A University's Priorities, Part III
Mr. Michael McNabb
University of Minnesota B.A. 1971; J.D. 1974
University of Minnesota Alumni Association lifetime member
The current administration at the University of Minnesota has seen "A Vision for the 21st Century" in which it builds "a University-founded community of 20,000 to 30,000 people" on land that the University owns in rural Dakota County (UmorePark). In November 2009 the administration released the latest report on its Vision. See UMore Park (under What's New).
The administration did not seek or obtain state appropriations for this adventure in land development. It is taking an end run around the legislature by raiding its Central Reserves Fund. Over the past three years the administration has depleted the Fund by $9.3 million for this enterprise. See p. 7 of the December 10, 2009 report of the Finance & Operations Committee of the Board of Regents.
Although the administration "anticipates" that the mining of sand and gravel at UMore Park will generate revenue in the future, it still is in the process of attempting to obtain an environmental permit. See the July 2009 update. The restoration of contaminated land at the site is an issue that has NOT been resolved (more on that issue later).
The purpose of the Central Reserves Fund is to provide cash for unexpected or temporary expenses. See Section I of the Board of Regents policy. The Fund is supposed to be used for such CONTINGENCY expenses and not for RECURRING expenses. See (about half way down the page).
The policy authorizes certain "allowable allocations" from the Fund. See subdivision 2 of Section II of the Board of Regents policy. Even the general provision in clause (d) of subdivision 2 for "miscellaneous expenditures" cannot reasonably be applied to the allocations for UMore Park. The multi-year, multi-million dollar commitment by the administration and the Regents to residential and commercial development at UMore Park is far beyond a "miscellaneous expenditure."
This clear violation of the University's own policy on the use of the Central Reserves Fund will reduce the Fund to $12.6 million by the end of fiscal year 2010, far below the $26 million REQUIRED by the policy. See pp. 24-25 of the University of Minesota Operating Budget 2009-2010.
The current administration simply disregards University policy whenever necessary to accomplish its objectives. In spring 2009 the administration violated University policy on reorganization when it decided to reorganize the Graduate School without consultation with the faculty prior to making the decision.
The Board of Regents abdicated its responsibility by declaring that it does not have the authority to require the administration to follow University policy! With such a dereliction of duty on the part of the Regents, the administration is free to violate any inconvenient University policy.
The director of records and information management at the University has verified that the University paid the astounding sum of $150,681.10 to outside counsel to advise the administration about the appropriate form of business organization for the UMore venture and to draft the documents to organize the UMore Development LLC.
When it is necessary to retain outside counsel, the University should select a law firm that has expertise in the specific area. The expertise should enable the firm to do the work in less time. A law firm with expertise in forming business organizations should have been able to determine fairly quickly the appropriate form of organization for the UMore enterprise and advise the University accordingly. Drafting the documents to organize a limited liability company is not a difficult task.
When I was a young lawyer, it was typical for a senior partner to perform the legal services on his own. Now large law firms assign multiple young lawyers to work with the senior partner. The client pays for the time of the senior partner to do the work and pays for the time of the senior partner to instruct the younger lawyers and pays for the time of the younger lawyers to learn their craft. The client is paying for the training of the younger lawyers. This is likely the explanation for the extraordinary amount that the University paid to its outside counsel here. The billing from the law firm should identify the number of attorneys who worked on the UMore assignment, their hourly rates, and the number of hours each lawyer spent on this matter.
Lawyers charge a certain dollar amount per hour. The 10 cents at the end of this bill indicates that other costs were also billed to the University--such items as postage, photocopy expenses, and computer legal research. Until fairly recently lawyers' hourly rates were set to cover all the overhead costs of the firm. Now some law firms charge separately for these costs in addition to the ever-increasing hourly rate.
The University also pays a princely sum for the EIGHTEEN attorneys in the Office of the General Counsel. In his 2009 Annual Report (at p. 13) the general counsel explains what the University receives in return:
"The use of in-house counsel is far more economical for the University, as
costs per hour for comparable legal services performed in-house are
approximately 40% less than those of outside counsel. In addition, and
beyond the issue of cost, the QUALITY of legal services the University
receives is enhanced by OGC's comprehensive knowledge of the University's
unique structure, operations, strategic priorities, and mission. This
reduces preparation time that would be required by outside counsel less
familiar with the University, and provides more focused counseling
tailored to the unique issues facing particular University clients.
Routine feedback from our clients suggests that OGC provides high quality
legal services on a level at least equal to that provided by leading
Yet the OGC has nary a qualified attorney in business organizations?
In 2009 the University paid $5.7 MILLION in fees to outside counsel. In his Annual Report the general counsel assures us that he considers cost in selecting outside counsel. He does not explain the discrepancy between his assurance and the expenditure of millions of dollars on outside counsel in addition to the compensation to the 18 attorneys in the OGC. See p. 13 of his 2009 Annual Report.
The fees and costs paid to the outside counsel for UMore Park may be just the tip of the iceberg. So far the administration has spent $9.3 million on its Vision. Who has the responsibility for oversight of the bills submitted by the numerous consultants and vendors? Has this task been assigned to any auditor or inspector general? Or are the consultants and vendors, just like the lawyers, taking advantage of the endless flow of
cash from the Central Reserves Fund of the University?
The members of the University faculty have expertise in their fields. The University has a College of Design. Why was it necessary to spend $9.3 million (and counting) on outside experts?
In 1945 the federal government manufactured ammunition on the land in Dakota County that is now UMore Park. In 1947 the federal government conveyed 4700 acres of that land to the University. In 1948 the government conveyed an additional 3320 acres to the University.
The University and the federal government have not resolved the issue of the responsibility to remove the contamination that was the result of the manufacture of the ammunition. In 2005 the Army Corps of Engineers declared that only the 1947 parcel is eligible for federal funds for restoration.
The University is continuing its decades long quest for federal funds for the 1948 parcel (the site of most of the manufacturing). The failure to obtain the funds has not stopped the administration from pouring millions of dollars into planning a new community in UMore Park.
The author of the November 2009 report on UMore Park is the assistant vice president for statewide strategic resource development. We have lost track of the number of senior vice presidents, vice presidents, and assistant vice presidents in this administration.
In the preface to her report the assistant vice president lists numerous questions, such as: "How might people, businesses, schools and organizations in the state and region benefit?" She then gushes: "A cascade of answers will flow from these questions as the University of Minnesota pursues the future of the UMore Park property."
It might have been prudent to attempt to answer some of these questions before the University spent $9.3 million to plan the development of a new town on contaminated land in a rural area that is miles away from any existing municipal services.
In its 2010 Capital Request to the legislature the administration is seeking $100 million in HEAPR bonds for the maintenance and renovation of its EXISTING academic facilities. [With the exception of the new biomedical buildings (and the new football stadium) the academic infrastructure at the University is beginning to crumble.]
So how does the administration justify its plan to build an entire new town? By not using current state appropriations the administration has attempted to avoid having to justify to the legislature the expenditure of millions of dollars in public funds to build its "Vision of the 21st Century."
In his now famous June 1, 2009 article in The New Yorker magazine Dr. Atul Gawande quotes Dr. Lester Dyke, a cardiac surgeon in McAllen, Texas regarding the high cost of medical care in his community: "We took a wrong turn when doctors stopped being doctors and became businessmen."
We will also take a wrong turn when educators stop being educators and attempt to become entrepreneurs. It is easy to make decisions to take huge monetary risks on new ventures when you are not using your own money.