June 27, 2008

San Diego Community College District

A Special Message from the Office of the Chancellor Regarding the Tentative Budget for 2008-2009

Dear Colleagues and Friends of the San Diego Community College District:

It turns out that Governor Arnold Schwarzenegger was not exaggerating on January 10 when he described the 2008-2009 California budget process as a “roller coaster thrill ride.” It has definitely been that and more. In January, Californians were introduced to a budget deficit of $14.5 billion, which later mushroomed to $16 billion and over $20 billion.

To cope with the problem, huge efforts at budget reduction and cost containment went into motion across the state, while heated debates ensued regarding the need to raise state revenues. We in the San Diego Community College District set about our budget process conservatively by making specific budget reductions and cost-containment plans. While cutting expenditures and freezing a number of vacant positions, the Board of Trustees and I, and all participants in the process, were clear about avoiding negative impact upon our faculty and staff (no layoffs, no compensation roll-backs, no changes in benefits support). We were also emphatic that the base level of classes would be maintained for our students. In order to ensure broad discussion and consultation, we took the additional step of developing a Preliminary Budget, which we used as a working plan until the Governor’s next budget proposal.

We then waited for the next official step in the California budget process, the Governor’s May Revision, which was announced on May 14. Essentially, the Governor called for strengthening state revenue by borrowing against the Lottery, a presently unpopular proposal that will, if approved by the legislature, require voter approval in November. The May Revision then called for significant mitigation of previous budget reductions. Subsequent proposals by the Senate and Assembly budget committees, as well as the Budget Conference Committee, also assume revenue improvements (although any firm vehicle for new revenue has yet to be adopted). On the basis of this information and other data, the San Diego Community College District has developed, and the Board of Trustees has approved, the Tentative Budget for 2008-2009, as presented by Vice Chancellor Terry Davis at the June 19 Board Meeting. Largely based upon the Governor’s budget, and still conservative in its assumptions, an overview of our SDCCD 2008-2009 Tentative Budget is presented in the chart below.

The section of the budget that is most affected by the legislative process is the General Fund Unrestricted (GFU) budget, which is the actual operating budget that funds salaries, benefits, classes, programs, and services, all of which are subject to our discretion. Let me discuss a few of the assumptions and issues in the Tentative Budget that derive from the Governor’s May Revision, along with some other possibilities that we are closely monitoring.

COLA (Cost-of-Living Adjustment)

The Governor’s May Revision proposes “Zero” COLA in 2008-2009. Under our previous Resource Allocation Model (RAF), all employee groups automatically received 80% of the COLA for distribution to their members. We are in the process of negotiating the RAF for future years. Although the Governor’s proposal is Zero COLA, it should be noted that the Assembly has proposed a COLA of 1.60% and the Senate has proposed a COLA of 3.68%. We are hopeful that something along these lines may materialize, but we cannot rely upon any positive assumption for budget purposes at this time.

Growth

It now seems fairly certain that there will be two funded allowances for FTES growth:

1.47% Growth in 2007-2008

1.22% Growth in 2008-2009 (based on 1.67% Statewide Growth Funding)

We are planning our schedules and programs carefully to accommodate these growth ranges. We are definitely in a growth mode at all three colleges and Continuing Education, so reaching growth targets should not be difficult. However, we want to avoid unfunded growth. Under the previous RAF, either 20% or 30% of growth was distributed automatically to employee groups in the subsequent year when confirmed. Since the RAF needs to be negotiated for future years, this will be one of the discussion topics.

Property Tax Shortfall

When property taxes fall below the minimum required to fund Proposition 98, K-12 districts are automatically compensated for the shortfall. Unfortunately, there are no such back-fill provisions for community colleges and the legislature is required to take separate action to provide compensation. Prior to the May Revision, the state property tax shortfall was significant, and the impact on the SDCCD was over $3.2 million that had to be reduced in the current year (2007-2008). Under the Governor’s May Revision, that amount has been mitigated, and the SDCCD will sustain a lesser reduction of $595,000. State plans are also being developed to provide for a full back-fill for next year’s anticipated property tax shortfall.

Categorical Programs

For many, the good news is that the proposal to collapse most categorical programs into two flexible “block grants” is being discarded. The bad news is that specific categorical programs are still subject to reductions in a range of 3.62% to 10.90%. We are monitoring this area of the budget closely, and the affected programs have already made plans for the lower levels of funding in 2008-2009.

Conclusion

During the summer months, we will continue to monitor the state budget and will let everyone know when advocacy efforts are needed. In the meantime, we are in regular touch with our legislators and the Governor’s Office, including the Department of Finance, regarding the ongoing budget process. We are also co-chairing the statewide special initiative to seek increased funding for “Career Development & College Preparation” noncredit FTES, which, quite frankly, does not look hopeful in the coming year due to the continuing deficit situation.

As I indicated to our Board when the Tentative Budget was approved, we are in a unique and enviable position, despite the funding pressures we face. We have a strong fiscal position due to careful planning and the maintenance of a balanced budget; due to our astute and successful class scheduling practices; due to our special funds for handling long-term liabilities and unforeseen problems; due to our Resource Allocation Formula that provides automatic economic adjustments for employees based on specified revenue streams; due to our maintenance of funding to offset the need for employee contributions to health and welfare benefits; due to our resolve to avoid negative impact upon our faculty and staff; and due to our vibrant process of participatory governance that has allowed for productive conversation and consultation as this budget has been developed. We are in good shape.

Enjoy the summer, and we will keep you informed.

Dr. Constance M. Carroll
Chancellor

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