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May 17, 2005

Regent David Walsh Testimony

Legislative Audit Committee hearing
Vehicle Fleet Audit

Good Morning.  I am David Walsh, Vice President of the University of Wisconsin System Board of Regents.  Thank you for the opportunity to speak with you today. 

The issues raised by the Legislative Audit Committee Report focus on the System's decision to eliminate the Chancellor's contractual right to a State Fleet Automobile and substitute a $700 monthly payment.  Some background is necessary. 

The Board of Regents, as required by Section 20.923(4)(g) Wis. Stats. is required to determine salary ranges for the Chancellors based on an analysis of salaries paid for similar positions at comparable universities in other states and "fix" those salaries pursuant to Section 36.09(1)(e) Wis. Stats.  While the Board is charged by statute to determine the range and fix the salary, the President, pursuant to Sections 36.09(1)(f) and 36.09(2) Wis. Stats. is delegated the general authority to manage the business of the University System.  This includes determining the appropriate reimbursement and an allowance for benefits consistent with the responsibilities imposed on the Chancellors.  These responsibilities include but are not limited to promotion of their respective institutions, significant external relationships including fundraising, coordinating foundation activities, outreach and representing the institution throughout the state.  These responsibilities are in addition to the Chancellors' significant responsibility of leadership on behalf of their faculty, staff and students.  The President of the System is responsible to negotiate and coordinate those activities and assist the Chancellors in fulfilling them.  The files of every single Chancellor reflect the commitment on the part of the University System to provide an automobile to assist the Chancellor in fulfilling those responsibilities.  To that end, every Chancellor serving today, going back as far as 1988, had a contractual right to a car.  And, because of President Lyall's decision in 2004, it should be noted that the Chancellors did not pay taxes for the use of the vehicles. 

While there were some variations, the cars were typically a Ford Taurus or Dodge Intrepid.  In June, 2004, the Department of Administration, as part of its review of Fleet Policies identified a number of the Chancellor's vehicles as being underutilized.  In addition, certain policies and rules of the IRS suggested that depending upon the value of the vehicle the Chancellors would have to report additional compensation.  Accordingly, in July, 2004, then President Lyall decided that the UW System would surrender all state cars assigned to Chancellors and instead pay each of them a monthly automobile allowance of $700.  The auto allowance, unlike the assignment of a fleet vehicle is subject to State and Federal taxes but does not contribute toward a Chancellor's retirement income. 

The $700 payment resulted in an after tax amount, depending upon tax circumstances of between $490 and $560.  Based on the IRS lease value tables, the approximate after-tax payment of $525 assumes  a car valued at $23-$24,000. 

The allowance is meant to cover only the cost of the car, not the total cost of ownership.  Thus, like other state and university employees who use their personal car in the performance of their work, Chancellors receive a mileage reimbursement in addition to the $700 a month auto allowance. 

I appreciate that you might have some additional questions regarding this background, but let me use this opportunity to comment on what is an ongoing and very serious problem facing the University of Wisconsin System -- This is, the loss of quality leadership to our competition.  We certainly understand that these are difficult economic times for the State of Wisconsin.  Moreover, we appreciate the challenges each of you has in determining a budget for the State of Wisconsin.  However, we cannot ignore that we are bleeding leadership.  For example, we are presently looking for three new Chancellors, at Whitewater, Eau Claire and the combined Extension and College Systems.  In the last year, we filled three Chancellorships at River Falls, Stevens Point and UW-Milwaukee.  In addition to the obvious cost of losing leadership, the actual out of pocket cost for these searches is a minimum of $100,000 per search for a total of $600,000 in the last two years.  The simple fact is that we are not competitive.  We pay our Chancellors near the bottom of the approved ranges and even those ranges are significantly lower than the total compensation packages our peers pay.  Not only do we pay less for many allowances but many of our competitive peers also include significant deferred compensation in addition to higher salaries.  That said, we recognize these are difficult times and that all of us need to tighten our belts.  This is the primary reason we pay at the bottom end and we encourage our candidates to look at the other benefits of life in Wisconsin. 

Our message is that we need your help in preserving our ability to offer our Chancellors' compensation packages competitive against our peers.  We appreciate your concern regarding this matter and, look forward to your leadership in moving all of us forward in the right direction.