Community College Budgets: Process and Prospects Jennifer Haygood, EVP and Chief Financial Officer North Carolina Community College System

Overview Overview of State and NCCCS Budget Budgeting Process College Budget Allocation Process On the Horizon: Prospects for the Future Please feel free to ask questions at any point! FY 2013-14

State General Fund Budget by Revenue Source: FY 2011-12 (in millions) Source: Fiscal Research Division, August 8, 2011 FY 2013-14

FY 2013-14 State General Fund Budget Area Net Appropriation % of Total Education Public Schools Higher Education (UNC & CCs) $11.5 billion $7.9 billion $3.6 billion 56% 38% 18% Health and Human Services $5.0 billion 24% Justice and Public Safety $2.4 billion 12% All Other $1.7 billion 8% Total $20.6 billion 100% Of the State funds allocated to community colleges for current operating: 83% supports direct classroom instruction (66%) and academic and student support (17%). 90% supports salaries and benefits of community college employees. FY 2013-14

State General Fund Appropriations for Education: FY 2013-14 (in millions)

Financial Support of Institutions State G.S. 115D-31 Operating costs for instruction, administration, and support services Local G.S. 115D-32 Operation and maintenance of plant Capital construction is the legal responsibility of the county. However, G.S. 115D-31 authorizes the State to provide capital funds to local institutions, provided that it is matched on a dollar-to-dollar basis. FY 2013-14

Sources of NCCCS Funding: FY 2013-14 (in millions) Total: $1.8 billion Over the past few years, tuition and fees have become a more important fund source. In 08-09, tuition receipts only constituted 13% of our budget. Our tuition and fees budget has increase by 71% over the past two years. Local funding has remained flat and therefore has declined as a percentage by 1-2 percentage points. Source: August 2012 BD-701, DCC 2-1 Summary. Includes college current expense (Purposes 1XX-6XX) and equipment; chart does not include proprietary activities, student aid, and capital improvement projects. FY 2013-14

NCCCS State Budget: FY 2002-2014 Budget Drivers: Enrollment Growth and Salary Increases Authorized State Budget (requirements) increased 57% between 2000-01 and 2009-10. Source: BD 701: FY 2002-2013 June 30 Authorized Budgets, FY 2013-14 Aug 31 Authorized Budget FY 2013-14

NCCCS State Budget: FY 2002-2014 Authorized State Budget (requirements) increased 57% between 2000-01 and 2009-10. Source: BD 701: FY 2002-2013 June 30 Authorized Budgets, FY 2013-14 Aug 31 Authorized Budget FY 2013-14

Biennial Budget Cycle: FY 2013-15 Summer and Fall 2012: Develop continuation budget Develop expansion budget request Identify reduction options 2013 Long Session (begins in January): Adopt a two-year budget 2014 Short Session (begins in May): Adjust second year of the budget FY 2013-14

The Gubernatorial Process Per the NC Constitution, the Governor shall: Serve as “Director of the Budget” Prepare and recommend a budget to the General Assembly Administer the budget as enacted by the General Assembly FY 2013-14

Legislative Budget Process Governor’s Recommended Budget Full Appropriations Appropriations Subcommittees House/Senate Floor Sent to Other Chamber House and Senate Appoint Conferees House and Senate Vote on Conference Report Conference Report Adopted Budget Bill Enrolled, Ratified, and Sent to the Governor to be Signed into Law The House and Senate alternate preparation of the initial budget bill. Originating Chamber Fails to Concur The Conference Report must be voted up or down as submitted by the conference committee; it cannot be amended on the House or Senate floors. Gov. veto can be overridden by 3/5 vote of each chamber. FY 2013-14

State Board Approval State Aid Allocations and Budget Policies Guidelines Related to Salaries and Benefits of Community College Employees Formula and Categorical Allotments Use of State Funds and Budget Flexibility Tuition and Fees Other Budget Policy Issues FY 2013-14

College Allotments: FY 2013-14 59% Total Allotments: $1.41 billion Less Management Flex Cut: $0.07 billion Net Allotments: $1.34 billion 34% The chart on page 34 shows how these funds are allocated among expenditure categories. Note that 96% of the funds are allocated to and expended by the local institutions. The largest amount, 57%, goes to instruction, which includes faculty and educational supplies; 27% goes to college administration and student support services, such as counseling, financial aid officers, and library services. An additional 9% is allocated to categorical aid. Examples of programs in this category include workforce development programs, such as the Small Business Centers and the community college’s Bionetwork initiative. This category also includes specialized technology centers such as the Textile Center and the Hosiery Center. As you can see, a relatively small amount is spent on Equipment and Books. Finally, I would note that $57 million dollars, or 4% of the system’s total budget, is allocated to the System Office budget. About half of the funding in this category consists of a $15 million appropriation for the system-wide computer information system project, and $14 million for financial aid. The remaining amount goes towards other System Office operations. 4% 2% .3% Source: FY 2013-14 Summary of Budget Allocations. Note that this graph only captures funds distributed to colleges through the routine budget allocation process. This graph does NOT account for any subsequent reversions required by the Governor or allocations. FY 2013-14

Full-Time Equivalent (FTE) Student Curriculum FTE = 16 hours x 16 weeks x 2 semesters = 512 Membership Hours Non-Curriculum FTE + 16 hours x 11 Weeks = 688 Membership Hours FY 2013-14

Budgeted FTE Budgeted FTE means the number of FTE which determines a college’s operating budget Curriculum budgeted FTE counting period = Fall, Spring (academic year) Non-curriculum budgeted FTE counting period = Spring, Summer, Fall (calendar year) FY 2013-14

Budget FTE For each instructional area (curriculum, con ed, and basic skills), a college’s budget FTE is determined by calculating the higher of : the prior year; or the average of the two previous years’ enrollment Budget FTE are further categorized based on actual FTE proportions : Curriculum: Tier 1: FTE in high cost areas of health care, technical education (construction, engineering, industrial systems, and transportation system sciences), lab-based science, and college-level math courses Tier 2: All other curriculum FTE Con Ed (OE): Tier 2: Con ed courses that are a) mapped to a third-party credential, certification, or industry-designed curriculum and b) are 96 hours in length. Tier 3: All other con ed FTE Basic Skills FTE: All Basic Skills FTE are designated Tier 2. Unlike the University system which projects enrollment, community college budgeted FTE is based on actual figures. Projecting community college enrollment is extremely difficult and for many years, projected enrollments were significantly higher than the actual. The General Assembly continued to tweak the enrollment calculation until 2000, when a modified budget stability formula was put into place. To determine enrollment figures, this formula uses the higher of a college’s prior year actual FTE enrollment; or the average of the three previous years’ FTE enrollment. This formula provides funding when enrollments are up and allows colleges time to adjust when enrollments fall. FY 2013-14

Curriculum Instruction Allotment Example College: Curriculum FTE – 1,500 Con Ed FTE – 600 Basic Skills FTE - 115 Step 1 Base Allotment: $383,579 Step 2 Multiply Tier 1 BFTE by Tier 1 equivalent value: = 500 X $3,636.31 = $1,818,155 Step 3 Multiply Tier 2 BFTE by Tier 2 equivalent value: = 1,000 X $3,160.79 = $3,160,790 FY 2013-14 Equivalent Values Tier 1: $3,636.31 Tier 2: $3,160.79 Step 4 Sum steps 1 through 3: $5,362,524 Total Curriculum Allotment: $5,362,524 FY 2013-14

Con Ed Instruction Allotment Example College: Curriculum FTE – 1,500 Con Ed FTE – 600 Basic Skills FTE - 115 Step 1 Base Allotment: $63,930 Step 2 Multiply Tier 2 BFTE by Tier 2 equivalent value: = 300 X $3,160.79 = $948,237 Step 3 Multiply Tier 3 BFTE by Tier 3 equivalent value: = 300 X $2,685.38 = $805,614 FY 2013-14 Equivalent Values Tier 2: $3,160.79 Tier 3: $2,685.38 Step 4 Sum steps 1 through 3: $1,817,781 Total Curriculum Allotment: $1,817,781 FY 2013-14

Basic Skills Formula Calculation Example College: Curriculum FTE – 1,500 Con Ed FTE – 600 Basic Skills FTE - 115 Step 1 FTE Allotment: State: 115 X $2,545.30 = $292,710 Federal: 115 X $ 615.49 = $ 70,782 115 X $3,160.79 = $363,492 Step 2 Performance-Based Allotment: GEDs/AHS Diplomas Awarded = 100 100 X $874.53 = $87,453 Step 3 Sum steps 1 through 2: $450,945 FY 2013-14 Values FTE Allotment: Tier 2: $3,160.79 State: $2,545.30 Federal: $615.49 Performance-Based Allotment: $874.53 per GED/AHS Diploma Level of effort = % of target population served: Target population is 18-54. This year system-wide average was 9.9%. For every percentage point over system-wide average, get $10,000. Total Basic Skills Allotment: $450,945 FY 2013-14

Institutional Support Calculation Example College: Total Budgeted FTE 2,215 Step 1 Base allotment: $2,154,280 Step 2 MCC Allotment (if applicable): $0 Step 3 Enrollment Allotment: Calculate allowable FTE: 2,215 – 750 = 1,465 Calculate FTE allotment: 1,465 x $1,676 = $2,455,340 Step 4 Determine President’s Salary with Salary Schedule Total President’s Salary Requirements: $144,477 Step 5 Sum steps 1 through 4: $4,754,097 FY 2013-14 Values Base Allotment $2,154,280 MCC Allotment (if applicable) Level 1: $500,919 Level 2: $839,311 Enrollment Allotment $1,676 per FTE above 750 President’s Salary Per Salary Schedule Total Administrative Allotment: $4,754,097 FY 2013-14

Why Do the Formula Factors Change? Legislative salary increases (if provided) Other changes in benefit rates (i.e. hospitalization, retirement) Legislative or State Board adjustments to the formula FY 2013-14

Performance-Based Allocations In FY 2013-14, $9 million was allocated to colleges based on performance on six performance measures: Success rates of developmental students in subsequent college-level English courses Success rates of developmental students in subsequent college-level math courses Progress of first-year curriculum students Curriculum student retention and graduation Attainment of licensure and certifications by students Performance of students who transfer to a four-year institution In FY 2014-15, the General Assembly has directed the State Board to allocate $24 million based on performance. In addition to the six measures above, two additional measures will be added: Progress of basic skills students Attainment of GED diplomas by students For each measure, funds are allocated based on two factors: Quality: Funds allocated based on percentage of students who succeed on each measure Impact: Funds allocated based on the number of students who succeed on each measure FY 2013-14

Rewarding Quality: In Concept For each measure, colleges would earn PBF based on how they compared to both a floor and a goal: If a college did not meet the floor, it would receive $0 in PBF for that measure. If a college exceeded the floor, but did not meet the goal, it would receive a portion of its potential PBF for that measure. If a college met the goal, it would receive 100% of potential PBF for that measure. If a college exceeded the goal, it would receive more than 100% of potential PBF for that measure. Goal Floor FY 2013-14

Rewarding Impact: In Concept Funds not allocated through the Quality component would be allocated among colleges through the Impact component. Impact = the number of students that succeed on the measure Step 1: Determine Impact Funding = Total PBF Funding – Quality Allocation Step 2: Determine Impact Funding per Student = Impact Funding / Total # of Successful Students Step 3: Determine College’s Impact Allocation = Impact Funding per Student * College A’s # of successful students FY 2013-14

Example College’s Total Formula Allotment Curriculum: $ 5,362,524 Continuing Education: $ 1,817,781 Basic Skills: $ 450,945 Institutional Support: $ 4,754,097 Performance-Based Funding: $ 78,252 Total Formula Allotment: $12,463,599 FY 2013-14

Budget Flexibility The General Assembly has allowed colleges to have flexibility in order to meet individual college needs Formulas are for allocation purposes only Colleges can spend the money however they choose with the following exceptions: Basic Skills funding may only be used for basic skills programs Federal vocational education funding may not be transferred Customized Training funds may not be transferred Certain State-supported allocations approved by the State Board outside the budget package If average faculty salary on a campus is < 85% of national average, they may only transfer 2% out of instruction. 55 colleges fell in this category this year. The remaining 3 colleges (Central Piedmont, Richmond CC, and Sandhills CC) had average faculty salaries greater than 85%, but less than 90%, and therefore can transfer up to 3% out of instruction. We’ll talk about this restriction more later, but the reason behind this restriction, in a nutshell, is…. FY 2013-14

On the Horizon: Summer Term FTE Section 10.4 of S.L. 2013-360 amends G.S. 115D-5: “Community colleges may teach technical education, health care, developmental education, and STEM-related courses at any time during the year, including the summer term. Student membership hours from these courses shall be counted when computing full-time equivalent students (FTE) for use in the budget funding formulas at the State level.” Effective Summer 2014 term FY 2013-14

On the Horizon: Fourth Tier? Section 10.4A of S.L. 2013-360: “It is the intent of the General Assembly that, beginning with the 2014-15 fiscal year, the State Board of Community Colleges shall implement a fourth tier….in order to fund curriculum programs leading to immediate employment at the highest available funding level.” FY 2013-14

On the Horizon: NC GAP? Section 11.17 of S.L. 2013-360, as amended:“The Joint Legislative Education Oversight Committee…shall study the feasibility of establishing an alternative admission program to be known as NC Guaranteed Admission Program (NC GAP).” The goals of NC GAP shall be : To encourage and assist students to obtain a baccalaureate degree within a shorter time period; To provide students with a college education at significantly lower costs for both the student and the State; To help decrease the amount of debt resulting from loans that a student may owe upon graduation; and To provide easier access to academic counseling. FY 2013-14