Report to the Interim Committee on Statutory Funding Formulas / Higher Education Funding Formulas: Community College Districts Universities

              Report to the
Interim Committee on
Statutory Funding Formulas
Higher Education Funding Formulas:
A. Community College Districts
B. Universities
Prepared by
The Staff of the
Joint Legislative Budget Committee
August 1993
Foreword
This report has been prepared in accordance with the
provisions of Laws 1993, Chapter 38, which created
the Interim cbmmittee on Statutory Funding
Formulas and provided for the JLBC Staff to compile
a listing of statutory funding formulas for the
Committee's consideration. This report represents a
compilation of Higher Education funding formulas,
primarily for the Community College Districts. It
also includes information on the university system
building renewal formula and a non- statutory funding
formula for student enrollment growth.
Higher Education
Summary and Table of Contents
FY 1994 State or Federal Page
Agency/ Program Name General Fund Budget Program No.
Community College Districts
Operating State Aid $ 69,004,700 State 5
Capital Outlay State Aid 10,319,000 State 10
Equalization Aid 6,611,600 State 14
Capital Outlay for Initial or Additional Campus 200.000 State 16
Total Community Colleges $ 86,135,300
Universities
Building Renewal Formula 3.051.700 State 18
SUBTOTAL - STATUTORY ONLY $ 89,187,000
Universities
Non- Statutory Enrollment Formula 7.521.500 State 19
GRAND TOTAL- ALL HIGHER EDUCATION
Interim Committee on Statutory Funding Formulas
A. COMMUNITY COLLEGE DISTRICTS
B
I Interim Committee on Statutory Funding Formulas 1
STATE BOARD OF DIRECTORS FOR COMMUNITY COLLEGES
PROGRAM SUMMARY
Agency Description:
The Arizona community college system is comprised of a state board of directors and ten community college districts.
Each district receives formula- driven state aid for operating and capital outlay. Supplemental equalization aid is
provided to districts whose tax base is insuficient to support the level of support mandated by thefunding fomla.
Additional state resources may be provided for capital outlay for initial or additional campuses. Community colleges
provide programs not exceeding two years' training in the arts, sciences and humanities, beyond the twelfth grade
of public or private high school course of study, or vocational education, including terminal courses of a technical
and vocational nature and courses beyond the basic education courses for adults.
Summary of Funding Formulas:
1. . Operating State Aid ( A. R. S. 9 15- 1466)
A. Current year state aid adjusted by GDP deflator
B. Full- Time Student Equivalent ( FTSE) adjusted for student growth or decline
11. Capital Outlay State Aid ( A. R. S. 9 15- 1464)
A. $ / FTSE adjusted by GDP deflator
111. Equalization Aid ( A. R. S. 9 15- 1468)
A. Minimum assessed valuation ( A. V.) adjusted for average A. V. growth of rural districts
B. Actual A. V. less than minimum A. V. , multiply dzyerence by $ 1.37 / $ 1 00 A. V.
N. Capital Outlay: Initial or Additional Campus ( A. R. S. 9 15- 1463)
A. 50 percent of total cost not to exceed $ 1 million
FY 1994 State or Federal
AgencvIProgram Name General Fund Budget Program Page No.
Communitv College Districts
Operating State Aid $ 69,004,700 State 5
Capital Outlay State Aid. 11 10,319,000 State 10
Equalization Aid 6,611,600 State 14
Sub- Total - General Appropriations 85,935.300
Capital Outlay: Initial or Additional Campus 21 200,000 State 16
Toki - Aii Programs $ 86,135,300
- 11 Each district has the option of using up to 20% of its total capital outlay aid appropriation for operating aid
purposes, or this same amount may be taken out of its total operating state aid appropriation and used for capital
outlay purposes ( A. R. S. 9 15- 1464F).
- 21 Capital Outlay Bill - Chapter 2 ( H. B. 2002), 2nd Special Session - Section 27 of this act appropriates $ 200,000 from
the General Fund for the Navajo Community College District Show Low campus ( A. R. S. 15- 1463).
Interim Committee on Statutory Funding Formulas
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2 I
Community College District Source of Funds Summary
FY 1994 Approved: $ 350.644 Million Total
Property Tax Levy 55.6%
$ 194.938
Capital Outlay
$ 10.519
Other Funds
$ 2.798
rating Aid 19.7
Tuition & Fr -- ' nm $ 69.005
cqualiz,
$ 66.772 $ 6.612
Source of Funds in Millions
Percent of Total Funds
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AGENCY: State Board of Directors for Community Colleges ( SBCC)
PROGRAM: Operating State Aid
Statutory Citation: A. R. S. 8 15- 1466, Title XV, Chapter 12, Article 4, Community College District Finance .
Program Description
Provides for the cost of maintaining any district possessing the qualifications as prescribed in A. R. S. $ 15- 1466.
Supplemented by student tuition and fees, these costs include the administration, instruction, plant operations and
related district operating expenses, exclusive of all capital outlay items, special levies, auxiliary enterprise funds,
restricted funds and bond service items. Types of qualifying conditions districts must meet include: 1) being
equipped with suitable buildings, equipment and campus approved by the state board; 2) having 320 full- time
equivalent students attending in the district; and 3) having complied with all the requirements of the state board
including budgets and curriculum. Currently, ten community college districts are participating in the program.
FY 1994 Funding
Cochise
Coconino
Graham
Maricopa
Mohave
Navajo
Pima
Pinal
Yavapai
Yuma/ LaPaz
Total Operating Aid Program
Overview of Operating Aid Eligibility
Operating Aid is available to all community college districts. Community college districts may be organized for
a single county, two or more contiguous counties or an existing community college district and contiguous counties
if the proposed district has a primary assessed valuation for the preceding year of at least $ 448,017,200 and a
minimum population of 40,000 persons who are fifteen or more years of age, based upon the most recent federal
census. The minimum primary assessed valuation criteria to organize a community college district is adjusted
annually by the latest percentage change in total primary assessed valuation for all of the districts with a population
of less than 500,000 persons based on the most recent U. S. ten- year census.
The method for calculating operating state aid is a two- step process: 1 ;
A. GDP Deflator - adjusts each district's current year state aid for inflation using the percentage change in the
GDP Deflator from the second preceding calendar year to the calendar year immediately preceding the budget
year. This is the same deflator used for K- 12 as defined in A. R. S. 8 15- 901 B. 2. ( 0.
B. FTSE Adiustment - adjusts for the growth or decline in actual full- time student equivalent ( FTSE) enrollment
for each district by multiplying the change in the two most recent year's actual FTSE for each district by the
average state aid per FTSE appropriated in the current year ( the product of total operating state aid
appropriated in the current year divided by the most recent year's actual FTSE for all districts). The sum of
the base plus inflation plus/ minus FTSE change wi be adjusted in the next year.
b
Interim Committee on Statutory Funding Formulas 5
Operating State Aid By Community College District
FY 1994 Approved: $ 69.0 Million Total
Mohave
Navajo 4.7% , / kina1 6.5%
Percent of Total Operating State Aid
AGENCY: State Board of Directors for Community Colleges ( SBCC)
PROGRAM: Operating State Aid ( Cont'd)
Current Student Population Statistics ( As of June 1992)
Cochise
Coconino
Graham
Maricopa
Mohave
Navajo
Pima
Pinal
Yavapai
Yuma/ LaPaz
Total FTE Students
Benefts/ Services
The Operating Aid program provides for the operational expenses of maintaining any district. Operational expenses
include the administration, instruction, operation of community college plant, maintenance of community college
plant, fixed charges and contingencies incurred in the operation of a district, exclusive of all capital outlay items,
special levies, auxiliary enterprise funds, restricted funds and bond service items.
Allowable benefits are defined by statute.
Mandatory vs. Optional
Eligibility - All community college districts meeting the statutory requirements of A. R. S. 9 15- 1402, Title XV,
Chapter 12, Article 1, General Provisions for and Establishment of Community College Districts, are required to
be provided Operating Aid.
Benefitsfservices - Operating Aid is mandatory. However, it is important to note that since the revised formula's
inception in FY 1992, the Legislature has suspended the statutory funding requirements through the Education
Omnibus Reconciliation Bill ( ORB) and proscribed only partial formula funding adjusted for FTSE growth, but
without inflation.
Interim Committee on Statutory Funding Formulas
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$
0
cci
AGENCY: State Board of Directors for Community Colleges ( SBCC)
PROGRAM: Ca~ italO utlay State Aid
Statutory Citation: A. R. S. $ 15- 1464, Title XV, Chapter 12, Article 4, Community College District Finance
Program Description
Provides state aid per capita distribution for capital outlay to all community college districts as prescribed in A. R. S.
$ 15- 1464. These costs include the repair, rehabilitation or replacement of all capital outlay items. Types of
qualifying conditions districts must meet include: 1) be equipped with suitable buildings, equipment and campus
approved by the state board; 2) have three- hundred- twenty full- time equivalent students attending in the district; and
3) have complied with all the requirements of the state board including budgets and curriculum. Currently, ten
community college districts are participating in the program.
N 1994 Funding
Cochise
Coconino
Graham
Maricopa
Mohave
Navajo
Pima
Pinal
Yavapai
YumaILaPaz
Total Capital Outlay State Aid Program
Overview of Capital Outlay Aid Eligibility
Capital Outlay Aid is available to all community college districts. Community college districts' eligibility is the
same as described for Operating State Aid.
The current capital outlay formula provides per capita funding to districts based on the district's size and most recent
year's actual FTSE:
A, FTSE and GDP deflator Adiustments - districts with 5,000 or less FTSE receive $ 207/ FTSE, while districts
with greater than 5,000 FTSE receive $ 158/ FTSE. These rates are adjusted annually for inflation per the
GNP Price Deflator. Maricopa and Pima are the only districts whose FTSE exceeds 5,000.
Current Student Population StQtt'stics ( As of June 1992)
Total FTE Students for all community college districts are the same as those presented for Operating State Aid.
Benefts/ Services
The Capital Outlay Aid program provides for the capital outlay expenses of maintaining the infrastructure of any
district. Capital outlay expenses include the repair, remodeling, replacement or renovation of district facilities,
physical plant equipment and fixed equipment such as roofs, HVAC systems, water and sewer systems, fumehoods
and floorcoverings, or adaptation of facilities and systems for handicap access, asbestos abatement, building codes,
health and safety mandates.
Allowable benefits are defined by statute.
Interim Committee on Statutory Funding Formulas
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Capital Outlay State Aid By Community College District
FY 1994 Approved: $ 10.3 Million Total
Capital Outaly State Aid ( Millions)
Community College Districts
. m m . - =
AGENCY: State Board of Directors for Community Colleges ( SBCC)
PROGRAM: Capital Outlay State Aid ( Cont'd)
Mandatory vs. Optional
Eligibility - All community college districts meeting the statutory requirements of A. R. S. $ 15- 1402, Title XV,
Article 1, General Provisions for and Establishment of Community College Districts, must be provided Capital
Outlay Aid.
Benefits/ Services - Capital Outlay Aid is mandatory. However, it is important to note that since the formula's
inception in FY 1992, the Legislature has suspended the statutory funding requirements through the Education
Omnibus Reconciliation Bill ( ORB) and, for FY 1994, proscribed funding at FY 1993 levels without any
adjustments for FTSE growth or inflation.
Interim Committee on Statutory Funding Formulas
AGENCY: State Board of Directors for Community Colleges ( SBCC)
PROGRAM: Equalization Aid
Statutory Citation: A. R. S. ( j 15- 1468, Title XV, Chapter 12, Article 4, Community College District Finance
Program Description
Provides state aid to any district that by virtue of A. R. S. 9 15- 1402, Title XV, Article 1, General Provisions for
and Establishment of Community College Districts, is part of the state community college system but has less than
the amount of primary assessed valuation proscribed in 5 15- 1402. Currently, only Cochise and Graham
Community college districts qualify for equalization aid and are participating in the program.
FY 1994 Funding
Cochise
Graham
Total Equalization Aid Program
Overview of Equalization Aid Eligibility
Equalization Aid is available only to community college districts whose primary assessed valuation is less than the
amount of primary assessed valuation proscribed in ( j 15- 1402.
The method for calculating equalization aid is:
A. A. V. Adiustment - minimum assessed valuation is adjusted by the average change in actual assessed valuation
for the calendar year prior to the start of the fiscal year for all rural districts ( excludes Maricopa and Pima).
B. A. V. Differentiation - Equalization Aid is paid out on the basis of the difference between the minimum
adjusted assessed valuation, as calculated above, and the actual assessed valuation for the district.
Equalization Aid is calculated at the lesser of $ 1.37 per $ 100 of the district's assessed valuation or the
district's levy rate.
Primary Assessed Valuation and Equalization Aid Statistics for FY 1994
Cochise Graham
District's Most Recent Actual Primary A. V. [ CalYr 19921 $ 388,328,011 $ 59,681,813
Minimum Adjusted A. V. for FY 1994 [$ 448M + ($ 448M* 4.6 % A)] 468,491,600 468,491,600
Over ( Under) Minimum A. V. $( go, 163,589) $( 408,809,787)
Equalization Aid FY 1994 @ $ 1.37/$ 100 A. V.
Equalization Aid Funded at 80% of Growth
Benefits/ Services
The Equalization Aid program provides supplemental funding for the operational expenses of maintaining an eligible
district as defined in A. R. S. ( j 15- 1468. Operational expenses include the administration, instruction, operation of
community college plant, maintenance of community college plant, fixed charges and contingencies incurred in the
operation of a district exclusive of all capital outlay items, special levies, auxiliary enterprise funds, restricted funds
and bond service items.
Allowable benefits are defined by statute.
Mandatory vs. Optional
Eligibility - All community college districts meeting the statutory requirements of A. R. S. ( j 15- 1402, Title XV,
Article 1, General Provisions for and Establishment of Community College Districts and A. R. S. ( j 15- 1468,
Equalization Aid for Community College Districts, must be provided Equalization Aid.
BenefitsIServices - Equalization Aid is mandatory. However, it is important to note that for FY 1994, the
Legislature suspended the statutory funding requirements through the Education Omnibus Reconciliation Bill ( ORB)
and instead funded 80% of the increase in the formula requirement for the two qualifying districts.
Interim Committee on Statutory Funding Formulas
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FY 1994 Equalization Aid Distribution for
Cochise and Graham Community College Districts
Total State Aid by Program
Operating 73.1% Operating 38.2%
................................................................. .. .. ....
......... .. .. .. .. .. .. .. .
.............. ...............................................
tion 17.9%
/
Capital Outlay 9.0%
$ 535,400
COCHISE
$ 1,070,400 Equalization 57.2% 4.6%
$ 441,300
$ 5,541,200
GRAHAM
( Total: $ 5,963,700) ( Total: $ 9,678,300)
AGENCY: State Board of Directors for Community Colleges ( SBCC)
PROGRAM: Capital Outlay: Initial or Additional Campus
Statutory Citation: A. R. S. $ 15- 1463, Title XV, Chapter 12, Article 4, Community College District Finance
Program Description
Provides state aid at 50 percent of the total cost for capital outlay for an initial campus in a newly formed district
or in a county entering into an intergovernmental agreement for providing extension courses pursuant to 4 15- 1470,
not to exceed $ 1 million. These costs include the purchase of land, construction and equipment costs, excluding
land grants and dormitories, for each approved campus within a district. Currently, only the Navajo Community
College District is participating in the program.
N 1994 Funding
Navajo ( Show Low Campus) $ 200,000
Total Capital Outlay: Initial or Additional Campus Program $ 200,000
Overview of Capital Outlay: Initial or Additional Campus Aid Eligibility
Capital Outlay: Initial or Additional Campus Aid Eligibility is available to a community college district by legislative
appropriation.
The current capital outlay formula for an initial or additional campus provides:
A. 50%, $ 1 Million Limit - state aid shall be provided at 50 percent of the total cost for capital outlay not to
exceed $ 1 million if:
1) a district board in an existing district determines the need for an additional campus or campuses and
certifies the need to the State Board; and
2) the State Board approves the increase in the number of campuses.
Benefus/ Services
The Capital Outlay: Initial or Additional Campus Aid program provides by legislative appropriation a sum equal
to 50 percent of the total cost for capital outlay for each approved campus within a district, but not to exceed $ 1
million at any one campus, including the purchase, erection, remodeling or completion of buildings and the purchase
of equipment and facilities for educational or auxiliary purposes of the community college, excluding the cost of
any land granted to the community college district and dormitories erected for the use of students or faculty
members.
Allowable benefits are defined by statute.
Mandatory vs. Optional
Eligibility - All community college districts meeting the statutory requirements of A. R. S. 8 15- 1463, state
contribution for capital outlay for initial or additional campus, shall be provided by legislative appropriation Capital
Outlay: Initial or Additional Campus Aid.
Benefits1Service- s - Capital Outlay: Initial or Additional Campus Aid is mandatory. Although the Legislature
suspended the statutory funding provisions of title 15, chapter 12, article 4, Arizona Revised Statutes, through the
Education Omnibus Reconciliation Bill ( ORB) for FY 1994, funding for capital outlay for the Navajo Community
College District Show Low campus was appropriated as per A. R. S. 4 15- 1463, from the General Fund through the
Capital Outlay Bill - Chapter 2 ( H. B. 2002), 2nd Special Session - Section W.
Interim Committee on Statutory Funding Formulas
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B. UNIVERSITIES
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Interim Committee on Statutory Funding Formulas I 17
AGENCY: Arizona Board of Regents for the Universities
PROGRAM: Building Renewal Formula
Statutory Citations: A. R. S. 9 41- 790 and 9 41- 793 . O1
Program Description
In 1986, the Legislature enacted into law Chapter 85, which completely revised the capital budgeting process in
Arizona. Included in Chapter 85 was the requirement that the newly established Joint Committee on Capital Review
( JCCR) adopt a state building renewal formula, including the university building system, which authorizes the
legislative appropriation for the maintenance and repair of state buildings. The statutory definition of " building
renewal" excludes infrastructure replacement, new construction, landscaping and area beautification. For the
university building system, the Arizona Board of Regents shall require each university to establish a major
maintenance and repair account to deposit monies allocated from the appropriation. The appropriated monies for
university building renewal may be used only for facilities on the statewide building inventory approved by the Joint
Committee on Capital Review ( JCCR). Building renewal appropriations are also made for the Department of
Administration and the Arizona Department of Transportation, which are the other two " building systems"
established pursuant to Chapter 85.
Funding Formula
A. R. S. 9 41- 793.01 authorizes the JCCR to develop and approve a uniform formula for computing the needed
annual building renewal funding. The formula adopted is the Sherman- Dergis Formula, which was developed in
1981 by Douglas R. Sherman and William A. Dergis of the University of Michigan. It establishes the current year
value of a building ( BV) by updating the original construction cost using a recognized national building cost index.
That value is then multiplied by two- thirds, on the basis that renewal costs should not exceed that fraction of the
construction cost. The age of the building is identified ( BA), adjusting downward to reflect any major renovation.
The building age is divided by 1,275, a constant based on a 50- year overall life cycle ( equals 50 + 49 + 48 + . . . . . I).
The final step is to multiply the building value by two- thirds and then by the building age fraction to obtain the
amount that should be needed for the building for the current year. Thus, the formula becomes:
Annual Renewal Amount = ( 213xBV) x ( BAl1275)
The sum of these values for all campus buildings eligible for building renewal is the amount requested each fiscal
year from the Legislature for the university building system by the Arizona Board of Regents.
University Building Renewal Appropriations
As shown below, the Legislature has funded an average of 34 percent of the formula needs for the university
building renewal program in the past eight years.
Formula General Fund Percent of
Fiscal year Requirement Appropriation Full Funding
1987
1988
1989
1990
1991
1992
1993
1994
Cumulative Total
- 11 Reflects a 30 percent mid- year reduction adjustment from the original
appropriation of $ 8,708,100.
Interim Committee on Statutory Funding Formulas
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AGENCY: Universities
PROGRAM: Student Enrollment Funding Formula - Non- Statutory Formula
Statutory Citation: None
Program Description
Since 1958, by tradition, the Legislature has provided an annual incremental funding to the universities to
accommodate additional students based upon a 22- to- 1 formula. The formula called for funding one additional
faculty member for each increment of 22 full- time equivalent ( FTE) students, based upon a projected enrollment
during the fall semester of the fiscal year. The formula uses 15 student credit hours ( SCH) for undergraduate
students and 12 SCH for graduate students, as a full- time equivalent count through FY 1987.
Current Funding Formula
Beginning in FY 1988, the 22- to- 1 formula was changed significantly, because of the fact that it cost more to
educate graduate and upper division undergraduate students than lower division students. The changes included the
following:
1. The full- time equivalent count is based upon 15 SCH for lower division undergraduate, 12 SCH for upper
division undergraduate, and 10 SCH for graduate students.
2. Instead of using the projected enrollment of the budgeted fiscal year, a three- year rolling weighted average
enrollment is used to minimize the year- to- year fluctuations in student enrollment. The three- year rolling
average is based upon 25 percent, 50 percent and 25 percent weights for the past year actual, the current year
estimated and the following year projected enrollments, respectively.
3. Instead of funding one faculty member per 22 FTE students, the university request provides one faculty, 0.25
secretary and 0.5 support positions per 22 FTE students. The JLBC Staff recommendation provides one faculty,
0.25 secretary and 0.25 support positions. Depending upon the legislative appropriation, the 22 to 1 formula
has become either 22 to 1.75 or 22 to 1.5.
FY 1994 Student Enrollment Funding
The Legislature approved the requested enrollment funding based upon a 22 to 1.75 formula for FY 1994 enrollment
increase.
Enrollment General Fund No. of Average Funding
Campus Change Appropriation Positions Funded Per Additional Student
ASU 600
NAU 506
UofA ( 254)
In addition, ASU- West received $ 2,863,900 for its academic program development associated with an enrollment
increase of 873 FTE students.
It should be noted that the university enrollment funding is based upon a marginal cost principle. Average cost of
education at the three main campuses is approximately $ 7,100 per FTE student, which includes $ 5,700 from the
General Fund and $ 1,400 from the tuitiontfee collections.
Interim Committee on Statutory Funding Formulas 19