The official minutes of the University of South Carolina Board of Trustees are maintained by the Secretary of the Board. Certified copies of minutes may be requested by contacting the Board of Trustees’ Office. Electronic or other copies of original minutes are not official Board of Trustees' documents.
The Executive Committee of the University of South Carolina Board of Trustees met Friday, October 19, 2001, at 9:30 a.m. in the Carolina Plaza Board Room.
Members present were: Mr. Mack I. Whittle, Jr., Chairman; Mr. Herbert C. Adams; Mr. James Bradley; Dr. C. Edward Floyd; Mr. William C. Hubbard; and Mr. Michael J. Mungo. Other Trustees present were: Mr. Arthur S. Bahnmuller; Mr. A.C. Fennell, III; Mr. Samuel R. Foster, II; Mr. Toney J. Lister; Mr. Miles Loadholt; Mr. Robert N. McLellan; Mr. DuPre Miller; Ms. Darla D. Moore; Mr. M. Wayne Staton; Mr. John C. von Lehe, Jr.; and Mr. Othniel H. Wienges, Jr.
Others present were: President John M. Palms; Secretary Thomas L. Stepp; Executive Vice President for Academic Affairs and Provost Jerome D. Odom; Vice President and Chief Operating Officer J. Lyles Glenn; Vice President for Student and Alumni Services Dennis A. Pruitt; Vice President of Human Resources Jane M. Jameson; Vice President for Research William C. Harris; Vice President and Chief Financial Officer Richard W. Kelly; Vice President for Information Technology and Chief Information Officer William F. Hogue; Associate Provost and Dean of the Graduate School Gordon B. Smith; Vice Provost and Executive Dean for Regional Campuses and Continuing Education Chris P. Plyler; General Counsel Walter (Terry) H. Parham; Chancellor of USC Aiken Thomas L. Hallman; Chancellor of USC Spartanburg John C. Stockwell; Interim Dean of USC Lancaster John Catalano; Director of Athletics Michael B. McGee; Assistant Treasurer Susan D. Hanna; Vice Chancellor of Academic Affairs, USC Aiken, Blanche Premo-Hopkins; Director of the Office of Budget William P. Bragdon; Director of Student Life, Division of Student and Alumni Services, Jerry T. Brewer; Assistant to the Vice President, Office of Business and Finance, Ken Corbett; Chair of the Faculty Senate Robert M. Wilcox; Assistant Athletics Director for Development, Department of Athletics, Brad Edwards; Chairman of the Lancaster County Commission for Higher Education W.L. McDow; Office of Media Relations Representative Rebecca White; University Secretary Emeritus George Curry; President of the Student Government Association Corey Ford; Director of the Office of Public Affairs Russell McKinney; Bond Counsel Robert Galloway of Haynsworth Sinkler Boyd P.A. and Brent Jeffcoat of Parker Poe Adams & Bernstein L.L.P; and a member of the media.
Chairman Whittle called the meeting to order and invited those present to introduce themselves. Mr. McKinney introduced the member of the media who was in attendance. Chairman Whittle 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 Whittle directed the Committee's attention to the agenda and called on Mr. Parham.
Mr. Parham explained that in order to respond more efficiently and expeditiously to small construction needs, Mr. Jeffcoat, Director of the Office of Facilities Management, had solicited bids \from construction companies which had requested the opportunity to perform work for the University; the State Engineer had previously approved this process.
The selection criteria for the award of these contracts was based solely on cost. The University had selected these five companies because they offered the largest discount from standard construction cost estimates published in the R.S. Means Mechanical and Plumbing Cost Data estimating manual. The percentage of discount offered by each company had been established in each contract and ranged from 30 percent to 33 percent.
Mr. Parham further explained that under these contracts, the five companies could be assigned any project as needed; the University was under no obligation to delegate any work to the companies. Prior to assigning a project, Mr. Jeffcoat distributed project documents to these various contractors. In return, they surveyed the construction site and submitted a construction estimate. If an acceptable project cost could not be negotiated, the project was not assigned.
The five contracts, Mr. Parham noted, were identical. The State Engineer's regulations stated that no company could be paid more than $150,000 for any one project, or more than $750,000 during any two-week period, for work completed under an indefinite delivery contract. Approving these contracts would not waive applicable project approvals normally required.
Mr. Bradley moved approval of the five Indefinite Delivery Construction Contracts as described in the materials distributed for this meeting. Dr. Floyd seconded the motion. The vote was taken, and the motion carried.
This year's agreement was identical in form to others approved by the Executive Committee for the past several years. The contract provided that $944,236 of the $1.55 million the General Assembly appropriated for this purpose would be transferred to SCMEP. As a result, SCMEP agreed to use the funds solely for the development and teaching of technology in small manufacturing businesses within the state and to permit the auditing of its books by the University or external auditors.
Mr. Bradley moved approval of the South Carolina Manufacturing Extension Partnership (SCMEP) contract as described in the materials distributed for this meeting. Mr. Hubbard seconded the motion. The vote was taken, and the motion carried.
Mr. Bradley moved approval of the Master Athletics Facilities Bond Resolution as described in the materials distributed for this meeting. Dr. Floyd seconded the motion.
For the record, Mr. Mungo noted two grammatical errors on the first page of the document: the word "fees" in the phrase "a special student fees" should be singular; in the phrase "of the University of South Carolina who is enrolled at a sufficient number of classes," the preposition "at" should be "in". He asked that someone proofread such resolutions more thoroughly believing that "a resolution coming from an institution of higher learning ought to be pure."
The vote was taken, and the motion carried.
Dr. Floyd moved approval of the Athletics Series 2001 Bonds Resolution as described in the materials distributed for this meeting. Mr. Bradley seconded the motion.
Mr. Bradley asked the amount of the interest rate used when conducting the original pro forma several months ago. Mr. Galloway, who had been retained as the University bond counsel in this matter, responded that a 7 percent interest rate had been utilized then, as now, which, he commented, was a taxable interest rate amount because of the inclusion of the hockey team in the arena financing.
Mr. Mungo noted that he had raised the question regarding the percentage of taxable vs. non-taxable bond interest rates when the arena proposition was initially put forward. He indicated that he had been assured 80 percent of the bonds would be tax free, and 20 percent would be taxable. Mr. Bradley explained that each ¼ percent of interest during a 30-year period would cost the University $1,250,000. Mr. Whittle interjected that the quoted 7 percent should be viewed as a pro forma rate; at the time of bond purchase, that rate would reflect the current market value.
Mr. Mungo expressed concern regarding the incorporation of a hockey team contract within the arena financing. He did not believe that the money generated from this venture would cover the amount of the taxable bond interest which the University would owe as a result of the bond purchase. He expressed the opinion that "the difference between the commercial rate and the tax-free rate is more money than we will ever get out of the hockey team at their full contract."
Dr. McGee commented that the figures presented to the Committee represented a blended rate--the arena bond financing and $10 million of current Athletics Department BANS. He further explained that tax-exempt financing could not be used in this particular instance because the hockey team contract represented more than 10 percent of the anticipated yearly arena revenue.
Mr. Bradley stressed the fact that during previous arena discussions, it had been stated that either 20 percent or 80 percent of the financing would be tax exempt; that information had formed the basis from which the Board of Trustees had approved the construction of the arena. He questioned the change.
Mr. Galloway responded that the criteria for determining this figure was based upon private usage of the facility and the concomitant percentage of income generated. He explained that various financing structures had been considered and thoroughly reviewed.
Dr. McGee also commented that the decision to move forward would not have been made if the proposed financing structure had projected the possibility of a net loss. Based upon a $28 million bond, the annual differential between tax-exempt and taxable interest was approximately $300,000; the annual income and revenue generated from the hockey contract would significantly exceed this figure. In addition, the hockey team had submitted a letter of credit to the University which would provide a degree of financial protection. Dr. McGee further stated that the bonding would be written so that the net income could be quickly rolled into tax-exempt financing.
Discussion ensued regarding the bond prepayment schedule if the hockey team forfeited the contract. Mr. Galloway explained to the Committee the conversion process of advanced refunding which involved issuing tax-exempt bonds before the call date and funding an escrow account which would call the bonds at the call date. Utilizing this process, he emphasized, would provide the ability to reap the benefits of tax-exempt financing immediately. In addition, Mr. Corbett of the Office of Business and Finance stated that in order to ensure competitive issuance, variable rate demand bonds would be considered at the time of purchase.
Responding to Mr. Bradley's question regarding whether the IRS had been consulted, Mr. Galloway replied that intensive research had been conducted during a two-year period including conversations with national bond counsel and anonymous conversations with the IRS; his law firm had concluded that the arena bonds should be issued as taxable. He further noted that several professional sports stadiums had undergone audits and had been subsequently declared taxable by the IRS. "The IRS has sent a signal that when you have professional sports teams involved, there is going to be a high level of scrutiny as to the tax exemption of your bond."
Mr. Bradley indicated that he did not support borrowing money for a 30-year period at a 7 percent taxable rate without the ability to settle the loan before the due date as established at the time of issuance; Mr. Kelly assured Mr. Bradley and other members of the Executive Committee that the various options would be thoroughly reviewed.
Mr. Galloway further commented that additional favorable contracts in connection with the arena generating substantial revenue could be negotiated as a result of purchasing taxable bonds; that flexibility was not available within the parameters of the tax-exempt rules.
Chairman Whittle suggested that Messrs. Bradley and Mungo receive pro forma information based upon variable and fixed interest rates so that they could offer guidance regarding the most prudent method of purchase. He noted that specific issues to be reviewed included the variable rate bond, the fixed rate bond, and the call time and concomitant impact on the various rates under consideration.
For the record, Secretary Stepp stated that the motion was "to adopt the bond resolution as distributed with the condition that before these matters are put on the marketplace, a pro forma of various options will be reviewed by Mr. Mungo and Mr. Bradley to express an opinion on behalf of the Executive Committee." The vote was taken, and the motion carried.
Mr. Bradley moved approval of the Athletics Facilities Year 2002 Bond Anticipation Notes Resolution as described in the materials distributed for the meeting. Dr. Floyd seconded the motion.
Mr. Adams asked the amount of the projected interest rates. Mr. Brent Jeffcoat, bond counsel, responded that the interest rate for the most recent sale of one-year tax-exempt paper had been 2.14 percent. He suggested the possibility that those funds which had been set aside to reduce the principal might be used for another purpose and the total current outstanding $11,250,000 BANS be refinanced at the low interest rate. No legal requirement mandated reduction of the principal amount of the BANS; the average life expectancy of the stadium was the controlling factor which determined the payment schedule.
In summary, Chairman Whittle stated that "we will look at the 2001 bond resolution from a pro forma standpoint and we will also look at other creative ways to finance the 2002 [BANS] which would in essence minimize the interest and expense to the University." Mr. Adams requested that Board members receive a final report detailing the purchasing process of these bonds.
Chairman Whittle explained that the original motion had been amended to include that Mr. Bradley and Mr. Mungo would review the various financial alternatives suggested by the investment bankers, University financial administrators, and legal counsel in order to recommend, on behalf of the Executive Committee, a course of action which would generate the least interest expense to the University. He further explained that if the $1,205,000 was used for purposes other than to reduce the BANS, Executive Committee approval would be required.
Mr. Mungo emphasized that this money would be applied to either the reduction of the BANS or the reduction of the arena debt; it would not be used for other purposes. They would also review the possibility of employing the same process in subsequent years.
The vote was taken, and the motion carried.
Since there were no other matters to come before the Committee, Chairman Whittle declared the meeting adjourned at 10:25 a.m.
Respectfully submitted,
Thomas L. Stepp
Secretary