Transcript CHANGES IN HIGHER EDUCATION COMMUNITY

Capital Budgeting Practices
for Public Higher
Education: Capital Needs
Presenters

Dr. Derrick Manns, Assistant Dean of Academic
Affairs, Bristol Community College.
 Dr. Stephen Katsinas, Don A. Buchholz Chair of
Higher Education & Director, Bill J. Priest Center
for Community College Education, University of
North Texas.
 E. Lander Medlin, Executive Director, Association
of Higher Education Facilities Officers (APPA).
INTRODUCTION:
A HISTORICAL REVIEW
Ernest Boyer on facilities…
"Good facilities are essential to
good learning.”
Background of current crisis
The world’s first mass system of higher education
developed in the U.S. from WWII to 1980 (Kerr).
 Federal government provided critical funding for
facilities in both immediate post-WWII period,
and during the 1960s “baby boom” era.
 Facilities constructed during the baby boom era
have aged, and need significant renovation.
 Large increases in high school graduation class
size, increased immigration, the need for lifelong
learning/computer skill upgrading, in times of
scarce state resources have amplified the crisis.

Literature review: The federal role in
facilities has always been important
PRE-BABY BOOM
 Land Grant Colleges Acts (1862, 1890)
 Post-WWI, veteran’s education aid
 Post-WWII, G.I. Bill (entitlement) AND
Surplus Property Act (1947)
 National Defense Education Act
Review of literature (cont.)
ADDRESSING THE BABY BOOM (1960s)
 Higher Education Facilities Act (1963).
 Higher Education Act, Title VII-Facilities (1965).
 1970-present: Federal inaction, which coincides
with a growing deferred maintenance crisis.
 By 1990s, expanding student demand and need for
better facilities forces re-examination.
 Today, a crisis exists.
Purpose of the Study
To gather information on capital budgeting
processes used in the states to address
public higher education capital needs, to…
Identify what states are actually doing;
Identify/highlight state practices to fund the
backlog;
3. Develop methodology for comparing capital
budgeting consistent with operating budget
methodology developed by MM Chambers/Ed
Hines/Jim Palmer @ Grapevine;
4. Compare and update 2003-4 with 1996-7 data.
1.
2.
Key questions:

What is the level of state appropriations for
public higher education capital needs?
 What is the status of new facilities
construction, renovation, and deferred
maintenance in public higher education?
 How states are addressing facilities issues in
light of large projected enrollment increases
and tough budgetary pressures?
Methodology

This study was limited to the 50 states, and
did not include Washington, D.C., or any
U.S. territories or possessions.
 This study was limited by the time frame
reviewed, 1998-1999 and 2003-2004.
 SHEFOs supplied the data
States that completed
the survey 1998-1999
Alaska
Hawaii
States that completed
the survey 2003-2004
Alaska
Hawaii
States that completed 1998-9
and 2003-4 Surveys
Alaska
Hawaii
State Responses, by Region
[regions consistent with GRAPEVINE]
50
40
30
20
39
10
10
11
NE
SE
8
10
NW
SW
0
All States
Responding States
Facilities growth has been dramatic
for years since 1950Gross Square Feet (billions)
5
4
3
2
1
0
1950
1960
1970
1980
1988
Years
1994
2000
2004
What is the percent of state's total
operating funds set aside for
renewal & replacement?
1998-99
2003-04
20
16
16
15
15
14
10
5
4
3
3
2
3
2
1
1
0
0-.09
1.0-1.5
2.0-2.9
3.0-5.0
5.1 or abov e
na
Are formulas used to request
funds for capital needs?
30
25
20
15
29
29
10
5
10
7
0
Y es
No
1998-99
2003-04
How often are formulas for
capital requests reviewed?
12
10
8
1998-99
2003-04
6
4
2
0
Y early
Ev ery 2
5+
Not Regular
Other
What best describes the allocation
process in your state?
9
All to Cam pus
9
17
Most to Cam pus
18
1998-99
2003-04
1
Half to Cam pus0
6
All by State Agency
7
4
Most by State Agency
0
5
5
10
15
20
Is there a comprehensive
statewide master plan for
Facilities?
1998-99
2003-04
y es
Yes
37.5%
33.3%
66.7%
62.5%
No
no
Master plans in high growth
states
STATE
Facilities Master Plan
Arizona
NO
California
NO
Colorado
NO
Delaware
NO
Florida
Georgia
NO
Idaho
NO
Indiana
NO
Maryland
NO
Nevada
NO
New Jersey
NO
North Carolina
YES
Oregon
South Carolina
NO
Texas
YES
Utah
YES
West Virginia
NO
How often are comprehensive
facilities audits conducted?
30
25
20
1998-99
2003-04
15
10
5
0
Yearly
Every 2
Every 3
Every 4
5+
Not Reg.
Can you estimate the
replacement value for facilities
in your state?
1998-99
2003-04
Y es
71.1%
Y es
78.4%
No
28.9%
No
21.6%
Does your state have an estimate of
amount of deferred maintenance?
1998-99
Y es
55.0%
No
45.0%
2003-04
Y es
76.3%
No
23.7%
If data are collected on deferred
maintenance, how often?
Sem iannual
Annual
1998-99
2003-04
Biennial
3-5 y ears
Not Regular
0
5
10
15
20
25
Reserve fund for deferred
maintenance?
1998-99
No
53.8%
Y es
46.2%
2003-04
No
80.5%
Y es
19.5%
Is increasing the number of those
going to college a priority?
2003-04
1998-99
Y es
84.2%
Y es
89.5%
No
15.8%
No
10.5%
Does your state have enough capacity to
meet expected enrollment increases?
25
20
15
1998-99
2003-04
10
5
0
Y es
No
Conclusions

Most states do not have coordinated master plans
to:
– Assess, much less meet, public higher education capital
needs
– Comprehensively address the deferred maintenance
crisis
This is evidenced by a lack of periodic system wide
facilities audits, called for by APPA, NACUBO, and
other agencies.
Conclusions (cont.)

It appears states will be challenged, from a
resource availability perspective, to:
– meet the dramatic increase in the number of HS
graduates over the next 10 years….
– AND provide lifelong learning opportunities to
millions of returning older adult students…
– WHILE SIMULTANEOUSLY addressing the
current backlog of deferred maintenance
Conclusions (cont.)

At a minimum, states without long range
facilities master plans will likely be
inhibited in meeting their longer term policy
goals, particularly if increasing the rate of
college-going among their adult populations
is a priority (as most indicated).
Recommendations

A major study of the capital funding
patterns used by the states is needed.
 Continuation of longitudinal study of state
appropriations for capital needs.
 Coordinated state master plans for public
higher education should always include an
assessment of capital needs.
Recommendations (cont.)

The State Role in Funding:
States set “rules of the game” & boundaries of
institutional practice regarding higher education
facilities. State leaders should
 a) create policies that promote creativity at the
institutional level by governing boards, and b)
consider dedicated and permanent revenue stream
to fund renovation, and rehabilitation, to promote
better long-term planning for public higher
education capital needs.
Recommendations (cont.)

At the federal level….
A matching grant similar to the Higher Education
Facilities Act of 1963/HEA 1965 is clearly needed.
A matching grant program would promote good
state planning through the use of coordinated
master plans for facilities, promote good statelevel practices to effectively deploy capital
resources, and help states address the crisis of
meeting the college-going needs of students from
Tidal Wave II.
Facilities Needs and Support
Steve Katsinas
Overview

Facility problems are real, but there are
other problems, too.
 States lack good data.
 Pork barrel politics makes one worry
whether capital spending will be targeted to
real needs.
Facility Problems are Real

Budget pressures have led to deferral of
needed work.
 No one attends the ribbon-cutting for a new
HVAC system.
 Many buildings were put up in the 60’s and
70’s. They were often poorly constructed
and are in need of major work.
But other claims on higher ed funds
are also legitimate

Technology, including the training of faculty and
staff to use it;
 Financial aid to expand financial access to lower
income groups;
 Pressures to increase compensation in light of
gains by other well educated workers;
 Investments in research and job training
capacities;
States lack data on the problem

Few states have good data on the condition of
their facilities;

Few have good data on the magnitude of the
deferred maintenance problem;

States would be more likely to respond if they had
good, reliable data that could be tracked over time
and compared to that of other states.
States lack comparative data on
spending

We have nothing on the capital side to
compare to the Grapevine and Halstead data
on public operating support for higher
education.
 Manns’s data provides a start, but it is
especially important to collect capital
spending data over time, since it is more
likely to fluctuate.
States lack comparative data on
spending

The lack of capital spending data makes the
Grapevine and Halstead data less useful.
 What they describe as “operating” support may be
used on a campus to finance capital expenditures
or to service plant debt.
 Generous capital support, may include support for
equipment and major maintenance projects that
others fund from operating revenues.
The politics problem

Projects may be funded for their symbolic
value, rather than on the basis of need.
 New construction has symbolic value to
campus officials and community leaders, as
well as to state officials, who often simply
respond to local pressures.
The “Big Picture”

State support for HIED has declined since
Vietnam. Slight budget recovery after the 4
recessions between 1973-2003.
 HIED slipped to 3rd, after K-12 & Medicaid, in
past decade as investments in prisons and
Medicaid have exploded
 YET, missions/expectations expanded
 Conclusion: THE CURRENT RECESSION MAY
MARK MAJOR SHIFT: from “doing more with
less” To simply doing less
The “Big Picture”

Term limits/changing political
environment;
 Heavy handed governors;
 Missions HAVE expanded for
all institutions at all levels (expectations
are up, money is not);
 Data on expanded enrollments.
National Projections indicate a dramatic
increase in students graduating from H.S.
3500
Thousands
3000
2500
2000
1500
1000
500
0
1995-1996
1999-2000
2007-2008
2011-2012
Projected college enrollments:
1988-2013
20
15
10
5
0
1988
2000
2013
Concluding observations
Derrick Manns’s data will help states
examine their current efforts and improve
their planning.
 But better state level planning will help only
so much.

E. Lander Medlin:
The National Perspective
CHANGES IN HIGHER
EDUCATION COMMUNITY

Rapidly escalating tuition increases
 Increased square footage of space to operate
and maintain
 Major budget reductions
 Dozens of new unfunded mandates from
governmental regulations
 Increased demand for the use of new
technologies in classrooms, laboratories,
offices, and residence halls
Accumulated Deferred
Maintenance (ADM)
Public Policy Implications

A FOUNDATION TO UPHOLD
 SUSTAINED INSTITUTIONAL
COMMITMENT TO ACTION
 ROLES & RESPONSIBILITIES OF THE
HIGHER EDUCATION COMMUNITY
 FACILITIES PREPARED FOR THE 21st
CENTURY
Definition of Accumulated
Deferred Maintenance:

Is maintenance projects from prior years and
the current year that were not included in the
maintenance process because of perceived
lower priority status than those funded within
available funding. Deferred maintenance
includes postponed renewal and replacement
maintenance and unperformed unscheduled
major maintenance.
Why Perform Facilities
Condition Audit/Analysis

A Pro-Active Approach to:
– Improve accuracy of forecasting future capital
renewal and maintenance needs;
– Effectively prioritize ADM projects and target
funding against critical needs;
– Compile an accurate data base of ADM projects
to effectively lobby for additional funding.
Definition of
Facility Condition Index:

FCI =
deferred maintenance
 (divided by) current replacement value

General guideline is that FCI should be held
below 5 percent.
 The average Public Research University’s
FCI rating is 7.5%.
A FOUNDATION TO UPHOLD

Develop public policies addressing facilities
conditions & adequacy
 Broad support for stewardship by campus
leadership
 Provide resources for facility reinvestment
 Recognize impact of unsatisfactory facilities’
condition on institutional missions
 Competing demands on institutional resources
caused fractious approach
SUSTAINED INSTITUTIONAL
COMMITMENT TO ACTION

Institute comprehensive strategic facilities
planning
 Integrated approach to financial and facilities
management
 Dependable funding sources and flexibility in
expenditures management
 Reverse decline in operations and
maintenance funding levels
 Seek external sources for ADM costs
Roles & Responsibilities of
Higher Education Community

Roles are interdependent
 Distinct roles in shaping policies
 Preserved and balanced roles in the decision
making process
 Active leadership role by higher education
associations
 Importance of consistent data collection
efforts
 Setting standards/benchmarks for quality
improvement
FACILITIES PREPARED FOR
THE 21st CENTURY

Dependable and integrated funding sources
for capital reinvestment
 Understanding the “learning” environment’s
affect on the “physical” environment
 Translation of accurate data into useful
information to generate knowledge
 Demand for electronic delivery systems and
information technology
RETIREMENT OF ADM

Exercise autonomy in dispensation of total
base budget
 Authority granted for reinvestment of
annual energy budget savings
 Proactive educational program for
institutional administrators and trustees
 Instituted special student fee in tuition
RETIREMENT OF ADM
(cont’d)

Received matching state loans for specific
energy projects
 Received matching state $ for universitygenerated $ over $20M
 State legislature approved bond issue
PRACTICAL APPROACHES

THESE PRACTICAL APPROACHES
PRODUCED OVER $200M ANNUALLY
TOWARD THE RETIREMENT OF CRDM
FOR EIGHT (8) INSTITUTIONS.
Thank You
Questions?
Next Steps?