When the Balance in Funding Suddenly Shifts

A recent veto in Texas shakes up the community colleges, and sheds light on how the traditional funding formulas are increasingly unraveling.
July 30, 2007

Over on the Texas panhandle, Herbert J. Swender is desperate to find $600,000. That's how much the president of Frank Phillips College has to find to fill a gap left in his less than $11 million budget to make up for the college's portion of $154 million in state funding for community college employee benefits that Gov. Rick Perry vetoed last month. Swender could raise tuition by $20 or $25 a credit hour for the college's 1,400 students, but that's not something Frank Phillips officials are willing to do (a full-time student at Frank Phillips now pays about $2,296 if he lives inside the taxing district, and $2,926 if he lives outside it).

Swender has no interest in cutting health benefits, but he couldn't if he wanted to -- the state mandates that community colleges provide 100 percent of the employee premium cost, and 50 percent for dependents. He can’t raise property taxes without a referendum because his rural college has been at its cap, 22-cents for every $100 in assessed value, for five years now. The cap was self-imposed by local voters back in 1965 when Swender can only imagine the tax rate must have seemed outrageous at just a dime or so.

He could seek to expand the college’s tax base, since while the college serves nine counties at the top of the Panhandle, it only levies taxes on property within the city limits of Borger, Tex., proper. But that too would require a referendum.

“It’d be,” Swender says, “a very controversial issue.”

The precarious situation Frank Phillips finds itself in is emblematic of the delicate balance in funding from a patchwork of sources that community colleges in many states survive and thrive on -- and how vulnerable they can be when the balance shifts. That shift can be sudden, as in the case of Governor Perry’s veto of heath benefit costs for the 2009 fiscal year last month -- or it can be slow, as evidenced by the relative drop in state appropriations over time.

In Texas, the decades-old compact for the support of community colleges is simple: States pay instructional costs (including, traditionally, the salaries and benefits of instructors), and local taxpayers pick up the rest of the tab. But the state only covers 52 percent of instructional costs now, compared to a little over 90 percent back in the 1980s, says Reynaldo García, president of the Texas Association of Community Colleges. The proportion of their total budget derived from the state has also fallen from 64.5 percent in 1985 to 31.1 percent in 2005, García says. Ten of the state’s 50 college districts are at or within a penny of their property tax caps, imposed by local voters upon each college’s founding (the governor, meanwhile, has also been a strong advocate of curtailing property taxes statewide).

“Basically, the agreed-upon funding formula doesn’t necessarily work anymore in a lot of states,” says Stephen Katsinas, an expert on community college finance and director of the University of Alabama's Education Policy Center. "The governors and legislatures don’t remember them, they don’t understand them and they don’t follow them.”

The Texas Veto and Its Aftermath

In his June veto message, Perry wrote that Texas "started this legislative session with the largest projected surplus in state history." He then struck $154 million in health insurance funding for community colleges from the state budget because, he said, the state shouldn't be footing the costs of benefits for employees whose salaries are funded by local property taxes. Citing a budget rider, or legislative directive, consistent with his argument, the governor berated community colleges for falsifying appropriations requests and willfully violating the rider, “using millions of state dollars annually to pay the benefits of non-state-paid employees.” The veto affected 2009 funding (Texas runs on a two-year budget cycle), and left the identical appropriation in 2008 intact.

Community college leaders erupted in outrage and pointed to budget cuts and tuition and property tax increases that would surely follow. So did many legislators who approved the initial appropriation. “The Legislature knowingly funded community colleges fully so they could pay those insurance costs for their personnel,” State Sen. Judith Zaffirini, chair of the Senate Higher Education Subcommittee and vice chair of the Senate Finance Committee, says. Referencing qualifying language in the budget rider that she argues grants the Texas Legislature authority to fund benefits for locally salaried employees with state funds if elected representatives so choose to, she expresses confidence the money will be restored to the community colleges by the power of the Legislative Budget Board this fall. "The $154 million is there, it's available, and now it's a matter of finding the best solution. We will find a way to return that money," Zaffirini says.

While the Legislative Budget Board has the power to restore the funding during the period between legislative sessions, it can only do so with the governor’s okay. There seemed to be progress on that front last week, however, with the lieutenant governor, David Dewhurst, sending a letter to state lawmakers indicating his plans to convene a working group to craft a solution that both the governor and legislators could agree upon. A Perry spokeswoman indicated the governor's support for the lieutenant governor's action: Essentially, the issue seems to rest on finding a way to restore the funding while not violating the local/state split Perry cited in his original veto.

“The governor wants to ensure that community colleges do have enough funding to carry out the school year and serve their students. However, he wants to make sure that through that funding, they are operating within the scope of the law,” says Krista Moody, a spokeswoman for Perry.

"The governor has never said that community colleges were not underfunded. However, I think [the governor and lieutenant governor] agree that a solution needs to come that aligns with the spirit of the law.”

'An Incredible Challenge'

Yet, one of the great ironies of all this -- if you’re a Texas community college leader, at least -- is that the only reason instructors are receiving locally-funded salaries in the first place (and thus, under the governor’s argument, don't qualify for state-funded benefits), is because Texas is only funding about half the instructional costs it committed to in the 1960s. If the state funded even 65 percent, García of the community college association says, all instructor salaries could be paid with state monies.

“A good way to look at it is, let’s say you had 100 faculty that you hired 20 years ago that were paid out of state revenue,” says Millicent Valek, president of Brazosport College and board chair for the Texas Association of Community Colleges. “Because that share of state revenue has declined, you’re having to add money to the pot to pay those same 100 faculty. They’re now saying, ‘Oh, no, all the sudden ‘x’ percentage of those are no longer eligible.”

“It’s purely jargon over state funding,” Valek says.

Not all colleges would take an equal hit if the veto were to stand: While the Dallas County Community College District, for instance, would lose $15.7 million in funding, a large local tax base should cushion the impact substantially, says Wright Lassiter, the chancellor. “I made very clear, and the trustees support me on this: This is an issue for concern, but it’s not a crisis for us,” he says. “But having said that, if you had that $15.7 million, you would then have the flexibility to do things that are still needed." He cites better meeting the demands for remedial education as one of those main priorities.

Meanwhile, back at Frank Phillips, President Swender is optimistic -- “or at least I want to be.”

“It has a more adverse effect, I believe, on the rural schools, because we just don’t have the property wealth to get those funds,” he says.

“Finding $600,000 out of an area like ours: It’s an incredible challenge.”


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