1. 1 MHCC Budget Overview Prepared for Board and Staff of MHCC DRAFT 12-1-11 Prepared by Jennifer DeMent, Jeff Forbis, Laurie Miller and Bill Farver MHCC Administrative Services 1

2. 2 Contents 1. Why is Budget Important? (slide 3) 2. What is the current revenue and expenditure forecast indicating? (slide 4) 3. Comparative Cost of Attendance (slide 11) 4. How do we approach this challenge? (slide 16) 5. Role of Budget Review Team (slide 27) 6. How do we actually balance? Three methods (slide 30) 2

3. 3 Part 1. Why is a Budget Process Important? We value what we spend money on. The process provides a structured opportunity to discuss vision and policy. 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. 3

4. 4 Part 2: Current Revenue/Expenditure Forecast – released 11-9-11 Deficit for FY12-13 estimated at $5.5 million Number will likely change, though not dramatically. Requires ongoing reductions of expenditures, or ongoing increased revenues. One time only money does not help this deficit. If we succeed, our current projected deficit for FY13-14 will be $1.7 million (plus state reductions which could total as much as another $2.8 million) Ongoing issue! 4

5. 5 Major Assumptions in Forecast Innovation Fund spent with no return on investment. (conservative assumption: “easiest” place to close the gap IF we get good proposals) All contractual obligations met Enrollment declines by 2% (each 1% = $100,000) No change in tuition or fees (pressure from the size of the deficit and other colleges to raise; each $1 = $200,000) “One time only” ending fund balance (for reserve fund at 3% and contingency at 3 to 5% meets Board policy 5

6. 6 Causes of the Structural Deficit Declining state revenue support ($1.5 million already planned to be returned to state) Health care costs rising 15% PERS costs rising (every two years) (FY13 expected 3% increase adds another $1 m in costs) Salaries rising 3% Enrollment projected to decline 2% 6

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10. 10 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: State revenue still in decline: 3 ½%; $1.5 million already held back 3 ½%; $1.5 million already held back State may seek a 7% hold back in second year; $2.8 million State may seek a 7% hold back in second year; $2.8 million Lower base for FY13-14 Lower base for FY13-14 10

11. 11 Part 3. 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 per credit hour tuition increase, approximately $200,000 in additional revenue is generated Some mid-year tuition increases being contemplated at other community colleges. 11

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13. 13 Typical Full-time Student Tuition and Fees by Term 15 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.

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15. 15 Reserve and Contingency Funds Reserves will be set at 3% (un-appropriated) Contingency will be set at 3% to 5% of general fund based on comparable community colleges and public jurisdictions Overall reserves and contingency between 6% and 8% 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 15

16. 16 Part 4: How do we approach this challenge? Multi year process of change Revenue enhancements ; Innovative approaches to expanding enrollment; New or expanded program offerings Potential Tuition and fee increases Program review based on completion, overall cost of instruction, employment potential, uniqueness, etc. Different approaches to instruction (e.g. differential tuition; class size; expanded times of instruction) Administrative efficiencies (e.g. Aquatics Center) Consistent, reliable data for future use; Employee salary and benefit costs review, especially health care and PERS Capital improvement plan and identified capital budgets 16

17. 17 A. Innovation Fund Fund approaches that will generate additional revenue above cost and/or increase completion rates Pilot approaches useful for next year 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!

18. 18 Innovation Fund proposals - p. 1 Strategies to increase enrollment (examples) ▫ New or expanded “profitable” programs (e.g. light auto repair certificate) ▫ Quicker financial aid turnaround (proposal to Board 12-14-11) ▫ Outreach to local high schools (e.g. Go Van; College Now; Upward Bound) ▫ Increased outreach to veterans ▫ International student focus ▫ Weekend college 18

19. Innovation Fund Proposals - p. 2 Strategies to increase retention / completion (examples) ▫ College Start Lab (Increased mentoring/advising) ▫ Better articulations; better pathways ▫ Emphasis on reenrolling current students ▫ Diversity Center ▫ Mandatory Human Development classes 19

20. 20 Guidance for Developing Proposals If proposals involves new full time faculty, contact Christie Plinski or Rodney Barker. Process to Hiring Committee and Budget Review Team (BRT). If proposals do not involve full time faculty, contact Jennifer DeMent. Proposals to BRT. Iterative process. Feel free to send drafts, seek financial and goal setting advice. Expect rewrites. BRT members available to read and give feedback. 20

21. 21 B. Systematically analyze what we teach 1.Does it cover its costs? Step 1 Analyze courses/academic programs to determine whether they pay for themselves Use Section/Course Cost Calculator(based on average instruction costs, not specific instructors) If they do, can they be made more efficient? 21

22. 22 2. Can it cover its costs? Step 2: Can the course/program be made more efficient through any of the following: ▫ Differential tuition ▫ Fees ▫ Change of ILCs ▫ Change of class size

23. 23 3. If not, should the program be retained? If so, why? Step 3: If course/program still losing money test it against a multi-factor algorithm; for example consider: ▫ Uniqueness of program ▫ Employability of graduates ▫ Wait list ▫ Completion rate (being mindful that state will fund more on “completion” in the future) ▫ Other factors

24. 24 C. Fully develop Issue Papers 40 potentially worthwhile areas to analyze and determine whether they will increase enrollment or reduce expenditures by at least $100,000 (see handout) Examples: ▫ Aquatics Center ▫ Parking fee ▫ Outreach to high schools ▫ Reduce uncollectable tuition costs

25. 25 D. Departmental Budget Review Have all departments prepare a narrative with their budgets with outcomes and output measures. (e.g. program offer) Discuss how the budget enables the program to fulfill its goals. Discuss “small” opportunities for investments to save money or expand revenue. Discuss impacts of additional reductions.

26. 26 Personal Challenge for Each of Us Mt. Hood is a “learning institution”; we can all understand and assist with this. Overreliance on tuition and fees may be self defeating. We need to be flexible and involved. Developing a good issue paper takes time and participation. To the extent we do not fully succeed, the challenge will fall directly on us in future years in discussions of salary and benefits. (That’s 75% of the college’s budget).

27. 27 Part 5: Role of Budget Review Team Membership drawn from all college stakeholders (full and part time faculty; deans; classified/administrative support; students) Wear “college hats” Advises President; October to March; 8:45 to 10 am Fridays; Board Conference Room. Develops and frames policy choices through issue papers 27

28. 28 Role of Budget Review Team (con’t) Identifies policy choices through input from Board and college stakeholders Frames menu of options Seeks agreement among stakeholders on financial impact of different choices Pursues an open, clear process

29. 29 Budget Review Team Timelines October – December: Solicits ideas from stakeholders; develops and discusses issue papers framing policy options; reviews revenue/expenditure forecast 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: Tax Supervising & Conservation Commission (TSCC) reviews and certifies and Board adopts budget 29

30. Part 6: How do you balance a budget? Method 1: Issue Papers Select among big picture “issue papers” - major policy issues -described above Problem: Not all potential reductions/revenue increases are best discovered through the issue paper format. Does not provide sufficient open review of smaller decisions within departments. Does not insure that all departments are receiving the same level of review. 30

31. Method 2: Program Offers Show specific programs; management tool Offers can show impact of reductions and/or increases Program offers can/should reflect issue papers Ask each program to generate program offer(s) that provide(s): ▫ a concise narrative of program purpose ▫ measureable outcomes and outputs ▫ a budget to achieve those goals. 31

32. Method 3: Constraint budgeting Assign a target of 9% to each area. Ask the area to explain how a combination of increased revenues and reduced expenditures could reach that goal. Consistent analysis across departments. Forced choice analysis. Document the consequences through program offers. Show what a base level program offer buys and what a reduced level buys. 32

33. Constraints/Percentages/Amounts 33 Area% of Budget of BudgetBudgetedAmount 9% Target Reduction Instruction / Academic Support55% 36,692,299 3,302,307 Administrative Services / Facilities /President's Office / Board15% 10,227,793 920,501 Student Services8% 5,241,047 471,694 Information Technology6% 4,095,641 368,608 College Advancement / Research & Planning / Human Resources4% 2,737,791 246,401 Fixed Costs / Debt Service4% 2,680,639 n/a Transfers / Waivers / Contingency8% 5,105,444 459,490 100% $66,780,654 $5,769,001

34. Tools Issue Papers Costing model in instruction (conversation starter; not decision maker) Departmental discussions – mutual impacts Developing measurable objectives for Program Offers 34

35. Actual balancing Use all three methods – different vantage points Issue Paper analysis – policy options Documented though program offers – program description and measurement Use Departmental review – fairness and consistency No “across the board” decisions Don’t double count savings/revenues 35

36. Questions? 36

37. Balance of Power Point BALANCE OF THE POWER POINT IS FROM THE ORIGINAL PRESENTATION GIVEN TO THE BOARD AS PART OF THEIR ORIENTATION. NOT CURRENTLY BEING USED AVAILABLE FOR REFERENCE 37

38. 38 Part 5: Background: How did we get here? General Fund (major discretionary funds) $66,780,654 Proposing to cut expenses or raise revenue by 8.5% of the general fund! 38

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40. 40 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 40

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42. 42 Enrollment Enrollment has steadily increased over the past few years Enrollment is expected to fall slightly this year (budgeted at 2% decline – currently on target compared to last fall) 42

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47. 47 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 47

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49. 49 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. 49

50. 50 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. 50

51. 51 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. 51

52. 52 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. 52

53. 53 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 53

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56. Outstanding Debt Options Series 2001 Series 2004 Series 2008 Series 2009 Series 2010 LTPB 2003 Outstanding Principal 7/1/2011 $1,635,000 $4,425,000 $5,645,000 $10,970,000 $6,000,000 $42,611,317 Years Remaining6131719 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% 56

57. 57 Personnel Costs Employer Paid Fringe Costs Employee costs by group Health benefits Collective bargaining agreements 57

58. 58 Our Budget is People 75% on salaries and employee benefits 75% on salaries and employee benefits 58

59. 59 Employee Headcount by Group (all funds) May 2006May 2001May 2011

60. 60 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; the 50% is approximately 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. 60

61. 61 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. 61

62. 62 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%. 62

63. 63 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. 63

64. 64 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% 64

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66. 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 66

67. Management Employee Costs 67 College President: Salary: $ 160,000 Fringe: 42% Total Cost: $ 227,200 Strategic Leadership (Cabinet): Average Salary: $ 117,932 Average Fringe %:44% Average Total Cost: $ 169,822 Instructional/Business Leadership: Average Salary: $ 94,554 Average Fringe %:50% Average Total Cost: $ 141,831 Management/Professional Staff: Average Salary: $ 64,471 Average Fringe %:51% Average Total Cost: $ 97,351 Note: 2011-12 general fund employees only. Salaries are based on full year assignments. Fringe rates are estimated.

68. 68 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. 68

69. 69 Full-time Faculty Expected to teach 45 ILCs (Instructional Load Credits) per academic year. For example: 69 15 CREDITS FALL 5, 3 CREDIT CLASSESFALL 5, 3 CREDIT CLASSES 18 CREDITS WINTER 6, 3 CREDIT CLASSESWINTER 6, 3 CREDIT CLASSES 12 CREDITS SPRING 4, 3 CREDIT CLASSESSPRING 4, 3 CREDIT CLASSES 45 TOTAL CREDITS

70. 70 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). 70

71. Full-time Faculty Costs (Values based on maximum allowable load. Not all faculty teach additional load.) Faculty at typical new hire placement: Base salary: $50,327 Extra Teach: $7,470 Summer 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: $81,673 Extra Teach: $9,900 Summer Teach: $23,400 Potential Annual Salary: $114,973 Average Fringe Rate: 50% Total Potential Cost: $162,182 71

72. 72 Furlough Days (Days without Pay.) Full-time Faculty 2 furlough days each year in 2011/12 and 2012/13. Annual savings in salary and fringe approximately: $ 165,000 Non-Represented Employees 3 furlough days each year as a permanent reduction to annual salaries. Annual savings in salary and fringe approximately: $ 70,000

73. 73 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 $598.11 to $713.27 per credit (ILC) Qualifications for part-time faculty are set by Administrative Regulations (AR-5060-F) 73

74. Part-time Faculty Costs Maximum ILC placement (Step 5): Rate per ILC: $713.257 Maximum Potential 3-Term Salary, at 22.5 ILCs: $16,049 Average Fringe Rate: 18% Total Cost: $18,938 74 Maximum Hourly placement(ABE/GED/ESL Step 3): Rate per hour: $60.03 Maximum Annual Salary at 600 hours: $36,018 Average Fringe Rate: 18% Total Cost: $42,501 Values indicated are rounded.

75. 75 Cost comparison for 3 credit class 75 Rate Per Credit 3 Credits of Instruction Average Fringe Rate Total Cost per 3 Credit Class Part-time Faculty, average at Step 3 $653.16 $1,959.4818% $2,312.19 Full-time Faculty, average at Step 3 $1,662.02 $4,986.0650% $7,479.09 Difference $5,201.10

76. 76 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 76

77. 77 Contract Status: Costs Set for FY12-13 July 2011 began the second year of three year signed contracts with the Full-time Faculty Association and the Classified Employee Association and a four year contract with the Part-time Faculty & Tutor Association. FY 12-13 salary cost of living increases of 2% for Full-Time Faculty and Classified employees, 2% cost of living and up to 1.5% market adjustment for the Part-time Faculty & Tutor Association. Medical and dental insurance cost sharing of 13% 77

78. 78 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. 78

79. 79 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. 79

80. 80 Questions ? 80