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October 2, 2001

Present: Chair Carter, Secretary Banks, Provost Cooper, Parliamentarian Gilbert; Senators Allen, Ash, Bernhard, Blanchard, Braunbeck, Brothers, Cassidy, Daley, Elmaghraby, El-Masry, Funderlic, Garval, Grimes, Headen, Hodge, Hooper, Hughes-Oliver, Istook, Kimler, Kirby, Levine, Lytle, Marshall, Misra, Rolle, Smoak, Tucker, Tyler, Weiner, Wilkerson

Absent: Senators Havner, Vickery

Excused: Senators Chair Emeritus Corbin; Senators Grainger, Sawyers

Visitors: James Oblinger, Dean, CALS; Jim Graham, P. J. Teal, Assistant to the Chancellor; Jack W. Walker, State Health Plan; Jinny Klarman, State Health Plan; Kathy Brown, Acting Associate Director, NCSU Libraries; Rebecca Rufty, Graduate School; Judy Peel, Provost’s Office; Joanne Woodard, Vice Provost for Equal Opportunity; Frank Abrams, Senior Vice Provost; Jonathan Quoote’, Student Senate; Brad Dixon, Student Senate President ProTem

1. Call to Order
The third meeting of the forty-eighth session of the North Carolina State University Faculty Senate was called to order at 3:00 p.m. by Chair Philip B. Carter.

2. Welcome and Announcements
Chair Carter welcomed Senators and Guests.

Chair Carter announced that there is an article in the Chronicle on Higher Education stating that many Arab students in the United States headed home, citing growing hostility. He stated, " The only students we are aware of that have left are two students who were called home because their parents were concerned about them. If there is undue worry among our students, we need to know about it and take further action."

Chair Carter announced that there is a call for nominations for the O. Max Garner Award; The North Carolina Award Ceremony will be held November 5. He would like to see more people honored for that. Chair Carter urged the faculty to take a more active role in making nominations.

3.    Approval of the Minutes, Meeting No. 2, September 18, 2001
The minutes were approved as amended.

4.    Remarks from the Chancellor
"Let me begin by commenting about the terrorist attack and the response that NC State has had in acknowledgment of this terrible event. I want to thank the Faculty for their support and assistance with the many activities that have occurred on this campus. An unprecedented event of this magnitude is always difficult to handle, and has negatively impacted a number of our students, faculty and staff. We are aware of the loss in the attack of two NC State alums. I must say, too, that I have received a number of phone calls from Muslim students who have expressed concern that they will be expelled from the country.

In the days ahead, please recognize that the effect this event has had on student who, in many cases, have never had this kind of anxiety in their lives. Some are very confused, and we need to continue to be patient. I thank you in advance for your efforts to respond in a proper and helpful way, and for your determination to move ahead. Otherwise, the terrorists win.

One way in which we have been able to move ahead – it is a bit of a miracle – is that the state finally has a budget. Resolution of the budget issues came days after the terrorist attack, and I would like to tell you about some of the items that are incorporated into the budget.

First, the regular term and distance education increases which we projected last spring were fully funded, thus giving us $10.3 million more than the previous year’s budget. The additional students who came provided in tuition an additional $5.1 million. So our budget, with respect to enrollment funding, saw an increase of approximately $15.5 million. However, budget reductions have offset these increases. The budget cuts spanned all activities of the university. In several cases, we actively pursued efforts to educate the legislature about the devastating effects of the reductions. In the end, we were not successful in changing the General Assembly’s mind, and the cuts were enacted. For example, the reductions in our budget meant that the funding of SPA positions was reduced by 2.8%. We were given little flexibility concerning how we handled those reductions. This reduction was a substantial cut for us and totaled $2.4 million. Funding for non-faculty EPA positions also was reduced by 2.8%, which accounted for another $2.2 million. In addition, funds for summer research were cut to the tune of $0.5 million. The Legislature stated that our faculty are not sufficiently productive, and thus asked us to increase faculty productivity in terms of the number of hours taught, which brought us a loss of approximately $0.5 million. We had a reduction of 5% in zero-based budget items, which includes contracts, lease of equipment, travel, cell phones, furniture, equipment, aides and grants. The total cut is more than $1.5 million. When you think about zero-based budget equipment and items of that sort, you think perhaps there is flexibility to handle this reduction. However, we cannot back out of a contract. So, to the extent that we have current binding contracts, this places additional pressure on other parts of our budget. As you can see, these many cuts place the university in a difficult situation. We need cooperation at every level regarding our operating expenses this year.

The Legislature has reduced our temporary wages and membership dues budget by almost $600,000. They have scaled down our community services and general academic support budgets by approximately $400,000. They have told us that we need to have additional administrative efficiencies that will constitute, for NC State, approximately $1.2 million out of operating expenses. These cuts are particularly difficult. The Legislature also reduced our travel by more than $200,000. The overall result is that the gains from enrollment funding are offset by the extensive budget cuts across the university.

Another challenge we face involves last spring’s estimated projections of how many students would enroll at NC State in Fall 2001. Our actual enrollment was much higher than had been expected. The News and Observer has reported that we enrolled 200 students more than was expected. We actually enrolled 500 more students than had been projected. We did not receive enrollment funding for these 500 additional students. The increase for us is comparable to a school system opening another elementary school with no additional money to fund it.

The Legislature also increased the tuition of our students by 9%. In principle, that means that there is a 5.9 additional increment in our budget from the tuition that we collect. However, that is not the action the Legislature took. The 9% tuition increase reverts to the state budget; the state, in turn, uses the money to fund the enrollment increase.

We did have a $300 tuition increase which is our regular term increase, and we have allocated that money to three categories as required by the Board of Governors. We concur with the Board’s instructions about how to use the funds. Part of the increase was allocated to financial aid, to handle difficulties some students may have as a result of the tuition increase. However, the funds were not sufficient to respond to the difficulties caused by the 9% state-mandated tuition increase.

The state did fund additional financial aid for the entire system. What we received as tuition from that 9% is 5.9. For the whole system, the Legislature funded financial aid at a rate of about $9.0 million. Clearly there was not a match of additional financial aid for our campus with what was suggested.

All of you will receive a salary increase. It is $625, across the board, for faculty and staff. I presume most of you will spend it on health care, which also increased. We recognize that this is a challenge. We are working with the Office of the President to see if there are other options that would give you health care choices, for example, between a low deductible and a high deductible. Therefore the premiums would be different. We also are working with UNC-Chapel Hill to see if other options exist.

The General Assembly made a special provision in the budget that no funds that were appropriated by its budget act could be carried over from a prior fiscal year and applied to these budget reductions. In other words, we are restrained to keeping categories just as they had outlined them, and there was very little flexibility in the budget. It is very difficult for a manager. Nonetheless, we are remaining true to our commitment, as much as possible, to use any differential between enrollment money and the reductions to address priorities identified in the colleges’ compact plans. It is important to continue to invest in the future – even when times are tight.

One of the fights that we did win was regarding overhead receipts. At various stages during the legislative session, some members of the General Assembly were suggesting that they would take as much as half of our overhead receipts to solve the state budget problems. We were able to avoid this occurrence, and I must say that Mark Fleming, Jim Oblinger and a number of the deans worked very hard to help us make the argument in very clear terms that indirect costs are real costs of doing research. Overhead receipts are the only means by which we can make selective investments, given that our management flexibility has been taken away from state appropriations.

One advance that we were able to achieve was that the optional retirement plan has, for the first time, been made available to field faculty in Cooperative Extension and to university senior academic and administrative officers. This option is something that I have worked on for the last three legislative sessions. However, we did not convince legislators that the budget codes that are used for all faculty should be extended to field faculty as well. As a result, this creates an inequity among our faculty and their compensation. Since this has persisted for several years, it really is becoming a very difficult situation, particularly for those in the College of Agriculture and Life Sciences’ Cooperative Extension. I particularly want to thank Jim Oblinger for his steadfast help as we try to bring about this change. The Legislature gave us the optional retirement plan, but not the equality in faculty funding. We are going to assume that this will be a very high priority in our next budget sequence. Perhaps we can address this in the short session in May.

We did have an appropriation for repairs and renovation. On the one hand, this is positive, considering that at one stage in the budget process there were no such appropriations. We will be able to continue with repairs and renovations, and I would encourage all of you, particularly in regard to safety issues, to report any concerns as soon as possible.

The Legislature funded need-based student financial aid at a figure of $8.9 million. They funded genomics, bioinformatics, photoelectronics and photonics research for the entire UNC system at $1.3 million. North Carolina Progress Board, which has been housed on our campus for several years, was reduced in funding from $400,000 to $250,000.

Finally, MCNC, which provides networking services and super computing support for all the institutions in the UNC system, was cut by $5 million. That will be a significant difficulty for us if that cut is passed along. I have been elected chair of the Board of MCNC and, as a result, I will be in a position to aggressively campaign to ensure that the resources that must be brought forward for networking and information technology would not negatively impact the campus.

As you can see the budget is a mixed bag. There are some positives: we did get full enrollment funding. Also, both on-campus and off-campus distance education received full funding. This is a major milestone. At the same time there are challenges that we will all encounter. Not the least of which is the minimal faculty salary adjustment. We pledge our commitment to make clear to both the UNC Board of Governors and the Legislature how devastating this kind of non-raise can be to both faculty morale and to faculty performance. The positives, as I can see them, are that we have made some marginal advances for the availability of the optional retirement plan. In addition, our ability to respond to compact plans, as we build this university, is at least partially possible. Please work with us as we continue to move forward, and be sure that although there are uncertainties that remain in specific interpretation of this budget, we anticipated very early in the spring that the state budget crisis and the weakening economy were going to make us have a very austere year. Since we do not know what is happening economically for the entire nation, it may be that next year we will be very tight as well. We will have to weigh that when we look at whether an additional tuition increase is necessary. The administration at UNC-Chapel Hill has spoken about pursuing a tuition increase, and I think there is some reason to look both at our faculty salaries and inequity among our research institutions in considering this. However, there can be no determination made without further information and more budgetary analysis.

I want to thank Phil and the Faculty Senate for the invitation to speak today. One of the topics he mentioned was the Knight Commission Report. I am particularly pleased that the Faculty Senate is represented on the Athletics Council, which is looking in detail at the Knight Commission recommendations. I believe it is their intention to report to you their views with respect to specific and general recommendations from the report. The Knight Commission is a group of senior administrators, many President Emeriti, as well as people who have been involved in athletics programs around the nation. The Commission looked at principles for funding and the operation of athletics programs. The Athletics Council will be coming to give you their assessment of the report.

During the summer we made progress on NC State’s copyright policy, which is now found on the website at . It was approved on September 17, 2001 at the University Council meeting. This policy had been submitted to the Office of the President. The President’s Office had approved our implementation plan and now we have the approval of the University Council.

Let me encourage you to partake in two important activities. The first is a new Entrepreneur’s Lecture Series. The first event is Wednesday, October 3, 2001 at 4:30 p.m. in the Engineering Graduate Research Center on the Centennial Campus. President and CEO of Silverpop Systems Bill Nussey, who is an NC State alumnus from the College of Engineering, will speak. The second speaker, CEO of Red Hat Matthew Szulik, is scheduled for April 9, 2002. I think it is a particularly interesting series, with the return of NC State alumni to discuss how their State educations have helped them as they have converted their ideas into marketable products.

The second thing I want to encourage you to do is to make nominations for Honorary Degrees. Those of you who have come to Commencement, I believe, have seen that the quality and number of Honorary Degrees have increased dramatically. I was particularly pleased at the May Commencement that so many of the Honorary Degree recipients made direct contact with the colleges and had the opportunity to participate in seminars and to interact with students. These Honorary Degree recipients can improve the intellectual life of the university. I would strongly encourage you to identify nominees for the future. We have, I think, five such Honorary Degree recipients scheduled for December 2001 and four already scheduled for May 2002. If you get the nominations in, it typically takes about a year’s lead time to get the quality of people that we want for these events. We would encourage you to participate. We have tried to make the nomination process as easy as possible, with the NCSU Libraries providing some assistance with biographical information for nominees. I would encourage you to submit nominations, and let the Trustees work their wisdom on the approving of these Honorary Degrees.

Thank you again for inviting me to come speak with you."

Senator Blanchard asked if the Legislature gave some guidelines for what a nine-month 100% academic appointment should be teaching.

Chancellor Fox responded that they said faculty should have fifteen hours of contact with their students every week.

Senator Blanchard wanted to know if the Legislature considers advising students as a part of the teaching load.

Chancellor Fox stated that they do not, and that is part of the argument they are going to have to make.

Parliamentarian Gilbert congratulated the Chancellor on being Chair of the Sigma Xi Research Society.

Senator Allen asked the Chancellor for her insight on Departmental Leadership.

Chancellor Fox responded that she is open to anything the Senate suggests in this regard. She thinks either position can work and feels that it really depends on the personalities.

Provost Cooper commented that he was open minded to the will of faculty on leadership at the department level. His concern is to make sure that there are democratic processes such that individual members in the department have the ability to participate in governance.

Senator Wilkerson stated that there have been rumors that the Chancellor and Provost feel that whether they are referred to as chairs or heads that department heads should keep an active role in research. "Some of us are concerned about that model."

Chancellor Fox stated that, in her own case, she believes that research has always been so much a part of her being that it would be very difficult for her to give up research. She thinks everyone can come up with a work plan which is consistent with his or her own goals. She believes that it is possible for a department head to continue an active program, particularly if there is sufficient backup for some of the administrative details. She has no reason to say whether it would be required.

Senator Kimler wants to know if there are going to be limitations on travel.

Chancellor Fox stated that when this regulation first came forward from the Legislature this summer, it applied to all university money, which would mean contracts and grants as well. "We did succeed in getting that removed so that you would abide by the rules from the grantor rather than from the state. The numbers that they came up with as being reasonable for travel costs are really unreasonable in my opinion."

She stated that as far as she knows we have not had relief from state appropriated funds and the travel budget has been cut.

 5.    Resolution of Commendation
Secretary Banks presented a resolution from the Faculty Senate to Commissioner James "Jim" Graham.

A motion was made and seconded to approve the resolution by acclamation.

Comments from Commissioner Graham
Commissioner Graham commented that he is delighted to have the opportunity to spend this time with Chancellor Fox and the faculty. He stated that NC State University is on the threshold of greatness. The relationship between the Department of Agriculture and NC State University is one of the reasons today that North Carolina is ahead in all facets.

Commissioner Graham said, "We must continue our strong research programs. We need productivity and we need food and I urge you not to forget agriculture."

6.    Remarks from Jack Walker, Executive Administrator of the State Health Plan
Jack Walker, Executive Administrator of the State Health Plan, stated that he is appointed by the Insurance Commissioner with the advice and consent of the Legislature and is an employee at will.

Walker stated that the premiums that the employees previously paid through September 30 were 20% too low. They were not being charged the premium which represented the cost of delivering the care. He asked, "Why did the Legislature do that? We had two hundred fifty million dollars in cash and they looked at that and said we can do something about that and they set the premiums at a below cost rate. As we got closer to June 30 of this year in fact I had a Board meeting in February and I said gentlemen and ladies the airplane is crashing at the rate of $17M per month. We will hit the ground in July. We will have no money to pay a claim. We could not pay a hospital, doctor, nor a pharmacy. I said to them the only thing that I am allowed to do that can change anything fairly rapidly is adjust what we pay hospitals and adjust what we pay physicians. Fortunately in my earlier days I was able to convince the Legislature to change what they pay retail pharmacies. I have spent most of my late adult life running managed care organizations. The state of North Carolina by statute was paying a pharmacist $6.00 to fill a prescription. I left the state of Louisiana as their Executive Administrator and we had the best government that money could buy and we were only paying $2.00."

Walker stated that the discount on generic drugs is somewhere in the neighborhood of 50% and the State was getting a 10% discount on generic drugs. He convinced the Legislature to allow the Executive Administrator to hire a PBM (Pharmacy Benefit Management). They dropped the expensive fee from six to four dollars. Currently under the bid that the state took, it pays approximately $1.50 which started in July. "We got our discount on generics down to where we got a 55% discount on generic drugs and a 15% rather than a 10% discount on brand name drugs, etc. Over a two-year period of time we have saved the state $120M. Twenty percent of our staff are in this room today. There are only eight other people on staff and we run a billion dollar organization. We were able to negotiate discounts with hospitals to achieve approximately $58.0M in savings beginning July1 and then reduced physician fees to save another sixty plus million dollars effective October 1. To give you an idea, had we not changed the pharmacy cost, changed the hospital cost, changed the doctor cost, you would have seen a 60% rate increase in October."

"We, as a state, were not being an effective buyer of health care. We were paying more than retail. We were a very good payer of physician services for radiology for example. The radiologists prior to October 1 were being paid two and one half times what they would have gotten from a medicare patient. We reduced them, and you may find some radiologists who will not participate. Most of them will.

The primary care doctors we are paying 1.1 to 1.3 times the medicare rate. We ran out of money in July. The Legislature appropriated some money for us to get through. It was like a loan, because we had to pay it back. We had a financial need to cover us for the two years of a little over nine hundred million dollars. How did we get the nine hundred million dollars? The Legislature told me that they could provide us with three hundred and fifty million dollars. The Legislature does not give the health plan any dollars. We raised the premiums to the agencies. The Legislature gives the money to NC State or to UNC or to a public school system, etc. The only way we get money is to raise your premiums. If we do not raise your premiums we get no money. By raising the premiums 30%, the Legislature passes money all through the system and we bill the agencies and then collect three hundred and fifty million dollars. There is no subsidy. Our staff salaries are built into your premiums. The cost of claims processing are built into your premium.

We got approximately three hundred fifty million dollars from the general fund. The highway fund contributes sixteen million dollars and other employer funds contributed another seventy- two million dollars. That totaled approximately four hundred and thirty eight million dollars. By increasing the premiums we also would collect approximately one hundred and sixteen million in dependent coverage premiums and family coverage premiums. The reduction in provider payments were another one hundred and thirty million dollars. The net figure was about two hundred and forty million dollars in lower benefits. That is how we balanced the budget. At the end of that period of time we will have approximately one month worth of reserves. We will have one hundred million dollars in the bank at the end of June 2003.

The forecast is not pleasant from there because one area that kills us is pharmacy. The pharmacy expenses went up 33% in one year. We spent, in fiscal year 2001 more for out-patient drugs than we did for in patient hospital care. It is 25% of our budget. When I got into the business in 1979, it was 6% of my medical expenses and today it is 25%. We have gone from one dollar pills to four dollars pills. We, as a state health plan, have to look for where our resource is coming from and who we get to help pay for it.

The discussions I have had with the Legislature have been that this family coverage we have is a dead animal. At $365 we are going to price a lot of people out of the market place and they are aware of it. I sincerely believe that if they knew where they could find additional revenue they would have provided some kind of subsidy for the State Health Plan. They did not have any additional revenue so that is why it is where it is and if they cannot find it two years from now we will see essentially a significant drop in dependent coverage. They struggled to pass the budget. They need more revenue. I would love to do something differently but I do not have the money. We are still watching what we are spending because we are not home free until we collect your October premium.

I wanted to give you some background as to what is going on. Some of the benefit changes you can blame me for. Some changes were the result of other people making requests that fit their interest."

Senator Headen wanted to know with regard to rate increases, what state employees can expect in the next two years .

Walker stated that the rate increase that was seen this time covers employees for two years. Next year there will not be a change in premium and there will not be a change in benefits. He sees pharmaceutical cost increasing at least 20 to 25% every year.

Senator Kimler wanted to know if there is a price break that can be given to younger employees and families.

Walker stated that he presented age rates to a committee that he reports to with age rates. The major employee groups did not like that. They did not like the fact that you would give up the subsidy of the older population.

Senator Daley wanted to know if they are keeping track of how many agencies are having trouble recruiting people because there is no health coverage, or family health coverage is not affordable.

Walker responded no.

Senator Levine wanted to know if Walker anticipates any changes in the near future or if this is it for long term.

Walker responded that in approximately four or five years, the Legislature will get upset with employees complaining about health benefits. They could give each of them X number of dollars and tell them to find the best that they can find for those dollars.

Senator Tyler wanted to know why that has not already been done.

Walker stated that there are other powerful groups out there that are influencing the Legislature.

7.    Reports
Senator Elmaghraby reported that the Governance Committee had the pleasure of two faculty members come to visit their meeting. One was Dr. Misra, and the other was the Chair of the Faculty of PAMS who helped to compose the Bylaws. The Governance Committee likes the report and feels that all of their questions have been responded to in a satisfactory manner. He recommended that the Senate accept the bylaws from the College of Physical and Mathematical Sciences and noted that the bylaws are currently on the web.

Senator Hughes-Oliver suggested that the minutes provide the URL for the bylaws so that those who have not had a chance to review them will be able to do so. The URL is found at: http://www.pams.ncsu.edu/welcome-center/bylaws.html.

Senator Elmaghraby moved that the bylaws be accepted. The motion was seconded.

Senator Bernhard noted that he and some others were not on the Senate last year and the whole concept of approving something that he has not had an opportunity to read is very objectionable.

Senator Elmaghraby stated that there is nothing that says anything about the Senate approving anything except the voting rules and regulations of the various colleges. The Faculty Handbook states that every college must have its rules of elections for Senators approved by the Senate. Nothing else.

Senator Lytle offered a friendly amendment to give everyone the opportunity to review the file.

Senator Allen moved to table the motion until the October 30 meeting.

Chair Carter stated that the issue will be tabled until October 30. The minutes of this meeting will contain the URL for the bylaws.

Senator Elmaghraby stated that the committee would like the Faculty Senate to decide whether they want to recommend to ask other colleges to have bylaws. Neither the College of Engineering nor the College of Agriculture and Life Sciences have bylaws. These are the two largest colleges in the university. He thinks the Senate has to decide whether they would like to request or encourage colleges to have bylaws or not.

Senator Elmaghraby stated that the Faculty Handbook only requires that every college should have its statement about how elections to Faculty Senate are made and that is to be approved by the Senate.

Senator Lytle moved that the establishment of college bylaws for any college not presently having bylaws be left to the discretion of the colleges.

The motion was seconded and passed without dissent.

8.    Issues of Concern
Senator Levine challenged the faculty to support the Chancellor and her staff in engaging the Legislature in a more positive way to perhaps change their views about how they perceive the university.

Chair Carter stated that the issue will be discussed in the Executive Committee meeting.

9.    Adjournment
Chair Carter adjourned the meeting at 5:00 p.m.

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