1
AGENDA ITEM BACKGROUND
TO: GOVERNING BOARD
DATE
FROM: PRESIDENT
June 13, 2011
SUBJECT:
2011-12 Budget Planning Parameters and Reduction Plan
REASON FOR BOARD CONSIDERATION
ACTION
ENCLOSURE(S)
Page 1 of 15
ITEM NUMBER
C.2
BACKGROUND:
The Governor’s May Revise was released on Monday May 16, 2011. Relative to the budget proposal
issued in January, the news is largely positive. The Department of Finance has identified an increase
in revenue of $6.6 billion covering the 2010-11 and 2011-12 years. Combined with the significant
legislative actions taken in March, the scope of the budget gap identified by the Governor has been
reduced from $26.6 billion to $10.8 billion. The new revenue allows the Governor to increase funding
for Proposition 98 and modify his tax proposals. Proposition 98 funding increases by about $3 billion
(to a total of $52.4 billion), though these expenditures largely consist of a buyback of inter-year
deferrals rather than new programmatic spending. The big changes to his tax proposals include a
delay on extending the personal income tax surcharge until 2012.
Budget for Community Colleges:
The May Revision proposes to keep most of the actions taken on the CCC budget earlier in the year
intact (a $400 million base reduction plus an increase of fees of $10 per unit) while using the new
revenues to buy back $350 million in inter-year deferrals. This proposal would reduce CCC deferrals
from $961 million to $611 million. Effectively, the workload reduction of approximately 4.9%
identified earlier in the year does not change under the Governor’s May proposal.
The May Revision also identifies $57 million in increased current year property tax revenues without
making a corresponding reduction in our General Fund appropriation, which should help mitigate a
deficit in 2010-11 apportionments. The all cuts budget assumption is off the table for the moment but
the state budget remains volatile.
continued next page
FISCAL IMPACT:
The 2011-12 ongoing structural deficit is $4,621,000 as indicated on page 9.
RECOMMENDATION:
It is recommended that the Governing Board approve the 2010-11 and 2011-12 Budget Planning
Parameters as presented. The mid-range scenario has been used to develop the 2011-12 Preliminary
Budget.
Administrator Initiating Item:
Victoria Lewis
Academic and Professional Matter
If yes, Faculty Senate Agreement
Senate President Signature
 Yes  No
 Yes  No
Final Disposition
Accepted
2
The California Community College League has updated their “District Budget Impact” calculation to
reflect two scenarios; A and B (see pages 6-7). The 2011-12 Budget Planning Parameter and MultiYear Planning Assumptions have been update to reflect the League’s assumptions. The League’s
Scenario A tracks with the college’s Best Case Scenario and Scenario B tracks with the Worst Case
Scenario. The mid-range assumption assumes a combination of some tax increases and additional
enrollment fee increases that would be used to offset the community college shortfall.
In addition to the state budget updates, two expenditure assumptions have been updated based on new
information. The medical benefit increases for the plan year that begins October, 2011 were estimated
at 15%; the actual rate increases will be 5.4%. A PERS increase of 3.24% was anticipated for 2011-12
but will remain flat at 10.924%. The two expenditure changes have resulted in a favorable reduction in
the structural deficit of over $900,000. Although the state revenue picture remains difficult to predict,
the positive changes in the medical benefits and 2011-12 PERS rates allow the college to adjust the
structural deficit down significantly.
The 2011-12 Preliminary Budget is based on the May Revise and the updated expenditure assumptions
included as attachments. The mid-range parameter is used to develop the budget.
Budget Planning at Cabrillo:
The college has been moving forward on the development and review of budget reduction plans. The
timeline for reductions is included on page 10-11. The Phase I, Round I reduction plans are included on
pages 12-15. Round I has been reviewed by the College Planning Council and the Service and Program
Review and Advisory Committee. The recommendations in Round I have been incorporated into the
2011-12 Preliminary Budget document the Board will approve tonight. The base budget reductions for
Phase I, Round I total $730,500. Operating reserves of $3.7 million will be used to reduce the budget
deficit as well. The remaining deficit remains at $921,000. The 2011-12 Preliminary Budget is
presented to the Governing Board as unbalanced. The college will bring additional reduction plans to
the Governing Board for approval in August.
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2011-12 Budget Update – May Revision
The Big Picture – On Monday May 16th the Governor released his annual May Revision.
Relative to the budget proposal issued in January, the news is largely positive. The Department
of Finance has identified an increase in revenue of $6.6 billion covering the 2010-11 and 201112 years. Combined with the significant legislative actions taken in March, the scope of the
budget gap identified by the Governor has been reduced from $26.6 billion to $10.8 billion. The
following summarizes how we’ve gotten to this point:








-26.6 Billion gap identified in January
+14 Billion in cuts and other solutions approved in March
-$0.6 Billion in erosions of March package (due to implementation delays)
-$1.0 Billion due to Proposition 10 litigation
+$6.6 Billion in GF revenues identified in May Revision
-$2 Billion in new costs
-$1.2 Billion for a budget reserve
= $10.8 Billion
The new revenue allows the Governor to increase funding for Proposition 98 and modify his tax
proposals. Proposition 98 funding increases by about $3 billion (to a total of $52.4 Billion),
though these expenditures largely consist of a buyback of inter-year deferrals rather than new
programmatic spending. The big changes to his tax proposals include a delay on extending the
personal income tax surcharge until 2012. Also, the Governor would back away from
eliminating enterprise zone tax credits to a reform of the program that would provide credit only
for new hires. As it is too late for a ballot vote for the 2011-12 fiscal year, the Governor suggests
that taxes would be extended by a direct vote of the Legislature and would later be ratified by the
voters, though he does not propose a specific time frame.
Perhaps revealing some concerns that the increase in revenue may make the push for tax
extensions more politically difficult, the May Revision summary focuses a great deal of attention
on what the Governor refers to as a “wall of debt.” The Governor identifies approximately $35
billion in state borrowing from deferrals, bond debt, special fund borrowing, Proposition 98
maintenance factor costs and other obligations. The Governor endorses a 5-year plan to reduce
the debt starting with the buying back of $3 billion in education deferrals and a reduction in
special fund borrowing of about $750 million in 2011-12. The Governor further suggests that
any new revenues that materialize over the next few years should go toward retiring obligations
prior to funding new program costs.
Community Colleges – The May Revision proposes to keep the most of the actions taken on the
CCC budget earlier in the year intact (a $400 million base reduction plus an increase of fees of
4
$10 per unit) while using the new revenues to buy back $350 million in inter-year deferrals. This
proposal would reduce CCC deferrals from $961 million to $611 million. Effectively, the
workload reduction of approximately 4.9% identified earlier in the year does not change under
the Governor’s May proposal.
The May Revision also identifies $57 million in increased current year property tax revenues
without making a corresponding reduction in our General Fund appropriation, which should help
mitigate a deficit in 2010-11 apportionments.
Other notable changes include the suspension of the Health Fees, Sexual Assault Response
Procedures, Reporting Improper Governmental Activities, Student Records, and Prevailing Wage
Rate mandates, with intent to eliminate them or make them optional. Additionally, the May
Revise proposes to offset mandate costs for the Enrollment Fee Collections and Waivers and the
Tuition Fee Waivers mandates be offset by existing local assistance funding.
Notably, there is no proposal for census reform or for any other significant policy change.
Doomsday? – In the event tax extensions are not approved, the May Revision summary speaks
in broad terms about reductions to education (additional $500 million in cuts to each of UC and
CSU and a $5 billion cut to Proposition 98), though the Governor chose not to specify how these
reductions would be taken. Given the $6.6 billion in new revenues, though, it seems unlikely
that the CCCs would be subject to the worst case scenario spelled out in February by the LAO.
In an all-cuts budget, we would expect that the first cuts to the CCC budget would be to
eliminate the $350 million in deferral restoration. While reductions could potentially go beyond
that level, it appears unlikely that total reductions would exceed $100 million to $150 million
beyond what the system received in March. Potentially, some of this reduction would be
mitigated by an increase in fees beyond the $36 per unit level. In short, while risks remain, the
increase in revenues has somewhat mitigated the doomsday scenarios feared in the spring.
Assessment - Our initial assessment is that, on the whole, the May Revision represents a
balanced approach to filling the estimated budget gap. While some other budget proposals, such
as the plan recently released by the Assembly Republican caucus, have suggested that education
funding could be protected without tax extensions, it would seem to be politically infeasible to
have such a budget approved by the Legislature and Governor given the level of reduction to
social service programs such an approach would require. There’s little doubt that tax extensions
provide much more security to the budget picture for the CCCs and for the state as a whole.
As noted earlier, the May revision appears to reveal some concern on the part of the Governor
that the argument to extend taxes is weakened by the unexpected increase in revenues. This
would help explain the focus on existing budgetary debt and future obligations. The proposal to
use new revenues to buy back CCC deferrals rather than cuts is consistent with this approach.
The Governor has taken many actions (e.g., restrictions on state travel and cell phones, the
proposed elimination of many boards and commissions) meant to show that he is frugal and will
5
not ask the voters for tax extensions without first reducing what he perceives as low-priority or
unnecessary expenditures. Reducing existing debt before restoring programs is in line with this
approach and may make sense politically.
Further, it was comforting to see that the Governor does not propose any new policy reforms for
the CCCs in this late stage of the game. We hope this reflects a belief that large institutions need
time to implement changes and that any reforms are best made with input from those who must
make them happen on the ground.
While the Governor’s May Revision does little to harm the CCCs relative to actions taken earlier
in the year, many potential pitfalls and questions still remain:




Will tax extensions be approved? This is the $10 billion question. If legislators could
not agree to a deal when there was a $15 billion problem, does it get any easier when the
problem is $10 billion? Difficult negotiations remain and the outcome could seriously
impact the CCC budget.
How solid are the revenue estimates? The Department of Finance has been unable to
thoroughly explain why the revenues have improved so significantly since the January
estimate. If those figures slip, that could result in downward revisions to the CCCs.
Try and try again – The Governor continues his push for eliminating redevelopment
agencies and for realignment. Will those proposals be more successful now than they
were in March?
What will the Legislature do? The May Revision represents the Governor’s plan, but
the Legislature will also have their say. They may have a different set of programmatic
priorities. Would they favor social programs over meeting the Proposition 98 guarantee?
They may also show more interest in restoring programmatic reductions than in
addressing debt. While the Governor has not proposed any policy changes for the CCCs,
will the Legislature take the same approach? Legislative hearings are not slated to begin
until the week of May 23rd, so we will learn more about any differing approaches at that
time.
We’ll do our best to monitor the budget situation and keep you posted on any new developments.
In addition to email, I also provide updates on state budget activities through twitter
(@cccbudgetnews). I hope you’ll join us there, and I hope you feel free to contact me with your
questions or concerns.
Sincerely,
Dan Troy
Vice Chancellor for Fiscal Policy
Chancellor’s Office of the California Community Colleges
dtroy@cccco.edu
(916) 445‐0540
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8
Board Meeting
June 13, 2011
I. 2011 Base Budget Planning Assumptions
Draft
2010-11 Final Budget Structural Deficit
Range
Worst
Case
MidRange
Best
Case
(1,886,000)
(1,886,000)
(1,886,000)
1,300,000
2010-11 Revenue Adjustments- First Principal Apportionment
A. Reverse 66.4% of the 2009-10 FTES Reduction (formerly classed
as 2.21%growth)
1,300,000
1,300,000
B. Remove Negative COLA
216,000
216,000
216,000
C. Deficit Factor Student Fee Revenue Shortfall@ $45 million
(460,000)
(460,000)
(460,000)
D. Adjust General Apportionment Shortfall
425,000
425,000
425,000
0
100,000
100,000
(6,189,000)
(5,150,000)
(4,111,000)
1,097,000
1,097,000
1,097,000
?
?
?
(125,000)
(100,000)
0
(5,622,000)
(4,458,000)
(3,319,000)
Full-time Faculty Obligation -Fall 2011 (205.6)
(360,000)
(360,000)
(360,000)
(Faculty step 5/5, with benefits $90,000)-reduce fund by 4
Adjunct Replacement Units- 30 units per FT position @ $1750 per unit
(4)
210,000
(4)
210,000
(4)
210,000
0
0
0
0
0
0
66,000
66,000
66,000
?
?
?
310,000
310,000
310,000
PERS employer rate increase for 2011-12 (rates continue to
increase in subsequent years).
STRS rate increase
Increase in Worker's Comp., Gen. Liability,
5.40%
0
0.00%
0
85,000
5.40%
0
0.00%
0
80,000
5.40%
0
0.00%
0
75,000
Step and Column Increases (includes longevity, shift diff.)
395,000
395,000
395,000
E. Part-time Faculty Compensation
2011-12 Revenue Assumptions
A. General Apportionment Red.- $400 million, $550 million,
B. Increase in Student Fees $110 mil.-to offset apportionment
reduction from $26 to $36 per unit tuition increase
C. Deficit Factor Student Fee Revenue Shortfall
D. Lottery
TOTAL Revenue Adjustment
2011-12
Classified positions
Management positions
Benefits
Increase in Transfer to Retiree Benefit Fund
Increase in Transfer for future retiree liability (new employees,etc.)
2011-12 Medical benefit increase
Labor Agreements
?
?
?
New Facilities Supplies & Operating Staff
0
0
0
(100,000)
(100,000)
(100,000)
District Contribution- Bus Pass Program
Operating Costs:
Other net operating increases
200,000
157,500
100,000
Other Financing- Indirect Reimbursement Reductions
ACE, other grants ending in 2011-12
135,000
135,000
135,000
Total Expense Adjustments
941,000
893,500
831,000
(6,563,000)
(5,351,500)
(4,150,000)
730,500
730,500
730,500
Projected 2011-12 Structural Balance (Deficit) after Phase I, Round I reductions
(5,832,500)
(4,621,000)
(3,419,500)
66.67% of Operating Reserves applied to 2011-12 Deficit
Remaining Reduction Target for 2011-12
3,700,000
(2,132,500)
3,700,000
(921,000)
3,700,000
280,500
Projected 2011-12 Structural Balance (Deficit)
Budget Reductions Phase I, Round I
Budget Planning
Board Meeting
June 13, 2011
Difference between ongoing Revenues &
Expenses (Structural Deficit)
Increase in State Revenue Anticipated
Student Fee Revenue Shortfall
2.21% Growth
Negative .39% COLA Restored
General Apportionment adjustmnet
Part-time faculty compensation
Gen. Apportionment reduction- $8.36 mil, $5.3 mil,
3.01 mil net of Enrollment Fee Inc.
apportionment reduction
Lottery
Net change in revenue
9
2010-11 through 2013-14
Base Budget
Planning Parameters
2010-11
Budget Update
2011-12 Preliminary Budget
Mid-Range Scenario
2012-13
Projected
2013-14
Projected
(1,886,000)
(305,000)
(4,621,000)
(6,666,000)
(5,150,000)
1,097,000
(100,000)
(4,153,000)
0
0
(150,000)
(425,000)
(112,500)
(450,000)
(725,000)
?
(50,000)
(395,000)
?
?
?
(100,000)
(200,000)
(750,000)
?
(100,000)
(175,000)
?
?
?
(100,000)
(225,000)
(460,000)
1,300,000
216,000
425,000
100,000
1,581,000
Net Increases in Ongoing Expenses
Full-time Faculty Position changes (-3, +4, +3) (net of adjunct backfill)
Step, Column, Longevity Increases, etc.
Classified Positions
Medical Plan Rate Increase--13%
Management Positions
Retiree Benefit Increase
PERS Rate Increase
STRS Rate Increas
Worker's Comp, Unemployment Insurance
New Facilities Supplies & Operating, Staff
Utilities
Net Operating Increases
District Contribution- Bus Pass Program
Retiree Benefits- New Employees
Labor agreements
Reduction in Indirect Reimbursements from grants
Total Expenditure Increases
0
(80,000)
0
0
(157,500)
100,000
?
?
(135,000)
(893,500)
?
?
?
?
(2,045,000)
(1,912,500)
Budget Reductions Phase I, Round I
730,500
?
?
(4,621,000)
(6,666,000)
(8,578,500)
Ongoing Shortfall*
(305,000)
150,000
(395,000)
0
(310,000)
0
(66,000)
Allocation of 66 2/3% of operating reserves
3,700,000
Deficit net of One-time funds
(921,000)
*Estimates will change as more information becomes available
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$3 Million in Reductions in 90 Days: August 1 Deadline
Process and Timeline
5/4
CPC will meet to finalize process and timeline
Note: The Faculty Senate is developing a separate process for academic program
reduction.
First Round of Proposed Reductions
5/10
5/13
5/16
5/18
5/25
Cabinet/Administrative Council review and finalize proposed elimination of
vacant positions, non-personnel operating reductions, and non-base budget
personnel reductions
Supervisors meet with individuals whose positions are directly affected to
communicate the impact
Proposals shared with Services and Program Reduction Advisory Committee
(“SPRAC”) for input and feedback
Proposals shared with CPC
SPRAC comments and suggestions no later than this date for First Round
Second Round of Proposed Reductions
5/17
5/20
5/23
5/25
6/1
Cabinet/Administrative Council review and finalize a second round of proposed
elimination of positions and services
Supervisors meet with individuals whose positions are directly affected to
communicate the impact
Proposals shared with Services and Program Reduction Advisory Committee
(“SPRAC”) for input and feedback
Proposals shared with CPC
SPRAC comments and suggestions no later than this date for Second Round
Third Round of Proposed Reductions
6/6
6/15
6/22
Cabinet/Administrative Council review and finalize a third round of proposed
elimination of positions and services
Supervisors meet with individuals whose positions are directly impacted to
communicate personal impact
Proposals shared with Services and Program Reduction Advisory Committee
(“SPRAC”) for input and feedback
Proposals shared with CPC including
SPRAC comments and suggestions no later than this date for Second Round
7/6
CPC Meeting to Recap Cumulative Recommendations
6/10
6/13
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Additional reduction proposals within the August 1 timeframe may come forward as
needed.
The timeline allows 4-6 weeks for input and analysis after all proposals have been
brought forward and before recommendations are presented to the Governing Board at
the August 1, 2011 Meeting.
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12
Draft 2011-12 Budget Reductions- Phase I
Phase I
Round I
50% Law Compliance
Base Budget
Budget Criteria Description
NAS/Welding LIA
HAWK/ Medical Asst. Program Specialist
Writing Center LIA
Writing Center LIA
Director of Financial Aid
Admissions/Records Asst I
M & O Grounds Maint. Worker
Collegewide-Marketing-Advertising
Collegewide-Postage
Collegewide-Legal
Collegewide- Utilities
Business Office- temp. hrly
Maintenance and Operations- Supplies/Operating
HASS Supplies
Instruction: 100 Teaching Unit reductions
ECE Student Hourly
Reduce Horticulture Operating Budget
Vapa Division Budget- AH, AP, Tool Room, Music, Dance,Stage
Pilot Director of Enrollment Services
Reduction of 6 TU's/Benefits Wellness Program
Reduction of 6 ECE TU's/Benefits
Impact
( net ofAsst. Director FA $93,420)
PCN #
468504
475105
434007
434014
813104
821003
352006
FTE
0.09
0.28
0.63
0.42
1
1
1
% of Contract Classroom
12.5
30
75
62.5
100
100
100
Total
Phase II
Confidential Assistant-net 25% hrly support
Page 1 of 4
44,559
20,453
175,600
Reduces Assistants and Tutors
Backfill with Plant sale funds
(net Director of A/R)
4832
821010
1
100
10,536
10,536
266,516
362013
0.25
25
6,200
10,000
70,000
-16,616
Total Savings
4,832
12,664
44,559
20,453
53,905
63,722
63,031
25,000
40,000
20,000
40,000
1,110
50,000
1,200
175,600
6,200
10,000
70,000
-16,616
440,216
0
0
706,732
Non-Classroom Exempt
12,664
53,905
63,722
63,031
25,000
40,000
20,000
40,000
1,110
50,000
1,200
23,769
290,285
23,769
440,216
730,501
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0
730,501
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Draft 2011-12 Budget Reductions
Phase I
Round I
Budget Criteria Description
ACE- DBA Manager
Phase II
50% Law Compliance
Restricted Fund
Impact
PCN #
401405
ACE-Program Coordinator
ACE- Program Specialist II
Eliminate filled position
Eliminate filled position
401404
401406
ACE- Research Analyst
Eliminate filled position
211604
FTE
1
1
1
% of Contract
100
N/A
(funded for 3 mos)
(funded for 3 mos)
0.5 (temp assignment reduce operational budget)
Page 2 of 4
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105,920
Total Savings
105,920
70,605
50,212
41,828
268,565
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Draft 2011-12 Budget Reductions
Phase I
Round I
Bookstore Fund
Budget Criteria Description
Bookstore Asst I
Bookstore Asst I
Bookstore Asst I
Impact
PCN #
361011
361013
361015
FTE
0.84
0.5
0.6
Total
Page 3 of 4
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% of Contract Total Savings
100
56,968
60
28,547
60
31,675
117,190
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Draft 2011-12 Budget Reductions
Phase I
Round I
Children's Center Fund
Budget Criteria Description
441516 Children's Center Cook
Impact
PCN #
441516
FTE
0.8
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% of Contract Total Savings
60
45,203