8

This chapter describes a proactive, institutionwide

budgeting process that is directly tied to a community
college district’s strategic plan in order to provide
community college leaders with the information they need
to make judgments about cutting or sustaining programs
in difficult economic times.

Using Strategic Planning to Transform

a Budgeting Process
Cary A. Israel, Brenda Kihl

Today’s community college leaders face a challenging financial climate not

seen in several decades. Budget shortfalls, state budget cuts, high unem-
ployment, increased health care costs, and decreased tax revenue create
challenging economic times for community colleges and require difficult
decision making to maintain a strong, financially sound institution that suc-
ceeds in serving its constituents. The questions college leaders face are
familiar: Where can we cut spending? Which programs need paring back
and how far? How and where can we reduce fixed costs? How can we
increase revenue streams? Do we need to make reductions in our labor
force? Where do we invest new revenue? These questions are difficult to
address without incurring potential negative effects on students, staff, fac-
ulty, and the community. However, the negative impacts can be minimized
by making clear and logical decisions that are supported by the institution’s
strategic budgeting and planning processes. This chapter describes how the
Collin County Community College District (Texas) answered these diffi-
cult questions, and discusses steps taken to control spending, make the
most of limited resources, and incorporate the district’s strategic plan into
the budgeting process.

Addressing Rapidly Changing Economic Conditions

Collin County Community College District (CCCCD) is a five-campus dis-
trict in a historically affluent county in North Texas. Enrolling more than
forty thousand credit and noncredit students annually, the district serves
suburban and rural communities covering nearly one thousand square

NEW DIRECTIONS FOR COMMUNITY COLLEGES, no. 132, Winter 2005 © Wiley Periodicals, Inc. 77
78 SUSTAINING FINANCIAL SUPPORT FOR COMMUNITY COLLEGES

miles, with a population of approximately seven hundred thousand. CCCCD

opened its doors amid the strong economic climate of 1985. Located in
Texas’s “Telecom Corridor,” CCCCD flourished during the technology boom
of the late 1990s. During that decade, Collin County’s population grew by
150 percent, and CCCCD’s enrollment rose by 57 percent. Prior to 2001, the
district had never known difficult economic times, and never had to consider
difficult budgetary decisions. This changed in the fall of 2001, when down-
turns in the telecommunications and airline industries, the area’s two eco-
nomic bellwethers, began to require mass layoffs.
Before 2001 CCCCD received the majority of its revenue from local
property taxes (44 percent), and significant amounts from state appropria-
tions (28 percent), tuition and fees (15 percent), and other sources, such as
grants and auxiliary services (13 percent). Tuition income remained low
because the district’s board of trustees has always been committed to afford-
able education and opposes significant tuition increases. Unfortunately, this
left the institution extremely vulnerable to economic downturns and depen-
dent on increases in property values and state appropriations. In 2000,
CCCCD was not in a financial position to withstand a significant decrease
in state or local revenue, yet this was about to occur.
State funding for Texas community colleges is calculated using an
instructional formula based on contact hour reimbursement. Each biennium,
the Texas legislature sets a rate to which it will reimburse colleges for instruc-
tional costs incurred. Between 1994 and February 2003, Texas’s contri-
butions to the community college instructional formula fell from 86.9 percent
to 51.8 percent (Texas Association of Community Colleges, 2003). Local
property taxes could not make up the difference in revenue. The district was
already collecting local taxes at its maximum rate of nine cents per hundred
dollars of assessed value, one of the lowest rates in Texas. With a depressed
economy, it was unlikely that county voters would approve an increase in the
property tax rate to support the community college. These circumstances
made it increasingly evident that district leaders must make significant
changes to their operating procedures to ensure long-term financial stability.

The Coming Economic Storm and Enhanced

Environmental Scanning
In 2000, CCCCD’s leaders determined that a more comprehensive envi-
ronmental scanning process would help prepare for the future and improve
the district’s ability to withstand changes in the economy. All community
college leaders analyze enrollment trends, such as the market share of high
school graduates attending our institutions; growth and decline of specific
disciplines; the overall general economic climate of our communities; fac-
ulty salary requirements, retirements, and new hires; and other factors that
affect the budgeting and planning processes. As members of CCCCD’s lead-
ership team, we monitored this information closely. However, like many
 USING STRATEGIC PLANNING TO TRANSFORM A BUDGETING PROCESS 79

institutions, we did not track other factors that might be better indicators
of the overall economic vitality of our service areas.
Anticipating drastic changes in the economy, CCCCD instituted an
environmental scanning process in 2000 that monitors and tracks these
other factors, detailed here, to help us predict where the economy was going
and to develop a realistic three-year budget plan. This scanning also made
us aware of pending challenges and allowed us to develop what-if scenarios
as economic conditions changed (as they indeed did). We thus started to
track the volume of food stamps awarded in Collin County over a five-year
period, to see if we could identify trends that could help predict the eco-
nomic future of our community. We also tracked trends in Temporary
Assistance for Needy Families, sales tax allocations, and residential build-
ing permits. In addition, we monitored home foreclosures, local public
school lunch program recipients, indigent health care claims, small busi-
ness bankruptcies, the state’s rainy day fund, appraised property tax growth
rate, and companies moving in and out of Collin County. Nearly all of this
information was readily available from the county, regional council of gov-
ernments, the state comptroller, the Small Business Administration, the real-
tors’ association, financial institutions, and the district’s small business
development center.
Our environmental scanning paid off. Residents in Collin County were
hit hard by the 2001 downturn in the economy, which also had a signifi-
cant budgetary impact on the district. Unemployment rates reported by the
Texas Workforce Commission (2005) showed a 163 percent increase from
October 2000 to October 2001, and this had a precipitous effect on other
economic factors in Collin County and throughout Texas. Newspapers
reported other disturbing trends; the Collin County home foreclosure rate
for the month of January increased over 300 percent between 2001 and
2004 (Graham, 2003). In addition, indigent health care claims were climb-
ing steadily, and requests for free lunch programs at our local school dis-
tricts were soaring. Indeed, the percentage of economically disadvantaged
students was growing rapidly; in 1999, the district disbursed $2.5 million
in financial aid, scholarships, and federal and state grants. By 2000 that
number doubled to nearly $5 million, and in 2004 the district disbursed
more than $12 million in financial aid. Moreover, local businesses were
moving out, closing, or going bankrupt faster than those that were relocat-
ing or being created. Texas’s rainy day fund was moving toward deficit, and
interest rates were beginning to drop.
Despite these disturbing trends, our community was still seeing record
population growth. Had we just concentrated on population growth and
housing starts—traditional measures used in planning for enrollment
growth—we might have concluded that the economy was still fiscally sound.
Yet by scanning a more expansive set of environmental data, we knew that
it was a matter of time before funding for the district and other community
colleges in the state would be cut.
80 SUSTAINING FINANCIAL SUPPORT FOR COMMUNITY COLLEGES

At the fall 2000 State of the District presentation, the president dis-
cussed these alarming statistics. Although some individuals disagreed that
the economy might be on the verge of a downturn, most began to discuss
the findings. Against this backdrop, we started to plan for the district’s
future so that we could minimize the impact of any revenue loss. After
thoughtfully discussing and planning a course of action, we decided to
develop a very conservative budget that anticipated the coming economic
meltdown. Although the practice of environmental scanning may not always
be an accurate economic gauge, we believe it helped our college move to a
more strategic budgeting process. We continue to employ all the external
environmental data at our disposal in order to plan for a fast-changing eco-
nomic landscape.

Planning for Shrinking Resources

Environmental scanning data led us to believe an economic storm was com-
ing, so we began to plan for shrinking resources. The first order of business
was stabilizing and reducing expenditures.
Reducing Instructional Costs. To reduce expenditures, we first
looked at the cost of instruction, because it makes up the largest proportion
of the overall budget. It was imperative that any budget cuts in this area not
inhibit the district’s ability to accommodate its growing student population
and maintain academic excellence. However, we were able to reduce the
number of extra faculty stipends and contracts by limiting them to only
those services essential to the quality of our educational offerings. For
example, we cut instructional release time for faculty serving as treasurers
of faculty constituency groups, because the duties of the office required far
less time than teaching a semester-long course. In addition, we challenged
college deans to increase the average class size from nineteen students per
section to twenty-three rather than adding new sections to accommodate
enrollment growth. The deans had flexibility to run some classes with fewer
students but were strongly encouraged to keep the average divisional class
size at twenty-three. These initial steps reduced spending without adversely
affecting instructional quality or student services.
Analyzing Third-Party Expenditures. In addition, we started exam-
ining existing partnerships with third parties (such as foodservice agencies,
those who rent our facilities, and local agencies that are freely allowed to use
campus facilities) to ensure that equitable relationships existed. Historically,
although the district did not charge rent to local economic development
agencies for their use of college office space, the cities charged the district to
rent their facilities for graduation and commencement ceremonies, as well
as other functions. By correcting this imbalance, CCCCD saved thousands
of dollars. This was but one of many examples of the ways in which we saved
money by thoroughly analyzing third-party expenditures. It was not easy to
renegotiate these informal arrangements, but an increased focus on external
communications allowed city and county leaders to understand our budget
 USING STRATEGIC PLANNING TO TRANSFORM A BUDGETING PROCESS 81

predicament. Indeed, through this experience we learned that there are

always opportunities to be more fiscally conservative without jeopardizing
instruction or professional development.
Replacing Revenue Bonds with General Obligation Bonds. Texas
state law requires local community college districts—not the state—to fund
construction of new facilities. To accommodate enrollment growth in the
early 1990s, a bond referendum was proposed to fund new buildings and
deferred maintenance but was defeated by area voters. Because new class-
rooms had to be built to accommodate enrollment growth, CCCCD’s board
of trustees issued revenue bonds to accomplish this goal. But the revenue
bonds carried higher interest rates and were a drag on our operating funds.
We knew that this issue needed to be remedied before revenue streams, par-
ticularly those from state sources, eroded. Thus, in early 2001, the district
decided to ask voters to pass a $57 million general obligation bond. The
timing of this initiative was both crucial and fortuitous. The economic bub-
ble had not yet burst, and enrollment was mushrooming. Fortunately, vot-
ers overwhelmingly passed the bond referendum, which significantly
relieved pressures on our operating budget. Our strategic budget prepara-
tion and forecasting processes made us realize the interconnectivity of dis-
parate budget lines.
Making Miscellaneous Budget Cuts. Although CCCCD was able to
shrink its budget by cutting extra instructional costs, reducing third-party
expenditures, and moving toward lower-interest bonds, much more had to
be accomplished to align the district’s budget with anticipated revenue cuts.
We consolidated administrative functions, revamped an uncapped salary grid,
closed poorly enrolled programs, created a continuing education profit cen-
ter, discontinued leisure classes, bought down the debt of callable high-
interest revenue bonds, and established a three-year salary schedule for faculty
and staff. All in all, though some decisions were difficult and challenging, our
planning paid off. When the economic storm hit, our academic classes
remained open and accessible, agreed-upon salary increases were honored,
more students were admitted, and new academic programs were created.
With spending brought under control, we also began looking at other
sources of revenue to supplement existing streams. We established CCCCD’s
first deferred giving program, set lofty fundraising goals, increased federal
and state grant awards tied to our strategic plan, and planned other revenue-
generating activities. Concurrent with these activities, we began to revamp
a traditional incremental budget process and move toward one that is more
strategic and responsive to changing economic conditions.

From Incremental to Strategic Budgeting

In 2000, an internal survey of CCCCD’s budget process and financial man-
agement revealed the need for change, and college leaders began planning
to strengthen their budgeting and planning processes. At that time, the dis-
trict’s budget process consisted of annual incremental increases based on
82 SUSTAINING FINANCIAL SUPPORT FOR COMMUNITY COLLEGES

the overall amount of revenue. Each division received the same percentage
increase over the prior year’s allocation and was not required to submit evi-
dence of need or prove effective use of funds. Budget managers maintained
the status quo and were not challenged to move strategically beyond estab-
lished processes (Ibrahim and Proctor, 1992). The incremental budgeting
system in place in 2000 could not prepare the district for the coming down-
turn in the local economy.
The district’s practice of incremental budgeting provided too much lat-
itude, and it did not hold managers accountable for their budgeting deci-
sions. The process also created administrative “silos” within CCCCD, rather
than creating a sense of interdependence and team. CCCCD’s incremental
budgeting process also committed funds to certain budget areas without evi-
dence that the base allocation or additional monies were needed to meet and
accomplish institutional goals. The incremental process assumed that the
district’s priorities remained constant, which prevented leaders from launch-
ing new initiatives or providing access to additional resources to support
growing areas of the district (Curry, 2000). Furthermore, several top-level
administrators did not have a working knowledge of their budgets and
found it acceptable to delegate fiscal responsibilities to administrative assis-
tants. This proved to be a significant barrier to making difficult choices
about funding priorities as the economy changed. In this age of data-driven
decision making, budget managers must be accountable for their finances
and make decisions in support of the institution’s strategic plan. Thus, it
soon became evident that the first step in building a financially sound insti-
tution was to modify the budgeting system and make budget managers
accountable. CCCCD also realized that departments and programs change
over time, and that base allocations should be flexible too. A new budget-
ing system was needed to distribute funds based on something other than
“steady state” existence.
Accordingly, we decided to conduct a series of administrative meetings
in spring 2000 to discuss budget responsibility and the goals of the coming
years. The district president informed vice presidents and deans that the
current culture must change and they would no longer be rewarded for
overbudgeting (hoarding money) or allowed to continue the practice of
underbudgeting. In these meetings it became evident that administrators
must thoroughly understand and effectively plan their budgets. The dis-
trict’s three-year strategic planning process became the launching point for
setting funding priorities and addressing the difficult funding decisions that
lay ahead.

Zero-Sum Budgeting
Effective budgeting systems for community colleges must possess the sta-
bilizing processes found in an incremental budgeting system to minimize
annual justification of obvious institutional necessities. However, the
 USING STRATEGIC PLANNING TO TRANSFORM A BUDGETING PROCESS 83

process must also incorporate a zero-based budgeting system that allows for
questioning and minimizing redundant expenses (Williams, 1981). The
destabilizing process of zero-based budgeting, unfortunately, requires all
expenditures to be justified each new period, which is a time-consuming
process (Curry, 2000). Neither of these common budgeting practices alone
fits the district’s vision and changing needs. College leaders had to establish
a new model that would meet the four purposes of an effective budget: con-
tinuity, change, flexibility, and rigidity (Wildavsky, 1978).
Thus CCCCD decided to move to a form of zero-sum budgeting, a
deficit-neutral budget process, where new expenditures are paid through
cuts in existing programs or increases in revenue. Keeping the district’s mis-
sion and strategic plan in mind, leaders adopted a modified zero-sum pro-
cess to help make decisions that could reduce unnecessary or wasteful
spending, streamline and minimize costs, and strengthen revenue streams.
Our desired result was a static bottom line, with no direct annual increases
in expenditures. In order to accommodate the needs of growing programs,
new initiatives, and achievement indicators outlined in the strategic plan,
we added a supplemental budget request process.
The Budget Process. A zero-sum budgeting process takes about four
months and begins with an allocation for each of a college president’s
direct reports (for example, vice presidents and provosts). These alloca-
tions are equal to the previous year’s budget, minus a formula reduction
for line items that had spent less than 50 percent of allocations at midyear.
Vice presidents and provosts then distribute this lump allocation among
their respective division managers. Each division manager, who may be a
dean, director, or coordinator, is responsible for the budget of one or more
departments. At this point in the budget process, division managers have
the flexibility to reallocate resources between budget lines and across
departmental budgets in their division. In the end, division managers pro-
pose a budget that is less than or equal to the previous year’s budget.
However, supplemental budget requests allow for increased allocations for
costs associated with CCCCD’s three-year strategic plan (Collin County
Community College District, 2004).
Each vice president and provost then compiles preliminary budgets and
associated supplemental requests from division managers, and if necessary,
further reallocates resources; for example, underspending in one division
can meet the supplemental requests in another. Vice presidents, provosts,
and their division managers negotiate budgets and justifications for sup-
plemental requests. The communication and information-sharing that
occurs during this negotiation phase ensures that managers are more
accommodating of other divisions’ needs (Taylor and Rafai, 2003).
Ultimately, it is the vice presidents’ or provosts’ responsibility to ensure an
overall adherence to the initial allocation and the district’s strategic plan. A
budget must be agreed upon in order to move to the next step in the bud-
geting process, where each budget is examined in open hearings.
84 SUSTAINING FINANCIAL SUPPORT FOR COMMUNITY COLLEGES

Open Hearings. Open budget hearings take place over the course of a
week. One at a time, the president, vice presidents, provosts, and division
managers defend their budgets to CCCCD’s leadership team, finance
department, and each other. Hearings require division managers to answer
questions and explain significant changes—both positive and negative—in
any one budget or individual line item. Supplemental requests are also
reviewed during the hearings to ensure that additional funds will meet the
goals and achievement indicators outlined in the district’s strategic plan.
Open hearings are time-consuming, but the public venue requires all
employees with fiscal responsibilities to have a rationale for the amount
allocated to each line item in their budget.
The budget hearings also serve to provide budget managers, college
leaders, and other responsible budget personnel with a broader, “beyond-
the-silo” perspective of college operations. Through the process, budget
managers realize there is no “hidden” money in district budgets, and they
can no longer hoard excess money that will not be used. They also learn
about the importance of deferred maintenance costs, bond interest pay-
ments, fund balances, encumbered payroll lines, and all the other categories
that affect the district’s overall budget. On conclusion of the budget hear-
ings, the leadership team considers organizational priorities and makes a
finalized budget proposal to CCCCD’s board of trustees.
Drawbacks and Benefits of Zero-Sum Budgeting. A disadvantage of
zero-sum budgeting is the potential for competition between managers,
because money is reallocated from one department to another. However,
implementing a process for requesting supplemental funds alleviates the
competitive element of zero-sum budgeting and helps mitigate begging for
new funds. At the same time, it forces the leadership team to identify and
eliminate funding for lower priorities in order to fund new initiatives.
Budget managers also understand that extra funds can come at the expense
of an existing program if projected revenue falls short of the overall budget
increase, and this knowledge helps create internal accountability. Over time,
training for midlevel budget managers, combined with a budgeting hearing
process that ties internal budgeting processes directly to the district’s strate-
gic plan, significantly broadened CCCCD leaders’ understanding of how to
manage scarce resources prudently.

Where Are We Now?

As this chapter is being written in summer 2005, we are confident that
CCCCD is spending its money better and that because of changes in our
budgeting process expenditures are more aligned to our strategic plan. By
implementing a more comprehensive environmental scanning process
to predict the economic environment, and by moving from incremental to
strategic budgeting, we were able to make difficult decisions more easily.
We are not yet out of the woods, however. Community college leaders will
 USING STRATEGIC PLANNING TO TRANSFORM A BUDGETING PROCESS 85

always be required to make difficult decisions, but they can do so with fore-
thought and planning to minimize negative impact and public opposition.
In 2003, our strategic planning process was put to the test. Texas faced
a record deficit of $9.9 billion (Hill, 2004), and legislators were challenged
to balance the budget. All public colleges and universities were mandated to
cut their state appropriation by 7.5 percent, which resulted in a $1.5 million
reduction in the district’s operating budget. Because of foresight and careful
planning, however, the overall impact of this budget cut was minimized. The
district’s finances were already under control, a new budgeting system was
in place, and new revenue sources slightly decreased our dependence
on local taxes and state appropriations. The difficult decisions CCCCD made
in 2000 and 2001 paid off, making the district financially and administra-
tively stronger.

Keys to Creating a Strategic Budgeting Process

Planning and accountability are keys to weathering economic downturns
and sustaining funding for community colleges. It is imperative that aca-
demic, student development, and technology plans be aligned with a col-
lege’s overall financial plan. This is undoubtedly a major undertaking, but
it is a necessary step in achieving financial stability. This plan must then be
communicated to all who are involved with or who have a vested interest
in the community college.
Budget cuts are rarely met with excitement. Therefore, effective com-
munication with college stakeholders, including faculty, staff, students, the
board of trustees, and the community at large, is vitally important to con-
tinued success. Key stakeholders must buy in to any strategic budget in
order to minimize opposition to any necessary future budget cuts. At
CCCCD, internal stakeholder communication takes place at the annual All
College Day, which all faculty and staff are required to attend. The presi-
dent delivers a State of the District address to ensure that all college employ-
ees understand the current economic climate and its impact on college
operations. In addition, the district has established the “Committee of
100”—a group of community and business leaders—to facilitate external
communication. The committee comes together every three years, is edu-
cated on the state of CCCCD, and brainstorms the strategic direction the
district should follow over the next three years. Such community involve-
ment not only helps disseminate information about a college’s needs and
goals to the general population but also allows a more informed public to
better understand the difficult decisions community college leaders face.
Our advice for community college leaders facing tough economic times
is to focus on your college’s mission, goals, and strategic plan, the funda-
mental elements that describe your institution and its future. Internal plan-
ning and budgeting processes must support these fundamental elements if
your college is to survive when funds are limited. Institutional constituents
86 SUSTAINING FINANCIAL SUPPORT FOR COMMUNITY COLLEGES

must accept the college’s mission, goals, and strategic plan if they are to
support the tough decisions that must be made in a challenging economic
climate. For this reason, it is essential to develop a comprehensive training
program for senior staff and midlevel budget managers and ensure high lev-
els of communication when difficult decisions are necessary. CCCCD’s
move from incremental to strategic budgeting clearly helped us withstand
a downturn in the Texas economy and diminished state revenues, and we
believe it can help other institutions as well.

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CARY A. ISRAEL is president of Collin County Community College District.

BRENDA KIHL is assistant to the president and director of the Center for Teach-
ing, Learning, and Professional Development at Collin County Community
College District.