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Officials discuss EERC’s deficit

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GRAND FORKS — University of North Dakota officials discussed how to address the operating deficit of the Energy and Environmental Research Center in the months leading up to its director being put on paid administrative leave, memos and meeting minutes show.

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But whether the center’s finances have anything to do with Gerald Groenewold’s leave is unclear.

A memo dated Jan. 24, forwarded from Groenewold to UND President Robert Kelley, “summarizes a critical long-term financial issue which has been extremely problematic for the EERC and has been the topic of numerous discussions between the EERC and UND administration offices for over 10 years — without resolution,” Groenewold wrote in a cover letter.

The memo was written by Tom Erickson, who has become the EERC’s acting director since Groenewold was put on leave May 5. The EERC is an applied research, development and commercialization facility focusing on efficient energy and environmental technologies, and Groenewold has been its director since 1987.

The EERC employs 235 people.

‘Huge disadvantage’

In the January memo, Erickson describes the facilities and administrative income that comes from research contracts with the EERC. That income is split between UND and the EERC, due to the indirect costs both incur for research activities, said Alice Brekke, UND’s vice president for finance and operations.

“The current method of distributing F&A income is for the university to receive a specific percentage, and then the remainder of the income is distributed to the EERC,” Erickson wrote. “This is a huge disadvantage to the EERC as it requires a specific percentage to cover its costs.”

Erickson wrote that of the 49 percent F&A rate applied to the direct cost of research set during fiscal year 2010, 7.7 percent was distributed to UND and the remainder, nominally 41.3 percent, went to the EERC. But he wrote that the EERC required 46.4 percent of the rate to cover its expenses.

“As a result, the EERC under-collected $900,000 in that fiscal year alone,” Erickson wrote. He suggested that the EERC should first receive enough F&A income to cover its costs, and the remainder go to UND.

“The current method of allocating F&A is designed for the EERC to lose money,” Erickson wrote, adding that the EERC has reduced its overhead costs by $3.3 million over the past few years.

Groenewold said Wednesday he could not speak on the record about EERC finances, as he was told not to speak on behalf of the EERC while on leave.

He did say, however, that he has not heard from UND officials since last week regarding his leave. UND spokesman Peter Johnson declined Wednesday to explain the decision.

Emails to and from Kelley and Provost Tom DiLorenzo in the days leading up to Groenewold being put on leave don’t explicitly point to reasons for the move.

Dealing with deficit

Meanwhile, UND officials have been trying to find ways to alleviate the EERC’s deficit.

Brekke told a State Board of Higher Education committee in April that the EERC had an operating deficit of a little more than $1 million as of June 2013. A deficit reduction plan approved in September 2013 anticipated it would increase by $300,000 in fiscal year 2014, and a repayment plan would begin the next year.

Johnson said the university is carrying the EERC deficit, and the plan is that the EERC would repay UND over time. The EERC is a part of UND.

“EERC has made a small staffing reduction and had a number of factors in place to increase awards to support the staffing levels, but has not reached those goals,” the meeting minutes state.

A mid-March review showed the deficit could grow by $750,000 instead of the $300,000 expected in the deficit plan, Brekke told committee members, according to the minutes.

The April 16 state board Budget and Finance Committee draft minutes state that “the EERC director requested that President Kelley provide a greater proportion of indirect cost recovery back to the EERC to address the deficit,” referring to the January memo.

“To date, the President has not acted on the request as it has broader financial implications for the university,” the minutes state.

“It would be of concern if essentially the model said, ‘Whatever the EERC spends is what they get of the recovery, and then if there’s anything left the university would be able to have dollars to support its central costs,’” Brekke said in a phone interview Wednesday. “So that’s where the challenge comes in.”

The committee asked Brekke to return with a new deficit reduction plan for the EERC, which Brekke said could be ready by June.

“There is a dialogue ongoing as we speak,” Erickson said in a phone interview, adding that consultants are looking at the financial model of the EERC. “We will basically sit down and work together on a path forward.”

Erickson said a downturn in the economy and “intermittency” in federal funding have contributed to lower revenues for the EERC, and made the F&A issue more significant.

“I believe in the EERC, and I believe in the future of the EERC,” Erickson said.

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John Hageman
John Hageman covers local business and Grand Forks' legislative delegation. Get more business news at aroundtown.areavoices.com. 
(701) 780-1244
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