Columbia, MO Columns and Jesse Hall

MOREnet Council Meeting Minutes - March 11, 2010

TIME: 10:00 a.m. – 2:00 p.m.
Thursday, March 11, 2010

PLACE: Room 316
Governor's Office Building
Jefferson City

Members present: Tim Gallimore, Chair, Gary Allen, Russell Brock, Margaret Conroy, Dave Doennig, John Gillispie, Rita Gulstad, Debbie Hughes, Craig Klimczak, Waller McGuire, Deborah Sutton attended for Grant-Engle, Doug Young

Alternates present: Mark Mabe, Barbara Reading, Bill Rodgers, Deborah Sutton

MOREnet staff present: Natasha Angell, Chip Byers, Sherry Loyd, Hank Niederhelm, Greg Silvey

Public present: Jerry Bryan, Ozarks Technical Community College, Bill Giddings

Chair Tim Gallimore call the MOREnet Council meeting to order. Those who were in attendance are listed above.

ACTION ITEMS/INFORMATION ITEMS

Minutes of the December 15, 2009 MOREnet Council Meeting – Approval

Chair Gallimore asked for a correction to the second paragraph, last sentence under FY10 Withhold/FY11 Budget Reduction Scenarios-Discussion section; changed “was” to “were.” Margaret Conroy moved to approve the December 15, 2009 minutes as corrected. David Doennig seconded the motion and it passed unanimously.

Reserve and Fund Balance Use Policies – Endorsement

Debbie Rodman reviewed the policies set at the June 12, 2006 Council meeting and explained why staff believe MOREnet should maintain a minimum 60 days working capital to meet normal business requirements and that the greater of 60 days working capital or the amount deemed necessary for an orderly shut-down for operating be used to establish a minimum operating reserve in each program area. This would replace the current Fiscal Exigency Reserve (FER) policy with a Minimum Operating Reserves (MOR) policy. Rodman to remove “In addition to the current reserve policies” from the Recommended Reserve Policy Changes – Minimum Operating Reserves section to eliminate confusion.

John Gillispie explained that a fundamental issue that MOREnet is encountering is that the USF receivable exceeds the cash on hand by a substantial amount. Today the University of Missouri cash flows MOREnet. Gillispie wonders if that is the best business decision. Chair Gallimore questioned whether in the event of a shut-down, if USF would be required to reimburse those receivables to the University if MOREnet has already shut down. Staff believes MU would be reimbursed, but will clarify. Since MOREnet is an entity of the University of Missouri payments to the University should not be a problem. Gary Allen indicated that the University doesn’t have an issue with the current arrangement due to the fact that the FER was created as a result of a financial audit and review and at the encouragement of the University to create a cushion for MOREnet to be able to systematically shut down operations in the event of a catastrophic defunding.

The current FER is $3.5M, which was a calculation of shut down expenses. This new MOR policy would increase that amount to about $5M.

Craig Klimczak moved to approve the updated reserve and fund use policies. Rita Gulstad seconded the motion and it passed unanimously.

Plant Fund Contributions – Endorsement

Rodman reviewed the current Plant Fund (PF) contributions policy and explained the need to fund the PF through the cost allocation methodology with contributions from all appropriate areas. The current capital equipment replacement cost is expected to be $9.6M. Last year the PF contribution for FY11 was estimated at $1.1M. Staff has clarified that this amount should be $1.045M in order to let the PF grow until FY19 and then use the balance to replace the optronics equipment. Waller McGuire moved to approve the updated PF policy based on the cost allocation methodology that was passed. Craig Klimczak seconded the motion and it passed unanimously.

FY10 Budget Withholds – Endorsement

Rodman gave a breakdown of the 45% appropriation reduction, the current appropriation distribution and the expense reductions. Chair Gallimore questioned what the PF contribution suspension consisted of and Hank Niederhelm replied that the funds were going to be used to upgrade the core routing infrastructure earlier than scheduled but the equipment can be sustained until the regularly scheduled upgrade time. Rodman added that the video replacement also came in under budget. Doennig asked if the recommendation was only a fix for right now and if by some chance additional funds became available that MOREnet would be able to also partially fund the PF. Rodman indicated that could be done.

Klimczak said he would like to get the state leaders to understand that MOREnet is not a telecommunications competitor. Gillispie reported that he has spoken with the Missouri Telecommunication Industry Association’s Executive Director and explained that two-thirds of MOREnet’s revenue goes straight back to the private sector. He is hopeful that will help.

Gulstad moved to endorse the FY10 appropriations withholding plan. Doennig seconded the motion and it passed unanimously.

Mid-Year Reprojected FY10 Budget – Endorsement

Rodman reported that there have been changes in the FY10 projected revenues and expenditures from the FY10 original budget. Mid-year FY10 reprojected revenues are lower than original budget by ($6,063,000), expenses are lower than original budget by ($2,853,000), and PF contributions of ($1,110,000) were removed, for a net decrease in revenues over expenditures of ($2,100,000).

Conroy moved to approve the endorsement of the mid-year reprojected FY10 budget, including the suspension of the PF transfer for FY10. Klimczak seconded the motion and it passed unanimously.

FY11 Cost Allocation Methodology – Endorsement

Gillispie shared and explained a map depicting the cost per megabit across the state for providing Internet connection to K-12 schools. This map is included in the MOREnet legislative handouts and staff will post them on the website. MOREnet’s message has been that MOREnet has sustained cuts and is doing okay but don’t cut anymore because there is not enough time to restructure. MOREnet’s network fundamentally has three funding sources; member fees (about 25%), E-rate (about 25%), and appropriations (about 50%). Gillispie explained that because of recent cuts in the appropriations, it is hard for the members who’ve been paying 25% to come up with additional monies fast enough to be able to accommodate a rapid change. This message has been well received by the legislators who Gillispie has met with.

Gillispie wants a methodology that shows clear revenues and expenditures as well as supports network growth. He gave an overview of the proposed cost allocation methodology pointing out that he understands that it doesn’t drive costs to the individual member but to member groups and therefore is not perfect but is heading in the right direction.

Gulstad moved to amend MOREnet’s recommendation by removing – only if an agreement can be reached by the MOREnet Council on HB3 allocations that treat member groups equitably and do not result in lower overall member fees for any member group – from the recommendation. Conroy seconded the motion to amend and it passed unanimously.

Klimczak moved to approve the proposed cost allocation methodology. Gulstad seconded the motion and it passed unanimously.

HB3 Appropriation Allocation – Decision

Gillispie reviewed the HB3 history chart and explained that in FY04 when HB2 and HB3 merged, the Council agreed that TNP would not fall below the amount appropriated in FY03. The 32% shown for FY04 was the amount committed to TNP. Over time the amount of dollars appropriated to TNP has risen to 40% primarily due to reduced connectivity costs for MERC.

Klimczak added that prior to the merger, 100% of MERC’s connection cost was covered and after the merger only tail circuit costs were covered. MERC members also started paying a bandwidth fee that exceeded the previous cost to them. Several institutions didn’t use their full allocation (used 1 tail circuit when granted 3) and TNP benefitted but when the costs started getting allocated, more of the costs started getting allocated to those who were taking advantage of their full allocation. Part of the reason TNP gained 8% over that period of time was because there were institutions not taking advantage of what was allocated to them. This was good for TNP and good overall but it wasn’t the original intent of the funding. The MERC board agreed to let TNP stay at the 40% of what is allocated but doesn’t want it misrepresented that the allocation percentage was all because MOREnet saved money on connection costs.

Rodman also added that there was a cut in state funding in FY06 of 30% which resulted in the Shared Network Support fee. For MERC it was an explicit network connectivity fee that was direct billed. TNP and REAL were assessed on the same basis but due to their multiple program funding it shows up as a transfer. In FY07, the cost allocation approach changed resulting in a shift of funding to TNP. In FY08, $2.5M was given back to MOREnet due to an appropriation request to support the cost of growth. This resulted in TNP going from 36% to 38%. In FY09, TNP went to 40% due to growth and MERC need.

Doennig moved to adopt a methodology to fund the core network first out of HB3 with the remaining HB3 funds being split 90% to TNP and 10% to MERC. Russell Brock seconded the motion. Klimczak didn’t have agreement from the MERC Board and therefore couldn’t agree with the motion.

Gulstad suggested an amended motion to adopt a methodology to fund the core network first out of HB3 with the remaining HB3 funds being split 85% to TNP and 15% to MERC for FY11 with the Council reevaluating for FY12. Doennig accepted the amended motion. Conroy seconded the motion. A vote was taken and the motion passed with Brock voting against the motion.

Preliminary FY11 Budget – Endorsement

Rodman gave a review of the FY11 preliminary operating budget, which is based on the Governor’s recommendation for appropriations, FY10 member fees and Shared Network support levels, and preliminary estimates of expected expenses. The net result is an increase in revenues of $3,926,000, an increase in expenses of $521,000, when compared to the mid-year reprojected FY10 budget, and an increase in PF contributions of $1,045,000, for a net increase of revenues over expenses of $2,360,000 compared to mid-year reprojected FY10, with an overall deficit of ($1,359,000) yet to be addressed for FY11.

Conroy moved to approve the FY11 preliminary expense budget subject to final appropriations. Gulstad seconded the motion and it passed unanimously.

DISCUSSION/INFORMATION ITEMS

Governor’s Budget Recommendations and Program Updates – Information

DESE – HB2

Deborah Sutton reported that HB2 is on schedule. The House Appropriations Committee put more money into the funding formula. On March 15 Representative Icet will present his house budget bills to the House Budget Committee. On Wednesday and Thursday those bills will be amended with the Senate Budget hearings expected to start the week of March 22. DESE’s top priority is the funding formula.

DHE – HB3

Chair Gallimore reported that the Department of Higher Education is being asked to make cuts that would eliminate 20-30% of its staff. There are constitutional amendments proposed to merge and/or eliminate departments, as well as testimony being given on several items in the budget. One controversial item has to do with Missouri Access funds and is taking a lot of staff time.

MOSL – HB12

Conroy reported that MOSL has received a 5% reduction to its GR core with no reduction in the library line items. However, cuts are expected. Staff is researching how library fees are set and if any restructuring might be needed. Online database services that affect all MOREnet customers would be cut before any library tail circuits. Members of the public library sector have done a marvelous job educating their legislators about the importance of MOREnet.

Stimulus Update – Information

Chip Byers reminded everyone that MOREnet is trying to come up with a single vendor solution to cover a large portion of the state using stimulus funding. Unfortunately, no single partner has come forward with match money, therefore, prohibiting MOREnet from submitting an application. MOREnet then contacted the state about working together to try to build a stronger application for the second round, which calls for connecting anchor institutions (schools, libraries, community colleges, higher education, and public safety). MOREnet connects all these anchors except those in public safety. A combined application was not possible and staff understands that a patchwork of applications is going forward. MOREnet has been asked to endorse some of those applications. In order to endorse an application, per the University’s legal department, MOREnet must offer a set of requirements and if those are met MOREnet would then have to endorse that application. MOREnet is close to endorsing 4 proposals. Byers will share the endorsement requirements with the Council.

Byers questioned if the Council had any thoughts on the need to advise/coach institutions on any endorsements that they may be asked to give.

Conroy inquired about the Google community fiber project and the possibility of the City of Columbia doing a pilot project. Gillispie reported that he has been attending the local meetings and attended a webinar last week hosted by National Association of Telecommunications Officers and Advisors (NATOA). The city of Columbia is pursuing an application and there is a working group assisting them in putting together the attributes that Columbia offers. If Columbia is selected, Google would provide fiber to every home in the city. Allen added that the University feels that it along with MOREnet, Stephens College and Columbia College represent assets that the community could leverage in this endeavor.

Legislative Update – Information

Natasha Angell reported that in December, Kyle Dare, Puxico R-VIII Superintendent, testified on behalf of MOREnet before the Senate Appropriations Committee and that in February, Nikki Krawitz, UM VP of Finance, testified on behalf of UM Related Programs including MOREnet before the same committee.

In January and February, Gillispie addressed questions from the House Appropriations Education Committee on several occasions, attended many hearings and met with many representatives. From those meetings he feels that MOREnet has support and that the representatives understand the value MOREnet provides. However, this legislative session is extremely difficult. The representatives told Gillispie that they need to hear from the constituents, not from MOREnet.

Gillispie and Angell also met with the following member-related associations: February -- Missouri Association of Rural Educators and the Missouri Association of School Administrators, in March – Missouri National Education Association and the Missouri School Board Association. Staff is attempting to schedule a meeting with the Missouri State Teacher Association.

MOREnet participated in the following events: ShowMe TechKnowledge Day in January, Library Advocacy Day in February, and UM Legislative Day in March.

Staff has made calls to members in the House Appropriations Education and Budget Committee member districts and will make calls to the Senate Appropriations Committee member districts next week seeking their support.

Angell will have staff post the current legislative handouts on the MOREnet webpage at www.more.net/content/legislative-resources.

Additional April Meeting to Discuss Member Fees

It was decided that no additional meeting will be needed. Gillispie advised that he believes each program needs a 2-3 year plan to bring fees in line with the costs.

Meeting Schedule

  • July 30, 2010
  • Suggested agenda item:

    • How services are currently charged and if that practice should continue in the future?
  • October 22, 2010
  • December 14, 2010

Open Time for the Public to Address the Council

There was no comment from the public. Doennig moved to adjourn at 2:40 p.m. Gulstad seconded the motion and it passed unanimously.

Respectfully Submitted by Sherry Loyd