1

MHCC Budget Overview Prepared for Board OrientationAugust 26, 2011 and September 17, 2011DRAFT 10-5-11Prepared by Jennifer DeMent, Jeff Forbis, Laurie Miller and Bill Farver MHCC Administrative Services

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Contents •1. Why is Budget Important? (slide 3) •2. Policy Issues Regarding Funds (slide 9) •3. Systematic Change Challenge (slide 20) •4. Budget Review Team Process (slide 22) •5. Revenues and Enrollment (slide 25) •6. Comparative Cost of Attendance (slide 35) •7. General Fund Expenditures (slide 39)•8. College Debt Obligations (slide 45) •9. Personnel Costs (slide 49)

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Part 1. Why is Budget Important?

• We value what we spend money on. • Our long term revenues do not keep pace with

our expenditures. • We will face another year of difficult trade offs. • We cannot look to the state for more money. • Our represented employee costs are fixed

through negotiated contracts. • We must look at what programs and services

we offer, how we deliver them, and how we support them.

4

Ongoing, “Structural” Deficit

• Business model unsustainable • State reducing direct funding and not

addressing rising fixed costs, such as PERS and health care

• Up to local jurisdictions to innovate and/or cut services/positions and/or renegotiate labor agreements

• College has the ability to increase revenue by increasing enrollment

• Increasing tuition and fees limited by mission and competition

5

Causes of the Structural Deficit

•Declining state revenue support

•Health care costs rising 15%

•PERS costs rising (every two years)

•Salaries rising 3%

•Enrollment projected to decline 2%

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

Estim

ated

2011

-12

Budge

ted

2012

-13

Fore

cast

ed $-

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

Comparison of MHCC Revenues to Expen-ditures (excluding transfers in)

Fiscal Years 2002-03 to 2012-13

OtherTuition/FeesState Support TaxesExpenditures

In T

housands

7

Major Uncertainties

•Enrollment (will it decline by 2%)

•Health care cost increase (by how much?)

•Current year spending level (impacts ending balance; under spending allows investment opportunities)

•State funding

8

State Funding Status

• State funding for all community colleges is based on $410 million for the two years FY11-12 and FY12-13; MHCC budgeted our share at $41 million

• Variables: the state may seek a 7% hold back in second year; resulting in a lower base for FY13-14

• PERS rates for FY11-12 are based on a 2009 valuation; PERS rates for FY13-14 will be based on a 2011 valuation.

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Part 2: Policy Issues Regarding Funds

•No distinction between reserves and contingency

•No criteria for contingency requests •No set policy on reserves level •No ability to innovate and generate

additional revenue •No comprehensive approach to deferred

maintenance and capital projects •No documented approach to one time only

state funding

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Recommendations • Set separate un-appropriated reserve fund

with specific target to work towards • Set separate contingency fund with criteria• Set Innovation Fund for testing revenue

expansion ideas • Set Capital Fund with criteria for deferred

maintenance and major capital projects • Revisit plan for potential GO Bond • Clarify treatment of “additional” state funds

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Reserve Fund

•Set at ?% based on best practices and potential impact on bond ratings

•Establish plan to build toward that goal, using portion of ending fund balance each year

•Designate as un-appropriated. Unspent without a separate budget appropriation (emergency) process.

12

Ending Fund Balance • General Fund ending fund balance has been

rebuilt over the past three years through a combination of savings and transfers of unrestricted funds to the general fund.

• Currently at approximately 6% of General Fund.

2001

/01

2001

/02

2002

/03

2003

/04

2004

/05

2005

/06

2006

/07

2007

/08

2008

/09

2009

/10

2010

/11

Estim

ated

2011

/12

Budge

ted

-

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

Unrestricted Ending Fund Balance

General Fund All other funds

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Contingency Fund• Set at ?% of general fund based on comparable

community colleges and public jurisdictions • Set criteria for Board access:

▫Emergency situations that may jeopardize health and safety

▫Public commitment or contractual mandate ▫Efficiencies ▫No funding exists in current budgets ▫Board may “designate” funds in increased

contingency for future decisions

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Innovation Fund • Fund approaches that will generate additional

revenue above cost and/or increase completion rates

• Balance the budget through expansion and contraction

• Use $1,000,000 of under-spending from FY10-11

• Carefully monitor progress and verify results

• Risk awareness – either way!

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Examples for Innovation Fund •Strategies to increase enrollment

▫New or expanded “profitable” programs ▫Quicker financial aid turnaround ▫Outreach to local high schools ▫Outreach to veterans seeking education and

training•Strategies to increase retention / completion

▫Increased mentoring/advising (e.g. ABS; GED) ▫Better articulations; better pathways ▫

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Capital Fund • Develop schedule for addressing backlog in

deferred maintenance

• Develop processes for prioritizing deferred maintenance and major capital projects

• Decentralize funding and decision making

• Set aside $800,000 in under-spending from FY10-11 pending a plan presented in Nov/Dec following review by Facilities Council

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Examples of potential capital funds

•Deferred maintenance•Major capital for state, federal and GO

Bond •Classroom improvements •Health and safety •Athletics •Operations and maintenance

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State Funding

•Reserve $1,519,388 in separate account pending increase in funding to the promised $410 million dollar level

•Clarify whether funds will be “recaptured” in FY12-13 and what the new state “base level” of funding will be

•Be aware of shift to “completion based” funding

•Do not spend!

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Part 3: Systematic Change

•How do we rethink our basic model?

•What process invites innovation, honesty, and clarity, and builds trust?

•How do we make good business decisions for our customers?

What Might it Look Like?•Multi year process of change

•Program review based on completion, overall cost of instruction, employment potential, uniqueness, etc. •New or expanded program offerings

•Different approaches to instruction (e.g. differential tuition; class size; expanded times of instruction)

•Increase administrative efficiencies

•Employee salary and benefit costs review, especially health care and PERS

•Capital improvement plan and identified capital budgets

•Innovative approaches to expanding enrollment

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Part 4: Budget Process Budget Review Team

• Represents all college stakeholders (full and part time faculty; deans; classified/administrative support; students)

• Advises President; meets October to March

• Develops and frames policy choices through issue papers (e.g. parking fee)

• Identifies policy choices through input from Board and college stakeholders

• Frames menu of options

• Seeks agreement among stakeholders on financial impact of different choices

• Open, clear process

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Budget Review Team Timelines • October – December: Solicits ideas from stakeholders; develops

and discusses policy options

• Jan. – Feb.: Frames menu of choices

• March: Delivers options to President for decisions

• March/April: Budget Office verifies decisions and incorporates into President’s budget

• April: President presents budget to Board for discussion, amendment, and approval

• June: TSCC reviews and certifies and Board adopts budget

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Input: Board Budget Issues

• Ideally, identify by Board retreat in September

• Consider in conjunction with other budget choices during spring, 2012.

• Examples already identified based on past discussions: ▫Differential tuition▫Aquatics Center ▫Other tuition options

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Part 5: Revenues

•Adopted Budget $211,880,035•General Fund (major discretionary

funds) $66,780,654•Student Financial Aid Fund $65,896,990•Federal, State & Special Grant Projects

$58,950,000•All other funds $20,252,391 •Our discussions will focus on the gap in

the General Fund

General Fund; $66,780,654

Pension Bond Debt Service Fund ,

$3,548,691

Physical Plant Main-tenance Fund;

$2,015,000

Technology Projects Fund; $2,497,500

Capital Projects Fund; $5,051,000

Student Financial Aid Fund, $65,896,990

Federal, State & Special Grant

Projects Fund, $58,950,000

Bookstore Fund; $5,200,000

Clubs Fund; $250,500

Trusts Fund; $650,000

Associated Student Government Fund; $1,039,700

Adopted Budget 2011-12All Funds

State Community College Support

33%

Current Property Taxes16%

Prior Years' Taxes0.42%

Tuition and Fees44%

Parking Fees1.01%

Investment Income0.16%

Other Income 4.07%

Transfers In1.04%

General Fund Revenue by SourceAdopted Budget 2011/12

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Revenue Trends

•Declining state funds have forced community colleges to replace state funds by increasing tuition and fees

•The cost burden of higher education has shifted from state taxpayers to students and families

•Property taxes and other revenues have remained relatively stable

2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12-5.00%

5.00%

15.00%

25.00%

35.00%

45.00%

55.00%

General Fund Revenue Sourcesas a Percentage of Total Revenue

Taxes Tuition/FeesOther State Support

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Enrollment

•Enrollment has steadily increased over the past few years

•Enrollment is expected to fall slightly this year (budgeted at 2% decline)

2011/12Estimated

2010/112009/102008/092007/082006/072005/06 -

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

Student Full-time Equivalent (SFTE)

2010/112009/10

2008/092007/08

2006/072005/06

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

Student Full-time Equivalent by Term

(SFTE) SpringWinter FallSummer

2004/052005/06

2006/072007/08

2008/092009/10

2010/11

$-

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

$12,000,000

Total Property Taxes Imposed(2010/11 $10,147,900)

$8,396,602

$1,695,691

$56,462

2010/11 Property Taxes Imposed by County

Multnomah Clackamas Hood River

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Part 6: Comparative Cost of Attendance

•Mt. Hood’s costs are average, as compared to the other 16 Oregon community colleges

•Mt. Hood is slightly higher than its neighboring community colleges, but no major differences

•For each $1 tuition increase, approximately $200,000 in additional revenue is generated

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hwes

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$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

2011-12 Total Cost of Attendance

Typical Full-time Student Tuition and

Fees by Term15 Credit Hours of Tuition, $84 per credit hour $1,260.00

Student Activity Fee, $3 per credit hour $ 45.00

Technology Fee, $4.75 per credit hour $ 71.25

College Service Fee, $30 per term $ 30.00 Total $1,406.25

Excludes course fees and optional fees such as parking.

$-

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

Total 2011-12 Tuition and Fees, Fall through Spring

(15 credit hours, including per credit hour fees)

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Part 7: General Fund Expenditures $63,210,210

Adopted Budget 11/12• Instruction $29,061,861•Academic Support $ 7,544,887• Institutional Support $13,511,579•Student Support $ 5,669,945•Facilities $ 5,281,864•Other $ 2,140,074

Instruction44%

Academic Support11%

Research 0.85%

Public Services

0.11%

Student Services

9%

Institutional Support

20%

Facilities Management

8%

Grants in Aid2%

Transfers 0.40%

Expenditures by Function Adopted Budget 2011/12

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Definitions (for purposes of expenditure pie chart) • Instruction: Expenditures for credit and

noncredit courses; lower division transfer, professional technical; remedial and tutorial instruction (Developmental Education); and regular, special, and extension sessions.

•Academic Support: This category includes funds expended to provide support services for the institution's primary mission of instruction. This includes academic deans and division support staff.

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Definitions (for purposes of expenditure pie chart)

•Student Support: Includes funds expended for offices of admissions and the registrar and activities with the primary purpose of contributing to students' emotional and physical well-being and intellectual, cultural, and social development outside the context of the formal instruction program. It includes expenditures for counseling and career guidance, student aid administration and student health.

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Definitions (for purposes of expenditure pie chart) • Institutional Support: Includes expenditures

for activities concerned with management and long-range planning for the entire institution, such as the governing board, planning and programming, and legal services; fiscal operations, investments; administrative computing; employee personnel and records; logistical activities that provide procurement, safety, security, printing and activities concerned with community and alumni relations, including development and fund raising.

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Definitions (for purposes of expenditure pie chart) •Facilities Management: Includes expenditures

for administrative activities that directly support physical plant operations. For example, activities related to the development of plans for plant expansion or modification, as well as plans for new construction; expenditures for activities related to routine repair and maintenance of buildings and other structures and expenditures related to the operation and maintenance of landscape and grounds, and custodial services.

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Part 8: College Debt Obligations

• Two categories:

▫ Full Faith and Credit Obligations Currently, there are five outstanding debt issues of this type.

The most recent is the $6 million borrowed in 2010 for electrical repairs (est. $3.5 million), roof replacement (est. $1.4 million), the purchase of multi-function copier devices ($500 thousand) and to begin the university center remodel, by relocating Eastern Oregon University ($141 thousand).

▫ Limited Tax Pension Bonds Issued to buy down our unfunded PERS actuarial liability

20112010

20092008

2007 $0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

Outstanding Debt(in thousands)

Full Faith & Credit Limited Tax Pension Bonds

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

2019

/20

2020

/21

2021

/22

2022

/23

2023

/24

2024

/25

2025

/26

2026

/27

2027

/28

2028

/29

2029

/30

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

Debt Service Payments by Year

(in thousands)

Outstanding Debt Options

Series 2001 Series 2004 Series 2008 Series 2009 Series 2010 LTPB 2003

Outstanding Principal7/1/2011

$1,635,000 $4,425,000 $5,645,000 $10,970,000 $6,000,000 $42,611,317

Years Remaining

6 13 17 19 19 17

Average Annual Debt

Service(potential

annual savings, if debt retired

early)

$308,589 $440,008 $496,767 $890,084 $450,833 $5,153,874

True Interest Cost

4.25% 3.94% 4.15% 4.30% 3.65% 5.72%

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PART 9: Personnel Costs • Employer Paid Fringe Costs • Employee costs by group • Health benefits• Collective bargaining agreements

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Our Budget is People

•75% on salaries and employee benefits

Salary and Fringe75%

Materials & Services

13%

Capital Out-lay1%

Debt Service

3%

Grants In Aid2%

Fund Transfers0%

Contingency5%

General Fund Expenditures by Type (Object)

Adopted Budget 2011/12

280

250

290

428

336

284

423417

394

157155169

469

451442

Full-time StaffFull-time FacultyPart-time FacultyPart-time Support StaffStudent

Employee Headcount by Group(all funds)

May 2006May 2001 May 2011

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Employment Costs

• Costs vary dramatically depending on years of experience, position responsibilities and classification.

• Fringe costs are an additional 50% to 57% of full-time employee salaries. (e.g.for 50% it’s approx. 20% PERS, 18% Health Insurance; 9% Legal mandates – Soc. Sec.; 3% other)

• Fringe costs are increasing faster than revenues. • Employment costs are fixed for the next two years

for represented employees. Changes cannot be used to balance next year’s budget without consent of the unions.

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Employer Paid Fringe Costs Public Employee Retirement System

(PERS):

• When the social security program was established in 1935, it excluded public employees. PERS, which became effective July 1, 1946, was designed to offer a pension program for public employees. In the early 1950’s, the option to participate in Social Security was extended to public employees. The PERS program underwent a major overhaul in the 1960’s, then again from 1997 until 2007.

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Employer Paid Fringe Costs, Cont’d Mt. Hood PERS contributions include the following, as a

percentage of eligible employee’s annual income:

▫ Employee Contribution: 6% paid by Mt. Hood on behalf of employees; contribution goes into Individual Account Program (IAP); contractually required for many employee groups.

▫ Employer Assessment: This is the College’s share of the statewide PERS program costs. This rate for most MHCC employees is currently 15.68%. However, the rate is offset by the balance in MHCC’s side account, which was established in 2003 by borrowing at a lower interest rate. The side account is invested, and subject to market earnings and losses. The side account brings MHCC’s employer contribution rate down to 5.62%. This rate is based on a December 31, 2009 actuarial and is adjusted every two years.

▫ Internal debt assessment: The debt service to pay for the borrowing that established the side account is collected by an internal payroll assessment. The rate beginning July 1, 2011, is 8.5%. The net savings between the rate credit and the internal assessment is 2.15%.

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Employer Paid Fringe Costs, Cont’d

•Health care: Costs include medical, dental and vision coverage for employees and their families. Plans are provided through the Oregon Educators Benefit Board. Plans offered include ODS and Kaiser medical, dental and vision plans and Willamette dental plan. Employee contributions for this coverage range from 0% to 20%, depending on plan selection and employee group.

•Other benefits: Mt. Hood provides Social Security, Medicare, long-term disability, life, worker’s compensation and unemployment insurance, tax sheltered annuities and early retirement benefits. Some benefits vary by employee group.

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Employer Paid Fringe Costs, Cont’d

The average fringe costs used for each employee group vary based on the unique demographics of each group as well as the salary base from which the rate is calculated.

On average, fringe rates are comprised of the following:

PERS Employee Share: 6% Medical Insurance: 15.9%PERS Employer Costs: 13.6% Dental Insurance: 2%Vision Insurance: .3% Early Retirement: 3.8%Social Security/Medicare: 7.7% Unemployment: .25%Long-term Disability Insurance: .27% Life Insurance: .01%Workers Compensation Insurance: .66%

$-

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

$12,000,000

$14,000,000

$16,000,000

Annual Employer Paid Benefit Costs(General Fund Only)

PERS Healthcare Other

Classified Employee Costs(Custodians, Administrative

Assistants, Programming Analysts, etc.)

Minimum base salary: $28,428

Maximum base salary: $93,024

Average base salary: $51,025

Average fringe rate: 57% (higher effective rate because of lower overall salaries)

Average total cost: $80,364

Management Employee Costs

(Vice Presidents, Deans, Directors, Managers and

Supervisors)Minimum base salary: $50,948

Maximum base salary: $128,500

Average base salary: $81,702

Average Fringe Rate: 50%

Average Total Cost: $122,798

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Full-time Faculty • Budgeted at 152 full time positions;

contractual obligations may require additional positions

• The College must maintain a fiscal year instructional ratio of at least sixty percent (60%) full-time to forty percent (40%) part-time faculty.

• Twelve pay steps ranging from $50,327 to $81,673

• Longevity pay of $1,750 to $2,750 for employees serving on the top step of the salary schedule for 2 or more years.

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Full-time Faculty • Expected to teach 45 ILCs (Instructional Load Credits) per

academic year. For example:

15 CREDITS

• FALL5, 3 CREDIT CLASSES

18 CREDITS

• WINTER6, 3 CREDIT CLASSES

12 CREDITS

• SPRING4, 3 CREDIT CLASSES

45 TOTAL

CREDITS

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Full-time Faculty • Full time faculty can also:

▫Earn “extra-teach” for teaching more than 45 ILCs (opportunity based on seniority, with a maximum of 9 additional ILCs).

▫Earn “summer teach” for teaching during summer (opportunity based on seniority, with a maximum of 18 ILCs).

Full-time Faculty Costs(Values based on maximum allowable load. Not all faculty teach additional load.)

Faculty at typical new hire placement:

Base salary: $50,327Extra Teach: $7,470Summer Teach: $17,946

Potential Annual Salary: $75,743

Average Fringe Rate: 50%

Total Potential Cost: $105,734

Faculty at top of salary schedule:

Base salary: $81,673Extra Teach: $9,900Summer Teach: $23,400

Potential Annual Salary: $114,973Average Fringe Rate: 50%

Total Potential Cost: $162,182

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Furlough Days(Days without Pay.)

Full-time Faculty2 furlough days each year in 2011/12 and 2012/13.

Annual savings in salary and fringe approximately: $ 165,000

Non-Represented Employees3 furlough days each year as a permanent reduction to annual salaries.

Annual savings in salary and fringe approximately: $ 70,000

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Part-time Faculty and Tutors

• There are over 400 part-time faculty and tutors employed each year

• Part-time faculty may teach up to 22.5 credits (ILCs) over three terms or 30 credits over four terms

• Pay range from $589.27 to $702.77 per credit (ILC)

• Qualifications for part-time faculty are set by Administrative Regulations (AR-5060-F)

Part-time Faculty Costs

Maximum ILC placement (Step 5):

Rate per ILC: $702.73Maximum Potential 3-Term Salary, at 22.5 ILCs: $15,811

Average Fringe Rate: 18% Total Cost: $18,657

Maximum Hourly placement(ABE/GED/ESL Step 3):

Rate per hour: $59.15Maximum Annual Salary at 600 hours: $35,490

Average Fringe Rate: 18% Total Cost: $41,878

Values indicated are rounded.

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Cost comparison for 3 credit class

 

Rate Per Credit

3 Credits of

Instruction

Average Fringe Rate

Total Cost per 3 Credit

Class

Part-time Faculty, average at Step 3 (includes 1% COLA for 11/12)

$643.50 $1,930.50 18% $2,277.99

Full-time Faculty, average at Step 3 $1,662.02 $4,986.06 50% $7,479.09

Difference $5,201.10

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Union contracts

•Set for FY11-12 and 12-13 for all three unions

•Retiree benefits vary by contract; not standard

•Negotiations start in a year

• Important to agree on data in advance and frame possible trade offs

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Contract Status: Costs Set for FY12-13

• July 2011 began the second year of three year signed contracts with the Full-time Faculty Association, Part-time Faculty & Tutor Association and the Classified Employee Association.

• Salary cost of living increases of 2% for FY12-13

• Medical and dental insurance cost sharing of 13% for Full-Time Faculty and Classified employees.

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Contract Status: Costs Set for FY12-13

• Extra teach will be paid at a rate of $830 - $1,100 per Instructional Load Credit (ILC), depending on faculty placement

• Summer teach will be paid at a rate of $997 - $1,300 per ILC, depending on faculty placement

• Part-time Faculty & Tutor Association employees receive a contribution of $30,000 to a health insurance trust account to reimburse employees for health insurance premiums paid.

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Contract Status: Costs Set through FY12-13

• Full-time faculty retirees retiring prior to 9/30/11 will receive 100% paid 2 party medical coverage until Medicare eligible. After this date, retirees will receive either employee only medical coverage until Medicare eligible or a subsidy equal to the 2 party ODS Plan 6 premiums for four years, if employee is eligible for 2 party coverage. Retirees choosing the second option may apply their subsidy to medical, dental, vision or life insurance coverage.

• Classified Association retirees will receive a monthly subsidy of $525 to be used for medical, dental, vision or life insurance until they are Medicare eligible. Employees retiring after October 1, 2011 will be subject to future contract changes. This monthly subsidy will increase by 5% on October 1, and annually thereafter.