May 31, 2011 Budget Update

Legislature's Final Operating Budget for 2011-13

Late on Tuesday, May 24 we received the legislature's final operating budget for 2011-2013.  The final capital budget was passed on May 26.  Both budgets are now awaiting action by the Governor before they become law.  I want to share with you our initial assessment of these budgets and their effect on Evergreen.

We plan a campus forum on the budget on Monday, June 6 from 1:00 to 2:30 in Lecture Hall 1.  By that time, we will have done a more complete analysis of the budgets and should have a more detailed idea of how the college might respond.  I know that evaluation week is a poor time to plan a meeting.  The length of the special legislative session has made us a full month late in developing and refining budget plans.  We will continue to post information on the college's budget Web site, so if you are unable to attend the June 6 meeting you can continue to stay informed.  As we continue to refine recommendations for the Board, I want to be able to hear your response to draft recommendations, either at the June 6 meeting or by e-mail by June 8.

Over the past several years, we have experienced a dramatic reduction in state funding.  That trend continues in this legislative budget.  The legislative budget represents a 28% reduction in state funding.  The legislative budget assumes that all employees will take a 3% pay reduction for the next two years.  We will, of course, honor our current collective bargaining agreements and meet our responsibility to negotiate any changes in compensation, but we will be compelled, both financially and politically, to reduce our payroll by 3% for the biennium, and this will affect all employee groups, though the specific nature of the impacts will vary.

The legislative budget sets Evergreen’s tuition increases each year at 14% for in-state undergraduates.  We expect out-of-state undergraduate tuition and in-state graduate tuition to increase 5% each year.  We do not plan on any increase in tuition for out-of-state graduate students. 

You may have seen newspaper headlines saying that the legislature has given colleges and universities the authority to set their own tuition levels.  What this means is that colleges and universities can choose to exceed the legislative tuition levels described above if we meet certain conditions.  However, we do not plan to use this new "authority."  I plan to recommend to the Board that we follow the legislative tuition levels described above.  The legislature increased funding for the State Need Grant, the state's largest financial aid program, based on these tuition levels. 

The state's contribution to employee pensions is now capped at 6% of salary, a change that affects funding for the college's TIAA-CREF contributions.  It is our current understanding that, regardless of the state's willingness to fund the pension program, the college is obligated to honor the current pension program for current employees.  We estimate that this will require us to come up with about $500,000 per year that was previously paid by the state.  In the future, we may decide that newly hired exempt or faculty employees should be offered a different pension program, but we haven't yet examined the options and implications of such a change.

Taking into account salary reductions, tuition increases, re-basing enrollments and other adjustments, we are left with a total additional budget cut of $3.4 million over the biennium.  This represents a 3.3% reduction in our total operating budget.  The Vice Presidents and I will develop proposals for meeting this challenge.  We will share our ideas at the June 6 campus meeting and on-line and ask for your input before we bring a final recommendation to the Board over the summer.

While we were successful in obtaining funding for our Comm Building remodel, final capital budget funding for the project is short by $1.6 million.  The legislative capital budget also cut an additional $1 million for facilities maintenance and other capital needs at the college.  We haven’t yet determined how we will navigate this part of our budget challenge. 

As we talk with people on campus about how to solve this budget cut, two terms come up repeatedly that I want to explain:  "re-basing" and "reserves."  For the past few years, we have exceeded our state-funded enrollment, registering more students and attracting a higher proportion of students who paid non-resident tuition.  Enrollment and non-resident student numbers have been near all-time highs.  For the past few years, this has produced additional revenue, beyond what we needed for our baseline, budgeted spending plans.  We have now "re-based" the budget, which means that we will be counting on this additional revenue from now on.  This is an ambitious goal.  Attracting and retaining students at this level will need to be a major focus of our work over the next two years and beyond.

During the years when enrollment produced more revenue than we had budgeted, we were able to direct that money to institutional reserves.  The belt-tightening we experienced as travel, hiring and purchasing were restricted also contributed to our reserves.  We have drawn down these reserves to meet some major expenses over the past few years, for instance the moves and temporary spaces needed during building renovations and the implementation of the much-needed Banner HR software system to help us more efficiently manage college operations.  Now that we have re-based the budget, we will not have the capacity to build up new reserve balances. 

In this economic environment, we need to be prepared for the possibility of additional legislative budget cuts during the course of the biennium.  To be prepared, we need to hold on to some of our remaining reserves as we head into this biennium.  Maintaining a prudent reserve fund has allowed us to minimize abrupt mid-year layoffs and program cuts in response to mid-year budget cuts, and I want to make sure that we have that ability in the future. 

Nevertheless, I expect that we will need to draw down our reserves this year to help us absorb the impact of legislative cuts that cannot be reasonably implemented on July 1 or accommodated with available base budget and capital budget revenues.  We will be refining the specifics of those strategic investments and budget plans in the coming weeks.  We are not only considering how we can weather the most recent budget challenges, but how we can organize our work, focus our energy and resources, and prepare the college to thrive in a dramatically changing environment.

— Les Purce