A deal made last year to let a private company manage OU’s utilities will allow the university to weather an expected 3 to 7 percent cut in state funding, President David Boren said.
The university earned about $120 million from the outsourcing contract with Corix Utilities Inc., approved by the OU Board of Regents last summer. Part of that sum paid off bonds on the utility plants and part went for capital projects. Boren also said he set aside about $25 million to cushion against the effects of upcoming budget cuts.
“The governor wanted to do 3 percent,” Boren said. “But then some of the things she wanted passed to pay for it didn’t pass.”
Boren said the Legislature was currently considering cuts ranging from 3 to 7 percent, which would come on top of increasing utilities charges and heath care costs.
“So, if we get cut $7 or $8 million on the Norman campus, that’s on top of another $6 to $8 million we’re having to eat because we’re not getting an increase to cover those costs,” Boren said.
Over the past three years, OU has absorbed $20.5 million in cost increases while also incurring $13.9 million in budget cuts, Associate Vice President and Chief Financial Officer Chris Kuwitzky said.
“This has really been a tough period for the university economically,” Boren said.
Boren said he could see this situation coming four years ago and he didn’t want to see the institution cut back on course offerings or lay off faculty and staff, Boren said.
“I didn’t want to see this be a time when we sort of dismantled the things we had built,” Boren said. “So, what do you do? We cannot expect a bonanza of private giving to make up the difference. And we’ve already absorbed 30 million in cuts.”
Executive Vice President Nick Hathaway suggested to Boren that OU monetize one of its assets to raise enough money to make it through until the economy started to recover.
“Over three years ago, it was clear that the nation was heading into a time of relative economic turmoil. We thought it was reasonable to assume that the national turmoil would have a negative impact on the state and university budgets,” Hathaway said. “Chris Kuwitzky, Burr Millsap and myself started to have a series of conversations about major assets held by the university that could potentially be monetized.”
University administrators investigated this option and hired C.H. Guernsey & Co. to conduct a feasibility study in April 2008, according to the OU regents’ minutes.
“Our ambition was to ... avoid the draconian cuts, furloughs and faculty reductions being made at other universities all over the country,” Hathaway said.
C.H. Guernsey & Co. recommended the university conduct a competitive bid process, and Boren appointed Daniel Pullin, vice president for Strategic Planning and Economic Development, to head the project.
Team members had meetings in the evenings and on weekends. Everybody involved contributed 80 to 90 hours per week, Boren said.
“This cross-functional team helped unlock value from legacy university assets,” Pullin said.
The university ultimately awarded a contract to Corix Utilities, Inc. — a firm with experience operating utilities plants on military bases. The company would take over the responsibility for operating and maintaining the university’s utility plants. The contract’s net benefit to the university was about $120 million, Kuwitzky said. Part of that money was used for capital projects and part was used to eliminate the university’s bond obligations on the utility plants. However, Boren said he set aside $25 to $30 million to cushion against the effects of upcoming budget cuts.
“If we don’t have to use it all over the next three years, we’ll hold it back because we could face this kind of situation again,” Boren said.
Boren said that the funds could also be used for the creation of the College of International Studies and the renovations of a monastery in Arezzo, Italy for the university’s study abroad program.
When the project was complete, Boren awarded each of the team members a bonus – ranging from $5,000 to $10,000. He said he also assigned Pullin to regulate the rates that Corix could charge the university and raised Pullin’s salary by $50,000 to reflect the added responsibilities.
Boren said that each of the university’s employees who stayed on with Corix after the deal was completed also received a $10,000 signing bonus. About 30 employees received these sums, university spokesman Chris Shilling said.