It has been several months since my last budget message to the District. Since then, we have positioned the College to address the projected 2017-18 budget deficit because of potential money saved from personnel releases, various retirements, and operational cost containment actions. These actions allowed us to reallocate funds to hire six new faculty members in mission critical areas. We could not have been able to do this without your help and ideas.
We are planning for the next fiscal year. The administration has asked the Budget Planning Committee to provide input on a preliminary set of budget assumptions that will guide the development of our 2017-18 budget. These budget assumptions will go to the Board of Trustees in April.
Our budget planning is taking place in light of the 2017-18 Governor’s January Budget Proposal released last month. The Governor proposes to fund a 1.48% cost of living allowance (COLA) which equates to about $375,000 for CR and a base budget increase that would provide us about $94,000. We can expect about $469,000 from the State to help cover annual cost increases if we meet our 3,950 FTES enrollment target.
The 2017-18 Governor’s January Budget Proposal also included a decrease in one-time payments and a decrease to the categorical physical plant allocation. In 2016-17, we received about $330,000 in one-time mandate payments. No such mandate payments were included in the 2017-18 budget proposal. We expect the categorical funding for physical plant and instructional equipment to drop from $557,000 this year to about $137,000 for 2017-18. The decrease in one-time funds will tighten our 2017-18 budget and further limit our discretionary spending.
You may be aware that Governor’s January Budget Proposal contained a $1.9 billion accounting error/adjustment which caused the Governor’s Budget Proposal to be out of balance. Also, if you’ve been following the news lately, it was reported that the CalPERS Board moved to reduce the rate of return for CalPERS investments from 7.5% to 7.0%. We don’t talk about the CalPERS investments very often, so you may wonder what effect the rate increase has on our budget.
The CalPERS pension program has been developed based on long-range forecasts that assume a 7.5% annual rate of return on its investments. Decreasing CalPERS’ expected rate of return will mean an increase in the District’s contribution to pension costs. The State has scheduled increases to our required pension payments for several more years and those increases are already integrated into our three-year budget forecast. However, those scheduled increases did not include the impact of the lower investment returns. If the State places the impact of the change in long term investment returns on the colleges, we will need to increase our budget forecast for pension expenditures. There is a chance, however, that the State will not pass on the full cost of the pension increases to the community colleges. We will keep a close watch to see how the Legislature will act.
We must also keep in mind that the Chancellor’s Office may pass on a mid-year .5% deficit factor (cut) in this years’ general fund allocation. The Governor has signaled that he may lower the allocations at the May Revised Budget in order to try balancing the 2017-18 State budget. He has also signaled that there may be difficulties balancing the State budget by 2019-20. To further muddy the prognosticative waters, the Legislative Analyst Office (LAO) released their Proposition 98 analysis recently. The LAO indicated that Proposition 98 funds could be up by more than $1 billion at the May Revise.
While it is still too early to make firm decisions about items in the budget, here’s a summary of Cabinet’s thinking on several areas:
General Spending. We are going to continue to be very careful and frugal in our expenditures: reducing reliance on printing, using bulk purchasing from warehouse for consumables, exploring alternative benefit partnerships for cost savings scheduling our class sections more efficiently, evaluating the efficacy of our ADTs, etc.
Revenue Enhancement. We are going to look for opportunities for improving revenues. These include continuing to build a strong marketing/brand presence, expanding Pelican Bay and distance education classes, and expanding our fundraising capacity.
Advocacy. The Board of Trustees, administration, CRFO, Academic Senate, student government, and CSEA will continue to advocate for our interests on the State level.
Positions. We are going to continue to work diligently to make the most of every position vacancy, including those that might occur through transfers, resignations, or retirements.
Fiscal Decision Making. We will be guided by the following three principles: focus on student success; maintain the academic strength of the District; and strengthen our fund reserves.
Again, I want to thank all of you for your contributions to the District. I have a lot of confidence in our ability to work together for the betterment of our students and colleagues.