1. Higher Education Policy Commission Budget Hearing with the Department of Administration FY 2005 Budget Appropriation Request October 3, 2003 Budget Request and Analysis Fiscal Year 2004-2005 Presentation to House Finance Committee January 26, 2004

2. 2 Table of Contents House Finance Budget Hearing Higher Ed. Adult Part-Time Student Grant Program19 Promise Scholarship Program 20 West Virginia Higher Education Fund 21-22 WVNET Revenues and Expenditures23 Commission Office Revenue and Expenditures24 Tuition and Fees25-32 Other Pending Issues 33-34 Bond Issue35 Summary of Estimated Deferred Maintenance36 Funding for Institutions & CC Components 37 Follow-up Discussion38 Public Institutions of Higher Education3 Private Institutions of Higher Education 4 Summary Mission Statement5 Report Card Summary of Progress6 Higher Education Performance Measures7 Full-Time Equivalent Enrollment Report8 HEPC Unity Budget Request9 Requested Reclassifications to Budget10-11 Analysis of Governor's Budget12-13 Negative Impact of Budget Reduction14 Mid-Year Reduction for FY 200415 History of Appropriations 16 Higher Education Grant Program Request17-18

3. 3 West Virginia Public Institutions of Higher Education

4. 4 West Virginia Private Institutions of Higher Education Mountain State University Bethany College Appalachian Bible College West Virginia Wesleyan College The University of Charleston Davis & Elkins College Ohio Valley College Alderson-Broaddus College Salem International University Wheeling Jesuit University Huntington Jr. College of Business

5. 5 The mission of the Higher Education Policy Commission is to align the West Virginia higher education system to contribute to the long-term growth and diversification of West Virginia’s economy as outlined in It All Adds Up: Compact for the Future of West Virginia. The target is to increase West Virginia’s per capita income to, or above, the national average by the year 2020. Higher Education Policy Commission Mission

6. 6 REPORT CARD SUMMARY OF PROGRESS FALL 2003 PRELIMINARY REPORT PERFORMANCE MEASURES

7. 7 Higher Education Performance Measures

8. 8 West Virginia Public Colleges and Universities Full-Time Equivalent Enrollment Report Early Fall 2003 File Submission

9. 9 HEPC Unity Budget Request Restoration of Base Budget Reductions - $33.9M  Governor’s recommendation restores $8.5 million to base and includes an additional $1.0 million for PEIA and BRIM increases  Governor’s recommendation provides one-time transfer of $17.5 million from unspent capital accounts to operations Need Based Financial Aid  Higher Education Adult Part-time Student Grant Program (HEAPS) - $4.0M  Higher Education Grant Program - $6.0M  Budgeted at constant level in Governor’s recommendation Promise Scholarship Fund - $10.0M  Final year of scheduled increases included in Governor’s recommendation Base budget adjustments are shown on the next page.

10. 10 Requested Reclassifications to Budget Items that Higher Education requests be reclassified to the base budgets of the institutions. West Virginia State University Land Grant - $1,200,000  Not included in Governor’s budget Eastern Medical/Health Sciences - $1,400,000  Included in Special Projects in Governor’s budget at a reduced amount Fairmont State University - $501,808  Included in Special Projects in Governor’s budget at a reduced amount Technical Preparation  Shepherd University - $200,000  Southern West Virginia Community & Technical College - $300,000  Both are included in Education and Arts budget at a reduced amount

11. 11 Requested Reclassifications to Budget – cont’d The funding for Eastern Medical/Health Sciences and Fairmont State University has been included in the lottery account as special projects for the last several years. The Technical Preparation funding for Shepherd University and Southern West Virginia Community & Technical College has been ongoing for a number of years and is funded in the budget of the Secretary of Education and the Arts. The request for the West Virginia State University Land Grant is to obtain funding in order that federal matching funds will be received. Without this funding, West Virginia State University will lose a substantial amount of funding. This university is only one of two institutions in the state with land grant status. Only $1.2 million was appropriated in a supplemental bill for FY 03, but representatives from the college have indicated in order to avoid losing federal matching dollars that state funds of $1.5 million is needed. This is not included in the Governor’s budget for FY 2005.

12. 12 West Virginia Higher Education Policy Commission Analysis of Governor's Budget General Revenue Accounts January 16, 2004

13. 13 West Virginia Higher Education Policy Commission Analysis of Governor's Budget Lottery Accounts & Grand Totals January 16, 2004

14. 14 Loss of key faculty and staff members due to the lack of salary increases and competitive pay issues. Further reduction of full-time faculty members and expanded use of part-time adjuncts and graduate assistants. Inability to offer adequate course offerings potentially resulting in a delay in graduation for students. Increased class sizes with a potential impact on the quality of the learning experience. Larger than normal increases in tuition rates resulting in potential access issues for need based resident students. Reduced ability of the institutions to meet work-force development and adult education outreach goals. Inability of the institutions to meet the objectives for higher education that were laid out in SB 653 and SB 703, i.e., workforce preparation, general educational attainment, and economic development goals. Negative long-term impact on the economic development goals that were to be supported by Higher Education. Potential Negative Impacts of the Budget Reduction

15. 15 West Virginia Higher Education Policy Commission Mid-Year Budget Reduction for FY 2004 Applied Across the Board Non-Permanent Budget Adjustment

16. 16 History of Appropriations Governor’s budget recommendation for FY 2005 is shown on the chart.

17. 17 Higher Education Grant Program Budget Request The West Virginia Higher Education Grant Program currently receives a state appropriation from lottery funds of $18,000,000 which is supplemented by an allocation from HERF fees (paid by public college and university students) of $1,800,000 and a federal matching grant of approximately $1,000,000. It is estimated that this will provide assistance to approximately 11,800 West Virginia students who will meet established standards of financial need and academic preparation in Fiscal Year 2003-04. Some 637 fully qualified students have not currently been assisted due to funding limitations. Fiscal Year 2002-2003 was the first year since the mid 1990’s that the Grant Program did not receive a funding increase. Level funding combined with larger awards resulting primarily from tuition and fee increases caused the number of recipients to decline for this year. An increase of $6,000,000 is requested for Fiscal Year 2004-2005 with the funds to be used as follows:  An additional $1.7 million is needed to cover eligible students who are on the most recent award cycle waiting list at 70% of tuition and fee increases or cost adjustments.  An additional $2.3 million is needed to fund the fee increases for the Grant Program since its base funding level became $18 million in FY 2002. For fiscal year 2004, the four year institutions increased fees by approximately 9%, the two year component community colleges increased fees by approximately 4.5%, and the freestanding community colleges went to 0% with the roll backs in tuition. No final decision has been made yet, in regard to the projected FY 2005 tuition increases.  The remaining $2.0 million of the requested increase would be used for the thirteen newly eligible accredited proprietary institutions and is based on anticipated growth. This represents a change from last year because the proprietary institutions only became eligible with the passage of SB 646 during the last Regular Legislative Session.

18. 18 State-Wide Scholarship and Grant Program Increases – cont’d Note: There has been recent discussion regarding the possible merits of making the West Virginia Higher Education Grant Program more like the federal Pell Grant Program in terms of academic eligibility standards. This could result in more eligible students and perhaps a higher funding need, or as an alternative a lower Expected Family Contribution (EFC) cutoff for an expanded pool of Grant Program applicants.

19. 19 Higher Education Adult Part-Time Student Grant Program - (HEAPS) Budget Request The Higher Education Adult Part-time Student Grant Program is designed to enable needy West Virginia undergraduate students to continue their education on a part-time basis at the post secondary level. HEAPS grants will be awarded for enrollment in public and private colleges and universities, adult technical preparatory programs or training offered by certain public vocational schools and any approved distance education, including worldwide web-based courses. During the 2003 regular Legislative Session House Bill 2051 was passed and provides that qualified traditional college age students may now be considered for HEAPS grant assistance. Prior to the passage of this bill, there was a requirement that students be out of high school for at least two years before receiving assistance. Other changes to HEAPS include a new component of the program that requires 10 percent of the annual appropriations be directed to community and technical colleges for non-credit and customized training programs which further the economic development goals of the state and help meet training and skill upgrade needs of employers in the state. An emergency rule has been adopted so that the provisions of the new bill can be implemented for awards being made in the 2003-04 award year. An appropriation of $8,000,000 is being requested for FY 2004-05, an increase of $4,000,000 over the FY 2004 level to expand this important program for the state. This amount is contingent upon fall enrollment but could be higher since part-time and community college student enrollment cannot be anticipated until the first few weeks of the semester.

20. 20 Fiscal year 2005 will be the fourth year for the Promise Scholarship Program and it will be increased from $17,000,000 in FY 2004 to $27,000,000 as provided in the funding legislation. This amount is specified in West Virginia State Code Section 29-22-18a (c) and is the final year of scheduled funding increases. It is estimated in FY 2004 and FY 2005 that 6,000 and 8,000 students will receive awards, respectively. Promise Scholarship Program PROMISE Dollars awarded (in millions) $10.1 $20.4. $26.7 Recipients 3,483 6,394 8,016 Actual Estimated Estimated 2003 2004 2005 Fiscal Year Performance Measures

21. 21 West Virginia Higher Education Fund Combined Financial Statement Summary For Fiscal Years 2002 and 2003

22. 22 West Virginia Higher Education Fund Combined Financial Statement Summary For Fiscal Year 2003 (In thousands of dollars)

23. 23 West Virginia Network for Educational Telecomputing FY 2003 Revenue and Expense Summary (In thousands of dollars)

24. 24 West Virginia Higher Education Policy Commission Office FY 2003 Revenue and Expense Summary (in Thousands of Dollars) Commission Office Revenues FY 2003 Total Revenues Contracts and Grants, $4,800 Fees from Higher Education Institutions, $3,961 Miscellaneous, $85 State Appropriations $3,159 Institutional Debt Service Payments, $12,963 Investment Income, $607 Lottery Surplus, $42,151 Commission Office FY 2003 Total Expenses Other Payments to Institutions, $22,002 Interest on Indebtedness, $12,802 Student Financial Aid Payments to Institutions, $24,372 Salaries and Wages, $3,488 Depreciation, $216 Benefits, $837 Supplies and Other Services, $3,288

25. 25 Due to budgetary issues, the tuition increases for the Fall of 2002 and 2003 have averaged over 9% at the four-year campuses. For the ten year period of 1993-2003, tuition increases averaged 6.50% for in-state resident students at the state colleges and 7.42% for the universities. Similar larger than normal tuition increases would be required for the Fall of 2005 if the proposed budget reductions are implemented. Tuition and fees rose 14.1% in the fall of 2003 for all national four- year public institutions according to data from the College Board. Tuition at four-year colleges in West Virginia remains well below the national median at 66.0%. Tuition and fees as a percentage of family income are comparable to national averages at the four-year level Tuition and fees at WV free-standing community colleges was relatively unchanged in 2003. Tuition and fees rose 13.8% in the fall of 2003 for all national two-year public institutions according to data from the College Board. Tuition at WV two-year free-standing colleges was 90.4% of the national median. Tuition and fees as a percentage of family income remain above the national averages at the community college level. While progress has been made on lowering the differences in component community college rates, there is still room for improvement in minimizing these differences. Due to the low per capita income of West Virginia residents, these tuition increases may have an impact on college participation rates. Improved funding will allow the institutions to maintain access and affordability for the residents of the state, a key for improved state economic conditions. As a result of the required larger than normal tuition increases as described above, it is also a priority of the Policy Commission that funding for need-based financial aid also be increased to provide continued opportunities for WV residents to attend the higher education institutions. In addition, legislative changes revising the eligibility for the Higher Education Adult Part-time Student Grant Program (HEAPS) and the Higher Education State Grant Program will also require additional funding in order to meet the legislative intent of these changes. Tuition and Fees

26. 26 West Virginia Public Higher Education Institutions Regular Student Fees Average Growth Rates 1993-2003

27. 27 West Virginia Public Higher Education Institutions – Cont’d Regular Student Fees Average Growth Rates 1993-2003

28. 28 West Virginia Public Higher Education Institutions – Cont’d Regular Student Fees Average Growth Rates 1993-2003

29. 29 Average Tuition Comparisons for Resident Students

30. 30 Average Tuition Comparisons for Non-Resident Students

31. 31 Median Resident Tuition Comparison to Household Income

32. 32 SREB FY 2002 Funding Comparison Funding TotalsTwo Year Institution AveragePublic Four Year 6 AveragePublic Four Year 3 AveragePublic Four Year 1 Average WVSREBWVSREBWVSREBWVSREB State/General Purpose4,322 4,005 3,790 4,937 3,807 5,389 4,335 6,980 State/Local Special Purpose307 546 78 58 238 43 1,508 1,348 Net Tuition & Fees1,751 1,524 2,878 3,111 3,457 3,219 5,109 4,919 Total6,380 6,075 6,746 8,106 7,502 8,651 10,952 13,247 WV Institutions Included: SouthernBluefieldMarshallWVU NorthernConcord EasternFairmont PotomacGlenville WVUP *Shepherd West Liberty WV State WVUIT *WVUP is actually included in the SREB category of two-year with bachelor's - 2,000 4,000 6,000 8,000 10,000 12,000 14,000 WVSREBWVSREBWVSREBWVSREB Two Year Institution AveragePublic Four Year 6 AveragePublic Four Year 3 AveragePublic Four Year 1 Average State/General PurposeState/Local Special PurposeNet Tuition & Fees

33. 33 Other Pending Issues Support is needed for implementing last year’s operational efficiency changes that were enacted in HB 2224. While Auditor Gainer and his staff have been extremely helpful in implementing these changes, resistance to change in other areas of state government has made the implementation of a portion of these legislatively mandated changes difficult this year. The Governor has submitted a new bill this year to address efficiencies and flexibility within higher education. Recommendations included by the Governor address the areas of procurement, processing of financial transactions, revenue collection and expenditures, and human resource matters.

34. 34 Other Pending Issues – cont’d Support is also requested for our on-going request to simplify the state accounts required for tuition and fees. The Governor has submitted legislation on this matter which would greatly reduce the number of state accounts required to segregate tuition and fee collections, and would significantly streamline the business operations of the institutions. In addition to the tuition and fee simplification, legislation has been requested that would provide for a pilot program for the establishment of per credit hour tuition and fees at up to three institutions to be approved by the Policy Commission.

35. 35 Bond Issue Higher Education would like to move forward with a new bond program to fund critical capital projects and deferred maintenance at the institutions, with funding for the bonds to come from the revenues appropriated in the Higher Education Improvement Fund. A listing of projects was last approved by the Policy Commission in June 2003. Due to changing circumstances, a small number of potential changes to the project list have been identified but a final recommendation has not yet been developed pending further discussion. Your support of this new bond issue for these crucial improvement projects will be greatly appreciated. Recently the Policy Commission refinanced the 1992 System Debt which will result in savings for both the former college system and university system to be realized over the remaining nine year term of the bonds.

36. 36 SUMMARY OF ESTIMATED DEFERRED MAINTENANCE USING BRIM STRUCTURE LIST AND STRUCTURE VALUES 11/21/2001 Deferred maintenance continues to be a problem. The estimate of $175 million from two years ago is significantly understated now. This information will be collected every two years.

37. 37 Funding for Institutions & Community College Components The funding for the four year and community college components is being reviewed to see if a funding reallocation is necessary among the components.  The original establishment of base budget appropriation allocations between the four- year and community college components was based upon 1999 total enrollment data.  Since that time, enrollment data has shifted significantly, and a more appropriate allocation should exclude non-resident FTE enrollment.  During FY 2003, significant progress has been made on developing an allocation model for services that are provided between the component institutions, however more refinement of this process is required.  Pending policy issues include: Should appropriations between component entities be revised periodically based upon enrollment changes? Should FTE enrollment be funded at a different level for component community college students as compared to students enrolled in four-year programs? To what degree should cost allocation amounts and methodologies be allowed to vary based upon individual institutional differences?

38. 38 Follow-up Discussion