Employee Open Forum March 23, 2004, 2:30 p.m.

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Employee Open ForumMarch 23, 2004, 230 p.m.

• Financial Update

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Focus Operating and Capital Budgets
Two Separate Budgets

• Operating Fund
• (Instruction, student support, public service,
  administration, overhead)

• Physical Plant Funds
• (Capital Outlay)

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Our Operating Budget

• 57 million this year
• Annual expenses for salaries, supplies,
  utilities, etc.
• 3 Main Revenues
• Tuition
• Property Taxes 2.05 operating mills
• State Aid

• Challenges
• State Aid Declining
• Enrollment Growing
• Expenditures Rising Faster than Revenues
• 7-Year Deficits Projected
• 0.65 Voted Mill expires in 2008

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Major Operating Budget Issue Declining State Aid

• This year, 2003-04, MCC faced a 5.3 million
  deficit, mainly due to sharp declines in State
  Aid over the past few years
• 1.5 million (28) was covered by increasing
  tuition rates
• 3.8 million (72) was covered by cuts in spending

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State Aid per Student
State Aid per Student full-time equivalent has
declined since FY00-01 to a level nearing that of
FY95-96.
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Impact of State Aid Cuts

• June 2001FY01-02 1.5 (inflation 3.4)
• June 2002FY02-03 0 initially (inflation
  2.8)
• Dec. 2002 FY02-03 -2.0 -326,513
• March 2003FY02-03 -1.5 -244,400
• June 2003FY03-04 -6.7 -1,187,300
• Dec. 2003 FY03-04 -5.0 -642,100
• Feb. 2004FY04-05 -3.0 -439,900
• Compounded Budget Impact of Above Cuts
  -5 Million per year less in state aid

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Operating Fund7-Year Forecast

• Current Assumptions
• 4-5 annual growth in tuition revenue
• -3 cut in State Aid revenue next year 2 each
  year starting with 2005-06
• Moderate, continued growth in property tax base
• The need to seek renewal of the 0.65 mill voted
  operating millage set to expire in 2007-08
• Contractual salary increases (step market)
  totaling 5 per year
• Escalating health insurance and retirement costs
• Inflationary increases for non-salary expenses

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Rising Expenses One Example
Retirement Contribution Cost - MPSERS
30 increase over 2 yrs
Cost of just these rate increases for 04-05 and
05-06 1.2 million
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Operating Budget7-Year Forecast
Our current long-term forecast shows the college
facing a (3) million deficit next year, and a
(19) million deficit seven years out, if current
trends continue. We will be prudent in reducing
costs and enhancing revenues to prevent this
deficit situation.
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Challenges FY04-05 Budget

• Continued Decline in State Aid
• Continued Enrollment Growth
• States Tuition Restraint Proposal
• Savings from vacancies already counted
• No savings from program elimination
• Salaries and Fringe Benefits 77 of budget
• Each layer of spending cuts hurts more!

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Strategy

• Budget Principles Remain in Place
• New Board Policies, Directives
• Learn to Rely Less on State Support
• Long-Term Focus Continues Reduce Expenditure
  Base--Compensation Costs
• Appreciate 4 groups contributions
• Secretary/Clerical Bargaining now
• Faculty Bargaining Summer 2005

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Changes in Budget Culture

• Must operate under new business model
• Academic Programs and Service Areas will be
  reviewed for Cost and Efficiency
• Budget models being created to track revenues,
  costs by location, building
• Increased communicationYour continued input,
  creativity, support needed

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Short-Term Options

• Tuition Increasedecide by June
• Fund 23 or less, of 50 vacant positions
• Enhance smaller revenue sources
• Additional cuts in discretionary spending (about
  9 million to work with 3 cut generates 270K)
• Very few, if any more one-time savings options
• Other reductions will be neededlayoffs may no
  longer be avoidableto fill 3 million gap (this
  gap is 5 of projected expenses)

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Employee SuggestionsSome Examples of Action

• Benefits Task Force work continues
• Enrollment Management Teams implementing
  improvements
• Employee contract-related items included in
  bargaining efforts
• Energy Performance proposal upcoming
• Academic Program Revenue/Cost Reviews with
  Stakeholder Groups
• Purchasing Consortium and Purchasing Card under
  consideration, procedures under review for
  potential cost savings
• Negotiating with banks for fee savings

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FY04-05 Budget Calendar

• Next EC Budget Workshop Mar. 30
• Staffing Charts Apr. 7 Apr. 20
• Budget Worksheets Apr. 27 - May 11
• Strategic Initiatives Mar. 24 May 19
• Last Chance for Input June 1
• Budget Proposed to Board June 21

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Budget Cycles Begin Earlier
Today
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Physical Plant Funds Capital Budget
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MCCs Facilities

• MCC has approximately 100 acres of land and
  almost 1,000,000 gross square feet of buildings
• Many of our facilities are 30-50 years old
• Net value of property, plant and equipment is
  close to 100 million

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Capital Funds

• Maintaining Facilities
• Upkeep of Infrastructure - Buildings Grounds
• Safety Compliance Items
• Long-Term Focus
• Technology Equipment
• Deferred Maintenance
• Construction Projects
• NOT Operational Costs

• Revenue Sources
• Bond Proceeds
• Student Technology Fee
• Grants and Capital Appropriations
• Transfers from Operating Fund (for ongoing
  maintenance)
• Energy Savings Contracts

MCCs Capital Budget is separate from our
Operating Budget. The need for specific revenue
sources to maintain our physical plant is also
separate from efforts to enhance operating
revenues.
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Link to Mission and Strategic Plans

• MCCs mission statement directs the college to
• maintain its campuses, state-of-the-art
  equipment, and other physical resources that
  support quality higher education. The college
  will provide the appropriate services, programs,
  and facilities to help students reach their
  maximum potential.

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Link to Mission and Strategic Plans

• Key Initiatives Supporting 2001-2006 Strategic
  Plan
• Creation of 7-year comprehensive capital budget
• Implementation of 4.00 per contact hour Board
  Designated Instructional Technology Fee
• Commitment of 3 of annual operating budget for
  ongoing maintenance and replacement
• New Board policies that support long-range
  funding strategies and institutional fiscal
  stability.
• Long-term capital financing plan to coincide with
  the continuous seven-year capital outlay budget
  forecast.

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Comprehensive Planning Process

• Five-Year Campus Master Plans Submitted
  Annually to State DMB
• Independent Facilities Assessments
  Identification of Building Deficiencies and
  Backlog of Deferred Maintenance Projects
• Technology Plans Life-Cycle Replacement and
  Upgrade Needs
• Enrollment Trends, Strategic and Curricular Plans
  and Priorities
• Input from Management Team, Faculty, Staff,
  Community

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Capital Budget 7-Year Needs
Total 45 Million
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MCCs Voted Bond Authority Past 15 Years
Throughout the history of the college, MCC has
received taxpayer support to renew bonding
authority, providing our primary source of
capital funding for facilities, equipment and
technology.
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Taxpayer Support for MCC

• Operating Budget
• 35 of MCCs Operations are supported by
  taxpayers through our Operating Millage
• Charter perpetual 1.40 mills Voted 7-yr 0.65
  mill
• 2003 Operating Millage (rolled back) 1.9966
  mills
• Cost is approx. 100 for a 100,000 valued home
• Capital Budget
• The College has statutory ability to levy Debt
  Millage at whatever level necessary to cover all
  payments on outstanding bond debt
• 2003 Debt Millage 0.75 mills
• Cost is 37.50 for a 100,000 valued home
• Total Cost for Average Genesee County Taxpayer
  137.50

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Debt Portion of Property Taxes
Tax Year MCC Debt Levy

• MCC levied the same rate0.50 of a millfor many
  years, through the 2000 tax year.
• The rate was increased to 0.85 in 2001, and has
  decreased since then.

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Current Status Lack of Funds, But
Well-Positioned

• Revenues from prior voted bond authority are
  almost depleted
• The college has relatively low debt levels and
  solid credit ratings (A, A2)
• MCC recently refinanced outstanding bonds to save
  taxpayers almost 1 million in future interest
  expense
• Economic conditions favor incurring debt sooner
  than later

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Rationale to Seek Funding

• In order to continue to maintain current
  facilities and provide updated equipment and
  technologies, renewed capital funding is
  necessary.
• It is more fiscally responsible to invest
  continually and prevent emergency spending on
  facilities.

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Capital Financing Options

• Traditional Financing loans, installment
  purchases
• College borrows money from banks
• Payments Come from Operating Budget
• Non-Voted Bond Authority set by statute
• Sell bonds but CANNOT use property tax millage to
  pay
• Payments Come from Operating Budget
• Voted Bond Authority requires ballot proposal
• Sell bonds AND use property tax millage to pay
  back
• Payments Come from Debt Levy (Property Taxes)
• NO Impact on Operating Budget
• Renewed taxpayer support

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First Two Options Ruled Out

• MCCs Operating Budget is already facing deficits
  for the next several years.
• It is not feasible to go with any capital
  financing options that will require debt payments
  from the operating budget, thereby worsening the
  situation.

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Proposed Solution Bond Renewal
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March 22, 2004 Board Resolution

• MCCs Board of Trustees Authorized a Special
  Election for June 14, 2004
• Ballot Proposal asks for authority to sell up to
  45 million in bonds for capital items
• Estimates cost of new bonds at .14 mill for 2004
  tax levy (7 on 100K home)
• At the same time, cost of old bonds goes down by
  at least -.14 mill (-7 on 100K home), for net
  cost of 0, or even decrease from 2003 taxes

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Calculation of Expected Debt Millage Cost
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What Will MCC Do With the Bonds?

• The funds will enable MCC to maintain safe,
  educationally supportive and state-of-the-art
  facilities and equipment. Major planned projects
  include

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THE SIMPLE MESSAGE

• Mott Community College is a great community asset
  but must be maintained.
• We cant teach our students old technology in an
  economy where technology is rapidly changing.
• The College has continuously relied on bond
  proceeds throughout its 80-year history for
  investments in physical assets.
• Renewal of this bond authority may be the only
  feasible and the most fiscally responsible
  solution to the need for capital funding.
• Bond renewal would not increase the property tax
  rate above the current rate.

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Next Steps

• April 26 Board Resolution authorizing sale of
  Series 2004 Bonds pending voter approval
• June 14 Monday Election Day (Regular School
  Election Day)
• June 30 Sale of Series 2004 Bonds
• July 1 MCCs 2004 Tax Levy for Debt Retirement
  includes consideration of new bonds sold
  projected rate is 0.69 mill

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Questions or Comments?

• For further information
• Kelli Sproule, CFO
• 810.762.0525 phone
• CM 1032 office
• ksproule_at_mcc.edu