SUMMARY OF 2015 DELIBERATIONS ON BIENNIAL BUDGET

John Grew

Indiana University Office of State Relations

Introduction

The 2015 legislative session was the "long" session during which a biennial budget was considered by the Indiana General Assembly.  While the biennial budget dominated the session, other legislation enacted included a number of bills impacting Indiana University which are discussed in a separate report.  This report concentrates on deliberations relative to the biennial budget. 

The November 2014 elections were again favorable for Republicans. In the Indiana House of Representatives, the Republicans not only retained their super-majority, but increased it by two to 71 seats. In the Senate, the Republicans also increased their super-majority by winning 40 of the 50 seats, a 3 seat increase.

Preparation for the Legislative Session

As always, in the months leading up to the biennial budget session, substantial preparatory work took place beginning in late spring and continuing throughout the remainder of the year, including preparation of Indiana University's biennial operating and capital request documents in accordance with guidelines jointly issued by the Indiana Commission for Higher Education (ICHE) and the State Budget Agency (SBA), and presentations to the ICHE and the State Budget Committee (SBC).  This process was expedited some through ICHE’s development of a new online system (CHEDS) for submitting operating and capital request schedules and documents.  A distinguishing feature of the request process for this biennium was the request by each institution for new funding of special line items.  IU requested $5 million annually for regional campus student success initiatives and another $5 million annually for statewide engagement in IT.  In addition, IU requested the transfer of $2.5 million in the FY 2013-15 budget allocated to the Indiana Economic Development Corporation for IU for research leading to economic development to a line item under IU to provide state support for the Indiana Clinical and Translational Science Institute.  

In September, President McRobbie presented IU's operating and capital requests to the ICHE during its biennial visit to the Bloomington campus. In November, the President presented the requests to the SBC.

In December, ICHE presented its university operating and capital recommendations to the SBC. ICHE advocated for a reasonable increase in state funding for higher education.  ICHE recommended increasing the amount of total performance funding to a level equivalent to 7% of university operating funds in FY 2016, or $81 million, and 8% in FY 2017, or nearly $92 million. Funds for performance funding were recommended to come from both new state appropriations and reallocations of university state operating appropriations.  For FY 2016, reallocated university operating appropriations were recommended to be 4%, or $46 million. For FY 2017, the recommendation provided for 5% reallocated university appropriations, or $58.0 million.  Finally, ICHE recommended that state dollars increase by 3.3% each year of the biennium over the FY 2015 appropriation base, or $41 million.  For the IU system, the recommendations provided a 5.3% increase in FY 2016 and another 0.3% increase in FY 2017.

In developing its recommendations, ICHE decided to abandon its prior use of establishing funding levels for each metric (based on a desired spending percentages of total performance funds), instead permitting total funding for each metric to be determined by the institutions’ performance and funding award for each of the following performance funding metrics:

• Degree completion
• On-Time degree completion
• At-risk degree completion
• High impact degree completion
• Student persistence
• Remediation
• Institutional defined metric

For capital recommendations, the ICHE recommended that the General Assembly approve the top ranked capital project for each institution, a total of seven projects, including IU’s Old Crescent Phase II project for $48.5 million.  R&R funding was recommended at a level of $63.5 million for the biennium and nearly $25 million for the IU system. 

Finally, in December, a state revenue forecast was prepared and presented to provide an estimate of state revenues available during the biennium to support state expenditures.  Reflecting the performance of the economy – slow growth, notwithstanding an improvement in unemployment - the forecast projected very modest state revenue growth of $360 million (+2.4%) in FY 2016 and $482 in FY 2017 (+3.2%).  Thus, new funds projected to be available for the new biennium were modest. 

2015 Legislative Session

Governor's Budget Recommendations

The legislative session began on January 5^th.  The first major event associated with the biennial budget deliberations was presentation of the Governor’s budget recommendations to the State Budget Committee.  The Governor’s recommendations adopted the ICHE performance funding metrics as well as setting the performance funding level at 7%/8% for FY 2016 and FY 2017 respectively.  As recommend by ICHE, the performance funding pool would be funded by a combination of new state dollars and reallocated FY 2015 university operating appropriations.  For new university operating funds, the recommendations provided a 1.0% increase each year of the biennium providing about $13 million in new funds each year. Reallocations of FY 2015 state operating appropriations were 6.1%, or $70 million in FY 2016 and 6.2%, or $71 million in FY 2017. For the IU system, the recommendations provided a 3.0% increase in FY 2016 and another 1.3% increase in FY 2017.

The recommendations for capital were the same as that recommended by the ICHE except one project was added - $19.2 million for the Evansville Academic Health Science facility, to be occupied by the IU School of Medicine, as part of a community initiative.  In addition, the Governor recommended cash funding for all capital projects rather than bonding authority.  The Governor’s capital recommendations also included a slightly lower level of R&R funding for the biennium - $57 million.

House Budget

The House budget decreased the amount of total performance funding to 4.7% of university operating funds in FY 2016 (from 6% in FY 2015), or $55.4 million and increased it to 7% in FY 2017, or $84 million.    For FY 2016, reallocation of university operating appropriations were 3.1%, or $35.7 million.  For FY 2017, the House budget provided for 3.7% in reallocated university appropriations, or $43.4million.  Finally, the budget appropriated a 1.7% increase in state dollars in FY 2016, or $21.9 million and another 1.8% in FY 2017, or $23.0 million.  For the IU system, the House budget provided a 3.1% increase in FY 2016 and another 2.4% increase in FY 2017.

Neither of IU’s new line item requests for statewide engagement and for regional campus student success initiatives were funded.  However, the House budget did transfer the existing $2.5 million per year in funding from IEDC to IU for CTSI, as requested by IU.

For capital, the budget incorporated all of the ICHE and Governor recommended capital projects (providing bonding authority) and increased the amount authorized for the Evansville project from $19.2 million to $36.0 million, including both USI and Ivy Tech in the project.  IU’s Old Crescent Phase II project was included with $48.5 million in bonding authority.  Formula R&R was included at the same level recommended by ICHE - $24.7 million for IU for the biennium.

The House budget included the following miscellaneous provisions:

• First-time funding of $3 million annually for an expansion of graduate medical education (residency) slots that was sought by the IU School of Medicine
• The bill also updates the names of the Centers for Medical Education, as included in SB 123, later enacted during the session

Senate Budget

The Senate budget provided slightly higher operating funding and set the amount of total performance funding to 4% of university operating funds in FY 2016, or $47 million and increased it to 6% in FY 2017, or $49 million.  For both FY 2016 and FY 2017, reallocation of university operating appropriations were 2%, or $23.2 million.  Finally, the budget appropriated a 2.3% increase in state dollars in FY 2016, or $28.7million and another 1.9% in FY 2017, or $25.2 million.  For the IU system, the budget provided a 3.7% increase in FY 2016 and another 2.2% increase in FY 2017.

Like the House budget, neither of IU’s new line item requests for statewide engagement and for regional campus student success initiatives were funded but the Senate budget transferred the existing $2.5 million per year in funding from IEDC to IU for CTSI.

Capital projects were similar to the House budget except that the Evansville project was reduced to $25.0 million but $12.5 million in cash funding was added for IU’s regional campuses in the form of special R&R funds. Formula R&R was included at the same level recommended by ICHE and included in the House budget - $24.7 million for IU for the biennium.

The Senate budget also included a number of miscellaneous provisions, in addition to those included in the House budget:

• The bill stipulated that the administration cannot withhold state appropriations to state universities without State Budget Committee review
• The bill required that the Legislative Services Agency review the current governance of IPFW and alternative models for governance
• The bill designated IPFW a “multisystem metropolitan” campus
• The bill required the Indiana Commission for Higher Education (ICHE) to annually report the percentage of resident and non-resident students
• The bill required the ICHE to report any tuition increases imposed by the universities for the 2015-16 and 2016-17 academic years
• The bill required the Indiana Commission for Higher Education to review Ivy Tech programs with low graduation rates and authorizes ICHE to require restructuring or elimination of such programs

Revenue Forecast Update

On April 16th, the updated revenue forecast was presented.  Unfortunately, state revenues continued to lag expectation for the first nine months of the fiscal year resulting in a downward revision of the December, 2014 forecast. The revised forecast projected $346 million in new revenue for FY 2016 (+2.4%) and $507 million (3.4%) for FY 2017.  Because the forecast also reduced the FY 2015 revenue base by $105 million from the December forecast, the amount of revenue was reduced by $119 million for FY 2016 and $94 million for FY 2017, creating additional challenges for budget conferees in connection with the goal of passing a balanced budget.

Conference Committee

There was one public conference committee meeting before negotiations led to a budget agreement and a conference committee report, which passed during the final minutes of the legislative session as midnight approached.

The conference committee report provides operating funding at levels similar to the House budget and set the amount of total performance funding at 4% of university operating funds in FY 2016, or $47 million and increased it to 6.5% in FY 2017, or $78 million. For FY 2016, reallocation of university operating appropriations will be 2.4%, or $27.5 million and for FY 2017, 3.2%, or $37.4million.  Finally, the budget appropriated a 1.7% increase in state dollars in FY 2016, or $21.6 million and another 1.8% in FY 2017, or $22.9 million.  For the IU system, the budget provided a 2.8% increase in FY 2016 and another 2.5% increase in FY 2017.

Again, neither of IU’s new line item requests for statewide engagement and for regional campus student success initiatives were funded but the existing $2.5 million per year in funding from IEDC was transferred to IU for the CTSI.

Capital projects were similar to the Senate budget except that the Evansville project was increased to $25.2 million in cash funding with $19.2 million allocated to IU and $6 million for space for USI.  IU’s Old Crescent Phase II project was included with bonding authorization for $48.5 million and the $12.5 million in cash funding added for IU’s regional campuses in the form of special R&R funds in the Senate budget was retained.  In addition, formula R&R was included at the same level recommended by ICHE and included in both the House and Senate budgets - $24.7 million for IU for the biennium. 

The enacted budget also incorporated the miscellaneous provisions included in both the House and Senate budgets:

House Budget:

• First-time funding of $3 million annually for an expansion of graduate medical education (residency) slots that was sought by the IU School of Medicine
• The bill also updates the names of the Centers for Medical Education, as included in SB 123, later enacted during the session

Senate Budget:

• The bill stipulates that the administration cannot withhold state appropriations to state universities without State Budget Committee review.
• The bill requires that the Legislative Services Agency review the current governance of IPFW and alternative models for governance
• The bill designates IPFW a “multisystem metropolitan” campus
• The bill requires the Indiana Commission for Higher Education (ICHE) to annually report the percentage of resident and non-resident students
• The bill requires the ICHE to report any tuition increases imposed by the universities for the 2015-16 and 2016-17 academic years
• The bill requires the Indiana Commission for Higher Education to review Ivy Tech programs with low graduation rates and authorizes ICHE to require restructuring or elimination of such programs

Legislative\Biennial Request\2015 Biennial Budget Development Summary