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Momentum: A Financial and Budget Overview for this Academic Year
Finances and Mission
We have much to be grateful for as we move into this new academic year, and reiterating what I said last week at Convocation, this new year is as yet undiscovered, unknown and unspoiled. It is for us to make of it what we can, knowing that we alone do not control everything that may impact us. Even though we cannot determine or prevent a number of significant external factors, we can prepare and respond in a way that maximizes our agency.
Hence the topic of this Momentum – finance and budget. Our financial position does not dictate our values, nor should it dominate our conversation about how Lehman College will move forward. However, it is a reality that we also cannot ignore, and that we certainly want to understand.
Budget and Moral Imperative Work Together
Lehman begins the academic year with its largest enrollment since the City University of New York (CUNY) discontinued free tuition in 1975, reaffirming our values and mission as an anchor institution of higher education and cultural center in the Bronx, all the while remaining on solid financial footing. In fact, we are one of the best financially situated of the CUNY colleges.
While conversations about budgets and finance may seem separate from our moral imperative as a place of opportunity and hope, they are, in fact, essentially linked; we cannot do all that we aim to do for our stakeholders without near- and long-term financial stability.
The Larger Context
Since the 2008 great recession, defunding of public higher education by states has been ongoing. In the United States, state funding per full-time student (FTE) has fallen 11 percent since 2008. However, in New York, we have fared much better, and by some measures, funding per FTE is actually four percent higher than it was in 2008, adjusting for inflation. In fact, it is the highest it has been in the past 25 years, except for 1999.
Why, then, do we chronically feel that we struggle with our budgets and lack resources for many activities we deem important, even essential? First of all, if you have been in the CUNY system since 1999, as I have, you probably have never had the sense that we had all the resources we needed. It’s important to understand that having FTE funding at its highest level since 1999 does not mean we have resources to spare. We actually have $13 million less in operating funds since 2009, and each year up to one million is added to the budget due to mandatory increases that the state does not add to our budget.
Another important trend that has dramatically impacted our students is how much they are asked to pay for their education. Despite calls at the beginning of the 2020 election cycle for free higher education for all, students nationally are paying 37 percent more for their college educations than they did in 2008, and in New York it isn’t much better at 36 percent more.
Despite that statistic, Lehman College students have the lowest debt at graduation in the Northeast, averaging under $10,000, and the average student who graduates from Lehman with a bachelor’s degree earns, on average, $2,000 more than the typical university graduate.
The bottom line is that we need more from our state and federal governments. You may know from my recent update to the campus that I have devoted a significant amount of time to meeting with our elected officials to let them know how well Lehman College is doing with the resources we’ve received, and also how much more we need from the state if we are to do more.
But we must be realistic. We have a governor who is committed to an overall limit of two percent annual increases in the state budget. Within the state budget, we are competing with other important areas like K-12 education, Medicaid, mental health, transportation, and on and on. We will push hard again this budget cycle for more from the state, but we also can’t proceed assuming that we will succeed in a dramatic way. I hope we will, but I’m also realistic about how this plays out in the political arena.
The financial strength of CUNY, and therefore Lehman, is tied to the fiscal health of the state and the city. In the latest report on the financial condition of the state, NY State Comptroller Thomas DiNapoli writes that while the state’s General Fund cash balance was $9.4 billion and is the highest in recent history, the cushion is expected to shrink over the next three years as spending outpaces federal funding and revenue, leading to potential budget deficits of $17.9 billion before “gap-closing actions.”
How CUNY and Lehman Are Funded
The CUNY Tax Levy Operating Budget (Budget) is allocated every year to its 25 colleges and schools system wide by the State and City of New York. The fiscal year begins July 1 of every year and ends June 30 the following year. The Budget is funded from three main sources: New York State, New York City and tuition revenue.
To add a bit more detail, CUNY’s funding comes from the following sources:
- State & City Funds, including New York City Council, the Bronx Borough President’s Office, New York State Legislative Initiatives, Intra-City Measures; State funding is by far the largest – at Lehman, this number is $171 million inclusive of $84.4 million in tuition revenue, our second largest source of funding.
- Capital Funding – State, again the major source, and City Appropriations, Managed grants and Reso A funding
- Research Foundation-administered faculty and staff grants, which may fund release time for full-time faculty and other activities related to research infrastructure, but don’t directly support the operations of the College, and can cost more than they bring in
- Income Fund Reimbursable funds held by New York State
- College Foundations, in our case the Herbert H. Lehman College Foundation, which does not support College operations, but does seek funding for scholarships and may help fund special initiatives and programs
- Auxiliary Enterprise Corporations (Companies that operate on campus) running operations like the cafeteria, parking lot and bookstore, which cannot support College operations, but can fund special activities and student support services
- Other entities on campus such as the Performing Arts Center, Child Care, etc. which provide important services and enrich the campus environment, but usually do not provide significant net income to the College.
For Fiscal Year (FY) 2020, Lehman’s Operating Budget is projected at $171 million out of a total $2.3 billion allocated to CUNY’s Senior Colleges.
 CUNY's Tax Levy Operating Budget
The Lehman Financial Context
A glance at Lehman’s financial standing might suggest that we are flush with money, so let’s look closer at the numbers. Our budget expenditures are made in a couple of big buckets. One, personnel costs, is over 90 percent, and includes full-time salaries (PS Regular), adjunct professors, and temporary hires (Temp Services). The other category is Other than Personal Services (OTPS), meaning supplies, contracts and other costs.
The College directly manages these budget items, and in the current fiscal year they will total $116 million. The CUNY central office pays our utilities, fringe benefits, leases and some other costs, and that amount is $55 million for this year. So, the total cost to run the College is close to $171 million.
If we leave the CUNY-managed part out, and simply account for the funds managed on campus, we find that our projected revenues of $112 million will be lower than our expenses of $116 million. We will have a deficit of $4 million this year. We budget for three years at a time, and when we do that, we find that even if we manage to greatly reduce the annual rate of increase in expenditures, we will have even larger deficits each of the next two years. In short – for a number of reasons, some of which we can influence, and some of which we cannot, we are living beyond our means. This is what is termed a “structural deficit.”
This sounds gloomy, and it certainly is not something to ignore. However, unlike some of our sister colleges, we are fortunate to have had budget surpluses in recent years that will prevent our annual deficit from throwing us into austerity this year or next. However, if we do nothing and continue business as usual, because of the rising costs of labor and related expenses, and limited state funding increases, by 2022, Lehman will have exhausted its reserves, and the following year will be facing large budget cuts. Because we have a healthy fund balance now, we have time to make choices that can make our three-year budget come out much better than if we do nothing and continue business as usual.
Campus Managed Operating Expenses
You are probably unaware of some of the budget constraints that have already been in effect for some time, and without which, we would deplete our fund balance by the end of next year. These include over $1.8 million in unfilled positions, mostly in the non-academic areas. Not filling positions has real consequences that we regularly experience, even though we may not appreciate the reasons. For example, when Facilities is short of staff, it takes longer to make needed repairs, and when HR is missing key staff, it takes longer for personnel actions to be processed.
Because Lehman College is already a lean-running institution, it would be unwise to think that we can cut expenses further and not damage our ability to function well. A far better approach is to enhance our revenues to the point that they match our expenditures. By doing that, we avoid a financial crisis, and also grow in ways that increase services to our students, faculty and staff. There are a number of ways that we can increase our revenue and at the same time stay true to our mission. 90X30 is a challenge to expand the impact of Lehman College, and that can only happen if we are investing. It is also a tool to help us think differently about how we grow and manage our revenues.
Since we don’t have a lot to invest, and reducing our fund balance very much would hasten our being in the red, one of the ways we can internally generate funds for investments, is to allocate our resources in the most effective ways possible. For instance, we can emphasize growth in graduate programs, and in other programs that cost less to deliver, such as hybrid or online. We can also reorganize our curricula in ways that both facilitate student completion, and more effectively engage our faculty. These are steps that are consistent with our mission and that enable us to pursue the 90X30 challenge.
It may be tempting to think that our budget projections are overly pessimistic, but that would be a mistake. As an elected official, I also deal with municipal budgets, where we face similar challenges, including a rise over the past ten years in employee benefits costs, predominantly health care, which have gone from 20.5 percent to 26.5 percent of the total budget. At Lehman, those and other uncontrollable costs will continue to rise at a rate that is greater than our revenue increases, further reducing our actual operating funds. We can’t put our heads in the sand and hope for a better result.
It might also be tempting to consider using our fund balance for initiatives and projects now. We will do that in considered ways that lead to revenue growth and do not jeopardize our fund balance. In fact, it is only by investing that we can grow and overcome our structural deficit. But, we will maintain a reasonable fund balance and not ignore the ominous warning above from the State Comptroller and from most economists, that we will have some tough economic times ahead. A financially healthy non-profit, like a college, will maintain a fund balance equal to 4 percent of its operating budget so it is able to weather a fall in income without having a crisis. For Lehman College, four percent is equal to around $4.5 million. We have more than that now, but next year we will only have half that amount, and by 2022 we will have less than a quarter of that amount, which is essentially the same as having no reserve at all.
The great news for us is that we have options, and we can make choices that will result in growth, stability and continued financial strength. For this, every area of the campus needs to engage. In the next Momentum, I will share more about the ongoing implementation of 90X30 and the Strategic Growth and Investment Plan (SGIP), led by Provost Nwosu, which is one key way for us take actions that result in savings for investment, and as a result, growth and improvement.
 SGIP Meeting
It is important that the campus community understand our financial realities as well as our strategies that can help us not be limited by them. The realities, reduced to their essence, are that revenues must match, or better yet, exceed expenses. While they currently do not, we can achieve that balance if we act decisively now, employing the right strategies. Doing that is not easy, and will require that we make choices and then make some changes to the way we deliver a quality education. Your engagement in these strategies is vital for the continued success of our College.
I trust that your fall semester is off to an excellent and productive start, and I wish you the best in this academic year at one of the great public colleges in the country.
Sincerely,
Daniel Lemons
@LehmanPresident
Previous messages from President Lemons can be found here.
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