Discussion of Chemistry/Biochemistry Building

April 7, 2004


In attendance:

Director Chuck Swysgood

Director Tom Beck

Senator Tom Zook

Senator Fred Thomas

Chief Architect Tom O’Connell

Regent Richard Roehm

Geoff Gamble, President

Dave Dooley, Provost

Tom McCoy, VP Research

Craig Roloff, VP Administration and Finance

Bob Lashaway, Director Facilities Services

Rolf Groseth, Executive Assistant to the President

Cathy Conover, Communications and Public Affairs


Purpose of the meeting

MSU invited the Governor’s Budget Director to campus to discuss its request for approval for the Regents to authorize the design and construction of a Chemistry/Biochemistry building on the Bozeman campus.  In accordance with 18-2-102(2) (C), MCA, this project requires approval of the Board of Regents and the consent of the Governor because the cost of the projects will exceed $150,000.  This project meets the requirements of 18-2-102(2) (C) MCA ast it is entirely funded with federal F&A revenue and will not result in any new programs.


Issues raised by Chuck Swysgood:


1.       Statute provides for the Governor to approve buildings financed with federal or private funds if the construction will not result in new programs.  Swysgood expressed a concern that O&M could be considered a new program.  I would not support approval outside of legislative process if the plan is to ask for state support for O&M.


MSU indicated that it intends to use IDCs (F&A) for O&M as well as debt service on the bonds.  We are asking for the Governor’s consent to approve the Board of Regents initiating construction.  Neither MSU’s Board Item nor any letter to the Governor will include a request for a financial commitment from the state for O&M.


2.       Swysgood Qquestioned what our interpretation is of the appropriate use of IDCs.


Tom McCoy indicated 1989 legislature included language in HB2, and MSU has consistently complied with that intent language, using IDC revenue for strategic investments to grow our research programs (examples:  faculty start-up packages, compliance with federal requirements, support services such as the Animal Resource Center.)  MSU also has used these funds for major renovation projects such as AJM Johnson.


Swysgood pointed out that the language is no longer included in HB2, and that in 1989 the volume of IDCs was significantly less.  Montana’s current context of limited resources causes us to question whether those funds aren’t more important to upgrade other campus buildings on the academic side.


Dave Dooley pointed out that MSU uses IDCs for facilities which house sponsored research, vs. instructional classes.  MSU would not, for example, feel it appropriate to use IDCs to renovate teaching facilities in Gaines Hall.


Bob Lashaway noted that sometimes MSU has projects funded by IDCs that allow it to leverage the investment to address needs on the instructional side (such as upgrading the electrical system for a building with research labs, which also benefits the classroom space.)


3.       Swysgood asked whether these will be revenue bonds, because the Regents have the authority to issues revenue bonds on revenue-generating facilities without approval from the Governor?


Craig Roloff indicated these are revenue bonds, but MSU is hesitant to categorize this as a revenue-producing facility, as research facilities are not included in the list in statute.  This debt will be part of our overall bond program.  Because the coverage ratio is higher than for other issues, it might enhance our overall bond program.


Gamble commented that we didn’t want to distort the purpose, but wanted to ensure full support.


Craig noted that MSU has worked with both its own and MUS legal counsels, and has been assured that the Regents have the authority to approve the issuance of bonds for this project.


       Swysgood asked how MSU can ensure it has adequate IDC revenue to retire this debt and

4.       cover O&M?  


McCoy indicated the annual costs (debt service and O&M) will average about $2 million, and the campus would plan to take this amount off the top of recovered IDCs.  If there were a shortfall, MSU would have to cut into other needs supported by IDCs.


5.       Swysgood noted that MSU has a significant fund balance; why not use some of that money to reduce the bond commitment?


Craig explained the campus handles a significantamount as a payable from grantors; the campus incurs the expense and then bills the federal government.


Swysgood indicated he would talk with the Governor about our project, but he couldn’t recommend the project unless the University would cover O&M.  He indicated if it were up to him, he would rather see us use the money to fix up existing buildings, but he would talk with the Governor and let us know the decision.


Issues/questions of other meeting participants:


Fred Thomas asked about usage in Gaines, and savings due to current interest rates.


100-120 undergraduate majors and 70 graduate students, plus several thousand students who take chemistry courses but are in other majors.  Approximately 15,000 student credit hours taught.


The financing rate could save us approximately $100,000/point.  MSU would let the bonds now, all at one time, not spread over time.  A delay in obtaining approval on the project would mean the campus would miss the 2005 construction season, which could drive up construction costs.


Tom O’Connell indicated MSU could begin design, and wait until the next legislative session, and possible ask for O&M.


Gamble indicated that MSU is willing to cover the O&M at this time, as a part of our partnership with the state.


Senator Zook indicated that by not going through the legislature now, the campus takes the risk of not having legislative support for O&M in the future.



Plan for Obtaining Approval


            If the Regents decide to approve this Board Item, then based on discussions with the Governor’s representatives and Legislators, MSU would suggest the following language for the “letter of consent” the Commissioner must send to the Governor:


Dear Governor Martz:


The Board of Regents has approved this project.


A copy of the Board of Regents Item approving this project is attached.


This project will be funded entirely with F&A revenue from federal research grants.  This project will not result in any new programs, and MSU is not seeking any legislative funding for O&M costs at this time.