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Early Retirement and Budget Overview

As of May 2011

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Budget OverviewIf MCC work processes remain the same and

no budget changes are made (as of April 2011)

Fiscal Year

2011 2012 2013 2014 2015 2016

Budget*

Deficit

($3.34)

($3.25)

($8.1) ($11.2)

($13.9)

($16.5)

*Does not include the legislatively approved 4.81% reduction for higher education instead of the governor recommended 7% reduction.MCC will benefit by a $600,000 revenue increase.

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MCC’s Debt Schedule

Fiscal Year P&I Payment Operational Funds *

Unexpended Plant Funds

Through 2028 $112,289,683 $69,209,508 $43,080,175

Funding Source for Payment

* Includes auxiliary revenue – bookstore, fitness centers and leasing

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Unexpended Plant Fund with Debt Schedule

Fiscal Year

Debt Payment from Unexpended

Unexpended Balance

2010-2011

$3,914,200 $32 million

2011-2012

$3,918,700 $28 million

2012-2013

$3,917,700 $24 million

2013-2014

$3,916,200 $20 million

2014-2015

$3,913,950 $16 million

2015-2016

$3,915,700 $12 million

2016-2017

$3,917,475 $8 million

2017-2018

$3,916,000 $4 million

2018-2019

$3,916,000 $0

2019-2020

$3,917,750

2020-2021

$3,916,500

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The Plant Funds

Unexpended Plant

Invested in Plant

MCC Plant

Building Corp (BC)

MCC Plant + BC

Col 1 Col 2 Col 1 + Col 2

Col 4 Col 3 + Col 4

$36,019,254

$39,367,764 $75,387,018

$29,434,077

$104,821,094

Liquid Assets

Owned Bldgs net depreciation

Reserves for bonds ($9.5 million) + value of bldgs net depreciation

As of June 30, 2010

Figures include depreciation

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Unexpended Plant Fund (UPF) Realities

The UPF balance as of June 30, 2010 was $36 million: Portion that can be used for Debt/Projects $25 million Portion that was identified for investment $11 millionearnings to be used to fund operations

2001 bonds were issued with the intent that Unexpended Plant Fund (UPF) would be in a position to cover a significant portion of the annual debt payments.

Historically, any unplanned year end operational dollars would be swept to the UPF to fund debt payments and preserve the UPF.

There are no longer additional operational funds to be swept into unexpended plant funds so to ensure sufficient funds are available, MCC needs to budget more of the debt payment out of operational funds.

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HLC and ReservesThe Higher Learning Commission (HLC) (MCC’s

accrediting agency) views RESERVES as a primary indicator of the institution’s financial health. Target Benchmark is to have Reserves = Long Term Debt (1:1

ratio) MCC at .743

Target Benchmark is to have Reserves = 40% of Total Expenses (includes grant expenses, scholarships, interest, depreciation) MCC at 50%

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2009 2010 2011 2012 2013 2014 2015 2016

Revenue 114,910,061 121,365,433 118,875,216 121,128,838 123,184,902 124,345,600 125,046,325 126,178,577

Expense 114,717,202 120,242,249 121,717,239 123,879,502 130,751,397 135,093,611 138,497,106 142,218,814

Expense (with full Debt pymt) 118,631,858 124,157,086 125,631,439 127,798,202 134,669,097 139,009,811 142,411,056 146,134,514

$100,000,000

$105,000,000

$110,000,000

$115,000,000

$120,000,000

$125,000,000

$130,000,000

$135,000,000

$140,000,000

$145,000,000

$150,000,000

MCC Operational Revenue and Expense (including Fund transfers)based on current assumptions

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Early Retirement ProgramCurrent criteria for early retirement

10 years of consecutive, benefit-eligible service at MCC and meet age requirements

30 years of consecutive, benefit-eligible service with MCC regardless of age

10 years of consecutive, benefit-eligible service at MCC and 30 years of retirement service with PSRS or PEERS

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Early Retirement ProgramEarly retiree receives

An incentive payment up to 85% of their final contract or annual salary - $860,000 expensed in FY 11

Insurance coverage provided equal to that of active employee - $2.6 million expensed in FY 11

Opportunity to teach at premium pay for 13.86 hours - $1.6 million expensed in FY 11

Currently, MCC spends (expense) over $5 million

each year for early retirement with a present value *of $65 million and we carry a $3.5 million liability (growing).

*Represents dollar amount needed today to pay for the retirement system over 20 years with an earned interest rate of 3.2%

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Early Retirement Program

Full-time faculty

Early retired faculty

Part-time faculty

Teaching Cost to MCC per Credit Hour

$2,303 $3,178 $883

•There are currently 130 early retirees of which 67 are teaching; there are six additional faculty retiring this year.

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Early Retirement ProgramTo grandfather current teaching early

retirees (73) at premium pay would cost $17 million (actual dollars).

To pay current early retirees (73)at the adjunct rate would cost $6.0 million, of which MCC would incur anyway.

Grand-father

0 2 4 6 8 10 12 14 16 18

Expense in Mil-lions

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Early Retirement ProgramBRT (budget response team) recommended to

Chancellor to change the early retirement program to:Rule of 80 at MCC with at least twenty years of

consecutive, benefit-eligible service to MCC. “Use it or lose it” the first year you reach the rule of 80.

Choice of either incentive payment of 50% of final contract/annual salary with cap of $50,000 or healthcare coverage for employee only.

This plan would cost (expense) MCC over $1 million annually with a present value* of $22 million and an ongoing $1 million or more liability (growing).*Represents dollar amount needed today to pay for the retirement system over 20 years with an earned interest rate of 3.2%

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Chancellor’s Early Retirement Program Recommendation

Current Early Retirees and those retiring before July 1, 2013What stays the same?

Same qualifications to retire early Same healthcare and incentive pay benefits Same bumping rights remain

What changes? Premium pay limited to 3 work units in FY 12 Premium pay for 0 work units thereafter Pay rate goes to adjunct rate of pay for faculty and temporary rate

schedule for staff and administrative roles for the remaining eligible work units

MCC could reduce its liability by $1-$2 million immediately with further reductions each year. The expense would be about $500,000 each year because of the implicit rate for healthcare. The present value* is $12 million.*Represents dollar amount needed today to pay for the retirement system over 20 years with an earned interest rate of 3.2%

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Chancellor’s Early Retirement Recommendation

Those retiring July 1, 2013 and afterNo Early retirement incentive program means:

No incentive payment No bumping rights Adjunct rate of pay for faculty and temporary rate

schedule for staff and administrative roles for 13.86 work units or 550 hours.

MCC Healthcare offered to regular retirees at their own expense

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Early Retirement RecapCurrent BRT Chancellor Savings

10 years + age 55

Rule of 80 No early retirement policy

Incentive payment

Choice of : incentive or

Insurance matches employee

insurance (employee only)

Premium pay for 13.86 work units

Premium pay for 3 work units for FY 12

Premium pay for 3 work units for FY 12

Bumping rights

Bumping rights

Bumping rights

Total Expense

$5 million $1 million $500,000 $4.5 million annually

Total Liability

$3.5 million $1 million $1.5 million $1.5 million increasing each year

Present Value*

$65 million $22 million $12 million $53 million*Represents dollar amount needed today to pay for the retirement system over 20 years with an earned interest rate of 3.2%

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Early Retirement Recap

Current BRT Chancellor0

1

2

3

4

5

6

Expense

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Early Retirement Recap

Current BRT Chancellor-1

0

1

2

3

4

Liability

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Early Retirement Recap

Current BRT Chancellor0

10

20

30

40

50

60

70

Present Value

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Early Retirement ProgramEligible for Retirement under MCC’s current

early retirement program:

6/30/11 6/30/12 6/30/13

Staff 113 20 27

Faculty 74 16 9

Administrators

20 3 1

Total 207 39 37

Total Cost* $5.9million

$1.7additional

$1.4additional

* Based upon actual eligible employees. Historically, 22 employees early retire a year.

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Other Budget ConsiderationsAllocation Model

Adjust current model for revenue projectionsZero-based budgeting

Compensation package (contract for FY 13)Auxiliary ServicesOnline course expansionAnnexation