To:
The Ithaca College Community
From: Carol Dennis, John Rosenthal, Tom Swensen
Date: March 4, 2014
For over twenty years faculty members have prepared reports on the budget. In recent years these have
been prepared by faculty members of the College Institutional Effectiveness and Budget Committee.
Below is a report on the budget for 2014-15.
A copy of the budget for 2014-15 is available to members of the campus community at the Office of
the Budget web site http://www.ithaca.edu/budget/approvedbudget0910/. The reader may find the
Executive Summary at the beginning particularly interesting. In addition we urge you to look at p. 4 of
the Operating Budget section (p. 58 of the pdf copy) which gives a one-page summary of the operating
budget for 2014-15 with comparisons to the actual income and expenses in 2012-13 and the approved
budget for 2013-14. And we urge you to look at the Long Range Planning Section near the end, which
shows projections for the following five years.
When considering the College’s Budget it is important to understand that the expenses listed in the
budget do not fully correspond to actual cash expenses. For example, according to generally accepted
accounting principles, depreciation is listed as an expense (even though it involves no current cash
costs) and payments of principal for the College’s debt, capital expenses (both for equipment and
facilities), and deferred maintenance are not listed as expenses even though they do involve current
cash costs. As a result the net cash flow should be a more important consideration for the College than
the difference between budgeted income and expenses. For example, even though the expenses
include a 2% contingency, since the cash flow projections show this contingency being used to help
pay for principal payments on debt, capital expenses, and deferred maintenance, from a cash flow point
of view there is no such contingency.
In recent years Ithaca College income and expense budgets have shown that income would barely
exceed expenses, and more importantly that the net cash flow (that is, total cash income minus total
cash expenses) would be barely positive. But, in fact, often actual income has significantly exceeded
the projected income and actual expenses have been significantly below budgeted expenses, which
frequently have led to large surpluses in cash flows in recent years. For example, it is anticipated that
in the current year (2013/14) there will be a twenty million dollar cash flow surplus, that is, about 9%
of the projected expenses in the budget. Typically the College has used these cash flow surpluses to
put in its endowment and to address more deferred maintenance. It is worth noting that putting funds
in the endowment has the effect of increasing investment income in the budget in future years. For
example, the addition of 10 million dollars to the endowment should increase investment income by
about $450,000 each subsequent year.
The opening memorandum to the now Board approved 2014-2015 Budget suggests that the College
should decrease these surpluses by making the College more affordable to students. This principle was
used in the last scenario of the 2013-2014 Budget and is extended by the 2014-2015 Budget. For
example, even though the 2013-14 Budget’s last scenario projected a net tuition, room, and board
increase of 3.53% for 2014/15, the 2014-2015 Budget has a net tuition, room, and board increase of
2.99% (the lowest rate of increase in over 40 years). Furthermore the 2013-14 Budget’s last scenario
projected that the 3.53% increase would drop to 2.78% by 2017/18. The 2014-15 Budget extends this
by projecting a drop to 2.36% by 2017/18 and 2.21% by 2018/19. The opening memorandum speaks
of making the College more attractive to students and their families not only by lower increases in
costs, but also by increases in the quality of the educational product.
It is worth noting that the decline in the tuition increase was not accompanied by a decline in the
increment for faculty and staff –the last scenario of the 2013-14 Budget projected a 2.75% increment
percent for 2014/15 and the 2014-15 Budget delivers on this increment percent. Perhaps in response to
a recent Faculty Council motion expressing concern about the effect on lower paid employees of the
increase in employee share of health insurance costs, President Rochon and Vice President Hector
noted in a recent e-mail to faculty and staff that a small portion of the increment is being directed to
lower paid employees to offset this healthcare cost increase and that as a result a 1.75% increment
(which is slightly above the 1.6% annual increase in CPI) is allocated to a general merit pool, and the
remaining 0.75% is allocated to additional merit. It is worth observing that although the 2014-2015
Budget preserved the 2013-2014 Budget last scenario’s projected increment percent for 2014/15, it
does not preserve projected future increases in increment percent by projecting increases in the
increment of 0.1% each year through 17/18 rather than the projected increases in the increment of
0.25% each year in the 2013-2014 Budget’s last scenario. On the other hand by 2015/16, the 20142015 Budget projects that the percent increment should exceed the percent increase in tuition, room,
and board (probably for the first time in over 40 years).
In order to find the means to lessen tuition increases and to increase the quality of educational
programs with balanced budgets and cash flows, the College is examining its expenses with special
attention to operating expenses. In particular in preparation for the 2015-16 Budget, the College is
using a zero-based budgeting process for non-salary items to help diminish the funds allocated in areas
of regular spending below budgeted amounts. Because of spending in some areas below budgeted
amounts, the College has been able to readily handle required extra spending in other areas. When
some budgets are reduced in the zero-based budgeting process, it becomes necessary to make sure that
those areas of required extra spending have adequate amounts allocated. As it was easier to identify
the areas of required extra spending, the funds for these are already provided in the 2014-15 Budget.
The projected budgets beyond 2014-15 anticipate that cash flow surpluses will drop by 1 million
dollars each year from the 20 million dollars expected in 2013-14. As the 2014-2015 Budget includes
such extra funds for some areas while not yet decreasing other funds, we are led to suspect that the
surplus for 2014-15 may even increase from 2014-15 before being reduced in subsequent years. The
long range scenarios (at the end of the 2014-2015 Budget) show a base case scenario as well as several
“stress tests” including ones showing the effects of getting 200 fewer students in 2015/16 than targeted
or the effect of 2% increase in the discount rate beyond what is targeted for 2015/16. All scenarios
show significant cash flow deficits when one ignores the still larger anticipated cash flow surpluses.
We conclude with a few further thoughts about cash surpluses. As suggested by the above scenarios,
cash surpluses are prudent to weather undesirable, but possible scenarios. And there are significant
areas of the budget such as energy costs and medical self-insurance where it is prudent to overestimate
expenses as utility rates can go up, or winters can be unexpectedly cold, or there can be higher selfinsurance bills than one hopes for.