Finance and Administration. Business Acumen. David Bea, Ph.D. Executive Vice Chancellor for Finance and Administration. August 5,

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1 Business Acumen David Bea, Ph.D. Executive Vice Chancellor for Finance and Administration August 5, 2016

2 Business acumen at PCC The ability to make sound operational decisions based on knowledge of the organization, its fiscal realities, and its strategic needs

3 PCC Finance 101

4 PCC s Financial Foundation FY : $247.8 million budget $51 million lower than 2013 Zero Debt Strong Peer Comparisons Solid Net Assets Aa1 Moody s; AA Standard and Poor s Minimal state aid risk

5 FY 2017 AZ Community Colleges In-State Resident Tuition Rates + Fees per unit $ $ $90.00 $80.00 $70.00 $60.00 $50.00 $40.00 $30.00 $20.00 $10.00 $0.00 Coconino Mohave Maricopa Pinal - Central Pima Yuma/La Paz - AZ Western Graham - Eastern Cochise Yavapai Navajo - Northland Pioneer FY 2017 Fees Per Unit $0.00 $7.00 $0.00 $0.00 $5.50 $0.00 $0.00 $0.00 $0.00 $0.00 FY 2017 Tuition Per Unit $ $81.00 $86.00 $84.00 $78.50 $80.00 $80.00 $79.00 $79.00 $70.00

6 AZ Community College Proposed Property Tax Rates for FY 2017 (Rates Per $100 Net Assessed Valuation. Proposed combined rates are shown) $3.50 $3.00 $2.50 $2.00 $ $ $ $ $ $ $1.50 $ $ $ $1.00 $ $0.50 $0.00 Graham Pinal Yuma/La Paz Cochise Yavapai Navajo Maricopa Pima Mohave Coconino Primary Tax Rate Secondary Tax Rate

7 AZ Community College Cost per Full-time Student Equivalent (FTSE) FY 2017 (Proposed General Fund Budget) $14,000 $12,000 $10,000 $8,000 $13,232 $12,439 $11,441 $10,325 $9,740 $9,246 $9,094 $8,253 $7,885 $6,000 $5,783 $4,000 $2,000 $0 Navajo Mohave Yavapai Graham Pinal Coconino Maricopa Pima Yuma/LaPaz Cochise

8 Net Position FY 2015 Item FY 2015 FY 2014 $ Change Cash and Cash Equivalents $ 40,034,277 $ 31,566,523 $ 8,467,754 Short + Long-term Investments 55,656,676 65,437,925 (9,781,249) Other Current + Non-Current Assets 126,775, ,253,851 (3,478,411) Total Assets $ 222,466,393 $ 227,258,299 ($ 4,791,906) Total Liabilities 149,377,777 20,031, ,346,417 Net Position $ 67,985,945 $ 207,226,939 ($ 139,240,994) Net Position Invested in Capital Assets (net of related debt) $ 111,016,873 $ 116,017,978 ($ 5,001,105) Restricted Net Position 8,869,962 10,665,356 1,795,394 Unrestricted Net Position ($ 51,900,890) $ 80,543,605 ($132,444,495) Total Net Position $ 67,985,945 $ 207,226,939 ($ 139,240,994)

9 PCC Challenges Financial Metrics/sustainable resources Heavily fixed vs. variable expenses Compliance challenges HLC Title IV Audit findings/remediation Lack of quality assurance Coordination/inconsistent processes Sub-optimally used resources Technology Physical resources Other externally driven risks

10 HLC Financial Ratios Composite Financial Index (CFI) CFI HLC High HLC Low

11 PCC Financial Ratios vs. Benchmark Targets (1.0+ = meeting or exceeding the benchmark) Primary Reserve Net Operating Return on Net Assets Viability Composite Ratio Benchmark

12 Staffing 2,000 1,900 1,800 1,700 1,600 1,500 1,400 1,300 1,200 1,100 1, Administrators - Regular Faculty - Regular Staff - Regular ,022 1,043 1,059 1,017 1, ,023 1,047 1,016 1,037 1,059 1,019 1,051 1,056 Audited Full-time Student Equivalents - PCC FTSE vs. Staffing Levels FY ,997 16,652 17,404 17,819 18,027 19,026 20,611 20,425 20,393 19,993 19,806 20,222 20,889 22,021 22,906 22,027 19,515 17,963 16,458 25,000 20,000 15,000 10,000 5,000 - FTSE Notes: 1. Figures for Regular positions are based on budgeted full-time equivalents. Figures for Adjunct, Temporary & Student positions are based on estimates from actual costs. 2. Prior to 1997, Personnel Statistics were calculated using a different methodology.

13 PCC Business Model Basics

14 Profit Formula Four Components: 1. Revenue Model 2. Cost Structure 3. Margin Model 4. Resource Velocity

15 Key revenues Tuition and fees Property taxes Expenditure limitation (yes, expenditure limitation)

16 Tuition and Fees Product of: 1. In State enrollment credits 2. Out of State enrollment credits 3. Tuition Rates In State: $78.50 per unit Out of State: $210/$300 per unit Facts to Remember: +$1.00/unit = $450, FTSE in-state = $100, FTSE online OOS = $500, FTSE international = $900,000

17 Property Taxes Property Tax Levy amount is not enrollment based New property is additive (growth) Impacts residential and commercial property Assessment ratios differ by property type Can increase 2 percent per year with Truth in Taxation Process and BOG approval Facts to Remember: Growth of 2% = $2 million 2.0% Levy increase = $2 million Housing Downturn Spurs Unfinished Development and Labor Surplus in American Southwest. Photographer. Encyclopædia Britannica ImageQuest. Web. 20 Jan

18 Expenditure Limitation (oh, no, not EL! I thought we fixed that problem!) Then what did SB 1322 do? Completely transparent formula Avoided catastrophic reduction in budget Created a way to phase-in a gliding path Added some important exclusions It did not eliminate enrollment concerns

19 Expenditure Limit (in $000's) $130,000 $120,000 $110,000 $100,000 $90,000 Expenditure Limitation Projections $80,000 $70,000 $60, Estimated Limit Flat Enrollment Grow 500/Yr Actual Expenses

20 PCC Business Model Basics - Expenses

21 Bowen s Law 1. Colleges will strive to attain educational excellence, prestige, and influence. 2. There is virtually no limit to the costs that can be accumulated attempting to attain educational goals. 3. Colleges and universities attempt to maximize their revenues. 4. Colleges and universities will spend all the money they raise. 5. As a result of the preceding four premises, colleges and universities will naturally tend toward everincreasing expenditures. Bowen, Howard R., The Costs of Higher Education, 1980

22 Balancing Revenues & Expenditures and/or Expectations Outcomes Reduce state and federal taxes Student Success Keep property tax rates low! Employee benefits that attract candidates

23 Why are costs increasing? Exogenous factors Inflation, cost disease Regulatory requirements Output choices/competition Arms race to be the first or best Marketing costs Operational inefficiencies Budgeting Administrative lattice and function lust Academic Ratchet Waste/inefficiencies Socially imposed costs Index Value HEPI Index Fiscal Year CPI Index

24 Expenses General Fund Predominately personnel (~75%) Operational expenses little to cut/reduce Capital expenses need to operationalize/find a sustainable revenue source Admin Fac Staff Other Benefits Operations Capital Transfers Contingency Facts to Remember 1% increase in salaries and wages = $900,000 Health care increases ~ $1 million per year Depreciation is $8 million per year 1 % increase for adjunct faculty = $150,000

25 Other challenges to College success Yours! Lack of Constructive Conflict Follow Through Lack of Accountability Inattention to Results Lack of Trust Poor Communication and Coordination Lack of Urgency PCC Cultural Disconnects/ Dysfunctions Confounding Policies, Processes and Procedures

26 Guiding Elements Values Vision Strategic Plan College Priorities Mission Mission Future State Education/Facilities Master Plans

27 Solutions Cost reductions Efficiencies Positions productivity Revenue enhancement Clear and consistent objectives Accountability Efficiencies Effectiveness Culture of a Premier Organization Alignment of incentives with goals Added Value

28 PCC Business Model Changes Reorganization Unit-based budgeting Program-based budgets College-wide perspective Attrition/Vacancies/Position Alignment Benchmarking Tuition Comparisons Faculty and staff ratios

29 Out of State and International Tuition Comparisons 2 Year Colleges $450 $400 $350 $300 Out of State Online Tuition Charges Arizona Colleges Peer Institutions Other Institutions PCC $450 $400 $350 $300 International Tuition Arizona Colleges Peer Institutions Other Institutions PCC $250 $250 $200 $200 $150 $150 $100 $100 $50 $50 $- 0 20,000 40,000 60,000 80, ,000 $0 0 20,000 40,000 60,000 80, ,000

30 Full Time Faculty General Fund FT Faculty: Student Ratio Targets ,000 14,000 15,000 16,000 17,000 18,000 19,000 20,000 Full Time Equivalent Students Budget

31 Vacant and Temporarily Filled Positions, 9/2015-5/ Sep-2015 Oct-2015 Nov-2015 Dec-2015 Jan-2016 Feb-2016 Mar-2016 Apr-2016 May-2016

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33 Future State Realities Fewer Resources Increased Accountability Increased Responsibility Increased Regulatory Compliance Requiring the College to: Be More Nimble, Adaptive, and Responsive Innovative, Entrepreneurial, Inventive Continuously Improve Employ Evidence and Data Based Decision Making Assess Effectiveness Improve Coordination & Communication

34 Focus areas Student Success = Mission fulfillment More Students = More Revenue More Students = More Spending Capacity Be engaged in reducing costs Be engaged in implementing actual efficiencies Support the reallocation of resources Maximize productivity of staff Ask questions, be skeptical, recognize what you don t know, and focus on value to the College and students

35 Exercise Great Ideas Encyclopædia Britannica ImageQuest, "Sculling," accessed 29 Apr 2015,

36 Project Assessment Framework LOW HANGING FRUIT More Numbers! Finance Metrics IMPACT 5/10 Year Budget COMPLEXITY COMPLEX IMPORTANT PROJECTS Get state funding LIMITED VALUE EASY WINS BIG UGLIES RFID Time Cards