1. The State and University Budget Outlook January 2008

2. 2 Beginnings: Definitions and Concepts The Florida Constitution Governs the Use of State Monies ARTICLE VII (c) No money shall be drawn from the treasury except in pursuance of appropriation made by law. All money received by any state agency is required to be deposited into the treasury, unless specifically exempted from this requirement. Disbursement from the treasury are by warrant drawn upon the treasury by the Chief Financial Officer upon initiative of the agency authorized to make the expenditure.

3. 3 There Are 3 Types of Funds Into Which Monies are Placed The General Revenue Fund Discretionary Revenues Trust Funds Earmarked Revenues Budget Stabilization Fund Mandated contingency for revenue shortfalls and emergencies

4. 4 There are 2 Types of Revenues Recurring – the income stream is not time limited in statute Non-recurring the income stream is time-limited (e.g. lawsuit revenues) By practice, not statute, only recurring revenues are to be used to fund recurring expenditures, except: Article III, SECTION 19. State Budgeting, Planning and Appropriations Processes.-- (a) ANNUAL BUDGETING. (2) Unless approved by a three-fifths vote of the membership of each house, appropriations made for recurring purposes from nonrecurring general revenue funds for any fiscal year shall not exceed three percent of the total general revenue funds estimated to be available at the time such appropriation is made.

5. 5 There are 2 Types of Expenditures Operating Categories used to fund the current expenses of state government Fixed Capital Outlay Category used to fund real property (land, buildings, including appurtenances, fixtures and fixed equipment, structures, etc.)

6. 6 State Universities Receive Monies From a Variety of the Funds FY 2007-08 All State University Appropriations (Before vetoes, $ in millions)

7. 7 The Operating Budget of FSU has 8 Budget Entities Educational and General (E&G) ~ $452 m College of Medicine (E&G) ~ $49 m Auxiliary Enterprises ~ $196 m Contracts and Grants ~ $ 212 m Student Activity ~ $ 16 m Athletics ~ $ 42 m Campus Concessions (Vending) ~ $.5 m Financial Aid ~ $122 m

8. 8 The Operating Budget Excludes FSU’s 8 Direct Service Organizations (DSOs) Ringling Museum FSU performing Arts Center Foundation Seminole Boosters FSU Foundation FSU Research Foundation FSU Financial Assistance FSU International Programs Associations FSU Alumni Association

9. 9 Restrictions on Funds Funds cannot be moved between budget entities Use of Fee and Auxiliary monies is limited by law Use of DSO monies are limited by law and their corporate charters

10. 10 E & G is the Largest University Funding Entity Includes All formula–generated activities related to: credit instruction that may be applied to toward a postsecondary degree or certificate; non-project research and service performed to maintain professional effectiveness; Individual or project research assigned and managed through academic departments; public service activities that benefit groups of individuals in the service areas of the universities; administration for administrative support of instruction, research, and public service; service programs; and other functional areas include: academic advising, academic computing support, academic curriculum development, and academic personnel development. The university is required to maintain a reserve equivalent to 5% of the total budget Balances are retained and invested by the university

11. 11 E & G Includes General Revenue Lottery Funds Student and Other Fees  Tuition  Student Fees  Miscellaneous revenues (registration fees, library fines, indirect costs assessed to C&G)

12. 12 General Revenue is the Largest Source of University Funding The taxes that make up the general revenue fund are sensitive to changes in the economy The taxes that make up the general revenue fund are narrowly concentrated in consumption taxes

13. 13

14. 14 Fixed Capital Cannot be Used For Operating Expenses General Revenue Occasionally non-recurring is used PECO (Public Education Capital Outlay) Result of Bond sales Backed by gross receipts and communication services taxes

15. 15 State Finances Both State Revenues and Expenditures are Influenced by a Few Factors

17. 17 The State Consensus Estimating Process Ties the Budget Process Together

18. 18 Consensus Estimating Conferences Fall 2007

19. 19 The Estimate of General Revenue Has Shrunk Dramatically

20. 20 General Revenues usually fall over the Business Cycle Typically revenues fall by 5% or more Historically offset by revenue increases, but not in the last 15 years This decline is faster and further than most Almost 8% already Further reductions Possible (almost $ 100 m below Nov Est. with 6 more months left in the fiscal year)

21. 21 General Revenue Tax Collections Can Be Expected to Grow 5% Per Year But Vary Dramatically Across the Economic Business Cycle

22. 22 In a GR Decline, there is Severe Competition for Monies Among State Agencies There are just a few large GR agencies Statutory Requirement regarding education’s proportionate reduction 215.16 (2) If the state appropriations from the General Revenue Fund for the benefit of the uniform system of public free schools, state institutions of higher learning, and community colleges cannot be paid in full during any given year, they shall be diminished only in the same proportion that appropriations for all other purposes from the General Revenue Fund are diminished during such year. Additionally, any funding reductions to public free schools, state institutions of higher learning, and community colleges shall be diminished in proportions identical to one another. For the purpose of implementing this section, general revenue funds exclude the administrative budgets of the Board of Governors and the Department of Education.

23. 23 Universities Compete with a Few Agencies for General Revenue: 95% of GR in 15 agencies

24. 24 Some Agencies Represent Constituencies that are Difficult for State Policymakers to Ignore

26. 26 Public Schools Public School Enrollment is down Class Size Amendment costs continue to be addressed

28. 28 Next Steps in the State Budget Process Legislature could reopen the appropriation process Use non-recurring revenues to off set the cuts Implement recurring cuts Deploy Budget Stabilization Fund monies Implement some revenue solutions Combination Governor could reduce quarterly releases to the universities (state funds are given out every 3 months not all at once)

29. 29 FY 2008-09 Promises to be Difficult ($ in millions)

30. 30 The Impact on Florida State University

31. 31 Reductions in State General Revenue Impact the University Greatly General Revenue is the most significant portion of university E&G E&G funding is a significant portion of all university recurring revenues E&G funds most academic and support activities on campus

32. 32 E&G Operating Budget Revenue Sources (2007-08 Beginning of Year)

33. 33 College of Medicine E&G Operating Budget Revenue Sources (2007-08 Beginning of Year)

34. 34 Most of the Funds of Colleges and Schools are in Personnel (Salaries for filled/unfilled positions and OPS)

35. 35 FSU Begins Budget Reductions at a Disadvantage Source: US News and World Report. Population is 262 “Best National Universities.” There are 164 public and 84 private. This chart includes selected public universities Florida State University 21/1207 110

36. 36 2007-08 University Operating Budget Reductions

37. 37 FSU 2007-08 Reductions The Legislature (in November) reduced FSU’s recurring general revenue appropriation as follows (in millions): E&G ($11,1) College of Medicine ($ 1.5) Total($12.5) FSU is anticipating a second reduction similar to the first; a grand total of ($25.0 m): E&G ($22.1) College of Medicine ($ 2.9) Total($25.0) There is no assurance at this time of avoiding a third reduction. The university has implemented reductions of ($16.2) and is currently planning for another ($15.0); a total of ($31.2)

38. 38

39. 39 How Do These Compare to the Reductions in 2001-2003?

40. 40 FSU Management of the 2001-02 and 2002-03 Reductions The University used central funds to make up most of the reductions (in millions): E&G Departments*($ 9.4) 37.6% College of Medicine ( 1.1) 4.4% University Reserves ( 14.5) 58.0% Total($25.0) 100.0% * Provost reserves provided a portion

41. 41 FSU 2001-02 / 2002-03 versus 2007- 08 Sample Reductions Sample impact at the department/area level (E&G): 2007-2008 2007-2008 2001-02/2002-03 #1 #2 worst case2007-08 #1 & #2 A&S * ($ 609,515)($3,166,201)($ 2,936,965) ($6,103,166) A&S (1) ( 1,628,666) Social Sciences ( 521,119)( 751,658)( 697,154) ( 1,448,722) Business ( 533,868)( 751,649)( 697,229) ( 1,448,878) F&A** ( 1,071,494)( 3,283,221)( 3,045,513) ( 6,328,734) * Largest College **Largest university support area (1) In Provost’s reserve for allocation to A&S 2001-02/2002-03 total reductions were within a range of 2-3% of department/area’s 2001-02 beginning allocation. 2007-08 reductions are generally at 4.0% and 3.71% (of the 2006-07 allocation)

42. 42 What Is Going to Be Done and What Can We Do The October reductions January actions The next 12 months

43. 43 2007-2008 FSU Internal Budget Reductions

44. 44 What Actions Are Being Planned? Allocate a portion (< $5 m) of the created recurring reserve to offset impacts to critical services: Ensure core services are not adversely affected Ensure the safety and security of the campus Ensure the financial integrity of the university is not compromised Honor the financial aid commitments already made to students Ensure library hours are not reduced Honor Pathway commitments Ensure federal commitments on National High Magnetic Field Lab are honored

45. 45 What Actions Are Being Planned? Allocate portion of non-recurring reserve (~ $5 m) as adjustments to honor employee contractual obligations and to phase-out recurring cuts Allow use of carry forward reserves to mitigate effects Cut Back hiring Implement E&G travel restrictions Implement unit reduction plans after adjustments

46. 46 What Actions Are Anticipated in the Coming Months? Incorporate into the university’s strategic plan a recommendation on the restructuring of the academic units with an aim towards reducing administrative costs Develop a plan to eliminate areas of duplication Evaluate increasing the number of out-of-state students and a collateral change in state policy Evaluate restructuring Summer Term B Further reduce freshmen enrollment Work on other options

47. 47 Options Ahead 1. Deal with No New State or Tuition Funding –Lower enrollment to achieve appropriate funding per student and/or seek change in out-of-state/in-state mix 2. Seek New State Funding –Bring our state student support to the national median in funds per student 3. Seek New Tuition Funding –Requires a change in Bright Futures and Pre-paid, and increases in undergraduate in-state tuition 4. Pursue Change on Fee Restrictions --Requires implementation of technology fee and other flexibility 5. Seek Dramatic Change in Funding Structure

48. 48 Who Can Implement These Changes? Operating Budget Revenue Control

49. 49 Other Tuition-Associated Fees Operating Budget Revenue Control

50. 50 We’ve Already Begun Implementing One Part of Option 1 After Session, the decision was made to freeze enrollment. By that time, most admission decisions had already been made. The majority of the impact was felt by students wanting to transfer to FSU. For example, the Panama City campus has already experienced a dramatic decline in headcount enrollment. The effect is offset by the implementation of MAPPING. The success of this program has increased student retention and shortened their time to graduation by increasing the number of hours taken each semester. Further limitations on the enrollment plan can be anticipated.

51. 51 10 Year Actual Fall Student Headcount & Annual FTE and Planned Enrollment

52. 52 SUS Funding is Not Nationally Competitive

53. 53 Work Is Underway on Options 2 - 5 1.Revision of Bright Futures and Prepaid College Plan is advocated by BOG 2.Increase in undergraduate tuition is law 3.New technology fee is law 4.Strategies to reach national average dollars per student are advocated by the BOG 5.Allowing other state institutions to charge differential tuition is under consideration 6.New ways to fund universities – modified contract plan – being advocated by FSU

54. 54 Undergraduate Tuition Increases in tuition and fees over the last two decades are shown in the next slide Florida’s relative national position is: Resident$ 3,471Very Low Non-Resident $16,602Very High * Includes Spring 2008 5% increase. (based on 30 student credit hours)

55. 55 Comparison of Resident UG Tuition for Public Flagship Universities 2006-07

56. 56 Undergraduate Tuition and Fees Percent Increase 1989-90 to 2007-08

57. 57 Graduate Tuition Increases in tuition and fees over the last two decades are shown in the next slide Florida’s relative national position is: Resident $ 6,112 Below Median Non-Resident $21,266 High to Very High (based on 24 student credit hours)

58. 58 Graduate Tuition and Fees Percent Increase 1989-90 to 2007-08

59. 59 Tuition Revenue Limitations Undergraduate tuition is low and likely to remain below average But new law has a consumer price index (CPI) feature for the undergraduate tuition increase if the legislature does not act in regular session And undergraduate tuition differential fee enacted (that exempts students prepaid tuition contracts and students already at the university as of July 1, 2007) With the restriction that the sum of the CPI and differential increases cannot exceed 15% in a year and has a cap of 40% of tuition at other state universities