ࡱ> ac` 3bjbj ;R6+N N 8<D.E]](```DDDDDDDFIJD``DD$$$D$D$$6>AC|?DD0.E?II8AAIA$`0"$```DDc!```.EI`````````N W: Agenda Board of Regents Finance Committee Wednesday, February 18, 2009; *9:00 a.m. 9:30 a.m. and 10:00 a.m. 10:30 a.m. Treadwell Room, Baranof Hotel Juneau, Alaska *Times for meetings are subject to modifications within the February 17-19, 2009 timeframe. Committee Members: Carl Marrs, Committee Chair Fuller Cowell Mary K. Hughes, Committee Vice-Chair Erik Drygas Timothy Brady Cynthia Henry, Board Chair I. Call to Order II. Adoption of Agenda MOTION "The Finance Committee adopts the agenda as presented. I. Call to Order II. Adoption of Agenda III. Full Board Consent Agenda Approval of the Spending Allowance Rate for the Land Grant Endowments Acceptance of the Foundations Proposed Endowment Fee for the Land Grant Endowments C. Approval of FY09 Supplemental Budget Request D. Approval of Receipt Authority for FY10 IV. Ongoing Issues V. New Business VI. Future Agenda Items VII. Adjourn This motion is effective February 18, 2009." III. Full Board Consent Agenda A. Approval of the Spending Allowance Rate for the Land Grant Endowments Reference 15 The President recommends that: MOTION "The Finance Committee recommends that the Board of Regents approves a reduction in the spending allowance rate from 5.0% to 4.5% for the Land Grant Endowments effective for FY2010 and subsequent periods and directs the administration to update Policy 05.07.010 for the decrease in the spending rate from 5.0% to 4.5%. The motion is effective February 18, 2009. POLICY CITATION Regents Policy 05.07.010.E states, Withdrawal of earnings in any fiscal year will be limited to the unexpended accumulated earnings, both realized and unrealized, of the endowment as of the preceding December 31, up to a maximum amount equal to 5 percent of the average of the December 31 market values of the investable resources of the funds for the immediately preceding five years, RATIONALE AND RECOMMENDATION Background The spending rate allowance is utilized to determine the amount of earnings that will be withdrawn from the Land-Grant Endowments for the support of university programs and activities. The spending rate allowance is a mechanism to help the board meet its responsibilities to current beneficiaries by providing fair and reasonable distributions and to future beneficiaries by maintaining the purchasing power of the endowment. It is also a mechanism to smooth the distribution of earnings over time in order to mitigate the impact of market and earnings volatility on program distributions. Discussion and Analysis The UA Foundation Investment Committee reviews the endowment spending rates every year and recommends changes to the rate when it determines that a change is appropriate. Since the bear market of 2001, the general consensus of endowment administrators has been that, except for a few outliers, the probable earnings for endowments will not support a 5% distribution rate over long periods of time. Reference 15 includes a graph prepared by the Association of Governing Boards that reflects difficulty of maintaining the purchasing power of an endowment at a 5% spending rate. Reference 15 also includes an estimate the earnings requirement necessary to support a spending rate at the current spending level of 5.0% for the Land Grant Endowments and 4.5% for the Foundations Pooled Endowments. The source of the earnings and inflation estimates is the Commonfund Asset Planning Model which is used by the Investment Committee to help establish the asset allocation targets for the portfolio. The earnings requirement needed to support the current spending and expense structure is 9.98%, which is 48 basis points higher than the projected earnings. Because the probability of achieving average earnings of that magnitude going forward is low, the Investment Committee is recommending a reduction in the spending allowance rate from 5.0% to 4.5 % for the Land-Grant Endowment Funds and from 4.5% to 4.00% for the Foundations Pooled Endowment Funds. The Foundation Board of Trustees is scheduled to address the spending rate for Foundation Pooled Endowments on February 19, 2009. The Investment Committee will reassess its assumptions, asset allocation, earnings projections and spending rates when the current market conditions stabilize and provide the board with revised recommendations for FY2011 and subsequent years, if changes are warranted. A spending plan or budget consistent with your decision will be presented to the board for approval in June. Associate Vice President Jim Lynch will be available to answer any questions the Committee may have about the endowments or spending rates. Please note that a motion for Acceptance of the Foundations Proposed Endowment Fee for managing the endowments is also on the agenda for this meeting. B. Acceptance of the Foundations Proposed Endowment Fee for the Land Grand Endowments The President recommends that: MOTION The Finance Committee recommends that the Board of Regents accepts the UA Foundations proposed annual Endowment Fee for the Land-Grant Endowment Funds at .50% of the December 31, 2008 market value of the endowments. This motion is effective February 18, 2009. POLICY CITATION Regents Policy 05.07.010.E states: Withdrawal of earnings in any fiscal year will be limited to the unexpended accumulated earnings, both realized and unrealized, of the endowment as of the preceding December 31, up to a maximum amount equal to 5 percent of the average of the December 31 market values of the investable resources of the funds for the immediately preceding five years, RATIONALE AND RECOMMENDATION Background The Board of Trustees and the Board of Regents (the board) reached agreement last year on establishing an annual endowment fee for the Land-Grant Endowment Funds at .50% of the value of the subject endowments as of the preceding December 31.. At the time, the board was concerned that the services provided to the Land-Grant Endowments are significantly less than those provided for the Foundations Pooled Endowments and that the Land-Grant Endowments do not benefit from the development activities that are supported by the general endowment fees. The board also wanted to limit the fee to a modest level because the law regarding allowable charges is not clear and the fee appeared to exceed the incremental costs of providing the services. As a result, the board reserved the right to review and accept the proposed endowment fee annually. Discussion and Analysis Both boards authorized the respective board chairs to execute an endowment fee agreement between the Board of Regents and the Board of Trustees. The agreement, which is actually in the form of an amendment to the current memorandum of understanding, has been drafted and is pending resolution of a couple of minor issues prior to execution. Due to the severe instability of market conditions today, the staff believes that the analysis conducted last year is probably more reflective of the long-term environment than an analysis that might be conducted in the midst of the crisis we are currently experiencing. Associate Vice President Jim Lynch will be available to answer any questions the Committee may have about the endowments or the endowment fee. C. Approval of FY09 Supplemental Budget Request Reference 16 The President recommends that: MOTION "The Finance Committee recommends that the Board of Regents approves the FY09 general fund supplemental request to cover catastrophic workers compensation claims $746,200; athletic travel increases $416,000; and FY09 projected cost increases for utilities $1.27 million. This motion is effective February 18, 2009." POLICY CITATION Regents' Policy 05.01.01.A. Budget Policy, states, "The budget of the University of 91ֱrepresents an annual operating plan stated in fiscal terms. All budgetary requests shall be adopted by the board prior to submittal to the Office of the Governor or the legislature." RATIONALE AND RECOMMENDATION The University of 91ֱis requesting $746,200 in FY09 supplemental funding for two catastrophic workers compensation claims which are in excess of $300,000. Claim #2000179 for $25,000 and claim #2005056 for $721,200. The university is also requesting supplemental funding to cover athletic travel increases. Both UAA and UAF have experienced increased athletic travel expenses and are requesting a supplemental in FY09 for $120,000 and $296,000 respectively. Intercollegiate athletic teams are required to compete in a fixed number of competitive events as well as subsidize travel expenses incurred by teams traveling to Alaska. The university continues to make improvements to its facilities designed to improve energy efficiencies, thus reducing energy consumption. Unfortunately, most campuses continue to see utility cost increases due mostly to utility provider rate increases and colder than usual temperatures. Examples include, Anchorage and Mat-Su campuses received a 22% natural gas increase beginning in January 2009 and UAF rural sites are still being impacted by last years high fuel/heating oil costs. As part of UAs FY09 budget request, $1.3 million general fund was requested to cover utility cost increases, with an additional $1.3 million to be covered by the campuses through university receipt authority. However, the FY09 appropriation for UA did not include any general fund for utility cost increases, only funding contingent on the fuel trigger mechanism. The fuel trigger mechanism provided $4.8 million in additional funding for utility increases, but with base funding still at the FY06 level, UA still requires an additional $1.27 million for utilities in FY09. Reference 16 provides a graph of UAs utilities cost trend and associated funding since FY05. Reference 16 also provides the universitys request to the Office of Management and Budget (OMB) for FY09 supplemental funding. Given the legislative timing, the request was submitted to OMB on January 13, 2009 and revised on January 27, 2009, to include updated projections. This request was submitted contingent on Board of Regents approval. D. Approval of Receipt Authority for FY10 Reference 17 The President recommends that: MOTION The Finance Committee recommends that the Board of Regents approves the revised FY2010 Capital Budget Request to include additional federal receipt authority in the amount of $24 million. This motion is effective February 18, 2009. POLICY CITATION Regents Policy 05.01.010.A states: The budget of the university represents an annual operating plan stated in fiscal terms. All budgetary requests shall be adopted by the board prior to submittal to the Office of the Governor or the legislature. RATIONALE/RECOMMENDATION The rationale for this recommendation is included in Reference 17. Michelle Rizk, associate vice president for Budget, will be available to answer any questions regarding this request. IV. Ongoing Issues V. New Business VI. Future Agenda Items VII. 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