Environmental Scan, SWOT Analysis, and Five-Year Budget Projection

According to the Center on Budget and Policy Priorities, approximately 46% of all state general fund expenditures is devoted to some form of education elementary, secondary, and higher e

February 23, 2009

Presented by:

Donna R Bulzoni CPA MBA

Director of Financial Affairs & Controller

East Stroudsburg University Environmental Scan

Introduction

“It is not the strongest of the species that survive, nor the most intelligent, but the one

As the University considers its financial position for fiscal year 2009-10 and beyond, it is appropriate to give careful consideration to the environment in which we exist Our environment is constantly changing and poses opportunities and threats which should be considered as an integral part of our planning process

The Environmental Scan and SWOT Analysis presented herein is the product of

a campus-wide effort involving more than 20 people Historically, the Business Office prepared our Environmental Scan (no formal SWOT Analysis) without input from the campus constituency In an effort to improve the scan and more fully engage the

campus community in our planning process, individuals identified as experts in select fields were asked to provide a detail SWOT in their respective areas of expertise The response was tremendous and we believe the resulting product is much improved

Finally, the addition of a SWOT Analysis to our planning process builds on the Environmental Scan and the strategic planning discussions currently occurring on the campus of East Stroudsburg University

After scanning the environment, we have come to the conclusion that the only thing that is certain is uncertainty The national recession we currently face has been compared by our leaders to the Great Depression of the 1930’s This recession has had an impact on the Commonwealth of Pennsylvania resulting in the constricting of ourstate’s budget While it seems clear the University has the potential for reasonable levels of growth, uncertainty looms given the current economic climate in our nation andthe Commonwealth of Pennsylvania

While Northeastern Pennsylvania has seen steady population growth, East Stroudsburg University’s growth will be dependent on our ability to garner supporting resources, both human and capital, and our ability to weather the impact of the

economic crisis

National Outlook

According to leading economists, our nation entered a recession in December

2007 The economic slowdown is said to have been sparked by a nationwide crash in the housing market and the tightening of credit The combination of rising

unemployment, declining consumer spending, declining asset values, and foreclosures has led to declining state revenues The number of people in poverty is growing, addingcosts to state budgets for programs such as Medicaid and social services

According to “State Budget Troubles Worsen”, (Center on Budget and Policy Priorities, February 10, 2009), 46 states are currently facing budget shortfalls (See Figure 1):

Budget deficits are already projected in 43 states for the upcoming fiscal year Initial estimates of these shortfalls total almost $94 billion As the full extent of 2010 deficits becomes known, shortfalls are likely to equal $145 billion

Figure 2 shows the size and duration of the deficits in the recession that occurred

in the first part of this decade and estimates of the likely deficits in this recession The

current recession is expected to be more severe (deeper and longer) than the last recession, and thus state fiscal problems are likely to be worse.

Source: “State Budget Troubles Worsen”, Center on Budget and Policy Priorities, Feb 10, 2009

Education is by far the largest component of most states’ budgets According to the Center on Budget and Policy Priorities, approximately 46% of all state general fund expenditures is devoted to some form of education (elementary, secondary, and higher education) Thus, it is easy to understand that, as a result of this economic crisis, 36 states have cut education or proposed cuts because of their massive, devastating budget deficits

In an effort to jumpstart the United States economy, President Obama signed the

$789 billion economic stimulus bill on February 17, 2009 The hope is to strengthen oureconomy by creating jobs, delivering tax relief, investing in our infrastructure, improving our children’s education and making the United States more energy independent Highlights of the bill that impact higher education, and potentially East Stroudsburg University, are as follows:

 Increases the maximum Pell Grant by $500, for a maximum of $5,350 in 2009 and $5,550 in 2010

 Adds $200 million to the College Work-Study program

 Helps more than 4 million additional students attend college with a new, partially refundable $2,500 tax credit for families

Pennsylvania Outlook

While Pennsylvania has been affected by the national economic crisis, the

Governor’s office has publicly stated we are withstanding the national recession better than other states

The Commonwealth’s unemployment rate has been at or below the national levelfor 70 of the past 72 months Since the national recession began in December 2007,

Pennsylvania has held onto jobs better than many other large, competitor or

neighboring states

As published in the “Commonwealth of Pennsylvania’s 2009-10 Budget in Brief”, the Governor’s 2009-10 Budget Overview projects $26.6 Billion in General Fund

What does this mean to higher education, the Pennsylvania State System of

Higher Education, and most importantly, East Stroudsburg University? The Governor’s 2009-10 budget allocates 7.70% of General Fund Expenditures to higher education and holds PASSHE’s state appropriation constant with the prior year (prior to the return of 4.25%) while Pennsylvania State University, University of Pittsburgh, Temple University and Lincoln University’s state appropriations will decrease by 6% State-related

universities such as Drexel and University of Pennsylvania, on average, will experience

General Fund Expenditures

$26.6 Billion

a decline of 26.9% in appropriation The Department of Education’s appropriation will

be down an average of 48.4% The only increases in appropriations to higher educationare seen in community colleges that, on average, will receive a 1.8% increase and PHEAA (Pennsylvania Higher Education Assistance Agency) which will have an

average 8.6% increase of which 11.0% is in grants to students

To put this in perspective, PASSHE had requested a 6.4% increase in state appropriation If we had received it, we would have needed a 4.0% increase in tuition tobalance the PASSHE budget as a whole Given a 0% increase in state appropriation,

we will need a 7.9% increase in tuition to balance the PASSHE budget This outcome ishighly unlikely The Chancellor’s Office is recommending Universities’ early budget projections be made using an appropriation rate increase somewhere between 2% and 4%

Looking further down the road, state deficits over the next two and a half years are predicted to total more than $350 billion Local governments are also expected to face shortfalls Given that a large portion of the Commonwealth’s budget is in

education, cuts should be expected and will probably get deeper as the recession continues

Although the Governor was not generous to PASSHE in the area of state

appropriation, no decrease will be experienced Additionally, other proposals in the budget could be very positive

First, the Governor is proposing “Pennsylvania’s Tuition Relief Fund” This would

be a grant program designed to greatly reduce or eliminate reliance on student loans forthose attending community colleges and the state system universities In summary, students pay only what they can afford (as determined by the Estimated Family

Contribution calculation of the federal financial aid form) Any gap between the

calculation and all available existing state and federal grant aid would be filled by the Tuition Relief Fund State officials estimate that after four years, the program will have helped 10,000 students who would not otherwise have gone to college or would have gone in another state The program would be funded from the tax revenue generated from the legalization of video poker machines A recent State Board of Education

survey of 6,700 current students or recent graduates put the average debt of students attending PASSHE universities at about $32,000 and community colleges at $11,000

The introduction of a Tuition Relief Fund might encourage more students to go to college and result in many more of them finishing their degrees without being burdened with a significant amount of debt According to Kenn Marshall, spokesman for PASSHE,whether all 14 system universities could handle a large influx of students remains a question and will have to be addressed

Video poker machines, sometimes referred to as video lottery machines, are currently legal in nine states (Delaware, Louisiana, Montana, Nevada, New York,

Oregon, Rhode Island, South Dakota, West Virginia) of which both Oregon & West Virginia have used the revenue generated to benefit public education The impact on East Stroudsburg University, if enacted, is unknown at this time.

Finally, historically, the Governor’s budget allocated $65 million to capital

appropriation for PASSHE In his budget proposal for Fiscal Year 2009-10, the

Governor is doubling that figure to $130M East Stroudsburg University has already submitted a list of “shovel ready” projects for consideration

Pennsylvania’s future depends on the development of a workforce able to

compete in today’s global economy Workers from the “baby boomer” generation are moving into their 60’s and are retiring in large numbers leaving far fewer youth available

to enter the labor market forcing greater competition for key skills

Monroe County Outlook & Demographics

According to the latest census data, Pennsylvania’s population is projected to grow by just two percent over the next ten years while the nation’s population will grow

by nearly nine percent Northeastern Pennsylvania, Monroe County in particular,

however, has seen steady population growth during the past several years while the remainder of Pennsylvania has been experiencing population stability or declines This trend is likely to extend with ongoing population declines being likely for all but

Northeastern Pennsylvania and perhaps some of those counties located in

southeastern Pennsylvania (Chester, Bucks, Lancaster and York) Based on available data, it is also likely that the region will become increasingly diverse

Pennsylvania’s population is also older than the vast majority of the nation’s population According to the Center for Workforce Information and Analysis “Economic Review of Pennsylvania 2007”, the number of Pennsylvanians age 65 and over was 1.9 million in 2007 The state’s percentage of those aged 65 and over is 15.3%, second only in the nation to Florida which has the highest percentage of those 65 and over

Pennsylvania’s total working age population (those aged 25 to 64) will be less than the year before until at least 2029 Therefore, there will be worker shortages in thecoming years and some areas, industries, and occupations will be affected sooner and harder than others

Pennsylvania’s Education & Health Services, Professional & Business Services, and Leisure & Hospitality industry sectors will account for nearly 90 percent of all annualemployment growth through 2014 The education and health care industries are

expected to dominate growth East Stroudsburg University currently offers programs in all growth areas

The latest employment by industry data available for Monroe County, as per the

U.S Census Bureau, “2002 Economic Census - Summary Statistics by 2002 NAICS -

Monroe County, PA” follows Note that the top three industries in Monroe County with the highest number of paid employees are retail trade, accommodation & food services, and health care & social assistance, as highlighted in yellow in the table

Data based on Geographic Area Series reports Table includes only establishments of firms with payroll Nonemployers are shown separately Introductory text includes scope, methodology, non-sampling error, and confidentiality protection For descriptions of column headings and rows (industries), click on the appropriate underlined element in the table

D = Withheld to avoid disclosing data of individual companies; data are included in higher level totals; N = Not available; X = Not applicable

Annual payroll ($1,000)

Paid employees

52 Finance & insurance (not published for counties) X X X X

53 Real estate & rental & leasing 140 98,053 20,000 960

54 Professional, scientific, & technical services 293 D D (1000-2499)

55 Management of companies & enterprises (not published for counties) X X X X

56 Administrative & support & waste management & remediation service 165 71,503 28,368 1,852

62 Health care & social assistance 309 334,555 148,544 5,272

71 Arts, entertainment, & recreation 68 102,046 27,227 2,033

72 Accommodation & food services 364 282,490 83,691 6,554

81 Other services (except public administration) 267 93,846 25,906 1,259

Source: 2002 Economic Census , Geographic Area Series Questions?

Last revised: October 07, 2005

Pennsylvania’s manufacturing industry continues to shed jobs and its economy continues to adapt and transform itself from one of goods producing to service

providing

Monroe County, in particular, has a heavily tourist-based economy and will

continue to use its scenic resources to provide recreational services for the

Northeastern region of Pennsylvania However, the county continues to encourage economic development by attracting new industries to the area

Monroe County is not immune to the impact of the current national economic crisis The county’s 2009 budget as approved, although balanced, calls for the first tax increase in property taxes since 2002 as well as a delay in new hirings until July

Additionally, $600,000 of capital spending will be put off until the summer

Given East Stroudsburg University’s position as a member of the Pennsylvania State System of Higher Education (PASSHE) and a “state-owned” institution, trends in governmental activity are relevant to our future financial health Approximately one-third

of the University’s operating budget is derived from state appropriations, now

approximately $27 million per year Additionally, significant capital (building) funding also comes from the Commonwealth

Where once the University received approximately 2/3s of its operating budget through state appropriations, we now receive approximately 1/3 of our operating

resources via state funding For the past 15 years, appropriations have not kept pace with either student growth or increased costs due to inflation The burden of addressingthese costs has been shifted to the students by increasing tuition As a result, college affordability continues to decline The National Center for Public Policy and Higher Education’s Measuring Up 2008 Report gives 49 of 50 states, including Pennsylvania, a grade of F in higher education affordability To follow is a graph taken from The NationalCenter for Public Policy and Higher Education’s Measuring Up 2008 Report depicting the percentage of income needed to pay for public two- and four-year colleges

(Pennsylvania vs United States vs the median of the top five states)

It is anticipated the state’s downward trend in support for Higher Education, and

in particular the State System of Higher Education, will continue into the foreseeable future In recent years, the Governor has focused his higher education funding efforts

on community colleges In 2005-06, the Governor signed into law the largest increase

in community college funding in 15 years In 2006-07, he again increased the

investment in community colleges, this time by 5%, including funding for capital

improvements In comparison, PASSHE received a 3.9% increase for the same time period with only a 2.7% increase in tuition As a result, real dollar decreases have been experienced based on actual growth and inflation The Governor has recommended a 0% increase in the PASSHE state appropriation for FY 2009-10 while community

colleges will enjoy a 1.8% increase

An additional issue of some importance to public higher education is the

increased concern on the parts of the executive and legislative branches of government

on accountability Government expects public universities to run efficiently and to use the public funds provided to us as carefully as possible Further, government expects results from the universities it funds in the form of well-trained students, who move expeditiously through their academic programs and become capable of contributing to the state’s economy According to “A Rising Tide, The Current State of Higher

Education in the Commonwealth of Pennsylvania” (April, 2006), postsecondary

institutions across the Commonwealth are expected to satisfy 3 basic criteria:

1 Full Access – so that anyone with the necessary qualifications can pursue postsecondary education

2 Reasonable Choice – such that individual students can pursue programs

of study that are personally rewarding and reasonably priced

3 Fair Return on the Public Funds Invested in Higher Education – such that there is both enhanced economic progress and civic participation across the Commonwealth

East Stroudsburg University and PASSHE have been successful in meeting these expectations, producing skilled, successful graduates According to the most recent study conducted on behalf of PASSHE, more than 405,000 PASSHE alumni live and work in the Commonwealth of Pennsylvania Additionally, PASSHE and its 14 member universities have a combined annual economic impact on the Commonwealth

of nearly $4.5 billion

The notion of “performance indicators” and “performance funding” grew out of theconcern for accountability PASSHE was one of the first and continues to be one of the few public university systems in the nation to voluntarily implement and continue performance funding Since the program began in 2000, the Board of Governors has steadily increased the amount of funding available to the universities for improving their

performance, for outperforming their peers nationally and for meeting System goals Nearly $40 million in performance funding will be awarded to the universities this fiscal year It is anticipated that this amount will remain stable or grow slowly during the next

5 to 10 years However, how an institution benefits from such funding will depend entirely on its performance vis-a-vis the indicators During the earlier years when

performance funding was implemented, East Stroudsburg University had experienced a net loss in terms of the potential for performance funding allocations This posture is changing with improvement in our results from the indicators that produce revenue A cautious position would be to project level funding from this source so as not to producerevenue shortfalls from this tenuous source

The following graph shows a history of East Stroudsburg University’s

performance funding allocation since the start of the program