} Proposition 109 created expenditure limitations for school districts and community college districts

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2 } In 1980, Senate Concurrent Resolution 1001 established 10 propositions to amend Article IX, Section 21 of the Arizona Constitution to generally restrict debt and taxation rules for local agencies } Proposition 109 created expenditure limitations for school districts and community college districts } Governed by both Arizona Constitution and Arizona Revised Statutes

3 } EL is a cap on expenditures of Local Revenues } EL doesn t limit taxes; it limits spending on essential educational operations } Laws are already in place that limit taxing Truth-in-Taxation } EL is based on enrollment, which is driven by unpredictable outside factors such as: when the economy is declining, enrollment generally increases when the economy is improving, enrollment generally decreases

4 } Certain types of revenues and expenses are excluded from EL accounting } Excludable revenue includes: Grants Tuition and Fees Investments } Excludable expenses include: Intergovernmental contracts amounts accumulated by for the purpose of purchasing land, buildings, or improvements or constructing buildings or improvements } Most general fund and operating expenses are not excludable, including: personnel costs; most computing equipment; license agreements; utilities.

5 } The Economics Estimates Commission: Calculates & Publishes Expenditure Limitations Preliminary calculations February 1 st Final calculations April 1 st } Budgeted expenditures are audited during the annual financial audit

6 } Specific methodology and formula are specified } Base year is FY 1980 and expenditures are indexed for enrollment and cost of living changes FY 1979/80 Base Limit X 2015/16 FTSE (Estimate) 1979/80 FTSE } The FY 2016 formula for PCC is: X GDP Implicit Price Deflator 2014 GDP Implicit Price Deflator 1978 = Final FY 2015/16 Expenditure Limit $19,071,763 X 23, X 11, = $114,444,168

7 PCC s Statutory Expenditure Limit FY $140,000,000 $120,000,000 $100,000,000 $80,000,000 $60,000,000 $40,000,000 $20,000,000 $ Fiscal Year Statutory Expenditure Limit

8 PCC Expenditure Limitation Budget Plan $130 M Target EL Enrollment = 22,000 $120 M $110 M Dollars $100 M $90 M Reduced 2016 Budget by $7.5 million Reduce Budget by $2.5 million per year $80 M $70 M Estimated EL $123.0 M $125.9 M $126.0 M $115.8 M $112.3 M $114.4 M $106.1 M $102.5 M $109.3 M $116.2 M Expenses $94.8 M $98.1 M $105.1 M $108.7 M $112.3 M $107.3 M $104.8 M $102.3 M $99.8 M $101.3 M Target EL $123.0 M $125.9 M $126.0 M $115.8 M $112.3 M $109.5 M $106.1 M $102.5 M $109.3 M $116.2 M Dollars by Fiscal Year

9 } NOT Accountable } NOT Transparent } NOT Responsive } NOT Supportive of a Free Market } NOT Effective! We can build buildings We can t build high-demand, high-wage, high-tech programs

10 FTSE estimated, not actual Places artificial importance on a single fiscal year: years of compounding creates enormous issues now Inflationary index has had a great impact on Expenditure Limits now Prevents 21 st Century Successes

11 } Enrollment is based on College-provided FTSE projections for upcoming fiscal year and are not tied to audited FTSE. } This disparity has become significant for PCC and the other Arizona Colleges in the past few years as our enrollment declined from the peak of approximately 23,000 in FY 2011 to under 17,000 in FY } This trend is typical of the other community colleges, but likely worse at PCC due to the dramatic enrollment declines we have experienced. } For the most recent two years, all of the Arizona Community Colleges have a higher EL level for their calculation than the audited FTSE. } The EL formula does not adequately reflect high cost programs that have low student counts due to accreditation/legal requirements (e.g. nursing, aviation)

12 } The inflationary measure is based on the GDP implicit price deflator (GDPDEF). } While this is a rational index based on all goods and services in the US, it has increased at a very slow rate compared to any typical measure of college costs. } The Consumer Price Index Urban (CPI-U), which itself arguably understates cost increases relevant to higher education, has grown about 26 percent more during the relevant time period. } Within the GDP implicit price deflator is a subcomponent of state and local government expenses which has grown 42 percent more over that time period.

13 Cost of Living Measure Comparison HEPI CPI 2 GDP PD

14 Expenditure Limitation (EL) per FTSE by Community College District FY 1980 (Base Year) vs. FY 2016 $12,000 $11,000 $10,000 In 1980, the difference between Pima's EL per FTSE ($1,728) and the average ($2,666) was $938. In 2016, the difference between Pima's EL per FTSE ($4,976) and the average ($7,677) is now $2,701. In 1980, if Pima's base EL had been at the average ($2,666) instead of at the calculated level ($1,728), this would translate into $62 million in additional capacity now. $9,000 $8,000 $7,000 $6,000 $2, Avg.= $7,677 $5,000 $4,000 $3,000 $2,000 $1,000 $938 In 1980, Pima had the lowest EL per FTSE: $1,728. This was partly due to a "fiscally conservative" budget for 1979/ Avg.= $2,666 $0 Pima Maricopa Gila Santa Cruz Navajo Coconino Average Cochise Mohave Pinal FY 1980 EL$/FTSE $1,728 $1,936 $2,153 $2,153 $2,373 $2,460 $2,666 $2,801 $3,063 $3,073 $3,184 $3,392 $3,673 FY 2016 EL$/FTSE $4,976 $5,574 $6,200 $6,200 $6,835 $7,084 $7,677 $8,066 $8,821 $8,849 $9,170 $9,769 $10,578 Yuma/La Paz Graham Yavapai

15 } Taxing limits are already imposed via 2% levy limit } Recalibrating the EL to be based on actual FTSE would immediately reduce the amount of money the College could spend on education, exclusive of a LARGE offsetting tuition increase. } It would not necessarily reduce taxes the College could generate. } Reporting of EL is inconsistent throughout the AZ community colleges.

16 } Exceeding the Expenditure Limitation The Constitution specifies that the governing board shall not authorize expenditures of local revenues in excess of the expenditure limitation Penalties for exceeding EL include withholding portions of state aid Credits can offset an overage } Both the Arizona Constitution and Arizona Revised Statutes govern EL

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18 Use better measurement of student count Eliminate punishment for historical fiscal prudence Change inflation measure Encourage high-cost / high-demand / highwage programs Enable community colleges to develop entrepreneurial partnerships

19 } Study Committee on Community College Finance and Expenditure Limits } Arizona Tax Research Association (ATRA) } AZ Community College Presidents Council (AC4) } AZ Community College Business Officers Council

20 } Arizona Constitution: Article IX - Public Debt, Revenue and Taxation, Section 21 - Expenditure limitations for school districts and community college districts). } Arizona Revised Statutes: Expenditure limitations: determination by the commission: definitions Elections for expenditures in excess of expenditure limitation Uniform expenditure reporting system: reports by counties, community college districts, cities and towns: certification and attestation: assistance by auditor general: violation: classification Expenditure limitations; overrides Community college bookstore revenue; expenditure limitation; penalty } Statutory Adjustments Workforce development accounts Proposition Grand Canyon Diploma Competency-based college-ready educational pathways

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