Capital Budgeting Practices for Public Higher Education: Capital Needs

1. Capital Budgeting Practices for Public Higher Education: Capital Needs

2. Presenters • Dr. Derrick Manns, Assistant Dean of Academic Affairs, Bristol Community College. • Dr. Stephen Katsinas, Don A. Buchholz Chair of Higher Education & Director, Bill J. Priest Center for Community College Education, University of North Texas. • E. Lander Medlin, Executive Director, Association of Higher Education Facilities Officers (APPA).

3. INTRODUCTION: A HISTORICAL REVIEW

4. Ernest Boyer on facilities… "Good facilities are essential to good learning.”

5. Background of current crisis • The world’s first mass system of higher education developed in the U.S. from WWII to 1980 (Kerr). • Federal government provided critical funding for facilities in both immediate post-WWII period, and during the 1960s “baby boom” era. • Facilities constructed during the baby boom era have aged, and need significant renovation. • Large increases in high school graduation class size, increased immigration, the need for lifelong learning/computer skill upgrading, in times of scarce state resources have amplified the crisis.

6. Literature review: The federal role in facilities has always been important PRE-BABY BOOM • Land Grant Colleges Acts (1862, 1890) • Post-WWI, veteran’s education aid • Post-WWII, G.I. Bill (entitlement) AND Surplus Property Act (1947) • National Defense Education Act

7. Review of literature (cont.) ADDRESSING THE BABY BOOM (1960s) • Higher Education Facilities Act (1963). • Higher Education Act, Title VII-Facilities (1965). • 1970-present: Federal inaction, which coincides with a growing deferred maintenance crisis. • By 1990s, expanding student demand and need for better facilities forces re-examination. • Today, a crisis exists.

8. Purpose of the Study To gather information on capital budgeting processes used in the states to address public higher education capital needs, to… • Identify what states are actually doing; • Identify/highlight state practices to fund the backlog; • Develop methodology for comparing capital budgeting consistent with operating budget methodology developed by MM Chambers/Ed Hines/Jim Palmer @ Grapevine; • Compare and update 2003-4 with 1996-7 data.

9. Key questions: • What is the level of state appropriations for public higher education capital needs? • What is the status of new facilities construction, renovation, and deferred maintenance in public higher education? • How states are addressing facilities issues in light of large projected enrollment increases and tough budgetary pressures?

10. Methodology • This study was limited to the 50 states, and did not include Washington, D.C., or any U.S. territories or possessions. • This study was limited by the time frame reviewed, 1998-1999 and 2003-2004. • SHEFOs supplied the data

11. States that completedthe survey 1998-1999

12. States that completedthe survey 2003-2004

13. States that completed 1998-9 and 2003-4 Surveys

14. State Responses, by Region[regions consistent with GRAPEVINE]

15. Facilities growth has been dramatic for years since 1950-

16. What is the percent of state's total operating funds set aside for renewal & replacement?

17. Are formulas used to request funds for capital needs?

18. How often are formulas for capital requests reviewed?

19. What best describes the allocation process in your state?

20. Is there a comprehensive statewide master plan for Facilities? 1998-99 2003-04

21. Master plans in high growth states

22. How often are comprehensive facilities audits conducted?

23. Can you estimate the replacement value for facilities in your state? 1998-99 2003-04

24. Does your state have an estimate of amount of deferred maintenance? 1998-99 2003-04

25. If data are collected on deferred maintenance, how often?

26. Reserve fund for deferred maintenance? 1998-99 2003-04

27. Is increasing the number of those going to college a priority? 2003-04 1998-99

28. Does your state have enough capacity to meet expected enrollment increases?

29. Conclusions • Most states do not have coordinated master plans to: • Assess, much less meet, public higher education capital needs • Comprehensively address the deferred maintenance crisis This is evidenced by a lack of periodic system wide facilities audits, called for by APPA, NACUBO, and other agencies.

30. Conclusions (cont.) • It appears states will be challenged, from a resource availability perspective, to: • meet the dramatic increase in the number of HS graduates over the next 10 years…. • AND provide lifelong learning opportunities to millions of returning older adult students… • WHILE SIMULTANEOUSLY addressing the current backlog of deferred maintenance

31. Conclusions (cont.) • At a minimum, states without long range facilities master plans will likely be inhibited in meeting their longer term policy goals, particularly if increasing the rate of college-going among their adult populations is a priority (as most indicated).

32. Recommendations • A major study of the capital funding patterns used by the states is needed. • Continuation of longitudinal study of state appropriations for capital needs. • Coordinated state master plans for public higher education should always include an assessment of capital needs.

33. Recommendations (cont.) • The State Role in Funding: States set “rules of the game” & boundaries of institutional practice regarding higher education facilities. State leaders should • a) create policies that promote creativity at the institutional level by governing boards, and b) consider dedicated and permanent revenue stream to fund renovation, and rehabilitation, to promote better long-term planning for public higher education capital needs.

34. Recommendations (cont.) • At the federal level…. A matching grant similar to the Higher Education Facilities Act of 1963/HEA 1965 is clearly needed. A matching grant program would promote good state planning through the use of coordinated master plans for facilities, promote good state-level practices to effectively deploy capital resources, and help states address the crisis of meeting the college-going needs of students from Tidal Wave II.

35. Facilities Needs and Support Steve Katsinas

36. Overview • Facility problems are real, but there are other problems, too. • States lack good data. • Pork barrel politics makes one worry whether capital spending will be targeted to real needs.

37. Facility Problems are Real • Budget pressures have led to deferral of needed work. • No one attends the ribbon-cutting for a new HVAC system. • Many buildings were put up in the 60’s and 70’s. They were often poorly constructed and are in need of major work.

38. But other claims on higher ed funds are also legitimate • Technology, including the training of faculty and staff to use it; • Financial aid to expand financial access to lower income groups; • Pressures to increase compensation in light of gains by other well educated workers; • Investments in research and job training capacities;

39. States lack data on the problem • Few states have good data on the condition of their facilities; • Few have good data on the magnitude of the deferred maintenance problem; • States would be more likely to respond if they had good, reliable data that could be tracked over time and compared to that of other states.

40. States lack comparative data on spending • We have nothing on the capital side to compare to the Grapevine and Halstead data on public operating support for higher education. • Manns’s data provides a start, but it is especially important to collect capital spending data over time, since it is more likely to fluctuate.

41. States lack comparative data on spending • The lack of capital spending data makes the Grapevine and Halstead data less useful. • What they describe as “operating” support may be used on a campus to finance capital expenditures or to service plant debt. • Generous capital support, may include support for equipment and major maintenance projects that others fund from operating revenues.

42. The politics problem • Projects may be funded for their symbolic value, rather than on the basis of need. • New construction has symbolic value to campus officials and community leaders, as well as to state officials, who often simply respond to local pressures.

43. The “Big Picture” • State support for HIED has declined since Vietnam. Slight budget recovery after the 4 recessions between 1973-2003. • HIED slipped to 3rd, after K-12 & Medicaid, in past decade as investments in prisons and Medicaid have exploded • YET, missions/expectations expanded • Conclusion: THE CURRENT RECESSION MAY MARK MAJOR SHIFT: from “doing more with less” To simply doing less

44. The “Big Picture” •  Term limits/changing political environment; • Heavy handed governors; • Missions HAVE expanded for all institutions at all levels (expectations are up, money is not); • Data on expanded enrollments.

45. National Projections indicate a dramatic increase in students graduating from H.S.

46. Projected college enrollments: 1988-2013

47. Concluding observations • Derrick Manns’s data will help states examine their current efforts and improve their planning. • But better state level planning will help only so much.

48. E. Lander Medlin: The National Perspective

49. CHANGES IN HIGHER EDUCATION COMMUNITY • Rapidly escalating tuition increases • Increased square footage of space to operate and maintain • Major budget reductions • Dozens of new unfunded mandates from governmental regulations • Increased demand for the use of new technologies in classrooms, laboratories, offices, and residence halls

50. Accumulated Deferred Maintenance (ADM) Public Policy Implications • A FOUNDATION TO UPHOLD • SUSTAINED INSTITUTIONAL COMMITMENT TO ACTION • ROLES & RESPONSIBILITIES OF THE HIGHER EDUCATION COMMUNITY • FACILITIES PREPARED FOR THE 21st CENTURY