Financial Projections and State Budget Analysis for FY 2023-2029

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The presentation covers the May revise and multi-year projections for Fiscal Year 2023-2029, highlighting the state economy, budget deficit, revenue sources, causes of volatility, and managing economic downturns in the Community College System. Insights into historical trends and recent economic challenges are provided, emphasizing the need for strategic financial planning. Various graphs and data visuals are included to illustrate key points.

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May Revise and Multi-Year Projections FY 2023-24 thru FY 2028-29 Graciano Mendoza Vice President of Administrative Services David Techaira Executive Director of Fiscal and Auxiliary Services June 3, 2024 GROWING LEADERS Opportunity. Engagement. Achievement. www.hartnell.edu

AGENDA 1) State Economy 2) May Revise 3) Tentative Budget Summary 4) Multi-Year Projections 5) Future Considerations, Recommendations and Reminders GROWING LEADERS Opportunity. Engagement. Achievement. www.hartnell.edu

1) STATE ECONOMY GROWING LEADERS Opportunity. Engagement. Achievement. www.hartnell.edu

ESTIMATED STATE BUDGET DEFICIT $44.9 Billion reduced to $27.6 Billion GROWING LEADERS Opportunity. Engagement. Achievement. www.hartnell.edu

STATE BIG THREE REVENUE SOURCES Personal Income Tax Corporation Tax Sales Tax GROWING LEADERS Opportunity. Engagement. Achievement. www.hartnell.edu

CAUSE OF VOLITILITY GROWING LEADERS Opportunity. Engagement. Achievement. www.hartnell.edu

ECONOMIC DOWNTURNS (Managing Funding Downturns in the CCCs: Dan Troy, Fred Williams, and Aaron Brown ACBO Spring Conference, 2024) GROWING LEADERS Opportunity. Engagement. Achievement. www.hartnell.edu

ECONOMIC DOWNTURNS GROWING LEADERS Opportunity. Engagement. Achievement. www.hartnell.edu

DEFICT FACTOR HISTORICAL TRENDS GROWING LEADERS Opportunity. Engagement. Achievement. www.hartnell.edu

RECENT ECONOMIC DOWNTURNS GROWING LEADERS Opportunity. Engagement. Achievement. www.hartnell.edu

RECENT ECONOMIC DOWNTURNS GROWING LEADERS Opportunity. Engagement. Achievement. www.hartnell.edu

RECENT ECONOMIC DOWNTURNS GROWING LEADERS Opportunity. Engagement. Achievement. www.hartnell.edu

LAWMAKERS RESPONSE GROWING LEADERS Opportunity. Engagement. Achievement. www.hartnell.edu

CALIFORNIA COMMUNITY COLLEGES CHANCELLORS OFFICE RESPONSE GROWING LEADERS Opportunity. Engagement. Achievement. www.hartnell.edu

GOVERNORS BUDGET 1. Withdrawals from one-time reserves to support the Student Centered Funding Formula on-going funding commitments 2. Proposed maneuver which reclassifies $8 billion General Fund expenses from FY 22-23 and recognizes them as non-Prop 98 expenses in even increments spread across FY 25-26 through FY 29- 30. (Of this $8 billion, approximately $910 million would be attributed to community colleges.) GROWING LEADERS Opportunity. Engagement. Achievement. www.hartnell.edu

IMPACT OF MANEUVER ON COMMUNITY COLLEGES Impacts entirely on non-Proposition 98 side of the budget beginning in 2025-26 State would be borrowing from future non-Prop 98 funds to pay FY 22-23 K-14 expenditures Non-Prop 98 Funding Notably Includes the following: o Debt service on state general obligation bonds for community college facilities o A portion of faculty retirement costs for community colleges o Operations at the Chancellor s Office GROWING LEADERS Opportunity. Engagement. Achievement. www.hartnell.edu

2) MAY REVISE GROWING LEADERS Opportunity. Engagement. Achievement. www.hartnell.edu

MAY REVISE: CALIFORNIA STATE BUDGET HIGHLIGHTS Under the May Revision, the overall state budget would be lower than proposed in January and lower than the 2023-24 enacted budget, decreasing by about 7% to $288 billion related to a projected budget deficit of $45 billion. General Fund spending would decrease by about $25 billion (11.1%) to $201 billion. The budget proposal for the California Community Colleges focuses on stability in the context of the significant budget deficit. It includes no major core reductions to programs or services, instead drawing on reserves and operational savings to bring the overall budget in balance. Overall, funding increases slightly compared to the current year enacted budget. Revised proposals for ongoing spending include about $100 million for a 1.07% cost-of-living adjustment (COLA) for community college apportionments, $31 million more than the Governor s original proposed COLA of 0.76% in the January budget proposal. The proposal also includes an additional $13 million for COLAs and adjustments to certain categorical programs, and $28 million for systemwide enrollment growth of 0.5%. One-time funding in the revised proposal remains limited but retains the previously proposed $60 million for expansion of nursing program capacity from the Governor s Budget and adds $35 million for several projects related to the system s Vision 2030 priorities The Governor s revised proposal includes $29 million in capital outlay funding from GROWING LEADERS Opportunity. Engagement. Achievement. www.hartnell.edu Proposition 51 to support the working drawings and construction phases for one continuing

MAY REVISE: COMMUNITY COLLEGE SYSTEM HIGHLIGHTS District Revenue Protections Continue: The 2022 Budget Act extended the revenue protections in a modified form beginning in 2025-26, with a district s 2024-25 funding representing its new floor. Starting in 2025-26, districts will be funded at their SCFF generated amount that year or their "floor (2024-25 funding amount), whichever is higher. CA Community College Funding Increases: The May Revision increases funding for the California Community Colleges by $59 million compared to the Governor s Budget. The system would receive about $24 million in additional ongoing funding and base adjustments and $35 million for additional one-time programs and initiatives compared to what was proposed in January Includes a 1.07% cost-of-living adjustment (COLA) and 0.5% Growth for community college apportionments. The proposal also includes COLAs and adjustments to certain categorical programs. One-time funding includes $60 million to address CA s nursing shortage with the goal of providing that amount per year over the next five years to expand Associate Degree in Nursing (ADN) program capacity in the community colleges and Bachelor of Science in Nursing (BSN) partnerships with four-year universities. One-time funding also includes $5 million for a Pathways for Learners of Low-Income Demonstration Project, $6 million for a Mapping Articulated Pathways for Credit for Prior GROWING LEADERS Opportunity. Engagement. Achievement. www.hartnell.edu Learning Demonstration Project, $12 million for a Common Cloud Data Platform Demonstration Project, and $12 million to support the expansion of e Transcript CA across

3) TENTATIVE BUDGET SUMMARY GROWING LEADERS Opportunity. Engagement. Achievement. www.hartnell.edu

EXECUTIVE SUMMARY General Fund Budget is balanced at $72.1M. Includes proposed COLA revenue and revenue deficit factor of 3.5512% Salary and benefits account for 83% of total expenditures. Estimated year-end Fund Balance (reserve) is 22% or $16.1M. All identified requirements have been funded, including adjustments to employee benefits. Step and column increases. STRS rate remains at 19.10 percent (same as 2023-24). PERS rate increase to 27.05 percent (up from 26.68%). Worker s compensation rate decrease to 1.7557% (down from 1.8685%) Health and welfare benefits increase by an estimated 15.93%. All District Funds are projected to have a positive balance at the end of 2024-25. GROWING LEADERS Opportunity. Engagement. Achievement. www.hartnell.edu

FY 2024-25 TENTATIVE BUDGET - No General Unrestricted Fund (GUF) On-Going augmentations for Learning Sites or PPA, Resource Requests through FY 2028-29. - Utilizes OPEB and PERS Stabilization Trust Funds - Achieves Budgetary Savings through Refinement of Budget Practice to More Closely Mirror Actual Usage GROWING LEADERS Opportunity. Engagement. Achievement. www.hartnell.edu

PROPOSED TENTATIVE BUDGET 2024-25 General Fund Expenditure Budget -0.6% 0.2% 15.6% Personnel ($59.8M) 1.9% Supplies & Materials ($1.4M) Operating Expenses ($11.2M) Capital Outlay ($0.1M) Other Outgo (-$0.4M) 82.9% GROWING LEADERS Opportunity. Engagement. Achievement. www.hartnell.edu

BUDGET SUMMARY BY FUND GROWING LEADERS Opportunity. Engagement. Achievement. www.hartnell.edu

4) MULTI-YEAR PROJECTIONS GROWING LEADERS Opportunity. Engagement. Achievement. www.hartnell.edu

SUMMARY OF ANTICIPATED INCREASES TO ON-GOING REVENUE FY 23-24 => 8.22 Percent Funded COLA => $6.2M FY 24-25 => 1.07* Percent Estimated COLA => $713K FY 24-25 => Includes Deficit Factor of 3.5512% FY 25-26 thru FY 28-29 => Currently set at zero. (Awaiting projections from the School Services.) GROWING LEADERS Opportunity. Engagement. Achievement. www.hartnell.edu

ESTIMATED NEW ADDITIONAL REVENUE

Multi-Year Projections for FY 2024-25 thru FY 2028-29

HARTNELL COMMUNITY COLLEGE DISTRICT FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 1. Assumptions COLA Growth Potential Labor Agreements -salary increase (as a percent) 8.22 1.07 - 1.00 - - - - - - - - - - - - 4.22 2. Difference between ongoing Revenues & Expenses [Structural Surplus/(Deficit)] (980,335) (0) (1,385,176) (2,659,673) (3,917,113) (5,209,519) 3. Total Estimated Revenue Increase (COLA @ 8.22%, 1.07%, 0%, 0% and 0%) 6,176,755 713,249 - - - - 4.A. Salary and Benefit Allocation Step, Column, Longevity, Compensation Study Increases, etc. Medical Plan Rate Increase (estimated @ 7.4%, 14.99%, 7.12%, 7.12% and 7.12%) PERS Rate Increase ( 1.31%, 0%, 0%, 0% and 0%) STRS Rate Increase ( 0%, 0%, 0%, 0% and 0%) Worker's Comp Rate Increase ( 0%, 0%, 0%, 0% and 0%) Labor agreements 364,116 332,115 131,951 700,919 664,231 656,246 355,762 606,246 381,092 606,246 408,226 606,246 437,291 - - - - - - - - - - - - - - - - - - - - - 3,945,245 478,184 4.B. Total Salary and Benefit Allocation 4,773,427 1,843,334 1,012,007 987,338 1,014,471 1,043,537 Operating Allocation Fixed Costs (Utilities/Net Operating Increases (@ five year average of 2.9%)) Learning Sites: King City, Soledad, Alisal and Castroville Sites Program Planning and Resource Allocation (Includes new positions and new initiatives.) Operational Adjustments/Efficiencies 4.C. Total Operating Allocation 422,993 255,092 262,490 270,102 277,935 285,995 - - - - - - - - - - - - - 422,993 255,092 262,490 270,102 277,935 285,995 4. Total Estimated Expenditure Increase 5,196,420 2,098,426 1,274,497 1,257,439 1,292,406 1,329,532 5. Ongoing Surplus/(Shortfall) (0) (1,385,176) (2,659,673) (3,917,113) (5,209,519) (6,539,051) *Estimates based on FY 2024-25 Tentative Budget **Includes Reduction in Revenue of $2,367,161 for 3.5512% Deficit Factor Cost of 1% for all employees = $478,184 (0) (3) (6) (9)

Multi-Year Projections for FY 2024-25 thru FY 2028-29

HARTNELL COMMUNITY COLLEGE DISTRICT FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 1. Assumptions COLA Growth Potential Labor Agreements -salary increase (as a percent) 8.22 1.07 - 1.00 - - - - - - - - - - - - 4.22 2. Difference between ongoing Revenues & Expenses [Structural Surplus/(Deficit)] (980,335) (0) (0) (1,274,497) (2,531,937) (3,824,343) 3. Total Estimated Revenue Increase (COLA @ 8.22%,1.07%, 0%, 0% and 0%) 6,176,755 713,249 - - - - 4.A. Salary and Benefit Allocation Step, Column, Longevity, compensation study Increases, etc. Medical Plan Rate Increase (estimated @ 7.4%, 14.99%, 7.12%, 7.12% and 7.12%) PERS Rate Increase ( 1.31%, 0%, 0%, 0% and 0%) STRS Rate Increase ( 0%, 0%, 0%, 0% and 0%) Worker's Comp Rate Increase ( 0%, 0%, 0%, 0% and 0%) Labor agreements 364,116 332,115 131,951 700,919 664,231 656,246 355,762 606,246 381,092 606,246 408,226 606,246 437,291 - - - - - - - - - - - - - - - - - - - - - 3,945,245 478,184 4.B. Total Salary and Benefit Allocation 4,773,427 1,843,334 1,012,007 987,338 1,014,471 1,043,537 Operating Allocation Fixed Costs (Utilities/Net Operating Increases (@ five year average of 2.9%)) Learning Sites: King City, Soledad, Alisal and Castroville Sites Program Planning and Resource Allocation (Includes new positions and new initiatives.) Operational Adjustments/Efficiencies 4.C. Total Operating Allocation 422,993 255,092 262,490 270,102 277,935 285,995 - - (1,385,176) (1,130,084) - - - - - - - - - - 422,993 262,490 270,102 277,935 285,995 4. Total Estimated Expenditure Increase 5,196,420 713,250 1,274,497 1,257,439 1,292,406 1,329,532 5. Ongoing Surplus/(Shortfall) (0) (0) (1,274,497) (2,531,937) (3,824,343) (5,153,875) *Estimates based on FY 2024-25 Tentative Budget **Includes Reduction in Revenue of $2,367,161 for 3.5512% Deficit Factor Cost of 1% for all employees = $478,184 (0) (0) (3) (6)

GENERAL UNRESTRICTED FUND - ONE-TIME RESOURCES GROWING LEADERS Opportunity. Engagement. Achievement. www.hartnell.edu

RETIREE HEALTH BENEFIT GROWING LEADERS Opportunity. Engagement. Achievement. www.hartnell.edu

PARS FIDUCIARY TRUST FUND GROWING LEADERS Opportunity. Engagement. Achievement. www.hartnell.edu

ENROLLMENT TRENDS GROWING LEADERS Opportunity. Engagement. Achievement. www.hartnell.edu

5) FUTURE CONSIDERATIONS, RECOMMENDATIONS and REMINDERS GROWING LEADERS Opportunity. Engagement. Achievement. www.hartnell.edu

FUTURE CONSIDERATIONS 1) Vulnerable to State Economic Fluctuations 2) Escalating Compensation and Operating Expenses Requires Additional Annual Funding Just to Cover Existing Commitments 3) End of Hold Harmless Emphasizing Importance of Growing Enrollment through Enrollment Management Efforts 4) Limited Growth Funding will Require Careful Management of Enrollment 5) Other? GROWING LEADERS Opportunity. Engagement. Achievement. www.hartnell.edu