Business Acumen David Bea, Ph.D. Executive Vice Chancellor for Finance and Administration August 5, 2016
Business acumen at PCC The ability to make sound operational decisions based on knowledge of the organization, its fiscal realities, and its strategic needs
PCC Finance 101
PCC s Financial Foundation FY2016-17: $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
FY 2017 AZ Community Colleges In-State Resident Tuition Rates + Fees per unit $110.00 $100.00 $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 $102.00 $81.00 $86.00 $84.00 $78.50 $80.00 $80.00 $79.00 $79.00 $70.00
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 $3.1384 $2.6269 $2.5607 $2.2860 $2.0561 $1.7884 $1.50 $1.4651 $1.3733 $1.3288 $1.00 $0.6214 $0.50 $0.00 Graham Pinal Yuma/La Paz Cochise Yavapai Navajo Maricopa Pima Mohave Coconino Primary Tax Rate Secondary Tax Rate
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
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 126,775,440 130,253,851 (3,478,411) Total Assets $ 222,466,393 $ 227,258,299 ($ 4,791,906) Total Liabilities 149,377,777 20,031,360 129,346,417 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)
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
HLC Financial Ratios 12.00 10.00 8.00 Composite Financial Index (CFI) 6.00 4.00 2.00 0.00 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 CFI 4.35 3.14 3.03 3.53 4.25 5.69 5.88 6.46 5.00 4.70 4.05 4.05 HLC High 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 HLC Low 1.10 1.10 1.10 1.10 1.10 1.10 1.10 1.10 1.10 1.10 1.10 1.10
10.00 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 PCC Financial Ratios vs. Benchmark Targets (1.0+ = meeting or exceeding the benchmark) 1.00 0.00-1.00-2.00-3.00-4.00 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Primary Reserve 1.04 1.05 1.05 1.12 1.16 1.27 1.18 1.35 1.35 1.31 1.14 1.14 Net Operating 3.96 2.05 1.81 1.90 2.70 4.70 2.84 4.08 0.16-0.80-2.10-1.95 Return on Net Assets 5.31 2.66 2.05 2.58 2.64 3.38 2.32 3.04 0.08-0.31-1.10-1.17 Viability 0.68 0.76 0.94 1.24 1.75 2.79 5.04 10.00 10.00 10.00 0.00 0.00 Composite 3.95 2.85 2.76 3.21 3.86 5.17 5.34 5.88 4.55 4.27 3.68 3.68 Ratio Benchmark 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
Staffing 2,000 1,900 1,800 1,700 1,600 1,500 1,400 1,300 1,200 1,100 1,000 900 800 700 600 500 400 300 200 100 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Administrators - Regular 44 44 45 46 49 48 48 48 51 56 56 62 53 53 53 54 55 56 54 Faculty - Regular 358 359 363 364 364 378 378 361 380 380 362 387 389 388 392 391 391 391 377 Staff - Regular 769 772 777 811 959 1,022 1,043 1,059 1,017 1,020 927 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 1997-2015 14,997 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.
PCC Business Model Basics
Profit Formula Four Components: 1. Revenue Model 2. Cost Structure 3. Margin Model 4. Resource Velocity
Key revenues Tuition and fees Property taxes Expenditure limitation (yes, expenditure limitation)
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 = $450,000 +100 FTSE in-state = $100,000 +100 FTSE online OOS = $500,000 +100 FTSE international = $900,000
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 2015. http://quest.eb.com/#/search/115_1611799/1/115_1611799/cite
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
Expenditure Limit (in $000's) $130,000 $120,000 $110,000 $100,000 $90,000 Expenditure Limitation Projections $80,000 $70,000 $60,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Estimated Limit Flat Enrollment Grow 500/Yr Actual Expenses
PCC Business Model Basics - Expenses
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
Balancing Revenues & Expenditures and/or Expectations Outcomes Reduce state and federal taxes Student Success Keep property tax rates low! Employee benefits that attract candidates
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 350 300 250 200 150 100 50 0 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 HEPI Index Fiscal Year CPI Index
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
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
Guiding Elements Values Vision Strategic Plan College Priorities Mission Mission Future State Education/Facilities Master Plans
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
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
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 80,000 100,000 $0 0 20,000 40,000 60,000 80,000 100,000
Full Time Faculty 450 400 350 300 General Fund FT Faculty: Student Ratio Targets 250 200 13,000 14,000 15,000 16,000 17,000 18,000 19,000 20,000 Full Time Equivalent Students 52.6 50.0 47.6 Budget
250.0 200.0 150.0 Vacant and Temporarily Filled Positions, 9/2015-5/2016 100.0 50.0 - Sep-2015 Oct-2015 Nov-2015 Dec-2015 Jan-2016 Feb-2016 Mar-2016 Apr-2016 May-2016
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
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
Exercise Great Ideas Encyclopædia Britannica ImageQuest, "Sculling," accessed 29 Apr 2015, http://quest.eb.com/search/115_2660800/1/115_2660800/cite
Project Assessment Framework 10 9 8 7 6 5 LOW HANGING FRUIT More Numbers! Finance Metrics IMPACT 5/10 Year Budget COMPLEXITY COMPLEX IMPORTANT PROJECTS Get state funding 4 3 2 1 LIMITED VALUE EASY WINS BIG UGLIES RFID Time Cards 0 0 1 2 3 4 5 6 7 8 9 10