[Speaker 4] (2:38 - 3:06) Good evening. It is 5.02 on Thursday, June 18th, 2026. I called to order the meeting of the Lee College Board of Regents for a budget workshop. We have seven board members in attendance in Tucker Hall and Regent Thomas is on Webex with Anne Gilbert-Santana. Chairman Santana just joined us as well. So, good evening Regent Thomas and Regent Santana. Can you hear us? [Speaker 6] (3:08 - 3:11) I can hear you. Yes, we can hear you. [Speaker 4] (3:11 - 3:16) Okey-doke, great. All right, let's move into agenda item number two. [Speaker 7] (3:16 - 3:17) Jacob. [Speaker 1] (3:36 - 14:52) All right, good afternoon. In our workshop today, we are going to be discussing revenues. And so, this is limited explicitly to the way that the college generates revenue and what we expect as of today in terms of total potential revenue for next fiscal year. So, just a brief update on the agenda. So, today we have our second budget workshop in July and that meeting is actually moved to the 23rd. We will be presenting our first proposal for the budget for next year. So, you'll see what we're projecting for total revenues and how we would like to amend our expenses based on that particular recommendation. We don't expect to actually pass the budget until August as we won't have final valuation numbers from Harris and Chambers County until after the July meeting. And so, the final budget will be proposed for adoption in August. And then, of course, in September, we have the process of formally adopting the tax rate associated with the budget. Any questions on the schedule? So, let's review briefly where we are today. So, here you can see what we budgeted and what we've collected in terms of total revenue. As you can see, we're up a little bit on M&O taxes. We've had a very good year in collecting outstanding balances from prior years, which is really the difference between what was budgeted and our total projected revenue. Our state appropriations are coming out right on target. Our tuition and fees have been up. That's some from tuition, mostly from fees. And then, our other revenue is fairly close to on target. And so, we've done a pretty good job this year of projecting what we're going to collect in total revenues. And you can see the breakdown in the pie chart on the right for how those revenues are divided up. Obviously, it's primarily M&O taxes, then state appropriations with tuition and fees rounding out the top three sources of revenue for the college. And here, you can see the change in total revenue going back to FY22. You'll notice that there was a significant jump from FY23 to FY24. That was the implementation of HB8. And the first year that we received appropriations under the new model for Lee College, that was an additional $10 million. And then, you can see the other categories have been fairly consistent year over year. So, let's move on to the first category of revenue, ad valorem taxes, which represents our largest source of funding. Ad valorem taxes are divided up into two categories. We have maintenance and operations, and we have interest in sinking funds. The interest in sinking funds are the funds that we collect to make the principal and interest payments on our general obligation debt. That rate is set entirely on what our principal and interest payment is for the year. The balance of the rate is made up by the maintenance and operation portion of the ad valorem tax. The maintenance and operation portion of the ad valorem tax is really unrestricted to the institution. Essentially, the only restriction on that is the use of those funds to construct facilities outside of the taxing district, right? It would be inappropriate to collect revenue from taxpayers in the Goose Creek ISD to construct a facility in another ISD where they don't pay the same tax rate. As far as setting the rates go, there is a total cap rate of $1 per $100 of value, and an IS rate, an INS rate of 50 cents per $100 of value. We are well, well below that with our total rate being 18.7 cents. State law also mandates that each district calculate a voter approval rate. The voter approval rate is the maximum rate that the board can set for collecting taxes, and that rate is based on generating 8% of new revenue above what was collected in the prior year. So there are multiple factors that go into calculating the voter approval rate. First, you have the valuation of the property. You can have a significant increase in property valuations, decrease the actual rate, and still collect 8% of additional revenue. Or if valuations are flat, the board has the authority to increase the actual M&O rate to collect that additional 8% of revenue without being required to go out to the public for a vote. So hence the name voter approval rate. If we needed to generate more revenue for that than that, for either the INS or the M&O taxes, that would potentially trigger a public election and would require voter approval in order to set the rate as opposed to relying exclusively on board authority. So let's talk about ad valorem for the last five years. You can see here that there has been a steady increase in the amount of revenue that we have collected in M&O taxes. You can see that we did some refinancing and so the INS taxes that we were required to collect dropped significantly for FY26. You will also notice that the total tax rate has declined every single year going back to FY2022. That is a reflection of a couple of different initiatives. One, the initiative to be responsible with taxpayer funds. It's a reflection of the growth in the overall tax base for the community. And to some extent, it's a reflection of our ability to lower the tax rate because of our declining INS obligations or our declining debt obligations each year. You'll also notice that in FY24 and 25, we had elected to make $2 million of defeasance debt. So the $5,264,000 for INS in FY24 and $5,152,000 in FY25 included the $2 million of early defeasance debt. Had we elected not to make those payments, the INS rate and the taxes that we collected would have been $2 million less than that. So anytime we do an early defeasance payment, it's included in the INS calculation. Let's look at now how Lee College stacks up with the other institutions in the Gulf Coast region. These are ordered by enrollment from largest to smallest institutions. The ranking is a reflection of, from highest to lowest, the total rate. So as you can see, we're the fourth largest institution. We have the third largest rate. Now, typically there's an inverse relationship. The larger an institution, typically the lower the tax rate. The smaller the institution, typically the higher the tax rate. And there are a couple of reasons for that. When you look at the value of the property in Houston City College's district, it's enormous, right? It's many, many times the total valuation that we have in our taxing district. So $1 of, or I mean, one cent of taxation for HCC generates almost 20 times as much money as one cent of taxation generates in our district. So that's typically the relationship there. You can also see that we're not the highest. We're getting closer to being in the same area of total tax as San Jack and Alvin. And we're significantly lower than Razzlesport and College of the Mainland. We will never get as low as Lone Star or HCC. Never is maybe not fair to say, but it's very unlikely that in our lifetimes we will ever get as low as those institutions, simply because our tax base will likely never be as large as theirs. I think it's important to take a longer period look at our tax rate. You can see that in 2015, our tax rate peaked at 26 cents. Since that time, we have steadily worked to lower that rate and we've done an exceptional job since COVID in lowering that rate every single year. When you look at the change in tax rate from 2020 to 2026, you can see there that we've lowered our rate by 19% in that five-year period. The only other institution that comes even close to what we've done has been Galveston College. And while their percentage of reduction is a little higher than ours, their total reduction in rate is still lower. So in that period of time, we've cut our rate by more than any other institution in the Gulf Coast region. I also would like to provide a tax rate history for you. And this breaks down the tax rate into the M&L and INS rate and also shows you the total tax collected in each category, as well as in lieu of collections. Now, revenue in lieu of taxes represents agreements that we have made with companies that basically sets the amount of money that they will pay us. So it's not calculated based on valuations. We only have two agreements in place. One is with Exxon Mobil, and the other one is much, much smaller, and I can't remember the name of that company. It's just gone. It'll come back to me later when it doesn't matter. But we only have two. So these are pretty rare, and 95% of that revenue is associated with Exxon Mobil. [Speaker 6] (14:55 - 14:56) Any questions? [Speaker 1] (15:01 - 16:45) Because INS is based exclusively on the amount that we owe for debt, here you can see our debt scale. Now, typically payments made on general obligation debt are made twice a year. So you can see that between the two years, we're looking at between a million and almost $2.8 million, right? And when we refinance and we have different debt schedules, it's not linear, it's not like a home mortgage where you have the same payment for 30 years and then you're paid off. The payments fluctuate quite a bit from one year to the next, depending on the schedule. And so we have to watch this closely to make sure that we're anticipating potential increases in the INS rate. So for example, in 2028 and the fiscal year 28-29, we start making principal payments again. We've been on interest only for a couple of years. Our payment's gonna jump by one and a half million dollars. And so that will require about three quarters of a cent increase in our INS rate, which will, unless we wanna raise taxes or raise our tax rate, require us to lower the M&O rate so that our rate to our citizens remains the same. So in 28-29, we have to build that into our budget to account for that reduction in M&O because some of that money is going to pay off an increase in our annual debt obligation. [Speaker 6] (16:51 - 16:55) Here's where it gets really complicated for we finance people. [Speaker 1] (16:56 - 21:35) We get certified values in April. I'm sorry, we get preliminary values in April. We don't typically get certified values until late July or sometime in August. And you can see in the second table there that last year, the change in valuations fluctuated significantly from the initial values that we received to the final certified values that we use for collecting taxes. With Chambers County, thankfully it went up by 7%. Unfortunately, their certified values that they gave us in August were incorrect and they had to make an adjustment in September after we'd already approved the budget. Unfortunately, with Harris County, their total valuations dropped by 4%. I bring this up to emphasize that these are significant numbers with significant dollars in terms of total revenue for the college associated with this. And so it's very difficult for us to adopt a budget prior to the August meeting as this can result in hundreds of thousands, if not millions of dollars difference in total revenue to the college. So we will in July present what we think we're going to get and how we're going to address it from a budget perspective but we can't finalize that till August till we get this data in. Within our district, we offer a 20% local homestead option for our taxpayers. That means, and I think you all know this, if they own their primary resident that they live in and they've selected their homestead option on that home, we reduce or we exempt 20% of their property value from taxes. For individuals that are 65 or over, we also exempt an additional 120,000 for those individuals. And throughout Texas, once you turn 65, your tax assessments are frozen. So whatever you were assessed when you turn 65, that will be your assessment until you dispose of that property. With the average value of homes in our area, many of our senior citizens pay very little in property taxes for the college. And I've tried to demonstrate that here showing how increase in property values might result in additional taxes. So if we maintain the same tax rate of 18.7 cents on a property that was worth $380,000 last year, if property values go up by 5% for a typical homeowner in our district, that would result in an additional $28 of taxes for Lee College. And so their taxes would move from 569,000 to $597. A taxpayer over 65 with the same home that just turned 65 in this year would only be paying $373. And so it's fairly affordable. Now, if the board were to make a one cent change, either increasing the taxes by one cent or decreasing the tax by one cent, that has a net impact of $31.92 for our typical homesteader taxpayers, right? So that's how much it either saves or costs them with a one cent change. It's a little bit of a different story when you consider industry and corporate businesses that own property. On the right, you can see a hypothetical example with a industry that has property valued at $10 million. Right, a 5% increase in value for those individuals results in additional $935 per year. And a one cent change in the tax rate results in a difference of almost $1,050, right? So if we cut the tax rate by a penny, we save many of the businesses in our area at least a thousand bucks or more on their taxes. [Speaker 2] (21:35 - 21:49) Can I ask a question before you move past? On the senior citizen, I'm gonna call it, over 65 or disability exemption where the taxes are frozen if they're over 65, what happens when we drop our rate? [Speaker 1] (21:50 - 22:24) Like if you've got somebody that's 75 and their taxes have been frozen for 10 years, but we've dropped our rate from 21 down to 18.7. So the way that taxes are calculated for senior citizens, if the value of your home was 380,000 when you retired at 65, then we use that 380,000 number to calculate to their tax obligations from that point going forward. So when we drop the rate, it results in a discount for them. [Speaker 6] (22:24 - 22:31) As a result. Yes. All right. [Speaker 1] (22:32 - 23:19) Likewise, on the flip side, right? A 5% increase in taxable value for the college or in terms of new revenue for the college results in a little under $2 million in new revenue. And so the change in valuation has a significant impact for the college in terms of total revenue that we collect. Likewise, if we reduce or increase the tax rate by 1 cent, it results in an additional 2.2, almost $2.3 million. And so there's a significant impact on the college side with changes in rates and valuations, a much more nominal impact, especially on homesteaders. [Speaker 6] (23:21 - 23:31) Any questions on ad valorem taxes? I wanna go back to this slide briefly here. [Speaker 1] (23:32 - 24:52) So our concern right now is where property valuations are gonna go. And presently, it doesn't look like there's gonna be significant increase in valuations for the college. So that's gonna dramatically limit our flexibility as an institution. But what we like to see from a ad valorem tax perspective are big increases in property values. And if you look at the 10-year average for increase in property valuations within our taxing district, it's between 8% and 10% increase year over year. So we're gonna be significantly lower than that, likely, and so that reduces our flexibility. And what it ultimately means is if we wanna generate new revenue, we might have to change the tax rate up to the voter approval rate. And so we're not gonna have a lot of flexibility from an ad valorem tax perspective, because I don't think anybody on this board is interested in increasing the rate. Next. [Speaker 6] (24:52 - 24:53) Next, state appropriations. [Speaker 1] (24:59 - 35:23) State appropriations are incredibly complicated, and I'm gonna try and explain how they work in some detail. And what I would like to emphasize most during this portion of the presentation is that the coordinating board isn't doing us any favors. This is a moving target if there ever was one. And I do not believe that we have done a very good job as a system implementing the original vision of the legislature, right? So HB 8 was intended to move from compensating colleges based on contact hours, right? How many hours are students actually in the seats taking courses to compensation for completions, right? Now, in order for that type of model to be truly successful, the legislature has to be willing to put their money where their mouth is. If we increase the rate of completions, that should result in additional funds. If they're going to limit it to, we've set aside $2 billion for the 50 community colleges and we can't invest more than that, there's limited incentive for us, right? And I'm going to show you how that has really played out in this last year and what incredibly terrible consequences this has had for us as a college. Through this current fiscal year, the new model has been very favorable to the college. You can see that in FY 24, we went from 10,500,000 to 20,169,000. There are a couple of reasons why our state appropriations jumped so significantly. First, we complete at a very high rate. And a lot of this effort is due to the work that we do at Huntsville, right? Our students at Huntsville completed a rate of 85% or more. That's almost three times as effective as community college students on average in the state of Texas. And so we completed a high rate. Second, there are bonuses that we receive. Modifiers that are in place for students that are academically disadvantaged, economically disadvantaged, or over the age of 25. If you think about our prison education, they're all economically disadvantaged. Most of them are over 25, and many of them are academically disadvantaged as well. And so completion by a student in Huntsville almost counts as double compared to every other student. That has worked out very well. And you can see that on a per student basis, through 2026, we were leading the pack at earning roughly $2.4 million per student in state appropriations every single year. The next closest was Galveston College at $2,100. So this has worked out very well for us so far. And to kind of walk you through the calculation, essentially the way that performance funding is calculated, you take the weighted outcomes, which is the completions in specific categories of credentials times the weighted measures, right? In the past, 25% for academically or economically disadvantaged students, and 50% for students over 25, right? So that's how you calculate your weighted outcomes. And then you times it by the outcome rate, for example, $3,500 for an associate's degree. So every time a student completes one of these credentials of value, we calculate their weight, their weighted difference, and then we times it by the completion amount. We also have additional payments for degrees and credentials in high-demand fields. So for example, if a student completes an associate's degree in nursing, it's paid out at $4,500 instead of $3,500 because it's in a high-demand field. Now, high-demand fields are, there are standards for the entire state, and then there are high-demand fields that are specific to our region. And so any of our students that complete any of those degrees or certificates that apply to our region or to the statewide high-demand field get paid at a higher rate. On the face, this looks excellent, right? We complete, we steer our students into high-demand fields, we help them acquire credentials that are gonna pay them more and meet demands of our community. Everybody's happy. The problem with this particular model is that in this year alone, the completion rate for community colleges across the state of Texas has resulted in completions and earned revenue in excess of $300 million over what the legislature budgeted. Right, so when you consider they budgeted $2 billion for the biennium, and in one year, we've generated $300 million in revenue in excess of what was estimated and approved by the legislature, that becomes an unsustainable system, right? The legislature can't allocate that much new funding every single year in order to keep up with us, but they've put a system in place that incentivizes us to try and really strive to get our students to complete. And so we have, after the first biennium and into the first year of the second biennium, reached a breaking point, right? 300 million in one year isn't possible to be corrected, right? The legislature's not gonna approve that much additional funding during the next biennium to give essentially back pay to community colleges, and so we are looking at radical changes to the system. These changes have been very unfavorable to Lee College. The first change that was made was changing the weights awarded for academically and economically disadvantaged students as well as for adult learners. So we went from 25, 25, 50% to 20, 20, 40%. When you consider we have one of the highest rates of completion for students that fall into one of these categories, when they dropped those rates, we took a big hit in the total amount of revenue that we would generate. The second change that they made, and this one might hurt us even more, was funding is now limited to one credential per category per student over a five-year period. That means that once a student has earned, say, a certificate, let's say a certificate in welding, if they earn any other certificates, those certificates are not paid out. They got one certificate, and until they've been in the system for at least five years, the state won't pay out another institution for a certificate. Now, we could get paid for a certificate and an associate's degree and a transfer to an institution, but we don't get paid for more than one credential in each category. To put this into context, with certificates alone, we went from having over 1,800 certificates awarded in 2026 to only being awarded an estimated 900 certificates in 2027. That one change alone costs the college $2 million in revenue. So these changes, massive impact for us, and the state keeps messing up on their calculations, and what I'm sharing with you today, the most disheartening part of this, came to light only today. And in your packet, you will see a letter from TAC to the coordinating board and the governor's office complaining about these particular changes, because this has had wide-sweeping detrimental impacts on essentially all community colleges. We're seeing dramatic drops in our state appropriations. And the most disheartening part about this is that as an institution, as a system, we are doing exactly what the legislature asked us to do. We are completing at a higher rate, but now we're being penalized with a dramatic reduction in our state appropriations. Let me tell you, that is as discouraging as it gets, to do what you've been asked and then to get less money year after year. A quick example of how weights work. So if somebody gets a regular associate's degree, and they are economically disadvantaged, academically disadvantaged, and they're over the age of 25, in FY26, we would get $7,000 for that student's completion, right? That's the standard value plus all of the weights for a total of 7,000. In FY27, that same student and that same degree will only result in $6,300. So big hit, right? A 10% reduction. Most of our students are in one category and many of our students are in two categories. Yes, so most of our high school seniors that are graduating and starting at college, clearly not over the age of 25, are either economically or academically disadvantaged. [Speaker 3] (35:24 - 35:27) So there's not a whole lot of change there, I mean, some. [Speaker 1] (35:28 - 40:51) There's some, but when you start looking at our Huntsville students, they qualify for almost all three. And so it really starts to mount. And if that were the only bad news, if that were the only bad news, I think we could cope with these changes. And it's understandable, right? At the core of this problem is the coordinating board's formula for estimating completions and compensating for completions. So what they have done is they've estimated it so aggressively that there's no room for growth, right? They look at using linear projections, what institutions are going to have in terms of completion, and they looked at what the legislature approves, and they set these values, and that's how they originally built it. But when you look at the significant growth that we've had in completions as a system, they didn't build anything into that. And they've tried to implement a host of activities to address this. So in terms of compensating the colleges, they did a dynamic adjustment at the end of the year to make up for differences between what they estimated we would have in completions and what we actually had in completions. So that seemed okay. We didn't mind waiting until the next fiscal year to get those funds as long as we got them. Well, now we're to the point where they're so overcommitted on their revenue that nobody's getting their dynamic adjustments. So all that work is kind of out the window. It doesn't make any difference anymore because there's no money to pay it out. And even based on just the regular projections, we're still way over budget. And so they've made some of these adjustments, but that doesn't get us all the way there. And so the last thing that they did is they prorated it. So now what the state has done is they've took, and I got this information last week. Now what the state has done is they've looked at the total amount of revenue that the state has available for community colleges. They looked at all of the projected completions for all of the institutions and the total amount of revenue that's to be generated. And then they prorated everybody's increases in order to make it work with the total amount of revenue that's been allocated by the legislature. So as you can see, wide sweeping impacts for all community colleges. And for Lee College, this is a $4 million hit, right? Next year, even though we are completing at a rate higher than we ever have as an institution, our state appropriations is gonna drop from $20.1 million. To $16.1 million, a $4 million hit. And there isn't anything that we can do about that. And we really didn't know what this was going to be until last week. Furthermore, yes, that is not a typo on our side. That might be a typo on the forms that the coordinating board has sent out. They made a serious error on ours. And I mentioned to Regent Himsel in a discussion we had earlier in the week that we were looking at a $1.7 million decline. Well, with our calculation, they entered our tax rate incorrectly and they showed that we qualified for base funding, which we have never qualified for base funding. And I haven't even shared that with the board because we were so far away from qualifying for base funding. In doing a close evaluation of the figures this week, we discovered that that error was erroneous. And that's how we went from $1.7 million to $4 million loss in revenue. Very discouraging. And based on what we talked about last week, none of those things are gonna be possible. Our top priority now from a budget perspective, because of this change, is to figure out how we can cut our budget in order to address these cuts, as well as try to get all of our employees a COLA increase to account for inflation. Those are the only things that we're gonna be doing. And this may require at least initially a hiring freeze while we evaluate all of our vacant positions and see where we can afford to make cuts with vacancies. And it will require us to look at our non-personnel operating budgets to see where we could potentially make cuts in order to get down to cover this $4 million difference. So let me, yes, oh, sorry. [Speaker 2] (40:51 - 40:53) Oh, that's what, I'm just, there's another. [Speaker 1] (40:55 - 48:16) There is another funding source, tuition and fees. In your packet, you will also see a letter from the governor mandating a freeze on tuition and fees. So it doesn't feel like a very fair fight. You know, the governor's holding one arm behind our backs because we can't increase tuition and fees. And I would mention that as a system, Texas has the fifth lowest tuition costs for community colleges in the country. We are not high. We are on the very low end of tuition and fees on average. And Lee College is lower than the average in Texas. We haven't increased tuition and fees significantly since before COVID. And when you look at 20% rate of inflation from COVID till now, that's a significant cost savings for our students in terms of tuition and fees. But with no ability to address that, that completely hampers our ability to account for fluctuations in state appropriations. And I love that we tried to maintain very affordable tuition and fees for our students. Over 60% of our students qualify for federal financial aid. Most students would not really notice a two or 3% increase in total tuition. As most of that would be covered through federal financial aid. But it would be the difference between cutting programs and services and maintaining our current operations. So tuition and fees, we're looking at 18 and a half million dollars this year. We're gonna budget 18 and a half million dollars for next year because enrollments will fluctuate a little bit, but we're not gonna see huge growth in enrollment. I don't expect. And so tuition and fees is gonna be flat. And I shared this slide with you last time to kind of show you how we compare to the other institutions. And just a quick reminder, in case you're going out to check what our tuition and fees are, our $124 per credit hour includes a $33 per credit hour fee for course materials. Most of the other institutions do not cover course materials as part of their fees. So students have all of the expenses that you see on here, plus books and materials, where our students do not. Any questions on tuition and fees? All right, the last category I wanna cover is other revenues. And by comparison, this is a pretty small portion of our budget, right? Less than 10%. First, we have our workforce and CE revenues and other revenues. And you can see the other revenues list and workforce revenues down below. In essence, this is about $3.5 million for the college. And it's fairly consistent year over year. Sometimes when we have large grants that allow for significant indirect cost recovery, the other revenues fluctuate a little bit more, but we're not expecting significant changes in this area for next year. The other aspect of other income is our interest revenue, interest revenue from our investments. And what I've tried to demonstrate here is a reflection of the average amount that we have invested per year and the average interest rate that we have invested. So the amount invested has steadily climbed from fiscal year 2020. There are good reasons for that, right? During that same period of time, we have consistently tried to set money aside to increase our reserves and not just our regular reserves, but our insurance reserves. And so that's why that continues to climb. Now, I would expect that you'll start to see those principal balances flatten out a little bit, mostly because we've met our four-month reserve requirement on our policy-driven reserves, and we're gonna have a discussion about how much more we need to put into insurance reserves next month. The other component of this is the change in interest rates, right? So we saw the growth in interest rates. We've been in a period of decline. That's stabled out. And if inflation continues, if we don't see some improvements due to the Iranian conflict, then we might actually see interest rates start to go up again. But right now, we're projecting interest rates to stay relatively flat for next year. So here are the final numbers on our projected revenue. We expect, without significant changes in valuation, on M&O taxes, to have a little more revenue, about $776,000. Now, if revenues go up significantly, right, the 8% of $40 million is almost $4 million, right? So that number could be significantly higher if valuations go up significantly, but that's not what we're seeing. And so we're only expecting about $770,000 in ad valorem taxes. The big hit is, of course, state appropriations, and then the other categories, minor fluctuations, right? 100,000, 200,000, that's almost immaterial to an $88 million budget. But when we look at the total budget projections, we're expecting to go from $86 million budgeted this year to only having $83.3 million budgeted next year. And so we have to figure out how to address that $3.3 million shortfall. Just as a reminder to the board, if we do a 3% COLA to all of our employees, that equates to about $1.3 million. So in order to cover that and to cover our projected deficits, we need to find $4.6 million. Hopefully some of that will come through ad valorem taxes, but if it doesn't, and this isn't an accurate estimate, we're gonna have to find $4.6 million in cuts in order to achieve those two goals. This is brand new information. Outside of what I've already mentioned, we need a couple of weeks to really put together a concrete plan for how we're going to do this. And we will be bringing that back to you in July for contemplation and consideration before we get final numbers and come to you for final budget approval in August. [Speaker 6] (48:18 - 48:20) Any questions? [Speaker 4] (48:23 - 48:49) Back to the ad valorem tax. So I don't see residential valuations going up. Not at all. But we do still have a lot of commercial growth. I mean, I'm thinking the warehouses that we keep seeing pop up everywhere. But some of the plants have been doing some expansion. So is there the possibility that that would help us? [Speaker 1] (48:49 - 49:56) Yes, so all new industry and all new construction helps us significantly, right? Because those are brand new dollars. And we, as an institution, I believe we're interested in considering tax abatement opportunities with large industries, particularly if it's going to help incentivize large industry to relocating into our region. But we have hardly participated in those agreements in the past. We have one with NRG, and then we have the revenue in lieu of taxes with ExxonMobil. We have very few of those. And so as new industry comes in, that's very beneficial to us. Because it's not an increase in tax assessments to our homeowners, just the new businesses that are coming in. And so, like I said, the 776,000 in new revenue, that's kind of a reflection of what we're expecting in growth without an increase in the actual values of existing property. [Speaker 3] (49:59 - 51:10) Back up to slide 19. It's the state appropriations, Gulf Coast comparison. This one? One more, I think, or no? There. Okay, so in 24, we were getting, our number went up by 50%. Ours doubled. No one else even come close to doubling. We were shocked. We didn't know. Maybe it was a mistake. But my question, I guess, is what did we do with that extra $10 million that we've had in the last three years? Where did that money go? And is it possible to reel some of that back? And I think we were told, you know, by Annette, you know, here's an extra 50%. You know, be cautious of it. It could get reeled back. You know, don't, you know, watch our budget closely. So I guess my question is, where did that $10 million go for the last three years that we just were handed? [Speaker 1] (51:11 - 55:13) So there's no one thing that we did with that money. It's not like we had one big, huge initiative that we paid for. If you remember, right, for the last several years, the colleges had pretty significant budget surpluses, right? And in one year, it was over $10 million. And so part of that was allocated during budget during the year, but we didn't spend that money. And so a lot of that, you know, went into surplus at the end of the year. With those dollars specifically, I think we've been pretty transparent with the board in terms of the capital improvement projects that we've made and growing the reserves and funding those fully for the college. And that's been a huge blessing for us as an institution. To be fully funded on our reserves like we are right now puts us in tremendously sound financial position. We have also steadily grown some programs. You know, there are new positions that we add every year. There are, you know, new requests, new allocations of funding, right? The budget slowly grew. And as you look at the work that we did this year compared to past years, we've really collapsed the expected budget surplus, right? So right now we're hovering around $2 million in expected surplus at the end of this year. That's less than a fourth of what it was last year and less than a fifth of what it was the year before. We're doing much better. We have engaged in some pretty expensive projects, right? That $10 million and that remaining surplus allowed us to do things like invest in a new ERP system. And so we're still accounting for that particular increase. And to some extent, right, the expenses are gonna grow to the available funding. Now, I am diligently trying to keep from just having inorganic growth, right? To having a sound strategic plan, to have specific priorities, to really weigh and measure the expected outcomes of any new funding that we award to the college to ensure that new dollars are going to our top priorities. And there's always more that we can do as an institution. Now, this setback that we're potentially looking at this year, that will cause us to have to be a little more lean. And this gets us a lot closer to a more predictable funding model with state appropriations. Like, I don't like this. I really hate how it was rolled out because there was no communication to college presidents. We just got this from the coordinating board going, you know, you were gonna get a hit. Now it's gonna be double that, right? That angers me. And there's a reason that we as a group sent a pretty nasty letter to the coordinating board and to the governor's office. Because that is not a good way to do business. And it really violates the trust that we've tried to build with the state in terms of how we manage our resources. But we will get through this and we will survive. We will be a little bit leaner. So this year is going to be a recalibration year for us. Right, we'll trim where we can and get back down into this budget. And then hopefully we'll see growth patterns similar to what we've seen in the past. And as a reminder to the board, we're still $6 million in more revenue under the new model than we were under the old model. This has still been good for us. It's just painful in the short term because of the way that it's been handled and managed. [Speaker 3] (55:15 - 55:33) But maybe this is ours in particular. They're kind of getting us back to what maybe we should have been in 24 and not the 50% increase. Maybe we should have had a 20% or so or 10 like the other folks. So they're kind of getting us back on track. [Speaker 1] (55:33 - 57:13) So what you're seeing is the colleges that had the biggest increases are coming back to normal a little more quickly. Now, this has hurt all the institutions. So having worked at HCC and helped them implement HB8 before I came to Lee College, I watch what's happening over there with a little more interest than I do most institutions. They are actually getting less now than they did in the old system. And so this is hurting everybody. We are still, because of our rate of completions, doing very well in this system. And so it truly isn't harping on what the legislature tried to do. This is really more a criticism of the way that the coordinating board has handled this. The legislature didn't set the formula. They didn't set up how much it's going to be paid. They weren't in charge of trying to account for growth or increases. That was all on the coordinating board. And the coordinating board is really the one that has estimated growth so poorly that it's landed us in this situation where we just have to go, this is how much money we have, everybody's cut. And they were also the ones who were responsible for making that decision and sending it out the second week in June when some institutions had already passed their budget for the upcoming year with no notification and no input from any of the community colleges. So this is really an indictment of the way that the coordinating board has handled this more than legislative intent. [Speaker 3] (57:15 - 57:58) My last question. And I don't want this answer tonight because I want you to present it later. But a year ago, well, first of all, you mentioned we have a million and a half or so surplus this year, I think. A year ago, this board instructed you to go and reclassify or use that surplus we've been having and allocate it to other areas. And you did that. And I'd like to know if we hadn't have done that, what would we be at some point? So maybe you can work on that for next time or get that to us later. I don't need it tonight. [Speaker 1] (57:58 - 58:25) And let me just say in general, if we hadn't done that, if we'd maintained a similar budget to what we had presented last year without reallocating those funds, then we'd be looking at a huge surplus this year and we could easily absorb this. Right, the problem is we took out all of the fat that was built into the budget. And so now this is gonna require some more dynamic trimming of our budget. [Speaker 3] (58:26 - 58:32) But that money wasn't spent, we just reallocated it. It's sitting somewhere, right? Or is it gone? [Speaker 1] (58:32 - 58:53) No, we reallocated it to new personnel, new programs. We built that back into our budget. It's not like we had $4 million built into our budget that we just pulled out and put into a reserve. We allocated that for other projects. And so we put it in last year, we're gonna have to trim it out this year. [Speaker 2] (58:54 - 1:00:08) I would just like to comment on, and I haven't read these letters that tax and all this, the most challenging situation is we haven't adjusted our tuition since 2020. So we're six or seven years into a frozen tuition. And just quickly reading the governor's letter, he intends to extend his tuition freeze even beyond next budget year and cut state funding. So I don't know how strongly that you can push back on the governor's plan. We set the tax rate and we set tuition and they set state funding. And it seems like the governor's getting over into what the local board's responsibility is to balance whether we wanna cut services or increase services or maintain them and fund that with adjusting tuition to reflect the cost, especially since we've had our tuition frozen for six years or is it? I mean, look, anybody that's been in business with the inflation that we, seven? [Speaker 1] (1:00:08 - 1:00:10) Seven years, we've had tuition frozen for seven years. [Speaker 2] (1:00:11 - 1:00:46) And I can assure you there's no other business that I know of that has kept a steady price structure for the last seven years. I mean, I retired four years ago. I know things have gone up a lot in business that I was in. My point being is has there been any, or my question is, has there been any major pushback on this, the governor's office, mandating that tuition be frozen when our tuition has been frozen for six years and cutting the funding over the last few years? [Speaker 1] (1:00:46 - 1:01:41) So this year you're going to be wide open pushback from community colleges this year. Keep in mind in 2024, they put hundreds of millions of dollars into community college funding. So everyone's funding went up. And then last year as an exceptional item, they put 200 million more in to cover the prior biennium and the growth that community colleges had enjoyed. And so for most of us, we haven't felt inclined to really focus on increasing tuition because we'd seen so much growth through our state appropriations. This year, I guarantee there will be a strong lobby encouraging the governor to reconsider. [Speaker 2] (1:01:41 - 1:02:31) Okay, let me add a point. When I got on the board 20 years ago, or 20 something years ago, the state component of funding was 50 or 60%. It's half that now. So yes, we've had an increase in state funding in the last year or two, but it hasn't gotten even to 50% of what it was 25 years ago. And so there's been a shift on to the local taxpayer because the state hasn't funded like they should have. And so I think that that would be a part of the argument. I know you've only been here for a few years in the state of Texas, but the state's just started the process of funding community college to the level that they should be funding it, or they promised to fund it years ago. [Speaker 3] (1:02:31 - 1:02:48) So maybe the governor's trying to tell us we have to raise taxes. It's our only other option when he freezes everything else, right? No, what's he gonna force us to do? [Speaker 2] (1:02:49 - 1:03:03) Well, I mean, it's still a local control board. And so I just hope that there's a strong pushback. We have a legislature also that can, maybe each one of us need to write our legislators. [Speaker 1] (1:03:04 - 1:03:53) There will certainly be significant lobbying efforts starting now through the session next year to try and get some of these items addressed. And from a management perspective, we'll deal with what the state's going to do if we're given the flexibility that we need to manage it ourselves. But if they take away our ability to manage it internally and cut our funding, the only control that we have, that you have this year is with regard to ad valorem taxes. And that's, I don't think that is the legislative or governance intent of the way that community colleges are structured in the state of Texas. [Speaker 2] (1:03:53 - 1:04:13) Yeah, I mean, it's real simple. You only got three legs to this stool. And when you cut one and freeze one, there's only one major source of funding and that's ad valorem taxes. And everybody knows my position. I think the state needs to step up here. [Speaker 1] (1:04:14 - 1:04:16) I don't think I've ever heard you mention that before. [Speaker 2] (1:04:19 - 1:04:27) I'm not, no. You'll get to hear it. But I haven't taken near as much time as Regent Hemsel. So we'll save that for a later date. [Speaker 5] (1:04:28 - 1:04:56) Without having looked at it any further, my idea or my thoughts are that there will be a court challenge to the governor freezing. I don't think our Texas governor has that kind of authority. But like I said, I haven't looked into the legislative or to the constitutional background to see if he does. But from what I remember from years ago, admittedly, the governor is a weak governor. He's just basically a figurehead. And I don't think he has that authority. [Speaker 2] (1:04:57 - 1:05:03) I would tend to agree with Regent Cotton on that. And I'm not. We have authority. We agree all the time. [Speaker 1] (1:05:03 - 1:06:36) I'm not an attorney, but there's a big difference in the level of control that the governor has over the universities who use a different funding model than the community colleges who are governed by an elected board. And so you may be right. Hopefully you are. We have a very strong consortium here in Gulf Coast. And when you consider that HCC and Lone Star are two of the largest institutions in the entire state and San Jack's in the top 10, and there are 16 schools that are all coming together, just on our own, we have a pretty strong voice. And we're united in trying to work with both the legislature and the governor's office to try and get some of these issues addressed. Our ideal hope is that the legislature can see that if they want this to truly be a compensation for completion model, that they've got to put more money into it. And we need the governor to eliminate his restrictions or at least limit them to the universities and free the community colleges to manage themselves. Because we do not have the same problem universities do. Our tuition and our fees are competitive, very competitive countrywide. And with over 700,000 students, we educate the bulk of students in the state of Texas. And so we just need to be given the governance that is already established through statutes. [Speaker 2] (1:06:36 - 1:06:56) And I just follow up. You mentioned that if we, let's just say we did have a tuition increase, that a lot of our students get Pell grants and other funding, would that cover? I think you said most of any increase would be covered by federal grants and so forth. [Speaker 1] (1:06:56 - 1:07:28) Is that, did I hear correct? That's true. So our rates are much lower than what a typical full-time student can get awarded through Pell. And so, Pell isn't that effective at covering costs at large universities because the maximum amount of the reward is much less than the total cost of tuition and fees. But for us, it's still significantly more than what we charge. And so for the majority of our students who are Pell eligible, these increases are gonna be covered through federal funding. [Speaker 2] (1:07:29 - 1:07:35) So a significant part of a tuition increase actually would be funded by Pell grants. [Speaker 1] (1:07:35 - 1:07:40) Through the students and Pell, but yes. But the ultimate payer's gonna be the federal government. [Speaker 4] (1:07:41 - 1:07:43) Could we get a breakdown on that? [Speaker 1] (1:07:44 - 1:07:44) Yes. [Speaker 4] (1:07:45 - 1:07:47) Number of Pell students versus non-Pell students? [Speaker 1] (1:07:48 - 1:07:54) Yes. I can send that to you later unless you know that off your head, top of your head. No? Scott's not perfect. [Speaker 4] (1:07:55 - 1:07:55) Doesn't have to be. [Speaker 1] (1:07:55 - 1:07:56) Put that in minutes. [Speaker 4] (1:07:58 - 1:08:06) He's got all the other numbers in his head though. Every single other one. No, just in a couple days. It'll be fine. Thank you. [Speaker 1] (1:08:08 - 1:08:24) This isn't great news. You know, last month I had high hopes that we were gonna be able to fix some things that have been structurally deficit for a long time. This year's not gonna be the year that we can do that. But we'll adjust this year and some of those changes are gonna be possible in the future. [Speaker 7] (1:08:27 - 1:08:28) Any other questions for Jacob? [Speaker 4] (1:08:30 - 1:08:46) Thank you so much. Now if the state calls you, I want you to go up to Austin and help them figure out their financial woes. Tell them no, please. All right, moving on to matters of concern for future agendas. Are there any? [Speaker 7] (1:08:49 - 1:09:00) I'm hearing none. We are adjourned from the workshop. Y'all want a short break? Yeah. Okay, short break.