The Financial Outlook for Higher Education - wvhepc.org Financial Outlook for... · The Financial Outlook for Higher Education ... Higher education is moving toward a privatized funding

The Financial Outlook for Higher Educationg

A National Perspective

West Virginia Higher Education Policy CommissionBoard of Governors SummitBoard of Governors Summit

July 20, 2012

.

Seven Ideas About Higher Education Finance

1. Higher education is moving toward a privatized funding model

2. Prices are increasing faster than costs3. Money does not follow the students4. Benefits are one of the biggest cost drivers5. Higher education is competing with health care costs – and

losinglosing6. External stakeholders are skeptical about higher education

spending and performance7. Allocations within campuses/systems matter as much as

allocations overall to higher education

rpkGROUP. All rights reserved.

Idea #1

The dominant funding trend is toward privatization of g presources

rpkGROUP. All rights reserved.3

Percent Change in State/local Appropriations for Higher

Long Term Decline in State and Local Appropriations

Percent Change in State/local Appropriations for Higher Education, 1960‐2009

20 0%

25.0%

30.0%

10.0%

15.0%

20.0%

0.0%

5.0%

-10.0%

-5.0%

1960 1970 1980 1990 2000 2009


Source: Census of State and Local Governments and Grapevine

90%100%

Net tuition and subsidy shares of education and related costs AY1999‐2009

.

61.6%51.4% 49.6% 47.6%

63.3% 54.7% 52.9% 51.3%

76.5% 69.9% 69.4% 67.7%

40%50%60%70%80%90%

Publics Subsidy

38.4%48.6% 50.5% 52.4%

36.7% 45.3% 47.1% 48.7%

23.5% 30.1% 30.6% 32.3%

0%10%20%30%40%

1999 2004 2008 2009 1999 2004 2008 2009 1999 2004 2008 2009

share

Tuition share

Public Research Public Master's Community Colleges

100%

share

81 9% 88.0% 88.9% 89.9%

30.3% 27.2% 26.7% 26.1% 18.4% 12.0% 11.1% 10.1%

37.9% 32.1% 31.4% 30.1%

40%50%60%70%80%90%

100%

Subsidy 69.7% 72.8% 73.3% 73.9% 81.9% 88.0% 88.9%

62.2% 67.9% 68.6% 70.0%

0%10%20%30%40%

1999 2004 2008 2009 1999 2004 2008 2009 1999 2004 2008 2009

Private Non-Profit

yshare

Tuition share


Source: Delta Cost Project IPEDS Database, 1987‐2009, 11‐year matched set.

Private Research Private Master's Private Bachelor's

5

Idea #2

Prices are increasing faster than costsg


% Ch i C ll Sti k P i i t th

College Prices Growing …

% Change in College Sticker Price against other consumerAreas – 1999/00 – 2010/11


The unsustainable cost model

40.00%

Gaps in tuition revenue v. spending, public community colleges, 2000 ‐ 2009

20.00%

30.00%

Net tuition revenue increase 35%/9 years

Spending ‐ virtually flat over 9 years

State/local appropriations decrease

10.00%

5%/9 years

‐10.00%

0.00%

2000 2001 2001 2003 2004 2005 2006 2007 2008 2009

Net tuition revenue

State/Local appropriations

‐20.00%

Education & related spending


All figures are in 2009 constant dollars, per FTE student. Source, Delta Data base.

Gaps in tuition revenue v. spending, public masters’ institutions, 2000 – 2009

50.00%

30 00%

40.00%

Net tuition revenue increase45% over 9 years

Spending per student increase9%/9 years

20.00%

30.00%

Net tuition revenue


State/local appropriationsDecrease 13%/9 years

0.00%

10.00%

/ pp p

Education & related spending

‐10.00%

2000 2001 2001 2003 2004 2005 2006 2007 2008 2009


‐20.00%

All figures are in 2009 constant dollars, per FTE student. Source, Delta Data base.

Gaps in tuition revenue v. spending, public research universities, 2000 – 2009

60.00%

40.00%

50.00%Net tuition revenue increase50%/9 years

Spending per student increase45%/9 years

20.00%

30.00%

State/local appropriationsdecrease 13%/9 years

0 00%

10.00% Net tuition revenue


‐10.00%

0.00%

2000 2001 2001 2003 2004 2005 2006 2007 2008 2009 Education & related spending


‐20.00%All figures are in 2009 constant dollars, per FTE student. Source, Delta Data base.

Idea #3

hMoney here……

….students there


New money versus new students

ChangeinEnrollmentvs. ChangeinSpending,AY1999‐2009

FTE

Chan

1,200,000

1,400,000

1,600,000

1,800,000

$

$6,000

$7,000

$8,000

edSpendingperF

2009dollars)

ngeinTotalHead

600,000

800,000

1,000,000

, ,

$2 000

$3,000

$4,000

$5,000

cationandRelate

t,1999‐2009(in2 countEnrolm

ent2009

0

200,000

400,000

$0

$1,000

$2,000

PrivateResearch

PrivateBachelor's

PrivateMaster's

PublicResearch PublicMaster's CommunityColleges

ChangeinEdu

student t(fall),1999‐

Research Bachelor s Master s Colleges

AverageeducationandrelatedspendingperFTEstudent(in2009dollars) Totalheadcountenrollment

Source: Delta Cost Project IPEDS Database, 1987‐2009; spending data from the 11‐year matched set; enrollment data from the unmatched set.


Spending per student versus enrollment by sector, AY 2009

6,000,000

7,000,000

$35,000

$40,000

ent

4,000,000

5,000,000

$25,000

$30,000

nding pe

r FTE

stude Total H

eadcoun

2,000,000

3,000,000$15,000

$20,000

n an

d Re

lated Spen

nt Enrolment (fall)

1,000,000

2,000,000

$

$5,000

$10,000

Education

0$0

Private Research Private Bachelor's Private Master's Public Research Public Master's Community Colleges


Average education and related spending per FTE student Total headcount enrollment

Source: Delta Cost Project IPEDS Database, 1987‐2009; spending data from the 11‐year matched set; enrollment data from the unmatched set.

Idea #4

i b fiIncreasing benefit costs


T d i L b C t 2002 2008

Benefit costs are the largest area of increased spending in higher education

Trends in Labor Costs - 2002-2008

Salary outlay per Benefit cost per full-timePublic institutions

Salary outlay per employee

Benefit cost per full-time employee

Research 0.9% 5.2%

Master’s -0.6% 4.6%

Community colleges0.7% 5.2%

Private institutions

Research -0.3% 1.6%

Master’s -0.8% 2.4%


Bachelor’s -0.5% 1.3%15

Idea #5

l h ill i d f di fHealth Care will continue to crowd out funding for higher education for the foreseeable future


All Areas of State Government Increased in the Last Decade

Figure 4: Percentage Growth in Spending Categories Between FY 2000 & FY 2010 (General Funds)

Sources: NASBO 2001 and 2009 State Expenditure Reports


NCSL/NASBO

The federal government now supplies 74% of all student aid


Idea #6

Skepticism about higher education spending and performance remains strong


A declining share of Americans agree that a college education is affordable

Do you agree or disagree with the following statement: College costs in general are such that most people are able to afford to pay for a college d i (A k d f l bli )


education. (Asked of general public)

How are we being asked to change?


Idea #7

The way that money is spent within institutions makes a difference in student success – and quality


Credit Hour Distribution and Average instructional costs

Public-four year averages, 4-state cost study (SUNY, Florida, Ohio, Illinois) , O , )

% of all credits taken

% of total spending on instruction

Avgweighted cost/credit

Lower Division

36% 23% 1.00

Upper i i i

48% 44% 1.42DivisionGrad 1 12% 23% 2.88

Grad 2 4% 9% 4 00Grad 2 4% 9% 4.00

100% 100% 1.55Source: SHEEO 2010


Source: SHEEO, 2010.

Percentage of All Dropouts by Cumulative Months Enrolled, Beginning Postsecondary Students 2003‐04

29.731.2

24.8

30

35

60% of attrition occurs in lowerDivision courses .. Where spending per student is lowest

15

20

25

age of Dropo

uts

11.3

2 85

10

15

Percen

t

2.8

0.20

5

1 to 12 13 to 24 25 to 36 37 to 48 49 to 60 61 to 72

Total Months Enrolled Before Leaving Higher Education (Out of 72 Possible)


Source: NCES, BPS, undergraduates only.

In one study, BA Degree production costs increased an average of 40% from excess credits and attritionexcess credits and attrition

Average cost of 120 credits

Attrition

"Excess creditsAverage 11 additional credits

"Lost" Credits from attrition

120 Credit Hours


“What does a college degree cost?” Nate Johnson, Delta Cost Project 2009.

Conclusions

Conclusions

Conclusions 1. The money we have is the money we’ll have

2 Need to both cut non‐academic costs where we can AND2. Need to both cut non‐academic costs where we can AND restructure instructional spending

3 Focus on spending based on outcomes3. Focus on spending based on outcomes

4. Need to do a better job of using data to make $ decisions

5 N d t d b tt j b f d t ti t ff ti5. Need to do a better job of demonstrating cost effectiveness to public and to policy makers

6 Need to be leveraging systems6. Need to be leveraging systems


West Virginia Higher Education Board of Governor’s SummitJuly 2012

Mik M KMike McKownState Budget Office

1

St t f W t Vi i iState of West VirginiaMajor Funding Needs

State Capitol CompleState Capitol Complex:Buildings 5,6,7 renovations $85,300,000

Infrastructure - Drinking Water & Wastewater:21% of WV population is not connected to public water supply $724,000,00045% of WV population is not connected to public wastewater system 1,800,000,000Sewer Overflow abatement 1,100,000,000Total Infrastructure needs (estimated) $3,624,000,000

Agencies' Projected Major Capital Outlay Needs for FY 13 $1,193,000,000

New State Accounting System (estimated) $117,000,000g y ( ) $ , ,

Corrections (Prison Overcrowding Recommendations) $250,000,000

Major Highway Construction Needs $16,000,000,000Bridge Replacement (over 60 yrs old) $1,000,000,000

K-12 School Buildings (10 year plans) $1,700,000,000

Old Workers' Comp (@ 6/30/11) $964,600,000Unfunded Liabilities in Retirement Systems (@ 6/30/11) $5,666,600,000OPEB (@ 6/30/11) (estimated) $4,000,000,000

2

Total State Needs $34,600,500,000

State Of West VirginiaMajor Funding Challenge

Medicaid

Provides insurance coverage for 415,000 West Virginians (over 22%) (State's poorest & most disabled)

For every $1 the State invests, the Federal government matches about $3 (72.62%)

State funding has increased from $334 million in 1995 to $820 million in 2012

Federal funding has increased from $1 billion in 1995 to $2 2 billion in 2012Federal funding has increased from $1 billion in 1995 to $2.2 billion in 2012

Costs cannot be controlled with budget restrictions or caps

Operates as an entitlement program - eligible if you meet the established criteria

3

New Federal Health Care - effective 2014 - mandates coverage up to 133% FPA

National Fiscal Concerns

State support for higher education decreased nationwide by 7.6%.pp g y(from FY11 to FY12) (WV +1.7%)

Illinois - just 6 years from exhausting its pension fund.(Illinois spends more on retired teachers $5.7B than on current students $4.6B)

California - continues budget shortfalls even with tax increases.(1.5 million more residents moved out of the state than moved into from 2000-2009)

Nationwide Public Retirement Systems – The number of retirees is growing 5 times faster than the number of working members.

Federal Government borrows $3.5 Billion a day.

Federal Government's accumulated debt is $15.8 TRILLION.(debt per citizen $50,600, debt per taxpayer $139,400)

European nations - financial troublesgrowth in debt as % of GDP (2007-2011)

Germany 3.6%Italy 18.6%Spain 23.3%Greece 71 2%

4

Greece 71.2%USA 34.6%

R i D F dRainy Day FundsBalances As of June 30

Rainy Day Rainy Day Rainy DayPart A Part B TotalPart A Part B Total

1995 20,564,051 20,564,0511996 54,706,193 54,706,1931997 57,370,043 57,370,0431998 67,562,784 67,562,7841999 64,580,523 64,580,5232000 73,218,878 73,218,8782001 79,085,244 79,085,2442002 56,178,309 56,178,3092003 57,750,613 57,750,6132003 57,750,613 57,750,6132004 53,574,931 53,574,9312005 79,302,478 79,302,4782006 124,153,400 234,897,672 359,051,0722007 235,075,887 279,869,088 514,944,9752008 289 801 853 291 275 043 581 076 8962008 289,801,853 291,275,043 581,076,8962009 236,619,573 236,006,003 472,625,5752010 276,949,590 279,073,100 556,022,6902011 342,320,538 316,806,578 659,127,1152012 523,689,609 327,698,977 851,388,585 *

5

* 20.2% of FY13 General Revenue Total Appropriations

Fi l Y 2013Fiscal Year 2013State of West Virginia

General & Lottery Funds

% of% ofDepartment General Revenue Lottery Revenue Total TotalLegislative $30,508,837 $0 $30,508,837 1%Judicial 122,320,952 0 122,320,952 3%Executive 46,438,187 0 46,438,187 1%Executive 46,438,187 0 46,438,187 1%Administration 74,268,025 38,061,000 112,329,025 2%Commerce 68,380,575 16,162,349 84,542,924 2%Health & Human Resources 933,988,065 24,503,890 958,491,955 21%Public Education 2,008,976,139 67,611,626 2,076,587,765 46%Education & the Arts 34,100,778 19,928,635 54,029,413 1%Environment 8,343,286 0 8,343,286 0%Higher Education 456,143,441 56,888,744 513,032,185 11%Military Affairs & Public Safety 359,542,290 0 359,542,290 8%Revenue 30 214 000 12 000 000 42 214 000 1%Revenue 30,214,000 12,000,000 42,214,000 1%Transportation 7,151,117 0 7,151,117 0%Veterans' Assistance 11,592,375 0 11,592,375 0%Senior Services 23,482,933 42,833,849 66,316,782 1%Misc. Bds & Commissions 0 65,000,000 65,000,000 1%

6

, , , , % Total $4,215,451,000 $342,990,093 $4,558,441,093 100%

State Of West VirginiaGeneral & Lottery Revenues

(in millions $)(in millions $)

FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17General Actual Actual Actual Actual Actual Estimate Estimate Estimate Estimate Estimate

Personal Income Tax 1,519 1,558 1,447 1,593 1,689 1,722 1,795 1,898 1,992 2,072Sales / Use Tax 1,110 1,110 1,096 1,148 1,216 1,197 1,199 1,230 1,272 1,315Corporate Net Income 388 270 233 303 188 249 251 240 232 237Severance Tax 338 360 400 441 468 462 446 472 480 476All Others 573 604 582 579 542 520 528 543 555 557

total 3,928 3,902 3,758 4,064 4,103 4,150 4,219 4,383 4,531 4,657% change -0.7% -3.7% 8.1% 1.0% 1.1% 1.7% 3.9% 3.4% 2.8%

LotteryR t k Vid 336 310 275 258 274 181 168 172 172 172Racetrack Video 336 310 275 258 274 181 168 172 172 172Limited Video 202 206 199 199 265 185 185 185 185 185Traditional Games 41 41 40 36 46 30 30 30 30 30Table Games 9 18 17 32 38 30 30 30 30 30

total 588 575 531 525 623 426 413 417 417 417% h 2 2% 7 7% 1 1% 18 7% 31 6% 3 1% 1 0% 0 0% 0 0%

7

% change -2.2% -7.7% -1.1% 18.7% -31.6% -3.1% 1.0% 0.0% 0.0%

Six Year Financial PlanThrough FY 2017

General & Lottery Revenues(In Thousands $) (as of 6/30/2012)

DRAFT

Actual Budgeted Projected Projected Projected Projected2012 2013 2014 2015 2016 2017

Estimated RevenueGeneral Revenue $4,103,305 $4,149,751 $4,219,276 $4,383,261 $4,531,291 $4,656,920General Revenue - Surplus from previous fy 203,782 67,500 0 0 0 0Lottery 178,340 128,627 125,040 126,217 126,390 126,390otte y 8,3 0 8,6 5,0 0 6, 6,390 6,390Lottery - Surplus from previous fy 2,541 16,398 0 0 0 0Excess Lottery 249,140 173,877 165,308 167,993 167,993 167,993Excess Lottery - Surplus from previous fy 45,618 24,088 0 0 0 0Total Available $4,782,726 $4,560,241 $4,509,624 $4,677,471 $4,825,674 $4,951,303

Estimated Expenditures$ $ $ $ $Base Budget $4,430,627 $4,519,967 $4,946,970 $5,122,622 $5,288,825

Expenditure Growth:Retirement Systems 571,956 (33,448) 41,900 2,000 2,000 2,000Medicaid 399,889 37,511 235,695 72,759 44,981 48,120PEIA 333,904 6,366 14,000 15,000 16,000 17,000Salary Enhancements 206 50,708 51,718 52,747 250Salary Enhancements 206 50,708 51,718 52,747 250All Other 3,124,878 78,705 84,700 34,175 50,475 35,800

Total Ongoing Base Budget $4,430,627 $4,519,967 $4,946,970 $5,122,622 $5,288,825 $5,391,995

One Time Expenditures & Adjustments 268,541 38,474 54,580 26,500 5,000 5,000

Estimated Balance (Gaps) $83,558 $1,800 ($491,926) ($471,651) ($468,151) ($445,692)

8

( p ) , , ( , ) ( , ) ( , ) ( , )

Note: This six-year financial plan is a tool for analyzing future budgets and any gaps must be balanced.

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The Financial Outlook for Higher Education - wvhepc.org Financial Outlook for... · The Financial Outlook for Higher Education ... Higher education is moving toward a privatized funding