Arkansas Higher Education Financial Condition Report

A Report to the Arkansas Higher Education Coordinating Board

October 30, 2009

Summary• The purchasing power of state funding per

student continues to decline• The real $ funding per FTE student from all

unrestricted E&G sources is less than it was a decade ago

• E&G facilities deferred maintenance is $1.9 billion which includes $190 million in needs that are critical

• E&G and Auxiliary operating margins are in general very small

• Fund balances at most institutions are below the recommended levels

• Inequities in funding are becoming more extreme

• There are undesirable shifts in expenditures among NACUBO expenditure functions

• Many institutions have held tuition & mandatory fee increases to a minimum for 2009-10

• Arkansas Higher Education is faced with three “MUSTS” prescribed in the Higher Education Subcommittee

• Institutions are experiencing unprecedented enrollment growth for the fall of 2009 (Those alone increase need a minimum of $23 million in new funds for 2009-10)

Declining Purchasing Power of State Funding

Change in Purchasing Power of State Funding per FTE Student

1984-85 to 2008-09

$1,400

$1,500

$1,600

$1,700

$1,800

$1,900

$2,000

$2,100

$2,200

$2,30019

84-8

5

1985

-86

1986

-87

1987

-88

1988

-89

1989

-90

1990

-91

1991

-92

1992

-93

1993

-94

1994

-95

1995

-96

1996

-97

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

$2,207

$1,453

34% decline

per student

$1,322$1,322

Where the Money Came From in FY ’99 and FY ’09

(Unrestricted Educational and General Current Fund Revenue)

University Income per FTE Student by Source1998 to 2008-09

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

1998-99 2008-09 Adjusted

State Funds

Other Local Income

Tuition and Fee Income

$8,924

$12,862

$8,705

$5,215

$5,966

$4,038

A 22.4% loss in purchasing power per FTE

58.4%

46.4%

Two- Year CollegesRevenue per FTE Student by Source1998-99 to 2008-09

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

1998-99 2008-09 Adjusted

State Funds

Other Local

Tuition & Fee$6,424

$7,686

$5,202

$4,680

$4,295

$2,907

A 37.9% loss in the purchasing power per FTE student

72.9%

55.9%

Where the Money Went

(Unrestricted Educational and General Expenditures for 2008-09)

$4,951$3,180

$1,366

$1,386

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

Colleges Universities

Other

Scholarships

Physical Plant

Institutional Support

Student Services

Academic Support

Public Service

Research

Instruction

$11,810

$6,957

19.6%

11.7%

Where the money went in FY 2009

Two-Year Expenditures per FTE by Function

$2,741 $3,180

$82$74$499

$586$535$617$1,049

$1,366$656

$849

$105

$234

$21

$50

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

1998-99 2008-09

Other

Scholarships

Physical Plant

Institutional Support

Student Services

Academic Support

Public Service

Instruction

$5,688

$6,957

48.2% 45.7%

Where the money went - Colleges

Fund Balances

University E&G Fund Balances as a Percent of Revenues FY 2006 - FY 2009

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%A

SU

J

AT

U

HS

U

SA

UM

UA

F

UA

FS

UA

LR

UA

M

UA

PB

UC

AAs a

Per

cen

t o

f R

even

ue

2005-062006-07

2007-082008-09

One-Year Change in Expendable Fund BalancesFY 2008 to FY 2009

($10,000,000)

($5,000,000)

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

ASUJ* ATU HSU SAUM UAF** UAFS UALR UAM UAPB UCA

2007-08

2008-09

Expendable Fund Balances should not be interpreted as an indication of an institution's cash funds or that an institution has difficulty in meeting

payroll or accounts payable.

Universities

Colleges E&G Fund balances as a Percent of Revenues FY 2006 - FY 2009

0%

20%

40%

60%

80%

100%

120%

AN

C

AS

UB

AS

UM

H

AS

UN

BR

TC

CC

CU

A

EA

CC

MS

CC

NA

C

NP

CC

NW

AC

C

OTC

OZC

PC

CU

A

PTC

RM

CC

SA

CC

SA

UT

SE

AC

UA

CC

B

UA

CC

H

UA

CC

M

As

a P

erce

nt o

f Rev

enu

e 2005-06

2006-07

2007-08

2008-09

One-Year Change in Fund BalancesFY 2008 to FY 2009

$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

$7,000,000

$8,000,000

2007-08

2008-09

Two-Year Colleges

An Inequity

Recommended Minimum $3,000

Estimated Cost $4.8 million

Scholarships

Three Imperatives for Higher Education

Interim Legislative Study of Higher Education

• Three “Musts”:

1. We must make sure state government continues to do its part in funding higher education

2. We must limit the start up of new programs

3. We must ensure a net reduction in costs for students

Recommendations and Observations

• Pursue an amendment to the two-year funding formula that would read as follows:

– The minimum funding per FTE student for a two-year college shall be $3,000/FTE which shall be increased by the annual rate of inflation as measured by the Consumer Price Index (CPI) (when funds are available) until an institution’s funding level per FTE determined by the two-year funding model is reached.

– The further dilution of funding for students by the addition of new Non-Formula entities seeking funding outside the formula must be curbed. ADHE staff recommendation is to place a moratorium on the addition of any Non-Formula entities until such time as the funding formula needs are fully funded.

– The public policy question of whether or not the citizens of Arkansas, specifically the students and their parents, should subsidize the education of non-Arkansas residents who enroll in distance delivered education outside the state of Arkansas should be addressed.

Although the numbers are currently relatively small, these enrollment represent a rapidly increasing portion of enrollment in some institutions which is likely to accelerate. (Many other states have addressed this public policy question over a decade ago.)

What do these programs do to increase the number of Arkansans with degrees?

– Distance Education Funding Policy Recommendation: Distance education whether delivered by online instruction or other multimedia methodologies shall be fundable when delivered to Arkansas residents within or outside Arkansas, or to non-Arkansas residents within Arkansas. Distance education delivered to non-Arkansas resident students outside the state of Arkansas shall not be fundable and the credit hours produced shall not be included in the funding formulas used to determine the funding needs of institutions.

– Other funding issues arise from the enrollment of non-resident students when institutions fail to collect out-of-state tuition from the students. Certainly, the boards of the institutions have the authority to set the tuition for non-resident students. However, it is the responsibility of this board and ADHE to determine whether or not those students should be included in the funding formula.

– At the end of each fiscal year Boards of Trustees of every institution should require their chief financial to report a side-by-side comparison of both the budgeted and actual revenue by source and expenditures by NACUBO function. Budgets tend to reflect hypothetical priorities while actual expenditures represent real priorities

• In order to better understand the financial situation of the institutions, it is recommended that certain essential statistics be reported each fall to this Board. A partial list of measures that would improve understanding of why costs change in higher education are listed below:

– Student credit hours generated per full-time equivalent

faculty member– Student/faculty ratios– Teaching loads per faculty member by course level (Lower

and upper level undergraduate, masters, specialist, first professional, and doctoral)

– Average class size by level– Student/staff ratios for non-instructional staff– Percent of As and Bs grades awarded by each institution

– The required data should include the average and the extremes for student semester credit hours generated, student-faculty ratios, teaching loads, and class size.