Description

Central Connecticut State University’s (CCSU) total operating revenues, including federal and private grants, almost doubled during the ten-year period ending FY 2008 from $102 million to $198 million.  State operating budget support doubled but fell slightly as a percentage of total revenue from 43.6% in FY 1998to 41.2 % in FY 2008.  Tuition and fees offset the slight percentage decline in state support.

Tuition and fee growth was driven by increasing enrollment during the period.  Full-time student equivalents grew by 20% over the period from 7,301 in FY 1998 to 8,756 projected for FY 2008.  While tuition charges to students were increased sharply during the middle portion of the period under review, CCSU’s financial stability has allowed for a marked reduction in the percentage increase over the past three years, with much of those increased funds being returned to the students in the form of financial aid.

A comparison of the FY 1998 to FY 2007 balance sheet also shows a strengthening financial position.  CCSU’s unrestricted fund balance, which dropped to single digits during the period, grew from $15 million in FY 1998 to $37 million.  This increase in equity is matched with an increase in cash to $38 million, the result of a conversion to electronic billing and strong management of receivables.

Lastly, long-term campus improvements were supported by an investment of $200 million over the period.

The State Legislature appropriates General Fund dollars to the Connecticut State University System (CSUS).  In the early 1990s, CSUS was granted operational autonomy and responsibility by several pieces of legislation known as the Flexibility Acts. 

These Acts gave the CSUS General Funds, in the form of a block grant appropriation along with hiring autonomy, check writing, and purchasing authority.

CSUS in turn has allocated State General Funds to the four universities within the System based on different formulas over the years.  The last Board of Trustees formula revision occurred in July 2005 at which time each university received a base cost block grant plus fringes to cover certain institutional and facilities fixed costs of operation.  In addition, each university receives a variable block grant based on the sum of the prior year’s ending full-time-equivalent of full-time students enrolled, with out-of-state students weighted on a 1 to 2.4 basis.  Enrollment numbers are based on the average of fall and spring third-week enrollment count.

The Operating Budget sets forth a proposed expenditure plan for the amount necessary to meet cost increases while providing a constant level of services.  It may also include an amount for new or expanded programs.  The Operating Budget includes various revenue sources including the State appropriation and tuition and fees, as well as other revenue sources, and is implemented through the utilization of the University’s financial accounting system known as BANNER.  Under this system, each unit and sub unit within the University establishes a budget.  Expenditures are compared against budgeted amounts by the Budget Office to ensure proper fund utilization and to prevent cost overruns.

Historically, the discretionary portion of budget preparation by senior administrators revolved around the allocation of “discretionary personal services and other expenses,” which amounted to only 10% of total operating expenses.  Full-time personnel expenditures, which constitute the bulk of operating expenditures, were “owned” by central administration.  If a position became vacant, a weekly committee process would determine whether the position would be approved for refilling.  This process of required reauthorization created a culture of “use it or lose it.”  Hence, there was not much motivation to take advantage of cost-savings opportunities or to promote change.

In FY 2007, Central converted to a budgeting model that assigns responsibility for all controllable costs in their respective units to each chief officer and vice president. This conversion required reconciling each division’s costs with the total university budget, thereby familiarizing unit budget administrators with all costs under their control and assuring the Budget Office that the university budget would continue to be balanced. 

While still a work in progress, an equally important change in the budget process has been to add transparency to budget preparation and improved communication of the operating budget to the university community.  Executive Committee members presented their FY 2008 budgets to the University Planning and Budget Committee (UPBC).  In its advisory role to the President, the UPBC serves as a clearinghouse of ideas for discussion and advice concerning general budget matters and evaluates planning and budget processes and recommends changes as needed.

Having considered feedback from the UPBC, unit administrators make appropriate adjustments to their proposed budgets, which they present to the President in a budget meeting that includes the Chief Financial Officer and the Controller.  Upon approval by the President, all unit budgets are rolled into a university-wide budget and presented to the CSUS Chancellor in the late spring for his approval and recommendation to the Board each June.

The Connecticut State University System’s Board of Trustees meets to review and approve the System’s operating and capital budgets. 

Each June, the Board’s Finance and Administration Committee conducts Spending Plan Hearings at which each University’s operating budget is discussed in detail and recommended to the full Board for approval.

CCSU prepares and presents its annual Spending Plan in essentially a current funds format.  This format aggregates education and general, auxiliary services (i.e., housing and food services) and self-supporting programs (excluding federal and private grants) operating expenses in order to format annual financial information on a comparable basis.  This format also makes it easier to identify the causes for changes over the years to unrestricted net assets (i.e., fund balance), which provides an important measure of the University’s financial health.

The financial information that follows is from the Spending Plans submitted to and approved by the Board of Trustees.  These plans are on file in the document room (Exhibit 9.1).

The table below compares CCSU’s operating revenue for the last ten-year accreditation review (FY 1998),  the five-year update (FY 2003), and the budget for FY 2008, showing state support, tuition and fees, housing and food services, and other revenue.  The state appropriation has increased in each year presented but has declined as a percentage of total revenue to just over 41%.  This percentage shortfall has been made up in tuition and fees, both from annual increases and a growth in enrollment.

While overall headcount for full- and part-time students has grown by only 3% over the ten years, full-time undergraduate and graduate headcount are up over 30% from 5,899 students in FY 1998 to 7,713 projected for FY 2008.   CCSU has seen a 26% decline in part-time student headcount, but  full-and part-time student full-time equivalents (FTE’s) have grown from 7,301 in FY 1998  to 8,756 projected for FY 2008, an increase of 20%.

Enrollment-driven revenue growth, coupled with operating surpluses, has allowed CCSU to hold student tuition and fee increases to just cover inflation, substantially boost student financial aid, provide for “one-time” academic program expenditures, and build fund balances to finance necessary capital improvements that are not expected to be financed by the State.

Increasing enrollment and tuition increases averaging 10.5% for the four years ending FY 2005, restored CCSU’s financial health and allowed for an average 4.5% reduction in student tuition burden from FY 2006 through FY 2008.  Moreover, much of the recent tuition increases were returned to the students as direct financial aid, which grew from $3.4 million in FY 1998 to $7.8 million in FY 2008.  When adding in student employment and waivers, total student support exceeded $10 million in FY 2008, or about 6.4% of total operating expenses.

Salary savings contributed to operating surpluses in FY 2006 and FY 2007, $4.6 million of which was reinvested largely in “one-time” academic program enhancements.  The remainder of recent surpluses restored unrestricted fund balances (which had dropped from $15 million at the end of FY 1998 to $8.3 million in FY 2003) to $37 million at June 30, 2007.  A significant portion of the FY 2007 fund balance is earmarked for proposed plant and athletic field improvements, and acquisition and development of property for residence hall expansion. 

Annual government and private grants and contracts have averaged more than $14 million over the ten-year period, but have trended up to more than $21 million over the past three years.

For a complete summary of all current unrestricted and restricted funds operating results for the ten year period ending FY 2008, see Exhibit 9.2: Appendix A.

Capital Projects are financed by State general obligation bonds, Connecticut Health and Education Financing Authority (CHEFA) bonds repaid with student fees, or university plant fund reserves accumulated from operating surpluses.  For the nine-year period ended FY 2007, more than $200 million has been invested in plant, mostly through State and CHEFA bonds.

 The bulk of improvements took place through FY 2004.  Bonding allotments have been notably weak for the three years ending FY 2007, as the State has focused on other priorities.  However, the expectation is that State funding will dramatically increase with the passage of CSUS 2020 Legislation, which provides for $950 million for the ten years beginning with FY 2009.  Central’s portion is $248 million and will include significant improvements to classroom facilities. Exhibit 9.3: Appendix B shows capital expenditures by year and by funding source.

Supplementing State support is a significant commitment of the FY 2007 unrestricted fund balance to improve athletic fields and expand the footprint of the University in order to build much needed residence halls.

Each University President reports to the CSUS Chancellor who has accountability to the CSUS Board of Trustees.  Reporting to Central’s President, the Chief Financial Officer oversees all of the traditional financial functions through a Controller and Director of Business Services.

The Controller manages the activities of financial accounting, budgeting, cash management, financial reporting and audit.  In addition, the Controller has oversight for the Office of Grants Administration (OGA), which is responsible for the accounting and monitoring of funds received from federal, state and private grants and contracts.  The OGA also works closely with the Financial Aid Office and the Sponsored Programs Office.

The Director of Business Services has responsibility for student financial services which includes the bursar, cashier and student loan collections along with purchasing, accounts payable, payroll and contracts.

Separately, the Chief Administrative Officer reports directly to the President and is responsible for all planning and design, budgeting, construction and monitoring of all capital improvements. 

The Connecticut State University System Board of Trustees has an Audit Committee that receives annual financial audits and management letters from both independent auditing firms and the State Auditors for each University and the CSU System office   In addition, the System has an internal audit function that audits financial activities at each University in depth and issues detailed findings and recommendations to the Audit Committee. 

In order to satisfy other specialized requirements, the State Auditors perform an NCAA-required audit of athletics and a state-wide indirect cost audit for the federal government, and a private independent accounting firm audits and renders an opinion on the CCSU Foundation, Inc.

The CCSU Foundation Inc, incorporated in 1971, is the nonprofit, eleemosynary organization designated to receive gifts that benefit Central Connecticut State University or its students.  The University Development office oversees all fund-raising efforts conducted by the Foundation.  Fund raising priorities are derived from institutional goals and objectives.  Scholarships for students, academic development, library, and intercollegiate athletics represent the highest priorities for fund raising.

The University’s endowment has experienced considerable growth in the decade since NEASC’s last visit, having increased from $5,430,789 in 1998 to $26,063,243 in 2007. The hiring of a new Vice President for Institutional Advancement and the creation of five new positions for development officers reflect CCSU’s increased emphasis on advancement under the present administration.

In 1995, State of Connecticut legislation provided for an endowment matching program.  Each dollar of contributions received for endowment was matched by $1.00 for the first two years and then by $.50 from the State up to an annual maximum.  In the spring of 2005, the program was reduced to a match of $.25 on the dollar and included a provision that payments from the State would not occur until the amount in the State Budget Reserve equals 10% of the net General Fund appropriations.  Through December 31, 2006 a total of $2.9 million has been received under the State matching program.

As would be expected, Central’s participation in Division I intercollegiate athletics has required an increase in resource commitment.  As the NCAA-required audited financial statements (Exhibit 9.4) for athletics show, total operating expenditures in FY 1998 amounted to $5.1 million and increased to $8.8 million projected for FY 2008.   Most of the increase was as a result of increasing Grants-in-Aid by 250% to $2.5 million and an increase in salary support, in part to convert part-time coaches to full time. 

Although athletic revenues and gifts went up substantially during the same period, university support was required in all years.  That support totaled $4.8 million in FY 1998 and grew to $7.8 million in FY 2008.  While this represents a $3.0 million increase in direct support, as a percentage of total operating expenditures, the intercollegiate athletic budget dropped from 6.22% of total operating expenditures in FY 1998 to 5.77% in FY 2008.  Moreover, net support from the University, which was 5.77% in FY 1998 dropped to 4.66% in FY 2008.

All fiscal policies are stated in writing and can be found in the document room and/or on CCSU’s Web site.

Appraisal

Central Connecticut State University is a financially stable Institution with very high quality education programs.  The fiscal year ending June 30, 2008 concluded with a balanced budget and a strong balance sheet.

An increasingly bleak outlook for the national and state economy has caused the Governor to institute a 3% rescission of FY 2009 state support which will reduce Central’s funding by about $2.1 million dollars.  At the same time, the Connecticut State University System has changed the allocation of state support to correct disproportionate support for fixed costs between the two larger Universities and the two smaller ones causing an additional reduction of approximately $900,000 in General Fund dollars to Central for FY 2009 and FY 2010.

A favorable outcome of the new budgeting process has been to prepare the University for more difficult times ahead.  Moreover, the new budget process received high marks for transparency, clarity and inclusiveness of the entire university community in a December 2007 university-wide survey.

However, that same survey indicated the need for the budget process to focus on more internal communication on the significant increases in the amount of funding provided for student financial support over the last three years.  In FY 2007 alone, 96% of the 5% tuition increase was returned to the students in either direct aid or increased funds for student employment.  As indicated in the Description Section, the past three years has seen support for student aid, waivers and employment grow to $10 million dollars, or 6.4% of the FY 2008 operating budget as compared to $3.4 million or less than 4% of the FY 1998 budget.  Moreover, this increase in student support has been accomplished while achieving another budgetary goal of maintaining tuition and fees at or below market rates.

Projection

Notwithstanding the strong headwinds buffeting the overall economy, Central is well positioned to meet all financial challenges and continue to expand quality educational programs.  A 2% greater than budget increase in enrollment in FY 2008 and careful control of expenditure budgets by management from the executive level down to departmental supervisors will assist in offsetting the above $3,000,000 loss of funding  for FY 2009.

Exhibit 9.5: Appendix C displays our FY 2009 Board approved operating budget as well as a comparative forecast for FY 2010 and FY 2011. The schedule shows all three years with balanced budgets and is followed by the principles and assumptions guiding the development of the forecast.

No growth in enrollment is anticipated for the coming year.  However, there is a very good chance of exceeding enrollment targets in certain areas such as engineering and nursing.  Tuition and fee increases have been held to inflationary increases and the forecast assumes that the FY 2009 General Fund budget reduction by the State will be restored in 2010 and maintained in 2011.

To the extent that state funding does not reach expected levels, Central has historically had a sufficient number of full time personnel vacancies to allow for managing turnover to assist in balancing the budget by not filling 100% of these vacancies.  This approach was encouraged when the System Office implemented a hiring freeze for FY 2009, which excluded certain categories of employees such as teaching faculty.  We do not expect increasingly scarce resources to preclude growing the number of full time teaching faculty positions which is among the highest priorities as referenced in the University’s Strategic Plan.

Institutional Effectiveness

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