September 29, 2009 Audit/Finance Committee Meeting
The Audit/Finance Committee of the Board of Trustees of Illinois Valley Community College District No. 513 met at 4:30 p.m. on Tuesday, September 29, 2009 in the Board Room (C307) at Illinois Valley Community College.
Committee Members Physically Present:
Thomas C. Setchell, Chair
Michael C. Driscoll
Melissa M. Olivero
Committee Members Absent:
Other Board Members Present:
Larry D. Huffman
David O. Mallery
Others Physically Present:
Jerry Corcoran, President
Cheryl Roelfsema, Interim Vice President for Business Services and Finance; Controller
Rick Pearce, Vice President for Learning and Student Development
Lori Scroggs, Vice President for Planning and Institutional Effectiveness
Patrick Berry, Controller
David Spiller, Auditor
The meeting was called to order at 4:30 p.m. by Mr. Setchell.
Mr. David Spiller, auditor, reported no weaknesses and no instances of noncompliance in the audit. Mr. Spiller noted the financial position of the College improved during the last year. The fund balances decreased by $2.4 million because of all the capital expenditures. The net assets increased by $2.19 million over the previous year. Mr. Setchell questioned the reason for the financial improvement. Cheryl Roelfsema noted that the overall revenues decreased by 1.4 percent – tuition revenues decreased by 10.9 percent, state and local grants decreased by 2.7 percent, and property tax revenues decreased by 1.8 percent due to not levying for tort liability expenses. Total operating expenses only had an increase of 1.7 percent. Mr. Spiller indicated there would be no management letter and no recommendations for improvement. The annual financial report will be placed on the October board agenda as an information item indicating all questions by the committee were answered and the audit will be submitted to ICCB by the required time of October 15.
Mr. Spiller left the meeting at 4:50 p.m.
ATHLETIC AND CHILDCARE FUNDING FOR FY2011 BUDGET
Over the years, the athletic and childcare program funding has been supplemented by transfers. The administration was seeking guidance on the funding of these two programs for FY2011. Interest from the Working Cash Fund is usually approved for transfer to the Education Fund when the budget is adopted. Within the Auxiliary Enterprises Fund, the administration could either transfer what is thought to be needed or wait until the year is over and then know exactly what is needed to cover the deficit. Thoughts on the funding included: 1) wait until the end of the year because the shortfall is not known until then; 2) move forward with a funding source. The board is committed to the two programs and it would be nice to have a long-term plan of funding so the discussion does not take place every year; 3) because there is a historical record of shortfall, include it in the budget until another funding source is determined. An additional fee or an increase in tuition could pay for the shortfall; 4) it is important to have the discussion each year. It reminds all stakeholders that these programs are being subsidized year after year; 5) some auditors prefer transfers to be approved by the Board. Bring it back to the Board each year as an action item to make the administration and programs accountable. Another thought was to use the money from the childcare fund for grants to students who need childcare services, but the center is also used as a lab for the early childhood program. Rick Pearce will examine the program and discuss this further with the Board at another time. It was the consensus of the Board to continue to support the athletic and childcare programs by authorizing a transfer at the end of the year from the Auxiliary Fund.
ANALYSIS OF NEW POSITIONS
During the past few years, a number of new positions have been added. When these positions were recommended to the Board, clear expectations were identified and what the results of the position would yield for the benefit of the institution. Committee members received a brief summary of the progress the College has made in adding each of the positions. Dr. Corcoran was very pleased with the results.
EQUALIZATION FUNDING –TUITION
Dr. Corcoran reported receiving a letter from ICCB on the College’s tuition and what it means to the College in regard to qualifying for equalization funding. The ICCB funding formula requires that community college districts maintain a minimum tuition and universal fee rate of 85 percent of the fiscal year 2010 statewide average tuition and universal fee rate in order to qualify for equalization funding. The fiscal year 2010 statewide average tuition and universal fee rate is $88.10. Eighty-five percent of this amount is $75.61. IVCC’s current tuition and universal fee rate is $69.75, which means in order for IVCC to qualify for equalization funding in fiscal year 2011, the tuition and universal fee must be increased by $5.86 by July 1, 2010. By qualifying for equalization, IVCC has the ability to levy an additional tax which amounts to approximately $2.3 million. There has been some discussion of lowering the 85 percent threshold. Dr. Corcoran will check with ICCB and also discuss with local legislators. Thoughts on increasing tuition: 1) with the Community Technology Center being built, the College will need to gather cash and can’t afford not to receive $2.3 million in revenue. Need to make the rest of the Board aware of this and discuss before the end of the fiscal year. Need to put it in perspective – raise tuition $5.86 per credit hour or lose $2.3 million; 2) this is a significant problem for downstate community colleges – higher tuition for low-income students. Could let it go and get the revenue from the tax base, but this could be dangerous in a few years and need to raise the tuition by an enormous amount; 3) could raise the tuition and give it back to the students in grants. The letter from ICCB will be included as an item for information in the October board agenda so all board members are aware of the situation.
FEES FOR PROFESSIONAL SERVICES
Committee members received a list of fees for professional services being used by the College. The administration wanted to keep the Board apprised of the changes in fees. It was asked if the administration shopped around to check on the going rate. Five years ago a quality-based selection process was conducted to select an architect. There was concern with the engineering firm’s increase in designer fees with the large volume of work that will take place in the next few years. It was noted that the Capital Development Board (CDB) will manage the Community Technology Center project and they will determine the architectural and engineering firms and negotiate the rates. The College’s architect will take the project through the schematic design phase and then CDB will negotiate the fees from then on. CDB will identify the architect for the CTC on October 20, 2009. An update will be presented to the entire Board at the October board meeting.
ALTERNATIVE REVENUE BONDS
Without getting into the College reserves any more than necessary for the Community Technology Center building match, it was suggested to look into alternative revenue bonds using the Tax Increment Financing (TIF) revenues. Alternative revenue bonds are municipal bonds issued by governments which pledge a revenue stream. Current TIF revenues are stabilizing at $300,000 and will probably grow. If the revenue stream is secure, general obligation bonds would not be necessary and, therefore, would not affect the property tax. The scenarios listed had an interest rate of 5.5 percent. It was suggested, with the College’s banking relationships in the area, a lower rate could be secured. It was also suggested to ask Tom Jacobs for a schedule of TIF revenues and ask Chapman and Cutler for an opinion on the revenue stream. By using this revenue stream, the annual requirement that the College has a capital use for the money that is being reimbursed from the TIF districts would be satisfied. Mr. Setchell suggested contacting banks now because the rates are expected to rise in the next six months and it could be possible to lock in the rate now. Dr. Corcoran indicated that a full report will be given at the October board meeting.
Committee members received a list of banks the College uses for investment of funds. The College does not have funds on deposit with all of the banks but the list is used for investment bids. The administration would like guidance as to what to look for in adding banks to the list if a request is made. The suggestion was made that the bank be collateralized with a third party and be FDIC approved.
Tentative Tax Levy – Dr. Corcoran requested to move forward with the tentative tax levy and present it to the Board in November without another meeting of the Audit/Finance Committee. The tax levy will be based on the equity tax of 8.13, another year without levying for Tort, and levy the maximum for the other funds. Mr. Setchell indicated no need for another committee meeting, to proceed with the tentative tax levy for discussion at the November board meeting, and the final levy in December. Cheryl Roelfsema is anticipating significant growth in the EAV, which would exceed the five percent level and would require a public hearing.
Five-Year Financial Forecast – It has been past practice to present a five-year financial forecast to the Board in November. The administration requested presenting this report in February. At that time, the administration would know the EAV of Exelon, better figures on state funding, and clarity on the 85 percent rule for tuition. Mr. Setchell agreed the more accurate the numbers, the better the report.
From a budgeting standpoint, Dr. Driscoll asked when a preliminary draft of the cash flow of the Community Technology Center would be ready. Cheryl Roelfsema reported once the schematic design is complete and the construction documents begin, the College will be expected to deposit $1 million in a trust account. The remaining funds will be deposited once the bids are released. It might be possible to structure it so that the full amount doesn’t have to be deposited at once, but could be deposited quarterly. This is at least a year away and will not affect this year’s budget.
The meeting adjourned at 5:48 p.m.