Transcript Piece Of Mind - Louisiana State University
The State We’re In:
The Current Financial Crises and the Future of Higher Education in Louisiana
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to $70.00 bbl – Outmigration stabilizes—New Orleans MSA adds 39,000 • 2007-2008 “The Age of Hubris” – Stelly Plan repealed during 2008 legislative session – World-wide recession (Bear-Stearns falls March 2008) – Price of oil at all-time high of $112.00 bbl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 120 100 80 60 40
Place your bets ladies and gentlemen…
20 0 1974Q1 1978Q1 1982Q1 1986Q1 1990Q1 1994Q1 1998Q1 2002Q1 2006Q1 2010Q1 4
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
Bad Rebuilding Bump Worse
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What about corporate taxes?
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Natural Gas Prices 1981-2010 (MCF)
Quarterly Residential Natural Gas Price 20 18 16 14 12 10 8 6 4 2 0 1981Q1 1985Q1 1989Q1
Magic Eight-Ball says: “Cannot predict now”
1993Q1 1997Q1 Nominal Price 2001Q1 2005Q1 2009Q1 13
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 one time 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 2009 2010 ($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 normal?”
Is 2004 “almost the same” as 2010?
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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Q UESTION : 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… 24
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, 2012 Until…?
• 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. 10 th , 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 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018 $3874 $4261 $4687 $5155 $5670 $6237 $6860
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Just a few problems with that…
• The current plan is to stop tuition inflation once an institution meets the SREB average.
– HEPI has increased on average 3.0% +/- per year since 2000.
• HEPI inflation differs widely based on several factors.
– Each university must pay its state retirement contribution (2.5% to 3.0%. As more employees retire, this “unfunded liability” will only increase.) – The CPI has increased 2.5% on average since 2000.
• The College Board computes a 6.5% increase per year for tuition.
• The baseline ADCPI is lower than the US average, and much lower than Virginia. – – – For the period 2000-2008, The average disposable per capita income (ADPCI) rose 1990 to 2000, the ADCPI rose 19% (in 1996 C$) 1980-1990, the infamous Oil-Bust years, the ADCPI rose only (in 1987 C$) 29% (in 2008 constant dollars) 9%
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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)
2010 2011 2011 2012 2012 2013 2013 2014 31,755 20,640 20,640 2,655 3,124 3,436 433 1,680 1,992 32,188 22,320 22,632 Selective admissions start in AY 2014. 25% drop in enrollment is estimated 2008 Base Year: $49,658 All figures given in 000s. 65% 45% 46%
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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?
O PTIMIST • 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 P ESSIMIST
• 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 40
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…
P ROJECTED LOSS OF REVENUE : $1.145 B ILLION 45
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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