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Guarded optimism for ’04 – ’05 budget

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by Kenneth Todd Ruiz
Editor in Chief

Budgetary belt-tightening in response to an unexpected deficit at the University of La Verne this year will continue into next year to keep the school solvent.

This year’s efforts by the University of La Verne to limit hiring and cut spending have largely made up for a $3 million shortfall in revenue, and served to protect the University’s credit rating, protecting future borrowing power.

According to ULV Treasurer Avo Kechichian, mandatory cuts of 9 percent for most departments have saved the school $1.6 million while the limited hiring freeze has made up for another $1 million. A shuffling of finances from a budgeted contingency fund and some siphoning from funds set aside for deferred maintenance will allow the University of La Verne to address the remaining $400,000 and close out this fiscal year in the black.

“The 9 percent cut was in operational budgets, excluding salaries,” Kechichian. “We did not incur the cuts where there were salary savings due to leaving positions vacant, such as with the International Study Abroad Center.”

The College of Law was also exempted from the reduction.

Next year’s budget, which begins July 1, is La Verne’s largest ever at $95.6 million, a 6.3 percent increase. Again, projections for the year anticipate revenues to fall $2.9 million under expenses, but the school plans to shift money from its “quasi-endowment” to cover the difference.

“The quasi-endowment is a savings account,” Kechichian said. “Those are funds that the Board of Trustees has instructed the university to put aside from our year-end available funds.”

ULV’s revenues have not exceeded expenses since 2000, and since that year transfers from this savings fund have increased each year, with close to $4 million transferred this year. Kechichian said the school has around $10 million in this fund.

Most of the funds coming from this savings have been used to support the law school, which is looks poised to fail a third costly bid at accreditation.

Kechichian said they expect to see this need decline.

“The plan is to reduce the dependence on the quasi-endowment for the next three to four years,” he said. “The Board of Trustees and senior management are in discussions to come up with a plan for this.”

More than a good-faith effort to avoid running a deficit, the University’s efforts to stabilize the budget are essential to maintain a positive bond rating. Just as an individual’s borrowing power is determined by their personal credit ratings with firms like Experian or Equifax, the University is reviewed annually by Moody’s Investor Services to assess the financial footing of the institution.

La Verne holds a better-than-average bond rating with Moody’s, but after this year’s review the school’s outlook was revised from positive to stable.

Moody’s describes the University’s rating of BAA as a medium-grade, moderate credit risk which “may possess certain speculative characteristics.”

For the University to be downgraded from its current rating would be financially disastrous.

“To lose your rating is death to any progress,” Gordien said. “As the controller it is my charge to make sure that our rating does not move down.”

The school has an outstanding $21 million from bonds floated in 1993 and 2000 for projects such as the Landis Academic Center, Wilson Library and the Oaks Residence Hall.

Gordien said that such bonds are issued with a strict list of rules that must be followed for the entire period the bonds are out, and that to maintain the school’s financial health and positive rating, ULV has to maintain ratios of revenue to expenses and demonstrate stability.

Should a downgrade in rating occur, the school would be required to immediately pay back the $21 million in outstanding bonds.

Lacking a sizeable endowment, the overwhelming majority of ULV’s revenue is derived from student tuition. For next year, tuition will comprise 94 percent of general fund revenue with just over $87 million expected.

Of this 71 percent is generated by the College of Arts and Sciences and the School of Continuing Education. As the University’s biggest money makers, these two colleges are projected to bring in significantly more revenue than the College of Graduate Business and Public Management, the College of Education and Organizational Leadership and the College of Law combined.

In an April 20 memorandum addressing next year’s budget, Executive Vice-President Phil Hawkey anticipated a 50 percent increase in revenue from the College of Law, up from $3.84 million to $5.74 million.

According to the budget approved by the Board of Trustees, close to $4 million will come from auxiliary services such as housing and Sodexho’s catering contract.

The economic outlook soured at the beginning of this school year, with the word shortfall being used to describe enrollment numbers that did not meet projections. Fewer students than expected had enrolled in the University.

“We looked at where we were in the fall and in some areas we had to take another look and revise our outlook,” said University President Stephen Morgan.

Kechichian said that at the time all departments were looking to fall short except for the law school and that budget projections were revised accordingly.

He said that going into spring, the law school failed to meet its projections, and the other schools missed their revised enrollment targets. One bright spot was in the College of Arts and Sciences, which was able to meet not only the revised goal but the original one set for the year.

“Extra efforts brought by the admissions staff and retention services managed to retain more returning students,” Kechichian said.

Although raising tuition would seem an obvious remedy, it actually brings little gain. Tuition for traditional age undergraduates is being raised by $1,000 to $21,500 but that increase for the expected 1,348 students next year will not translate into a revenue increase of $1,348,000. It will only increase revenue by $81,100. ULV awards large tuition discounts and grants to students. According to the budget memo, entering freshmen will have a discount rate of more than 50 percent.

“We need to get that number down, while not impacting our educational mission,” Morgan said.

Among various efforts to stem the slow bleed, the University is instituting a new library services fee of $10 and a convenience fee for credit card payments. Additionally it is cutting the deferred maintenance and capital improvements budget from $700,000 to $400,000.

Additional plans in the works include moving to a multi-year budget plan to provide greater scope for long-term planning.

“Multi-year budgeting will help us to better plan,” Morgan said.

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