Pima grapples with budget limit law

by NICK MEYERS

Pima Community College won a narrow victory earlier this year when a bill in the state legislature that would have cost the college an additional $30 million in spending failed.

The vote came less than a year after the state eliminated $7.1 million in funding to the college.

“It’s something that would have had a catastrophic effect if it had passed, because we would have had to immediately reduce our budget because of that bill,” said Michael Peel, government relations liaison for PCC. “We had to move quickly with the advocacy against this and all the community colleges were against such a bill.”

According to Pima’s Executive Vice-Chancellor of Finance David Bea, “You’re talking about massive cuts. It would have meant layoffs and cutting high -cost programs.”

Rep. Justin Olson, R-Mesa, introduced HB 2442 during a legislative session on Feb. 19, which would have changed a formula limiting Pima’s expenditures,  based on full-time student enrollment, to reflect the college’s actual enrollment as opposed to the estimate the college currently provides.

The bill is currently on hold while a study committee hears cases from community colleges, local businesses and the Arizona Tax Research Association. Pima administrators have attended the three sessions held so far to advocate for the college’s current budget decisions.

The formula calculates expenditure limitation for Arizona community colleges, which were introduced into Arizona’s state constitution in 1980, to restrict the spending of money collected from property taxes within each county.

The current calculation takes a snapshot of Arizona community college spending 35 years ago, adjusts for inflation and enrollment and dictates how much PCC can spend in revenue collected from property taxes.

The legislative committee spared Arizona’s community colleges in deciding to table the bill. Rep. David Stevens, R-Sierra Vista, introduced another bill that formed a study committee to explore the issues surrounding the calculations of Pima’s and other community colleges’ expenditure limitations.

“The formula is nutso,” said Libby Howell, spokeswoman for PCC.

“It’s this very arcane formula,” Howell added. “It uses a price index that nobody uses. It’s not valuable.”

The majority of support for HB 2442 comes from the ATRA, Olson’s previous employer. ATRA represents large business interests with officials from businesses like CenturyLink, Intel and Southwest Gas populating its board of directors, according to the group’s website.

“ATRA is very influential at the state level,” Bea said.

In defense of the bill, ATRA’s senior research analyst, Sean McCarthy, maintained that while multiple facets of state governance must adhere to expenditure limitation, community colleges are the only “jurisdictions” that have the ability to so freely dictate their budget.

“This provides a good step forward,” he said. “Right now what we’re doing is, essentially, disrespecting the constitution.”

However, now that the issue of expenditure limitation calculations is being discussed, almost all parties involved agree that some change has to be made.

“The expenditure limitation problem is a complex one,” Kristen Bollini, a lobbyist for community colleges in Arizona, said during public comments when the bill was introduced. “The estimates versus actual FTSE is a very small component of an overall challenging formula for the community colleges.”

In September, ATRA released a report analyzing Arizona community colleges’ finances, and accused Pima of exaggerating the estimate of full-time enrollment in order to “sidestep a declining expenditure limit.”

Indeed, PCC reported an FTSE of 23,000 while current enrollment hovers somewhere around 18,000—an overestimate Pima officials knowingly made.

Bea said “it would have been extremely unlikely” for Pima to reach such high levels of enrollment, as the college has seen enrollment decline since 2011.

However, like Pima, other community colleges have the tendency to vastly overestimate their enrollment in order to maximize expenditure limitations.

In 2014, Mohave, Graham and Pinal community college districts estimated FTSEs at a higher percentage of actual FTSEs than Pima.

The college stands by its estimate as it claims the extra cash is necessary to operate in the 21st century.

Howell said that the exaggerated estimate “allows us the opportunity for growth and to plan ahead. If you told any other kind of business that they could estimate what their customer demand was going to be, it’d completely hamstring them.”

A major difference between 1980s Pima and today’s Pima is the higher cost of technical programs such as nursing, dental hygiene and truck driver training. The current formula for expenditure limitations does not reflect the higher per-student cost of these programs compared to per-student costs of 1980.

“We are very different today than we were in 1980,” Bollini said in defense of all Arizona community colleges. “The programs this state needs are very different today than they were in 1980, and it’s time to adjust the formula.”

Pima also maintained a “fiscally conservative” budget in 1980, placing them far below the average of Arizona community colleges. In fact, Pima had the lowest expenditure per student of all Arizona community colleges in 1980. This allows other colleges to spend more per student than PCC.

If Pima’s expenditure limitation was set to the average of all Arizona community colleges, the college would see a $60 million increase in available funds.

“It’s a fascinating case of policy gone awry and not understanding the long-term implications,” Peel said.

The college’s expenditure limitations do not affect the rate of property taxes. PCC has maintained a tax rate below the state average for the last 10 years.

Almost every community college district in the state raises property tax rates the maximum 2 percent every year, and Pima doesn’t have a secondary tax, unlike some districts.

A few other nuances of expenditure limitation keep community colleges from being able to maximize their potential budget, such as what is and isn’t included in the law.

One common example is that funding for buildings are exempt from the expenditure limitation.

“We could build a building, but we can’t run a program in the building to educate the students,” said Howell.

If changes are made that aren’t in the colleges’ best interests, costs may need to be accounted for in other areas. Currently, tuition is the largest source of income for colleges that is not included in the expenditure limit.

“That puts huge upward pressure on tuition,” Bollini said. “If we’re going to continue to operate community colleges in an affordable manner…tuition increases are not the way to go.”

Also included in the expenditure limit are certain financial involvements from local businesses.

According to Bea, depending on how a contract is worded, if a business wants to fund a program at a community college, the college may not be able to accept due to expenditure limitation.

“We’re trying to maintain the very expensive workforce development programs, the very programs that we’re penalized for providing in a time of economic need for Arizona,” Bollini said.

This has rallied support for community colleges from local businesses in the ongoing study committee.

A Tucson company called World View is one such business that came to Pima’s aid in the latest study session on Sept. 30. World View is a space-tourism company that builds high altitude balloons to send people into space beginning in 2017.

Maricela Solis de Kester, a government relations representative for World View, said during the study session that the company may have to move to Florida for better access to workforce development programs.

The company approached PCC about hosting a program to train 400 employees for a prospective factory but Pima is unable to develop the program due to expenditure limitations.

“If a business wants to go to us and say they want to continue and extend a program, they should be able to do that without any barriers,” Peel said. “We’re in a day and age where grants and entrepreneurial activity and business investment are the future.”

While all parties agree that something must be done to address the issue of expenditure limitations, no certain solution is in sight. With the current legislative session coming to a close, time is running out for legislators to arrive at a solution.

College officials said several options exist that may satisfy the needs of all community colleges. Possible changes include weighing certain programs to receive more money or changing the way the formula accounts for inflation.

“There’s a lot of areas that we’d like to see improved,” Peel said. “The question is, how beneficial is one change compared to other changes to the law? That’s where the negotiations get very complicated. There’s all these factors you have to take into account.”

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