thomas L. Stepp
Secretary