WCC’s administration is sold on the idea that it needs more money to ride out the coming Baby Bust. It claims it can generate the needed revenue by building a hotel and convention center. Further, the administration says that WCC’s state appropriation comprises a smaller and smaller portion of WCC’s overall revenue every year.
There’s actually a lot to unpack here, so let’s take these claims one by one.
WCC needs to increase its revenue.
WCC’s major revenue sources are property taxes, tuition and fees, and the state appropriation. It gets money from some other places, but these three are the ones that WCC can’t do without. They work together in a complex balancing act.
Property taxes WCC’s budget exceeds $112M this year. $56M of this money came from property tax assessments on Washtenaw County real estate. This year’s assessment increased 5.6% over FY2019, so property taxes increased 3 times faster than the rate of inflation – 1.8%. Further, tax revenues are increasing, despite the Proposal A cap. In other words, the largest component of WCC’s funding mechanism is in good working order.
Tuition and fees WCC also collects student tuition and fees. In the FY2020 budget, tuition will produce about $33.5M. This represents an increase of about $155,000 over FY 2019 or 0.004%. WCC’s enrollment has dropped, but its tuition revenues are rising because WCC raised its tuition and fees. In other words, this part of WCC’s funding mechanism rates two thumbs up.
State appropriation WCC’s state appropriation increased from $9.5M in 2008 to $18.5M in 2019 – an increase of 92%. Adjusting for inflation, WCC’s state appropriation has increased by 61% over 11 years. This part of WCC’s funding mechanism also checks out.
When does WCC need to increase its revenue?
First, WCC legitimately needs more money when the economy is bad – not when it is good. If someone tells you that WCC needs more money in a good economy, they’re feeding you a line.
Here’s why:
When the economy is good, college enrollment drops but revenues increase, thanks to rising property taxes. Remember, property taxes produce about half of the college’s revenue. Relatively modest gains in property values can translate into millions more in property taxes. When property values drop (during recessions), Proposal A props up the property tax collections – often for years before WCC sees a drop in revenue. Proposal A caps property tax increases, but not a property’s SEV. When a recession occurs, a property’s taxes will continue to rise as long as its SEV exceeds its taxable value.
During recessions, property taxes may drop eventually, but college enrollment increases immediately. And the worse the recession is, the higher the enrollment goes. Increasing enrollment means more money from tuition revenues. The additional tuition revenue often fully or mostly offsets the drop in property tax revenues. Additionally, the State of Michigan’s community college funding formula gives more money to community colleges when their enrollments increase.
This is simply the way community colleges work.
At a community college, enrollment declines in a good economy and peaks during a recession. Each major revenue stream counterbalances changes in the others. The system isn’t perfect, but it mostly ensures that a community college is financially healthy when the community needs it most.
The “Baby Bust” isn’t an economic failure
The so-called “Baby Bust” is a very familiar change in circumstances for community colleges. Enrollments drop every time the economy improves, so community colleges know exactly how to deal with that.
WCC’s enrollment has dropped virtually every year since 2011, but tuition revenues have increased. In other words, the College responds to drops in enrollment by raising tuition and fees. The state appropriation may drop based on changes in enrollment. But remember, over the last 11 years, WCC’s state appropriation has increased by 61% in real dollars with mostly declining enrollment.
Property tax revenues rise and fall independent of enrollment. Unless the district’s property values drop, WCC’s tax revenue will either level or rise, regardless of the enrollment. Increasing property tax values will offset losses in tuition revenues; they always do. This is how the community college funding mechanism is designed to work.
Additionally, the Southeast Michigan Council of Governments (SEMCOG) predicts that Washtenaw County’s school-age population will rise by 10%. This demographic will drop elsewhere in Southeast Michigan – but not here. If this prediction is right, WCC’s enrollment will stabilize – or more likely – increase. Business will probably be good in Washtenaw County. Property values and demand for property will likely rise here. All of that will make WCC’s income increase – not decrease.
WCC does not need more money. (At least, not to operate the College.)
Why is WCC’s state appropriation shrinking?
It is true that WCC’s state appropriation comprises a smaller percentage of WCC’s budget every year. But it’s not because the State is cutting WCC’s funding. WCC’s other revenue sources have simply grown faster than the state appropriation has grown. As a result, the state appropriation is a smaller percentage of WCC’s overall revenue picture.
Factually speaking, WCC’s state appropriation increased from $9.5M in 2008 to $18.5M in 2019. Adjusted for inflation, WCC’s state appropriation has increased by 61% during this period. WCC is getting more money – not less – from the state. Any suggestion otherwise is patently false.
Why does the community college need more money?
WCC is not revenue-starved in any sense of the word. Even in the midst of a prolonged economic upturn – when enrollments are dropping – WCC is doing just fine. Asking why the College administration is poor-mouthing is a valid question. It’s one the taxpayers should demand answers to before giving the College even more money.
Beyond its legitimate revenue needs during a recession, WCC would need more money if it planned to increase its spending. The administration wants taxpayers to believe that a drop in enrollment will destabilize it financially, so it needs replacement revenue. An unstable revenue picture should cause prudent administrators to reduce expenses, not increase spending.
Why would the WCC administration want to increase its spending at a time when it allegedly fears a prolonged revenue drop?
At least some of WCC’s expenses are tied to enrollment. If the “Baby Bust” will truly drop WCC’s enrollment, some of its expenses should also drop. Fewer students mean fewer teachers, lower per-seat software licensing costs, lower instructional support costs, and lower building operating and maintenance costs.
Who knows? WCC might even see lower administrative costs. (Just kidding.)
The community college is contrarian by nature. It does well when other parts of the economy flounder. WCC might need increased revenue if the administration does something to upset the balance of its contrarian funding mechanism.
Like building and operating a facility that is both maintenance-intensive and highly sensitive to downward changes in the economy.
Like a hotel.
Photo Credit: Chris Lovelock, via Flickr.com
