Mott Community College Budget Update

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Mott Community CollegeBudget Update

• Employee Open Forum
• April 27, 2005
• 200 p.m.

2
AGENDA

• Federal Funding Impact
• FY04-05 Current Year Financial Status
• State Budget Update
• FY05-06 Budget Projections
• Operating vs. Capital Budgets
• Future Outlook (windy race story)

3
Federal Funding Impact

• How decisions in Washington affect MCC

4
Federal Funding Summary
In addition to 10 Million in Direct Student
Support (PELL, etc.), MCC relies on another 3
Million from the Federal Government for programs
and services.
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Fiscal Year 2004-05

• Current Year Financial Status
• After 3rd Quarter

6
FY04-05 - Background

• Began Year with 4.2M in General Fund 7.2 of
  annual operating expenses
• Initial Projected Deficit of (3.7M)
• Tuition Restraint Requirement / Incentive Funding
  from State
• Tuition increase 2.3 (2.8 allowed)
• Incentive funding 880,000 (1/2 was 1-time)
• Cost Cuts covered the remainder of the deficit,
  with most from vacant position holds, lags

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FY04-05 Current Budget

• Budget Amended December 2004
• Revenue and Expenses adjusted upward by about ½
  from June
• Enrollment Summer 2004 1 over prior yr.
  
  Fall 2004
  3 over prior yr.
  Winter 2005 0 over
  prior yr.
• Planned excess expenses over revenues by
  126,000, accounting for use of beginning balance
  for fair share payouts
• Projected 6/30/05 General Fund 4.1M 6.7 of
  annual operating expenses

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State Budget Update

• And Impact on State Aid

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State Budget Update

• Tuition Restraint FY04-05 Initial Appropriation
  included 440,000 one-time, 440,000 in base
• P.A. No.358, Part 2 Sec.207. (4) If a community
  college complies with the tuition restraint
  requirements described in this section, its state
  appropriation will not be reduced by executive
  order or any other manner during the 2004-2005
  fiscal year.
• Exec.Order 2005-3 enacted, Feb05, and cut our
  state aid base this year by (254,000).

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State Budget Update
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State Budget Update
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State Budget Update
State Aid per student has declined since FY00-01
to a level less than that of FY98-99.
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State Aid vs. Other Funding
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Gast-Mathieu Funding Formula

• Fairness-in-Funding Formula created by
  Legislature in 1984
• Calculated annually based on ACS data
• Gross Need low taxable value adjustment
  other revenue adjustment Net Need
• Net Need is the amount the state would provide
  to us with full funding.

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Gast-Mathieu Funding Formula

• Assumptions built into the formula reward
• Providing more instruction in higher-cost areas
  (trade/tech, health occupations)
• Higher millage rates
• Tuition rates above the state-wide average
• Expenditures (per student) below the state-wide
  average

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Gast-Mathieu Funding Formula

• Problems
• In practice the formula has never been used to
  allocate base funding to collegesrather only to
  allocate increases, sometimes.
• The formula has never been fully funded. In
  FY04-05, the Net Need was 46 higher than
  appropriated state funding.

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Gast-Mathieu Funding Formula

• How does MCC fare?
• Comparatively, just below average.
• MCCs current Net Need is 21.7M we got for
  FY04-05 14.5 in funding base, which leaves us
  50 underfunded.
• We are one of 19 colleges that do better (2 for
  us) if the formula were actually used to
  distribute the base appropriation.

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States Economic Outlook

• Employment sluggish because of heavy
  concentration in manufacturing, which is having
  trouble creating new jobs
• Population decline for ages 25-44, and under 18
• State GF/GP budget projected at a potential
  deficit of (737M) or 8.
• Sources W.E. Upjohn Institute, Senate Fiscal
  Agency

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State Aid FY05-06

• Governors budget includes another cut that
  amounts to (4.4) for MCC for FY05-06
• The impact of the FY04-05 E.O. cut and the
  expected FY05-06 cut is (911,000) to next years
  budget.
• These cuts to our base accumulate and snowball in
  future years

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State Aid vs. Tuition Rates
In-district students would have paid 94.36 per
contact hour for the current 2004-05 year instead
of the actual 70.55 rate if the college had
raised tuition to levels sufficient to cover our
losses in state aid for the past several years.
Instead, we covered most losses with cost
reductions.
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Fiscal Year 2005-06

• Next Years Budget Projections

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FY05-06

• Initial Budget
• Projection is a -2.8 million deficit
• Revenues projected at 1.8 increase, or 1.1M
  over FY04-05
• Expected continued decline in state aid
• Enrollment has leveled off
• Property tax increase is limited by Proposal A

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FY05-06

• Initial Budget
• Expenses projected at 6.7 increase, or
  3.9M over FY04-05
• Salaries will go up 3 (smaller increase than in
  past)
• Utilities costs (gas, electric) continue to rise
  significantly
• Health insurance cost increase of 16
• MPSERS contribution rate increase from
  14.87 of salaries to 16.34

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FY05-06

• We pay 1.1 million more per year for employee
  medical insurance now than 3yrs. ago. A 16
  increase for FY05-06 will cost 656,000.

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FY05-06

• We pay 1.3 million more per year for employee
  retirement contributions now than 3yrs. ago. A
  10 increase for FY05-06 will cost 450,000.

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MPSERS System Issues

• The FY05-06 mandated contribution rate to the
  system is 16.34 of covered payroll.
• Combined with federal 7.65 for FICA, we are
  spending 24 of salaries on pension/ retirement
  benefits alone.
• Contribution rates are calculated based on a
  5-yr. average value of the fund, which means that
  investment losses in 2001 and 2002 will continue
  to impact the rate through FY07-08.

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MPSERS System Issues

• MCCBOA (business officers association) projects
  the FY07-08 rate to be 20.
• FY2020 rate projection 32.
• Why? (who ordered this story)
• MPSERS is underfunded by 6 billion.
• of Retirees is up 35 in past 7 yrs, while of
  new employees entering system is up only 11.
• GASB reporting standards expected to require
  MPSERS to account for this underfunding and thus
  increase contribution rates even more.

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The significant problems we face cannot be
solved at the same level of thinking we were at
when we created them. --Albert Einstein
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Strategy

• Budget Principles Remain in Place
• Maintain reserves, now at low end of target 5 -
  10 of annual budget
• Continue to Rely Less on State Support
• Long-Term Focus Continues Reduce Expenditure
  Base
• Compensation Costs
• Appreciate all 7 groups contributions
• Continued need to seek remainder of pro rata
  share of 7-year target reductions

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MCCs Operating Reserves have been stable since
2001-02, and are now at approximately 7 of the
annual budget.
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Short-Term Options

• Revenue Enhancement
• Tuition Increasedecide by June
• Expense Reduction
• No changes this year in salary scales or benefits
  packages
• Fund only ½ of approved vacant positions
• Additional cuts in discretionary spending (5)
• Defer part of capital maintenance commitment
• Smaller allocation for 05-06 Strategic
  Initiatives

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Longer-Term Options

• Revenue Enhancement
• Review specific program tuition fee structures
• Adjust facilities rental rates to cover more cost
• Expense Reduction
• Rising benefits costs must be controlled
• Review specific service areas to increase
  efficiency and reduce cost
• Continue initiatives that improve efficiency
  measures within academic programs disciplines
• Continue feasibility study on Durham Natatorium

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Employee Suggestions Examples of ongoing
strategies

• Enrollment Management Teams implemented
  improvements (on-line grades, call center)
• Employee contract-related items achieved in most
  recent bargaining efforts
• Energy Performance contract in place
• Purchasing Card implemented
• Utility rate savings being recovered
• Checking into reducing equipment maintenance
  costs, credit card processing fees

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FY05-06 Budget Calendar

• Staffing Charts done--Mar. 8
• Budget Worksheets Apr. 22 - May 5
• Strategic Initiatives Apr. 4 May 16
• Next EC Budget Workshop May 17
• Last Chance for Input June 7
• Budget Proposed to Board June 27

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Budget Cycles Never End
Today
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Operating vs. Capital Funds

• Reminder Two Separate Budgets

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Operating vs. Capital Funds
Two Separate Budgets

• Operating Fund
• (Instruction, student support, public service,
  administration, overhead)

• Physical Plant Funds
• (Capital Outlay)

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Our Operating Budget

• 57 million this year
• Annual expenses for salaries, supplies,
  utilities, etc.
• 3 Main Revenues
• Tuition
• Property Taxes 2.05 operating mills
• State Aid

• Challenges
• State Aid Declining
• Enrollment Difficult to Predict
• Expenditures Rising Faster than Revenues
• 7-Year Deficits Projected
• 0.65 Voted Mill expires in 2008

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Our Capital Budget

• Maintaining Facilities
• Upkeep of Infrastructure - Buildings Grounds
• Safety Compliance Items
• Long-Term Focus
• Technology Equipment
• Deferred Maintenance
• Construction Projects
• NOT Operational Costs

• Revenue Sources
• Bond Proceeds
• Student Technology Fee
• Grants and Capital Appropriations
• Transfers from Operating Fund (for ongoing
  maintenance)
• Energy Savings Contracts

MCCs Capital Budget is separate from our
Operating Budget. The revenue sources listed
above are used only for capital expenditures, and
not operations.
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What is MCC Doing With 15 Million in Recent Bond
Proceeds?

• The funds are enabling MCC to maintain safe,
  educationally supportive and state-of-the-art
  facilities and equipment. Major projects include

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Capital Outlay State Funding?

• In her budget recommendation, the Governor
  proposed 200 million in special maintenance
  funds for colleges and universities (33 million
  over two years for community colleges) as an
  offset to the operational budget cuts.
• As of 3/22/05 MCC was still expected to receive
  845,700, which would have helped to offset the
  General Fund contribution to maintenance for
  FY05-06.
• In the agreement reached on 3/23/05, that
  proposal was replaced by providing planning
  authorization for new construction/major
  renovation projects at 13 community colleges and
  11 universities. (MCC was NOT one of the 13 to
  receive funding.)

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Capital Outlay State Funding?

• Current Status? There is still talk of such
  funding to be provided from the States Capital
  Outlay process for FY05-06, but no legislation is
  underway yet.
• Next Steps We will increase efforts to be
  connected with the states appropriations
  process, by meeting with legislators and telling/
  selling our story about the need for continued
  state support (both operational and capital)!
  (First story)

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Future Outlook

• Key Issues

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Future Outlook

• Key Issues
• Long-term Forecast still predicts 10 million
  cumulative deficit 7 years out (1M-3M per year)
• State Aid still major concern
• Cost Control remains key focus
• Retirement Costs
• Health Insurance Costs
• Utilities
• Remaining 40 of requested pro rata compensation
  reduction savings from faculty group still needed

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Future Outlook

• Key Issues
• Fund Balance Reserves are hovering at bottom of
  targeted 5 - 10 level
• 0.65 Voted Operating Millage will need voter
  renewal by end of FY07-08
• Non-credit operations still struggling to break
  even
• 45 Million in voted bond authority will be used
  up by 2011.

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• Neither a wise man nor a brave man lies down on
  the tracks of history to wait for the train of
  the future to run him over.
• --Dwight D. Eisenhower

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QUESTIONSOR COMMENTS?
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Thank You!

• For More Information
• Kelli Sproule, CFO
• 810.762.0525 phone
• CM 1032 office
• ksproule_at_mcc.edu
• www.mcc.edu Accounting page