CHANCELLOR’S PERSPECTIVE

THE ECONOMIC LANDSCAPE

For four years now, California community college districts have experienced deficits in state apportionment totaling 16%. If Proposition 30 fails, they will immediately see an additional 7.5% reduction. These districts have been forced to take drastic measures to confront their budget issues by eliminating classes and programs, taking pay cuts, reducing faculty and staff, and slashing operational budgets. Our district is a basic aid district, funded through student enrollment fees and property taxes. We don’t receive general state apportionment, and are not subject to these deficits and drastic cuts. If our district was not a basic aid district and relied on state apportionment, we would have seen annual budget reductions of $8.2 million. Even though we have avoided these deep cuts, our district has experienced escalating costs, primarily in salaries and benefits, without proportionate offsets in stable revenue.  We are now in a situation where projected long term expenditures exceed revenue projections.

According to the 2013 Economic Forecast by the Institute for Economic and Environmental Studies at California State University, Fullerton, we can expect to see a meager 2% growth in gross domestic product over the next several years. While this rate may sustain the status quo, it doesn’t provide enough growth to get us out of this economic slump. These economic predictions underscore our need to continue fiscal prudency for the foreseeable future as our economy slowly recovers.

WHAT THIS MEANS FOR US

We’ve been able to weather this long-term economic downturn by being fiscally conservative for over a decade, but if the economy takes several more years to recover, we can’t expect increased revenues to offset increased costs. Already, the lack of infusion from growth and COLA revenue is starting to affect us. We are fortunate that this is happening to us at a slower rate than other districts, which were forced to implement drastic cuts due to abrupt revenue deficits. We have time to stabilize our financial trend in a measured way that involves all constituencies and yields positive results. We need to implement a budget reduction of approximately 5% district-wide.  I will be asking the presidents to work through their college processes to implement expenditure reductions at the colleges for next year and I will work with district services on this. Additional cuts and/or budget corrections may be needed in future years depending on economic recovery. I expect the presidents to provide bold, reasoned and fair leadership at their colleges. I ask that you give them your wisdom, input and cooperation to meet this challenge over the next several years with consensus and without panic.

IDEAS FOR BUDGET REDUCTIONS

While specifics about how to make reductions should be done through widespread involvement, input and agreement of the organization, here are a few ideas that can be implemented immediately:

  • Trim back spending for the remainder of this year. There are eight months left in this budget year and that gives us opportunities to make adjustments now that may prevent larger cuts later. Determine what expenses are truly necessary. Defer discretionary expenditures.
  • Do not spend remaining balances toward the end of the budget year. Each dollar saved this year will assist us next year.
  • Use extreme caution in adding new, permanent positions that would increase overall staffing costs. As a guideline, total salaries and benefits costs should not exceed 86-88% of the total budget so there are sufficient resources for instructional materials, equipment and necessary maintenance. The lower, the better.
  • Travel expenses should be reduced to essential needs only.
  • Expenditures for scheduled maintenance should be limited to critical needs only. Some planned items could be delayed.
  • Technology refresh plans may need to be deferred until the budget situation improves. Use good judgment in determining what’s necessary.

TURNING TO BASIC AID

In this district, the first impulse has been to turn to basic aid funds for shortfalls. This expectation must stop. In the 1990s, this practice caused a fiscal crisis and our district was on the state financial watch list with operations being monitored monthly by the state chancellor’s office.  I will strongly resist using basic aid money to supplement ongoing operations because this practice would ultimately create a larger and more urgent crisis later. We are conservative by relying on basic aid funds for our capital construction needs and critical one-time expenditures.

LET’S WORK TOGETHER

Thank you for joining with me to address this issue while the choices are less difficult.  It is my responsibility to guard the overall financial health of this district. Your assistance and cooperation are needed and appreciated. Together, we can keep our district fiscally sound and organizationally strong.

 

QUESTIONS OR COMMENTS

I welcome your feedback and questions at chancellor@socccd.edu.