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Vice president of Finance John Beaghan responds to some of faculty union’s claims

By Mas Rahman|September 5, 2009

UPDATE Tuesday 5 a.m.: OU said classes still

canceled because faculty contract still not agreed on and faculty

remain on strike/job action. OU vice president of student affair and

enrollment management Mary Beth Snyder said in an e-mail to students

that the “strike” is illegal, that the faculty union hasn’t bargained

in good faith, and that OU will try to get an Oakland County judge to

sign an order today forcing the faculty back to work. The faculty union

said OU’s offer at 4:30 a.m. today was unacceptable and that talks will

resume at 2 p.m.

Visit oaklandpostonline.com and follow us on twitter.com/theoaklandpost or http://www.facebook.com/oakpost to read about updates.

During the faculty strike at Oakland University, OU’s chapter of American Association of University Professors, the union that represents about 600 faculty members, has been making several claims about what OU administration offered in the new faculty contracts during the ongoing negotiations, and about OU’s finances.

The faculty has garnered considerable support from many students who repeat these claims, partly because the OU administration has not been denying or verifying these claims to the students.

Brian Wigman, senior communications major, is one of the students frustrated with OU for trying to take benefits and rights away from the teachers, and said he believes what the AAUP says because he hasn’t heard otherwise from the administration.

“I haven’t heard anything from them [administrators], so what else am I supposed to think?” Wigman said.

While the OU administration doesn’t comment on ongoing contract negotiations and what it’s offering the faculty, John Beaghan, OU’s vice president for finance and administration responded to some of the financial claims the faculty union has been making in an interview with The Oakland Post on Friday afternoon.

The Oakland Post: Did OU put $14 million in reserve — funds leftover from last year, like AAUP said?

Beaghan: “In fiscal year 2008, Oakland University did have an increase in net assets of $14M. In round numbers, the $14M can be attributed, in general, to the following: $3M was endowment gifts, $4M was other gifts, $4.8M was the delayed state appropriation payment from the prior fiscal year, and $2.5M was investment income.”

The Post: AAUP’s president Joel Russell suggested at a rally Thursday that of this $14 million, OU gives $5 million to students, $5 million to faculty, and keeps $4 million in the bank.

Beaghan: “The endowment dollars are not available for spending and have been invested to benefit students and faculty via scholarships, endowed professorships, etc., as directed by donors. The $4M in gifts is being used in the areas which raised the funds (e.g. College, Schools, etc.) for various projects, as intended by the donors and fundraisers. The $4.8M delayed state appropriation is being or has been totally invested in students and faculty via a refund of orientation fees to students, renovation of academic labs and art studios, and moving Career Services from Vandenberg to NFH, all projects endorsed by student leaders. The investment income has funded various projects to improve campus. All of the $14M is being used to benefit students, help faculty, and make the Oakland University campus a better place to learn and work.”

The Post: AAUP also said OU is keeping the money in reserve because otherwise OU’s credit rating would be affected. Why would a decrease in OU’s credit rating be bad?

Beaghan: “Credit ratings influence the interest rate paid on our bonds (higher credit ratings result in lower interest rates). Ultimately interest expense on the bonds is paid by students via tuition, therefore, better credit ratings result directly in lower interest and lower cost to students. In addition, higher credit ratings provide confidence to those who buy our bonds that they are making a good investment. A poor credit rating can prevent an organization from borrowing at all.”

“I hope you understood the Moody’s report I sent you showing that OU does not have an AAA rating as the AAUP has claimed. OU’s credit rating is in fact five steps below AAA, at A2, but still strong as compared to our peers. This egregious misinformation should cause you to question other statements they make about OU’s financial condition.”

The Post: Does OU have over $150 million reserved in its bank?

Beaghan: “As of 6/30/08, the latest audited financial statements, OU had $111M of cash and investments, not $150M as claimed by the AAUP. OU has a quarter billion dollar annual operation. Having available cash is a necessity for any operation our size. Consider an example of a personal financial planner advising someone of how much they should have in savings. A rule of thumb is to have 50 percent of annual income in savings in case of loss of job, emergency, etc. Applying this rule of thumb to OU, we should have half of a quarter billion dollars ($125M) in reserve; we’re a little low.”

Beaghan said OU currently has about $110 million in cash and investments, about the same amount it had in the last audited financial statement in June 2008, and will report this number to the upcoming board of trustees meeting September 16.

Beaghan also said that other than some of the money being required by creditors to keep as a minimum in the bank, other portions of money are kept in the bank to be used in case of emergencies like road or building repair, and some are used to make regular payments like employee payroll.

The Post: Has OU made over $10 million in “profits” every year in the last few years?

Beaghan: “OU’s increase in net assets has indeed exceeded $10M over the past few years, most of which is attributed to the fundraising campaign (gifts) and wise investment management. Gifts and investment earnings cannot and are not budgeted because of their variability. For instance, in fiscal year 2009, OU, and everybody else, had significant investment losses. If we had budgeted to use that money, for instance, for faculty salaries, we would not have had the funds to make payroll for these employees this past year. Instead, gifts and investment earnings are used as one-time funding to fund initiatives, programs and projects which otherwise would not have a funding source.”

The Post: What does “profit” mean?

Beaghan: “‘Profit’ is the net of revenues and expenses. In ‘for-profit’ organizations, the profit is distributed to shareholders or owners. In ‘not-for-profit’ organizations, the net of excess revenues and expenses is invested back into the organization (e.g. funding programs, initiatives, or capital projects). OU is a ‘not-for-profit’ organization.”

The Post: Would it cost OU half a million dollars to give all faculty a 1 percent raise, as AAUP said?

Beaghan: “One percent of faculty total compensation (salaries and benefits) is $594,000.”

The Post: Faculty is speculating that OU wants to use some of the regular public university student tuition to fund part of the private medical school.

Beaghan: “OU has repeatedly and continuously committed to not using undergraduate tuition revenues to fund the school of medicine. The school of medicine is currently being funded by gifts and in the future, once medical students arrive, will be funded by medical student tuition.”

AAUP said it is also trying to find out how to incorporate the medical school faculty into the union, but that OU is blocking their efforts to do so.

Other contract issues of concern to the faculty, according to AAUP, include OU’s freezing of faculty salaries for the next three years, lower health care benefits, less pay for summer classes, no increases in support for research travel, taking away some research and intellectual property rights, and faculty having less say in teaching.

AAUP said one issue was solved. OU is no longer insisting on hiring more fixed-term faculty instead of tenure-track faculty.

As of Saturday afternoon, AAUP and OU are still at the bargaining table, said AAUP representative Lizabeth Barclay.

Related articles

>>AAUP and OU administration still bargaining – Slow progress (posted Sept. 7)

>>Vice president of Finance John Beaghan responds to some of faculty union’s claims (posted Sept. 6)

>>Oakland University faculty strike unresolved – AAUP and OU administration still at bargaining table (posted Sept. 5)

>>Letter to the Editor: Student sends complaint letter to OU administration (posted Sept. 4)

>>Picketing to resume Tuesday unless contract is settled – AAUP, OU at the bargaining table in Rochester (posted Sept. 4)

>>Oakland University’s faculty rally for better contracts (posted Sept. 4)

>>Classes canceled until further notice due to strike (posted Sept. 3)

>>Mixed student reactions to class cancellations (posted Sept. 3)

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