Kennedy’s resignation allows him to transition to a position where he will oversee special projects in statewide economic development and educational opportunity, according to university spokesman Joe Carr.

Chancellor Richard Pattenaude and the president began discussions about the possibility of a new role for Kennedy at the system level in October.

“We just sort of started to explore what I wanted to do and what I wanted to spend my time and focus on,” Kennedy said in an interview on Wednesday. “We came to the conclusion that these would be not only interesting projects but something that my background would help with, and also something very important to the students across the system at other campuses.”

“This is an evolving process,” Kennedy said. “I talked to the chancellor this morning, and neither of us really know how this role will be structured or where exactly it will be going.”

Kennedy said that while the specifics were unknown, the focus of his new position would be on sustainability and green initiatives, and to create a statewide curriculum on alternative energy. He said he would continue his focus on federal research funding to benefit the university and the state. He said he would continue to tackle the challenges, especially economic pressures, that face the university system.

“I’m an optimist,” Kennedy said. “But part of me has always asked, ‘How can we surmount these challenges, what can we do to overcome them, to put the university and ourpeople in the best position?’”

Though his new role will have him working on system- and state-wide projects , Kennedy will be a faculty member of  UMaine, according to University of Maine System spokeswoman Peggy Markson.

“We’ve had faculty members at the universities work on special projects before, sort of ‘on-loan’ to the system office,” Markson said. The university will be compensated by the system office for Kennedy’s position.

A search committee to find a new president for UMaine, comprised of a board of trustees member, undergraduate and graduate students, and faculty members, will begin the process of replacing Kennedy in September, according to Markson.

With the time he has left as president, Kennedy will continue projects he’s been working on, including the Academic Program Prioritization Working Group, the establishment of UMaine as a tobacco-free campus and continuing to secure grants and federal funding for the university.

“My focus will be on positioning the university in the best possible way as we surmount the challenges we face,” Kennedy said.

Kennedy names the expansion of the Honors College, the focus on climate change, the success of Habib Dagher’s Advanced Engineering and Wood Composites Center and his fundraising record among his proudest achievements as president. According to a statement from UMaine, the university has amassed more than $100 million in investments under Kennedy’s nearly seven-year tenure, which includes his time as interim president.

Kennedy came to UMaine in 2000, and served as executive president for academic affairs and provost, as well as interim president, before his appointment to the presidency in April 2005. He holds a doctoral degree in plant botany from the University of California at Berkeley. He was a finalist for president at Kansas State University but withdrew his name from consideration before a final decision was made.

Kennedy’s resignation was first reported in Wednesday’s issue of the Bangor Daily News.

Two recent independent analyses of the system’s finances, one commissioned by the Associated Faculties of the Universities of Maine and the other by the University of Southern Maine student senate, asserted the system has large cash reserves it is unwilling to tap into.

“Any suggestion that the University of Maine System is broke or out of money is preposterous,” wrote Howard Bunsis, professor of accounting at Eastern Michigan University, in his analysis for USM’s student senate.

Without directly responding to either analysis, Pattenaude sought to tamp down concerns the system is not using its reserve funds while the economy is in a downturn.

“You cannot make long-term commitments using one-time money,” Pattenaude wrote. “This is tantamount to buying a car because you have enough savings to pay the first few months’ payments, but not enough income after that to cover the ongoing costs.”

Pattenaude also stated that much of the system’s funds are restricted, meaning they are reserved for a specific use such as scholarships.

According to the system’s most recent annual financial report, it has nearly $132 million worth of restricted funds and $83.6 million in unrestricted funds. Restricted funds are down $14.7 million from 2008-2009, but unrestricted funds are up $6.4 million. Pattenaude said the system is currently aided by federal stimulus funds, which can not be counted on in the future.

“The next direct challenge, following the current year budget cut of $6 million, will be the permanent loss of $5.9 million in stimulus funds after FY [fiscal year] 2011,” Pattenaude wrote. “Stimulus funds are helping us handle the current budget cut, preserve jobs, pay the bills, and hold tuition increases down.”

“We cannot accept the idea that state revenues will return quickly to former levels and that enrollments can be increased with ease,” Pattenaude wrote in the e-mail. “Nor can we simply ignore the costs of retiree health care or deferred maintenance for several years.”

The system is projecting flat enrollment for the next several years, according to system spokesperson Peggy Markson. The system’s enrollment has decreased 4.3 percent over the last five years.

Bunsis, a certified public accountant accountant, said Wednesday that universities generally use overly pessimistic projections and that enrollment at institutions of higher education generally increase when the economy is in trouble.

“I think the [University of] Maine System has more financial flexibility than they are claiming,” Bunsis said. Bunsis based his findings on expendable assets, which include unrestricted and some restricted assets, he said.

The accountant rejected the assertion that the system is in trouble. “I really think that’s unfair,” Bunsis said. “I really think that borders on irresponsibility.”

The system spends too much money on administrative costs and should cut in those departments before furloughing or cutting faculty, Bunsis said.

“The University of Maine System is not putting enough dollars into education,” Bunsis said.

According to the analysis of audited financial records conducted by accountant Howard Bunsis, both the system and USM have positive revenue streams, healthy cash reserves and low levels of debt.

The system office has said that cuts from the state legislature have forced them to reduce funding to its seven campuses. But according to the report, over the past five years the system office has amassed large reserves, known as unrestricted net assets, and in 2009 — the year that USM withstood $2.7 million in cuts from the system — its net assets grew by $11 million.

The analysis, paid for by the USM’s student senate with $1,000 of student activity fees, confirms the findings of another recent report conducted by New Jersey accountant Leroy Dubeck that was commissioned by AFUM, the system-wide faculty union.

The findings clash with statements from university officials, who have maintained both institutions require restructuring and cuts in order to maintain operations. “Any suggestion that the University of Maine System is broke or out of money is preposterous,” Bunsis wrote in his report.

The student senate commissioned the analysis by Bunsis to verify the findings of the Dubeck report. Both audits say the system is in good financial shape and can use their substantial reserves to offset cuts from the legislature.

The report also finds that in the past five years, USM’s total revenues exceeded total expenses every year except for 2006. USM had surpluses of $4 million in 2007 and 2008, and $14 million in 2009.

“I was really surprised to see that there was a discrepancy; that the audit suggested we don’t have a deficit,” said Maggie Guzman, USM’s student body president. “That doesn’t make sense to me. All of these things are being cut, we’re making all of these consolidations, and then there is documentation that no cuts are necessary.”

University officials say the budgetary process isn’t that simple.

While it appears USM has profits, Dick Campbell, USM’s chief financial officer, said these are tied up in other funds besides the E and G account — the main fund academic departments draw from. He did say it would be possible to move money around to avoid cuts to departments.

“Some of this seems to talk about the extent to which we have the ability to redirect some of these assets and I think that’s a subject for some conversation,” he said.

Campbell said the data and analysis in Bunsis’ report is accurate, but disagreed with the way Bunsis delivered it.

“He’s using some powerful words. I’m not going to debate some of the points and statements he’s making,” said Campbell. “I don’t find that helpful to having a reasonable discussion about what our financial situation is.”

According to its public financial statements, the system has $84 million in its reserve fund, more than double the $40.5 million it had in 2001. But Rebecca Wyke, vice chancellor of finance for the system, said that while it bettered its financial condition year after year, the reserve fund — or unrestricted net assets — is partially spoken for by each of the campuses, and some of it is set aside to back up federal grants.

“While we could draw down our reserves, I guess, to do whatever it is they would like us to do, what do we do next year?” Wyke said.

“I think that people need to have a longer view than just the immediate year in front of them,” Wyke said. “To question how is it that we would sustain that over time. Either we need to increase our resources or we need to reduce our expenditures and the reality is we really need to do both.”

“In January, our retiree health costs are going up almost $6 million beyond what we had budgeted. So instead of asking the campuses to contribute to it, that reserve will go down in order to cover that cost,” Wyke said. “A lot of the reserves reside at UMaine but almost all of it is committed to building projects.”

But according to Bunsis, unrestricted net assets, by definition, are not set aside for any one purpose.

“The accounting rules are clear: Once something is designated by the external auditors as an unrestricted net asset, that means that the governing body has the flexibility to use those net assets as they see fit,” Bunsis said in a phone interview Wednesday evening. “Claiming that those net assets have been earmarked for this or that is really a claim without any meaning.”

“From a budgetary perspective, we can’t just draw down our reserves until they’re gone and then deal with it,” said Wyke. “That would not be prudent. We have some responsibility here to make sure that a very large state-wide operation continues to operate day-to-day and that does require that we have some contingency.”

Members of the executive board of the USM’s student senate said the audit casts doubt on the integrity of USM and system administrators. Senate chair Molly Dolby said senators wanted their own analysis, after details of the Dubeck report appeared in The Free Press, USM’s student newspaper. AFUM has not released the document publicly.

“I have faith in Selma [Botman]. She’s the head of the school; I respect her,” Dolby said of the USM president. “I’m just kind of looking for answers. Are the reports based on fallacies? Are they missing a key piece? Are they looking at too small of a picture? Those are the kinds of answers I want to hear from them. I invite them to explain that [the audits are] wrong and to give a clear explanation as to how and why.”

Botman was unavailable for comment Wednesday afternoon.

“I’m not jumping to any conclusions of any misuses of money or anything like that, but I would like to know where the money went,” said Guzman.

Wyke said the system is more concerned with future budgets than past results. Last January, it identified a $42.8 million structural budget deficit over the next three years across the university system. The deficit is based on anticipated cuts by the state legislature and the recent trend of flat or declining enrollment.

The board of trustees set in motion a plan Nov. 16 to deal with the deficit by freezing faculty wages, increasing online classes and creating three year degrees.

Bunsis said the system is good shape, and those concerned should remember how things turned out the last few years.

“Budgets are just plans, and administrators always say, ‘Oh my god, look at how bad the future is going to be.’ But they’re just plans. All that matters is the actual results that are audited by an external auditor,” Bunsis said.

Bunsis’ report is a preliminary look at university finances. He plans to perform additional analysis of cash flows, liquidity and debt levels and a formal ratio analysis used by Moody’s in municipal finance. He said he expects further investigation will corroborate his initial findings.

This article was originally published in The Free Press, the student newspaper at the University of Southern Maine. Reproduced with permission.

Nobody thinks the system’s current structure is optimal or sustainable. The board’s chair, Joe Wishcamper, said the system’s current structure could result in budget gaps of more than $40 million per year. Nevertheless, the chancellor and the board are sadly misinformed when it comes to the best way to structure the system.

If the system’s budget is any indication, administrative salaries are by far the biggest problem facing the system. As reported last year, the system spends more than half its budget on salaries.

Obviously the system office’s primary goal is to administrate, not teach, but it seems like administration could be streamlined across the board. To his credit, Pattenaude said increased use of MaineStreet will lead to the streamlining of administrative positions, but we doubt he’s talking about the drastic cuts necessary to fix our budget shortfall without negatively impacting the product the system offers — our education.

The system should focus its efforts on funding faculty and endowing scholarships, which will, in the long run, build the school’s reputation and desirability and enhance what should be any state school’s mission of providing the best education possible. Instead, the system seems inclined to limit expenditures on faculty and cut low-enrollment courses, moves that will drive away both faculty and students. The restructuring process should refocus the system’s mission on — and it’s unfortunate we even have to say this — making education as affordable as possible. Instead, it seems as if the system is suggesting an increased — not decreased — administrative presence.

The most disappointing aspect of the process has been the response from the board of trustees. There has been little or no resistance from board members to the proposed changes — a shocking lack of due diligence.

FairPoint recently bought the telecommunications operations for Maine, New Hampshire and Vermont from Verizon. Since the switch, FairPoint has faced strong criticism for its service and has had to answer to regulators in all three states.

FairPoint and the University of Maine System are now competing for federal funds to expand high-speed Internet, according to spokespeople from both organizations. Kennedy said he has not been officially approached to take part in the discussions.

“The subject, in terms of decision-making, has not come up,” Kennedy said, although he has talked informally with both parties. Kennedy said the official conversation has not yet reached either the university presidents or the Board of Directors.

If Kennedy was asked to engage in an official conversation, or if he were in any other way to encounter a conflict of interest, he said he would immediately recuse himself.

“[Kennedy] believes that the state’s telecommunication’s infrastructure is critical to the state in many ways,” said Joe Carr, UMaine’s Director of University Relations. Kennedy now has a role in helping to determine the future of the state, Carr said.

Kennedy has not been involved in FairPoint’s regulatory hearings, either, saying only that there have been some “general briefings, occasionally.”

According to a report filed by FairPoint, non-employee members of the Board of Directors receive a $55,000 retainer for their service and about $45,000 in stock awards per year.

In addition, board members can receive an additional stipend for work on a particular committee. Kennedy received $15,000 over two years as a member of the succession committee, which picked FairPoint’s next Chief Executive.

Kennedy was appointed in March 2008, and therefore did not receive full compensation for that year. Kennedy received $84,068 in compensation from FairPoint in 2008, according to the report.

Combined with his $210,405 salary, not including benefits, from UMaine in 2008, he earned nearly $300,000 last year.

Kennedy has since been re-elected to serve FairPoint until 2012.

The board meets four times a year in person, and approximately four more times by teleconference. Kennedy said he takes personal leave when attending such meetings.

Kennedy was suggested for the Board of Directors by Verizon. When FairPoint purchased the telecommunications operations in Maine, New Hampshire and Vermont, Verizon spun its New England operations into a separate company, which FairPoint immediately acquired, according to Eric Rabe, Verizon’s Vice President for Media Relations. Verizon shareholders then had a majority stake in the company, and Verizon had the right to appoint three members to the Board of Directors. Verizon chose one member from each of the three states, although they had no requirement to do so.

“We tried to pick folks who we thought would be good stewards of FairPoint,” Rabe said.

According to Kennedy’s contract, he “shall not, without prior written permission from the Chancellor, enter into services of any professional nature with any person or firm other than to the UMS, and shall absolutely not engage in any activity that may result in a conflict of interest or be competitive with and adverse to the best interest of the UMS.”

Kennedy said his membership on the board was approved by the system office and that he met several times with the chancellor and the system’s legal counsel before making a decision.

“You want your president to be attractive to different industries,” Kennedy said. While he did not know of any predecessors in a similar situation, Kennedy said many of his counterparts at universities across the country hold similar dual roles.

According to system Chancellor Richard Pattenaude, the system-wide tuition increase is the smallest in seven years. The 2002-2003 tuition increase was 4.7 percent, while the increases have ranged from 7.6 percent to 10.3 percent since then, according to a press release.

The increases come just three days after UMaine announced savings for fiscal year 2010 totaling $8.8 million, which included 32 layoffs and 31 work-year reductions.

“The university presidents and I are extremely concerned about maintaining our universities’ affordability and quality,” Pattenaude said in the release. ‘The new tuition rates are necessary to protect the quality and value of our educational offerings.”

UMaine’s $9,626 tuition represents 28 percent of Maine’s per capita personal income of $34,119. Of the New England public universities, UMaine is cheaper than all but the University of Rhode Island, but represents a higher percentage of the per capita personal income than all but the Universities of New Hampshire and Vermont.

UMaine projects an operating budget of $248 million next year.

UMaine is expected to suffer a 2.6 percent drop in enrollment for next year after four straight years of increases totaling 5.1 percent. UMaine is the only University of Maine System campus to increase enrollment over the past five years; overall the system’s enrollment has dropped 4.3 percent over the last five years.