The Governor’s budget office released the first set of biennial budgets today. The current Governor proposed a “current law” balanced budget, assuming no new revenue, and a budget with new revenue, appropriating $34.1 billion of Near General Fund State per year, for which all of higher education, including financial aid, would receive nearly $3 billion (or 8.7 percent). As a reminder, Governor Gregoire’s budget proposals are the first of many budgets to be released for the upcoming biennium. The earliest point that the UW will have a sense of its actual anticipated state funding level is late April 2013. In addition, we might see Governor-elect Inslee release his own budget, or a set of budget priorities, in January 2013.
Under Governor Gregoire’s balanced and new law budgets, each of the state’s six baccalaureate institutions would receive slight increases in funding when compared to carry-forward budgets levels, with no new tuition increases or state funding reductions. While the UW has another year of tuition setting authority under HB 1795, the Higher Education Opportunity Act, this budget does not provide any new financial aid funds to cover tuition increases. Note that Education Legacy Trust funding, from which the UW normally received at least $8 million annually, was removed from all public baccalaureate institutions’ budgets and replaced with general fund appropriations.
The 2012 Legislature appropriated $209 million in state funds to the UW for FY13, thus, both of the Governor’s proposed budgets represent an increase in the UW’s state funding for FY14 and FY15. However, the budget bill devotes these increases to covering expenses associated with the UW’s collective bargaining agreements. If any funds remain afterward, they will be available for any other purpose(s).
Please review our budget brief on the Governor’s operating budgets and capital budgets. As usual, let us know if you have any questions.
Washington’s Economic Revenue and Forecast Council (ERFC) released November’s revenue forecast today. Overall, revenue collections for the current biennium are holding steady, while collections anticipated for the next biennium are slightly lower than the previous forecast.
2011-13 (FY12 and FY13)
For the current biennium, collections are $8 million higher than the previous forecast, and though this increase is extremely slight, it signals
to agencies that additional, current year budget cuts are unlikely when the legislature reconvenes in January.
2013-15 (FY14 and FY15)
The upcoming session will be at least 105 days in length and result in a new biennial (two year) budget for fiscal years 2014 and 2015. The revenue forecast for the upcoming biennium was also updated today and as predicted, shows a modest decline but largely holds anticipated collections to the previously forecasted level. As required by law, ERFC releases optimistic and pessimistic alternative forecasts for the coming biennium. The alternative forecasts suggest that a variance of $3 billion in new revenue or in new cuts is possible. For the time being, the actual forecast for the upcoming biennium is $88 million lower than the September forecast. Slow growth is expected in both Washington State and the US. However, high downside risks including the sovereign debt crisis in Europe, federal fiscal cliff, and the resulting employment and consumer confidence declines present significant reasons to be skeptical about any significant revenue growth.
Governor Gregoire will release her biennial budget in December, but new Governor Jay Inslee may present an alternative budget in January, at
the same time the legislature begins its budget process. Stay tuned! We have a long way to go!
On Tuesday, 11 states voted on ballot measures that could impact higher education. The following table (based on one from The Chronicle) summarizes how those measures fared.
YES–the measure passed NO–the measure failed
||Would temporarily increase sales and income taxes in order to raise approx. $6-billion in revenue and stave off $963-million worth of cuts to the public colleges.
||Would allow a $11.3-million bond issue to fund capital for a diagnostic facility at the University of Maine.
||Would let children of illegal immigrants pay in-state tuition rates provided they meet certain conditions.
||Would let graduate students form unions and bargain collectively.
||Would raise cigarette taxes and use the revenue to create a Health and Education Trust Fund. About 30 percent of revenue would go to higher education.
||Would require proof of citizenship in order for a person to receive certain state services, which includes attending Montana’s public colleges.
||Would let the state issue a $750-million bond for buildings and upgrades at public and private colleges.
||Would authorize a $120-million sale for certain higher education repairs and improvements.
||Would ban affirmative action programs in the state, including their use in public colleges’ admission policies.
||Would give Rhode Island College up to $50-million for its health and nursing programs’ facilities.
||Would allow the UW and WSU to invest publicly-generated revenue (i.e. parking fees and indirect-cost reimbursement for grants) in corporate stock.
||Would renew the requirement of a two-thirds legislative vote in order to create new taxes or raise existing ones–effectively making it more difficult for the state to generate new revenue for programs including higher education.
The UW’s Office of Federal Relations posted information this morning detailing the federal sequester’s impact on state budgets. Read the grim summary here.
The Offices of Federal Relations, Planning & Budgeting, and Research recently collaborated on a policy brief summarizing basic sequester information. Note that sequester updates are available on the Office of Federal Relations’ blog.
The Pell Grant program, the largest federal student grant program, was expected to be $20 billion short of the $40 billion price estimated for FY12 (which ended July 1). However, the Department of Education surprised many with newly-released data showing the federal government not only spent well under that estimate at only $33.4 billion, but in fact $2.2 billion less than FY11.
Recently, Pell eligibility increased dramatically as college enrollments rose and the recession continued to impact family/student income. This trend continued in FY12 and, interestingly, the dip in Pell spending occurred despite a 58,000 increase in Pell recipients—to almost 9.7 million. In fall 2011, nearly one quarter of UW freshmen were Pell eligible.
Reasons for the decline in Pell spending include:
- The elimination of the year-round, or summer, Pell Grant, which allowed students to qualify for two awards in a year.
- More students attending college part time as part-time status reduces Pell award amounts.
- Fewer students attending for-profit institutions, which tend to enroll students who qualify for larger awards. Recent bad press and slumping enrollments have hit for-profits hard. Consequently, the number of Pell recipients at for-profits declined by 108,000 students, to roughly 2.1 million, and accounted for $1.4 billion of the decrease.
The drop in Pell expenditures is a relief for most lawmakers as they face next year’s “fiscal cliff” and must address both the impending tax hikes (when Bush tax cuts expire) and the automatic spending cuts (as mandated by the sequester). The Obama administration and congressional Democrats have resisted financial aid-related budget cutting, maintaining the maximum Pell award of $5,550 and writing specific protection for Pell Grant funding into the Budget Control Act. However, recent financial straits have already caused the federal government to eliminate several student loan programs such as the previously-mentioned summer Pell Grant, the six-month grace period for loan repayment, subsidized Stafford Loans for graduate students, and incentives for early loan repayment. With the sequester and difficult budget decisions looming on the horizon, it is safe to say that no funding is safe.
Yesterday, Governor Gregoire’s budget office issued a lackluster four-year revenue and expenditure outlook for the state’s near general fund. The coming 2013-15 biennium (FY14 & FY15), for which the Governor will release a budget in December, comes up short on anticipated revenue and long on expenditures. Before accounting for required increases in K12, across-the-board salary increases, and minor increases to financial aid spending, the anticipated deficit for both years of the coming biennium is $1.7 billion. If the Legislature appropriates funds from the budget stabilization account, the biennial deficit shrinks to $956 million. The deficit was calculated based on the assumption that near general fund revenue will grow 2.2% in FY14 and 4.4% in FY15.
Expenditure assumptions include the backfill of an equivalent 3% salary reduction in each of the prior two fiscal years (FY12 & FY13). In other words, it is presumed that the Legislature will backfill the UW’s budget by approximately $12 million per year to replace the temporary salary-related reductions it imposed on the University during the prior biennium. However, without an infusion of revenue, the Legislature will not be able to fund required K12 policy enhancements, financial aid, or salary increases.
The outlook serves as a reminder that the state’s economy remains tenuous and even a minor replenishment of higher education spending is questionable.
A new study from the State Budget Crisis Task Force concludes that in many states, anticipated revenues will be insufficient to cover mounting Medicaid enrollment caseloads, underfunded pension commitments, and local government budget obligations. The authors focused their investigation on California, Illinois, New Jersey, New York, Texas, and Virginia. They predicted that anticipated revenues (from sales, income, or other taxes) would be both insufficient to cover expenses and fairly instable, as personal income remains volatile and unemployment (and underemployment) high. In other words, we are edging towards the state budget precipice, even as the national economy distances itself from the official end of the Great Recession proclaimed in 2009.
These conclusions are not unfamiliar to readers; we recently blogged about state-level fiscal uncertainty and sluggish revenue growth. However, this study sheds additional light on the subject, being the first to make a comprehensive assessment of the tension between mounting expenses and shaky revenues in highly populated states.
While Washington State continues to experience slow economic growth in some sectors and in its generation of tax revenue, the Economic Revenue and Forecast Council (ERFC), in its July collections report, refrained from making any firm economic revenue projections due to the excessive variability of receipts. The ERFC report also emphasized slowing job growth: while reducing state unemployment by 0.5 percent would require 160,000 new jobs each month, the state only added 80,000 new jobs in June.
While anticipated revenue is increasing slightly, the downside risks of a second recession brought on by the debt crisis in Europe, disappointing job growth, and depressed consumer confidence are significant. Despite these concerns, ERFC predicts slight revenue increases for both the 2011-13 and 2013-15 biennia, due to legislative action from the 2012 supplemental budget.
Please review our OPB budget brief and post any questions or comments.
In a final effort to pass an omnibus operating budget before the end of the first special session of 2012, the House introduced what the Democratic Caucus deemed a compromise, amended budget Wednesday and passed the budget off the floor yesterday. This second engrossed House budget is nearly identical to the first engrossed House budget in its treatment of higher education institutions.
As a reminder, an engrossed budget must be adopted by the opposite chamber before it is sent to the Governor. If the opposite chamber amends the budget, the budget is returned to the house of origin for concurrence or further amendments.
What remains to be seen is whether the Senate will hear the House budget before Tuesday (which marks the end of the first special session of 2012) and either amend it or pass it. This appears unlikely by most accounts.
For the UW, the second (newly) engrossed House budget and the most recent Senate “philosophical coalition” budget are mostly identical. Both budgets make no NEW service cuts to higher education. The House budget, like the Senate budget, contains a number of central agency service reductions for specific “state” services that would have some impact on the UW, and both budgets redirect existing state appropriations to the UW to fund specific initiatives in the College of Engineering ($3.8 million), WWAMI ($210,000) and RIDE ($190,000).
The primary difference between the two approaches is that the second engrossed House budget does not swap $5 million of state funds for $5 million of State Toxics Control funds in the College of the Environment’s budget.
Planning & Budgeting continues to develop drafts of the FY13 UW capital budget, operating budget, and tuition item for Regental consideration on May 3. If we do not have a firm state appropriation figure to include by that time, our ability to accurately project central educational operating resource budgets will compromised.
The first new budget proposal of special session was released today by the same bipartisan Senate coalition that quickly passed an engrossed supplemental budget two weeks ago. Last week, the House further revised the Senate engrossed budget before session ended without agreement on a compromise budget. Although complex and at times confusing, this year’s budget process appears to now be moving forward as today’s Senate budget release moves closer to the House engrossed budget.
The new Senate coalition budget proposal would make the following changes to the UW’s 2011-13 biennial budget:
- Reduces state general funds for the College of the Environment and replaces these funds with State Toxics Control revenue ($5 million);
- Requires that the UW devote a portion of its state funding base to convert existing student FTE to College of Engineering FTE ($3.8 million); and,
- Provides new funds for a Center for Aerospace Technology Innovation ($1.5 million).
All told, the redirect of state funding for engineering enrollment funding and College of the Environment fund swap would affect our FY13 budget base. Please review our Planning & Budgeting brief for more information about the new Senate proposal and how it compares to the current House engrossed budget.
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