AdvoCATS Update
TALKING POINTS FOR UNIVERSITY BUDGET ISSUES
(SIMPLIFIED, SORT OF)
KEY TALKING POINTS FOR 2010 BUDGET (details provided below)
Support the Governor’s Plan:
- The only plan that helps protect major cuts in the future by proposing to increase revenues
- Keeps cuts to University System to the level specified by the Feds to comply with the Maintenance of Effort level (see below), approx. $40 M.
- No auxiliary fund sweeps
- Keeps SPEED (stimulus package that funds construction and deferred maintenance of University buildings) as passed in FY 2009
- Keeps 2009 rollover to 2 – 3 month repayment
Cuts are permanent; stimulus funding is not.
The combination of previous years’ cuts for $191.5 M, the Legislature’s $40 M cuts proposed for 2010, delaying repayment of $100 M for Rollover, and sweeping $50 M in auxiliary funds would have a devastating impact on the Universities. UA would be disproportionately impacted.
BACKGROUND
2009 BUDGET
- University System was cut twice: $50 M, then $141.5 M. Total of approximately 20 %*.
- A later fix had the System taking a $100 M rollover, i.e. The State ‘borrowed’ $100 M from the Universities to pay Universities’ bills, then committed to paying back the $100 M immediately, in August and September 2009.
FEDERAL STIMULUS FUNDING
- Arizona to get $832 M of the State Fiscal Stabilization Fund that must be used for education and $185 M that may be used for education.
- The Governor, who ultimately decides when, where and how much the funds are applied over a specific multi-year range, has already specified that $154 M in stimulus funding will go to the University System in 2009 and $148 M in 2010.
- Guidelines for use of the funding stipulate that cuts may not go below a certain level (called Maintenance of Effort) and emphasize the need for accountability and transparency in the application of the funds.
2010 PROPOSALS
HOUSE AND SENATE VERSION – passed the Senate on June 4th, voting in the House on June 4th.
- $40 M cut to Universities
- Sweeps $50 M of University auxiliary funds* (details below)
- Cuts lottery money to be used to fund SPEED as well as eliminating language that allows using lottery money for new construction (details below)
- Various policy changes (in the BRB’s, or Budget Reconciliation Bill)
- Extends repayment of rollover another year (details below)
GOVERNOR’S VERSION –
- Protects the Universities’ auxiliary fund balances
- Protects the $800M remaining for SPEED building renewal and new construction – including the Phoenix Biomedical Campus
- Cuts the University system another $42.9M as expected
- Allocates $148.1M of Federal Stimulus money to the universities
In order to achieve these and other outcomes, the Governor proposes to:
- Reduce operating budgets by $963.8M.
- Bring back two-thirds of the county equalization tax in FY 2010, netting the state $164.5M, and then phasing it out by FY 2012.
- Sale/Lease Back $200M of State assets.
- Securitize the lottery to raise $450 M
- Impose a temporary one cent sales tax to raise $1B in FY 2010
- Utilize some additional rollovers and other tactics.
DETAILS ON ABOVE
FUND SWEEPS OF AUXILIARY FUNDS -- $50 M FOR SYSTEM*.
These are auxiliary funds raised and used by various entities to support their activities: bookstore, to purchase books for students and pay staff; parking and garages, to provide maintenance and pay employees; athletics, used to support all athletic programs, including those dependent on the major sports at each university; dorms, used for maintenance, repair and debt service for dorms; federal dollars associated with federal grants; etc.
- ‘Cuts’ include salary cuts, which are permanent cuts to each entity, not one time.
- Money in the funds is generally considered to be taxes, paid by those who use the services to benefit the users. In the case of federal funds for grants, there are specified uses for these funds, and using them to backfill state revenue shortfalls is not one of them.
- Taking these funds would be considered cuts, since the Universities would have to replace any money swept, as the services would have to be provided. These cuts – in addition to those cuts ‘labeled’ as cuts – would bring the System below the Maintenance of Effort funding level the Feds expect for use of Stimulus funds. Disguising them as sweeps instead of cuts also violates the transparency issues the feds raise.
- Legislators say the money would be ‘refilled’ during next year, but that is a very complex issue. Money now in the funds could have built over several years for a specific purpose. Even if the fund builds over the next year, it might not be enough to replace what was withdrawn. Also, those funds are for specific purposes, and any money obtained over the coming year, as a ‘refill’ is for the next year’s needs. Without a backfill by the Universities, that loss would push each year’s costs into the next year’s funding.
- Since the auxiliary funds are used as ‘collateral’ for debt service, the loss of these funds could severely impact our bond rating, affecting the cost of debt to us.
- In some cases, the auxiliary funds are used for debt service and using those funds would cause the Universities to be unable to make debt payments.
- Originally, the auxiliary funds were to be the temporary source of funds for the Universities’ rollover – with those funds to be repaid immediately. Taking the money removes the funding source for the Rollover. Taking it and then delaying the payback for the Rollover one year (see below), would be devastating.
- Money is considered “unsweepable” by attorneys for ABOR and the Universities since it is not state money.
- Of the $50 M to be swept, $26 M is from UA. The larger amount available at UA is due to employment of good business practices, whereby money was saved to pay anticipated or planned future expenses. By threatening to sweep these funds, the Legislature is discouraging use of a business model to operate the Universities.
BRB’s (BUDGET RECONCILIATION BILL)
- Most statements in the new Budget Reconciliation Bill (BRBs are policy issues that should be vetted through the committee hearing process where testimony can be heard and the bills voted on instead of inserted in the budget bills.
- While there are many policy issues in the BRB’s, we will address only the most onerous here.
- SPEED: Last year the State increased lottery funding to pay for increased marketing to expand the lottery’s programs. The additional revenues (with a 20% match by the Universities) were to pay for a University program called SPEED, which was to cover debt service for deferred maintenance on University Buildings and new construction of University buildings, including two in Phoenix on the Biomedical campus. By redirecting lottery funds to the GF and specifying which projects cannot use lottery funds, all new SPEED construction is stopped until and unless and new funding sources are identified. Also, the Universities have already invested money into the start-up of these projects, which were originally intended to stimulate the economy.
- DELAYED PAYBACK OF THE ROLLOVER OF $100 M: By delaying the payback date of the $100 M the State ‘borrows’ from the Universities for another year, the latest Legislative budget would disguise what would be another cut -- thereby violating both the MOE level and the transparency issue the feds stipulate for use of the Stimulus funds. The problem is that there’s no limit to the years the repayment could be delayed. If it can be delayed once, it can be delayed indefinitely. And again, attorneys consider this action not to be a legal.
And again, the auxiliary funds originally were to be the temporary source of funds for the Universities’ rollover – with those funds to be repaid immediately. Taking money from the auxiliary funds removes the funding source for the Rollover. Taking it and then delaying the payback for the Rollover one year (see below), would be devastating.
ENROLLMENT FUNDING – Another ‘cut’
- The Universities anticipate increased enrollment, common especially when a poor economy has increased unemployment, since workers often consider this a time to retool for a future job in a new area.
- Increasing enrollment without increasing funding is like expanding a business’s customer base without being able to charge them anything.
*Has or could have a disproportionate impact on UA:
- According to language in the BRB’s, cuts are taken according to General Fund appropriations, backfills or funding of enrollment is done according to enrollment numbers.
- Likely that a disproportionately larger amount would be swept from UA auxiliary funds.
- The two largest SPEED construction projects impact UA to a greater extent than the other Universities, including the UA College of Me
Thank you.
Charlene
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