PCC Budget Process Q&A
With the delicate nature of the State’s economy, and therefore the weakness in PCC’s revenue stream from Sacramento, our budget is under constant scrutiny by our employees, students, and even the public. In order to provide accurate information, we developed this Budget Q & A. Should you have any questions that are not asked/answered to your satisfaction, please let me know and answers will be provided in a future edition.
Q: What is the difference between the various funds used by the District?
A: The State has established rules in the establishment and use of funds, which are disseminated in a book called the “Budget and Accounting Manual” or “BAM.” PCC, like all other community colleges, must follow the manual. Broadly speaking, we have two General Funds (Unrestricted and Restricted) capturing the overwhelming majority of our daily activities. We also have three facilities-related funds: Capital Outlay for large projects funded by the District; Measure ”P” for the voter-approved bond construction projects; and Scheduled Maintenance for regular larger-scale maintenance projects. We have self-insurance funds for workers’ compensation and liability self-insurance. There is a fund to handle the dental benefits offered to employees, as well as a post-employment benefits fund. We also have a pass-through fund to handle student financial aid. A complete listing of the funds, their purposes, and their budgets is on-line at http://www.pasadena.edu/adminServices/fiscal/budget.cfm (go to the bottom of the page to download the full Word file).
Q: How does the District budget, acquire and pay for one-time expenditures?
A: The District uses the Capital Outlay Fund (Fund 41) to budget and acquire higher cost items. However, the source of funds for this purpose is the Unrestricted General Fund (Fund 01). The District primarily uses unexpended funds from previous-year budgets to fund these one-time expenses the following year. Examples of the use of the Capital Outlay Fund include the installation of the new telephone and cabling, in and between all buildings on campus. That project was funded by the Capital Outlay Fund and Measure “P”, our bond supported construction fund. Another example is the desktop computer replacement plan. Currently, the District is saving money for two very large projects including the vacating of the U Building (due to seismic safety concerns) and the acquisition of the central computer system (known as the Administrative Information System or the Enterprise Resource Plan). Combined, these projects could reach the $20M level.
If the District were to fund these projects from the on-going revenue stream, each department would have to cut its budget in order to have enough to fund the one-time projects. By budgeting one-time expenses with yearly ending balance funds, the District can be far more flexible in allowing normal ongoing costs to be budgeted.
Q: Does the District allocate $3M for warehouses that don’t exist?
A: No. The District rents a portion of a warehouse building on East Foothill Boulevard for about $9,000 per month. In prior years, the District considered purchasing or building a warehouse in order to save the ongoing rental expense; however, the budget set aside for that project was reallocated to help pay for the purchase of the portable classrooms needed to serve the needs of the Health Sciences and Natural Sciences Division as they vacate the U Building.
Q: Does the District have “hidden money”?
A: No. Every dollar the District possesses appears in the District’s Adopted Budget, which is published annually. It can be found in this PDF document â€“ PACCD 2011 â€“ 2012 Adopted Budget. Furthermore, the budget summary lists each dollar in a more simplified way. It can be found in Word format at http://www.pasadena.edu/adminServices/fiscal/budget.cfm (go to the bottom of the page to download the full Word file). Of course, the District is independently audited each year to ensure that our financial reporting accurately reflect reality.
Q: Did the Supplemental Early Retirement Plan (SERP) save the District money?
A: Yes. The gross savings is about $10.4M per year, reflecting the savings in salaries and benefits now not paid to the employees. A full listing of those costs can be found in this PDF document â€“ Pasadena Area Community College District 2011-12 Initial SERPâ€”Tier I Report. Realize that the District then incurs its own costs, including $1.2M to pay the annuity costs underlying the entire program. PCC also hired 22 new faculty at a cost of about $2.4M. Other employees were also hired to at least partially replace retirees. Those costs amount to about $970k for executive replacements and $113k for two classified staff replacements. The contract negotiated with the PCC Faculty Association calls for $250k for faculty on-line teaching training and $275k for adjunct faculty office hour costs. Then all employees are eligible for longevity raises (called “Step and Column” raises) costing about $385k. The District covers the additional health care costs for full-time employees (Kaiser costs increased another 16% this year) at a cost of about $450k. When taken together, the extra costs related to employees totals more than $6M, meaning that the net savings from the SERP and other employee programs is about $4.3M.
Q: Where did the savings from SERP go?
A: The State cut PCC’s apportionment payments (our primary source of revenue) by almost $10M this year. However, with increased revenue expected from property taxes and the higher student fees (the increase from $26 to $36 per unit was enacted into law by the State Legislature), the net decrease in revenue this year is $6.7M. In order to remain fiscally sound and sustainable, a reduction in on-going revenue requires a reduction in on-going expenditures. Therefore, a $6.7M revenue reduction requires a $6.7M reduction in expenses in order to balance the budget. Two-thirds of this year’s reduction was covered by the SERP. An additional $2.3M came from cuts to other areas to make up the remainder. There are no unallocated savings that were derived from the SERP.
Q: How many new executives were hired, and how much additional money does it cost to pay the salaries of the members of the Executive Committee?
A: While in the past, the college hired four vice presidents (Instruction, Administrative Services, Student & Learning Services and College Advancement), it also employed other executive-level deans (Human Resources, Institutional Research & Planning, External Relations and Educational Services). With the reconfiguration of the Executive Committee, one vice presidency was eliminated (College Advancement), the two open vice presidencies were filled (Administrative Services and Student & Learning Services) and three new vice presidencies were created, each replacing or using an existing employee position (Human Resources, Educational Services, and Information Technology Services). PCC also hired an in-house General Counsel, replacing a management-level position and partially offsetting outside legal costs. While last year the Executive Committee cost the District $1.57M in salaries, this year the cost is $1.49M.
Q: Did all managers receive a raise? How much more money are we now paying managers compared to five years ago?
A: About two-thirds of managers received an equity adjustment several years ago in order to correct longstanding concerns , including gender inequity. Many of the adjustments were nominal amounts of less than 3%. The total cost of management salaries in 2006-07 was $4.8M. The current year budget for all management salaries is $4.7M.
Q: How many employee positions are unfunded in the current budget year?
A: There are 127 vacant, unfunded positions. Of these, 40 are faculty, 21 are managers, 3 are confidential employees , 21 are facilities workers and 42 are other classified workers. The District is currently working to fill as many positions as possible within budgetary realities.
Q: Does the College transfer money from the Unrestricted General Fund to other funds?
A: Yes. This occurs through the approval of the Board of Trustees in one of two primary ways. The first is through the establishment and adoption of the annual budget, and the second is typically at the end of the fiscal year (often after the fiscal year). The first is used to provide funds for the District’s ongoing commitments to such things as employee dental coverage (an annual transfer of about $1.3M to the Dental Coverage Self-insurance Fund 63). Another example would be the payment to cover retiree health care costs, which necessitate fund transfers of between $1M and $2M annually, depending on whether the District is financially able to contribute money to cover the unfunded liability portion of the “Other Post Employment Benefits” accrued by the District.
The second method is typically used at the end of the year to move one-time unspent budgeted amounts into other funds to cover one-time costs for projects. Usually this involves funding Capital Outlay or Scheduled Maintenance projects. This is known as “sweeping” the budget [of unspent money]. As noted earlier, this is how the District funds one-time projects.
Annually, the District is required to complete a 311Q financial report, and to request Board approval to submit the report to the Chancellor’s Office in Sacramento. The report does not differentiate between the two types of interfund transfers.
Q: When was the last time employees received additional compensation?
A: All full-time employees receive several types of additional compensation on a regular basis. The first is known as “Step and Column” raises, whereby employees move through the pay schedules laterally (columns) and vertically (steps). Column moves result in 5% increases to pay and steps amount to 2.5% increases. The second type occurs when faculty members receive raises as they complete additional educational levels.
Because the District funds the healthcare costs of its full-time employees, their spouses or partners, and their children, the third area of additional compensation is the District’s funding of the increased costs of these programs. This year, for example, Kaiser increased their costs by 16%. This increase is being absorbed by the District even as the District’s revenue is declining.
The State has not provided any Cost-of-Living Adjustment (COLA) in five years; therefore, the District has not given COLAs to its employees during this period.
Taken as a whole, each employee group has experienced increased compensation over the past five years, both through the absorption of increased healthcare costs, through Step and Column raises, and by achieving additional educational levels.
Q: Why does the District maintain Unrestricted General Fund (01) ending balances that are so large?
A: Ending balances provide two functions to the College. First, they provide cash needed to cover our payroll and the general checks issued by the District. The State of California does not provide their funding obligations to us on anything approaching a regular basis. For two months they provide the college more than needed, and most months they provide less than needed. The college then has to make-up the difference. Over the past few years, as a state fiscal policy, all community college districts have funds withheld until after the fiscal year closes. While this helps the State balance their budget, it wreaks havoc on the colleges, as the net effect of this practice is to borrow $1,000,000,000 from the colleges. In PCC’s case, the State is “borrowing” about $22M interest free from our bank account. This year, we have almost $19M in ending balance funds, and it is needed to ensure that we have enough money in the bank to cover our payroll and other obligations. It should be stressed that the ending balance is not simply cash in a bank account. The amount of cash changes on a daily basis. The ending balance on June 30 had only about $7M in cash, and about $21M in receivablesâ€”mostly money owed to the District by the State. The total then is roughly $28M, less the liabilities owed to others by the District, totaling about $9.M. That produces the ending balance of about $18M.
The second use of the ending balance is to have money available to cover unexpected emergency costs. In the event that a critical situation arises that we have no choice but to pay, we then have a financial cushion to deal with the problem.