1. Higher Education Policy Commission Budget Hearing with the Department of Administration FY 2005 Budget Appropriation Request October 3, 2003

2. 2 Table of Contents Department of Administration Budget Hearing III. State Appropriation Request for FY 2005 18 Budget Request Summary 19-21 Impact of Proposed Budget Reductions 22-25 Rationale for Restoration of Proposed Reductions 26-29 History of Appropriations 30-31 Changes in Per Student Funding 32-33 Financial Aid Budget Requests 34-37 IV. Other Higher Education Funding Issues 38 Overall Higher Education Funding and Expenditures 39 Tuition and Fees 40-46 V. Other Issues 47-54 I.Higher Education Policy Commission Mission and Goals3 Summary Mission Statement4 Summary Goals from It All Adds Up5 II.Key Statistical Measures on Progress Towards Goals6 Summary Performance Measures7 College Going Rates8 Enrollment Statistics9-10 Graduation Statistics11-15 Workforce Development16 Research Grants17

3. 3 Higher Education Mission and Goals

4. 4 The mission of the Higher Education Policy Commission is to align the West Virginia higher education system to contribute to the long-term growth and diversification of West Virginia’s economy as outlined in It All Adds Up: Compact for the Future of West Virginia. The target is to increase West Virginia’s per capita income to, or above, the national average by the year 2020. Higher Education Policy Commission Mission

5. 5 It All Adds Up: Compact for the Future of West Virginia  Goal 1: Preparation  Goal 2: Participation  Goal 3: Affordability  Goal 4: Competitive Workforce  Goal 5: Economic Development  Goal 6: Accountability

6. 6 Key Statistical Measures on Progress Towards Goals

7. 7 Higher Education Performance Measures

8. 8 The college going rate of recent high school graduates is a good measure of how much progress West Virginia is making in increasing the level of college participation for young adults. From Fall 1996 to Fall 2001, the West Virginia college going rate has increased from 46.9% to 56.4%, and is currently almost equal to the national rate of 56.7%. These increases in college participation are welcome signs of progress, but more needs to be done to surpass the national level and meet statewide goals. The Higher Education Policy Commission has set a statewide goal of 70% for the college going rate of recent high school graduates. College Going Rates of Recent West Virginia High School Graduates

9. 9 Trends in Headcount Composition By Level of Study Public Institutions Fall 1998-2002

10. 10 Full-Time Equivalent Enrollment Fall 1993-2002 * Community college components are not identified separately because of data incompatibilities.

11. 11 Education Outcomes Graduation Rates of First-Time, Full-Time, Degree-Seeking Freshmen

12. 12 Trends in Total Certificates & Degrees Awarded

13. 13 Certificates & Degrees Conferred by Level *For academic year 2001-02, students reported at Eastern WV Community and Technical College were officially enrolled at WV Northern Community College in courses provided at Eastern.

14. 14 Increased earnings are among the most important benefits of higher education, although in the first few years after graduation, the earnings of those with associate's degrees are close to or sometimes higher than the earnings of bachelor's degree recipients. Many of the degrees earned at the associate's degree level are in the health and technology fields, which tend to have relatively high earnings. First-Year Earnings of 2000-01 Resident Graduates

15. 15 Retention of graduates after graduation is strongly influenced by the level of degree earned and whether the student was a resident of West Virginia at the time of graduation. For all degree levels, 75% of the West Virginia residents stayed in the state to work or attend school one year after graduation, compared to only 23% for the non-resident graduates. Among degree levels with significant numbers of graduates, residents who are associate's degree recipients are most likely to stay in the state, with an 86% retention rate. They are followed by post- master's degree recipients at 81% and undergraduate certificate degree recipients at 79%. Retention of 2000-01 Graduates in 2002

16. 16 Workforce Development Job Training and Customized Employer Training Outcomes 2001 - 2002

17. 17 The total amount of research grants and contracts for West Virginia institutions has been fluctuating around $50 million from 1996-97 to 1999-2000. The total increased to over $98 million in 2000-01, followed by another significant increase in 2001- 02 to $152,028,940. The total amount of research dollars brought in from outside sources is a measure of the research activity undertaken by institutions. Research has a link to both graduate education outcomes and economic development within the state. It would be a good sign in both areas if this recent increase in research funding continues in the future. Research Grants and Contracts, 1996-2002

18. 18 State Appropriation Request for FY 2005

19. 19 HEPC Budget Request Summary  Restoration of Base Budget Reductions - $33.9M  Need Based Financial Aid Higher Education Adult Part-time Student Grant Program (HEAPS) - $4.0M Higher Education Grant Program - $6.0M  Promise Scholarship Fund - $10.0M  Minor increase in spending authority for old capital account resulting from interest earnings.

20. 20 Requested Reclassifications to Budget Items that Higher Education requests be reclassified to the base budgets of the institutions.  West Virginia State University Land Grant - $1,200,000  Eastern Medical/Health Sciences - $1,400,000  Fairmont State University - $501,808  Technical Preparation Shepherd University - $200,000 Southern West Virginia Community & Technical College - $300,000

21. 21 Requested Reclassifications to Budget – cont’d  The funding for Eastern Medical/Health Sciences and Fairmont State University has been included in the lottery account as special projects for the last several years. The Technical Preparation funding for Shepherd University and Southern West Virginia Community & Technical College has been ongoing for a number of years and is funded in the budget of the Secretary of Education and the Arts.  The request for the West Virginia State University Land Grant is to obtain funding in order that federal matching funds will be received. Without this funding, West Virginia State University will lose a substantial amount of funding. This university is only one of two institutions in the state with land grant status. Only $1.2 million was appropriated in a supplemental bill for FY 03, but representatives from the college have indicated in order to avoid losing federal matching dollars that state funds of $1.5 million is needed.

22. 22 Higher Education Requested Budget Reduction

23. 23 Impact of Requested Budget Reduction  Community Colleges$ 5.4M  Four-year Campuses$20.5M  Rural Health Programs$ 0.8M  Medical & Health Education$ 6.7M  HEPC/WVNET/Etc.$ 0.5M Total $33.9M

24. 24

25. 25  Loss of key faculty and staff members due to the lack of salary increases and competitive pay issues.  Further reduction of full-time faculty members and expanded use of part-time adjuncts and graduate assistants.  Inability to offer adequate course offerings potentially resulting in a delay in graduation for students.  Increased class sizes with a potential impact on the quality of the learning experience.  Larger than normal increases in tuition rates resulting in potential access issues for need based resident students.  Reduced ability of the institutions to meet work-force development and adult education outreach goals.  Inability of the institutions to meet the objectives for higher education that were laid out in SB 653 and SB 703, i.e., workforce preparation, general educational attainment, and economic development goals.  Negative long-term impact on the economic development goals that were to be supported by Higher Education. Potential Negative Impacts of the Budget Reduction

26. 26 Rationale for the Restoration of Proposed FY 2005 Reductions  Higher Education receives only 11% of total state appropriations, but is being asked to absorb 28% or $33.9 million of the total FY 2005 state budget shortfall.  This would be the second year of significant budget reductions. In the current FY 2004, Higher Education is absorbing $34.2 million in net reductions, which again is a much heavier percentage contribution to meeting the budget shortfall than is annually received by Higher Education. The budget reductions have been especially difficult for the four year campuses, as generally the community colleges have been exempted from those budget reductions.  In addition to the FY 2004 budget cutbacks, Higher Education was required to absorb an additional $8.5 million in insurance costs from PEIA and BRIM in the current fiscal year. Significant costs increases in these categories are also projected for FY 2005 much of which will need to be absorbed by the institutions. While budget instructions have asked us not to request increases for these cost categories, it is still unclear as to the final impact on higher education.

27. 27 Rationale for the Restoration of Proposed FY 2005 Reductions – cont’d  The proposed reduction in funding for operations is even more significant. Adjusting the total appropriations to exclude financial aid and capital funding, the proposed FY2005 budget for operations would be $335.7 million. This would be a reduction in the operating budget of $78.5 million or 19% over the last two years. As some exemptions were made in the reductions for the community colleges in FY 2003, the proposed reductions at the four year institutions would be approximately 24% over this two year period.  Included in the base budget of the institutions are appropriations for specific purposes such as extension and public service. Guidance may be helpful in implementing the reduction and deciding whether instruction, programs or extension activities should be cut.

28. 28  Enrollment at the higher education institutions continues on an upward trend. For example, in-state resident students have increased from 45,628 in the Fall of 1996 to 49,498 in the Fall of 2002, despite declining numbers of graduating high school seniors. Early indications for the Fall of 2003 also indicate increased in-state enrollments. Improved educational attainment of its citizens is one of the keys for future economic development of the state, and the lack of state funding to support the increased number of resident students will be a significant detriment to achieving this goal.  As documented in the FTE employee counts provided by the State Budget Office, Higher Education has significantly improved productivity over the last several years. FTE staff counts were reduced by 221 from January 1997 to January 2001, and were reduced by an additional 186 FTE employees from January 2001 to July 2003. These reductions came during a period in which total FTE students enrolled in the institutions increased by 6,206. It is evident that significant overall productivity improvements have occurred, although, there are significant variations in enrollment growth and position growth by campus. Rationale for the Restoration of Proposed FY 2005 Reductions – cont’d

29. 29 Rationale for the Restoration of Proposed FY 2005 Reductions – cont’d  Salaries levels of faculty and staff have typically lagged comparisons to other similar institutions across the country. Due to the size of budget reductions in the current fiscal year, very few institutions had the capability to implement pay raises for the staff. The proposed budget reduction for FY 2005 would result in a similar lack of funds for salary increases. The ability of the institutions to attract and retain qualified staff members is greatly diminished in such an environment, and can have grave consequences to the quality of the educational offerings. Across the country faculty salaries went up about 3% from last year as reported in the August 29, 2003 issue of The Chronicle of Higher Education, even though significant budget shortfalls have also occurred in other states.  Funding for the community and technical colleges has been partially exempted from recent budget reductions, but these institutions at the same time have held back tuition increases to maintain access for resident students. Improved total funding at these institutions is important to meet the mission of expanding access to higher education for residents, and to actively participate in work-force development and adult education initiatives.  Funding for the research institutions is also a critical component of the economic development plan for the state of West Virginia. While the institutions have been very effective in obtaining external funding for research activities, funding from state sources for research has been minimal over the last few years.

30. 30 History of Appropriations FY 2005 Base Request Shown FY 2005 base budget request is shown on the chart.

31. 31 History of Appropriations – cont’d

32. 32 Note: The figures in parentheses are the rounded amounts for 2002. Public funding (state and local appropriations and tuition and fees revenues) per full-time-equivalent student fell by 0.5 percent in the SREB region when adjusted for inflation. In West Virginia, per-student funding decreased by 3.6 percent. Tables listed are in the SREB Fact Book on Higher Education 2003.

33. 33 Note: The figures in parentheses are the rounded amounts for 2002. Public funding (state and local appropriations and tuition and fees revenues) per full-time-equivalent student fell by 1.6 percent in the SREB region when adjusted for inflation. In West Virginia, per-student funding increased 5.5 percent in public two-year colleges. Tables listed are in the SREB Fact Book on Higher Education 2003.

34. 34 Higher Education Grant Program Budget Request  The West Virginia Higher Education Grant Program currently receives a state appropriation from lottery funds of $18,000,000 which is supplemented by an allocation from HERF fees (paid by public college and university students) of $1,800,000 and a federal matching grant of approximately $1,000,000. It is estimated that this will provide assistance to approximately 11,800 West Virginia students who will meet established standards of financial need and academic preparation in Fiscal Year 2003-04. Some 1,369 fully qualified students have not currently been assisted due to funding limitations.  Fiscal Year 2002-2003 was the first year since the mid 1990’s that the Grant Program did not receive a funding increase. Level funding combined with larger awards resulting primarily from tuition and fee increases caused the number of recipients to decline for this year. An increase of $6,000,000 is requested for Fiscal Year 2004-2005 with the funds to be used as follows: An additional $1,7 million is needed to cover the 1,369 eligible students who are on the most recent award cycle waiting list at 70% of tuition and fee increases or cost adjustments. It is anticipated that at least one-half of these students on the waiting list will be funded from existing funds once Fall enrollments are finalized. An additional $2.3 million is needed to fund the fee increases for the Grant Program since its base funding level became $18 million in FY 2002. For fiscal year 2004, the four year institutions increased fees by approximately 9%, the two year component community colleges increased fees by approximately 4.5%, and the freestanding community colleges went to 0% with the roll backs in tuition. No final decision has been made yet, in regard to the projected FY 2005 tuition increases. The remaining $2.0 million of the requested increase would be used for the thirteen newly eligible accredited proprietary institutions and is based on anticipated growth. This represents a change from last year because the proprietary institutions only became eligible with the passage of SB 646 during the last Regular Legislative Session.

35. 35 State-Wide Scholarship and Grant Program Increases – cont’d Note: There has been recent discussion regarding the possible merits of making the West Virginia Higher Education Grant Program more like the federal Pell Grant Program in terms of academic eligibility standards. This could result in more eligible students and perhaps a higher funding need, or as an alternative a lower Expected Family Contribution (EFC) cutoff for an expanded pool of Grant Program applicants.

36. 36 Higher Education Adult Part-Time Student Grant Program - (HEAPS) Budget Request  The Higher Education Adult Part-time Student Grant Program is designed to enable needy West Virginia undergraduate students to continue their education on a part-time basis at the post secondary level. HEAPS grants will be awarded for enrollment in public and private colleges and universities, adult technical preparatory programs or training offered by certain public vocational schools and any approved distance education, including worldwide web-based courses.  During the 2003 regular Legislative Session House Bill 2051 was passed and provides that qualified traditional college age students may now be considered for HEAPS grant assistance. Prior to the passage of this bill, there was a requirement that students be out of high school for at least two years before receiving assistance. Other changes to HEAPS include a new component of the program that requires 10 percent of the annual appropriations be directed to community and technical colleges for non-credit and customized training programs which further the economic development goals of the state and help meet training and skill upgrade needs of employers in the state.  An emergency rule has been adopted so that the provisions of the new bill can be implemented for awards being made in the 2003-04 award year. An appropriation of $8,000,000 is being requested for FY 2004-05, an increase of $4,000,000 over the FY 2004 level to expand this important program for the state. This amount is contingent upon fall enrollment but could be higher since part-time and community college student enrollment cannot be anticipated until the first few weeks of the semester.

37. 37 Fiscal year 2005 will be the fourth year for the Promise Scholarship Program and it will be increased from $17,000,000 in FY 2004 to $27,000,000 as provided in the funding legislation. This amount is specified in West Virginia State Code Section 29-22-18a (c). It is estimated in FY 2004 and FY 2005 that 6,000 and 8,000 students will receive awards, respectively. Promise Scholarship Program PROMISE Dollars awarded (in millions) $10.1 $18.5 $26.7 Recipients 3,483 6,000 8,016 Actual Estimated Estimated 2003 2004 2005 Fiscal Year Performance Measures

38. 38 Other Higher Education Funding Issues

39. 39 West Virginia Higher Education Fund Combined Financial Statement Summary For Fiscal Year 2002

40. 40  Due to budgetary issues, the tuition increases for the Fall of 2002 and 2003 have averaged over 9% at the four-year campuses. For the ten year period of 1992-2002, tuition increases averaged 6.50% for in-state resident students at the state colleges and 7.42% for the universities. Similar larger than normal tuition increases would be required for the Fall of 2005 if the proposed budget reductions are implemented. According to the SREB Fact Book on Higher Education, tuition and fees rose by 27.9 percent in the SREB states from 1997 to 2002 (after adjusting for inflation). In West Virginia, the increase was only 8.9% (after adjusting for inflation). Tuition at four-year colleges in West Virginia remains well below the national median at 75.9%, while tuition at two year colleges was 88.1% of the national median. Tuition and fees as a percentage of family income are comparable to national averages at the four-year level, but remain above the other SREB states at the community college level.  Due to the low per capita income of West Virginia residents, these tuition increases may have an impact on college participation rates. Improved funding will allow the institutions to maintain access and affordability for the residents of the state, a key for improved state economic conditions.  As a result of the required larger than normal tuition increases as described above, it is also a priority of the Policy Commission that funding for need-based financial aid also be increased to provide continued opportunities for WV residents to attend the higher education institutions.  In addition, legislative changes revising the eligibility for the Higher Education Adult Part- time Student Grant Program (HEAPS) and the Higher Education State Grant Program will also require additional funding in order to meet the legislative intent of these changes. Tuition and Fees

41. 41 West Virginia Public Higher Education Institutions Regular Student Fees Average Growth Rates 1993-2003

42. 42 Median annual tuition and required fees rose by 27.9 percent in the SREB states (after adjusting for inflation). In West Virginia, the increase was 8.9 percent. Tables listed are in the SREB Fact Book on Higher Education 2003. Note: The rounded figures in parentheses are the annual tuition and fees amounts for 2002.

43. 43 Note: The figures in parentheses indicate regional ranking on 2002 percentages. The regional median for tuition and fees at public four-year colleges was 87 percent of the U.S. median — up from 79.5 percent. In West Virginia, tuition and fees declined to 75.9 percent of the U.S. median. Tables listed are in the SREB Fact Book on Higher Education 2003.

44. 44 Note: The figures in parentheses indicate regional ranking on 2002 percentages. increase. The regional median for tuition and fees at public two-year colleges was 81.5 percent of the U.S. median — up from 74.6 percent. In West Virginia, tuition and fees declined to 88.1 percent of the U.S. median. Tables listed are in the SREB Fact Book on Higher Education 2003.

45. 45 Notes: The figures in parentheses indicate regional ranking on 2002 percentages. Figures for other income groups are included in the table. Tuition and fees at a public four-year college equaled 29.9 percent of the median annual income of families in the lowest fifth of incomes nationally — up 3.9 percentage points. In West Virginia, the increase was 1.6 percentage points — to 29.3 percent of the median annual income for families in the lowest fifth. Tables listed are in the SREB Fact Book on Higher Education 2003.

46. 46 Notes: The figures in parentheses indicate regional ranking on 2002 percentages. Figures for other income groups are included in the table. Tuition and fees at a public two-year college equaled 15.3 percent of the median annual income of families in the lowest fifth of incomes nationally — up 1.1 percentage point. In West Virginia, it reached 17.4 percent of the median annual income for families in the lowest fifth. Tables listed are in the SREB Fact Book on Higher Education 2003.

47. 47 Other Issues

48. 48 Other Pending Issues  For the last several years Higher Education has been required to submit to the Legislature in January a listing of institution special projects that it recommends be funded. This process is still on- going and has not been included in this budget request. We are planning to have a discussion on this year’s process for these institution specific budget requests with the Policy Commission and the Legislative leadership in the near future.

49. 49 Other Pending Issues – cont’d  Your and other state agency support is needed for implementing last year’s operational efficiency changes that were enacted in HB 2224. While Auditor Gainer and his staff have been extremely helpful in implementing these changes, resistance to change in other areas of state government has made the implementation of these legislatively mandated changes very difficult this year. Additional requests to simplify state processes and business practices will again be requested this year to enhance operational efficiencies during these difficult budget times.

50. 50 Other Pending Issues – cont’d  Your support is also requested for our on-going request to simplify the state accounts required for tuition and fees. Legislation is required for this change which would greatly reduce the number of state accounts required to segregate tuition and fee collections, and would significantly streamline the business operations of the institutions.

51. 51 Bond Issue  The Higher Education would like to move forward with a new bond program to fund critical capital projects and deferred maintenance at the institutions, with funding for the bonds to come from the revenues appropriated in the Higher Education Improvement Fund. In accordance with your informal guidance, we will plan to move forward with the planning for this bond issuance by retaining bond counsel and investment bankers. Please let us know if you are not in agreement with our proceeding in this direction. Your support of this new bond issue for these crucial improvement projects will be greatly appreciated.  Recently the Policy Commission refinanced the 1992 System Debt which will result in savings for both the former college system and university system.

52. 52 SUMMARY OF ESTIMATED DEFERRED MAINTENANCE USING BRIM STRUCTURE LIST AND STRUCTURE VALUES 11/21/2001

53. 53 Funding for Institutions & Community College Components  The funding for the four year and community college components is being reviewed to see if a funding reallocation is necessary among the components based on enrollment figures. More details will be forthcoming on this issue as well.

54. 54 Follow-up Discussion