GAVILAN JOINT COMMUNITY COLLEGE DISTRICT
Board Budget Subcommittee Minutes

Ivory Li of PiperJaffray provided a memo and handout which summarized an opportunity for Gavilan to save local taxpayers approximately $1,769,000 (net of fees) by refinancing a portion of the District’s outstanding Measure E General Obligation Bonds, Series 2004A. She provided detail and discussed two different ways the bond repayment savings and property tax relief could be achieved. Option 1 would provide immediate larger savings in the next four years and small annual savings thereafter. Option 2 would spread the savings equally over time with a greater total bond repayment savings.

Cheryl Vesely of Dale Scott & Company reported that the industry standard for a net present value savings as a percent of the bonds to be refunded is 3%. The calculated net present value savings for this opportunity is calculated at 6.10%. Cheryl said that Dale Scott & Company would continue to watch the rates and if they went up prior to the refunding, the transaction would not go through. She reviewed the transaction fees and noted that they are paid only if and when the Refunding Bonds are actually sold. Cheryl was asked if the fees were in line and she said yes they are similar to current refinancing transactions.

Ivory was asked why the other two bond series were not included in this refinancing opportunity and she explained that the bonds have a ten year protection period for repayment. The 2008 and 2011 bonds refunding proceeds would be held in escrow and the savings would be "eaten up" over time.

Chairperson Davenport asked for comments from the public on this agenda item. Comments were favorable towards refinancing the 2004A Series ME bonds.

The Board Budget Committee made a recommendation that the refinancing opportunity for Measure E General Obligation bonds be placed on the agenda for the February Board of Trustees meeting. A presentation would be given at that time. The Committee recommended the option which would spread the savings equally over time with a greater total bond repayment savings.

The Committee thanked the administration for monitoring the refinancing option and pursuing a savings to taxpayers.

Susan Cheu provided a review of the revenue adjustments as of November 30, 2011. The transition from FY 11/12 budget to current expenses through December 31, 2011 totaled a reduction in expenses of ($596,651). Susan reviewed the proposed adjustments and explained how the adjustments and funds transfers were calculated. In summary, the deficit will be reduced from ($1.7 million) to ($1.15 million).

Joe explained that the mid-year review process was different this year. Budget managers were asked to review their direct expenses (4-6’s) and identify areas that require more funds and also excess funds that could be reallocated to a different area in need. The Business Office completed a detailed analysis on FY 11/12 revenue which resulted in an increase of $52,374. In addition, they conducted an analysis of FY 11/12 salaries, benefits, and burdens in which an increase of $102,070 was identified. Susan explained that this was mostly a result of the increase to part-time faculty/overload costs.

Susan concluded by identifying the challenges going forward. A cut in the state revenue is still unknown but the Tier 1 and Tier 2 cuts are approximately ($432,000). President Kinsella reported a potential enrollment fee revenue shortage statewide that may lead to additional state revenue cuts. Susan reminded the members that there still may be funds requested but that are not spent by June 30, 2012. Finally, the STEM grant reassignments for spring 2012 have not been completed, however, a positive impact is expected.

The Committee members asked a variety of questions throughout the presentation. The Trustees acknowledged President Kinsella, Joe Keeler, Susan Cheu, and the Business Office staff for the detailed analysis.

Included in agenda item #5

President Kinsella discussed the outlook for the FY 12/13 budget. He identified a structural imbalance in two areas: 1) a shortfall of $1.4 million in revenue due to the work load reduction from the state which is an ongoing reduction and 2) a combination of the state Tier 1 and Tier 2 revenue cuts and the anticipated enrollment fee revenue shortage totaling $1.2 million. He will recommend to the Board of Trustees the use of the retirement fund to offset these shortages as that fund has an overage of $1 million and the District has ample reserve funds. At this time, he does not recommend any more expenditure reductions as the curriculum will be affected. He prefers to keep programs intact so that the District is in a position to expand when the economy changes. He foresees revenue sources increasing over the next two years and the District can take advantage of the grant revenue. If the Board of Trustees does not want to follow this approach, the District will look at reductions to offset the revenue shortages and, if necessary, reduce non-funded FTE. Trustee Child summarized by saying that deficit spending would need to be resolved within the next two years.

Joe Keeler described the budget building process for the FY 12/13 budget. The management group met last week and Steve, Susan, and Joe provided direction on reviewing direct expense budget needs for their programs. Susan will identify FY 12/13 revenue and both Human Resources and the Business Office identify the salaries, benefits, and burdens for each program. Proposed program budgets are reviewed by the area dean, vice president and president. After the program budgets are compiled by the Business Office, cabinet reviews the district budget as a whole and discusses any changes. Upon the president’s approval the tentative budget is presented to the Board of Trustees at their June meeting.

Trustee Dover asked if the sales tax initiative being considered in November will affect our budget. President Kinsella said that if it passes, it would offset the revenue shortages previously identified. The tentative budget will not include the potential sales tax funding.

Chairperson Davenport expressed his appreciation for the work involved in creating the report and the information it provides on the district’s current budget status. Susan will be presenting the FY 11/12 mid-year review at the February 14 Board of Trustees meeting.

A discussion followed on how best to reallocate resources when a turnover of personnel has occurred. President Kinsella noted that filling the open position may not be the best use of resources. He is recommending a committee be formed to review each position as it becomes vacant. Joe Keeler will begin the process by asking President Council members to talk to their constituents about this topic and provide a member to sit on a task force that will discuss the logistics of such a committee.

A discussion took place on the challenges this committee may face including fairness, knowing the "big picture" for the college, safeguards to ensure that smaller groups are considered in the resource allocation, and the objectivity of the members.

Steve concluded that this is a critical function in resource allocation.