The State We’re In: The Current Financial Crises and the Future of Higher Education in Louisiana Michael E. Matthews, MLISHead of Serials, Media, Interlibrary LoanNorthwestern State University of Louisianaatthewsm@nsula.edu 318-357-4419 email@example.com
Déjà vu all over again? • 2005-2006 “Disaster Economy” • $28 billion pumped into state economy • Price of oil climbs to $63.00 bbl. • Outmigration of 289,000 for New Orleans MSA • Total outmigration of 700,000 for recovery area • 2006-2007 “Recovery Economy” • Price of oil escalates to $70.00 bbl • Outmigration stabilizes—New Orleans MSA adds 39,000 • 2007-2008 “The Age of Hubris” • Stelly Plan repealed during 2008 legislative session • World-wide recession (Bear-Stearns falls March 2008) • Price of oil at all-time high of $112.00 bbl Source: The Baton Rouge Advocate
Oil Prices 1974-2010 Place your bets ladies and gentlemen… Energy Information Agency, http://www.eia.gov
Total Industry Output 1998 to 2008 Les Bon Temps? Bureau of Economic Analysis http://www.bea.gov
Industries as Percentage of National GDP Bureau of Economic Analysis http://www.bea.gov
What happened to the economy?... • 2008-2009 “Nemesis” • Price of oil plummets to $60.17 per bbl. (Q3 2009) • Tax revenues drop by 18% (Q1 2009) • Natural gas prices drop to $12.50 MCF (Q1 2009) from a twenty-year high of $19.68 (Q3 2008)—less than five months! • More tax cuts are implemented by the Legislature in June 2009 in the amount of $118 million • 2009-2010 “The Horror…the horror…” • Revenue Estimating Conference report predicts another $32 million drop in total tax revenues and forecasts $29 million loss in FY 2010 • Rainy Day Fund used to plug budget hole for FY 2009-2010 $86 million Source: The Baton Rouge Advocate
Major Industry Output 1998 to 2007 Bureau of Economic Analysis http://www.bea.gov
Percentage increases in per capita personal Income, 2002-2008 “Press 9 to have your mortgage application approved!” Bureau of Economic Analysis http://www.bea.gov
State tax revenues by sector Abbreviations: Per. Excise: Personal Excise Taxes Corp: Corporate Taxes Per. Income: Personal Income Fuels: “Gas Tax” at the pump Mineral: Includes both oil and gas drilling From page 9 of the LFO’s Budget Pocket Guide to Louisiana Government Direct link: http://lfo.louisiana.gov/files/publications/FY10%20Pocket%20Guide.pdf
Income Tax Revenues 1998-2009 Rebuilding Bump Bad Worse Bureau of Economic Analysis http://www.bea.gov
What about corporate taxes? Information available from the Louisiana Department of Natural Resources. Direct link: http://dnr.louisiana.gov/haynesvilleshale/manfred-dix-impact-analysis.pdf
Natural Gas Prices 1981-2010 (MCF) Energy Information Agency, http://www.eia.gov
“Dude, where’s my matriculation?” 2005-2006 • LSU-Health Sciences • 127 doctors furloughed • University of New Orleans • 80 faculty positions cut (19 tenured) • 9 programs cut • SUNO closed • 60 faculty furloughed indefinitely • 19 programs cut • 80,000 public university students are displaced • Each student counts for $1600.00 of lost SG revenue. • Gov. Blanco issues $71 million budget cut Source: The Baton Rouge Advocate
The Road Home 2006-2007 • $229 million reported as shortfall for higher education • $400 million in damages reported by schools along the coast • $17 million of Federal aid given to higher education in FY 2006 for 15 institutions, including private ones • Raising of tuition in 10% increments proposed by LSU-System and supported by Chancellor Ryan 2007-2008 • $3.2 billion revenue windfall expected by LFO • Regents propose $828 million for 2007 budget. $600 million one-time funds (construction) and $228 for recurring costs. • $30 million distributed for faculty pay raises • Higher education receives 100% funding for first time in 26 years Source: The Baton Rouge Advocate
The Road Home, continued 2008-2009 • Roll-back of Stelly Tax plan, June 2008 • Jindal moves higher education funding to road projects (SB 11) for $255 million • Board of Regents proposes 15-25% performance based funding formula • $120 million cut from higher education for FY 2008-2009 2009-2010 • $146 million is cut from higher education budget for FY 2009-2010 ($250 total) • HB 611, which would have stalled $134 million in tax cuts, is voted down in the House in June 2009 • Regents approve cutting 107 academic programs for AY 09-10 • REC announces $450 million shortfall; mid-year budget cuts. Source: The Baton Rouge Advocate
Higher Ed. Appropriations Louisiana Southern Regional Education Board, http://www.sreb.org/page/1125/data_library.html
Have funding levels just “gone back to normal?” Is 2004 “almost the same” as 2010? Estimated by presenter, September 2010 Southern Regional Education Board, http://www.sreb.org/page/1125/data_library.htmlNote: figures of this chart are NOT adjusted for inflation
No, it isn't. • HEPI (Higher Education Price Index) is a measurement of cost inflation associated with institutional G & E (General and Educational). • The HEPI increases at a variable rate between 3% and 5% annually • The HEPI for 2004 was 231.7 • The HEPI for 2010 is 279.4 • An inflationary increase of 17 %! • Unfunded mandates, such as retirement and insurance require universities to pay the state approximately 3.0% each fiscal year • Bottom line: We need $1.552 billion in 2010 dollars to equal $1.287 billion in 2004 pre-Katrina dollars for equivalent funding. • And don’t forget: Louisiana’s state appropriations are 3.0% behind the HEPI for the period 2004-2010 (constant 2009 $) Information about the HEPI is calculatedavailable at http://www.commonfund.org/CommonfundInstitute/HEPI/Pages/InstitutionalSegment.aspx HEPI estimates for individual universities can be calculated at the website for the Delta Project on Post-Secondary Education Costs, and Productivity, which is supported by the Lumina Foundation. Direct link: http://www.tcs-online.org/Reports/Report.aspx Please note that I have found more reliable results by searching the broad Carnegie categories on The Common Fund web site. This is because the data sets end in 2008, one year after the full-funding bonanza by Blanco. The averages are therefore distorted.
Question: What if we depleted the other departments of government to pay for higher education?
Arithmetic Lesson: A million is not equal to a billion… Information taken from an interactive spreadsheet created by the LSU-System Office that is no longer available to the public. A copy of the spreadsheet with formulas can be requested from the presenter. Email me at firstname.lastname@example.org
Discretionary Budgets Contact Michael Matthews at email@example.com for a copy of this spreadsheet.
A phony savings, any way you cut the pie. Even if you cut all other departments by half… This information is also taken from the interactive spreadsheet published by the LSU-System office. Another authoritative source is LFO’s Budget Pocket Guide to Louisiana Government. Direct link: http://lfo.louisiana.gov/files/publications/FY10%20Pocket%20Guide.pdf
Performance Based Funding The Board of Regents has issued documents relating to the budget funding formula. These documents can be found here: http://regents.louisiana.gov/index.cfm?md=pagebuilder&tmp=home&pid=181 After the initial six-year performance period , institutions must commit to increasing their overall graduation levels to 50%. By itself, this is a feasible goal, but the annual measurements are based on 52 separate factors. For the current period of 2010-2016, each institution has submitted a LA GRAD agreement to the Board of Regents that provide current benchmarks and forecasted performance. These documents are available at: http://regents.louisiana.gov/index.cfm?md=pagebuilder&tmp=home&pid=181
Increasing Tuition 10% per year, 2012-Until…? • LA GRAD allows tuition to be raised by 5% each year starting in Fall 2011. • 10% increase “officially” begins in Fall 2012 • Institutions will be assessed whether or not they meet established benchmarks on an annual basis • Institutions will be graded on 52 criteria. • South Carolina developed a similar formula with 34 criteria in 9 categories which was considered to be impossibly cumbersome. It was later reduced to only 14 criteria. • The LA GRAD act is based on a similar plan implemented by the Commonwealth of Virginia in 2005. • The Governor released that detail in an article in the Baton Rouge Advocate, Feb. 10th, 2010. Section B, page 1. Source: LA GRAD documentation on The Louisiana Board of Regents website Direct link: http://regents.louisiana.gov/assets/docs/Academic/Agreement.pdf
Result: 43% nominal price increase Northwestern State University (NOT adjusted for HEPI) The figures in this chart are not adjusted for HEPI. According to the SREB, the HEPI rose 47.8% for the period 1999-2009. The value of $6860 in 2017 would probably be 35-40% less than in today’s dollars. The tuition increases will be consistent with “SREB averages” and weighted according to median family income. While this is intended to prevent tuition from inflating beyond the means of the middle-class, an unintended consequence will be a “low ceiling” on overall tuition levels. With “base funding” in a downward spiral, institutions will be hard-put to cover this budget differential. One must ask: “How will this lack of resources affect recruitment, retention, and graduation outcomes?”
Just a few problems with that… • The current plan is to stop tuition inflation once an institution meets the SREB average. • HEPI has increased on average 3.0% +/- per year since 2000. • HEPI inflation differs widely based on several factors. • Each university must pay its state retirement contribution (2.5% to 3.0%. As more employees retire, this “unfunded liability” will only increase.) • The CPI has increased 2.5% on average since 2000. • The College Board computes a 6.5% increase per year for tuition. • The baseline ADCPI is lower than the US average, and much lower than Virginia. • For the period 2000-2008, The average disposable per capita income (ADPCI) rose 29% (in 2008 constant dollars) • 1990 to 2000, the ADCPI rose 19% (in 1996 C$) • 1980-1990, the infamous Oil-Bust years, the ADCPI rose only 9% (in 1987 C$) Note: Virginia is not the only state to have dramatically increased the price of public higher education by shifting the cost burden to the student. Other states include Kentucky and South Carolina. This is part of a national trend. See slide 36 for details
Low average disposable per capita income… Bureau of Economic Analysis http://www.bea.gov
Louisiana: A Lower Median Household Income Southern Regional Education Board, http://www.sreb.org/page/1125/data_library.html
Louisiana: A Lower Median Family Income Southern Regional Education Board, http://www.sreb.org/page/1125/data_library.html
A 6.5% Annual Price Increase • The GRAD Act allows universities to raise their tuition by 10% annually in order to meet their fiscal obligations. • The College Board projects that tuition will rise an average of 6.5% each year for public, four year institutions • Depending on an institution’s HEPI and unfunded liabilities, the 10% tuition increase will be effectively reduced by cost inflation by almost half. This chart is from the Trends in College Pricing 2010 report published by the College Board. Direct link: http://trends.collegeboard.org/college_pricing/report_findings/indicator/Tuition_and_Fee_and_Room_and_Board_Charges_Over_Time
Dollars In and Dollars Out Northwestern State University (RLU) Even if tuition were slowly doubled over seven years ( see slide 28), the university could not cover the cost differential between a 35% cut in state appropriations. In fact, no university could unless they raise tuition to 150-200% of its current price. Projected 35% cut, sticking NSU students with a $29 million price differential. Selective admissions start in AY 2014. 25% drop in enrollment is estimated 2008 Base Year: $49,658 All figures given in 000s. Source: Forecasted budget reductions taken from an internal document distributed to NSU faculty in an open meeting with the administration.
Higher tuition does not offset all costs! All institutions of higher education are required to: • Transfer funds to the state retirement system on behalf of their employees • Transfer funds to agencies or departments in return for services provided (interagency transfers or IAT) • Dedicate matching funds for all currently administered Federal and state grants • Pay the cost of risk management, insurance, and re-insurance • Costs are higher for urban universities • If operating a hospital, insurance rates are much higher than average. • Make payments to service any outstanding debts to private contractors, including property leases and performance bonds Total percentage of expenses vary by institution and fiscal year. Note: These expenses are itemized on the accounting reports issued by the office of the Legislative Auditor. You can look up your university’s liabilities here: http://app1.lla.state.la.us/PublicReports.nsf
“Actually, your funding has only been cut by 4.3%. Now shut-up and get back to work.” Technically true…but also misleading! Jindal referred to “4.3% cut” to LSU in a letter circulated to Louisiana newspapers on November 6th 2010. The total amount of the LSU budget includesboth tuition (40%) and state appropriations (60%)As Governor, Jindal only has control over the amount of state appropriations, not self-generated revenue, in the formof tuition and fees. The goal behind increasing tuition is NOT to increase institutional accountability, but to get the state government out of the business of supporting higher education.
Passing the Buck to Students: A national trend Source: Delta Project Issue Brief #1. Direct link: http://www.deltacostproject.org/resources/pdf/issuebrief_01.pdf
What’s the bottom line for Louisiana’s college students? Get ready to pay MORE money for LESS quality until tuition revenue catches up with the eroding base of state appropriations!HOW LONG WILL THAT TAKE? If the projected 35% cut in state appropriations is made effective by July 2011, the four higher education systems will be funded with approximately $900 million. It will take $932 million in additional tuition to fill the budget gap left by vanishing appropriations to equal the $1.832 billion “full funding” level of 2008 (2009 dollars). TUITION WOULD RISE 10% EVERY YEAR FOR UP TO TEN YEARS The six-year student cohort for 2010-2016 will bear most of this burden, not the state government.
Will the LA Grad Act last? Optimist Pessimist Term limits of champions Declining tax revenues Disintegration of base funding Tuition dollars are supplemental, not supportive Increases may raise tuition beyond the means of the lower class. • Was adopted as an act, not as a proviso • Appears to have support of business community • Appears to have support of university presidents • Gubernatorial line-item veto • Prevailing voter attitude toward higher education Although I had to shorten my presentation to time constraints, the main gist of my arguments can be found in the article The Demise of Higher Education Performance Funding Systems in Three States by Doughtery and Natow. Direct link: http://www.eric.ed.gov/PDFS/ED505707.pdf
Who pays? Source: Who Pays? A Distributional Analysis of Tax Systems in all 50 States. (page 52) Direct Link: http://www.itepnet.org/whopays.htm
And keeps on paying? Source: Who Pays? A Distributional Analysis of Tax Systems in all 50 States. (page 53) Direct Link: http://www.itepnet.org/whopays.htm
Average Cost of One Year of Attendance Source: Louisiana Featured Facts from the SREB Fact Book on Higher Education (page 21). Direct link: http://info.sreb.org/main/EdData/FactBook/2009StateReports/Louisiana09.pdf
Stelly Plan: Sales tax exchanged for income tax revenues Source: The Stelly Plan: Estimated Distributional Effects, April 7th 2005. (Page 14). Internal document from the Louisiana Legislative Fiscal Office. Direct link: http://lfo.louisiana.gov/files/revenue/StellyJtComReportApr05.pdf
Stelly, we hardly knew ye… Projected loss of revenue: $1.145 Billion Source: Actions Affecting Major State Tax, License, and Fee Estimates…for Legislative Year 2008. Internal document of the Legislative Fiscal Office. Direct link: http://lfo.louisiana.gov/files/revenue/2008%20RS%20REC%20bills.pdf
What’s going on with the libraries? • Northwestern State University • 50% of all journal titles cut • 694 titles out of 1230 (2007) • La-Tech • 620 titles cut for FY 2010-2011 • 118 more titles considered to be “on their way” • University of New Orleans • $150,000 cut • 23% of journal collection • LSU-Health Sciences • 7 journals cut • Impending slashing of Pennington may prove a disaster • LSU-Baton Rouge • 617 titles for $100,208 Source: Various personal communications via phone and email from serials librarians around the state.
So, what can we do then?… • Students will be paying a greater percentage of the operating expenses of the university • Communicate the student-centered mission • Establish a Friends of the Library student organization • Get political backing to implement a library fee • Event planning @ Your library • The Division of Administration will be expecting you to do “more with less” until less means “nothing” • Support your university presidents when they communicate the necessity of maintaining academic integrity • Remind faculty and university administrators that you need funding to preserve ownership of journal content. • Demonstrate how your library contributes to institutional outcomes. I mean, seriously. Go get that data. Right now.
Michael E. Matthews Head of Serials, Media, and Interlibrary Loan Northwestern State University firstname.lastname@example.org. 318-357-4419 QUESTIONS?