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The State We’re In: The Current Financial Crises and the Future of Higher Education in Louisiana.

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Presentation on theme: "The State We’re In: The Current Financial Crises and the Future of Higher Education in Louisiana."— Presentation transcript:

1 The State We’re In: The Current Financial Crises and the Future of Higher Education in Louisiana

2 What happened to the economy? 2

3 Déjà vu all over again? “Disaster Economy” “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 “Recovery Economy” “Recovery Economy” –Price of oil escalates to $70.00 bbl –Outmigration stabilizes—New Orleans MSA adds 39, “The Age of Hubris” “The Age of Hubris” –Stelly Plan repealed during 2008 legislative session –World-wide recession (Bear-Stearns falls March 2008) –Price of oil at all-time high of $ bbl 3

4 Oil Prices Place your bets ladies and gentlemen… 4

5 Total Industry Output 1998 to 2008 Les Bon Temps? 5

6 Industries as Percentage of National GDP 6

7 What happened to the economy? “Nemesis” “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 “The Horror…the horror…” “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 $86 million 7

8 Major Industry Output 1998 to

9 Percentage increases in per capita personal Income, “Press 9 to have your mortgage application approved!” 9

10 State tax revenues by sector 10

11 Income Tax Revenues Bad Rebuilding Bump Worse 11

12 What about corporate taxes? 12

13 Natural Gas Prices (MCF) 13

14 What happened to higher education? 14

15 “Dude, where’s my matriculation?” LSU-Health SciencesLSU-Health Sciences –127 doctors furloughed University of New OrleansUniversity of New Orleans –80 faculty positions cut (19 tenured) – 9 programs cut SUNO closedSUNO closed –60 faculty furloughed indefinitely –19 programs cut 80,000 public university students are displaced80,000 public university students are displaced –Each student counts for $ of lost SG revenue. Gov. Blanco issues $71 million budget cutGov. Blanco issues $71 million budget cut 15

16 The Road Home $229 million reported as shortfall for higher education$229 million reported as shortfall for higher education $400 million in damages reported by schools along the coast$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$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 RyanRaising of tuition in 10% increments proposed by LSU-System and supported by Chancellor Ryan $3.2 billion revenue windfall expected by LFO$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.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$30 million distributed for faculty pay raises Higher education receives 100% funding for first time in 26 yearsHigher education receives 100% funding for first time in 26 years 16

17 The Road Home, continued Roll-back of Stelly Tax plan, June 2008Roll-back of Stelly Tax plan, June 2008 Jindal moves higher education funding to road projects (SB 11) for $255 millionJindal moves higher education funding to road projects (SB 11) for $255 million Board of Regents proposes 15-25% performance based funding formulaBoard of Regents proposes 15-25% performance based funding formula $120 million cut from higher education for FY $120 million cut from higher education for FY $146 million is cut from higher education budget for FY ($250 total)$146 million is cut from higher education budget for FY ($250 total) HB 611, which would have stalled $134 million in tax cuts, is voted down in the House in June 2009HB 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 09-10Regents approve cutting 107 academic programs for AY REC announces $450 million shortfall; mid-year budget cuts.REC announces $450 million shortfall; mid-year budget cuts. 17

18 Higher Ed. Appropriations Louisiana 18

19 Have funding levels just “gone back to normal?” Is 2004 “almost the same” as 2010? Estimated by presenter, September

20 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 –The HEPI for 2010 is –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 (constant 2009 $) 20

21 Q UESTION : What if we depleted the other departments of government to pay for higher education? 21

22 Arithmetic Lesson: A million is not equal to a billion… 22

23 Discretionary Budgets 23

24 Even if you cut all other departments by half… A phony savings, any way you cut the pie. 24

25 The LA-GRAD ACT: A political answer to a financial problem? 25

26 Performance Based Funding 26

27 Increasing Tuition 10% per year, Until…? LA GRAD allows tuition to be raised by 5% each year starting in Fall –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 –The Governor released that detail in an article in the Baton Rouge Advocate, Feb. 10 th, Section B, page 1. 27

28 Result: 43% nominal price increase Academic YearAnnual Tuition $ $ $ $ $ $ $6860 Northwestern State University (NOT adjusted for HEPI) Northwestern State University (NOT adjusted for HEPI) 28

29 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 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 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 , The average disposable per capita income (ADPCI) rose 29% (in 2008 constant dollars) –1990 to 2000, the ADCPI rose 19% (in 1996 C$) – , the infamous Oil-Bust years, the ADCPI rose only 9% (in 1987 C$) 29

30 Low average disposable per capita income… 30

31 Louisiana: A Lower Median Household Income 31

32 Louisiana: A Lower Median Family Income 32

33 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. 33

34 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) ,7552, ,18865% ,6403,1241,68022,32045% ,6403,4361,99222,63246% Base Year: $49,658 All figures given in 000s. Selective admissions start in AY % drop in enrollment is estimated 34

35 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 35

36 TECHNICALLY TRUE…BUT ALSO MISLEADING! 36

37 Passing the Buck to Students: A national trend 37

38 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 will bear most of this burden, not the state government. 38

39 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. 39

40 The Stelly Plan: A progressive tax in a regressive state 40

41 Who pays? 41

42 And keeps on paying? 42

43 Average Cost of One Year of Attendance 43

44 Stelly Plan: Sales tax exchanged for income tax revenues 44

45 Stelly, we hardly knew ye… P ROJECTED LOSS OF REVENUE : $1.145 B ILLION 45

46 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 –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 46

47 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 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. 47

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