Nicole Knight
Managing Editor

After nearly a decade of drawing from the “quasi-endowment,” University officials have proposed a budget plan for 2006-2007 that calls for the University of La Verne to live within its means. But the balanced budget plan comes at the cost of tight spending restrictions and tuition increases across the board.

“Next year's budget has been developed with the most extensive background analysis I have seen,” University President Stephen Morgan said in an e-mail. “And the funding of depreciation and lack of reliance on the ‘quasi-endowment’ has set the stage for La Verne's long-term financial health. These are very important steps.”

The “quasi-endowment” put simply is the University’s saving account for emergency spending. The “depreciation” is an account the University invests in to allow for building repair and renovation.

About eight years ago, the University started drawing money from the quasi-endowment to fund the operational deficit and to fund the College of Law in its multimillion dollar quest for American Bar Association accreditation, which it tentatively achieved this year.

“The intent is to grow the endowment not to take money out of it, or
reduce it,” said Treasurer Avo Kechichian, who is directly responsible for assembling the budget.

Ending this dependence on the quasi-endowment, the University hopes that by the end of 2007-2008 the institution will have a fully balanced budget.

“If you’re earning $10 and spending $11, there comes a point where your rich uncle will no longer subsidize you,” Kechichian said.

Last year the Board of Trustees asked the University to submit a balanced budget for the fiscal year 2006-2007. In order to do that, the University would have to find about $4.1 million to fully fund the depreciation and not use money in the quasi-endowment. This year’s budget puts in about $2.5 million towards the depreciation, leaving next year’s budget to fund the difference of about $1.7 million.

The finance and budget committee, a subcommittee to the full Board, went back to the Board and presented a two-and-a-half year plan, which included a phased-in approach to balancing the budget. As a part of that two-and-a-half year plan, next year’s budget will fully fund the depreciation and no longer draw any money from the quasi-endowment, meaning the University will be able live within its available resources.

“The big step this year is to not take any more money from the quasi-endowment,” said Philip Hawkey, executive vice president.

“For the past seven or eight years now, our expenditures where outpacing our revenues and we were drawing money from our quasi-endowment to fill the gap,” Kechichian said. “For 06-07, the budget is balanced ... Our revenues equal our expenditures.”

The total budget for 2006-2007 is about $109 million, Kechichan said.
The two-and-a-half year plan would prioritize the following: elimination of the quasi-endowment subsidy, fully funding for the depreciation, funding for legal obligations, funding for compensation and benefits, and funding for academic programs and operational expenditures.

“The challenge is that even though financially the budget is balanced, strategically there is still a gap,” Kechichian said.

Kechichian outlined the challenges in three components: facilities, personnel and programs.

One of the greatest concerns in the development of the budget, at least as far as students are concerned, is the tuition increase ranging from 2 to 21 percent depending on the program.

“We’re a tuition-dependent institution and enrollment is what makes up 94 percent of our revenue, so any shifts especially downward shifts in enrollment would have a big impact on the resources available for the University,” Kechichian said.

Traditional undergraduate tuition will be raised 6.4 percent master’s programs’ tuition will be raised approximately 5 percent, and doctoral programs will be raised between from 2 to 5.5 percent.

Tuition for the College of Law will go up 21 percent starting with the entering fall 2006 class.

“Our enrollments are not growing very fast, which means our revenues are not growing very fast, which means we have to follow the direction of the Board of Trustees,” Hawkey said.

The tuition increases will be a significant source of new revenue, however the primary money source will be from the limited growth in expenses within University programs, Hawkey said.

“Funding the needs of the University with flat enrollment projections and modest tuition increases is a challenge,” Morgan said.

The finance and budget committee, consisting of Kechichian, Hawkey, Interim Provost Robert Neher and Controller Lori Gordien-Case, met with deans and division heads to hear their requests.

The deans and division heads expressed concern for staffing needs, for faculty and support staff, and a budget for supplies and equipment, Neher said.

“The deans understood the requirement of the Board of Trustees, so they were informed that there was not a big chance of big increases … so their requests were modest,” Hawkey said.

An “Action Task Force” was appointed to help address the Board’s mandate by proposing some cost-saving initiatives to aid funding for the needed $4.1 million.

“We believe we can achieve a number of cost savings by implementing the recommendations that have come from the Action Task Force,” Morgan said. “They have recommended a number of efficiencies.”

This Action Task Force has made 33 recommendations, some of which that have already been carried out.

“Next year’s budget would implement a few of the Action Task Force proposals as it relates to management of class sizes and class rotations,” Kechichian said.

“We feel that’s going to save the institution at least $116,000,” Kechichian added.

The budget also includes a faculty compensation package of $2.6 million, which may not cover the cost of living for some employees.

“The general pay increase was not as much as we had hoped it to be as of this year,” Hawkey said.

Despite the upcoming two-and-a-half year crunch, next year’s budget is being considered a milestone in the financial affairs of the University for its long-term effects.

“We’re budgeting in a way that tends to support our concept of sustainability,” Neher said. “It’s a budget that allows us to move ahead and grow in the future.”

After roughly seven months of development, a process that began in October 2005, the Board of Trustees is set to review the proposed budget today. If the budget is approved, it will implemented starting in July.

Nicole Knight can be reached at nknight@ulv.edu.