IFO Input on the MnSCU Budget
Request for FY 2010-11

BACKGROUND

Fiscal Planning Difficult
The Minnesota economy is in a volatile state, making estimates for budget purposes difficult.  There are optimistic signs: the farming and mining sectors show promise and state revenue collections since the last forecast are up 2.5% ($389 million).   However, oil prices have risen dramatically, raising not only the price of gasoline, but the cost of everything dependent on transportation and oil by-products.   The sub-prime mortgage crisis has thrown the financial sector into a tail-spin.  The state’s economic forecaster, Global Insight Inc. has increased its inflation estimate for 2008 from 2.5% in the February forecast, to 5.3% in the July economic update.  Federal Reserve Chairman, Ben Bernanke has recently raised the projected rate of inflation for 2009-11.

It appears at this time that state revenues may be tight next biennium—the end-of-session projections indicated a $940 shortfall in state revenue, even before adjustments for inflation.  However, that number has already been significantly reduced by the larger than expected carry forward from last biennium. The political appetite for tax increases remains uncertain pending the outcome of the elections in November.

Given the uncertainties regarding state revenue collections for the next biennium, the IFO believes MnSCU should use the best estimates of costs available at the present time and focus on the needs of the system rather than guesstimates of the amount of revenue that might be available.  The IFO sees dangers in both over estimating and under estimating state budget problems.

Historical Context
The budget planning process should take into account recent budget history.  During the budget shortfall of 2003, the MnSCU system suffered a base cut in its appropriation of $191 million dollars.  While we have seen significant increases in appropriations in the last two biennium, the MnSCU annual appropriation, when adjusted for enrollment and inflation, is still less than it was in FY 2002.

Student Tuition
Student tuition has risen sharply in the past six years as the burden of paying for higher education was shifted from state appropriations to student tuition.  A Star Tribune article earlier this year pointed out that MnSCU students on average pay nearly twice the national average tuition for peer institutions.  This runs contrary to the state’s policy of students paying 33% percent of the cost of instruction while the state pays 67%.  It also runs contrary to MnSCU’s Strategic Direction #1 of “Increasing access and opportunity."  College affordability has become a top political concern both nationally and in Minnesota, and MnSCU runs a risk of political backlash if it does not respond to that concern.

Declining Compensation Competiveness
Tight budgets have repressed faculty salaries at MnSCU institutions in recent decades.   In the mid 1980s, state university faculty salaries ranked near the 80th percentile nationally among peer institutions, according to the annual AAUP reports on compensation.  By last biennium, state university faculty salaries had slipped to below the national average and the 50th percentile in all ranks.   This has made it difficult to recruit high quality faculty and the universities have suffered a high rate of failed searches.  This runs contrary to MnSCU’s Strategic Direction #2 to “Promote and measure high-quality learning programs and services.”   This biennium, faculty and administrative compensation improved, and state university faculty may reach the national average in next year’s comparisons, but we still have a long way to go to reach our former ability to compete for high quality faculty. 

IFO PRIORITIES

Preserving Infrastructure
The IFO’s highest priority is preserving the quality of current programs and services offered by MnSCU institutions.  These programs provide educational opportunities for about 381,000 (credit and non-credit) students and graduate nearly 34,000 students per year--teachers, nurses, businesspeople, engineers, firefighters, etc.,  that are essential for meeting state and regional economic and social needs (Strategic Direction #3:  Provide programs and services integral to state and regional economic needs).

In recent decades, the failure of the state to adequately fund inflation and enrollment growth has lead to the erosion of purchasing power for MnSCU institutions, and a dilution of their resources.   Per student state funding plummeted, with many adverse effects, such as skyrocketing tuition, declining faculty compensation competitiveness, and larger student faculty ratios.  The problem is particularly acute at the institutional level where education occurs—basic appropriation allocations from MnSCU to the campuses have remained flat since 2002, despite significant inflation and enrollment growth.

The IFO supports a general inflation adjustment for the entire MnSCU system of 2.15% in FY10 and 1.9% in FY11.  These percentages represent the mid-point in the range of the most recent inflation projections of Federal Reserve Board Chairman, Ben Bernanke.

The IFO supports funding the unfunded enrollment growth that occurred at MnSCU institutions in FY08 (2.3%) and FY09 (.9%).   In addition, the IFO supports a 1.1% increase in state appropriations in FY10, and a 1% increase in FY11, to cover projected enrollment increases.

Improving Quality
Few things are more integral to quality at institutions of higher education than the quality of the teaching force.   Institutions must pay competitive wages or they will lose out in the competition for high quality faculty to better paying institutions. The IFO supports an appropriation to increase the pay of state university faculty by 1% per year above inflation.  This is in line with the recommendations of the MnSCU/IFO task force on salary competitiveness that recommended gradually bringing salaries up to the 70th to 80th percentile.

Improving Access
The IFO supports eliminating non-resident tuition rates at all MnSCU institutions, with the state appropriating money to replace the lost tuition revenue.  This biennium, the legislature eliminated non-resident tuition at a number of the MnSCU two year institutions, and appropriated money to offset the tuition loss. The IFO believes this policy should be expanded systemwide, and that as a matter of equity, the state should appropriate funds to cover the lost tuition revenue at institutions that voluntarily eliminated non-resident rates.

If resources allow for it, the IFO supports a state appropriation to buy-down the portion of inflation that would normally be funded by student tuition increases.

Innovation
Innovation and efficiencies should pay for themselves. In times of tight budgets, the MnSCU central office should reallocate resources from within its own budget to cover new initiatives. New programs should be funded by eliminating lower priority programs. Each institution should set its own priorities, rather than having priorities set by the central office. Institutions should be rewarded by allowing them to keep the savings resulting from their innovations and efficiencies. All programs, including new initiatives, should be measured and compared for their effectiveness in meeting organizational goals.

The following is a summary of the IFO's recommendations: