Environmental Scan, SWOT Analysis, and Five-Year Budget Projection

East Stroudsburg University Environmental Scan, SWOT Analysis, and Five-Year Budget Projection February 23, 2009 Page of 31 Presented by: Donna R Bulzoni CPA MBA Director of Financial Affairs & Controller Page of 31 TABLE OF CONTENTS Environmental Scan Introduction …………………………………… Overview ……………………………………… National Outlook ……………………………… 5-6 Pennsylvania Outlook ……………………… 7-9 Monroe County Outlook & Demographics 10-11 Government …………………………………… 12-14 Economic Development …………………… 15-16 Facilities ……………………………………… 17-18 Financial Resources ………………………… 19-25 SWOT Analysis ……………………………………… 26 5-Year Budget Projection …………………………… 27-28 Acknowledgements ………………………………… 29 Page of 31 East Stroudsburg University Environmental Scan Introduction “It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.” ……….Charles Darwin As the University considers its financial position for fiscal year 2009-10 and beyond, it is appropriate to give careful consideration to the environment in which we exist Our environment is constantly changing and poses opportunities and threats which should be considered as an integral part of our planning process The Environmental Scan and SWOT Analysis presented herein is the product of a campus-wide effort involving more than 20 people Historically, the Business Office prepared our Environmental Scan (no formal SWOT Analysis) without input from the campus constituency In an effort to improve the scan and more fully engage the campus community in our planning process, individuals identified as experts in select fields were asked to provide a detail SWOT in their respective areas of expertise The response was tremendous and we believe the resulting product is much improved Finally, the addition of a SWOT Analysis to our planning process builds on the Environmental Scan and the strategic planning discussions currently occurring on the campus of East Stroudsburg University Page of 31 Overview After scanning the environment, we have come to the conclusion that the only thing that is certain is uncertainty The national recession we currently face has been compared by our leaders to the Great Depression of the 1930’s This recession has had an impact on the Commonwealth of Pennsylvania resulting in the constricting of our state’s budget While it seems clear the University has the potential for reasonable levels of growth, uncertainty looms given the current economic climate in our nation and the Commonwealth of Pennsylvania While Northeastern Pennsylvania has seen steady population growth, East Stroudsburg University’s growth will be dependent on our ability to garner supporting resources, both human and capital, and our ability to weather the impact of the economic crisis Page of 31 National Outlook According to leading economists, our nation entered a recession in December 2007 The economic slowdown is said to have been sparked by a nationwide crash in the housing market and the tightening of credit The combination of rising unemployment, declining consumer spending, declining asset values, and foreclosures has led to declining state revenues The number of people in poverty is growing, adding costs to state budgets for programs such as Medicaid and social services According to “State Budget Troubles Worsen”, (Center on Budget and Policy Priorities, February 10, 2009), 46 states are currently facing budget shortfalls (See Figure 1): Budget deficits are already projected in 43 states for the upcoming fiscal year Initial estimates of these shortfalls total almost $94 billion As the full extent of 2010 deficits becomes known, shortfalls are likely to equal $145 billion Figure shows the size and duration of the deficits in the recession that occurred in the first part of this decade and estimates of the likely deficits in this recession The Page of 31 current recession is expected to be more severe (deeper and longer) than the last recession, and thus state fiscal problems are likely to be worse Source: “State Budget Troubles Worsen”, Center on Budget and Policy Priorities, Feb 10, 2009 Education is by far the largest component of most states’ budgets According to the Center on Budget and Policy Priorities, approximately 46% of all state general fund expenditures is devoted to some form of education (elementary, secondary, and higher education) Thus, it is easy to understand that, as a result of this economic crisis, 36 states have cut education or proposed cuts because of their massive, devastating budget deficits In an effort to jumpstart the United States economy, President Obama signed the $789 billion economic stimulus bill on February 17, 2009 The hope is to strengthen our economy by creating jobs, delivering tax relief, investing in our infrastructure, improving our children’s education and making the United States more energy independent Highlights of the bill that impact higher education, and potentially East Stroudsburg University, are as follows:    Increases the maximum Pell Grant by $500, for a maximum of $5,350 in 2009 and $5,550 in 2010 Adds $200 million to the College Work-Study program Helps more than million additional students attend college with a new, partially refundable $2,500 tax credit for families Page of 31 Pennsylvania Outlook While Pennsylvania has been affected by the national economic crisis, the Governor’s office has publicly stated we are withstanding the national recession better than other states The Commonwealth’s unemployment rate has been at or below the national level for 70 of the past 72 months Since the national recession began in December 2007, Pennsylvania has held onto jobs better than many other large, competitor or neighboring states As published in the “Commonwealth of Pennsylvania’s 2009-10 Budget in Brief”, the Governor’s 2009-10 Budget Overview projects $26.6 Billion in General Fund Expenditures broken down as follows: General Fund Expenditures $26.6 Billion What does this mean to higher education, the Pennsylvania State System of Higher Education, and most importantly, East Stroudsburg University? The Governor’s 2009-10 budget allocates 7.70% of General Fund Expenditures to higher education and holds PASSHE’s state appropriation constant with the prior year (prior to the return of 4.25%) while Pennsylvania State University, University of Pittsburgh, Temple University and Lincoln University’s state appropriations will decrease by 6% State-related universities such as Drexel and University of Pennsylvania, on average, will experience Page of 31 a decline of 26.9% in appropriation The Department of Education’s appropriation will be down an average of 48.4% The only increases in appropriations to higher education are seen in community colleges that, on average, will receive a 1.8% increase and PHEAA (Pennsylvania Higher Education Assistance Agency) which will have an average 8.6% increase of which 11.0% is in grants to students To put this in perspective, PASSHE had requested a 6.4% increase in state appropriation If we had received it, we would have needed a 4.0% increase in tuition to balance the PASSHE budget as a whole Given a 0% increase in state appropriation, we will need a 7.9% increase in tuition to balance the PASSHE budget This outcome is highly unlikely The Chancellor’s Office is recommending Universities’ early budget projections be made using an appropriation rate increase somewhere between 2% and 4% Looking further down the road, state deficits over the next two and a half years are predicted to total more than $350 billion Local governments are also expected to face shortfalls Given that a large portion of the Commonwealth’s budget is in education, cuts should be expected and will probably get deeper as the recession continues Although the Governor was not generous to PASSHE in the area of state appropriation, no decrease will be experienced Additionally, other proposals in the budget could be very positive First, the Governor is proposing “Pennsylvania’s Tuition Relief Fund” This would be a grant program designed to greatly reduce or eliminate reliance on student loans for those attending community colleges and the state system universities In summary, students pay only what they can afford (as determined by the Estimated Family Contribution calculation of the federal financial aid form) Any gap between the calculation and all available existing state and federal grant aid would be filled by the Tuition Relief Fund State officials estimate that after four years, the program will have helped 10,000 students who would not otherwise have gone to college or would have gone in another state The program would be funded from the tax revenue generated from the legalization of video poker machines A recent State Board of Education survey of 6,700 current students or recent graduates put the average debt of students attending PASSHE universities at about $32,000 and community colleges at $11,000 The introduction of a Tuition Relief Fund might encourage more students to go to college and result in many more of them finishing their degrees without being burdened with a significant amount of debt According to Kenn Marshall, spokesman for PASSHE, whether all 14 system universities could handle a large influx of students remains a question and will have to be addressed Video poker machines, sometimes referred to as video lottery machines, are currently legal in nine states (Delaware, Louisiana, Montana, Nevada, New York, Page 10 of 31 Oregon, Rhode Island, South Dakota, West Virginia) of which both Oregon & West Virginia have used the revenue generated to benefit public education The impact on East Stroudsburg University, if enacted, is unknown at this time Finally, historically, the Governor’s budget allocated $65 million to capital appropriation for PASSHE In his budget proposal for Fiscal Year 2009-10, the Governor is doubling that figure to $130M East Stroudsburg University has already submitted a list of “shovel ready” projects for consideration Pennsylvania’s future depends on the development of a workforce able to compete in today’s global economy Workers from the “baby boomer” generation are moving into their 60’s and are retiring in large numbers leaving far fewer youth available to enter the labor market forcing greater competition for key skills Page 17 of 31 companies and educational opportunities in the areas of homeland security, financial services, biotechnology/life sciences, information technology, healthcare, and advanced manufacturing The economic impact projections of Phase of the project which includes the construction of a 51,000 sq.ft ($11.25M) Technology and Innovation Center is 595 jobs and $57M into the Monroe County economy Additionally, the ESU Research Park was recently awarded $1M from the Monroe County Gaming Funds which support community and economic development projects Finally, in FY 07-08 and in FY 08-09, PASSHE received legislative appropriations totaling $3.678M to support economic development initiatives across the Commonwealth ESU was awarded $357,000 to support the following economic development initiatives:  ESU Web-Based Internship Network (WIN) ($60,000)  ESU Entrepreneurial Leadership Center ($191,000)  ESU Research and Business Park Infrastructure ($106,000) In the area of sponsored projects and research, in FY 07-08, ESU faculty and staff submitted external grant and contract requests totaling $17.7M and successfully secured $5.09M Workforce development initiatives included administrating $622,354 in employee-training grants involving 42 businesses and training of over 3,600 employees Page 18 of 31 Facilities Analysis of our current space during a recent study conducted by Sightlines, Inc revealed East Stroudsburg University is an older campus in comparison to its peers within PASSHE According to their report, greater than 50% of our facilities are more than 50 years old and 95% of our facilities are greater than 25 years old Looking back years, there was $18.3 million of deferred maintenance from fiscal year 2004 – fiscal year 2008 with anticipated additions in the range of $3-5M per year each year thereafter Page 19 of 31 Much of our 2002 campus master plan has been achieved Thus, the University contracted a master plan consultant to revisit and devise a new plan Our new plan is under development and proposes new facilities that will greatly improve the functionality of Campus facilities However, the capital funding requirements for new and renovated buildings proposed in this plan are in the hundreds of millions of dollars while ESU’s current share of the PASSHE capital budget is approximately $3.5 million / year The University is space-constrained for future growth without additional new or modernized facilities and also by the condition of our residence halls and the number of available beds Much work has been done to correct this Our new Science and Technology Center (120,000 square feet of new academic space) was completed in 2008 and a renovation of Monroe Hall (40,000 of new academic space) is funded with construction scheduled to begin the summer of 2009 Subsequent to that, a new large academic building is anticipated on the sites of the current Rosenkrans Hall and LaRue Hall which will be demolished These new facilities will position the University for the enrollment growth planned in the near and intermediate terms Support facilities for housing, dining and activities are being considered The University’s partner, University Properties, Inc, completed 541 beds of student housing that is already 100% occupied This increased our ability to house students by more than 15% UPI has a development an agreement with Allen & O’Hara to construct new residence halls and to modernize or replace the existing residence halls However, the current economy makes UPI’s ability to acquire bond funding for new construction questionable If the bond funding proves to be unavailable, East Stroudsburg University is at risk for sunk costs while already carrying a heavy debt burden for its share of the Science & Technology Center and the GESA project The University is also in dire need of additional parking but has no current income stream to support the requirements Finally, utility costs are expected to escalate with the expiration of the electrical rate cuts imposed by deregulation It has been estimated there is a potential for electrical rate increases in 2020 of 30% to 40% or more Page 20 of 31 Financial Resources East Stroudsburg University is fiscally sound, receiving an unqualified opinion on their audited financial statements for Fiscal Year 2007-08 Over the past three fiscal years, ESU has enjoyed increases in unrestricted net assets as follows: There are four core higher-level ratios that can provide information on the overall financial health of an institution: Primary Reserve Ratio, Viability Ratio, Return on Net Assets Ratio and Net Operating Revenues Ratio Each of these ratios was calculated for East Stroudsburg University using data from our Fiscal Year 2007-08 financial statements Although the ratios allow for the inclusion of component unit data, the results presented for ESU below not The resulting ratio values will be useful when assessing future prospects of the University as well as when developing our strategic plan Page 21 of 31 Four Core Higher-Level Ratios on the Overall Financial Health of the Institution Name of Ratio Primary Reserve Ratio ESU's Ratio Value What Does it Mean? 293x Can the institution retain expendable resources at the same rate of growth as its commitments? The implication for ESU is that we could cover 1/2 months (29% of 12 months) expenses from reserves Net Operating Revenues Ratio 4.16% Return on Net Assets Ratio 5.25% Viability Ratio 1.12 Explains how any surplus from operating activities affect the behavior of the other core ratios For ESU, the positive percentage indicates we had a surplus for this past fiscal year equal to 4.16% of our total Operating Revenues A target of 2-4% is usually good Determines if an institution is financially better off than in previous years by measuring total economic return A return of 3-4% is usually good Used to determine the availability of expendable net assets to cover debt should the institution need to settle its obligations as of the balance sheet date A ratio of 1:1 generally means sufficient expendable net assets are available to satisfy debt obligations Enrollment trends/predictions Recent history would indicate that East Stroudsburg University can control its own enrollment destiny as long as it plans carefully to take advantage of all the positive factors influencing this enrollment Over the past five years, undergraduate enrollment has increased at an average rate of 3.6% per year This was during a period that the planning perspective on enrollment indicated the goal of slow and steady enrollment growth at the rate of approximately 1% per year Undergraduate headcount enrollment has increased 19.0% Page 22 of 31 over this five-year period while undergraduate full-time-equivalent (FTE) enrollment has increased 21.3% Meanwhile, graduate enrollment has increased at an average rate of 1.9% per year over this same five-year period Graduate headcount enrollment has increased 9.0% over this five-year period while graduate full-time-equivalent (FTE) enrollment has increased 11.2% The immediate challenge is that neither undergraduate nor graduate enrollment patterns matched predictions such that both resources and budgets could be planned accordingly Taking the same growth rates and factoring them over time into the future, we see a university in 2013 with 7,279 undergraduate students and 1,247 graduate students for a total enrollment of 8,526 Continuing this pattern five more years to 2018 we have 8,687 undergraduate students and 1,370 graduate students for a total of 10,057 Meanwhile the university’s freshman acceptance rate has dropped indicating we could be enrolling more freshmen than we currently are if we are willing to accept more students Overall the retention rates have improved by several percentage points in the past five years suggesting better preparation of the students we are enrolling An area of concern is the beginning decline in the number of high school graduates from high school throughout our region Projections indicate individual school districts either peaked last year, or will peak this year or next year This presents new challenges for the university The current world-wide economic recession is also an area of concern because this may prevent some students from affording to attend any college even though it may also have the effect of bringing us students who cannot afford more expensive institutions Therefore, the university needs to decide what the growth plans will be for the future and put in process the planning that is necessary to determine where this growth will be (undergraduate versus graduate, and in what major programs) if we choose to continue these patterns of growth Without careful planning, we risk the reoccurrence of a major student retention problem because of our inability to service the students we enroll (class availability, parking, housing, student services, etc.) The university must also determine the role of distance education, off-site course delivery, and other noncampus based instructional models will have in its future The University’s enrollment goals have been loosely organized around a sense of our potential for growth, which is great, tempered by the desire to retain the intimate instructional atmosphere that has characterized the University for many years When the University last completed a master plan, the figure settled on for total enrollment was 8,500 over a 10-15 year period While unofficial annual projections have been for Page 23 of 31 1% growth in undergraduates and to allow graduate enrollment to float naturally as capacity for graduates is less constricted, in five of the last seven years, enrollment increases have exceeded those projections Given the System’s approach to allocating funds, an enrollment strategy calling for metered growth positions the University to benefit from future allocations This will become more evident as enrollment growth slows at most other System schools While it is important that issues relative to the University’s enrollment goals receive the broadest possible input, it is appropriate to continue a trend of assuming cautious enrollment growth while these discussions begin For financial purposes it is assumed enrollment growth will be approximately 2% annually Appropriation trends/predictions In terms of finances, the University is largely dependent on revenue from two streams: 1) Commonwealth appropriations, and 2) Tuition and Fees In the case of appropriations, resources have been decreasing steadily as a proportion of our overall budget PASSHE’s E&G appropriation per full-time equivalent (FTE) student from the state has declined 21% in inflation-adjusted dollars since Fiscal Year 1997-98 Also, since 1997-98, PASSHE’s tuition has increased 16% in inflationadjusted dollars while comparable state-related universities’ tuition rates increased substantially more Most recently, Gov Rendell has requested the return of 4.25% of our Fiscal Year 2008-09 state appropriation due to the projected shortfall in the Commonwealth’s budget The following graph depicts East Stroudsburg University’s state appropriation for the past several years: Page 24 of 31 Growth in E and G resources has largely rested with increased tuition revenue during the past years or so Although the System-approved tuition and fee increases have been moderate, enrollment increases have supplemented the benefits of these increases and the University has the potential of continued growth, if it chooses to so For the purposes of discussion, we will assume our appropriations will track the average increase of the past 10 years This would lead to an annual increase of approximately 3% It is loaded in the first year with a 0% increase as this was the recommendation made by the Governor for 2009-10 in his February 2009 Budget Briefing The University will have to discuss all alternatives and determine what is likely to be the most accurate reflection of what may occur Tuition trends/predictions Predicting tuition revenue is a difficult and complex task There has been increased attention on tuition by the Governor’s office during the past three years and it is anticipated that this will continue The Governor wishes to keep increases to an absolute minimum Another issue impacting tuition is the spread between in-state and out-of-state tuition State government has expressed the desire to not subsidize out-ofstate students in any way Out-of-state tuition is 250% of in-state tuition and is so set to ensure that out-of-state students pay the full cost of educating themselves In the past, the University had a limit of 15% on out-of-state students However, this has been relaxed somewhat recently and the University’s out-of-state enrollment has now floated to 25% or more This has been very helpful in generating revenue in a time when appropriation increases have been so limited For the purposes of revenue projection, it is appropriate to hold out-of-state enrollment at current levels However, if the University were to grow its out-of-state enrollment beyond 30%, unwanted attention would very likely be drawn to us To follow are graphs of tuition and fees for the past 10 years: Page 25 of 31 Page 26 of 31 It can be seen that increases vary considerably within the various categories It is unknown at this time how much the System is willing to increase tuition next year On the recommendation of the PASSHE Budget Office, 3% will be used for planning purposes The University charges several fees in addition to tuition The Business Office will be conducting a review of all fees for consideration by the President’s Council and the Senate Budget and Planning Committee It is anticipated that we will find some flexibility to generate additional revenue by implementing reasonable increases in some fees Other revenues The University receives some revenue from sources other than appropriations and tuition and fees This revenue is primarily interest earned on invested funds, but also includes rental income and a few other small items Historically we have budgeted this category level with no increases Anticipating interest rates, especially during the current economic crisis, is difficult at best Expenditure trends/predictions Expenditure projections are based on somewhat limited information about salaries and benefits This analysis attempts to project salaries based on the collective bargaining agreements and benefits using the best known rates at this time as per the PASSHE Budget Office In the area of nonpersonnel services (utilities, supplies, etc.) it is wise to assume moderate increases in utilities following a year of significant increases due to the rapidly rising cost of oil and gas Other commodities are projected using a flat 4% as an inflationary factor Page 27 of 31 East Stroudsburg University SWOT Analysis Page 28 of 31 Page 29 of 31 Page 30 of 31 ACKNOWLEDGMENTS Diversity & Inclusion Dr Victoria Sanders Danelle McClanahan Daria Wielebinski Martin Lacayo Tonderlera Ragin Adacemic Effectiveness Dr Hank Gardner Dr Joe Cavanaugh Patti Kashner Juan Rodriguez Kizzy Morris Government & Economic Environment Dr Constantinos Christofides Research & Economic Development Mary Frances Postupack Patti Campbell Brad Klein Miguel Barbosa Michelle Keiper Ingrid Sidlosky Facilities Syed Zaidi Bill Pierson Financial Resources Donna Bulzoni Debbie Grimm Institutional Research Curtis Bauman 31 ... poverty is growing, adding costs to state budgets for programs such as Medicaid and social services According to “State Budget Troubles Worsen”, (Center on Budget and Policy Priorities, February 10,... be more severe (deeper and longer) than the last recession, and thus state fiscal problems are likely to be worse Source: “State Budget Troubles Worsen”, Center on Budget and Policy Priorities,... and Business Park Infrastructure ($106,000) In the area of sponsored projects and research, in FY 07-08, ESU faculty and staff submitted external grant and contract requests totaling $17.7M and