State funding up by $4.7 million, BOV revises College’s budget
February 5, 2010
The College of William and Mary’s Board of Visitors finalized the school’s fiscal year 2009-2010 budget and
discussed the future of the College’s finances Friday.
The final budget includes a $4.7 million increase in state funding and a $4.5 million decrease in federal stimulus funds allocated for FY 2009-2010.
The approved $138 million budget will draw $95.5 million from tuition, $2.1 million in federal stimulus money and $39.4 million in state money from the general fund. A portion of the allocated federal stimulus money will be retained for FY 2010-2011.
In November 2009, the General Assembly reorganized the College’s funding formula in an effort to help balance the state’s budget. Rather than deferring additional stimulus funds until next year, the proposal had the College receiving the entire $6.6 million in FY 2009-2010. Corresponding with this increase, the state would have cut its funding to $34.7 million.
As a result, the BOV approved a $300 mid-year tuition increase that added an additional $2 million to the College’s operating budget, generating $95.5 million from non-general funds.
However, the state was unable to implement the new funding formula without violating the federal government’s “maintenance of effort” requirement that is attached to the stimulus act.
“The maintenance of effort requirement says that you can’t cut education funding below 2006 levels,” Vice President for Finance Sam Jones ’75 M.B.A. ’80 said. “This would have done that.”
By decreasing the College’s state funding to pre-2006 levels, the state would no longer have exhibited the necessary “maintenance of effort” to receive any stimulus money. To keep the funds, the state had to increase its funding of the College, bringing state support closer to the original allocation.
“We get a lot less federal stimulus than we were told we would get, but we get a lot more state money than we thought,” Jones said.
According to economics professor Robert Archibald, the increase in state aid is only a temporary fix.
“The thing that everyone has to recognize is that this year is a bad year,” he said. “Next year is going to be very similar. And then the stimulus money goes away. And also, the state’s requirement to maintain effort goes away. So [in fiscal year] ’11-’12, it’s anybody’s bet what’s going to happen. The most likely scenario is, the stimulus money disappears, the state money goes down, and the only way we cannot have to have massive layoffs and various cuts is if we are aggressive with tuition.”
The recalculated budget will produce a surplus slightly exceeding $209,000 for the College in FY 2009-2010, but Jones says that money may be used for other means at the College or will be gobbled up by the state.
“It’s crystal clear that the next two years are going to be kind of dreary, and then it’s going to be awful, which is not the way we want to go, and I think that’s the message that Sam Jones gave the board,” Archibald said.
While the College’s state funding will not decrease as much as was previously expected, the state has taken other measures that will affect the College’s finances.
The General Assembly will soon institute a 5 percent tax on so-called auxiliary funds, which support college dining services, dorms and other non-academic activities. The College does not rely heavily on auxiliary funds, but the tax will cost the school $301,140 this year. Combined, Virginia universities stand to lose a total of $18.8 million.
“Essentially, they’re taking student fee money to balance the budget,” Jones said. “It’s not good policy. The reason we have that is to reinvest back into programs [like student fees and meal plans]. The General
Assembly has taken student fee dollars and moved it with general tax dollars into state coffers.”
Archibald said that similar taxes and state practices prevent the College and other Virginia universities from building up large savings funds for future use.
“Unfortunately, that’s a very difficult thing for the College to do because, if we were to save, there’s some chance the state would be in a situation where the state could take the savings away from us, which they could do, because all the money we have is called some kind of state money,” he said. “It’s either general funds or nongeneral funds. So, we’re very wary of ever saving because, at the end of the year, they could have some desires to take money, and they have taken money from us in those kinds of circumstances in the past. We’re not allowed to do the rational thing, which is save and spread things over time, and that’s really unfortunate.”
College President Taylor Reveley criticized the tax.
“It’s a way wicked move,” Reveley said. “It doesn’t make much sense as a matter of policy.”
According to the administration, some legislators are also uncomfortable with the new tax and similar budgetary moves.
“Some members of the General Assembly are saying ‘We’ve cut as much from higher education as we can,’”
Jones said. “‘We need to start reinvesting in it.’”
Looking ahead to 2011 and 2012, Jones said that the College’s budgetary situation would remain relatively stable through the fiscal year ending in 2011. Jones said this temporary stability is partially due to budget decisions made in the last two years.
“We took action, the board took action,” Jones said. “Everything you did in April was exactly the right thing to do. It kept us where we need to be as an institution.”
These actions — designed to offset the decline in state support — included “base budget reductions” totaling $7.143 million, tuition increases generating $2.941 million in additional funds, and an infusion of federal stimulus funds totaling $2.188 million. Of the base budgetary reductions, over 45 percent came from non-personal operating expenses. An additional 40 percent came from staffing reductions and the elimination of salary raises and fringe benefits.
Jones said that expenses like small raises and utility costs could quickly add up.
“It costs just over $1 million to give a 1 percent increase to all of our faculty and staff,” Jones said. “The cost of all these new facilities coming online is about $1.5 million dollars.”
Jones added that administrators had identified an additional $954,000 of potential savings for the current fiscal year.
Despite these actions, Jones said capitalizing expenditures and cutting the budget will not solve the College’s financial situation in the long run.
“The long-term health of the university is partly based on bringing in more money,” Jones said.
Meanwhile, Virginia’s budget shortfall continues to threaten the College’s solvency.
“This is the lull before whatever storm we’re expecting weather-wise, but we’re also waiting for what comes out of the General Assembly,” Jones said.
The GA currently projects a $2 billion deficit over the next two years, but that figure could rise as high as $4 billion. Jones said the state could take several routes to balance the budget, but that a solution most likely would not come from increasing available funds.
“There’s no sense that it’s happening on the revenue side,” Jones said.
With state funding of the College decreasing as the economy remains stagnant, Archibald said tuition increases are becoming more and more likely.
“I think that there’s likely to be fairly large tuition increases [in 2012],” Archibald said. “No one knows yet how that will be done. It might be that there are bigger tuition increases for freshmen than there are for seniors. You come in with an expectation that tuition goes up four, five or six percent every year … then, bam, your senior year it goes up 20 percent, you’re very unlikely to transfer. You’re a captive audience. The deal with a prospective freshman — you can warn them. That’s fairer than dealing with a trapped student.”
Those tuition raises could come in the form of higher rates for in-state students, but could also come with increased financial aid.
“Even if 2012 turns out to be a big tuition increase year, it’s very clear to me that the administration and faculty are concerned about students with financial need,” Archibald said. “So, if tuition goes up, the financial aid budget will go up a lot as well.”
Increased tuition rates, particularly for in-state students, could backfire as Virginia residents choose cheaper alternatives over the College.
“In-state students could pay more, but the bigger question is, would they be willing to pay more, or would they go to James Madison or U.Va. or some other place that’s just cheaper?” Archibald said. “We can’t raise in-state tuition very dramatically and keep the same student body unless the other state schools are doing it, too. There probably is a lot of untapped ability to pay for in-state students, but they also have lots of other in-state options.”
The state’s budget shortfall has seriously impacted the College’s financial projections for the next three years.
“I think that we’re sort of in a bind,” Archibald said. “The state’s budget is in terrible shape, and they are a huge contributor to our budget, so when they start cutting the amount they give us, there is very little way we cannot take a big hit.”
According to Reveley, until the state regains a firm financial footing, the College’s long-term finances and sources of funding remain in jeopardy.
“The song we’re singing most loudly at the moment is ‘Don’t cut us again this fiscal year,’” Reveley said. “That doesn’t mean they won’t do it.”
_Flat Hat Associate News Editor Ameya Jammi also contributed to this article._