Chancellor Kanter: FHDA Budget Reduction Plan - April Advisory
In the district's March budget update from Vice Chancellor Andy Dunn, we reported to you that as a result of everyone's efforts at Foothill, De Anza and Central Services, we were able to reduce the district's projected operating deficit for 2009-10 from $11 million to $6.7 million. A number of factors contributed to these expense reductions: lower than estimated salary expenses, negotiated benefits savings, fewer than expected professional and staff development leaves (PDLs/SDLs), savings in utility and other operating expenses, and the elimination of costs associated with De Anza's Job Corps program.
Last month we proposed a plan to address the district's remaining $6.7 million operating deficit by suspending hiring of nearly all but a few unfilled positions; further reducing college operating and district B budget expenses by $1.1 million; eliminating 10 vacant faculty positions and 16 vacant classified and administrator positions; and as a last resort, eliminating an estimated 50 filled non-teaching positions, for which we would use one-time funds from the district's ending balance to avoid layoffs until June 2010, which is the end of the 2009-10 fiscal year.
We are in difficult times, as you know. The colleges and Central Services have spent the last month reviewing priorities with the goal of educating our students to the fullest extent possible by preserving as many positions as we can. We are prioritizing the most essential positions and, at the same time, making every effort to reorganize and leverage vacancies created by retirements, resignations and/or transfers to allow us the flexibility to save jobs for our employees.
New assumptions for district's 2009-10 budget
Since the March 2 budget update, we have further refined our revenue and expense estimates with more accurate information from the state and our own spending patterns, and now project a deficit of $9.2 million from our previously anticipated $6.7 million deficit in the district's operating budget for 2009-10.
This $2.5 million increase in the deficit is the result of an estimated $1 million in employee step and column increases and a $1.5 million projected impact from further declines in property tax revenues in the current fiscal year (called a deficit factor). Although proposed legislation by Assembly Member Furutani (AB 551) could backfill the property tax loss for community colleges, we cannot count on it.
In the meantime, reports indicate that the state's fiscal situation has worsened since the Legislature adopted its budget framework for 2009-10:
• The non-partisan Legislative Analyst's Office (LAO) estimates that a decline in personal income tax receipts statewide may add an unanticipated $8 billion to the state's 2009-10 budget deficit.
• Voters in the May 19 special election may not approve the ballot measures the state is relying upon to balance the 2009-10 budget.
• The Community College League of California has advised districts that property tax estimates for 2009-10 could fall short by $100 million to $200 million, resulting in a budget shortfall of $3 million to $6 million for the district in the following year.
If some of all of these developments come to pass, the state will likely have to make additional budget cuts and possibly further reduce state funding for community colleges.
If these statewide factors come into play, our immediate plan will be to use one-time funds to address our internal operating deficit and any additional state funding reductions. Unfortunately, this would leave us with fewer one-time dollars to allow us the time to mitigate against layoffs until June 2010.
We should know something more about our budget situation after the May 19 election and the governor's May/June budget revision. But we may not have a final budget for 2009-10 until the Legislature adopts one this summer or fall.
Amid all these uncertainties, we must proceed with preparing a tentative budget for 2009-10 to submit to the Board of Trustees on June 1, 2009 for a first reading, with adoption expected on June 15, 2009.
Looking ahead to 2010-11
Since the last budget report to you in March, we have continued to model our estimated operating cost increases for 2010-11 by drawing upon our historic norms to calculate key operating costs. We are doing this to better understand how we can eliminate our ongoing structural deficit.
On the revenue side, we do not anticipate that the state will be able to provide a cost-of-living adjustment (COLA) in 2010-11. This would be the third consecutive year without a COLA unless the state does a dramatic turnabout!
The most critical assumption we are making in our planning to address our structural deficit is that we will reduce the amount the district spends on medical benefits, as explained previously.
Our budget deficit projection for 2010-11 assumes that the district will not contribute to any increases in the cost of medical benefits.
Even without additional district contributions to cover increased medical benefit costs, our model shows district expenses growing by $2.7 million from increases in step and column costs, utility costs, the number of retirees drawing benefits, part-time faculty equity costs and a return to a more typical level of faculty and staff development leaves. This $2.7 million increase in expenses for 2010-11 further contributes to the size of our structural deficit.
With our one-time funds likely exhausted by the end of 2009-10, each dollar increase on the expense side of the budget means some other expense will have to be cut to balance the budget.
The bottom line
Over two years, our projection as of today is that we must address a projected $11.9 million deficit ($9.2 million in 2009-10 plus an additional $2.7 million in 2010-11). This deficit amount could grow by an additional $3 million to $6 million if property taxes fall short by $100 million to $200 million in 2009-10, as some projections indicate, and even more if the initiatives do not pass. In that case, every community college and K-12 school district could face dire cuts.
We will provide you with a further update as soon as the outcomes of the special election and May budget revision are known. In the meantime, Foothill, De Anza and Central Services are using program reviews to assess where further reductions can occur, while keeping in the forefront our commitment to educate the greatest number of students in light of our mission. As we all know, this is an extremely challenging time, but everyone is committed to working together to preserve educational opportunities and keep our folks employed to the greatest extent possible.
A personal note
In closing, let me thank you for your many notes of congratulations and well wishes as I look ahead to the next step in the confirmation process to be appointed as the under secretary of education for the Obama administration. I am doing everything I can to assure a smooth transition in leadership for our Foothill-De Anza family. Toward that end, the governance leaders and Board of Trustees will interview candidates for the interim chancellor position on May 4, with appointment of the interim chancellor scheduled for May 18.
Since I do not know of a confirmation hearing date, I will work on the transition full force. I've been told that I could get a call in the middle of the night with a request to fly to Washington to meet with various senators or receive a call saying I've been confirmed. This obviously adds a level of uncertainty that requires flexibility and I'm confident that the interim chancellor and I will work together over the next month or two to make the transition as easy as possible for everyone.
Foothill-De Anza has been my dream job, working with the best people in the best place I ever could imagine! When the call came from Secretary Duncan, I did not hesitate because it was a call to service, a service to our students that I had to accept. During the presidential campaign, Carl and I talked often and laughed about what would happen if President Obama called us to Washington, never imagining that as a possibility. I will keep you posted on our budget, our leadership transition, our student successes and challenges, and my journey as it unfolds in the weeks ahead. I look forward to seeing you on campus as the spring quarter comes to a close over the next eight weeks and we find ourselves at graduation once again, knowing how significant a role we played in the lives of students who will walk across our stage!
cc: Board of Trustees
Chancellor's Advisory Council