A plan to formalize an 18% budget reserve, a 260% increase over the state’s recommended minimum, puts specific usage limitations on approximately $31.6 million of PCC’s general fund after the Board of Trustees (BOT) approved a new board policy (BP) at their Nov. 13 meeting.
PCC’s 2019 BP 6250, which formally adopted and explicitly identified 18% as the new reserve, explains the general provisions of the policy. Initially the 18% savings was virtually untouchable, but a provision was later added to allow the BOT to dip into the savings should the need arise. The circumstances where that would occur are defined in the policy’s procedures. Additionally, a majority of the BOT members, up to and including a two-thirds vote, will also be required based on the type of transaction.
The reserve is solely intended for salary and benefit costs.
“We do get money for facilities modifications and upgrades for structural buildings and classrooms,” said PCC Management Association representative Carlos Altamirano. “But we can only use certain funds in certain ways. That’s how it’s stipulated by the state.”
However, the college’s reserve had been around 18% for several years. Academic Senate President Matthew Henes recalled that several faculty members were worried about the necessity for such an inflated percentage over the state minimum, the timing of the board’s action in the middle of the fiscal year and having that percent committed specifically to PCC’s savings.
PCC’s 18% reserve of $31.6 million is more than three times the dollar amount of the Los Angeles Community College District’s (LACCD) $10 million reserve. LACCD has nine different colleges across L.A. County.
“At first it seemed like an arbitrary [idea],” said Henes. “I think it’s ensuring that there’s fiscal responsibility. Overall it makes sense to have a cushion.”
PCC’s Faculty Association (FA) was critical of the BOT’s decision.
“Currently, every single union on campus is in negotiations for salary increases,” said FA President Mark Whitworth. “Right in the middle of that [the BOT] decided to keep $30 million back, which is currently the vast majority of the reserve that the college has. As far as we’re concerned, we’re saying ‘Well, where is money for a new salary increase going to come from?’”
Whitworth also addressed the BOT’s action for this unprecedented policy update.
“We’re not opposed to the reserve,” Whitworth said. “We’re opposed to the fact that it’s a $30 million reserve and that it’s mandated.”
Assistant Superintendent -Vice President of Business and Administrative Services Michael Bush explained that the $31.6 million is equivalent to two months of payroll. It is meant to be a form of fiscal protection in the event that PCC experiences a shortage of money from factors beyond the college’s control.
“In times prior in my career, I have remembered the state not passing a budget for several months, even as late as October,” said Bush. “We had to make our payrolls. There were school districts and colleges borrowing money to do that.”
Bush’s comment confirmed the FA’s understanding that the percentage was to cover two months’ worth of payroll. The FA was also told that the college has plans to purchase a bond in the future.
“Now the explanation goes from two months’ worth of salary to ‘this looks really good,’” said Whitworth. “So our question is, who is [the BOT] here to help? The PCC employees or the people who want to invest in PCC?”
A new bond measure would need to be approved by voters in the Pasadena Area Community College District (PACCD). It is unclear if this measure will be on the ballot for local elections in 2020.
According to Bush, another incentive to have this higher savings is to improve the college’s credit rating. PCC’s current score is AA+, which toes the line of falling into a B rating.
There are three levels to an A rating: least strong, very strong and extremely strong. PCC is on the lowest tier. The college cannot purchase a bond without a particular rating.
The 5% minimum reserve was established in a 2005 memorandum from the California Community Colleges System Office (CCCSO) in Sacramento. On page C-8 of the document, the CCCSO uses underlined text to explain it further.
“The minimum prudent unrestricted general fund balance is 5%. This minimum prudent level is considered necessary to ease cash flow problems, to deal with unexpected cost increases, and other financial uncertainties.”
Now in 2019, fourteen years after the CCCSO established the 5% minimum, it is still a critical metric for community colleges across the state. According to the Association of California Community College Administrators (ACCCA), in conjunction with the Financial Crisis and Management Assistance Team (FCMAT), colleges should maintain at least a 5% reserve for what they call “economic uncertainty.” The Accrediting Commission for Community and Junior Colleges (ACCJC), who will be updating PCC’s accreditation next year, recommends a minimum of 6%.
Altamirano fully supported the percentage because of his own past experience with schools’ inability to provide proper payroll.
“Many moons ago there was a big recession in California,” said Altamirano. “Many community colleges and some of my peers got put on furloughs. They could either work and not get paid, or just not work and not get paid. Colleges couldn’t support it, but [PCC] had a very conservative reserve and didn’t have to deal with any of that.”
Back in 1992, California experienced a major budget crisis which severely affected public education including community college students and public employees, as the Los Angeles Times originally reported.
In the 27 years since then, Whitworth has no recollection of a financial crisis of this magnitude.
“That’s never ever happened,” said Whitworth. “I’ve never heard of such a thing and I’ve been here for 25 years.”