Transcript Piece Of Mind - Louisiana State University

The State We’re In:
The Current Financial Crises and the Future of
Higher Education in Louisiana
[email protected]
What happened to the
economy?
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Déjà vu all over again?
• 2005-2006 “Disaster Economy”
– $28 billion pumped into state economy
– Price of oil climbs to $63.00 bbl.
– Outmigration of 289,000 for New Orleans MSA
• Total outmigration of 700,000 for recovery area
• 2006-2007 “Recovery Economy”
– Price of oil escalates to $70.00 bbl
– Outmigration stabilizes—New Orleans MSA adds 39,000
• 2007-2008 “The Age of Hubris”
– Stelly Plan repealed during 2008 legislative session
– World-wide recession (Bear-Stearns falls March 2008)
– Price of oil at all-time high of $112.00 bbl
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Oil Prices 1974-2010
Quarterly Imported Crude Oil Price
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Place your bets ladies and gentlemen…
100
80
60
40
20
0
1974Q1
1978Q1
1982Q1
1986Q1
1990Q1
1994Q1
1998Q1
2002Q1
2006Q1
2010Q1
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Total Industry Output 1998 to 2008
Les Bon Temps?
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Industries as Percentage of National GDP
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What happened to the economy?...
• 2008-2009 “Nemesis”
– Price of oil plummets to $60.17 per bbl. (Q3 2009)
– Tax revenues drop by 18% (Q1 2009)
– Natural gas prices drop to $12.50 MCF (Q1 2009) from a
twenty-year high of $19.68 (Q3 2008)—less than five months!
– More tax cuts are implemented by the Legislature in June
2009 in the amount of $118 million
• 2009-2010 “The Horror…the horror…”
– Revenue Estimating Conference report predicts another $32
million drop in total tax revenues and forecasts $29 million
loss in FY 2010
– Rainy Day Fund used to plug budget hole for FY 2009-2010
$86 million
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Major Industry Output 1998 to 2007
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Percentage increases in per capita personal
Income, 2002-2008
“Press 9 to have your
mortgage application
approved!”
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State tax revenues by sector
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Income Tax Revenues 1998-2009
Rebuilding Bump
Bad
Worse
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What about corporate taxes?
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Natural Gas Prices 1981-2010 (MCF)
Quarterly Residential Natural Gas Price
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Magic Eight-Ball says:
“Cannot predict now”
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14
12
10
8
6
4
Nominal Price
2
0
1981Q1
1985Q1
1989Q1
1993Q1
1997Q1
2001Q1
2005Q1
2009Q1
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What happened to
higher education?
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“Dude, where’s my matriculation?”
2005-2006
• LSU-Health Sciences
– 127 doctors furloughed
• University of New Orleans
– 80 faculty positions cut (19 tenured)
– 9 programs cut
• SUNO closed
– 60 faculty furloughed indefinitely
– 19 programs cut
• 80,000 public university students are displaced
– Each student counts for $1600.00 of lost SG revenue.
• Gov. Blanco issues $71 million budget cut
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The Road Home
2006-2007
• $229 million reported as shortfall for higher education
• $400 million in damages reported by schools along the coast
• $17 million of Federal aid given to higher education in FY 2006
for 15 institutions, including private ones
• Raising of tuition in 10% increments proposed by LSU-System and
supported by Chancellor Ryan
2007-2008
• $3.2 billion revenue windfall expected by LFO
• Regents propose $828 million for 2007 budget. $600 million onetime funds (construction) and $228 for recurring costs.
• $30 million distributed for faculty pay raises
• Higher education receives 100% funding for first time in 26 years
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The Road Home, continued
2008-2009
• Roll-back of Stelly Tax plan, June 2008
• Jindal moves higher education funding to road projects (SB 11)
for $255 million
• Board of Regents proposes 15-25% performance based funding
formula
• $120 million cut from higher education for FY 2008-2009
2009-2010
• $146 million is cut from higher education budget for FY 20092010 ($250 total)
• HB 611, which would have stalled $134 million in tax cuts, is
voted down in the House in June 2009
• Regents approve cutting 107 academic programs for AY 09-10
• REC announces $450 million shortfall; mid-year budget cuts.
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Higher Ed. Appropriations
Louisiana
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Have funding levels just “gone back to
Is 2004 “almost the same” as 2010?
normal?”
Estimated by presenter,
September 2010
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No, it isn't.
• HEPI (Higher Education Price Index) is a measurement of cost
inflation associated with institutional G & E (General and
Educational).
–
–
–
–
The HEPI increases at a variable rate between 3% and 5% annually
The HEPI for 2004 was 231.7
The HEPI for 2010 is 279.4
An inflationary increase of 17 %!
• Unfunded mandates, such as retirement and insurance require
universities to pay the state approximately 3.0% each fiscal year
• Bottom line: We need $1.552 billion in 2010 dollars to equal
$1.287 billion in 2004 pre-Katrina dollars for equivalent funding.
• And don’t forget: Louisiana’s state appropriations are 3.0%
behind the HEPI for the period 2004-2010 (constant 2009 $)
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QUESTION: What if we depleted the
other departments of government
to pay for higher education?
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Arithmetic Lesson: A million is not equal to
a billion…
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Discretionary Budgets
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A phony savings, any way you cut the pie.
Even if you cut all other departments by half…
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The LA-GRAD ACT:
A political answer to a
financial problem?
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Performance Based Funding
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Increasing Tuition 10% per year, 2012Until…?
• LA GRAD allows tuition to be raised by 5% each year
starting in Fall 2011.
– 10% increase “officially” begins in Fall 2012
• Institutions will be assessed whether or not they meet
established benchmarks on an annual basis
• Institutions will be graded on 52 criteria.
– South Carolina developed a similar formula with 34 criteria in 9
categories which was considered to be impossibly cumbersome. It
was later reduced to only 14 criteria.
• The LA GRAD act is based on a similar plan
implemented by the Commonwealth of Virginia in
2005.
– The Governor released that detail in an article in the Baton
Rouge Advocate, Feb. 10th, 2010. Section B, page 1.
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Result: 43% nominal price increase
Northwestern State University
(NOT adjusted for HEPI)
Academic Year
Annual Tuition
2011-2012
$3874
2012-2013
$4261
2013-2014
$4687
2014-2015
$5155
2015-2016
$5670
2016-2017
$6237
2017-2018
$6860
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Just a few problems with that…
• The current plan is to stop tuition inflation once an institution
meets the SREB average.
– HEPI has increased on average 3.0% +/- per year since 2000.
• HEPI inflation differs widely based on several factors.
– Each university must pay its state retirement contribution (2.5% to
3.0%. As more employees retire, this “unfunded liability” will only
increase.)
– The CPI has increased 2.5% on average since 2000.
• The College Board computes a 6.5% increase per year for tuition.
• The baseline ADCPI is lower than the US average, and much lower than
Virginia.
– For the period 2000-2008, The average disposable per capita
income (ADPCI) rose 29% (in 2008 constant dollars)
– 1990 to 2000, the ADCPI rose 19% (in 1996 C$)
– 1980-1990, the infamous Oil-Bust years, the ADCPI rose only 9%
(in 1987 C$)
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Low average disposable per capita
income…
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Louisiana: A Lower Median Household Income
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Louisiana: A Lower Median Family Income
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A 6.5% Annual Price Increase
•The GRAD Act allows
universities to raise their tuition
by 10% annually in order to
meet their fiscal obligations.
•The College Board projects
that tuition will rise an average
of 6.5% each year for public,
four year institutions
•Depending on an institution’s
HEPI and unfunded liabilities,
the 10% tuition increase will be
effectively reduced by cost
inflation by almost half.
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Dollars In and Dollars Out
Northwestern State University (RLU)
Fiscal
Year
State
Appropriation
10% Tuition
Increase
based on
FTE of 7100
Less 6.5%
Estimated
Cost
Inflation
Total Budget
% of Budget
from Base
Year (2008)
20102011
31,755
2,655
433
32,188
65%
20112012
20,640
3,124
1,680
22,320
45%
20122013
20,640
3,436
1,992
22,632
46%
20132014
Selective admissions start in AY 2014.
25% drop in enrollment is estimated
2008 Base Year: $49,658
All figures given in 000s.
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Higher tuition does not offset all costs!
All institutions of higher education are required to:
– Transfer funds to the state retirement system on behalf of their
employees
– Transfer funds to agencies or departments in return for services
provided (interagency transfers or IAT)
– Dedicate matching funds for all currently administered Federal and
state grants
– Pay the cost of risk management, insurance, and re-insurance
• Costs are higher for urban universities
• If operating a hospital, insurance rates are much higher than average.
– Make payments to service any outstanding debts to private
contractors, including property leases and performance bonds
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TECHNICALLY TRUE…BUT ALSO
MISLEADING!
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Passing the Buck to Students:
A national trend
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What’s the bottom line for Louisiana’s
college students?
Get ready to pay MORE money for LESS quality until
tuition revenue catches up with the
eroding base of state appropriations!
HOW LONG WILL THAT TAKE?
If the projected 35% cut in state appropriations is made effective by
July 2011, the four higher education systems will be funded with
approximately $900 million.
It will take $932 MILLION in additional tuition to fill the budget gap
left by vanishing appropriations to equal the $1.832 billion
“full funding” level of 2008 (2009 dollars).
TUITION WOULD RISE 10% EVERY YEAR FOR UP TO TEN YEARS
The six-year student cohort for 2010-2016 will bear most of this
burden, not the state government.
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Will the LA Grad Act last?
OPTIMIST
PESSIMIST
• Was adopted as an act,
not as a proviso
• Appears to have support
of business community
• Appears to have support
of university presidents
• Gubernatorial line-item
veto
• Prevailing voter attitude
toward higher education
• Term limits of champions
• Declining tax revenues
• Disintegration of base
funding
• Tuition dollars are
supplemental, not
supportive
• Increases may raise
tuition beyond the
means of the lower class.
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The Stelly Plan:
A progressive tax in a
regressive state
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Who pays?
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And keeps on paying?
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Average Cost of One Year of Attendance
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Stelly Plan: Sales tax exchanged for
income tax revenues
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Stelly, we hardly knew ye…
PROJECTED LOSS OF REVENUE: $1.145 BILLION
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What’s going on with the libraries?
• Northwestern State University
– 50% of all journal titles cut
– 694 titles out of 1230 (2007)
• La-Tech
– 620 titles cut for FY 2010-2011
– 118 more titles considered to be “on their way”
• University of New Orleans
– $150,000 cut
– 23% of journal collection
• LSU-Health Sciences
– 7 journals cut
– Impending slashing of Pennington may prove a disaster
• LSU-Baton Rouge
– 617 titles for $100,208
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So, what can we do then?…
• Students will be paying a greater percentage of the
operating expenses of the university
–
–
–
–
Communicate the student-centered mission
Establish a Friends of the Library student organization
Get political backing to implement a library fee
Event planning @ Your library
• The Division of Administration will be expecting you to
do “more with less” until less means “nothing”
– Support your university presidents when they communicate
the necessity of maintaining academic integrity
– Remind faculty and university administrators that you need
funding to preserve ownership of journal content.
– Demonstrate how your library contributes to institutional
outcomes. I mean, seriously. Go get that data. Right now.
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[email protected].
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