Faculty Leadership Conference Revenue Forecast Report and Budget

Faculty Leadership Conference Revenue Forecast Report and Budget Update Bernard M. Hannon Senior Assoc Commissioner & CFO April 23, 2010

INDIANA’S HIGHER EDUCATION SYSTEM AND STATE FUNDING

Total FY 10 estimated expenditures by all Indiana public postsecondary institutions $5, 090, 667, 914 Total FY 10 General Fund estimated expenditures by all Indiana public postsecondary institutions $3, 487, 676, 807

Indiana’s Public Higher Education System • 5 four-year Public Postsecondary Institutions • 2 two-year Public Institutions • 31 Public Campuses and 12 Instructional Sites • 407, 000 Students in 2008 -09 • 1, 500 buildings worth $12 B • $2. 3 B in salary and compensation 4

State Operating Appropriations as % of Institutional Expenditures 70. 0% % of total exp from state operating appropriations 60. 0% % of Operating exp from state operating appropriations 50. 0% 40. 0% 30. 0% 20. 0% 10. 0% Indiana Univ. Purdue statewide Ball St. Univ. avg. Univ. Indiana St. Southern Univ. Indiana ITCCI Vincennes Univ.

State Income—By Source 10% 5% 6% Sales Tax 47% Individual Income Tax Corporate Income Tax Gaming Other 33% Approximately $13 billion per year

State Expense—By Source 14% 3% K-12 Higher education 5% 48% 5% Medicaid Teacher Pensions Corrections Child Welfare 13% Other 13% Approximately $13 billion per year

Percentage of state General Fund appropriated to IHEs

$ 2010 -11 2009 -10 2008 -09 2007 -08 2006 -07 2005 -06 2004 -05 2003 -04 2002 -03 2001 -02 2000 -01 1999 -00 1998 -99 1997 -98 1996 -97 1995 -96 1994 -95 1993 -94 1992 -93 1991 -92 1990 -91 1989 -90 1988 -89 1987 -88 1986 -87 1985 -86 1984 -85 1983 -84 1982 -83 1981 -82 1980 -81 1979 -80 1978 -79 1977 -78 1976 -77 1975 -76 State Appropriations to Public IHEs state appropriations 1976 - 2011 $ 1, 400, 000 $ 1, 200, 000 $ 1, 000, 000 $ 800, 000 $ 600, 000 Compound Annual Growth Rate: 4. 7% $ 400, 000 $ 200, 000

State General Fund Appropriations to Higher Education $2, 000, 000 Total HE Appropriations Campus Operating Appropriations $1, 800, 000 $1, 600, 000 $1, 400, 000 $1, 200, 000 $1, 000, 000 $800, 000 FY 2011 FY 2010 FY 2009 FY 2008 FY 2007 FY 2006 FY 2005 FY 2004 FY 2003 FY 2002 FY 2001 FY 2000 Total appropriations include: SSACI, capital and line item appropriations

HIGHER EDUCATION STATE FUNDING NATIONAL CONTEXT

FY 2009 State Appropriations per FTE $ 16, 000 $ 14, 000 $ 12, 000 Vermont New Hampshire South Dakota Colorado Montana Indiana Rhode Island Ohio Oregon Michigan North Dakota Pennsylvania Massachusetts Kansas Delaware South Carolina Virginia Iowa Missouri Minnesota Utah West Virginia Washington Wisconsin Florida Maine California US Nebraska Arizona Mississippi New Jersey Illinois Tennessee Arkansas Kentucky Louisiana Maryland Alabama Texas New York Connecticut New Mexico Georgia Nevada Oklahoma North Carolina Idaho Hawaii Alaska Wyoming $ - Indian a $ 8, 000 U. S. Avg. $6, 934 $ 10, 000 $ 6, 000 $ 4, 000 $ 2, 000

FY 2009 Net Tuition Revenue per FTE $ 14, 000 $ 12, 000 $ 10, 000 $ 6, 000 California New Mexico Wyoming Georgia Washington Florida North Carolina Nevada Louisiana Idaho Hawaii Utah Illinois New York Nebraska Wisconsin Texas Tennessee Mississippi Kansas US Missouri Alaska Oregon Massachusetts Montana Arkansas Oklahoma Arizona Minnesota Colorado Kentucky Ohio South Dakota Indiana Alabama Iowa Connecticut Virginia South Carolina North Dakota West Virginia Maryland New Jersey Maine New Hampshire Michigan Pennsylvania Rhode Island Delaware Vermont $ - U. S. Avg. $4, 095 Indiana $5, 379 $ 8, 000 $ 4, 000 $ 2, 000

FY 2009 Total Educ. Revenue per FTE $ 20, 000 $ 18, 000 $ 16, 000 $ 12, 000 California South Dakota Washington Florida Montana Colorado Utah Oregon Kansas Indiana Massachusetts Ohio New Mexico Missouri Wisconsin Louisiana New Hampshire South Carolina Georgia Nebraska US North Carolina Minnesota Nevada Illinois Virginia Mississippi Iowa Tennessee Arizona New York North Dakota Idaho West Virginia Arkansas Texas Hawaii Michigan Kentucky Alabama Oklahoma Rhode Island Pennsylvania Connecticut Maine Vermont Maryland New Jersey Delaware Alaska Wyoming $ - Indiana $10, 102 U. S. Avg. $10, 991 $ 14, 000 $ 10, 000 $ 8, 000 $ 6, 000 $ 4, 000 $ 2, 000

2009 Tax Revenue per Capita $ 8, 000 $ 7, 000 $ 6, 000 $ 4, 000 Alabama Tennessee Mississippi South Dakota South Carolina Idaho Kentucky Arkansas Missouri Oklahoma Indiana Utah West Virginia Oregon Montana Texas Georgia North Carolina New Hampshire Iowa Arizona Michigan New Mexico Colorado Florida Ohio Louisiana Nebraska North Dakota Kansas Nevada Wisconsin Virginia Pennsylvania U. S. Delaware Washington Maine Illinois Rhode Island Minnesota Vermont California Maryland Massachusetts Hawaii New Jersey Connecticut Wyoming New York Alaska $ - Indiana $3, 332 $ 5, 000 U. S. Avg. $4, 242 $ 3, 000 $ 2, 000 $ 1, 000

2009 Total Taxable Resources per Capita* $ 90, 000 $ 80, 000 Mississippi West Virginia Arkansas South Carolina Kentucky Alabama Idaho Michigan Maine Montana New Mexico Utah Oklahoma Tennessee Arizona Missouri Indiana Ohio Georgia North Carolina Wisconsin Vermont Iowa Oregon Kansas Pennsylvania North Dakota Louisiana Nebraska Florida Texas South Dakota U. S. Hawaii Rhode Island Minnesota Illinois Colorado New Hampshire Washington California Virginia Nevada Maryland Massachusetts New York New Jersey Alaska Wyoming Connecticut Delaware $ - Indiana $45, 213 $ 60, 000 U. S. Avg. $52, 754 $ 70, 000 $ 50, 000 $ 40, 000 $ 30, 000 $ 20, 000 $ 10, 000 *Total Taxable Resources per capita from U. S. Treasury Department: www. treas. gov/offices/economicpolicy/resources/estimates. html

19 6 19 9 7 19 0 71 19 7 19 2 7 19 3 7 19 4 7 19 5 7 19 6 7 19 7 7 19 8 7 19 9 8 19 0 8 19 1 8 19 2 8 19 3 8 19 4 8 19 5 8 19 6 8 19 7 8 19 8 8 19 9 9 19 0 9 19 1 9 19 2 9 19 3 9 19 4 9 19 5 9 19 6 9 19 7 9 19 8 9 20 9 0 20 0 0 20 1 0 20 2 0 20 3 0 20 4 0 20 5 0 20 6 07 Indiana per Capita Income as Percentage of U. S. Average 100. 0% 98. 0% 96. 0% 94. 0% 92. 0% 90. 0% 88. 0% 86. 0% 84. 0%

Higher Education Appropriations per $1, 000 of Personal Income $20. 00 $18. 00 $16. 00 $14. 00 $12. 00 $8. 00 New Hampshire Colorado Vermont Massachusetts Rhode Island Pennsylvania New Jersey Missouri New York Connecticut Oregon Virginia Illinois Ohio Nevada Montana Michigan Maine Maryland Wisconsin Florida Arizona Washington South Dakota United States Indiana Delaware Texas Minnesota Tennessee California Kansas Iowa Idaho Oklahoma South Carolina Georgia Utah Nebraska Kentucky Arkansas West Virginia North Dakota Alaska Louisiana Hawaii Wyoming North Carolina Mississippi Alabama New Mexico $0. 00 U. S. Avg. $6. 80 Indiana $6. 95 $10. 00 $6. 00 $4. 00 $2. 00

State Revenue Performance

State General Fund Revenue Growth 15. 0% 13. 1% 10. 0% 6. 9% 7. 4% 7. 5% 5. 4% 5. 0% 5. 7% 2. 9% 6. 3% 4. 5% 2. 4% 0. 0% -0. 8% -3. 6% -5. 0% -7. 4% -10. 0% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Note: FY 10 and FY 11 per December 2009 Revenue Forecast -6. 4% 2010 2011

Revenue Growth and Higher Education Appropriations 2000 -2011 15. 0% GF growth HE approps 10. 0% 5. 0% 0. 0% -5. 0% -10. 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

State Expenditure Growth 9. 7% 10% 9% 8. 0% 8% 7% 7. 6% 7. 1% 6. 5% 5. 6% CAGR 1996 -2005 2. 3% CAGR 2006 -2009 5. 1% 6% 4. 9% 5% 4. 1% 3. 9% 4% 2. 7% 3% 1. 9% 2. 8% 2% 0. 8% 1% 0. 5% ----F 1996 F 1998 F 2000 F 2002 F 2004 F 2006 F 2008

Real Per Capita Expenditures* $2, 370 $2, 320 CAGR = -1. 3% $2, 270 $2, 220 $2, 170 $2, 120 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 * Includes Major Moves Investments

Revenue Collections FY 2006 – FY 2011 $14, 500 $14, 005 $14, 000 $13, 701 $13, 500 $13, 135 $12, 906 $13, 000 $12, 836* $12, 500 $12, 076* $12, 000 $11, 500 $11, 000 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 *projected

15% Comparison of Forecasted to Actual Revenue 10% 5% Percent Change (FY 2010 vs. FY 2009) 0% Targets from May Forecast -5% -10% Targets from December Forecast -15% -20% -25% June May April March February January December November October September August July Year-to-date = -10. 5% Last year = -7. 4% 25

The Good News is: We Entered the Recession in a Strong Financial Position

Budget Surplus/Deficit 600. 0 400. 0 200. 0 ----- 1998 (200. 0) (400. 0) (600. 0) (800. 0) (1, 000. 0) (1, 200. 0) (1, 400. 0) (1, 600. 0) 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

State Reserves (Cash – Liabilities) 1600 1329 1400 1200 1000 800 600 400 2001 -200 -400 2002 2003 2004 -179. 199999 2005 2006 2007 2008 2009

The Bad News is: The Challenges are Unprecedented

Much Worse Than Prior Recessions 6. 0% 4% 4. 0% 2. 0% 0. 0% -2. 0% -4. 0% 1% FY 1991 FY 1992 FY 2001 FY 2002 -1% FY 2009 FY 2010 -4% -6. 0% -8. 0% -7% -10. 0% -12. 0% -11%

Sales Tax: CY 2009 vs. CY 2008 ics l ro n ar e El e/ Ap p lia nc -4% ec t Ap p Im e m Ho Ho -4% pr lit y ita sp Ve hi cle s s Ga tie ili Ut -4% -5% s l ra ne Ge TO TA L 0% -10% -9% -15% -20% -25% -30% -25% -9% -10% -11%

Budgeted Revenue: FY 2010 -11 29, 000 Dec-08 28, 143 Apr-09 May-09 Dec-09 28, 000 27, 452 27, 000 Current Spend 26, 748 26, 000 25, 000 24, 913 24, 000 23, 000 Forecast reduced over $3 billion in one year. Missed forecast 17 straight months

Without Budget Management, State Reserves would be Depleted by End of Biennium Total State Reserves in millions $1, 500 $1, 329 $1, 000 $500 $379 $211 $0 6/30/09 3/1/10 6/30/11 ($500) ($1, 000) ($1, 500) ($909)

Summary– Progress, But More Action Needed -$1. 8 billion (=December 2009 revenue projection vs. May 2009 budget) +$770 million (= agency and education reductions) +$1 billion (= all remaining reserves and rainy day funds) -$112 million (=revenue loss since December 2009 forecast) = -$142 million deficit if no further actions are taken Goal– continue to take necessary actions to spend within our means, align operating expenses with operating revenues and avoid tax increases

State Fiscal Outlook • Even if current forecast is met, state reserves balances will be fully expended • Next legislative session – portends most difficult biennial budget in memory: – Loss of federal stimulus funds ($867 M SFSF) – Revenue and expenditure imbalance – No state reserves to draw down

Distributing Scarce Resources

Commission Budget Responsibilities and Priorities • Debt Service • College Completion Incentives: – Number of Degrees – On-Time Degrees – Low Income Degrees • Enrollment/Student Course Success Incentive • Research Funding Incentive • R&R • Economic Development • Two-Year Transfer Incentive • Student access and success (SSACI) 37

Evolution of CHE Funding Recommendations 2001 2003 2005 2007 2009 Enrollment Change (credit Enrollment Change (credit (successfully completed hours enrolled) credit hours) Inflation Adjustments Equity Adjustment Plant Expansion/leases Program Adjustment Research Support Incentive Research Support Incentive Change in number of degrees Change in On-Time graduation Rate Two Year Transfer Incentive Low Income Degree Completion Incentive Workforce Development Incentive (funding noncredit coursework)