Office of Planning and Budgeting

On Wednesday, March 20, the Washington State Economic & Revenue Forecast Council (ERFC) released its quarterly update of State General Fund Revenues. Revenue from an anticipated increase in Washington housing permits and real estate excise tax receipts is expected to offset higher federal tax rates and spending cuts than were previously assumed. Overall, revenue projections for both the 2011-13 and 2013-15 biennia remain relatively stable, with a slight net gain of about $40 million across the two biennia. However, this net gain is negated by the roughly $300 million in additional Medicaid caseload costs. The state and its lawmakers now face a $1.3 billion deficit along with court-mandated funding for K-12 education, which could cost another $1 billion. Their upcoming budget proposals will have to reconcile these demands on the state purse.

We anticipate that the Senate Majority Caucus Coalition will release its operating budget proposal sometime next week, while the House will likely release its budget by early next month. Until that time, any specific impact on the UW cannot be assessed.  Please see the full OPB brief for more information.

 

Sequestration will take effect tonight at midnight. While the cuts will be smaller than originally mandated ($85 billion instead of $109 billion), the impact in federal FY13 will be higher since the cuts must now be applied to only seven months instead of nine. Immediate and long-term impacts on the UW and Washington State are difficult to predict. However, during the remaining months of federal FY13, we estimate that the sequester could reduce the UW’s federal grant and contract support by an estimated $75 million to $100 million and cut Build America Bonds (BABs) subsidy payments by $500K to $700K. Additionally, the UW is projected to lose about $33,000 in work study funds for 2013-14. The potential impact on Washington State includes $11.6 million less for primary and secondary education, $11.3 million less for education of children with disabilities, and 1,000 fewer children receiving Head Start services.

Please see the full brief prepared by the Offices of Federal Relations, Planning & Budgeting, and Research and be sure to visit at the UW’s Federal Relations blog for regular updates.

My name is Julia Martinelli and I am the Student Assistant for the Office of the University Architect within the Office of Planning and Budgeting. I am currently a Sophomore at the University of Washington and I am planning on majoring in Architecture with a minor in Urban Ecological Design and Italian. Within my position I will be writing about events, updates, and news regarding the planning and architecture.

Currently, the University District is preparing to undergo multiple changes in the upcoming years. In an effort to guide these changes, a group of residents, businesses, social service providers, the U District Chamber, City of Seattle, and University of Washington has come together to create The University District Livability Partnership. The University District Livability Partnership (UDLP) is a four-year strategic initiative that is working towards transforming the University District into a sustainable, walkable community. The vision of the UDLP for the University District is to have a vibrant and innovative district of entrepreneurs, major employers, talented workers, and diverse residents. The collaboration of partnerships in the UDLP are preparing to help the University District transition and grow as it experiences many changes in the upcoming years, especially with the emergence of the light rail station on NE 43rd St. and Brooklyn Ave.

Within the UDLP there are four components, which include the Commercial Revitalization Strategic Plan, an Urban Design Framework, U District Next: A Community Conversation and Long-Term Leadership & Partnerships, each of which focuses on different aspects and strategies to reach the final desired goal for the U District. Additional information regarding the different components of the UDLP may be found here.

The UDLP Strategic Plan was formally released on January 31, 2013, at the third and final U District Next: A Community Conversation event. In order to preserve the unique and historical aspects of the University District as well as develop new enhancements that will enrich the already vibrant community, the Strategic Plan has developed five initiatives. The initiatives include organization, economics, marketing, clean & safe, and urban design, each of which has its own specific set of goals and strategies. The goal of the organization initiative is to create long-term leadership capacity and partnerships of effective and diverse voices. Whereas, the economic initiative is striving to create an attractive neighborhood for various startups, large companies, and businesses where they can both flourish and contribute to the community. The marketing initiative wants to both appeal to the current community of the U District as well as reach out and draw in new residents, investors and businesses by advertising the best elements of the neighborhood. The clean & safe initiative wants to develop a safe and clean environment that contains resources that will provide support to everyone. And lastly, the goal of the urban design initiative is to design and create a built environment that fits and reflects the culture of the University District community. All of these initiatives create a group of organized tasks that will contribute to The Strategic Plan’s strategic vision for the future University District. If you would like to read the Strategic Plan, visit the UDLP website found here. If you would like to contribute your thoughts and ideas about the future of the U District, please go here.

Christy Gullion, Director of Federal Relations, recently provided an update on the sequester–the large, automatic federal spending cuts originally scheduled to take effect January 1st of this year, but delayed until March 1st thanks to a last-minute, bipartisan deal.

For background information, please see our most recent post on the topic as well as the brief put out jointly by the UW offices of Federal Relations, Planning & Budgeting, and Research.

The Grapevine project’s annual compilation of data on state funding for higher education shows that 30 states increased their appropriations for higher ed institutions and financial aid from FY12 to FY13. On Tuesday, the
researchers at Illinois State University and the State Higher Education Executive Officers released their tables summarizing initial allocations and estimates reported by states from September 2012 through January 14, 2013. As most states are in the midst of FY13, their budgets for the year are more-or-less finalized; however, some changes could occur due to reporting lag time.

Overall, states are spending just 0.4 percent less on higher education in FY13, compared with FY12—a relatively small decline given that state support for colleges dropped 7.5 percent from FY11 to FY12. The net decrease in this year’s budgets resulted from cuts in just 16 states, with the worst appearing in Florida (8 percent), Alabama (6 percent) and New Jersey (5.5 percent). Another 16 states, including Washington, are showing increases of less than 2 percent, which The Atlantic notes “will likely amount to a cut once inflation takes its bite.” Budgets in the other 18 states indicate more sizable increases, all the way up to 14 percent in Wyoming.

Generally, however, the gains that some universities are receiving this year do little to make up for massive cuts since the recession. States are still collectively spending 10.8 percent less than they were five years ago, when the recession began, and thirty-eight states have decreased their overall higher ed appropriations during that time, according to a Grapevine table. Among those 38, Arizona and New Hampshire cut their budgets by 37 percent and 36 percent respectively and a dozen states, including Washington, sliced funding by over 20 percent.

A news release accompanying the survey data, cited by The Chronicle, states, “Barring a further downturn in the economy, the relatively small overall change … suggests that higher education may be at the beginning stages of a climb out of the fiscal trough caused by the last recession.” However, even if state appropriations continue to stabilize, the Moody’s report discussed in our previous post points out that federal spending, tuition revenue, endowment returns, and other traditional revenue sources for colleges and universities face major challenges in the coming year. We aren’t out of the woods yet.

Last week, Moody’s Investors Service issued a negative short-term outlook for the entire sector of higher education based on its conclusion that every traditional revenue source for even the most elite colleges and universities is under pressure. That pressure, according to the report, is the result of nation-wide economic, technological and public opinion shifts, which are largely beyond institutions’ control.

The outlook report, released annually, articulates the fundamental credit conditions that Moody’s expects higher education will face during the next 12 to 18 months. For the last two years, Moody’s gave elite colleges and research universities a stable forecast; but this year, the following factors contributed to a negative outlook for the entire industry:

Struggling Revenue Sources:

  • State appropriations are unlikely to increase meaningfully due to weak economic recovery.
  • Federal spending on research and student aid could be truncated in response to the nation’s fiscal concerns.
  • Tuition revenue continues to be suppressed by low family incomes and public/political pressure to keep prices down.
  • Endowment returns are vulnerable to any economic volatility that could stem from federal tax and budget decisions.
  • Donations are not expected to increase and could face pressure as Congress evaluates associated tax deductions.
  • Financial diversity is no longer helpful as all revenue streams are strained.

Additional Challenges:

  • Student debt and loan default rates have increased and thus challenged the perceived value of a degree.
  • High school graduates are declining in number.
  • Public and political scrutiny of efficiency and degree value could add to institutions’ list of regulatory requirements.
  • New technologies such as online learning and MOOCs could provide new revenue opportunities, but could also undermine traditional higher ed models.

Moody’s analysts warn that revenue streams will never rebound to post-2008 levels and leaders in higher education will need to adapt by thinking strategically and adjusting their operations.

But not all is gloom and doom. Although Moody’s gave higher education a negative outlook, most of the country’s top colleges and universities still hold the strong credit rankings. The UW, for one, continues to maintain a Aaa credit rating—the highest offered by Moody’s. Additionally, the report stressed that the intrinsic value of and demand for higher education remains stable.

Yesterday, the Senate and House of Representatives approved legislation to avert the fiscal cliff. The deal postpones the automatic, across-the-board spending cuts—known as “the sequester”—by two months and increases tax rates only for individuals earning over $400,000 and couples earning over $450,000. The bill also preserves funding for Pell Grants and extends for five years the American Opportunity Tax Credit (AOTC), which allows students and their parents to claim up to $2,500 a year for tuition and college expenses.

For details, please see the blog post provided by Christy Gullion, Director of Federal Relations, and the articles provided by Inside Higher Ed and The Chronicle

Christy Gullion, Director of Federal Relations, recently provided an update on the fiscal cliff–the combination of large decreases in federal spending and simultaneous increases in income taxes set to take effect January 1st. For background information, please see the brief put out jointly by the UW offices of Federal Relations, Planning & Budgeting, and Research.

Here are a few noteworthy headlines from the past few days of higher education news:

  • History professors at the University of Florida are fighting a proposed differential tuition strategy that would hold tuition rates stable for “high-skill, high-wage, high-demand” degree programs for at least three years.  Most STEM degrees made the list of majors recommended for this tuition freeze, while core Humanities disciplines (such as history) did not.  The Governor-commissioned task force responsible for the proposal said, “The theory is that students in ‘non-strategic majors,’ by paying higher tuition, will help subsidize students in the ‘strategic’ majors, thus creating a greater demand for the targeted programs and more graduates from these programs, as well.”  Supporters feel such an approach will provide taxpayers with the maximum return on their investment and “improve the university system overall.”   However, the opposition, championed by a number of history professors, argues the strategy would detract from the university’s prestige and lead to a less “richly educated” workforce.  Over 1,300 faculty from Florida and beyond have petitioned Florida Governor Rick Scott to seek faculty input for future decisions regarding Florida’s higher education system.  This particular form of differential tuition contrasts with the more typical, cost-driven approach, under which students in majors that cost the university more to provide (such as STEM fields) are charged higher tuition than students studying less expensive subjects (like history).
  • Carnegie Corporation President, Vartan Gregorian, is advocating for a presidential commission on higher education to “generate the kind of attention and urgency that the circumstances demanded for the nation to keep its competitive edge.”  The commission’s mandate would be to address the many challenges confronting higher education (cost, access, etc.) and help policy makers determine its future.  Given the drastic demographic, technological, and economic changes already occurring in higher ed, Mr. Gregorian believes now is the appropriate time to discuss nation-wide reform.
  • Apprenticeships are becoming more popular in the U.S. as a means of bridging the disconnect between what students learn in college and what their future employers actually want them to know.   Several Harvard professors, inspired by Germany’s “dual system” of providing students with practical job-related skills and theoretical instruction, are working with six states to establish apprenticeship programs.

The New York Times reported last week that the University of Phoenix will be shutting down 115 of its 227 locations over the next year—25 main campuses and 90 learning centers. The roughly 13,000 students affected by the closings (4 percent of the total student body) will have the option of either transferring to the university’s online classes or moving to another physical location. In addition, the Apollo Group, which owns the university, announced it is laying off 800 employees (4.7 percent of the university’s total staff).

The changes surprise some as Phoenix was a booming success for over a decade. However, in 2011, for-profits as a whole began to struggle. Tightened regulations; a poor economy; growing competition from MOOCs and other online providers; and scrutiny of the sector’s unethical recruiting practices, low graduation rates, high default rates, and use of federal funds caused for-profit enrollments to fall significantly relative to other sectors (as discussed in a previous post). And, as enrollments fell, so did revenue. The University of Phoenix was among the hardest hit. Compared with the same fiscal quarter a year ago, student enrollment at Phoenix dropped nearly 14 percent and Apollo’s net income plummeted 60 percent.

So, will the University live up to its name and rise anew from the remains of its finances and reputation? Or could Phoenix’s decline foretell the impending doom of other for-profit institutions? Time will tell.

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