East Stroudsburg University
Environmental Scan
and
Five-Year Budget Projection
January 28, 2011
Presented by:
Donna R. Bulzoni, CPA, MBA
Director of Financial Affairs & Controller
TABLE OF CONTENTS
Environmental Scan
Introduction …………………………………….. 3
Overview ………………………………………... 4
National Outlook ………………………………. 5-9
Pennsylvania Outlook ………………………… 10-11
Monroe County Outlook & Demographics... 12-13
Government ……………………………………. 14-18
Economic Development ……………………… 19-20
Facilities ………………………………………… 21-23
Financial Resources ………………………….. 24-33
Concerns / Issues…………………………………….. 34
5-Year Budget Projection …………………………… 35-36
Acknowledgements ………………………………….. 37
East Stroudsburg UniversityEnvironmental Scan
Introduction
As the University considers its financial position for Fiscal Year 2011-12 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 presented herein is a product of a campus-wide effort involving constituents from across campus in collaboration with representatives from the East Stroudsburg University Foundation and the Office of the Chancellor. No formal SWOT Analysis was prepared this year. For this and future years, issues/concerns will be presented with a SWOT Analysis prepared only in the final year of the University’s Strategic Plan.
OverviewAccording to the National Bureau of Economic Research, the recent recession began in December 2007 and ended in June 2009. The recession’s duration of 18 months makes it the longest recession since the Great Depression.
In addition, many believe structural changes in the economy have increased the natural (or full employment) rate of employment, which will move the economy onto a lower long-run growth trajectory. This means states’ budget woes will not diminish in 2012 but they will continue to struggle to find revenue needed to support critical public services for a number of years.
While it is clear the University is financially strong, it is equally clear that our real fiscal challenge is upon us as we prepare our budget for Fiscal Year 2011-12. American Reinvestment and Recovery Act funding is no longer available, state appropriation is uncertain given the inauguration of a new Governor and we are facing a projected budget gap even when assuming we receive as much in state appropriation as we have in Fiscal Year 2010-11.
National OutlookAccording to the Center on Budget and Policy Priorities, the recent recession caused a state fiscal crisis of unprecedented severity. States’ fiscal conditions remain extremely weak even as the economy appears to be moving in the direction of recovery. Recovery is expected to be slow, however, due to the waning of federal stimulus funds and constrained spending by households as a result of slow growth of income, lost wealth, and limits on their ability to borrow. This is coupled with slowed investment spending due to the large number of vacant homes and offices.
According to “States Continue to Feel Recession’s Impact”, (Center on Budget and Policy Priorities, December 16, 2010), new shortfalls have opened up in the budgets of 11 states for the current fiscal year resulting in 46 states reporting budget shortfalls (FY 2011, which began July 1 in most states). In addition, initial indications are that 44 states and the District of Columbia will face shortfalls totaling $125 billion for Fiscal Year 2012 (See Figure 1 and Table 1).
TABLE 1:
STATES WITH PROJECTED FY2012 GAPS
FY12 Projected Shortfall / Shortfall as Percent of FY11 Budget
Arizona / $974 million / 11.5%
California* / $25.4 billion / 29.3%
Colorado / $988 million / 13.8%
Connecticut / $3.7 billion / 20.8%
District of Columbia / DK / na
Florida / $3.6 billion / 14.9%
Georgia / $1.7 billion / 10.3%
Hawaii / $410 million / 8.2%
Idaho / $300 million / 12.6%
Illinois / $15.0 billion / 44.9%
Indiana / $270 million / 2.0%
Iowa / $294 million / 5.6%
Kansas / $492 million / 8.8%
Kentucky* / $780 million / 9.1%
Louisiana / $1.7 billion / 22.0%
Maine / $436 million / 16.1%
Maryland / $1.6 billion / 12.2%
Massachusetts / $1.8 billion / 5.7%
Michigan / $1.8 billion / 8.6%
Minnesota / $3.9 billion / 24.5%
Mississippi / $634 million / 14.1%
Missouri / $1.1 billion / 14.4%
Montana / $80 million / 4.3%
Nebraska / $314 million / 9.2%
Nevada / $1.5 billion / 45.2%
New Hampshire / DK / na
New Jersey / $10.5 billion / 37.4%
New Mexico / $410 million / 7.6%
New York / $9.0 billion / 16.9%
North Carolina / $3.8 billion / 20.0%
Ohio / $3.0 billion / 11.0%
Oklahoma / $600 million / 11.3%
Oregon* / $1.8 billion / 25.0%
Pennsylvania / $4.5 billion / 17.8%
Rhode Island / $290 million / 9.9%
South Carolina / $877 million / 17.4%
South Dakota / $127 million / 10.9%
Tennessee / DK / Na
Texas / $13.4 billion / 31.5%
Utah / $437 million / 9.2%
Vermont / $150 million / 13.9%
Virginia* / $2.3 billion / 14.8%
Washington / $2.9 billion / 18.5%
West Virginia / $155 million / 4.1%
Wisconsin / $1.8 billion / 12.8%
States Total / $124.7 billion / 20.0%
Note: Kentucky and Virginia have two-year budgets. They closed their FY2012 shortfalls when they enacted their budgets for the FY2011-FY2012 biennium. California’s shortfall includes an $8.2 billion shortfall carried forward from FY2011. Oregon’s shortfall is one half of the state’s total projected shortfall for the 2011-2013 biennium.
In an effort to fill current year budget gaps, at least 46 states plus the District of Columbia have reduced important services. More than 30 states have raised taxes to at least some degree while others have increased them significantly. With reserves largely depleted, if revenue remains depressed, additional cuts in services are likely.
Budget deficits are already projected for Fiscal Year 2012-13 for many states with Pennsylvania among them. Initial estimates of these shortfalls total almost $70 billion (See Table 2).
TABLE 2:
States with Projected FY2013 Gaps
FY12 Projected Shortfall / Shortfall as Percent of FY11 Budget
Arizona / $612 million / 7.2%
California / $19.2 billion / 22.2%
Connecticut / $3.6 billion / 20.2%
Florida / DK / na
Hawaii / $362 million / 7.2%
Louisiana / $1.6 billion / 20.6%
Maine / $368 million / 13.6%
Maryland / $1.9 billion / 14.8%
Minnesota / $2.0 billion / 12.8%
Montana / $227 million / 12.2%
Nebraska / $472 million / 13.9%
Nevada / $1.5 billion / 45.2%
New Hampshire / DK / na
New York / $14.6 billion / 27.4%
Oregon* / $1.8 billion / 25.0%
Pennsylvania / $2.5 billion / 9.9%
Rhode Island / $328 million / 11.1%
South Carolina / $1.2 billion / 22.9%
Texas / $13.4 billion / 31.5%
Vermont / $126 million / 11.7%
Washington / $2.9 billion / 18.5%
Wisconsin / $1.7 billion / 12.1%
States Total / $70.4 billion / 21.1%
Oregon’s shortfall is one half of the state’s total projected shortfall for the 2011-2013 biennium.
Figure 2 shows recent estimates of the size and duration of the state deficits in the recession that occurred in the first part of this decade and the latest estimates of the likely deficits in our most recent recession (Center on Budget and Policy Priorities, January 21, 2011).
Source: “States Continue to Feel Recession’s Impact”, Center on Budget and Policy Priorities, Jan. 21, 2011
Pennsylvania OutlookPennsylvania opened the current fiscal year with a $4.1B budget gap. The final Fiscal Year 2010-11 enacted budget assumed $2.8 billion of federal fiscal relief. This federal budgeting relief, however, was reduced by $280 million to $2.6 billion while $200 million of the $212 million proposed spending cuts were frozen based on the Governor’s request. The $70 million severance tax revenue from natural gas drilling in the Marcellus shale was not enacted.
According to the “Commonwealth of Pennsylvania-2010-2011 Mid-year Briefing” dated December 16, 2010, revenues are on target. General fund revenue collections in the first 5 months of Fiscal Year 2010-2011 were $14 million, or 0.15 percent, above estimate. This increase is the result of corporation and consumption (sales & use) taxes coming in higher than budget while personal income and realty transfer taxes are somewhat down.
While caution is still necessary, a Pew study of the fiscal status of the states ranked Pennsylvania seventh in the nation for fiscal stability when assessed against the factors that led to California’s acute budget crisis.
Pennsylvania Is the Only Major Industrial State to Be Ranked in the Top 10 in a Recent Pew Study on State Fiscal Crises
1 Source: State Revenue Report, January 2010. Nelson A. Rockefeller Institute of Government, Albany, NY.
2 Source: Beyond California: States in Fiscal Peril. The Pew Center on the States, Washington, D.C., November 2009. The states highlighted as being most similar to California were those that Pew identified as being in the greatest fiscal peril when assessed against the factors that led to California’s acute financial distress.
The Commonwealth’s unemployment rate for November 2010 was 8.6%, down from 9.0% in September 2010. 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 2010-11 Budget in Brief”, the Governor’s 2010-11 Budget Overview projected $29.03 Billion in General Fund Expenditures broken down as follows:
What does this mean to higher education, the Pennsylvania State System of Higher Education, and most importantly, East Stroudsburg University?
Looking further down the road, Pennsylvania anticipates a $2.5 billion shortfall in Fiscal Year 2012-2013. Local governments are also expected to face shortfalls. Given that a large portion of the Commonwealth’s budget is in education, cuts in state appropriation are possible. While cuts in Fiscal Year 2010-2011 were tempered by the American Recovery and Reinvestment Act funds, we need to prepare ourselves for Fiscal Year 2011-12 when the federal dollars go away.
Monroe County Outlook & DemographicsNortheastern Pennsylvania, Monroe County in particular, 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. 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. Interestingly, according to the U.S. Census 2008, only 12% of Monroe County’s population is 65 years of age or older while 24% is under 18 years of age.
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 the coming 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 annual employment 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 American Community Survey (2008) 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 that follows.
Employment by Industry in Monroe County, Pennsylvania in 2008
1%
Construction /
10%
Manufacturing /
10%
Wholesale trade /
3%
Retail trade /
13%
Transportation and warehousing, and utilities /
7%
Information /
2%
Finance and insurance, and real estate and rental and leasing /
5%
Professional, scientific, and management, and administrative and waste management services /
8%
Educational services, and health care and social assistance /
22%
Arts, entertainment, and recreation, and accommodation, and food services /
12%
Other Services, except public administration /
4%
Public administration /
3%
Percent of employed people 16 years and over
Source: American Community Survey, 2008
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. 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.
It should be noted, Monroe County is not immune from the impact of the national economic crisis as evidenced by municipalities struggling to balance budgets, some through increased taxes.
Given East Stroudsburg University’s position as a member of the Pennsylvania State System of Higher Education and a “state-owned” institution, trends in governmental activity are relevant to our future financial health. Slightly less than one-third of the University’s operating budget is derived from state appropriations, now approximately $26 million per year. Additionally, significant capital (building) funding also comes from the Commonwealth.