K-16 Building Need and Utilization Study Committee

S.C. House Ways & Means Committee

The Hon. Brian White, Chairman,

and Members The Hon. Roland Smith, The Hon. Gilda Cobb-Hunter,

The Hon. Harry B. Chip Limehouse, The Hon. Kenny Bingham,

The Hon. James H. “Jimmy” Merrill, and The Hon. Jackie Hayes

Some Key Financial Issues in SC Public Higher Education Declining state recurring appropriations

Over-reliance on non-recurring funding and high tuition/high scholarship model

Rising tuition/fees

Substantial increase in institutional debt loads

Substantial increase in student debt loads

Insufficient incentives for timely degree completion & improved affordability

Bottom Line: Unsustainable funding model

Declining appropriations…

429*

684 733 781 749658 604 620 652 689

758

577 527424

411434 451

100

110

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

Mill

ions

Coll & Univ Base Appropriations ARRA Non-recurring Lottery E&G

$491

$859

$457

Inclusive of Non-recurring operating funds:

FY14 = $491 million

FY08 = $859 millionDrop = ($368 million)

SC Public Colleges & Universities State Operating Appropriations

NOTE: Data are not adjusted for inflation or enrollment.

*Amount of FY86 non-recurring, if any, not available. Lottery expenditures began in FY03.

…even with state-supported student aid…

SC HIGHER EDUCATION FUNDING

Change in Public Higher Education Support as a Percentage of the State Budget -Institution Educational and General Operating Support and State-supported Financial Aid for Students

14.0%

10.0% 10.2% 9.5% 8.5%7.0% 6.5% 6.2% 6.4%

1.2%

0.8% 0.8%

0.1%0.2%

0.0% 0.6% 0.7% 0.2%

0.7% 0.6%

0.3%

0.2%

0.2% 0.1% 0.5% 0.4%

1.6%

1.8%0.0% 0.0%

0.9%

3.0% 2.9%3.8% 3.8%

4.0%

3.9% 3.8% 3.8%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

FY01 FY07 FY08 FY09 FY10 FY11 FY12 FY13 Est FY14

General Fund Base Operating Non-recurring Operating Lottery for E&G Operating

Federal ARRA SFSF State-supported Student Financial Aid

14.5%

11.2%13.2%

16.2%

14.3%13.8%14.5%

11.1% 11.0%

…have changed the business model.

SC Public Higher Education Educational Appropriations and Net Tuition Revenue Per FTE

Source Data: SHEEO SHEF Survey 2012

Purpose of Today’s Hearing Not to solve all of the problems facing public

higher education

Not to solve all of the challenges facing SC in a highly competitive global economy

Rather, to focus on facilities capital (what one 19th-century economist called the means of production) to determine whether they are reasonable, efficient, and necessary to the education of SC’s intellectual capital—its people, its workforce, its future.

Outline of Today’s Presentation How many buildings do SC colleges own? What are they for? How big are they? How old are they? Once we build them, how do we maintain them? Does facilities construction have any

relationship to student enrollment? Does facilities construction have any

relationship to overall revenues/expenditures?

Data Assumptions & Qualifications Focus on high-level, aggregate data Includes all 33 public institutions Excludes leased/borrowed/donated space Concentrates on E&G (educational and general

operating) facilities Data drawn from multiple sources Not always completely aligned, but comparable and

consistent Not cherry-picked or skewed to favor any side Accurate, balanced, and on-point, as best we can

How Many Buildings Do SC’s Public Colleges and Universities Own?

1,495 total buildings at 33 institutions currently in operation

○ 842 (56%) of those are for Educational & General (E&G) purposes (classrooms, libraries, labs, offices, infrastructure, etc.)

○ 653 (44%) of those are for athletics, residential facilities, dining halls, bookstores, and other auxiliary student services

New Construction Since FY2000-01

168 new construction projects (~11% of total inventory) have been completed or are in process

Average of slightly more than 12 projects per year across 33 institutions

Of those 168 new projects:

101 (60%) were for E&G purposes (classrooms, libraries, offices, etc.)

32 (19%) were for athletics (both intercollegiate & intramural)

12 ( 7%) were for residential facilities

23 (14%) were for dining halls, bookstores, and other auxiliary student services and infrastructure

Old Construction 69% of our buildings are old ( > 25 years old)

34% of our buildings are really old (> 50 years old)

Buildings require maintenance Three basic categories:

Routine annual maintenance cleaning, servicing, etc.

Routine periodic maintenance roof replacements, HVAC, etc.

Extraordinary/emergency maintenance safety issues, catastrophic failures

Deferred Maintenance When any of these is not performed as

scheduled, it then becomes “deferred” maintenance

Deferred maintenance is typically more expensive and potentially more complicated depending on nature and severity of service deferred/required

Many valid reasons for deferring maintenance (part of a more comprehensive project, institutional priorities, lack of appropriate funding)

Maintenance Needs CHE Formula – Based on life-cycle

analysis of systems in E&G buildings and E&G infrastructure

Includes system renewal/replacement and annual maintenance needs

Totals $1.2B OVER 20 YEARS (~$64M per year)

Capital costs measured against growth in student enrollment

53,504 more students enrolled in SC public higher education since FY 2000-01 – a 34% increase

155,519

209,023

97,584

54,787

52,2764,376

0

50,000

100,000

150,000

200,000

250,000

2000 01 02 03 04 05 06 07 08 09 10 11 12

num

ber

South Carolina Public Colleges and Universities

Headcount Fall Enrollment , Fall 2000 to Fall 2012

Total

Technical Colleges

Research

Comprehensive Teaching

2-Yr USC Regionals

53,504 students is the equivalent of creating….Another Clemson + Another USC

Or the equivalent of adding…

an entirely new comprehensive 4-yr sector

Building for growth

From FY2000-01 to FY2011-12

34% increase in headcount enrollment

34% increase in E&G square footage

E&G Sq. Ft. per Student

Are we using our facilities efficiently?Average weekly classroom hours of credit instruction:

2003: 23.94 hrs/wk

2012: 24.84 hrs/wk

Varies by Sector (2012):

RU: 33.35 hrs/wk

Comp: 23.80 hrs/wk

USC 2-Yr: 23.27 hrs/wk

Tech: 22.59 hrs/wk

Does not include non-credit classroom use, special events, clubs, study groups, etc.

Total Operating ExpendituresFY2008-09 to FY2011-12

Source: Annual Financial Audits

12% increase over FY09 to FY12

$3,220

$3,318

$3,489

$3,603

3,000

3,100

3,200

3,300

3,400

3,500

3,600

3,700

FY 09 FY 10 FY 11 FY12

Mill

ions

South Carolina Public Colleges and Universities Total Operating Expenses

As a percent of total, expenditures by category have remained similar

35%

12%5%8%

7%

8%

10%

5%10%

FY 09Instruction

Research

Public Service

Academic Support

Student Services

Institutional Support

Plant O&M

Scholarships & Fellowships

Auxiliary Services

33%

12%5%7%

7%

8%

11%

7%10%

FY 12

South Carolina Public Colleges & UniversitiesOperating Expenses by Function, % of Total

So if our institutions have been able to spend this much money, where are the dollars coming from?

Source: Appropriations Acts. Beginning Year Appropriations for Public Colleges and Universities (including 33 state institutions), mid-year reductions not reflected. Does not include state pay & health plan increases appropriated through B&CB.) Bars represent Total Authorization. General Funds are represented in blue. Annual state-supported financial aid (light green) is annual disbursement of student awards.

$3,638 $3,673$3,881

$4,049$4,174

$4,267

$732 $575 $423 $405 $426 $456

$231 $234

$240 $247 $270 $270

$2,675 $2,864 $3,218 $3,397 $3,478 $3,541

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

FY09 FY10 FY11 FY12 FY13 est. FY14

Mill

ions

South Carolina Public Colleges and Universities Beginning Year Appropriations - Total Authorizations

(Portion of Total that is State General Funds in Blue)

$4,267$4,173$4,049$3,882$3,672$3,638

Source: IPEDS Finance Survey Tuition and Fee Revenues net of discounts and allowances. CHE Annual Disbursement Reports for State Scholarship and Grant Awards (Palmetto Fellow, LIFE, HOPE, LTA and Need-Based)

160% Increase in Tuition/Fee/Student Aid Revenues, FY02—FY11

$63 $145 $166 $182 $194 $206 $218 $231 $237 $239

$404$392

$470$544

$627$693

$770 $779$864

$973

$-

$200

$400

$600

$800

$1,000

$1,200

$1,400

FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11

Mill

ions

South Carolina Public Colleges and UniversitiesTuition & Fee Revenues and Portion that is from State Scholarships & Grants

Operating Revenues by Category*

Source: IPEDS Peer Analysis Tool, Finance Survey. Operating revenues and state, federal and local appropriations. For Clemson and SC State, PSA is included. Capital and non-operating revenues except appropriations are not included.

$665 $604 $480

$178 $142 $151

$409 $455 $492

$42 $66 $63 $266 $265 $274

$372 $399 $434

$1,011 $1,101 $1,212

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

FY09 FY10 FY11

Mill

ions

South Carolina Public Colleges and Universities Operating Revenues, FY 2008-09 - FY 2010-11*

Tuition and Fees

Federal Operating Grants & Contracts

State Operating Grants & Contracts

Other Operating Grants & Contracts

Sales & Services Auxiliary & Educational Activities

Other Operating

State Appropriations

Federal Appropriations

Local Appropriations

$2,956$3,106 $3,183

Concluding Thought #1: Facilities and Enrollment are Inter-related

New E&G facilities construction is actually well aligned with enrollment growth over past decade

Expansion on existing campuses far more reasonable and cost-effective to accommodate growth

Well-designed construction projects are good for the state, prepare for future, create jobs

Concluding Thought #2: Re-Design the HE Business Model Debt loads are growing and need to be

monitored closely in funding decisions

Tuition/fees will continue to increase unless recurring state appropriations are restored

State scholarship funding needs to be re-designed

Planned integration is preferable to forced consolidation

Concluding Thought #3: Build a New Compact among All Stakeholders All parties—not just state government & universities—must

share responsibility for mutual success.

If SC doesn’t re-value higher education upwards, it will lose the long-term global economic game. The consequences for the state will be debilitating.

If SC doesn’t find better ways to educate its citizens beyond bricks-&-mortar modalities, we will sacrifice generations of learners (both young and old)

If SC doesn’t design a better process to support higher education, this conversation will not have contributed to a broader purpose

Some Suggestions for Improvement Support sustainable funding models for both

operations and facilities that eliminate earmarks and reward institutional performance

Incorporate any new accountability requirements into institutional audited annual financial reports

Focus on actual expenditures and revenues

Re-establish a statewide capital planning process and support that process with a bond bill

Observe SC Code of Laws §59-103-35

Thanks for your attention

Comments & Questions?