Lansing Community College faces significant financial challenges as it works to meet the ongoing needs of students and the greater community. As we look toward the future, the most urgent challenges to address include:
- Property tax revenue
- State appropriation revenue
- Enrollment and rightsizing
- Capital versus operating expenditures
- Allocation of scarce resources to the right priorities for the future
- Tuition pricing (Accessibility)
Challenge #1: Property Tax Revenue
Everyone is aware that real estate values have been devastated by the current economic situation. In Michigan, property tax revenue is further affected by legislation passed in the early 1990s. Under Proposal A of 1994, the State of Michigan capped the increase in taxable value at 5 percent or CPI for the year, whichever is less. The use of taxable value for real estate was intended to provide predictability, relative to inflation, and to smooth property taxes over time. For LCC, the affect has been property tax revenue that neither increases nor decreases as quickly as the corresponding market.
Before 2008, Proposal A generally kept taxable values lower than the state equalized value—or half of a property’s assessed market value. Taxable values within the College’s district peaked in 2009 and have declined more than 8 percent from 2009 to 2011 (our Fiscal Years 2010-2012). Since 2008, the market has declined significantly with ongoing speculation regarding the “bottom.” When the market hits “bottom,” we must consider the timing delay in the formula that could continue to put downward pressure on the College’s property tax revenue–even if the overall market begins to increase.
Conclusion: LCC cannot count on increased revenue from property taxes at any time in the next 3-5 years. Indeed, there is risk of some further drops in property tax revenue.
Challenge #2: State Appropriation Revenue
The College’s appropriation from the State of Michigan peaked in Fiscal Year 2002 at $32.2 million. Appropriations for Fiscal Year 2012 are $28.7 million, representing a decline of more than 11 percent during the last 10 years.
State appropriations present two challenges. First, overall economic drivers determine the amount of State revenue and subsequent available funding. Because of this, the State of Michigan and community colleges have been under pressure since the Great Recession began in December 2007.
Second, the State has committed to using a funding formula for at least 50 percent of any changes to community college funding in the future. This formula applies metrics for Completion (using Degrees from the IPEDS Completion Survey) and Student Contact Hours (using Credit Hour Equated Students from the ACS reports). These two measures will be used to allocate approximately 50 percent of any changes to community college funding.
Conclusion: State appropriation revenue, which has been dropping for a decade, is unlikely to see significant increases. And, any increase will be heavily dependent upon our actual performance in helping students to complete.
Challenge #3: Enrollment and Rightsizing
LCC has been driven by growth over the last few years. In fact, enrollment increased more than 20 percent between 2008 and 2011. Beginning in the summer of 2011, we began to see a significant change in this trend. Comparing Fall 2010 to Fall 2011, there was a decline of 6.6 percent in credit hours, 8.3 percent in billable hours, 9.0 percent in campus headcount (duplicated), and 9.8 percent in campus seat counts. While declines have been anticipated because of demographic declines in high school graduates, the decline has been steeper than originally anticipated because of other factors. Those factors include, but are not limited to, changes in LCC orientation, financial aid and registration processes that lead to increased student success; changes to financial aid requirements; and the lifting of the required minimum credit hours for students to remain on their parents’ health care coverage per the Patient Affordable Care Act.
The College has a challenge to determine the “right size” for our base enrollment that will allow us to scale up as enrollment increases. First, however, the challenge is to determine that “right size” for the base enrollment and the appropriate resource allocations for that level.
Conclusion: The good years of booming enrollment during the recession and its aftermath are over. Enrollment is likely to continue to decline in the absence. LCC needs to figure out what is the “right size” and adjust accordingly.
Challenge #4: Capital versus Operating Expenditures
All institutions face the challenge of short-term versus long-term decisions. This is also true when it comes to expenditures. The investment in infrastructure and technology is a long-term expenditure and requires ongoing investment and maintenance. First, we must maintain what we already have. Next, we must determine the priority investments for the future of the academic mission of the College.
Capital versus operating expenses is not an either/or question. It is a pay now or pay later question with the delay in payment often increasing overall costs due to deferred maintenance. In other words, it is cheaper to fix the roof than to fix the damage from a leak and fix the roof.
Conclusion: LCC needs a process for prioritizing capital investment and maintenance decisions that facilitates the strategic direction of the school.
Challenge #5: Allocation of scarce resources to the right priorities for the future
Two questions must be answered as the College faces the challenge of allocating scarce resources.
First, are we getting value for every dollar we spend? The College has made significant progress in reducing costs in many areas. This is an ongoing process and requires process review and improvement with an eye toward effectiveness and efficiency.
Next, what are the priorities of the College? We all agree that the academic mission and student success come first. We need to more clearly define what this means. One question we often face when addressing spending priorities is whether it is worth increasing student tuition to pay for particular priorities. We have worked to identify and separate College activities that should be self-supporting such as BCI, Community and Continuing Education, K-12, Parking, Dining, and so on. We need to ask ourselves whether there are more College activities that should be self-supporting. We also need to ask whether we should stop doing activities that cannot support themselves.
Conclusion: Balancing the budget in the face of flat or declining revenue will increasingly mean choosing what to do and what not to do at all, not just squeezing.
Challenge #6: Tuition Pricing (Accessibility)
As noted in Challenge #5, one question we often ask regarding spending priorities is: “Is it worth adding to student tuition to pay for this?” LCC is committed to keeping tuition as affordable as possible. We do this by addressing the first five challenges in this essay and asking this question for every dollar we expend.
Briefing Paper Contributed by Catherine Fisher, Chief Financial Officer for LCC.