November 30, 2007
The Budget Committee offers the following list of frequently asked questions (FAQ) about the college’s budget process:
Q: Why does it seem like we are always talking about the budget?
A: We have a consensus model, and try to keep the entire campus community “in the loop” as we work through the process each year. Budgeting never ends–we are always simultaneously:
- looking back at the previous year through annual audits,
- adjusting/revising our current year projections based on actual revenue received, and
- building a budget for the next year using responsible projections.
Q: What is the budget process?
A: The Budget Committee, made up of faculty, staff, students, and senior staff, works throughout the fall to build a budget for the next year. The committee gains feedback from the community and recommends a budget to the president in January. If accepted, the president then recommends the budget to the trustees for approval in February. Once approved, the committee will return to the budget again in late spring to do any revisions (related to shifting enrollment projections). Over the summer, the Budget Committee chair and vice president of finance and administration continue to meet with trustees to go over actual revenue for the current year and projections for the upcoming one.
We are currently considering extending the budget approval process through April/May in order to have more accurate enrollment projections.
Q: What is the “President’s Charge”?
A: It is a list of items the president would like the committee to keep in mind as we try to build a balanced budget. Along with the strategic long-range plan, it acts as a guide in the budgeting process.
Q: I keep hearing about the “budget gap.” What is this?
A: The budget gap is the difference between how much revenue we have, and how much we need to do what we’d like in a given budget. As part of our budget process, we must close this “gap” in order to achieve a balanced budget. The “gap” will vary throughout fall semester as we work to close it while also revising revenue projections to be as realistic as possible. Our current working budget gap is $1.76M, which is similar to where we have been (at this stage of the process) in previous years.
Q: I heard we have a cash flow problem. What is this and how did we get it?
A: Like most colleges and companies, we budget on an accrual basis (accrual means revenue is recorded when earned, while expenses are recorded when incurred). But we also track our cash flow. One way to understand this is to realize we only receive funds three times a year, but we have to spend those funds 365 days of the year. So we can have a balanced budget on the accrual side, and a cash shortfall on the cash side. This is because we often have timing issues related to the academic calendar, and also because we have to pay for large depreciable items all at once (like renovations to King Hall/Duke Hall), but then depreciate them over time in our accrual budgets. Our cash flow in that case would be decreased immediately, but our budget would reflect the cost of the renovation over a long span of time.
Guilford has indeed had a cash shortfall for the past several years. It has borrowed from its short-term line of credit to cover the shortfall and has a four-year repayment plan in place: in order to get our cash flow back on track, we have committed to paying an extra $820K per year toward the line of credit.
Q: If we have more students than ever, why are we talking about budget cuts and cash shortfalls? Where is all the money going?
A: We do currently have more students than ever before, and that’s a great position to be in (especially compared to some other times in Guilford’s history, or compared to other colleges). However, we do not have as many students as we projected and budgeted for in the FY 2007-08 budget.
In addition, we also have spent the past several years trying to make much needed improvements to the campus infrastructure. We have spent more revenue in the past four years than previously on major maintenance and renovations, campus construction, hiring and retaining faculty and staff, improving student services, and technology upgrades. Most of this came out of our operating and cash budgets; but looking at the items on that list, you’ll see that this investment in Guilford College is beneficial and necessary, and has allowed us to continue to “become more.”
As the president noted this fall, we continue to have a revenue problem. Our campus is efficient and does more with much less revenue than most of our peers. Since we are very tuition driven (78%% of our revenue comes from tuition and fees), we must continue to find other ways to increase revenue (fundraising, grants, increasing our endowment, etc).
Q: How large is our annual operating budget?
A: Our current (FY 2007-08) operating budget is almost $65M, including financial aid.
Q: What is the relationship between the strategic plan and the budget?
A: We are trying to find ways to fund the cost of implementing items from the plan, but we are constrained by our need to balance the budget. The Budget Committee must prioritize campus needs carefully and, in the past few years, we have worked with the SLRP Committee and senior staff on this process.
Q: What is our current financial state?
A: We had a deficit of $1.4M at the end of FY 2006-07 (ending June 30, 2007), but we are still on track to have a balanced budget at the end of FY 2007-08. Because we had a lower than projected and budgeted CCE enrollment for summer school and fall 2007, however, we enacted some expense cuts in October 2007. We believe these cuts will allow us to end the year with a balanced budget and make progress toward reducing our reliance on the line of credit.
Q: How dire is our situation?
A: This is a reality check; we have made some progress but have a long way to go.
For example, we have made great progress in “turning the ship around” for our endowment. Our endowment is now approaching $70M (depending on the day and market performance). To put that into perspective, only four years ago it was in the mid-$40M range. Our endowment is also much more diversified than it was, thanks in part to the leadership of Martin Eakes and the trustee Investment Committee. However, it is important to know that we can only spend a very small portion (no more than 5%%) of the endowment annually so that it continues to support campus needs in future years. Also worth noting is that our endowment is still relatively small compared to that of our peers.
Clearly, we also must find ways to increase revenue, especially if our CCE enrollment continues to decrease, and to pay for capital construction and major maintenance without using so much of our operating budget to do it.
Q: Are there serious concerns, and are individual positions in danger?
A: This summer, the trustees and senior staff committed to a freeze on new hires (unless directly related to enrollment growth), but the committee is not considering any position cuts and is strongly against that possibility.
It is the committee’s job to be vigilant, especially since it is clear that some of our projections for revenue growth (in the strategic plan and other budget documents) were overly optimistic. Thus, we need to be conservative in our annual revenue forecasts.
Q: Is there anything I can do to help?
A: Be a good steward of your unit’s finances and conserve resources as much as possible. The Budget Committee welcomes suggestions for greater efficiency or cost savings, and is eager to listen to any concerns.
Q: To whom do I make a special request or ask questions about my particular budget?
A: Candi Lofano and Jimmy Wilson are two excellent staff resources to contact if you have specific questions about individual budget reports. Staff should contact their unit manager or vice president if they have questions about capital or operating budget amounts. Faculty should contact their department chair, division chair, or the Academic Dean. Students should contact the CCE SGA or Community Senate treasurer.
Q: Where can I get more information about the budget?
A: The annual budget letter was distributed in October and contained lots of information about previous and current year budgets. A forum was held in November and another is scheduled in January, and the approved budget circulates in February. In addition, you can always contact a Budget Committee representative, including the chair (firstname.lastname@example.org) or vice president of finance and administration (email@example.com).