1. MHCC Budget Overview Prepared for Board Orientation August 26, 2011 and September 17, 2011 DRAFT 10-5-11 Prepared by Jennifer DeMent, Jeff Forbis, Laurie Miller and Bill Farver MHCC Administrative Services 1

2. Contents 1. Why is Budget Important? (slide 3) 2. Policy Issues Regarding Funds (slide 9) 3. Systematic Change Challenge (slide 20) 4. Budget Review Team Process (slide 22) 5. Revenues and Enrollment (slide 25) 6. Comparative Cost of Attendance (slide 35) 7. General Fund Expenditures (slide 39) 8. College Debt Obligations (slide 45) 9. Personnel Costs (slide 49) 2

3. Part 1. Why is Budget Important? We value what we spend money on. Our long term revenues do not keep pace with our expenditures. We will face another year of difficult trade offs. We cannot look to the state for more money. Our represented employee costs are fixed through negotiated contracts. We must look at what programs and services we offer, how we deliver them, and how we support them. 3

4. Ongoing, “Structural” Deficit Business model unsustainable State reducing direct funding and not addressing rising fixed costs, such as PERS and health care Up to local jurisdictions to innovate and/or cut services/positions and/or renegotiate labor agreements College has the ability to increase revenue by increasing enrollment Increasing tuition and fees limited by mission and competition 4

5. Causes of the Structural Deficit Declining state revenue support Health care costs rising 15% PERS costs rising (every two years) Salaries rising 3% Enrollment projected to decline 2% 5

6. 6

7. Major Uncertainties Enrollment (will it decline by 2%) Health care cost increase (by how much?) Current year spending level (impacts ending balance; under spending allows investment opportunities) State funding 7

8. State Funding Status State funding for all community colleges is based on $410 million for the two years FY11-12 and FY12-13; MHCC budgeted our share at $41 million Variables: the state may seek a 7% hold back in second year; resulting in a lower base for FY13-14 PERS rates for FY11-12 are based on a 2009 valuation; PERS rates for FY13-14 will be based on a 2011 valuation. 8

9. Part 2: Policy Issues Regarding Funds No distinction between reserves and contingency No criteria for contingency requests No set policy on reserves level No ability to innovate and generate additional revenue No comprehensive approach to deferred maintenance and capital projects No documented approach to one time only state funding 9

10. Recommendations Set separate un-appropriated reserve fund with specific target to work towards Set separate contingency fund with criteria Set Innovation Fund for testing revenue expansion ideas Set Capital Fund with criteria for deferred maintenance and major capital projects Revisit plan for potential GO Bond Clarify treatment of “additional” state funds 10

11. Reserve Fund Set at ?% based on best practices and potential impact on bond ratings Establish plan to build toward that goal, using portion of ending fund balance each year Designate as un-appropriated. Unspent without a separate budget appropriation (emergency) process. 11

12. Ending Fund Balance General Fund ending fund balance has been rebuilt over the past three years through a combination of savings and transfers of unrestricted funds to the general fund. Currently at approximately 6% of General Fund. 12

13. 13

14. Contingency Fund Set at ?% of general fund based on comparable community colleges and public jurisdictions Set criteria for Board access: ▫ Emergency situations that may jeopardize health and safety ▫ Public commitment or contractual mandate ▫ Efficiencies ▫ No funding exists in current budgets ▫ Board may “designate” funds in increased contingency for future decisions 14

15. Innovation Fund Fund approaches that will generate additional revenue above cost and/or increase completion rates Balance the budget through expansion and contraction Use $1,000,000 of under-spending from FY10-11 Carefully monitor progress and verify results Risk awareness – either way! 15

16. Examples for Innovation Fund Strategies to increase enrollment ▫New or expanded “profitable” programs ▫Quicker financial aid turnaround ▫Outreach to local high schools ▫Outreach to veterans seeking education and training Strategies to increase retention / completion ▫Increased mentoring/advising (e.g. ABS; GED) ▫Better articulations; better pathways ▫ 16

17. Capital Fund Develop schedule for addressing backlog in deferred maintenance Develop processes for prioritizing deferred maintenance and major capital projects Decentralize funding and decision making Set aside $800,000 in under-spending from FY10-11 pending a plan presented in Nov/Dec following review by Facilities Council 17

18. Examples of potential capital funds Deferred maintenance Major capital for state, federal and GO Bond Classroom improvements Health and safety Athletics Operations and maintenance 18

19. State Funding Reserve $1,519,388 in separate account pending increase in funding to the promised $410 million dollar level Clarify whether funds will be “recaptured” in FY12-13 and what the new state “base level” of funding will be Be aware of shift to “completion based” funding Do not spend! 19

20. Part 3: Systematic Change How do we rethink our basic model? What process invites innovation, honesty, and clarity, and builds trust? How do we make good business decisions for our customers? 20

21. What Might it Look Like? Multi year process of change Program review based on completion, overall cost of instruction, employment potential, uniqueness, etc. New or expanded program offerings Different approaches to instruction (e.g. differential tuition; class size; expanded times of instruction) Increase administrative efficiencies Employee salary and benefit costs review, especially health care and PERS Capital improvement plan and identified capital budgets Innovative approaches to expanding enrollment 21

22. Part 4: Budget Process Budget Review Team Represents all college stakeholders (full and part time faculty; deans; classified/administrative support; students) Advises President; meets October to March Develops and frames policy choices through issue papers (e.g. parking fee) Identifies policy choices through input from Board and college stakeholders Frames menu of options Seeks agreement among stakeholders on financial impact of different choices Open, clear process 22

23. Budget Review Team Timelines October – December: Solicits ideas from stakeholders; develops and discusses policy options Jan. – Feb.: Frames menu of choices March: Delivers options to President for decisions March/April: Budget Office verifies decisions and incorporates into President’s budget April: President presents budget to Board for discussion, amendment, and approval June: TSCC reviews and certifies and Board adopts budget 23

24. Input: Board Budget Issues Ideally, identify by Board retreat in September Consider in conjunction with other budget choices during spring, 2012. Examples already identified based on past discussions: ▫ Differential tuition ▫ Aquatics Center ▫ Other tuition options 24

25. Part 5: Revenues Adopted Budget $211,880,035 General Fund (major discretionary funds) $66,780,654 Student Financial Aid Fund $65,896,990 Federal, State & Special Grant Projects $58,950,000 All other funds $20,252,391 Our discussions will focus on the gap in the General Fund 25

26. 26

27. 27

28. Revenue Trends Declining state funds have forced community colleges to replace state funds by increasing tuition and fees The cost burden of higher education has shifted from state taxpayers to students and families Property taxes and other revenues have remained relatively stable 28

29. 29

30. Enrollment Enrollment has steadily increased over the past few years Enrollment is expected to fall slightly this year (budgeted at 2% decline) 30

31. 31

32. 32

33. 33

34. 34

35. Part 6: Comparative Cost of Attendance Mt. Hood’s costs are average, as compared to the other 16 Oregon community colleges Mt. Hood is slightly higher than its neighboring community colleges, but no major differences For each $1 tuition increase, approximately $200,000 in additional revenue is generated 35

36. 36

37. 37 Typical Full-time Student Tuition and Fees by Term 15 Credit Hours of Tuition, $84 per credit hour $1,260.00 Student Activity Fee, $3 per credit hour $ 45.00 Technology Fee, $4.75 per credit hour $ 71.25 College Service Fee, $30 per term $ 30.00 Total $1,406.25 Excludes course fees and optional fees such as parking.

38. 38

39. Part 7: General Fund Expenditures $63,210,210 Adopted Budget 11/12 Instruction $29,061,861 Academic Support $ 7,544,887 Institutional Support$13,511,579 Student Support $ 5,669,945 Facilities $ 5,281,864 Other $ 2,140,074 39

40. 40

41. Definitions (for purposes of expenditure pie chart) Instruction: Expenditures for credit and noncredit courses; lower division transfer, professional technical; remedial and tutorial instruction (Developmental Education); and regular, special, and extension sessions. Academic Support: This category includes funds expended to provide support services for the institution's primary mission of instruction. This includes academic deans and division support staff. 41

42. Definitions (for purposes of expenditure pie chart) Student Support: Includes funds expended for offices of admissions and the registrar and activities with the primary purpose of contributing to students' emotional and physical well-being and intellectual, cultural, and social development outside the context of the formal instruction program. It includes expenditures for counseling and career guidance, student aid administration and student health. 42

43. Definitions (for purposes of expenditure pie chart) Institutional Support: Includes expenditures for activities concerned with management and long-range planning for the entire institution, such as the governing board, planning and programming, and legal services; fiscal operations, investments; administrative computing; employee personnel and records; logistical activities that provide procurement, safety, security, printing and activities concerned with community and alumni relations, including development and fund raising. 43

44. Definitions (for purposes of expenditure pie chart) Facilities Management: Includes expenditures for administrative activities that directly support physical plant operations. For example, activities related to the development of plans for plant expansion or modification, as well as plans for new construction; expenditures for activities related to routine repair and maintenance of buildings and other structures and expenditures related to the operation and maintenance of landscape and grounds, and custodial services. 44

45. Part 8: College Debt Obligations Two categories: ▫ Full Faith and Credit Obligations  Currently, there are five outstanding debt issues of this type. The most recent is the $6 million borrowed in 2010 for electrical repairs (est. $3.5 million), roof replacement (est. $1.4 million), the purchase of multi-function copier devices ($500 thousand) and to begin the university center remodel, by relocating Eastern Oregon University ($141 thousand). ▫ Limited Tax Pension Bonds  Issued to buy down our unfunded PERS actuarial liability 45

46. 46

47. 47

48. Outstanding Debt Options Series 2001 Series 2004 Series 2008 Series 2009 Series 2010 LTPB 2003 Outstanding Principal 7/1/2011 $1,635,000 $4,425,000 $5,645,000 $10,970,000 $6,000,000 $42,611,317 Years Remaining6131719 17 Average Annual Debt Service (potential annual savings, if debt retired early) $308,589 $440,008 $496,767 $890,084 $450,833 $5,153,874 True Interest Cost 4.25%3.94%4.15%4.30%3.65%5.72% 48

49. PART 9: Personnel Costs Employer Paid Fringe Costs Employee costs by group Health benefits Collective bargaining agreements 49

50. Our Budget is People 75% on salaries and employee benefits 75% on salaries and employee benefits 50

51. 51

52. 52 Employee Headcount by Group (all funds) May 2006May 2001May 2011

53. Employment Costs Costs vary dramatically depending on years of experience, position responsibilities and classification. Fringe costs are an additional 50% to 57% of full- time employee salaries. (e.g.for 50% it’s approx. 20% PERS, 18% Health Insurance; 9% Legal mandates – Soc. Sec.; 3% other) Fringe costs are increasing faster than revenues. Employment costs are fixed for the next two years for represented employees. Changes cannot be used to balance next year’s budget without consent of the unions. 53

54. Employer Paid Fringe Costs Public Employee Retirement System (PERS): When the social security program was established in 1935, it excluded public employees. PERS, which became effective July 1, 1946, was designed to offer a pension program for public employees. In the early 1950’s, the option to participate in Social Security was extended to public employees. The PERS program underwent a major overhaul in the 1960’s, then again from 1997 until 2007. 54

55. Employer Paid Fringe Costs, Cont’d Mt. Hood PERS contributions include the following, as a percentage of eligible employee’s annual income: ▫ Employee Contribution: 6% paid by Mt. Hood on behalf of employees; contribution goes into Individual Account Program (IAP); contractually required for many employee groups. ▫ Employer Assessment: This is the College’s share of the statewide PERS program costs. This rate for most MHCC employees is currently 15.68%. However, the rate is offset by the balance in MHCC’s side account, which was established in 2003 by borrowing at a lower interest rate. The side account is invested, and subject to market earnings and losses. The side account brings MHCC’s employer contribution rate down to 5.62%. This rate is based on a December 31, 2009 actuarial and is adjusted every two years. ▫ Internal debt assessment: The debt service to pay for the borrowing that established the side account is collected by an internal payroll assessment. The rate beginning July 1, 2011, is 8.5%. The net savings between the rate credit and the internal assessment is 2.15%. 55

56. Employer Paid Fringe Costs, Cont’d Health care: Costs include medical, dental and vision coverage for employees and their families. Plans are provided through the Oregon Educators Benefit Board. Plans offered include ODS and Kaiser medical, dental and vision plans and Willamette dental plan. Employee contributions for this coverage range from 0% to 20%, depending on plan selection and employee group. Other benefits: Mt. Hood provides Social Security, Medicare, long-term disability, life, worker’s compensation and unemployment insurance, tax sheltered annuities and early retirement benefits. Some benefits vary by employee group. 56

57. Employer Paid Fringe Costs, Cont’d The average fringe costs used for each employee group vary based on the unique demographics of each group as well as the salary base from which the rate is calculated. On average, fringe rates are comprised of the following: PERS Employee Share: 6% Medical Insurance: 15.9% PERS Employer Costs: 13.6% Dental Insurance: 2% Vision Insurance:.3% Early Retirement: 3.8% Social Security/Medicare: 7.7% Unemployment:.25% Long-term Disability Insurance:.27% Life Insurance:.01% Workers Compensation Insurance:.66% 57

58. 58

59. Classified Employee Costs (Custodians, Administrative Assistants, Programming Analysts, etc.) Minimum base salary: $28,428 Maximum base salary: $93,024 Average base salary: $51,025 Average fringe rate: 57% (higher effective rate because of lower overall salaries) Average total cost: $80,364 59

60. Management Employee Costs (Vice Presidents, Deans, Directors, Managers and Supervisors) Minimum base salary: $50,948 Maximum base salary: $128,500 Average base salary: $81,702 Average Fringe Rate: 50% Average Total Cost: $122,798 60

61. Full-time Faculty Budgeted at 152 full time positions; contractual obligations may require additional positions The College must maintain a fiscal year instructional ratio of at least sixty percent (60%) full-time to forty percent (40%) part-time faculty. Twelve pay steps ranging from $50,327 to $81,673 Longevity pay of $1,750 to $2,750 for employees serving on the top step of the salary schedule for 2 or more years. 61

62. Full-time Faculty Expected to teach 45 ILCs (Instructional Load Credits) per academic year. For example: 62 15 CREDITS FALL 5, 3 CREDIT CLASSESFALL 5, 3 CREDIT CLASSES 18 CREDITS WINTER 6, 3 CREDIT CLASSESWINTER 6, 3 CREDIT CLASSES 12 CREDITS SPRING 4, 3 CREDIT CLASSESSPRING 4, 3 CREDIT CLASSES 45 TOTAL CREDITS

63. Full-time Faculty Full time faculty can also: ▫ Earn “extra-teach” for teaching more than 45 ILCs (opportunity based on seniority, with a maximum of 9 additional ILCs). ▫ Earn “summer teach” for teaching during summer (opportunity based on seniority, with a maximum of 18 ILCs). 63

64. Full-time Faculty Costs (Values based on maximum allowable load. Not all faculty teach additional load.) Faculty at typical new hire placement: Base salary: $50,327 Extra Teach: $7,470 Summer Teach: $17,946 Potential Annual Salary: $75,743 Average Fringe Rate: 50% Total Potential Cost: $105,734 Faculty at top of salary schedule: Base salary: $81,673 Extra Teach: $9,900 Summer Teach: $23,400 Potential Annual Salary: $114,973 Average Fringe Rate: 50% Total Potential Cost: $162,182 64

65. 65 Furlough Days (Days without Pay.) Full-time Faculty 2 furlough days each year in 2011/12 and 2012/13. Annual savings in salary and fringe approximately: $ 165,000 Non-Represented Employees 3 furlough days each year as a permanent reduction to annual salaries. Annual savings in salary and fringe approximately: $ 70,000

66. Part-time Faculty and Tutors There are over 400 part-time faculty and tutors employed each year Part-time faculty may teach up to 22.5 credits (ILCs) over three terms or 30 credits over four terms Pay range from $589.27 to $702.77 per credit (ILC) Qualifications for part-time faculty are set by Administrative Regulations (AR-5060-F) 66

67. Part-time Faculty Costs Maximum ILC placement (Step 5): Rate per ILC: $702.73 Maximum Potential 3-Term Salary, at 22.5 ILCs: $15,811 Average Fringe Rate: 18% Total Cost: $18,657 67 Maximum Hourly placement(ABE/GED/ESL Step 3): Rate per hour: $59.15 Maximum Annual Salary at 600 hours: $35,490 Average Fringe Rate: 18% Total Cost: $41,878 Values indicated are rounded.

68. Cost comparison for 3 credit class 68 Rate Per Credit 3 Credits of Instruction Average Fringe Rate Total Cost per 3 Credit Class Part-time Faculty, average at Step 3 (includes 1% COLA for 11/12) $643.50 $1,930.5018% $2,277.99 Full-time Faculty, average at Step 3 $1,662.02 $4,986.0650% $7,479.09 Difference $5,201.10

69. Union contracts Set for FY11-12 and 12-13 for all three unions Retiree benefits vary by contract; not standard Negotiations start in a year Important to agree on data in advance and frame possible trade offs 69

70. Contract Status: Costs Set for FY12-13 July 2011 began the second year of three year signed contracts with the Full-time Faculty Association, Part-time Faculty & Tutor Association and the Classified Employee Association. Salary cost of living increases of 2% for FY12-13 Medical and dental insurance cost sharing of 13% for Full-Time Faculty and Classified employees. 70

71. Contract Status: Costs Set for FY12-13 Extra teach will be paid at a rate of $830 - $1,100 per Instructional Load Credit (ILC), depending on faculty placement Summer teach will be paid at a rate of $997 - $1,300 per ILC, depending on faculty placement Part-time Faculty & Tutor Association employees receive a contribution of $30,000 to a health insurance trust account to reimburse employees for health insurance premiums paid. 71

72. Contract Status: Costs Set through FY12-13 Full-time faculty retirees retiring prior to 9/30/11 will receive 100% paid 2 party medical coverage until Medicare eligible. After this date, retirees will receive either employee only medical coverage until Medicare eligible or a subsidy equal to the 2 party ODS Plan 6 premiums for four years, if employee is eligible for 2 party coverage. Retirees choosing the second option may apply their subsidy to medical, dental, vision or life insurance coverage. Classified Association retirees will receive a monthly subsidy of $525 to be used for medical, dental, vision or life insurance until they are Medicare eligible. Employees retiring after October 1, 2011 will be subject to future contract changes. This monthly subsidy will increase by 5% on October 1, and annually thereafter. 72