Three-Year Financial Plan

Three-Year Financial Plan Fiscal years ending June 30, 2016 through June 30, 2018 February 24, 2015 Community College District No. 532 Grayslake, Illinois

COLLEGE OF LAKE COUNTY COMMUNITY COLLEGE DISTRICT NUMBER 532 Three Year Financial Plan 2016-2018 Board of Trustees Amanda D. Howland, Chairman Jeanne T. Goshgarian, Vice Chairman Dr. Philip J. Carrigan, Trustee/Secretary Barbara D. Oilschlager, Trustee Richard A. Anderson, Trustee Dr. William M Griffin, Trustee Lynda C. Paul, Trustee Annabella Tidei, Student Trustee Administration Dr. Girard W. Weber, President Derrick Harden, Chief of Staff Dr. Richard Haney, Provost, Educational Affairs and Student Development Karen Hlavin, Associate Vice President for Student Development David Agazzi, Vice President for Administrative Affairs/Treasurer Evelyn Schiele, Executive Director of Public Relations and Marketing

COLLEGE OF LAKE COUNTY Community College District 532 Three Year Financial Plan Page I. Executive Summary 1-5 II. Lake County Population and Economic Outlook 7-20 III. Revenue Assumptions 21-34 IV. Expenditure Assumptions 35-40 V. Operating Fund Summary 41 VI. Other Revenue Sources 43-46 VII. Major Future Expenditures 47 VIII. Financial Benchmarking 49-56 IX. Financial Variables and Risks 57-58 X. Summary 59 XI. Statistical Data - Appendix 61-86 XII. Peer College Statistics Appendix 87-99

I. Executive Summary The three-year financial plan for the College of Lake County (CLC) ensures that CLC s financial projections are consistent with the overall vision, strategic plan, master plan, and core values of the institution. The plan will be utilized to identify the priorities, resources, and timeframes for preparing budgets and projecting revenues used in financial planning. It will be updated annually to ensure that the College is current with financial trends, enrollment growth, property tax variables, and the needs of the internal and external community that may financially impact the College. The financial plan includes three years of financial projections, five years of revenue and expense history, and the current year budget totals. The financial plan sets forth a framework for the Board of Trustees and the administration to examine future implications of major financial decisions. The plan is part of the annual planning cycle that integrates the College s Academic Quality Improvement Program (AQIP) with the financial resources necessary to meet strategic planning objectives. Strategic planning is a systematic and on-going activity which the College uses to define its direction and to anticipate major financial issues during a three-year period. Strategic planning looks at the organization as a whole, is oriented towards the future, supports the mission, is externally directed, spans organizational boundaries, deals with greater levels of uncertainty, and is about creating public value. The goal of the strategic planning process is to provide CLC with tools and plans to anticipate and respond to change in its external environment. The Strategic Planning process at CLC coincided with the Facilities Master Planning process and the budgeting process. Revenue projections and expenditure requirements are the base for building the College s annual budget. The College s budgeting system has been integrated into strategic action planning. As administrators build their new fiscal year budgets, they submit funding requests for new positions, capital projects, furniture, equipment, essential increases and other capital outlay as new action projects through the strategic action planning program. This program contains a direct link to the budget planning system. All requests are reviewed by executive staff and only approved requests are transferred to new fiscal year budgets. Therefore all final approved budget items are attached to a goal and objective related to the strategic plan. A summary of the revenue and expenditure assumptions used in these projections are listed below. Revenue Property Taxes Consumer Price Index (CPI) of 1.5% for tax year 2014, 0.8% for 2015, and 1% for tax years 2016 and 2017. A 4% decrease in Equalized Assessed Value (EAV) for tax year 2014, a 2% decrease for tax year 2015, and no change in EAV for tax years 2016 through 2017. New property of $100 million for tax years 2014 through 2017. 1

State Revenue The credit hour state grant increased 2.1% between FY2014 and FY2015; state revenue for FY 2016 is projected to decrease 5% from the FY2015 allocation and remain flat for FY2017 and FY2018. Though a 5% reduction is included, the College should be prepared for changes based on the state s financial condition. Various scenarios for credit hour grant reductions are included in the state revenue sources section of this plan. For FY2015, credit hour payments are about three months behind schedule. Tuition Paid credit hours decreased 6.6% for Spring 2015 Term compared to the Spring 2014 Term; projected year-end tuition revenue has been adjusted downward to account for this decrease. Originally, the FY2015 budget projected an overall 3% decline in enrollment for the fiscal year. 4% enrollment decrease is assumed for the FY2016 projection, and 0% enrollment growth is projected for FY2017 and FY2018 from the reduced base. An $8 per credit hour increase is included for FY2016; this increase was approved by the Board of Trustees in March 2014. Other Revenue Interest rates are projected to increase slightly and lead to an increase in interest income for FY2016. All other revenue for FY2016 increases $7,000, or 5%, from the FY2015 budget amount and will remain level in FY2017 and FY2018. Transfers In Transfers In is projected to decrease from $554,189 budgeted for FY2015 to $50,000 projected for FY2016 and remain level in FY2017 and FY2018. A projected transfer for surplus from Bookstore operations is being reduced to $0 for FY2016. The remaining $50,000 transfer amount for FY2016 reflects a transfer of working cash interest earnings to the Education Fund. Expenditures Salaries 3.5% increase in salaries is projected for FY2016 through FY2018. Benefits 4% increase in health insurance cost is projected for FY2016 and 8% increase for FY2017 and FY2018. The 4% increase for FY2016 is based on discussion with the College s insurance broker. Other benefits remain flat for FY2016 through FY2018. Increased expenditures are not included for implementation of the Patient Protection and Affordable Care Act (PPACA). Contractual Services, Materials/Supplies, Travel/Meeting, and Fixed Charges 0% increase is projected for FY2016 through FY2018 for the categories of Contractual Services, Materials/Supplies, Travel/Meeting, and Fixed Charges. 2

Utilities 2% increase in Utilities is projected for FY2016 through FY2018. Capital Outlay 0% increase is projected for FY2016 through FY2018. Operating Impact of the Master Plan The operating impact from the Master Plan is estimated at $0 in FY2016, $690,000 in FY2017, and $1.3 Million in FY2018; operating impact is the additional cost of operating new buildings at the Grayslake and Lakeshore campuses. Culinary Remodeling To improve the Culinary Arts Program, $500,000 has been set aside each year for FY2017 and FY2018 for the remodeling of the basement-level kitchen at the Grayslake campus. The goal is to accumulate $1.5 Million over three fiscal years toward this capital project. Other Expenditures A 0% increase is projected for FY2016 through FY2018. Debt Service $5 million is budgeted in the operating funds to pay debt service associated with implementation of the master plan. The total debt service cost including revenue from per credit hour capital fees is budgeted at $5.7 million. Transfer Out Auxiliary Shortfall The Auxiliary Fund experienced a net loss of about $125,000 in FY2014. This is due primarily to declining profit in the Bookstore and expenses exceeding revenues for Workforce and Professional Development (WPDI). Trends indicate that the fund could experience financial losses again in FY2015 and FY2016. Additionally, at the end of FY2014 $3 million in Auxiliary fund balance was transferred for Master Plan projects leaving a minimal auxiliary balance of $325,000. The FY2016 projection includes a $400,000 transfer out from the Education Fund to the Auxiliary Fund to offset potential losses. Transfers out for this purpose are $500,000 and $700,000 in FY2017 and FY2018. Transfers out increase in the out years as Bookstore profit declines. Current projections indicate that the Bookstore will break even in FY2018 and experience financial losses thereafter. Contingency Contingency remains at $505,000 from FY2015 to FY2016 and remains flat in FY2017 and FY2018. An $8 per credit hour tuition increase for FY2016 was approved in March 2014 to stabilize the College s finances. Unfortunately, revenue forecasts have been revised downward due to information recently obtained. Based on a lower than expected Consumer Price Index (CPI) increase of 0.8%, an estimated state revenue decline of 5%, greater than projected enrollment decreases, and projected losses for the Auxiliary Fund, the Financial Plan currently shows a $1.6 million shortfall for FY2016. The FY2016 budget is not balanced and expenditure reductions will be needed to stabilize CLC s finances. Furthermore, the state revenue decrease may be greater than 5% depending on the outcome of state budget discussions in the coming months. The state revenue decrease could be anywhere between 5% and 20%. The state revenue sources section of this plan 3

provides various scenarios for state revenue reductions and their impact on the FY2016 projected shortfall. Based on the assumptions presented above including a 5% state credit hour revenue reduction, per credit hour tuition increases needed to balance the budget in the out years are $11.00 for FY2017 and $10.00 for FY2018. The three-year financial plan is summarized in a table on the next page. The next section describes the current economic outlook for Lake County. 4

COLLEGE OF LAKE COUNTY THREE-YEAR FINANCIAL PLAN OPERATING FUNDS FY 2014 Actual FY 2015 Budget FY 2016 Projected FY 2017 Projected FY 2018 Projected Revenues Taxes $ 61,278,455 $ 62,731,271 $ 64,037,737 $ 65,030,505 $ 66,048,197 Back Taxes 0 2,700 2,700 2,700 2,700 Personal Property Replacement Tax 1,177,861 1,118,922 1,245,673 1,245,673 1,245,673 Tax Increment Financing 71,652 35,000 35,000 35,000 35,000 ICCB Cr Hr Grants (State Apportionment) 8,124,954 8,114,978 7,870,617 7,870,617 7,870,617 Board of Vocational Ed. 509,241 507,520 507,520 507,520 507,520 Tuition 26,385,093 27,085,281 27,736,760 27,922,569 27,922,569 Lab Fees 652,863 711,487 700,000 700,000 700,000 Comprehensive Fees 4,938,198 5,204,135 5,340,654 5,340,654 5,340,654 Comprehensive Fee Allocations (4,834,238) (5,109,420) (5,243,551) (5,243,551) (5,243,551) Other Student Fees 14,244 11,630 12,000 12,000 12,000 Tuition Chargeback 16,758 17,342 17,342 17,342 17,342 Interest on Investments 42,395 62,000 71,000 64,000 50,000 Other Revenue 214,175 139,441 146,441 146,441 146,441 Transfers In 133,907 554,189 50,000 50,000 50,000 Total Revenues and Transfers In 98,725,558 101,186,476 102,529,893 103,701,470 104,705,162 Expenditures Salaries 59,381,342 60,914,913 63,079,424 65,287,203 67,572,256 Health Insurance 5,004,194 6,883,722 7,159,071 7,731,797 8,350,340 Other Benefits 6,004,605 6,242,973 6,242,973 6,242,973 6,242,973 Contractual Services 4,024,470 5,224,200 5,224,200 5,224,200 5,224,200 Materials and Supplies 3,967,803 4,653,196 4,653,196 4,653,196 4,653,196 Travel and Meeting 755,084 961,613 961,613 961,613 961,613 Fixed Charges 1,886,969 1,944,662 1,944,662 1,944,662 1,944,662 Utilities 2,979,923 3,310,830 3,377,047 3,444,588 3,513,479 Capital Outlay 1,709,500 1,318,547 1,318,547 1,318,547 1,318,547 Operating Impact - Master Plan 0 0 0 690,000 1,300,000 Culinary Remodeling 0 0 0 500,000 500,000 Other 2,920,024 2,268,599 2,268,599 2,268,599 2,268,599 Contingency 0 505,000 505,000 505,000 505,000 Transfers Out - Debt Service 390,509 5,190,000 5,193,000 5,193,000 5,193,000 Transfers Out - Auxillary Shortfall 0 0 400,000 500,000 700,000 Transfers Out - Other 9,525,145 1,768,221 1,768,221 1,768,221 1,768,221 Total Expenditures and Transfers Out 98,549,569 101,186,476 104,095,552 108,233,599 112,016,086 (Shortfall)/Surplus 175,989 0 (1,565,659) (4,532,128) (7,310,924) Beginning Fund Balance* 30,182,595 30,358,584 30,358,584 30,358,584 30,358,584 Ending Fund Balance $ 30,358,584 $ 30,358,584 $ 30,358,584 $ 30,358,584 $ 30,358,584 Expenditure Reduction Needed to Balance 1,565,659 Tuition Increase Needed to Balance* 11.00 10.00 *Fund balances assume budgets are balanced each year. A tuition increase of $8 per cr. hour for FY2016 was approved in Spring 2014. 5

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II. Lake County Population and Economic Outlook The financial health of the College of Lake County is dependent on property taxes, tuition and fees, and state reimbursements. These sources of revenue are affected by trends in population, unemployment, median household income, inflation and property value. Three emerging trends are expected to present opportunities and potential challenges to the College. Though not likely to affect college finances in the next three years, housing values and new home construction are expected to rise (Figures 13-17), which will benefit the College through increased real-estate tax revenue in future years. The number of high school students graduating in the coming years is expected to decline between now and 2025 (Figure 2). Recent high school graduates typically represent 12% of CLC s fall enrollment. This could affect enrollment and tuition revenues. Demographic changes suggest that there may be opportunity for growth to come from non-traditional age students, rather than recent high school graduates (Figure 5). The improving economy is expected to attract prospective students to the workforce, rather than the community college. Federal forecasts for lower unemployment and rising family incomes are associated with reduced enrollment (Figures 10 and 11) in the absence of some intervention. The Congressional Budget Office s (CBO) Budget and Economic Outlook anticipates that the economy will experience steady growth in the coming years (CBO, 2015). In February 2014, the CBO anticipated an upswing in the housing market (e.g. median housing price and new construction) as well as increases in income, consumer spending, and investment starting in 2014. As of August 2014, the CBO acknowledged that the growth in the first half of the year was slower than anticipated though growth over the next few years is expected to be stronger (CBO, An Update to the Budget and Economic Outlook: 2014-2024, p.4). Unemployment was expected to decline in 2014 but remain above 6% through 2016 (CBO, p.1); updated CBO estimates suggest unemployment will reach 5.3% by the end of 2017 due to increased hiring and more people re-entering the workforce (CBO, February 2015). The nation began calendar year 2014 with an unadjusted unemployment rate of 6.9% (first quarter) after having ended 2013 with an unadjusted annual average of 7.4%. In December 2014, the national unemployment rate (not seasonally adjusted) was down to 5.4% (an unadjusted annual average of 6.2%). Inflation is still predicted to remain below the Federal Reserve s goal of 2% for the next few years but is expected to reach that goal by 2017 (CBO, February 2015). At the end of 2014, the nation s CPI-U was roughly 1.6% higher than the annual average for 2013. The following is an analysis of current economic and population trends along with an outlook for the future and implications for the College. High school market share In fall 2014, 19% of Lake County s spring 2013 high school graduates attended CLC. This high school yield, or market share, has been steady since fall 2010 (Figure 1). The number of Lake 7

County high school graduates entering CLC has increased nearly 3% (51 students) during that time, however, due to growth in the number of area high school seniors. Figure 1. Lake County High School Graduates Entering CLC Fall Terms 2004-2014. EnteringLC HS Graduates Lake County High School Graduates Entering CLC in the Next Fall (CLC's High School Yield), 2004-2014 2,000 1,800 19.6% 18.6% 17.9% 17.8% 18.5% 19.0% 19.0% 19.0% 1,600 16.4% 16.9% 1,400 15.5% 1,200 1,000 800 600 400 200 1,425 1,847 - Fall 2004 Fall 2005 Fall 2006 Fall 2007 Fall 2008 Fall 2009 Fall 2010 Fall 2011 Fall 2012 Fall 2013 Fall 2014 CLC Yield 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Entering Lake County HS Graduates CLC Yield* Despite its consistent market share, CLC s enrollment may experience declines in the coming years due to projected losses in the number of area high school graduates. Lake County high school projections for the number of high school seniors enrolled, and thus the number of high school graduates, suggest a 7% decline in enrollment through 2025 (Figures 2 and 2a). This decline began in spring 2014 when enrollment was down 1.6% compared to the prior year. Figure 2. Projected Lake County Public High School Graduates, 2000-2025 Lake County Public High School Seniors, 2000-2025 Number of Students Enrolled 12,000 10,000 8,000 6,000 4,000 2,000 Actual 9,732 Projected 9,007 0 Year Figure 2a presents a projection of CLC s high school market share, based on actual and projected high school graduates through 2025. Projections are based on average graduation rates for area high schools as well as a 5-year rolling average of CLC s high school market share. Despite the nearly 5% estimated decline in the number of local public high school graduates this year, CLC was only down 0.2% in its enrollment of area public high school graduates. Unless the College s high school market share increases to at least 21% from its current 19%, the number of Lake County public high school graduates entering CLC in the 2015 fall semester would decline. If 8

nothing changes, we can expect a nearly 5% decline in enrollment from local public high school graduates in 2015. Figure 2a. Projected CLC High School Market Share, 2011-2024 Number of Students Enrolled Actual 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 1st Grade 9,330 9,050 8,910 9,189 2nd Grade 9,402 9,430 9,116 8,983 9,234 3rd Grade 9,472 9,455 9,482 9,184 8,998 9,249 Projected Lake County Public* High School Graduates, Fall 2015-2025 4th Grade 9,860 9,489 9,507 9,623 9,234 9,047 9,300 Graduation Year 5th Grade 9,770 9,937 9,541 9,557 9,650 9,260 9,073 9,326 6th Grade 9,713 9,812 9,902 9,587 9,524 9,617 9,228 9,041 9,294 Projected 7th Grade 9,843 9,959 9,881 9,970 9,981 9,600 9,694 9,302 9,114 9,368 8th Grade 9,831 9,890 9,967 9,895 9,963 9,974 9,593 9,687 9,295 9,107 9,362 9th Grade 10,434 10,285 10,274 10,366 10,376 10,447 10,459 10,059 10,157 9,747 9,550 9,816 10th Grade 10,352 10,094 10,145 10,049 10,073 10,082 10,151 10,163 9,775 9,870 9,471 9,280 9,539 11th grade 10,011 10,239 9,819 9,908 9,664 9,687 9,696 9,762 9,773 9,400 9,492 9,108 8,924 9,173 12th grade 9,683 9,708 9,887 9,732 9,728 9,488 9,511 9,520 9,585 9,596 9,230 9,319 8,943 8,762 9,007 Spring Graduates (est.) 1/ Public HS Student Fall Enrollment at CLC (est.) 2/ % Change from previous year 3/ 8,255 8,693 9,686 9,231 8,672 8,404 8,471 8,487 8,538 8,541 8,212 8,299 7,964 7,801 8,018 1,751 1,804 1,822 1,818 1,734 1,681 1,694 1,697 1,708 1,708 1,642 1,660 1,593 1,560 1,604-3.03% 1.00% -0.22% -4.60% -3.09% 0.79% 0.19% 0.61% 0.03% -3.85% 1.06% -4.04% -2.05% 2.78% 1/ Graduation rate of is based off of a 5-year rolling average graduation rate projection for Lake County high schools (as reported on ISBE Report Cards) 2/ Market share calculation is based off of a 5-year rolling average market share projection from 2009-2013. 3/May not add up due to rounding * Excludes private schools (St. Martin de Porres and Carmel), which do not report data to ISBE Population Along with changes in the number of area high school graduates, changes in Lake County s population will also affect the College s enrollment over the next 10 years. Since fiscal year 2008, the College has captured between 5.4% and 6.0% of the district s population 16 years of age and older (as determined by ICCB; Figure 3). Using ICCB measures of the district s population, we found that CLC s credit market-share (the percentage of the population taking credit courses at CLC) was steady from FY08 to FY09 and experienced a sharp increase in FY10 before reaching its peak of 6.1% in FY11after which it dropped slightly below 6.0% in FY12 and leveled in FY13. In FY14, the district market share declined to 5.4%, the lowest level in the past seven years. Figure 3. Credit Enrollment Market Share of CLC 16+ District Population All Credit Market Share of CLC 16+ District Population CLC District Population 16+ 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 6.02% 6.05% 5.95% 5.94% 5.55% 5.44% 5.41% 516,633 520,254 520,032 515,446 520,927 520,950 521,617 FY08 FY09 FY10 FY11 FY12 FY13 FY14 6.20% 6.00% 5.80% 5.60% 5.40% 5.20% 5.00% CLC Market Share CLC District Population 16+ 16+ Market Share* Source: ICCB 9

Additional analyses revealed declines in both the college level market share and the adult education market share though the decline was more pronounced in adult education. The college level market share declined from 4.7% to 4.6% this year though still remains well above the pre-recession level of 4.1%. The adult education market share declined from 1.2% to 0.8% after maintaining a level between 1.1% and 1.3% since FY2007. A substantial portion of this decline can be attributed to changes in scheduling for Adult Education classes in FY14. Figure 3a. College Level Enrollment Market Share of CLC 16+ District Population College Level Market Share of CLC 16+ District Population CLC District Population 16+ 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 4.81% 4.74% 4.72% 4.64% 4.55% 4.18% 4.09% 4.09% 514,499 516,633 520,254 520,032 515,446 520,927 520,950 521,617 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 5.00% 4.90% 4.80% 4.70% 4.60% 4.50% 4.40% 4.30% 4.20% 4.10% 4.00% 3.90% CLC Market Share CLC District Population 16+ 16+ Market Share* Figure 3b. College Level Enrollment Market Share of CLC 16+ District Population Adult Education Market Share of CLC 16+ District Population 700,000 2.00% 600,000 1.75% CLC District Population 16+ 500,000 400,000 300,000 200,000 1.19% 1.25% 1.28% 1.28% 1.14% 1.13% 1.15% 0.78% 1.50% 1.25% 1.00% 0.75% 0.50% CLC Market Share 100,000 0 514,499 516,633 520,254 520,032 515,446 520,927 520,950 521,617 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 0.25% 0.00% CLC District Population 16+ 16+ Market Share* Population projections from Economic Modeling Specialists International (EMSI) suggest growth in the county over the next 10 years though the rate of growth will slow after 2016. The overall population is expected to increase from 705,048 in 2014 to 714,575 by 2024 (a 1.4% increase). In the more immediate future, the population is expected to grow by nearly 0.5% in 2015 and 2016 before beginning a steady decline in the rate of growth. Lake County population figures for 2010 to 2014 are presented in Figure 4 along with annual projections through 2024. Figure 5 presents the 10

annual population growth rates for the county for the past few years along with projected growth rates through 2024. Figure 4. Total Population for Lake County and Projections: 2010-2024 Total Lake County Population 2010-2014 with Projections Through 2024 Total Population 720,000 715,000 710,000 705,000 700,000 704,034 Actual 705,048 703,728 701,526 702,079 707,057 Projected 709,843 710,773 708,425 711,910 712,802 713,513 713,971 714,340 714,575 695,000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Source: Economic Modeling Specialists International (EMSI) Year Figure 5. Lake County Population Growth Rate: 2010-2024 1.00% 0.80% Actual Lake County Population Growth Rates, 2011 to 2024 Projected Growth Rate 0.60% 0.40% 0.20% 0.00% -0.20% -0.40% -0.60% 0.47% 0.48% 0.42% 0.39% 0.31% 0.33% 0.29% 0.29% 0.23% 0.16% 0.08% 0.12% 0.08% 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024-0.36% Source: Economic Modeling Specialists International (EMSI) The population of Lake County residents between 15 and 25 years old and 40-60 years old is expected to decline through 2024 with the largest projected decreases among 10-14 year olds and 45-49 year olds (Figure 6). The population of residents between 25 and 40 years old is expected to increase with the largest increase among the 30-34 age group (Figure 6). As the population ages, large growth is expected among 60-85 year old residents. Figure 6. Population Projection by Age, 2014-2024 60,000 50,000 40,000 30,000 20,000 10,000 0 Under 5 years 5 to 9 years 10 to 14 years 15 to 19 years 20 to 24 years 25 to 29 years 30 to 34 years 35 to 39 years 40 to 44 years 45 to 49 years 50 to 54 years 55 to 59 years 60 to 64 years 65 to 69 years 70 to 74 years 75 to 79 years 80 to 84 85 years years and over Source: Economic Modeling Specialists International (EMSI) 2014 Population 2024 Population 11

These population projections suggest that the demographic of CLC students may change slightly over the next several years with fewer recent high school graduates and more non-traditional age students. Recruitment efforts may need to be adjusted in order to maintain or increase the current district market share to compensate for a declining high school population and declines in the traditional college age group (18-25 year olds). An ability to capture a larger portion of the district population may help offset declining enrollment over the next several years as these populations decline. Figure 6a presents the educational attainment levels for residents 25 and older in 2014. Considering more than half of the current population has an education level below an Associate s degree, there appears to be a large potential market to which CLC could offer its services. Figure 6a. Adult Educational Attainment in Lake County, 2014 Eduational Attainment of Lake County 25+ Population, 2014 Less Than 9th Grade, 5% Graduate Degree and Higher, 16% 9th Grade to 12th Grade, 8% Bachelor's Degree, 25% High School Diploma, 21% Some College, 20% Associate's Degree, 6% Unemployment Lake County s unemployment rate tends to move in the same direction as the state and national unemployment rates, which suggests that unemployment for the county will also decline over the next few years. However, growth in the county has been slow compared to the state and nation. In 2014, the county s annual average unemployment rate was 7.2% which was consistent with the 2014 average annual rate for the state (7.2%) but higher that the national rate of 6.2% (Figure 7). According to Economic Modeling Specialists International (EMSI; November 20, 2014), the number of jobs in Lake County is expected to grow by roughly 6% between 2014 and 2020 (from 334,816 to 354,415) with only a 1% increase in the county population (Figure 4), which would contribute to a continued decline in unemployment over the next few years. 12

Figure 7. Unemployment Rate in US, Illinois and Lake County 12.0 Annual Unemployment Rates for U.S., Illinois, and Lake County 10.0 Percent 8.0 6.0 4.0 2.0 0.0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Illinois 6.2 5.8 4.6 5.1 6.4 10.0 10.3 9.4 8.8 9.2 7.2 U.S. 5.5 5.1 4.6 4.6 5.8 9.3 9.6 9.0 8.1 7.4 6.2 Lake County 5.4 4.8 4.5 5.1 6.6 9.8 10.5 9.3 8.8 8.7 7.2 Source: U.S. Bureau of Labor Statistics While the forecast for increased economic growth is promising for the College s property tax prospects, it may also have a negative effect on the College s enrollment and subsequent funding acquired through tuition and fees. There is a direct relationship between the county s unemployment rate and CLC s fall college level enrollment (Figure 8). Specifically, CLC s fall headcount of college level students tends to decline during periods in which the unemployment rate is low. Figure 8: Unemployment and Fall College Level Headcount, 2005-2014. Lake County Unemployment Rate (Annual Average) and CLC Fall Enrollment College Level Unemployment Rate College Level Headcount Enrollment Trend 11.0% 16,000 10.0% 9.0% 15,000 Unemployment Rate 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 14,000 13,000 12,000 Fall End of Term Headcount 2.0% 1.0% 11,000 0.0% 10,000 If the unemployment rate in Lake County follows the CBO s expectations for the national unemployment rate the upcoming years, the College s fall 2015 enrollment would be expected to 13

decline as was experienced during the 2005-2006 periods and as we observed over the past few years since the economy began rebounding (Figure 8). Household income Another economic factor that may affect future enrollment at the College is the median household income of Lake County families. Pennington et al. (2002) conducted a correlation analysis of enrollments at community colleges and dollars of disposable income. Pennington found that as earnings decline, enrollment increases; meanwhile, as unemployment increases so does enrollment. These findings are consistent with the expectation that more people attend community colleges when the affordability is high and the opportunity cost is low (Frederick, 2010). The College s overall trend appears to be consistent with the Pennington et al. (2002) findings. As unemployment declines, household income is expected to increase; this would result in lower enrollment for CLC as more students choose to attend 4-year institutions once affordability is no longer a top priority. Figure 9 presents fall college level headcount and household income data from 2005 through 2013 (the most current household income data available). This relationship is also demonstrated in Figure 10, which presents the number of credit hours claimed alongside median household income. This trend is approximate, since the data collection periods of the Labor Department s income surveys are based on the calendar year, while the headcount and claimed hours correspond to the College s fiscal year. Figure 9. Fall College Level Enrollment and Median Household Income, 2005-2013 Fall College Level Headcount and Median Household Income Trends, 2005-2013 15,500 $90,000 Fall Enrollment 15,000 14,500 14,000 13,500 13,000 12,500 12,000 $80,000 $70,000 Median Household Income 11,500 2005 2006 2007 2008 2009 2010 2011 2012 2013 Fall Headcount - College Level 13,203 12,719 12,713 13,128 14,481 14,929 14,889 14,790 14,406 Median household income $68,744 $75,170 $77,834 $78,598 $76,375 $74,705 $74,266 $74,334 $75,590 Source: Household income comes from the US Census Bureau s American Community Survey, 2013 $60,000 14

Figure 10. Claimed Credit Hours and Median Household Income, 2005-2013 Median Household Income Unrestricted Reimbursable Claimed Hours and Median Household Income Trends, 2005-2013 $90,000 $85,000 $80,000 $75,000 $70,000 $65,000 350,000 330,000 310,000 290,000 270,000 250,000 230,000 210,000 190,000 170,000 Claimed Hours $60,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 Median household income $68,744 $75,170 $77,834 $78,598 $76,375 $74,705 $74,266 $74,334 $75,590 Unrestricted Reimbursable Claimed Hours 215,579 225,961 226,756 232,653 232,909 240,080 257,665 293,112 292,702 Source: Household income comes from the US Census Bureau s American Community Survey, 2013. 150,000 Economic effects on enrollment Multiple models are used to estimate credit hour changes over the next three years. The models are based primarily on historical patterns of credit hours, recent changes over the past three years in credit hours as well as the unemployment rate of Lake County. Assuming no significant programmatic changes that would affect student enrollment decisions, enrollment is expected to decline over the next three years (Figure 11). The model projects a decline of 3% to 5% of all credit hours by the end of fiscal year 2015. An additional decline of 3% to 4% is predicted between fiscal year 2015 and fiscal year 2016 bringing the total estimated hours between 275,754 and 283,065 for fiscal year 2016. By fiscal year 2017, the model projects an overall decline in total credit hours of between 9% and 13% from fiscal year 2014. The number of credit hours projected for fiscal year 2016 is estimated to be within 1% of the number of credits from fiscal year 2007, prior to the recession. The model projects a decline of 3% to 4% of college-level credit hours by the end of fiscal year 2015. An additional decline of 3% in college-level credit hours is predicted between fiscal year 2015 and fiscal year 2016. Fiscal year 2016 college-level credits are estimated to be between 252,698 and 256,039. In total, the number of college-level credit hours is projected to decline between 9% and 11% by fiscal year 2017 from fiscal year 2014. Over the next three years, the Social Sciences division is expected to lose the greatest number (approximately 8,000 to 10,000 credits) and percent (16% to 19%) of credit hours, driven primarily by estimated losses in Psychology and History. The Engineering, Math and Physical Sciences division is expected to experience the smallest percent decrease in credits (3%) from fiscal year 2014 to fiscal year 2017. Math, the division s largest department, is expected to have slight growth over the next three years while several other departments are expected to remain level or decrease slightly. These projections are estimates of the total number of credit hours that students will enroll in for the coming years rather than projections of state reimbursable claimed hours. This estimate should not be used to project state funding, but may provide insight into student-driven revenue. 15

Figure 11. College-Level and Total Credit Hours Actual and Projected, Fiscal Years 08-17 College-Level and Total Credit Hours, FY08-14 with Projection Through FY17 350,000 Actual Projected 325,000 Credit Hours 300,000 275,000 250,000 225,000 200,000 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 College Level (credit) 240,167 254,515 289,140 295,365 290,611 283,708 271,741 260,654 252,698 243,218 Total Credit Hours 288,612 304,806 340,216 339,739 333,293 329,497 301,297 286,061 275,754 262,908 Source: Credit hours come from EECA, December 2014. Projections in the chart reflect the more conservative estimates as identified by IEPR. * Total credit hours includes college-level, adult and vocational education credits. Inflation Another area of recovery for U.S. and local economies is consumer spending. Increased spending would in turn increase the annual inflation rate. The CBO (February 2015) is projecting an increase in inflation to 2% by 2017. The annual U.S. inflation rate, as measured by the Consumer Price Index (CPI-U), increased rapidly from 2009 to 2011 after declining from a peak of 3.8% in 2008; CPI rate for urban areas in 2011 was at 3.1%, up 3.5 percentage points over the low of -0.4% in 2009 (Figure 12). In 2012, CPI-Urban rates dropped to 2.1% and continued to decline in 2013. The CBO projected for this rate to change its trajectory and rise again, albeit slowly, in 2014. The 2014 annual inflation rate is 1.6%, only slightly higher than the 2013 annual rate of 1.5%. Figure 12. Urban Consumer Price Index, 2004-14 5.0% Annual U.S. Inflation Rate (CPI-U), 2004-2014 4.0% CPI-Urban Percent 3.0% 2.0% 1.0% 0.0% -1.0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Annual 2.7% 3.4% 3.2% 2.8% 3.8% -0.4% 1.7% 3.1% 2.1% 1.5% 1.6% Source: Bureau of Labor Statistics Construction, property value, and real estate taxes The housing market has grown considerably over the last few years after hitting a ten-year low of $170,000 for median sales price in 2012. At the end of 2014, the median sales price in Lake County was $210,000; an 8% increase over the 2013 value of $189,000 and a 20% increase over the 2012 value (Figure 13). The recent real estate trend, along with the CBO forecast for growth in median housing price and new construction, are positive signs for the College s future financial prospects related to property taxes. 16

Figure 13. Median Sales Price of Residential Property, 2004-2014 $300,000 Median Housing Price, Lake County 2004 to 2014 $250,000 $200,000 $150,000 $100,000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Median Price $235,000 $250,000 $250,000 $260,591 $240,000 $196,000 $200,000 $181,500 $170,000 $189,000 $204,000 Source: Illinois Association of Realtors In addition to the increase in housing sale prices, construction activity appears to be returning to Lake County. The number of residential building permits issued in 2014 (Figure 14) was up 77% compared 2013 (1,309 through December 2014 as compared to 739 through December 2013) and 148% as compared to the 527permits issued through December 2012. The number of building permits is currently at its highest level since 2007. Figure 14. Privately-Owned, Residential Building Permits for Lake County, 2004-2014 5,000 4,500 4,000 Privately-Owned Residential Building Permits for Lake County, 2004-2014 Number of Units 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Total Units (annual) 4,557 4,206 2,505 2,225 710 517 698 628 527 739 1,309 Source: U.S. Census Bureau The value of new construction for the district (Figure 15) also appears to be rebounding, albeit slowly. In 2014, the value of new construction for the CLC district of $106 million is estimated to be $3 million higher than 2013 and $5 million higher than 2012 though the value remains significantly below pre-recession values in the $500 million to $600 million range. 17

Figure 15. Value of New Construction in the CLC District, Tax Years 2004-2014. Value of New Construction in CLC District $700 $600 In millions of dollars $500 $400 $300 $200 $100 $- 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 (est.)* Value (in Millions) $500 $568 $586 $504 $462 $260 $173 $130 $101 $103 $106 Source: Lake County Assessor s Office. Changes in median housing prices and new construction in Lake County typically are reflected in the total taxable equalized assessed value (EAV) for the CLC district. The EAV for a tax year is based on the average housing and new construction values for the prior three years (this relationship can be seen in Figure 16). Based on trends in housing prices and new construction from 2011 to 2013, the EAV is expected to increase slightly in 2014 (Figure 17; preliminary, actual figures are not available until April 2015). As median housing prices and new construction continue to increase over the next few years, as is expected, the EAV should begin to increase as well though the financial projection is more conservative showing decrases in EAV (Figure 17). Figure 16: Taxable EAV and Median Housing Sales Prices 2006-2014 $31,000 $275,000 $29,000 $255,000 $27,000 $235,000 EAV in 100 thousands $25,000 $23,000 $21,000 $19,000 $215,000 $195,000 $175,000 $155,000 Median Housing Price $17,000 $135,000 $15,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 $115,000 EAV (Based on Tax Year) Median Housing Price Source: Lake County Assessor s Office (EAV), Illinois Association of Realtors (housing price) Every tax year, the College of Lake County receives its property tax revenues (i.e., maximum extension of capped funds) based on the Property Tax Extension Limitation Law (PTELL) 18

formula. 1 Half of this maximum extension of capped funds is received as property tax revenue by the College in the current fiscal year and the other half in the next fiscal year. In the formula, property tax revenues are partially determined by the taxable EAV from the college district, the CLC finance department is projecting EAV to decrease 4% for fiscal year 2015 and another 2% in fiscal year 2016 followed by no change thereafter through 2019 (based on projected growth rates provided by CLC Finance Department; Figures 16 and 17). Based on this rate of growth, EAV is not expected to return to pre-recession values until after 2019. Figure 17. Taxable EAV for CLC District, Fiscal Years 2007-2015, Projections through 2019 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 Total Taxable Equalized Assessed Value for Lake County, Tax Years 2006-2014 (with Projections Through Tax Year 2018) Projected $0 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 EAV (in millions) Sources: Lake County Assessor s Office (EAV); Projections based on growth rates provided by CLC Finance Dept. The PTELL formula also takes into account the limiting rate (LR) as calculated using the December-December change in CPI (inflation rate). The limiting rate tends to be high when the inflation rate is high but the formula caps the inflation rate at 5% as stipulated by Illinois statutes. Any decline in taxable EAV will not necessarily lead to a decline in property tax revenues for the College because the formula ensures a stable maximum extension of capped funds in periods of rapidly rising or declining property values. Figure 18 presents the 10 year trend in the national December CPI. 1 LR x EAV = Maximum Extension of Capped Funds where: LR = Inflation Rate for December x Highest Capped Property Tax Revenues in Last 3 Years EAV New Construction TIF Increment Annexation + Disconnections 19

Figure 18: December Inflation Rate, 2004-2014. December to December U.S. Inflation Rate (CPI-U), 2004-2014 5.0% CPI-Urban Percent 4.0% 3.0% 2.0% 1.0% 0.0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Dec. to Dec. 3.3% 3.4% 2.5% 4.1% 0.1% 2.7% 1.5% 3.0% 1.7% 1.5% 0.8% Source: U.S. Bureau of Labor Statistics. Summary In summary, economic indicators for Lake County are showing signs of recovery in 2014 and the rate of growth is expected to accelerate over the next few years. An improving economic climate along with anticipated declines in the traditional college-age population and smaller graduating classes from local high schools may result in continued declines in enrollment and claimed credit hours for CLC. Recovery in the real estate market, which will result in higher median housing prices and an increase in new construction, is promising over the long term for the College s property tax revenues though additional action may need to be taken to offset declines in revenue from student tuition and fees. To offset these declines, the College may need to increase its current high school yield; increase its county market share by appealing to non-traditional age students; and/or market to the large population of current county residents age 25 and older with less than an associate s level of education. A detailed discussion of financial implications for the College follows. 20

III. Revenue Assumptions The FY2016 revenue projection for operating funds is $102.5 million, which is a 1.3% increase from $101.2 million in revenue budgeted for FY2015. CLC s major operating funds are the Education Fund and the Operations and Maintenance Fund. The major sources of revenue for these funds consist of local revenue, state funding, and tuition. The assumptions used for these categories are summarized as follows: Local Revenue Property Taxes Among different types of local government units in Lake County, property taxes for the College of Lake County represent approximately three percent of a county resident s tax bill. The following table shows the College s share of property taxes compared to other categories of local government in Lake County. 1,600,000,000 1,500,000,000 1,400,000,000 1,300,000,000 1,200,000,000 1,100,000,000 1,000,000,000 900,000,000 800,000,000 700,000,000 600,000,000 500,000,000 400,000,000 300,000,000 200,000,000 100,000,000-2013 Total Lake County Property Tax Revenue School Districts County, Municipalities, Fire, and Townships Park Districts and Forest Preserve College of Lake County Libraries Other Special Districts The district s property tax revenue is restricted by two factors - the Property Tax Extension Limitation Law (PTELL) and rates on individual funds. The PTELL rate is determined by the Consumer Price Index (CPI), Equalized Assessed Value (EAV), and new property. PTELL limits the district s overall revenue rate by the lower of 5% or CPI, plus any new property in the district. The rate limit is then multiplied by the EAV. 21

The maximum individual fund rates allowed are as follows: Maximum Fund Tax Rates Allowed (per $100 of EAV) Education Fund $.7500 Operation & Maintenance Fund $.1000 Audit Fund $.0050 Life Safety Fund $.1000 Liability, Protection and Settlement Fund No Limit Bond Funds (Voter Approved) No Limit For the calculation of property taxes, each fiscal year contains one-half of two separate tax years. For example, FY2016 contains the second half of tax year 2014 and the first half of 2015. Each year the College receives a majority of taxes for the first half of the fiscal year in September and October. The majority of the second half of the tax payments is received in May and June. CLC s property tax revenue is projected by first calculating the tax amounts for the individual tax years. This is accomplished by using a calculation template provided by the Lake County Clerk s Office. The overall property tax increase factors in the CPI increase, a projected EAV amount for new property growth, and a projected EAV amount for dissolved TIF increment based on expiring Tax Increment Financing (TIF) districts (as appropriate). The CPI increase, new growth, and dissolved TIF increment result in the projected property tax revenue for CLC in the applicable tax year. Once the individual tax years are projected one-half of each tax year is calculated. The last half of the prior tax year is added to the first half of the new tax year to make up the fiscal year projection. In the past, economic conditions have affected growth in CLC s property tax revenue. For most of 2003 through 2008 the economy was thriving. The CPI averaged 3.06%, new property in Lake County rose to over $500 million, and EAV increased from $20.4 billion in 2003 to $29.0 billion in 2008, a 42% increase. The factor that allows the annual increase to exceed the CPI is the amount of new property in the county, which is not subject to the tax cap in the first year. Robust property growth resulted in higher increases in property tax revenue for CLC. For tax years 2009 through 2014 the CPI has averaged an increase of 1.7%. The percentage increase in property taxes collected during this same period has declined annually from a 3.70% increase in FY2010 to a 2.55% increase in FY2014. 22

Percent 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% Property Tax Growth Change (%) 3.70% 3.25% 3.10% 2.92% 2.55% 1.98% 1.98% 1.94% 1.94% 0.00% FY18 FY17 FY16 FY15 FY14 FY13 FY12 FY11 FY10 Since tax year 2008, all of the factors that affect property tax revenue have declined. From 2009 to 2014, The CPI averaged 1.7%, new property in Lake County has fallen from $462 million in 2008 to about $100 million in 2013, and EAV decreased from $29 billion in 2008 to $21.8 billion in 2013, a 25% decline. The percent increase for property tax revenue has decreased in the last five tax years. The chart shown above shows the downward trend in property tax revenue growth. The previously approved FY2015 budget indicated an expected 2% increase in property tax revenue, which represents a CPI of 1.7% in tax year 2013 and 1.5% in tax year 2014, new property of $50 million each tax year, and 2% and 1% decreases in EAV for tax years 2013 and 2014 respectively. The projected property tax revenue increase for FY2016 is 2.1%. This reflects an actual CPI increase of 1.5% for the second half of tax year 2014 and an increase of 0.8% for the first half of tax year 2015. New property is projected at $100 million for tax years 2014 and 2015. The EAV is projected to decrease 4% for tax year 2014 and decrease 2% for tax year 2015. FY2017 and FY2018 projections are conservative and include a CPI increase of 1% respectively. The EAV is projected to remain flat, with new property expected to be $100 million. The projections reflect an increase in tax revenue, but at a much slower rate than increases prior to FY2010. The graph above shows the percentage increase for the last five years and projected for the next four years. An Assessed Value and Tax Levy Table on page 71 shows more detailed tax data from 2005 to 2014. The following graph shows the amount of property tax revenue collected for the last five tax years and projected collections through tax year 2017. 23

$68,000,000 Tax Revenue by Tax Year $66,000,000 $64,000,000 $62,000,000 Dollars $60,000,000 $58,000,000 $56,000,000 $54,000,000 $52,000,000 $50,000,000 2017 2016 2015 2014 2013 2012 2011 2010 2009 The results in the previous graph are based on known inflation or a CPI of 1.5% for tax year 2014 and 0.8% for tax year 2015. CPI projections for tax years 2016 and 2017 are conservatively projected at 1%. The projection assumes a decrease in the EAV of 4% for tax year 2014, a 2% decrease for tax year 2015, and no change in EAV for tax years 2016 and 2017. New property is assumed at $100 million for tax year 2014 and $100 million for tax years 2015 through 2017. The graph shows that tax revenue continues to increase from year to year. However, the increase is at a lower rate than previous years. Under the current tax law the PTELL limiting rate should decline as EAV rises, assuming the Board of Trustees approves a tax extension that maximizes the amount to be collected under current law. Using the formula provided by the Lake County Clerk s office, when multiplying the PTELL rate by the EAV, the tax revenue still increases from the prior year. New property is not subject to the tax cap so a higher new property amount results in higher tax revenue for the College. In Lake County, new property has dropped $350 million since 2008. The overall rate under PTELL for CLC capped funds for tax year 2013 was $.288 per $100 of EAV. The individual fund rates were as follows: CLC PTELL Rates (per $100 of EAV) Education Fund $.226 Operation & Maintenance Fund $.060 Liability, Protection and Settlement Fund $.002 Bonds Fund (non-capped) $.008 The CLC PTELL rates still are far from reaching the maximum PTELL fund rates allowed. As shown in the table on page 25, there is still substantial room for rates to increase before the College 24