The 2014-15 Budget: Analysis of the Higher Education Budget

The 2014-15 Budget: Analysis of the Higher Education Budget MAC TAYLOR • L E G I S L A T I V E A N A L Y S T • FEBRUARY 12, 2014 2014-15 BUDGET CONTENTS Executive Summary .............................................................................................................................3 Introduction .........................................................................................................................................5 Overview ..............................................................................................................................................5 Universities ..........................................................................................................................................7 Background ........................................................................................................................................................................8 Governor’s Proposals ......................................................................................................................................................8 Serious Concerns With Governor’s Budgetary Approach ..................................................................................9 LAO Alternative .............................................................................................................................................................10 California Community Colleges .......................................................................................................16 Overview of the Governor’s CCC Budget Proposals .........................................................................................16 CCC Enrollment .............................................................................................................................................................17 CCC Student Support Programs ..............................................................................................................................22 Technical Assistance for Community Colleges ...................................................................................................26 New Innovation Awards ....................................................................................................................29 Tuition and Financial Aid ..................................................................................................................30 Background .....................................................................................................................................................................30 Governor’s Proposals ...................................................................................................................................................37 Assessment and Recommendations ......................................................................................................................39 Summary of Recommendations .......................................................................................................42 2 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET EXECUTIVE SUMMARY Overview California’s public higher education system consists of the University of California (UC), California State University (CSU), California Community Colleges (CCC), Hastings College of the Law (Hastings), the California Student Aid Commission, and the California Institute for Regenerative Medicine (CIRM). The Governor’s budget provides $13 billion in General Fund support for higher education in 2014-15. This is $1.2 billion (10 percent) more than the revised current-year level. After making adjustments for enrollment and accounting changes that otherwise would distort year-to-year comparisons, per-student support funding increases 2 percent at UC, 3 percent at CSU, and 4 percent at CCC. Universities Governor Proposes Continuation of His Multiyear Budget Plan. The Governor’s 2014-15 budget proposal for the universities is the second year of a four-year budget plan introduced last year. Specifically, the Governor proposes to: (1) provide UC and CSU each with $142 million in unallocated base increases, (2) maintain an extended freeze on student tuition, (3) provide CSU with more flexibility to make decisions on capital projects (such flexibility was provided to UC beginning in 2013-14), and (4) not link funding with enrollment or other specific purposes. Serious Concerns With Governor’s Approach. Similar to last year, we have serious concerns about the Governor’s overall budgetary approach for the universities and recommend the Legislature reject it. Most troubling, the Governor’s budget does not link university funding to specific purposes. Instead, his plan includes large unallocated increases tied only to keeping tuition flat. Further, the Governor’s approach to CSU capital outlay takes funding decisions out of the regular budget process. This overall budgetary approach diminishes the Legislature’s role in key decisions and allows the universities to pursue their own interests rather than state-identified priorities. Recommend Alternative Approach That Designates Funding for Specific Purposes. We recommend the Legislature return to its traditional budgetary approach for the universities. Using a workload approach, we lay out a specific alternative to the Governor’s plan. Our alternative funds 2 percent enrollment growth at CSU to serve eligible students who might otherwise be denied admission. (For UC, we include no enrollment growth since the university continues to accept all eligible students.) Our alternative also funds inflation and other workload cost increases at both universities. In total, our plan provides UC with $186 million and CSU with $209 million—$44 million and $18 million more, respectively, than the Governor’s plan. Because we assume that the state and students share in these cost increases, the amount of state support provided to the universities is $100 million lower under our alternative. (This would be offset by an associated $38 million increase in Cal Grant costs.) Recommend Monitoring Performance. We recommend the Legislature require UC and CSU to discuss their performance in specific areas (such as student access and success) at budget hearings www.lao.ca.gov Legislative Analyst’s Office 3 2014-15 BUDGET each spring. The Legislature could use this opportunity to learn more about each university’s performance, develop performance expectations moving forward, and make funding decisions based on this information. Community Colleges Significantly Increases CCC Funding in 2014-15. The Governor proposes to increase CCC’s Proposition 98 funding to $6.7 billion, which is $489 million (8 percent) more than the revised current-year level. (In addition to the augmentations highlighted below, the Governor proposes to pay down CCC deferrals, fund CCC maintenance and instructional support, and address certain CCC mandates. We discuss these issues in other 2014-15 budget reports.) Funds 3 Percent Enrollment Growth. One of the Governor’s largest CCC augmentations for 2014-15 is $155 million for 3 percent enrollment growth (34,000 full-time equivalent [FTE] students). The Governor’s budget also requires the CCC Chancellor’s Office to develop a new enrollment growth allocation formula. Based on preliminary information we have received from community colleges, we believe 3 percent enrollment growth likely is too high and needs to be revisited once better current-year data are available. In addition, while we agree that CCC’s existing enrollment growth allocation formula needs to be revised, we recommend the Legislature postpone implementation until 2015-16. Such a delay would give the Chancellor’s Office a reasonable amount of time to develop a new CCC formula as well as to coordinate with the California Department of Education (CDE) on a funding formula for the state’s adult education initiative. Increases Funding for Student Support Programs. The Governor proposes a $200 million augmentation for the Student Success and Support Program (SSSP) and gives partial flexibility to three other CCC student support programs. While the Governor’s overarching goals of enhancing student support and increasing flexibility are laudable, we believe his specific proposals are too narrowly focused. To provide substantially greater flexibility, we recommend the Legislature consolidate seven categorical programs into a new Student Support block grant. Tuition and Financial Aid Low Tuition, High Aid Make College Affordable for Many. California’s tuition and fee levels are relatively low (especially at CSU and CCC) while other costs of college attendance (such as housing and transportation) are somewhat higher than national averages. Financial aid programs help offset a large proportion of costs for many low- and middle-income families in the state. As a result, the net price they pay (after fee waivers, grants, and scholarships) often is far less than the list price. Moreover, students’ share of educational costs is declining, and student debt levels remain low by national comparisons. Recommend Rejecting Extended Tuition Freeze. The Governor proposes to freeze public college tuition for three more years (keeping fees flat from 2011-12 through 2016-17). We believe an extended tuition freeze would have several negative consequences and recommend instead that the state adopt a share-of-cost policy to help guide tuition and state funding decisions. 4 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET INTRODUCTION In this report, we provide an overview of and (4) tuition and financial aid. In each of these the Governor’s higher education budget and four areas, we analyze the Governor’s proposals then turn to the Governor’s specific proposals and offer recommendations for the Legislature’s for: (1) the universities, (2) community colleges, consideration. (3) new higher education innovation awards, OVERVIEW Provides $20 Billion in Core Funding for ranges from about $6,000 at CCC to nearly Higher Education. Under the Governor’s proposal, $42,000 at Hastings. (The difference in level of total core funding for higher education in 2014-15 support largely reflects the segments’ different is $20 billion—a $1.3 billion (7 percent) increase missions.) Year-over-year, the percentage increase over the 2013-14 level. As shown in Figure 1 (see in per-student funding ranges from 2 percent next page), nearly all the increase in core funding at UC to 6 percent at Hastings. (The increase at is covered by the state General Fund. In addition to Hastings reflects a 2.6 percent reduction in total state General Fund support, the universities receive funding combined with an 8.1 percent decrease in significant support from student tuition revenues. enrollment.) Under the Governor’s proposal, tuition levels at Governor Proposes 10 Percent General the universities would remain flat. (Total tuition Fund Increase. The state is the largest source of revenue increases slightly at UC due to an increase core funding for UC, CSU, and CCC. As shown in nonresident students. It increases slightly at CSU in Figure 3 (see page 7), the Governor’s budget due to a projected 2 percent increase in enrollment.) includes $13 billion in total state General Fund For the community colleges, local property tax support for higher education in 2014-15—a revenue and student fee revenue are other main $1.2 billion (10 percent) increase over the revised sources of core funding. The Governor’s budget 2013-14 level. (For this comparison, we include estimates that local property tax revenue will be support from the Student Loan Operating Fund up $94 million (4 percent) from the current-year (SLOF) and the federal Temporary Assistance for level. Student fee revenue is budgeted to increase Needy Families (TANF) program because these $13 million (3 percent) due to enrollment growth. sources directly offset General Fund support Funding Per Student Would Increase at All for Cal Grants. In effect, these sources are Segments. Figure 2 (see page 7) shows another interchangeable with General Fund.) perspective on higher education funding—one that Large Increases for Universities, Community adjusts for enrollment levels and any accounting Colleges, Student Aid. The Governor’s major changes (such as payment deferrals) that otherwise proposed augmentations for higher education would distort year-to-year programmatic are: base increases at the universities, increases comparisons. The figure focuses on the amount of in apportionment funding and two categorical funding generally available to support operational programs at the community colleges, Cal Grants costs. As shown in the figure, funding per FTE growth, and implementation of the new Middle student in 2014-15 under the Governor’s budget Class Scholarship program approved by the www.lao.ca.gov Legislative Analyst’s Office 5 2014-15 BUDGET Figure 1 Higher Education Core Funding (Dollars in Millions) Change From 2013‑14 2012‑13 2013‑14 2014‑15 Actual Revised Proposed Amount Percent University of California (UC) General Funda $2,566 $2,844 $2,987 $142 5% Net tuitionb 2,525 2,605 2,651 46 2 Other UC core fundsc 351 344 331 -13 -4 Lottery 30 38 38 — — Subtotals ($5,471) ($5,831) ($6,006) ($175) (3%) California State University (CSU) General Funda,d $2,473 $2,789 $2,966 $177 6% Net tuitionb 2,009 2,014 2,055 41 2 Lottery 40 56 57 1 2 Subtotals ($4,522) ($4,859) ($5,078) ($219) (5%) California Community Colleges (CCC) General Funda $4,269 $4,390 $4,828 $438 10% Local property tax 2,241 2,232 2,326 94 4 Fees 425 435 448 13 3 Lottery 157 182 182 — — Subtotals ($7,092) ($7,238) ($7,784) ($545) (8%) Hastings College of the Law (Hastings) Net tuitionb $33 $33 $30 -$2 -7% General Funda 9 10 11 1 13 Subtotalse ($42) ($42) ($41) (-$1) (-3%) California Student Aid Commission (CSAC) General Fund $671 $1,042 $1,299 $257 25% Student Loan Operating Fund 85 98 60 -38 -39 TANF funds 804 542 545 3 1 Subtotals ($1,559) ($1,682) ($1,904) ($222) (13%) California Institute for Regenerative Medicine General Funda $53 $97 $284 $187 193% Awards for Innovation in Higher Education General Fund — — 50 50 N/A Totalsf $17,685 $18,583 $19,893 $1,310 7% General Fund $10,041 $11,173 $12,425 $1,252 11% Net tuition/feesf 3,936 3,919 3,930 11 — Local property tax 2,241 2,232 2,326 94 4 Other 1,239 984 936 -48 -5 Lottery 228 275 276 1 — a Includes general obligation bond debt service. For CCC, also includes Quality Education Investment Act funds. b Reflects tuition after set aside for institutional financial aid. In 2014-15, UC, CSU, and Hastings plan to provide $1 billion, $665 million, and $12 million, respectively, in institutional aid. c Excludes carry forward of prior year balance in 2013-14 under the assumption that most of this balance will continue to be carried forward. d Includes health benefit costs for CSU retired annuitants. e Embedded in the subtotals each year is about $200,000 from Lottery funds. f To avoid double-counting, excludes UC and CSU tuition paid on behalf of students from Cal Grants. These payments appear in both UC/CSU net tuition and CSAC General Fund. TANF = Temporary Assistance for Needy Families. 6 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET Figure 2 Higher Education Support Funding Per Full-Time Equivalent Studenta (Dollars in Millions) Change From 2013-14 2012-13 2013-14 2014-15 Actual Revised Proposed Amount Percent Hastings College of the Law $34,151 $39,535 $41,896 $2,361 6% University of California 21,295 22,736 23,249 513 2 California State University 11,879 12,506 12,823 318 3 California Community Colleges 5,671 5,997 6,266 269 4 a Includes General Fund, net tuition and fees, other university core funds, and local property taxes. Excludes general obligation and lease-revenue bond debt-service payments. Also excludes institutional financial aid, which averages about $12,500 per student at Hastings, $4,100 per student at UC, and $1,800 per student at CSU. Legislature last year, as shown in Figure 4 (see that support CIRM research. The increased page 8). (The Governor’s budget also contains a payments are related to the timing of previous bond $187 million increase for debt service for bonds issuance.) UNIVERSITIES In this section, we start by providing Legislature’s consideration. For the alternative, background on major actions taken in last year’s we rely on a number of guiding principles for budget for UC and CSU. Next, we discuss the developing university budgets that we lay out in Governor’s 2014-15 plan for the universities, assess our recent publication, A Review of State Budgetary the plan, and offer an alternative plan for the Practices for UC and CSU. Figure 3 Higher Education General Fund Support (Dollars in Millions) Change From 2013-14 2012-13 2013-14 2014-15 Actual Revised Proposed Amount Percent University of California $2,566 $2,844 $2,987 $142 5% California State Universitya 2,473 2,789 2,966 177 6 California Community Collegesb 4,269 4,390 4,828 438 10 California Student Aid Commissionc 1,559 1,682 1,904 222 13 California Institute for Regenerative Medicine 53 97 284 187 193 Hastings College of the Law 9 10 11 1 13 Awards for Innovation in Higher Education — — 50 50 N/A Debt-Service Obligationsd (1,027) (1,027) (1,255) (228) (22) Totals $10,930 $11,812 $13,030 $1,218 10% a Includes health benefit costs for CSU retired annuitants. b Includes Quality Education Investment Act funds. c Includes federal Temporary Assistance for Needy Families funds and monies from the Student Loan Operating Fund—both of which directly offset General Fund expenditures for Cal Grants. d Amounts, which include debt service on general obligation, lease-revenue, and UC general revenue bonds, are shown for reference only, as they already are reflected in the lines above. www.lao.ca.gov Legislative Analyst’s Office 7 2014-15 BUDGET Legislature Adopted Figure 4 Some Elements of Governor’s Higher Education Governor’s Plan, General Fund Spending Changesa Rejected Others. The (In Millions) Legislature adopted 2013‑14 Budget Act $11,564 the proposed 5 percent Provide additional funds for CCC deferral paydown $163 base increases for both Backfill for CCC redevelopment agency revenue 38 Other adjustments 47 universities, though Total Change $248 it did not commit to 2013-14 Revised Spending $11,812 out-year, unallocated funding increases or the Provide 5 percent base increases for UC, CSU, and Hastings $286 Increase funding for CCC Student Success and Support program 200 extended tuition freeze. Adjust debt-service payments 187 The Legislature also set Increase CCC maintenance and instructional support 175 enrollment targets and Fund 3 percent CCC enrollment growth 155 Implement Middle Class Scholarship program 107 restored some earmarks. Fund Cal Grant program growth 100 The Governor, however, Fund new Awards for Innovation 50 vetoed the enrollment Provide 0.86 percent CCC cost-of-living adjustment 48 Provide additional funds for CCC deferral paydown 43 targets and nearly all the Adjust employee compensation and benefits 24 earmarks, citing a desire Expand Cal Grant renewal eligibility 15 to give the universities Remove one-time funding -55 Adjust for anticipated CCC redevelopment agency revenue -3 greater flexibility to Other adjustments -115 manage their resources. Total Change $1,218 The Legislature approved 2014-15 Proposed Spending $13,030 the Governor’s proposal a Excludes transfer of $198 million in general obligation bond debt-service funding from a separate item to CSU support item since this has no immediate programmatic effect on the university and does not to combine UC’s support increase overall state spending. Also excludes changes in Temporary Assistance for Needy Families and and capital budgets, Student Loan Operating Funds, as these directly offset General Fund support and have no programmatic effect. but rejected this same proposal for CSU. Background Governor’s Proposals Last Year Governor Proposed Multiyear Plan for Universities. Last year, the Governor proposed The Governor’s 2014-15 budget plan for a four-year funding plan for the universities that the universities is largely a continuation of the included unallocated base budget increases of multiyear plan he introduced last year, as detailed 5 percent each year for 2013-14 and 2014-15, followed below. by 4 percent increases in each of the subsequent two Proposes Increase in General Purpose years. The plan also called for an extended tuition Funding for Universities. The Governor proposes freeze. In addition, the plan proposed to increase unallocated base budget increases of $142 million the universities’ flexibility to allocate funds by each for UC and CSU in 2014-15. These increases (1) removing enrollment targets, (2) eliminating most represent the second annual installment in the earmarks (such as for student outreach programs), four-year funding plan he proposed last year. and (3) combining support and capital budgets. About $10 million of CSU’s increase is related to a 8 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET new proposed process for funding capital projects, by November 30, 2014. Under this proposal, the discussed in the next paragraph. In addition, the universities would project expenditures for each Governor adjusted CSU’s budget for changes in year from 2015-16 through 2017-18 and describe debt service, retirement contributions, and retired changes needed to ensure expenditures do not employee health care costs. exceed available resources (based on General New Capital Outlay Process for CSU. Similar Fund and tuition assumptions provided by DOF). to the new capital outlay process approved for UC The segments also would project resident and last year, the Governor proposes to shift general nonresident enrollment for each of the three years obligation and lease-revenue bond-debt service and set targets for the performance measures payments into CSU’s main appropriation. Moving approved as part of last year’s budget package. (This forward, CSU would be responsible for funding debt package included measures of enrollment, student service from within this main appropriation. Under progress, graduation, degrees awarded, funding per the proposal, the university would issue its own degree, and efficiency, with several of the measures revenue bonds for various types of capital projects disaggregated for undergraduate and graduate and could restructure its existing lease-revenue students, transfer students, low-income students, bond debt. To use its new authority, the university and students in science, technology, engineering, would be required to submit project proposals to and mathematics disciplines.) the Joint Legislative Budget Committee (JLBC) and Serious Concerns With Department of Finance (DOF) for approval. The Governor’s Budgetary Approach CSU’s capital projects no longer would be reviewed as part of the regular budget process. Similar to last year, we have serious concerns No Enrollment Targets for Universities. about the Governor’s overall budgetary approach Similar to last year, the Governor does not propose for the universities and recommend the Legislature enrollment targets or enrollment growth funding reject it. Most troubling, the Governor’s budget for the universities. The Governor’s budget does not link university funding to state priorities. summary shows resident enrollment flat in the Although the Governor enumerates several higher budget year at UC, growing by 2.3 percent at CSU, education priorities in his budget summary (for and decreasing by 8 percent at Hastings. (The example, reducing the cost of education and administration indicates these enrollment levels improving affordability, timely completion rates, are shown for “display purposes only and do not and program quality), his funding plan includes constitute an enrollment plan.”) large unallocated increases tied only to maintaining Assumes No Tuition Increases. The Governor flat tuition levels. The budget requires the once again conditions his proposed annual funding universities to set performance goals, but does not increases for the universities on their continuing establish state performance expectations or link the to freeze tuition at 2011-12 levels. This proposal universities’ funding to meeting these expectations. is discussed in more detail in the “Tuition and Further, the Governor’s approach to CSU capital Financial Aid” section of this report. outlay takes funding decisions out of the legislative Requires UC and CSU to Adopt Sustainability budget process. This overall budgetary approach Plans. The Governor proposes budget bill diminishes the Legislature’s role in key decisions language requiring the UC and CSU governing and allows the universities to pursue their own boards to adopt three-year sustainability plans interests rather than state-identified priorities. www.lao.ca.gov Legislative Analyst’s Office 9 2014-15 BUDGET LAO Alternative Enrollment To determine how many enrollment slots to Recommend Budgetary Approach That provide at UC and CSU, we consider information Designates Funding for Specific Purposes. In our about demographic changes, college participation recent publication, A Review of State Budgetary rates, freshman and transfer eligibility, and state Practices for UC and CSU, we recommended workforce needs, as discussed below. the Legislature build the universities’ budgets Demographic Projections Show College-Age based on enrollment growth, inflation, targeted Population Decreasing. One main factor set-asides, and capital outlay, while assuming to consider related to enrollment growth is that cost increases are shared by students and the demographic changes. In particular, changes in state. We further recommended the Legislature the traditional college-age population (comprised incorporate performance measures into its budget of 18- to 24-year olds) and changes in the number decisions. Below, we lay out a specific alternative of California high school graduates are key to the Governor’s plan that addresses each of drivers of enrollment at the universities. State these areas. For enrollment, we recommend demographic projections show the college-age funding growth at CSU and keeping enrollment population declining by about 1 percent from 2014 flat at UC. We recommend funding inflationary to 2015. State projections also show the number cost increases at the universities and providing of California high school graduates decreasing targeted augmentations for debt service, pensions, by about 1.5 percent from 2013-14 to 2014-15. and retiree health costs. For capital outlay, we These downward trends suggest no pressures for recommend rejecting the Governor’s proposal enrollment growth from demographic changes in to remove CSU capital outlay from the regular the budget year. budget process. For performance, we recommend College Participation Rates More Difficult to the Legislature monitor the universities’ Predict, Assume Remain Flat. Another factor that performance and use the results to inform budget affects enrollment levels is college participation decisions. rates. This is the percentage of individuals in a LAO Alternative Plan Provides Higher particular demographic category (such as recent Support for UC and CSU, but Requires Less high school graduates or the 18- to 24-year State Spending. Altogether, our alternative would old population) attending college. Increases provide $186 million ($108 million from the state in participation rates can drive increases in General Fund and $78 million from increased enrollment, while decreases in participation rates student tuition) for UC and $209 million can result in less enrollment. The most recent data ($125 million from the state General Fund and available on participation rates from the federal $84 million from increased student tuition) for Department of Education show the percent of CSU. In total, our alternative would provide recent California high school graduates attending $62 million more than the Governor’s proposal college decreasing from 65.4 percent in 2008 to for the universities. Because tuition would 61.7 percent in 2010. Predicting future participation cover a share of the increased funding, however, rates based on these past trends, however, is the General Fund increase is $100 million less difficult. This is because students’ interest in than the Governor’s proposed General Fund attending college is influenced by a number of augmentation. factors, including student fee levels, availability of 10 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET financial aid, and the availability and attractiveness unknown mix of eligible students denied access of other postsecondary options. Without better to their local campus and eligible students not information to project future participation rates, we applying to their local campus. The latter group are assume they remain flat in the near future. students who may have applied only to campuses State Lacks Reliable Data on Access. In with high-demand programs outside their local addition to demographics and participation service area. rates, another factor to consider is whether the Mixed Evidence on Need for Enrollment universities are providing access to all eligible Growth Related to Workforce Needs. Chapter 367, students. Under the state’s Master Plan for Higher Statutes of 2013 (SB 195, Liu), specified that Education, students in the top 12.5 percent and state budget decisions should take into account 33 percent of high school graduates are eligible to several goals. One of the goals that pertains to attend UC and CSU, respectively. Because student enrollment decisions is state workforce needs. In achievement levels and university admissions recent years, some studies have suggested that policies can change over time, the state in the states, including California, need to increase past periodically conducted eligibility studies to the number of bachelor’s degrees to meet future identify the pool of high school graduates from demand by employers. These studies come to this which the universities were drawing. These studies conclusion mainly by looking at past trends in then were used to help guide enrollment decisions. the proportion of job-holders with a bachelor’s For instance, if UC and CSU were drawing from degree and extrapolating these trends into the beyond their freshman eligibility pools, this would future. For instance, one recent study concluded indicate that the universities needed to tighten that whereas 34 percent of California job-holders their admissions criteria. Because the state’s last had a bachelor’s degree in 2006, by 2025 this eligibility study was conducted in 2007—and the proportion would need to increase to 41 percent. California Postsecondary Education Commission, At the same time, other studies suggest a surplus the state agency that performed the studies, was of bachelor’s degree-holders exists. For example, closed down in 2011—the Legislature lacks a another recent study found that nationally nearly current freshman eligibility study to help guide its half of all job holders with bachelor’s degrees work enrollment decisions. in jobs for which they are overqualified. Given UC Reports All Eligible Students Provided these conflicting findings, the Legislature may Access. Based on current admissions policies, UC want to proceed cautiously as it begins to consider indicates it has been admitting all eligible students workforce needs as part of its enrollment decisions. in recent years. However, the university reports an Available Data Suggest Different Approaches increase in the number of students admitted to the for UC and CSU. We recommend the Legislature system but not to the particular campuses to which weigh the above factors carefully in determining they applied. These students are offered admission enrollment targets for the universities. Given some only to UC Merced. factors point in different directions—as well as CSU Reports Some Eligible Students Denied the gaps in relevant information—the Legislature Access. Based on its current admissions policies, will need to exercise its professional judgment in CSU indicates that about 26,400 students who met crafting an enrollment plan for the universities. CSU’s eligibility criteria were denied admission for Below, we provide enrollment levels for UC and the fall 2013 semester. These students include an CSU the Legislature could adopt based on the www.lao.ca.gov Legislative Analyst’s Office 11 2014-15 BUDGET available information. (In the nearby box, we eligible students and demographic trends discuss what enrollment targets the Legislature suggest enrollment demand could decrease can use as a base from which to make adjustments, slightly in the near future. given no target was included in the 2013-14 budget.) • Increase CSU Enrollment by 2 Percent • Keep Enrollment Flat for UC in 2014-15. in 2014-15. Though demographic trends The available data does not suggest a need also point to a decrease in demand to increase enrollment at UC in the budget for CSU enrollment, the university is year. The university continues to admit all What Should Base Enrollment Targets Be for UC and CSU? Enrollment Funding Not Used on a Consistent Basis in Recent Years. As shown in the figure below, the state has not included enrollment targets in the state budget on a consistent basis over the last seven years. During this time, the universities both expanded enrollment when the state did not include an enrollment target in the budget and increased enrollment above the state target when one was included. As a result, both the University of California (UC) and California State University (CSU) assert they currently have “unfunded” students that they are serving. The universities believe that unfunded students should not be included in their state enrollment targets until funding is provided for them. Recommend Using Current-Year Actual Enrollment Levels as Base for Targets. In our view, the concept of unfunded enrollment is unhelpful since in actuality state funding is spread out across as many resident students as the universities enroll. In other words, all students currently are supported with state funding. Because the so-called unfunded students already are enrolled at the universities, any funding that the state provides for them would not necessarily be used to expand enrollment. To avoid conflating funding for enrollment growth with funding for other purposes, we recommend the Legislature use current-year actual enrollment levels as the base enrollment target moving forward. If the universities feel that they lack adequate base funding for students they currently are serving, then they could come forward with budget requests in the spring that identify why they require more funding. Enrollment Targets Not Used on a Consistent Basis in Recent Budgets Full-Time Equivalent Students 2007‑08 2008‑09 2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 UC Enrollment target 198,455 None None 209,977 209,977a 209,977a None Actual enrollment 203,906 210,558 213,589 214,692 213,763 211,212 210,986 Percent change in actual 3.3% 1.4% 0.5% -0.4% -0.5% -0.1% enrollment CSU Enrollment target 342,553 None None 339,873 331,716a 331,716a None Actual enrollment 353,915 357,223 340,289 328,155 341,280 343,227 350,000 Percent change in actual 0.9% -4.7% -3.6% 4.0% -0.4% 2.0% enrollment a State budget did not require the universities to return money if they fell short of this target. 12 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET reporting an inability to accommodate Recommend Also Setting Out-Year Targets, existing eligible students. Determining Funding New Eligibility Study. In our recent how much enrollment funding to provide publication reviewing state budgetary practices for to address this concern is difficult, given UC and CSU, we also recommended: (1) setting a lack of solid information on how many targets for the year after the budget year to give of the denied eligible students have been the Legislature more influence over university denied access to their local campus versus enrollment decisions, and (2) funding a new another campus in the system. Further eligibility study to provide updated information for complicating matters is an inability to the Legislature to make its enrollment decisions. accurately estimate how many of the Given the downward demographic trends in denied eligible students actually would the college-age population, we recommend the attend CSU if offered a slot. Taking these Legislature express its intent for enrollment to factors into consideration, we conclude remain flat at both UC and CSU in 2015-16. (This increasing enrollment by 2 percent (or expectation presumes that the 2014-15 enrollment 7,000 FTE students) is a reasonable growth provided to CSU addresses the concern approach to address the issue. Further, to related to eligible students not being able to access ensure that any enrollment growth is used their local campuses.) For the eligibility study, the to decrease the number of eligible students Legislature would have to designate a state agency being denied admission, we recommend to perform this task (internally or by contract). the Legislature include budget bill language These studies involve reviewing transcripts of high requiring CSU to report next year on: school graduates accepted to the universities and (1) the number of eligible students denied typically have included the participation of UC, admission, including how many of these CSU, and CDE. The last eligibility study conducted students were denied admission to their in 2007 cost about $600,000. local campus, and (2) the efforts it has Inflation made to increase the capacity of impacted campuses and programs. Prices Expected to Increase 2.2 Percent in 2014-15. In 2014-15, prices for goods and services Recommend Providing $42 Million for CSU purchased by state and local governments are Enrollment Growth. Using the state’s historical expected to increase by 2.2 percent. The state marginal cost formula, we calculate the state traditionally has augmented the universities’ budget to funding rate per CSU FTE student for 2014-15 account for such inflation. This allows the universities to be $5,999. (The CSU recently has published a to maintain their existing programs. In other words, lower state funding rate, yet we have been unable the universities can use this funding to provide to replicate the university’s calculation.) Using employee salary increases (to stay competitive with our calculated state funding rate, we estimate other employers) as well as to cover increased costs for state costs of $42 million for 2 percent enrollment supplies, materials, and equipment. growth at CSU. In addition, because some of these Recommend $68 Million Base Increase for UC. new students would qualify for state Cal Grants, we Increasing UC’s total core budget by 2.2 percent estimate the associated costs for Cal Grants would costs $118 million. (To perform this calculation, increase by about $8 million. we exclude base funding for retiree health care www.lao.ca.gov Legislative Analyst’s Office 13 2014-15 BUDGET and pensions, which we recommend funding retirement costs too is reasonable. Pension and separately.) As part of a share-of-cost policy, we retiree health care cost increases total $40 million. assume that the state and students share this cost Based on the state’s share of cost for CSU, we increase. Currently, state funding makes up about recommend the Legislature provide $25 million 58 percent of combined state and student funding and assume the remaining $15 million comes from (excluding institutional financial aid). Based on this an increase in student tuition. ratio, we recommend the Legislature provide UC Recommend $39 Million for UC Pension with a base increase of $68 million and assume the and Retiree Health Care Costs. Unlike CSU, UC remaining $50 million comes from an increase in manages its own retirement plans. Though some student tuition. differences exist between UC’s plan and the state’s Recommend $53 Million Base Increase plan, the university has been making changes in for CSU. Increasing CSU’s total core budget by recent years that have made them more similar. 2.2 percent costs $85 million. (We exclude from For instance, starting in 2014-15, the university this calculation funding for debt service, retiree will increase its employees’ contribution rate from health care, and pensions, which we recommend 6.5 percent to 8 percent of salary—the same rate funding separately.) Similar to our approach for currently paid by most state employees. Given UC, we recommend the state provide its share these changes, we believe it is reasonable for the of cost (62 percent) and students provide the state to provide funding for UC’s retirement costs remaining share. Accordingly, we recommend at this time. In 2014-15, UC expects its pension the state provide CSU with a base increase of and retiree health care costs to increase by a total $53 million and assume the remaining $32 million of $68 million. (These cost increases primarily are comes from an increase in student tuition. to address an unfunded liability in the pension plan.) Based on the state’s share of cost for UC, Targeted Funding we recommend the Legislature provide UC with Because some cost increases do not track with $39 million and assume the remaining $29 million inflation, the state traditionally has provided a comes from an increase in student tuition. few separate budget adjustments for certain cost Recommend $5.3 Million for CSU for Debt changes. Service. In 2014-15, lease-revenue debt-service costs Recommend $25 Million for CSU Pension for CSU are expected to increase by $8.5 million. and Retiree Health Care Costs. Pension and Because this increase relates to capital projects retiree health care costs at CSU are expected previously approved by the state, we recommend to increase by $15.6 million and $24.3 million, the Legislature provide funding to cover this cost respectively. Because CSU participates in the state’s increase. Based on the state’s share of cost for CSU, retirement plans, it does not fully control these we recommend the Legislature provide CSU with cost increases. For instance, CSU does not control $5.3 million and assume the remaining $3.2 million the employer pension contribution rate or the comes from an increase in student tuition. health care premiums set by the state’s retirement Performance system. Because similar factors drive retirement cost increases for CSU and other state agencies, Set Targets, Monitor Performance, and and the state covers these cost increases for other Use Results to Inform Budget Decisons. As we state agencies, we believe covering CSU’s increased discussed in our recent publication, we recommend 14 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET the Legislature require UC and CSU to discuss Legislature could then assess whether these new their performance in specific areas (including types of courses have succeeded in: (1) expanding student access and success) at budget hearings each access, (2) reducing costs per student, and spring. The Legislature could use this opportunity (3) maintaining educational quality. to learn more about each university’s performance Summary of LAO Alternative and develop performance expectations moving Budget for UC and CSU forward. We further recommend the Legislature use the information reported at budget hearings Taken together, we believe that the various regarding whether the universities are meeting state aspects of our alternative budget provide a expectations to guide funding decisions. In order to more rational and transparent way to fund the do so, the Legislature would need to work with the universities than the Governor’s approach. Figure 5 universities to identify the reasons why they are or includes the various components of our alternative are not meeting expectations. budgets for UC and CSU and compares them to Focus on Ways to Become More Efficient. the Governor’s budget. We discuss the two main Under our alternative budget, the Legislature would implications of our alternative below. be funding a workload budget—essentially Figure 5 covering cost increases for Comparison of Governor’s Budget and LAO Alternative for UC and CSU the universities. Because this workload budgetary 2014-15 approach does not UC CSU encourage the universities Governor’s Budget to become more efficient, Unallocated base increases $142 $142 the Legislature could focus Retiree health — 24 Pensions — 16 on efficiency through its Debt service — 9 performance measures, Totals $142 $191 namely funding per degree. Student share — — State share $142 $191 To start, we recommend the Legislature work LAO Alternative Budget with the universities to Enrollment growth — $76 identify ways to increase Inflationa $118 85 Retiree health 4 24 productivity for a certain Pensions 64 16 level of funding. To build Debt service — 9 upon efforts already in Totals $186 $209 Student shareb $78c $84c progress, we further State shareb 108 125 recommend the Legislature Difference in General Fund From -$35 -$66 require the universities Governor’s Budget to report on the results a Inflation adjustment applied to debt-service funding for UC only. b Assumes state and student shares same as in 2013-14. of their recent efforts to c Equates to tuition increases of 2.5 percent at UC and 3.3 percent at CSU—in line with inflation. (If the expand online and hybrid universities wanted to redirect tuition revenues to institutional financial aid programs consistent with past practice, the tuition increases would be 3.8 percent at UC and 5 percent at CSU.) course offerings. The www.lao.ca.gov Legislative Analyst’s Office 15 2014-15 BUDGET Compared to Governor, Total Support to increase tuition by 2.5 percent and CSU by Higher for Both Universities. As shown in the 3.3 percent. (If the universities wanted to generate figure, our plan provides UC with $186 million in additional funding for intuitional financial aid additional support in 2014-15, about $44 million consistent with their past practice, they would more than the Governor’s proposal. The additional need to increase tuition by 3.8 percent at UC and spending under our plan recognizes that certain 5 percent at CSU.) cost increases, such as for inflation and pensions, Slight Increase in Cal Grant Costs. Because will exceed the amount provided by the Governor. our plan includes 2 percent enrollment growth Our plan provides CSU with $209 million in at CSU, Cal Grant costs likely would increase by total support, about $18 million more than the about $8 million. (This is because overall Cal Grant Governor. This is because our plan includes participation likely would increase.) Because UC funding for enrollment growth in addition to and CSU would increase tuition under our plan, inflation. state Cal Grant costs also would increase as these Relatively Modest Increase in UC and CSU awards cover full tuition at the universities. We Tuition Levels. To generate the additional tuition estimate the cost of the higher awards would total revenue assumed under our plan, UC would need about $30 million. CALIFORNIA COMMUNITY COLLEGES In this section, we summarize the Governor’s meet Proposition 30’s requirement that CCC basic budget for community colleges; discuss his specific aid districts receive a minimum of $100 per FTE proposals related to enrollment growth, student student from the Education Protection Account support programs, and the CCC Chancellor’s (which, in turn, is backfilled by General Fund). Office; provide our assessment of those proposals; Proposes to Increase CCC Proposition 98 and offer associated recommendations for the Funding by $489 Million (8 Percent) in 2014-15. Legislature’s consideration. (We discuss CCC As shown in the main part of Figure 6, the deferrals, deferred maintenance, and mandates in Governor’s budget request for 2014-15 increases other 2014-15 budget reports.) Proposition 98 funding for CCC to $6.7 billion. This is $489 million (8 percent) over the revised Overview of the Governor’s current-year level. As proposed by the Governor, CCC Budget Proposals CCC would receive 10.9 percent of total Makes Three Notable Changes to the Proposition 98 funding in 2014-15. 2013-14 CCC Budget. As shown in the top part Increases Funding for Both Apportionments of Figure 6, the Governor proposes to increase and Categorical Programs. Figure 7 (see page 18) CCC Proposition 98 spending in 2013-14 by details Proposition 98 expenditures for CCC $202 million to $6.2 billion. This increase consists programs. As shown in the figure, 2014-15 of three notable changes: $163 million to pay down apportionment funding would total $5.7 billion, additional CCC deferrals; $38 million to shift a like which reflects an increase of $233 million amount of redevelopment agency-related revenues (4.3 percent) from the revised current-year level. to the following fiscal year; and $9 million to The Governor’s budget would increase total 16 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET physical plant (maintenance) and instructional Figure 6 support program, and $155 million for enrollment Proposition 98 Spending Changes for growth. As discussed later, the Governor also Community Colleges proposes a new CCC Chancellor’s Office technical (In Millions) assistance program ($2.5 million Proposition 98 2013-14 Budget Act $6,032.0 General Fund and $1.1 million non-Proposition 98 Additional deferral pay down $162.7 General Fund). Redevelopment agency (RDA) shift 38.4 Proposition 30 funds related to basic aid districts 9.3 Requests Additional Categorical Program Technical adjustments -8.9 Flexibility. The Governor proposes to expand Subtotal ($201.5) CCC flexibility by allowing districts to reallocate 2013‑14 Revised Spending $6,233.5 up to 25 percent of funds from three categorical Back Out One‑Time Actions programs that target financially needy and/or Deferral pay down -$162.7 academically underprepared students to other Maintenance/instructional support -30.0 Adult education planning grants -25.0 programs that serve high-need students. These Technology initiative adjustment -6.9 three programs are California Work Opportunity Subtotal (-$224.7) and Responsibility to Kids (CalWORKs), Extended Technical Changes Opportunity Programs and Services (EOPS), and Proposition 39 adjustment -$11.0 Shift of funding for QEIA to non-Proposition 98 -48.0 Student Success for Basic Skills Students. Adjustment to RDA shift -2.7 No Change to Enrollment Fee Levels. The Adjustment to mandate block grant -0.5 Governor proposes no change to the current Other technical changes -40.8 Subtotal (-$103.0) enrollment fee amount of $46 per credit unit (or Policy Changes $1,380 for a full-time student taking 30 units). Deferral pay down $235.6 Community colleges continue to offer noncredit Enrollment growth 155.2 Cost-of-living adjustment (0.86 percent) 48.5 instruction at no charge. Student Success and Support Program 200.0 Maintenance/instructional support 175.0 CCC Enrollment New technical assistance program 2.5 Subtotal ($816.8) Background 2014‑15 Proposed Spending $6,722.6 Several Factors Influence CCC Enrollment. Detail may not total due to rounding. QEIA = Quality Education Investment Act. Under the state’s Master Plan for Higher Education and state law, community colleges operate as open funding for categorical programs to $900 million, access institutions. That is, all persons 18 years which is $268 million (42 percent) over the revised or older may attend a community college. (While current-year level. CCC does not deny admission to students, there Major Proposed Augmentations. The is no guarantee of access to a particular class.) Governor’s budget contains several 2014-15 Many factors affect the number of students who spending proposals for community colleges. His attend community colleges, including changes in largest proposals include: $236 million (one-time) the state’s population, particularly among young to retire all CCC deferrals, $200 million (ongoing) adults; local economic conditions; the availability for the SSSP, $175 million (one-time) for the of certain classes; and the perceived value of the education to potential students. www.lao.ca.gov Legislative Analyst’s Office 17 2014-15 BUDGET Figure 7 Community College Programs Funded by Proposition 98 (Dollars in Millions) Change From 2013-14 2012-13 2013-14 2014-15 Revised Revised Proposed Amount Percent Apportionments General Fund $3,351.0 $3,221.4 $3,360.0 $138.5 4.3% Local property taxes 2,240.6 2,232.3 2,326.3 94.0 4.2 Subtotals ($5,591.6) ($5,453.7) ($5,686.2) ($232.5) (4.3%) Categorical Programs Academic Senate $0.3 $0.5 $0.5 — — Adult Education planning grants — 25.0 —a -$25.0 -100.0% Apprenticeship (community colleges) 7.2 7.2 7.2 — — Apprenticeship (school districts) — 15.7 15.7 — — CalWORKs student services 26.7 34.5 34.5 — — Campus child care support 3.4 3.4 3.4 — — CTE Pathways Initiative 48.0 48.0 —b -48.0 -100.0 Disabled Students Program 69.2 84.2 84.2 — — Economic and Workforce Development 22.9 22.9 22.9 — — EOPS 73.6 88.6 88.6 — — Equal Employment Opportunity 0.8 0.8 0.8 — — Financial Aid Administration 71.0 67.5 67.9 0.4 0.5 Foster Parent Education Program 5.3 5.3 5.3 — — Fund for Student Success 3.8 3.8 3.8 — — Nursing grants 13.4 13.4 13.4 — — Online/Technology initiative — 16.9 10.0c -6.9 -40.9 Part-time Faculty Compensation 24.9 24.9 24.9 — — Part-time Faculty Office Hours 3.5 3.5 3.5 — — Part-time Faculty Health Insurance 0.5 0.5 0.5 — — Physical Plant and Instructional Support — 30.0 175.0 145.0 483.3 Student Success and Support Program 49.2 99.2 299.2 200.0 201.6 Student Success for Basic Skills Students 20.0 20.0 20.0 — — Technical assistance program — — 2.5d 2.5 — Telecommunications and Technology Services 15.3 15.8 15.8 — — Transfer Education and Articulation 0.7 0.7 0.7 — — Subtotals ($459.6) ($632.2) ($900.2) ($267.9) (42.4%) Other Appropriations District financial-crisis oversight $0.6 $0.6 $0.6 — — Lease-revenue bond payments 63.7 63.6 63.8 $0.2 0.3% Mandate block grant 33.3 33.3 32.8 -0.5 -1.5 Mandate reimbursementse — — — — — Proposition 39 (grant and loan program) — 50.0 39.0 -11.0 -22.0 Subtotals ($97.6) ($147.5) ($136.2) (-$11.3) (-7.7%) Totals $6,148.8 $6,233.5 $6,722.6 $489.2 7.8% a Planning grants are available for expenditure over 2013-14 and 2014-15. b Funding of $48 million provided for this program by the Quality Education Investment Act (non-Proposition 98 General Fund). c Funding in 2014-15 reflects ongoing costs for this initiative. d The Governor’s budget reflects this augmentation in the Student Success and Support Program. e A total of $17,000 is provided in each fiscal year. CTE = Career Technical Education and EOPS = Extended Opportunity Programs and Services. 18 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET Enrollment Funds Allocated by CCC Growth Allocation Formula. For 2014-15, the Chancellor’s Office Using Specified Formula. In Governor’s budget proposes $155 million for most years, the state provides the CCC system 3 percent enrollment growth (an additional with enrollment growth funds, which the CCC 34,000 FTE students). In addition, the budget Chancellor’s Office historically has allocated requires the CCC Chancellor’s Office to develop to districts according to a set formula based a new enrollment growth allocation formula for largely on year-to-year changes in the local high implementation in the budget year. The Governor’s school graduation and adult population rates. In budget summary describes a growth formula that allocating enrollment funding each year, the CCC “gives first priority to districts identified as having Chancellor’s Office sets a limit or “cap” on the the greatest unmet need in adequately serving their maximum number of FTE students each district community’s higher educational needs. All districts will be funded to serve. (Districts decide the mix of will receive some additional growth funding, and Graphic Sign Off credit and noncredit instruction they offer.) With over time will be fully restored to pre-recession some exceptions, a district enrolling students above apportionment levels.” Secretary this cap in a given year generally does not receive Analyst Assessment funding for the “overcap” students. On the other MPA hand, a district that fails to meet its enrollment Information to Date Suggests Enrollment Deputy target in a given year loses the enrollment funds Growth Proposal Likely Too High. Though associated with the vacant slots the following year systemwide enrollment was somewhat above the (though state law gives a declining district three budgeted level in 2012-13, more than a dozen years to earn back the lost funds). Figure 8 Enrollment Has CCC Enrollment Has Experienced Fluctuated Notably in Significant Ups and Downs in Recent Years Recent Years. Figure 8 Full-Time Equivalent Students (In Millions) displays enrollment trends 1.30 since 2006-07. As the figure shows, enrollment demand Actual and funding have been 1.25 Funded highly volatile in recent 1.20 years. This volatility has stemmed primarily from the 1.15 state’s economy and budget crisis, as discussed in the 1.10 nearby box (see page 20). 1.05 Governor’s Proposals Proposes Enrollment 1.00 Growth Funds and 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15a a Reflects Governor’s proposal. Implementation of New ARTWORK #140058 Tewmwpwla.tlea_oL.cAaO.gRoevp o Lret_gmislaidti.vaeit Analyst’s Office 19 2014-15 BUDGET California Community Colleges (CCC) Enrollment Trends Recession Brought Surge of Enrollment Demand. After a few years of modest growth during the mid-2000s, CCC enrollment surged beginning in 2007-08. This was due in large part to individuals choosing to attend college at a time of a tight job market. While the state provided enrollment growth funds in both 2007-08 and 2008-09, the amount was insufficient to accommodate the number of students served by the CCC system. By the end of 2008-09, actual enrollment had exceeded the funded level by over 50,000 full-time equivalent students (FTE) students. 2009-10 Budget Reduced Enrollment Funding. The 2009-10 budget included a $190 million (3.3 percent) cut to CCC apportionments. To maintain the same amount of enrollment funding per student, districts’ 2009-10 enrollment targets were reduced in proportion to the reduction in base apportionment funding. As a result, funded enrollment levels for each district declined by 3.3 percent (43,000 FTE student slots) from 2008-09’s budgeted level. Despite this reduction, the CCC system ended up serving a similar number of FTE students in 2009-10 as in 2008-09 (in large part by increasing class sizes and funding courses using district reserves). By the end of 2009-10, actual enrollment exceeded funded enrollment by about 95,000 FTE students (about 8 percent of funded FTE students). Additionally, as we discussed in the 2010-11 Budget: Higher Education, during this time an unknown but likely significant number of individuals attempted to enroll in courses at CCC but were unable to find an available slot. Growth Monies in 2010-11 Budget Used to Reduce Enrollment Funding Gap. The 2010-11 budget provided community colleges with $126 million, which the CCC Chancellor’s Office allocated to districts on an across-the-board basis to partially restore the cut from the prior year. Because of the large disconnect between funding and enrollments, districts generally did not use this additional funding to increase the number of students served. Rather, the primary benefit of the new funds was to reduce districts’ gap between funded and actual enrollment. 2011-12 Budget Brought Second Round of Cuts to CCC. The largest reduction to community colleges came in the 2011-12 budget, when community colleges experienced a $385 million base apportionment cut. As with the 2009-10 budget, districts’ enrollment targets were reduced in proportion to this funding cut. As a result, funded enrollment levels in 2011-12 declined by 7.6 percent, or about 90,000 FTE students systemwide. To accommodate this reduction, districts further cut course section offerings. As we discussed in The 2012-13 Budget: Proposition 98 Education Analysis, virtually all types of instruction were affected during this period, with the biggest cuts concentrated in noncredit instruction and courses that were primarily recreational in nature (such as physical education). As a result of these reductions, actual enrollment dropped by 87,000 FTE students in 2011-12. Recent Growth Funds for Restoration. After the significant base reduction in 2011-12, the 2012-13 Budget Act and 2013-14 Budget Act provided $50 million (0.9 percent) and $89 million (1.6 percent), respectively, in enrollment growth funds. As in 2010-11, these funds were allocated to districts on an across-the-board basis to give districts an opportunity to restore their share of prior-year reductions. In 2012-13, most community colleges met (or even exceeded) their enrollment target, collectively serving 10,000 FTE students above the funded level. 20 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET districts failed to meet their enrollment targets— English as a second language instruction) and representing a total of $41 million in unfilled developing plans for integrating existing programs. enrollment slots. Based on our discussions with a The 2013-14 budget package includes intent number of CCCs, this seems to be an increasing language for the Legislature to appropriate new trend, whereby more districts are experiencing Proposition 98 funds in 2015-16 to expand adult less demand and having trouble meeting their education in the state, but the methodology for enrollment targets. (This reduction in demand allocating such funds to adult education providers may be tied at least in part to adults opting for has not yet been determined. The Legislature will employment as a result of an improved state want to ensure the new funding formulas for adult economy.) As a result, the CCC system realistically education and apportionments are well tailored to may not be able to achieve 3 percent growth in their respective missions. 2014-15. In recognition of this strong possibility, Recommendations the CCC Board of Governors (BOG) itself has only requested 2 percent enrollment growth Use Better Information in Coming Months ($110 million) for 2014-15. to Make Decision on Growth Funding. By late Existing CCC Growth Allocation Formula Is February, the CCC Chancellor’s Office will have Flawed. We agree with the Governor that CCC’s systemwide and district-level data on enrollment enrollment growth allocation formula needs to trends in the current year. These data will show the be revised. Some aspects of the existing formula extent to which districts are meeting, exceeding, (such as annual changes in local high school or falling short of their enrollment targets in graduates) appear to be reasonably associated with the current year. The Legislature will need to enrollment demand within a CCC district. In carefully assess these data to evaluate the need for other ways, however, the formula is problematic. an additional 3 percent enrollment growth in the For example, the formula’s inclusion of changes budget year. If it decides the entire $155 million in the adult population takes into account adults is not justified, the Legislature could use any of all ages—regardless of whether they are young associated freed-up funds for other Proposition 98 adults or seniors of retirement age. This lack of priorities. differentiation may overstate CCC enrollment Postpone Implementation of New Formula demand in areas with growing older-adult Until 2015-16 but Request Periodic Updates on populations and understate demand in areas with a Its Development. We recommend the Legislature comparatively younger adult demographic. reject the Governor’s proposal to have a new Revised CCC Growth Formula Must Align formula in place for 2014-15 and instead give the With Adult Education Initiative. In addition, CCC Chancellor’s Office a reasonable period of given the state’s current effort to restructure adult time to develop a new allocation formula. During education, the Legislature will want to ensure the spring hearings, the Legislature could request formula used to fund CCC enrollment growth is the CCC Chancellor’s Office and DOF to share well aligned with the formula used to fund growth their initial ideas for the new enrollment growth in adult education. Between 2013-14 and 2014-15, allocation formula. In addition, the Legislature community colleges and school districts (through could request the CCC Chancellor’s Office their adult schools) are conducting local needs and CDE to provide a list of potential growth assessments of adult education services (such as allocation factors for adult education. Given the www.lao.ca.gov Legislative Analyst’s Office 21 2014-15 BUDGET complexity of these two efforts and the need to CCC Student Support Programs ensure coordination, the Legislature likely will want to request additional status updates from the Background CCC Chancellor’s Office and CDE periodically In 2013-14, the community colleges are throughout 2014. (A final plan probably will need receiving $632 million in categorical funding. to be adopted by December 2014, when preparation The majority of these categorical monies (about for the 2015-16 budget is occurring.) $400 million in 2013-14) fund various student Release 2014-15 Enrollment Growth Funds support services—ranging from financial aid on Across-the-Board Basis. Given that a new CCC advising to campus child care to specialized growth formula and new adult education allocation assistance for students with disabilities. (The formula likely will not both be developed for a remaining CCC categorical programs serve various number of months, we recommend the Legislature purposes unrelated to student support services, direct the CCC Chancellor’s Office to allocate any such as facilities maintenance and technology 2014-15 enrollment growth funds to districts on an initiatives.) Figure 9 lists CCC’s eight student across-the-board basis. (The Legislature could use support categorical programs. the new formulas thereafter.) Categorical Program Funding Cut in 2009-10. In response to the state’s fiscal condition, Figure 9 Community Colleges Have Eight Student Support Categorical Programs Categorical Program Description Extended Opportunity Provides various supplemental services (such as counseling, tutoring, and Programs and Services textbook purchase assistance) for low-income and academically underprepared (EOPS) students. (A subset of EOPS serves welfare-dependent single parents.) Fund for Student Success Consists of three separate programs: two programs that provide counseling, mentoring, and other services for CCC students from low-income or historically underrepresented groups who seek to transfer to a four-year college; and one program for students who attend high school on a CCC campus. Student Success and Support Funds assessment, orientation, and counseling (including educational Program planning) services for CCC students. Student Success for Basic Funds activities such as counseling and tutoring for academically Skills Students underprepared (basic skills) students, and curriculum and professional development for basic skills faculty. Financial Aid Administration Funds staff to process federal and state financial aid forms and assist low- income students with applying for financial aid. CalWORKs student services Provides child care, career counseling, subsidized employment, and other supplemental services to CCC students receiving CalWORKs assistance. (These services are in addition to those provided to all CalWORKs recipients by county welfare departments.) Campus child care support Funds child care centers at 25 community college districts. (This child care is unique to these 25 districts and not part of the state’s CalWORKs child care program.) Disabled Students Program Provides educational accommodations (such as sign language interpreters, note takers, and materials in braille) and other specialized support services for students with disabilities. 22 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET the 2009-10 Budget Act reduced ongoing force to develop recommendations for inclusion Proposition 98 General Fund support for CCC’s in the plan. In response to the legislation, the categorical programs by $263 million (37 percent) board created the Student Success Task Force, compared with 2008-09. Of this amount, a comprised of 21 members from inside and outside total of $181 million (38 percent) was cut from the CCC system. After meeting for nearly one student support categorical programs. Of CCC’s year, the task force released Advancing Student eight student support categorical programs, two Success in California Community Colleges in programs received a base cut of about 50 percent, December 2011. The report contained a number five programs were cut roughly 40 percent, and one of recommendations, including establishing (Financial Aid Administration) received a slight statewide enrollment (registration) priorities and augmentation. creating a CCC “scorecard” that disaggregates 2009-10 Reductions Accompanied by Some student performance outcomes by racial/ethnic Flexibility. To help districts better accommodate group. A key focus of the report was on the need these reductions, in 2009-10 the state combined to strengthen support services for students. In more than half of CCC’s categorical programs particular, the report stressed the importance of (including two student support categorical helping incoming students identify their specific programs) into a “flex item.” Through 2014-15, educational goals as early as possible and develop districts are permitted to use funds from a course-taking plan to reach those goals. To categorical programs in the flex item for any that end, the task force report highlighted the categorical purpose. (Such decisions must be importance of CCC’s Matriculation program, made by local governing boards at publicly held which funds assessment, orientation, and meetings.) By contrast, funding for categorical counseling (including educational planning) programs that are excluded from the flex item must services. continue to be spent on specific associated statutory Legislature Backs New Student Success and and regulatory requirements. For example, funds Support Program. The BOG endorsed the Student in the campus child care program (within the flex Success Task Force’s report recommendations item) may instead be spent on CCC’s CalWORKs in January 2012 and presented its plan to the program (outside the flex item), though CalWORKs Legislature shortly thereafter. In an effort to categorical funds can only be spent for that implement the task force’s recommendations program. on student support, the Legislature passed CCC Task Force Identifies Student Supports Chapter 624, Statutes of 2012 (SB 1456, Lowenthal). as Key Priority. It was during this period of Chapter 624 contained a number of provisions, categorical program cuts and flexibility that the including: (1) renaming the Matriculation program Legislature and CCC system began rethinking the the SSSP; (2) requiring the BOG to establish role of support services as they relate to student policies around mandatory assessment, orientation, achievement. In response to ongoing concerns and educational planning for students; (3) calling about low CCC completion rates, the Legislature for additional funding for SSSP; (4) requiring the passed Chapter 409, Statutes of 2010 (SB 1143, BOG to develop a new methodology for allocating Liu). The legislation required the BOG to adopt SSSP funds—from the current allocation model and implement a plan for improving student based solely on student enrollment to a new model success. It also required the BOG to create a task based on factors such as the number of students www.lao.ca.gov Legislative Analyst’s Office 23 2014-15 BUDGET developing an education plan; and (5) requiring must explain in their student equity plans how each community college to create an SSSP plan. they will improve coordination among the various The SSSP plans are to contain information such student support categorical programs so as to as how colleges identify students who are “at risk” improve service to high-need students. of academic probation and the strategies colleges Gives Partial Flexibility to Three Other use to help these students. The SSSP plans are to Categorical Programs. In addition, the budget be coordinated with colleges’ student equity plans. would permit districts to reallocate up to 25 percent (Student equity plans, which CCC regulations of funds from three other student support require each college to develop, identify enrollment categorical programs (CalWORKs, EOPS, and and achievement gaps among certain demographic Student Success for Basic Skills Students) to other groups and include strategies for closing the gaps.) programs that serve high-need students. 2013-14 Budget Augments Funding for SSSP Assessment and Other Support Programs. After receiving a 50 percent cut in the 2009-10 budget, the 2013-14 Governor’s Intent to Increase Funding for Budget Act provided a $50 million increase for Student Support Is Laudable . . . Over the past SSSP. This increase represented a doubling of several years, a number of reports have highlighted base funding for the program. The budget also the relatively low success rates for CCC students. contained smaller increases for three other student For example, the Institute for Higher Education support categorical programs—the Disabled Leadership and Policy has found that only about Students Program, EOPS, and CalWORKs. one-third of CCC students who seek to transfer or graduate with an associate degree or certificate Governor’s Proposal actually do so. As a result of data such as these, Increases Funding for SSSP by $200 Million. the Legislature has shown a strong interest For 2014-15, the Governor proposes a $200 million in improving student outcomes and, through augmentation to SSSP, which would triple the legislation such as Chapter 624 and budget current-year funding level for the program. Of actions, has identified student support services— the $200 million, $100 million would be allocated particularly SSSP—as a key means of improving to districts in support of all students, consistent student success. Given these factors, the Governor’s with existing practice. The remaining $100 million overarching goal of enhancing student supports is would be allocated to districts specifically to serve appropriate. “high need” CCC students. The Chancellor’s . . . Though Specific Funding Proposal Falls Office would be tasked with defining what Short of Fully Addressing Student Needs. We have constitutes high need as well as with developing concerns, however, that the Governor’s emphasis on a methodology for allocating these monies to SSSP is too narrowly focused. As state and national districts. The Governor’s intent is for districts to research has shown, students often need a variety of use these additional funds to provide supplemental support to succeed. Different types of students may support services—beyond the base services need different support services and many students provided by regular SSSP dollars—to reduce any need multiple types of support that extend beyond student achievement gaps identified in colleges’ assessment, orientation, and counseling. For student equity plans. In addition, as a condition of example, a student with a learning disability (such receiving these supplemental SSSP funds, CCCs as dyslexia) may require specialized assistance. A 24 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET low-income student may need access to financial particular, by proposing just partial flexibility for aid advising and orientation services. Our review CalWORKs, EOPS, and Student Success for Basic of several student equity plans shows strategies Skills Students—and no flexibility for other support that colleges themselves have recommended for programs such as Financial Aid Administration implementation (such as the formation of small and Fund for Student Success—the Governor’s learning communities and additional professional approach would give community colleges only development) extend beyond SSSP-funded limited ability to tailor categorical services in ways activities. By placing the entire $200 million that meet local needs. augmentation in SSSP, the Governor would Recommendations limit the ability of CCCs to provide a more comprehensive set of effective services to students. Create CCC Student Support Block Grant. Additional Flexibility Proposed by Governor We recommend the Legislature consider providing Moves In the Right Direction . . . We think the greater flexibility to districts. A restructuring Governor’s stated goal of increasing coordination approach our office has recommended in the past among CCC’s various student support categorical is to consolidate categorical programs into broad programs is laudable. As we have pointed out thematic block grants. Block grants ensure that in past analyses, community college categorical districts continue to invest in high educational programs tend to be highly prescriptive in terms priorities, while providing flexibility for districts of how funds can be spent. By requiring districts to structure their programs in pursuit of these to spend funds for a specific purpose, categorical goals. For community colleges, we recommend programs limit local flexibility to direct and the Legislature consolidate seven of CCC’s eight combine funding in ways that address student student support programs (excluding the Disabled needs most effectively and efficiently. (The Student Students Program) into a new Student Support Success Task Force came to a similar conclusion block grant. (This consolidation would reduce in its report, writing that “…the current approach state-level administrative work, thereby likely results in organizational silos that are inefficient freeing up several positions and a few hundred and create unnecessary barriers for students in thousand dollars in non-Proposition 98 General need of critical services and detract from the need Fund within the Chancellor’s Office budget.) If the for local colleges to have control and flexibility over Legislature were to provide the Governor’s proposed their student outcomes and resources.”) Categorical $200 million augmentation for the block grant funds also are costly for districts and the CCC (rather than entirely for SSSP), total funding for the Chancellor’s Office to administer. Districts must block grant would be $517 million in 2014-15. apply for, track, and report the appropriate use By combining funding for these programs into of categorical funds, and the Chancellor’s Office one block grant, community colleges would be must oversee districts’ compliance with numerous able to allocate funding in a way that best meets statutory and regulatory requirements. For all these the needs of their students—without being bound reasons, we agree with the Governor that additional to specific existing programmatic requirements. categorical flexibility is needed. With this funding, for example, districts could . . . But Specific Proposals Are Too Limited. provide “wraparound” services such as assessment, We are concerned, however, that the Governor’s orientation, counseling, financial aid advising, flexibility proposals do not go far enough. In child care, tutoring and other activities designed www.lao.ca.gov Legislative Analyst’s Office 25 2014-15 BUDGET to improve student completion. A block grant The BOG and Chancellor’s Office Charged approach also could help districts operate their With Oversight of Districts. The BOG oversees the services more efficiently, such as by consolidating statewide system and appoints a Chancellor to run categorical programs’ various counseling functions day-to-day operations and make recommendations (now provided through SSSP, Student Success for to the BOG on policy matters. Key responsibilities Basic Skills Students, the Fund for Student Success, of the BOG and the Chancellor’s Office include: and EOPS, among other programs). In addition, • Setting and enforcing minimum standards a block grant approach would be a more lasting for districts (such as student graduation option for providing districts flexibility (as the requirements). current flex item is scheduled to sunset at the end of 2014-15.) • Allocating state funds to districts. Allocating Block Grant Funding. Were the • Monitoring district compliance with state Legislature to take the block grant approach, we and federal law. recommend adopting a new formula for allocating associated funding to districts. Specifically, we • Centrally collecting and reporting student recommend that block grant funds be allocated data (such as enrollment and graduation to districts primarily on a per-student basis, with rates). some allowance potentially made for districts with Chancellor’s Office Has $22 Million Budget in high percentages of financial aid recipients. For 2013-14. The Chancellor’s Office is organized into example, the Legislature could provide each district nine divisions (Academic Affairs; Student Services; a base amount per student, with a supplemental Workforce and Economic Development; Finance amount provided for each student receiving a and Facilities Planning; Technology, Research, federal Pell Grant. To ease the transition to the new and Information Systems; Communications; formula, districts could retain in 2014-15 at least Governmental Relations; Internal Operations; and the same amount of categorical funding for the Legal Affairs). In 2013-14, the Chancellor’s Office is seven consolidated programs as they received in budgeted $22 million (all fund sources) for 154 FTE 2013-14. staff. The Chancellor’s Office’s largest single Technical Assistance for funding source is non-Proposition 98 General Fund Community Colleges ($10.5 million). (As a state agency, the Chancellor’s Office does not directly receive Proposition 98 Background funds.) Other notable funding sources include the federal government and state bond funds. Locally Elected Boards Govern Districts. Several Commissions Have Called for Under current law, the community colleges are Stronger State-Level Office. Over the years, a operated by 72 districts. Each district is governed number of legislatively created commissions by a locally elected Board of Trustees. The state and task forces have called for the BOG and provides these governing boards with significant Chancellor’s Office to have a stronger role in autonomy in matters such as determining course setting performance expectations for CCCs. For offerings, hiring and compensating campus staff, example, past commissions charged with reviewing and managing district property. the state’s Master Plan for Higher Education have 26 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET recommended the Chancellor’s Office establish and Facilities Planning) and identify and accountability measures (including ones related to disseminate best practices. student achievement and financial management); • Two positions (one each in Academic evaluate individual district performance based Affairs and Student Services) to assist on those measures; and, when warranted, take districts and colleges with improving their corrective actions against poorly performing performance in areas such as transfer districts. Similarly, in its report the CCC Student and basic skills (remedial) education and Success Task Force recommended the Chancellor’s student support services. Office set statewide and local student success goals (using the new accountability scorecard), provide • Three positions assigned to the Technology, technical assistance to colleges, and play a larger Research, and Information Systems coordinating role in the dissemination of best Division to: (1) provide data in support practices throughout the system. of the above positions, (2) help to develop systemwide and college-level goals for Governor’s Proposal each of the measures in the existing The Governor proposes to create a new system CCC scorecard (such as graduation and of support for CCC districts. Under his proposal, transfer rates), and (3) handle the logistics $1.1 million would be provided for state operations of assembling technical assistance teams at the CCC Chancellor’s Office and $2.5 million (discussed below). would be provided as local assistance for CCC Provides $2.5 Million for Local Assistance districts and colleges. Teams. The Governor’s proposal provides an Proposes Increase of $1.1 Million for Nine New additional $2.5 million in Proposition 98 General Positions at Chancellor’s Office. The Governor Fund to provide technical assistance to CCCs in proposes a $1.1 million non-Proposition 98 the areas of academic affairs, student services, General Fund augmentation to add nine workforce and economic development, and finance. permanent positions at the Chancellor’s Office. Under the Governor’s proposal, districts or colleges According to the administration, the overarching could request assistance directly or the Chancellor’s purpose of these new positions is to enhance the Office could initiate an intervention on its own. Chancellor’s Office’s ability to provide leadership If they asked for assistance, community colleges and coordinate local technical assistance so as to would be required to provide a local match ($1 improve the functioning of the statewide system. for every $2 in state support). If the Chancellor’s These positions would have various roles and Office initiated the intervention, no fee or match responsibilities. Specifically: would be required of CCCs. In either case, the • Four positions (one each in Academic Governor describes a general approach whereby Affairs, Student Services, Workforce and Chancellor’s Office staff would contract with teams Economic Development, and Finance of community college experts (such as leading and Facilities Planning) to develop new faculty and budget officers) to consult with CCCs performance measures for districts and in need of help. The budget bill includes provisional colleges in each of the four areas (such as language that requires the Chancellor’s Office to measures of local fiscal stability for Finance provide an annual report beginning in 2015-16 to www.lao.ca.gov Legislative Analyst’s Office 27 2014-15 BUDGET the JLBC and DOF on prior-year expenditures of Development categorical program funds these funds. for a variety of state-level leadership, coordination, and technical assistance Assessment purposes. It is unclear why an additional As discussed below, while we think the position is needed to perform what would Governor’s focus on CCC performance is appear to be similar or the same functions. commendable, we have two primary concerns with • Academic Affairs. Likewise, the his specific proposal. Chancellor’s Office has identified basic Governor’s Focus on CCC Performance Is skills education as a potentially significant Commendable. In recent years, reports, legislative focus of one or more of the proposed new hearings, and press accounts have examined positions in the Academic Affairs Division. a number of CCC performance issues. For Yet the Governor’s proposed budget example, a number of studies have highlighted also provides nearly $1 million from the low completion rates by CCC students. Moreover, Student Success for Basic Skills Students 12 community colleges currently are on sanction categorical program for statewide activities by CCC’s accreditor, the Accrediting Commission (including professional development and for Community and Junior Colleges. (One of these the dissemination of best practices) related colleges, City College of San Francisco, is facing to basic skills. the possibility of losing its accreditation later this year.) Another CCC (Compton Community • Student Services. As regards the Student College) lost its accreditation in 2006 and has yet to Services Division, Chapter 624 permits earn it back. Given these significant problems, we the Chancellor’s Office to set aside up give the Governor credit for setting performance to 5 percent of SSSP funds for state expectations for the system and attempting to administrative purposes. The Governor’s identify ways of helping struggling community proposal to triple funding for SSSP in the colleges. budget year would increase the amount Existing Funds Already Support CCC available to the Chancellor’s Office by Statewide Efforts. Though we think the Governor’s several million dollars. (In addition, the overall goal of improving CCC performance is Chancellor’s Office currently sets aside laudable, we are concerned that the Governor’s smaller amounts from certain other request for new resources duplicates funding student support categorical programs— the CCC system already receives for state-level such as EOPS—for state-level leadership activities. Our concern with duplication is greatest and coordination.) in three particular areas. Unrealistic Timing. Another issue concerns • Workforce and Economic Development. the assumed timing of filling the nine positions and As noted above, one of his proposed using the local assistance funds. The Governor’s new positions would be assigned to the budget provides full-year funding for each of the Workforce and Economic Development nine Chancellor’s Office positions. Given the time it Division. Yet the proposed budget already can take to recruit and hire new staff, however, we allows the Chancellor’s Office to use up do not think that it is reasonable to assume any of to $2.3 million (10 percent) of Economic 28 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET these positions will be filled by July 2014. Given the General Fund monies already earmarked for likely lag in ramping up any new program, we also statewide purposes, why these current funding question whether all $2.5 million in local assistance streams are insufficient, and how the Governor’s funding could be spent in the budget year. (In proposed new positions and program would cases like this, the state typically would consider further (and not duplicate) these existing efforts. providing half-year funding.) Recommend Legislature Consider Funding Any New Positions Using Workload Savings. As Recommendation discussed earlier in this report, we recommend Recommend Legislature Request DOF and consolidating a number of student support Chancellor’s Office to Provide for More Detail categorical programs into a block grant. Were the on Need for Additional Resources. In light of Legislature to take such an action, the Chancellor’s the funding the state already provides for similar Office’s costs associated with the administration state-level activities, we recommend the Legislature of these programs likely would be somewhat request DOF and the Chancellor’s Office to provide reduced. To the extent the Legislature agrees that additional detail at spring hearings on the need at least some of the proposed new positions are both for these positions and the $2.5 million in warranted, we recommend the Legislature use the local assistance funds. In particular, the agencies resulting workload savings from the categorical should be prepared to explain how CCC is using consolidation to fund the added costs. NEW INNOVATION AWARDS Governor’s Proposal legislative appointees selected by the Assembly Speaker and Senate Rules Committee—would Proposes $50 Million (One-Time) for New make award decisions. In addition to ensuring Award Program. Also included in the Governor’s that proposals meet state priorities, the committee budget is $50 million in one-time funding to foster would look for proposals that: reduce the costs of and reward innovation at UC, CSU, and CCC instruction; involve collaboration across campuses, campuses. Proposed budget bill language sets forth segments, and educational levels; have the support three overarching state priorities: (1) significantly of faculty, students, and other groups affected by increasing bachelor’s degree attainment in the the proposal; are replicable and sustainable over state, (2) shortening time to degree, and (3) easing the long term; and demonstrate commitment, as transfer across segments. Campuses, both reflected by actions taken since January 10, 2014. individually and in groups, could apply for awards to advance innovative higher education models Concerns About New Award Program that achieve these priorities. Applications would be We have three main concerns about the accepted through January 9, 2015—one year from Governor’s proposal, as discussed below. the date the Governor proposed the program. Sends Wrong Message. Our most significant New Committee Would Award Funds. A concern is that the new program sends a poor committee of seven members—five Governor’s message. By earmarking a relatively small amount appointees representing DOF, the three segments, of one-time funding for individual campuses or and the State Board of Education, and two www.lao.ca.gov Legislative Analyst’s Office 29 2014-15 BUDGET groups of campuses to address state priorities budget process. The Governor’s proposal sidesteps (including those relating to student success and this approach and fragments improvement efforts institutional cost-effectiveness), the state seems to by empowering a small group to make award be implying this is somehow different from how decisions based on the administration’s expressed the segments should be using the remainder of priorities. their funding. Presumably, the state intends for the Poor Timing. The Governor indicates the new segments’ entire core budgets to be dedicated to program is intended to build on last year’s efforts meeting core public priorities through appropriate, to expand the use of technology to remove course cost-effective means (including new means bottlenecks and reduce the costs of education. The discovered through ongoing exploration and results of those efforts, however, are not yet clear. innovation in teaching strategies and technologies). Expanding in this area before giving the existing Fragments Improvement Efforts. Whereas efforts time to show results would be premature. the state adopted three broad higher education Recommend Rejecting Proposed goals last year, the Governor’s award proposal New Award Program independently establishes program priorities without regard to those goals. Most notably, For these reasons, we recommend the Chapter 367 set forth goals relating to student Legislature reject this proposal. If the Legislature access and success, institutional effectiveness and still wishes to use the $50 million, one-time efficiency, and alignment of degrees to workforce funding in the higher education budget, it could and civic needs. Chapter 367 called for the state target the funding to one or more of the state to adopt at least 6 but no more than 12 metrics to priorities described in the “Universities” and measure progress in meeting these goals. It also “California Community Colleges” sections earlier called for the state to consider the corresponding in the report. performance results as part of the annual state TUITION AND FINANCIAL AID In this section, we provide background on has paid the vast majority of costs for California’s tuition and fee levels at the public segments, public college students through General Fund and describe the various financial aid programs for other state support to the institutions, as well as California students, and track key trends in recent funding for student financial aid programs. During years. We then describe the Governor’s tuition and the recent recession, students assumed a larger aid proposals, assess these proposals, and offer share of these costs through tuition increases. associated recommendations. Tuition and fee levels have nearly doubled at the universities and more than doubled at the CCC Background since 2007-08. Whereas in 2007-08 students paid Students’ Share of Educational Costs Overall 19 percent of educational costs at the universities, Is Much Lower Than State Share. Each year by 2011-12 students were paying 31 percent of these through its budget decisions, the Legislature costs. At the community colleges, the student share grapples with the share of college costs to be borne of costs increased from 4 percent in 2007-08 to by students and the state. Historically, the state slightly more than 6 percent in 2012-13 (the year of 30 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET the most recent CCC fee increase). In 2013-14, the service). Major sources of gift aid in California student share of educational costs declined at all include federal Pell Grants, state Cal Grants, and three segments, to 26 percent at the universities and institutional financial aid programs. Tax benefits 6 percent at the CCC. include income tax deductions and credits for California’s Tuition and Fee Levels Remain tuition and related costs, as well as tax-free growth Low. Despite these large increases, tuition and fee in tuition savings accounts (including California’s levels at California’s public colleges and universities Scholarshare College Savings Plan). Federal remain relatively low. As shown in Figure 10 (see student loans may be subsidized (the government next page), UC’s average tuition and required fees pays interest while the student is in school) or for resident undergraduates remain below three of unsubsidized. Students also may access private four comparison institutions. The CSU’s tuition loans, but these loans tend to have less beneficial and required fees for resident undergraduates are terms and conditions. Figure 12 (see page 34) the lowest in its comparison group of 16 public displays the major sources of financial aid for universities. At CCC, students pay the lowest fees in students at California’s public institutions. As the nation—only 38 percent of the national average shown in the figure, California students received for community colleges. an estimated $11.8 billion from these sources in Other Costs of Attendance Relatively High 2012-13, more than half of it in need-based gift aid. and Rising. Living expenses, including food and (This in addition to $9.3 billion in non-need-based housing, transportation, and personal expenses, subsidies the state provides for all students through make up the majority of undergraduate student General Fund and Proposition 98 appropriations.) budgets. These expenses are similar across For costs not covered by these sources, students segments, as shown in Figure 11 (see page 33). typically rely on family income and assets, their These costs are relatively high in California—about own earnings, and other types of borrowing and 20 percent higher than the national averages. savings. Various Sources of Financial Aid Help State Provides Aid Through Cal Grants. The Students Cover Their Costs of Attendance. state’s Cal Grant programs guarantee financial aid About two-thirds of students at UC and CSU awards to California high school graduates and receive financial aid to help them pay their community college transfer students who meet costs of attendance. At the community colleges, financial, academic, and other eligibility criteria. about 45 percent of students receive aid, and the In addition, students who do not qualify for the proportion is higher among students enrolled high school or community college entitlement half time or more. Types of aid include grants, programs but meet the other eligibility criteria may scholarships, and tuition waivers (collectively called apply for a limited number of competitive grants. gift aid, because students do not have to pay back Awards cover full systemwide tuition and fees at these amounts), federal tax benefits, and student the public universities and a fixed dollar amount loans. Subsidized work-study programs also help toward costs at private colleges. The program also support students. Gift aid may be need-based (to offers cash stipends (known as access awards) for provide access for students who otherwise might students with family incomes below $45,900 (for a be unable to afford college) or non-need-based family of four). A student may receive a Cal Grant (typically scholarships or other payments based for four years of full-time college enrollment or the on academic merit, athletic talent, or military equivalent. Figure 13 (see page 35) describes the www.lao.ca.gov Legislative Analyst’s Office 31 Graphic Sign Off Secretary Analyst MPA 2014-15 BUDGET Deputy Figure 10 California Tuition and Fee Levels Among Lowest in Nation 2013-14 Resident Tuition and Feesa State University Peers Two-Year Colleges Vermont Rutgers University New Hampshire South Dakota Illinois State University Minnesota Massachusetts University of Connecticut New York Oregon Wayne State University South Carolina Pennsylvania University of Maryland Iowa Ohio Arizona State University Virginia Kentucky Washington Georgia State University New Jersey Wisconsin George Mason University Alabama North Dakota Cleveland State Alaska Maryland University of Wisconsin Rhode Island Indiana State Univeristy of Connecticut New York at Albany Colorado University of Texas Tennessee Idaho North Carolina State Georgia Maine University of Nevada Illinois Utah Louisiana University of Colorado Oklahoma Delaware CSU Hawaii Michigan $5,000 10,000 15,000 Montana Florida Public Research University Peersb West Virginia Missouri University of Illinois Arkansas Nevada Nebraska University of Michigan Wyoming Kansas University of Virginia Mississippi Arizona UC North Carolina Texas State University of New Mexico New York at Buffalo CCC $5,000 10,000 15,000 20,000 $2,000 4,000 6,000 8,000 a Includes average campus-based fees. b The Universities of Illinois, Michigan, and Virginia charge different tuition rates by student level and discipline. Amounts shown for these universities are averages of the lowest and highest charges. Template_LAOReport_fullpage.ait ARTWORK #140058 32 Legislative Analyst’s Office www.lao.ca.gov Graphic Sign Off Secretary Analyst MPA Deputy 2014-15 BUDGET various Cal Grant programs Figure 11 and awards. Living Expenses Make Up Cal Grant Spending Biggest Share of Student Budgets Has Continued to Grow, Average Undergraduate Student Expenses, 2013-14 Driven by Increased Participation. Cal Grant $35,000 Tuition and Fees spending nearly doubled 30,000 Books and Supplies from 2007-08 to 2011-12, Living Expensesa mostly in response to 25,000 tuition increases at UC and 20,000 CSU. (Cal Grant tuition 15,000 awards rise automatically to offset tuition increases.) 10,000 Since 2011-12, tuition has 5,000 remained flat and growth in Cal Grant costs has UC CSU CCC been driven mainly by a Includes housing, food, transportation and personal expenses. participation increases. In 2012-13, for example, the number of new Cal Grant federal and state aid to cover full tuition for most ARTWORK #140058 recipients increased 19 percent over the prior year. students with family incomes up to about $75,000. (Implementation of the California Dream Act TemItp dloaetse _nLoAt cOoRveerp ootrhte_rm coidst.sa oitf attendance. At CCC, accounts for about one-quarter of the growth. the BOG Fee Waivers fully cover enrollment fees Beginning in 2013-14, this legislation makes certain (but not other costs of attendance) for financially nonresident students eligible for state financial aid.) needy students. Colleges and Universities Offer Institutional Institutional Aid Also Growing. Institutional Aid. Campuses use institutional financial aid aid spending is growing, though at a slower pace programs in combination with other sources of than in recent years. Between 2007-08 and 2011-12, gift aid to help cover students’ costs. Through its institutional aid spending nearly doubled at the Blue and Gold Opportunity Program, for example, universities and tripled at the CCC, primarily UC guarantees that students with family incomes driven by fee increases. Estimates from 2012-13 up to $80,000 will receive sufficient aid to fully to 2013-14 show year-over-year increases of cover tuition. That is, after accounting for federal 3 percent, 3 percent, and 2 percent in institutional and state aid, UC uses institutional aid to fill any aid spending at UC, CSU, and CCC, respectively, remaining tuition gap for this group of students. primarily due to larger average grants and In addition, institutional aid helps cover living increased participation. Similar to Cal Grants, expenses for many UC students. (In 2012-13, a portion of this growth is related to California grant and scholarship recipients at UC received an Dream Act implementation. average of $16,600 in total gift aid, about $3,400 Federal Aid Continues to Expand. Major sources more than total tuition and fees.) By comparison, of federal gift aid include Pell Grants, veterans’ CSU uses institutional aid in combination with education benefits, and tax benefits. For Pell Grants, www.lao.ca.gov Legislative Analyst’s Office 33 Graphic Sign Off Secretary Analyst MPA Deputy 2014-15 BUDGET an increasing number of Figure 12 military veterans each year. Major Sources of Financial Aid Received by California’s Public College Studentsa Veterans can receive full tuition coverage at a public 2012-13 (In Billions) college (or about $19,000 Need-Based Gift Aid annually toward tuition at a Federal Pell Grants and supplemental opportunity grants $2.8 private college) in addition Institutional grants and waivers 2 .2 to a book and housing State Cal Grants 1 .5 Subtotal $6 .4 allowance. For tax benefits, Other Gift Aid and Work-Study the American Opportunity Scholarships and fellowships $0.7 Tax Credit, implemented in Non-need-based fee waivers 0 .1 Federal and institutional work-study 0.1 2009, expanded the existing Subtotal $0.9 Hope Scholarship Credit Federal Tax Benefits by increasing the credit Federal tax deductions and credits $1.3 individuals can claim (from Loans $1,800 to $2,500) and raising Subsidized federal student loans $1.3 Unsubsidized federal student/parent loans 1 .8 the income cap for claiming Nonfederal loans 0 .1 the credit (from $60,000 for Subtotal $3.2 single filers and $120,000 for Total $11.8 joint filers to $90,000 and $180,000, respectively). As a Loans result, the total amount of tax credits claimed tripled within two years. Need-Based Gift Aid Altogether, Public Financial Aid Covers Tuition for Majority of Public College Federal Tax Benefits Students. Through some combination of Cal Grants, Other Gift Aid and Work Study institutional aid, fee waivers, a and federal grants, about Reflects our estimates using multiple data sources, including data from the segments and federal grovenment. Though some of the data shown are readily available for private college half of UC and CSU students students (such as Pell Grants), other data (such as intitutional aid) are not. receive aid sufficient to fully cover systemwide tuition and the maximum award increased from $5,550 to $5,645 fees. Additional university in 2013-14 (a 1.7 percent increase) and more students ARTWORK #140058 students receive partial tuition coverage from these met the financial need criteria to qualify for awards. sources. At the CCC, nearly half of students receive (See nearby boxT feomr apnl eaxtpel_aLnAatOioRne opf ohorwt_ fimniadn.caiiatl fee waivers accounting for more than 60 percent of all need is determined for most financial aid programs.) instructional units taken. For students at all segments For veterans, the Post-9/11 GI Bill, implemented paying full or partial tuition, up to $2,500 may be in 2009, has been providing education benefits to reimbursed through federal tax credits. 34 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET Determining Financial Need To be eligible for many federal, state, and institutional financial aid programs, students must complete a common, web-based application form (the Free Application for Federal Student Aid, or FAFSA). The federal Department of Education uses information from this form, including family income, available assets, and number of children in college, to determine the student’s expected family contribution (EFC) toward college costs. A student’s financial need is the total cost of attendance (including living costs) at a particular campus less his or her EFC. Campuses then combine (or “package”) various types of financial aid to meet as much of each student’s financial need as possible. Figure 13 Summary of Cal Grant Program Requirements and Awards High School Entitlement Program This program guarantees awards to recent high school graduates who meet income and grade point average (GPA) requirements. Depending on income level, a student may get a Cal Grant A or B award. • Students must have a GPA of at least 3.0 for a Cal Grant A award, which covers full systemwide tuition at UC and CSU and provides a fixed amount toward tuition at private California colleges. (For 2014-15, the maximum tuition awards are $8,056 for students at nonprofit or Western Association of Schools and Colleges-accredited for-profit colleges and $4,000 for students at other for-profit colleges.) • Cal Grant B awards are for students with greater financial need who have at least a 2.0 GPA. Cal Grant B awards provide up to $1,473 toward books and living expenses in the first year. Beginning in the second year, the B award is this amount plus tuition support (in the same amounts as Cal Grant A awards). Transfer Entitlement Program This program is for graduates of California high schools who transfer from a CCC to a qualifying baccalaureate degree granting institution. Students must also meet financial and academic eligibility criteria, and be under the age of 28 upon transferring. As under the high school entitlement, transfer entitlements include both A and B awards, with the same maximum awards for tuition, books, and living expenses. Competitive Program This program is for students who meet the basic income and GPA criteria of the entitlement program (such as income and GPA), but are not recent high school graduates or transfers. A total of 22,500 awards are authorized in statute. Recipients are selected for A and B awards through a competitive process with special consideration for disadvantaged students. Because of limited funding, only about 6 percent of qualified applicants receive awards. Cal Grant C This program provides up to $2,462 for tuition and fees and up to $547 for other costs for eligible low- and middle-income students enrolled in an occupational, technical, or vocational program that is at least four months long. A total of 7,761 awards is authorized in statute. Funding is available for up to two years or the length of the program, whichever is shorter. www.lao.ca.gov Legislative Analyst’s Office 35 2014-15 BUDGET Net Cost of Attendance About the Same at with about $24,400 for public four-year college Three Public Segments. Figure 14 highlights the students nationally. About 95 percent of CCC difference between total cost and net cost for grant students report no student debt, compared to and scholarship recipients at each higher education between 60 percent and 70 percent of community segment. As shown in the figure, total costs vary college graduates nationally. significantly, from nearly $30,000 at UC to less State Creates New Middle Class Scholarship than $15,000 at CCC, but the net costs to students Program. To address concerns about high costs are more similar across the three segments. This is for students who do not qualify for need-based because financial aid for these students typically financial aid, the 2013 budget package created the covers tuition and fees, the main source of variation Middle Class Scholarship Program. The program in total costs across the segments. will assist UC and CSU undergraduate students Average Student Debt Still Comparatively who do not have at least 40 percent of their tuition Low. In 2011-12, about half of UC and CSU covered by Cal Grants and other public financial baccalaureates graduated with no debt. Nationally, aid programs. The pGrorgarapmh dicoe Ss nigotn r eOqufifre the corresponding figure was 42 percent. (The that students have financial need. Instead, it uses Secretary proportion of students with debt varies by campus. family income to determine student eligibility. Analyst For example, nearly two-thirds of UC Merced Specifically, students with family incomes up MPA and UC Riverside graduates had student loan to $100,000 qualify to have up to 40 percent of Deputy debt compared with 40 percent of UC Berkeley their tuition covered (when combined with all graduates.) Among UC and CSU students who other public financial aid). The percent of tuition borrowed, the average debt upon graduation was covered declines for students with family income about $19,800 and $18,500, respectively, compared between $100,000 and $150,000, such that a student with a family income of Figure 14 $150,000 qualifies to have Though Total Costs of Attendance Differ, up to 10 percent of tuition Net Cost After Aid Similar Across Segments covered. The program Average Gift Aid and Average Net Cost for Students Receiving is to be phased in over Grant or Scholarship Aid, 2012-13 four years, beginning in $35,000 2014-15, with awards in Average Gift Aid 2014-15 set at 35 percent 30,000 Average Net Cost of full award levels, then 25,000 50 percent, 75 percent, and 100 percent of full award $16,600 20,000 levels the following three $8,600 15,000 years, respectively. The $4,700 budget legislation includes 10,000 annual appropriations for $12,500 $12,300 5,000 $9,700 the program beginning with $107 million for 2014-15 and UC CSU CCC capped at $305 million for 2017-18 and thereafter. (If 36 Legislative Analyst’s OffiAcRe T WwwOwR.Kla o#.c1a4.g0o0v58 Template_LAOReport_mid.ait 2014-15 BUDGET the budget appropriation is insufficient to provide Assumes Tuition Flat. Although the Governor the tuition coverage cited above, then the legislation acknowledges in his budget summary that college sets forth that scholarships are to be automatically is relatively affordable for California’s public prorated downward.) college students (due to high public subsidies, relatively low tuition and fees, and robust financial Governor’s Proposals aid programs), he proposes no CCC fee increase The Governor’s budget provides $1.9 billion for and conditions his proposed annual funding student financial aid in 2014-15. This is $222 million increases for the universities on their maintaining (13 percent) more than the revised current-year tuition at current levels. Under his plan, tuition level. Funding includes $1.3 billion from the and fee levels at UC and CSU, which have not General Fund, $545 million in federal TANF funds, increased since 2011-12, would remain flat and $60 million from the SLOF. Nearly all the new through 2016-17. funding implements current-law provisions. Most Funds First-Year Implementation of Middle notably, the Governor’s budget funds increased Class Scholarship Program ($107 Million). The participation in Cal Grant entitlement programs budget provides $107 million for the first year of and launches the already adopted Middle Class scholarship awards under this new program, as Scholarship Program. (As discussed in the nearby described above. Students will be eligible for up to box, the Governor’s budget also continues funding 35 percent of the full scholarship award in 2014-15, or two financial aid outreach programs.) up to 14 percent of tuition amounts at UC and CSU. Funding for Two Financial Aid Outreach Programs Set to Expire in 2015-16 California Funds Two Relatively Longstanding Financial Aid Outreach Programs. Financial aid awareness and college outreach programs can help inform students and parents about college opportunities. The state oversees two such programs through the California Student Aid Commission (CSAC). Created in 1978, the California Student Opportunity and Access Program is designed to increase postsecondary education opportunities for low-income and underrepresented elementary and secondary school students. The program provides special tutoring, counseling, and information services to participants. Funds support 15 local consortia, each consisting of a local high school and community college. Consortia also include representatives from nonprofit educational, counseling, or community agencies as well as postsecondary education institutions. The second outreach program—California Cash for College—provides free workshops across the state to help students and their parents complete the federal financial aid application. Recommend Directing CSAC to Report on Programs’ Effectiveness. Both programs have been funded at times from the General Fund, the Student Loan Operating Fund, and federal funds. Since 2008-09, they have been supported by the federal College Access Challenge Grant, which is set to expire in 2015-16. We recommend the Legislature direct CSAC to report on outcomes and effectiveness of these programs by October 2014. The Legislature could use this information to determine whether to continue funding these outreach efforts (including whether to backfill with state funds if the federal grant is not renewed). www.lao.ca.gov Legislative Analyst’s Office 37 2014-15 BUDGET Higher Net Cal Grant Costs ($100 Million). budget authorizes no new loan assumptions for The budget also provides $100 million for higher teachers, nurses, or graduate students, continuing a Cal Grant costs in 2014-15, as shown in Figure 15. phase-out of these programs. A portion of this increase is due to a surge in new Makes One Change to Cal Grant Eligibility awards in 2013-14, which results in more renewals ($15 Million). Under current practice, a Cal in 2014-15, as shown in Figure 16. In addition, the Grant recipient must reapply for aid each year. If second cohort of Dream Act students accounts a recipient’s family income exceeds the Cal Grant for about one-quarter of the increase. A reduction income cap in any year, that student is no longer in the maximum award for students at private eligible for renewals. The Governor proposes to institutions offsets a small amount of the overall change this so that students who become ineligible increase in Cal Grant costs. As has been the because they exceed the income cap can become administration’s custom in recent years, the budget eligible again in a subsequent year if their income does not assume additional growth in the number falls below the cap. The policy would apply only to of new awards for 2014-15. If the segments increase students who reapply no more than three academic enrollment in 2014-15 or participation continues to years after receiving an initial award. The DOF grow as it has in recent years, Cal Grant expenses estimates the cost for this expansion at $15 million. will be greater than budgeted. In addition, the Figure 15 Cal Grant Recipients Change From 2013-14 2012-13 2013-14 2014-15 Actual Revised Proposed Number Percent By Segment: California State University 86,571 97,755 105,247 7,492 8% California Community Colleges 80,174 89,968 96,028 6,060 7 University of California 60,411 64,892 68,475 3,583 6 Private nonprofit institutions 25,487 27,128 27,909 781 3 Private for-profit institutions 8,074 5,991 7,264 1,273 21 Totals 260,717 285,734 304,923 19,189 7% By Program: High School Entitlement 194,818 210,671 225,364 14,693 7% CCC Transfer Entitlement 23,448 27,224 27,916 692 3 Competitive 36,020 39,370 42,121 2,751 7 Cal Grant C 6,431 8,468 9,522 1,054 12 Totals 260,717 285,733 304,923 19,190 7% By Award Type: Cal Grant A 92,186 102,943 111,197 8,254 8% Cal Grant B 162,101 174,321 184,204 9,883 6 Cal Grant C 6,431 8,468 9,522 1,054 12 Totals 260,718 285,732 304,923 19,191 7% By New or Renewal: New 100,282 118,839 118,458 -381 -0% Renewal 160,435 166,894 186,465 19,571 12 Totals 260,717 285,733 304,923 19,190 7% Slight difference in total number of recipients among the various categories due to modeling issues. 38 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET Assessment and have the negative near-term effects of: (1) reducing Recommendations the incentive students and their families have to hold higher education institutions accountable for Tuition Freeze Likely Would Have Problematic keeping costs low and maintaining quality, and Near-Term and Long-Term Consequences. The (2) reducing the resources available to support Governor’s proposal would extend for three more student enrollment. Given the important role of years UC and CSU tuition levels that already have tuition in higher education budgets, the relatively been flat since 2011-12. While this would benefit low share of cost now borne by students and their current students, it likely would increase volatility families, and the likely negative consequences of for future students. As shown in Figure 17 (see next an extended tuition freeze, we do not see a strong page), extended tuition freezes at California’s public justification for having the state bear all higher institutions have been followed by periods of high education cost increases for the next three years. annual tuition increases. The proposal also would Figure 16 Cal Grant Spending (Dollars in Millions) Change From 2013-14 2012-13 2013-14 2014-15 Actual Revised Proposed Amount Percent By Segment: University of California $721 $781 $822 $41 5% California State University 437 501 552 51 9 Private nonprofit institutions 222 240 238 -1 -1 California Community Colleges 88 100 107 7 7 Private for-profit institutions 50 35 37 2 6 Totals $1,518 $1,656 $1,756 $100 6% By Program: High School Entitlement $1,234 $1,331 $1,418 $87 7% CCC Transfer Entitlement 185 214 217 3 1 Competitive 95 105 114 9 9 Cal Grant C 4 6 6 1 11 Totals $1,518 $1,656 $1,756 $100 6% By Award Type: Cal Grant A $868 $985 $1,059 $74 7% Cal Grant B 646 665 691 26 4 Cal Grant C 4 6 6 1 11 Totals $1,518 $1,656 $1,756 $100 6% By New or Renewal: New $471 $541 $525 -$16 -3% Renewal 1,047 1,115 1,231 116 10 Totals $1,518 $1,656 $1,756 $100 6% By Funding Source: General Fund $630 $1,016 $1,151 $135 12% Student Loan Operating Fund 85 98 60 -38 -64 Federal TANF 804 542 545 3 1 Totals $1,518 $1,656 $1,756 $100 6% TANF = Temporary Assistance for Needy Families. www.lao.ca.gov Legislative Analyst’s Office 39 2014-15 BUDGET Recommend Share-of-Cost Policy. For these Class Scholarship awards is difficult, early estimates reasons, we do not think an extended tuition suggest the statutory appropriation of $107 million freeze would be in the public’s best longer-term may be insufficient to cover the award levels interests. Instead of an extended tuition freeze, scheduled for 2014-15. As a result, awards are likely we recommend the Legislature adopt a policy to be prorated downwards. that bases tuition and fee charges at each of the Consider Prioritizing Scholarship Awards. public higher education segments on a share of Rather than reducing all awards proportionally, educational costs. Such a policy would provide a we recommend the Legislature consider adjusting rational basis for fee levels and a simple mechanism this requirement to prioritize students with greater for annually adjusting them. It would recognize financial need (based upon the federaGl nreaepd hic Sign Off explicitly the partnership between students and the determination described earlier). Students with the Secretary public. Though such a policy would depend on the highest need could receive the full scheduled award Analyst state providing its share of funding, we believe it (up 14 percent of UC or CSU tuition for 2014-15) MPA would be more likely than the Governor’s proposal while those with no financial need might receive Deputy to result in moderate, gradual, and predictable lesser amounts. tuition increases over time. Recommend Time Limit for Middle Class Middle Class Scholarships Likely to Be Scholarship Awards. Many financial aid programs, Prorated. Although predicting how many UC and including Cal Grants, provide support for a limited CSU students will apply and qualify for Middle number of years (typically four years of full-time Figure 17 Extended Tuition Freezes Followed by Periods of Steep Increases Percent Change in Systemwide Tuition and Fees 105% UC 85 CSU CCC 65 45 25 5 0 -15 85-86 87-88 89-90 91-92 93-94 95-96 97-98 99-00 01-02 03-04 05-06 07-08 09-10 11-12 13-14 15-16a a Governor proposes flat tuition and fees through 2016-17. ARTWORK #140058 40 Legislative Analyst’s Office www.lao.ca.gov Template_LAOReport_large.ait 2014-15 BUDGET enrollment or the equivalent). Such limits provide Recommend Adopting Cal Grant Eligibility a strong incentive for students to complete their Change. We see no justification for denying a studies expeditiously. California’s nonprofit Cal Grant renewal award to an otherwise eligible colleges and universities maintain that Cal recipient who temporarily exceeded financial limits Grant recipients at their institutions have higher in one of the past few years. We recommend the four-year graduation rates than nonrecipients Legislature adopt the Governor’s proposal to permit because of this incentive. For the new Middle Class these recipients to qualify for renewals within three Scholarship Program, however, the number of years academic years of initially receiving an award. a student may qualify for awards is unlimited. We recommend the Legislature set a statutory time limit, comparable to the Cal Grant limit. www.lao.ca.gov Legislative Analyst’s Office 41 2014-15 BUDGET SUMMARY OF RECOMMENDATIONS LAO Recommendations Universities 9 Governor’s Budget Plan. Reject Governor’s overall budget plan, including unallocated base increases, extended tuition freeze, changes to CSU capital outlay review, and omission of enrollment targets. 9 Alternative Budget. Build a workload budget that provides UC with $186 million and CSU with $209 million—$44 million and $18 million more, respectively, than the Governor’s plan. Assume state and students share in cost increases, with state support for UC and CSU totaling $100 million less than Governor’s plan. Specifically: • Fund 2 Percent Enrollment Growth at CSU. Provide $34 million to increase enrollment by 7,000 full- time equivalent students at CSU. Require CSU to report next year on (1) the number of eligible students denied admission to the system, including their local campus, and (2) efforts to expand enrollment at impacted programs and campuses. • Maintain Flat Enrollment at UC. Specify UC is to serve the same number of students in 2014-15 as in 2013-14. • Fund Inflation. Provide $68 million to UC and $53 million to CSU to cover expected 2.2 percent inflationary cost increase. • Fund Retirement and Debt Service. Provide $29 million to UC and $30 million to CSU to fund increased costs for pensions, retiree health care, and debt service on state bonds. • Assume Modest Tuition Increase. Assume tuition increases by 2.5 percent at UC and 3.3 percent at CSU to help cover cost increases. 9 Performance. Require UC and CSU to discuss their performance in specific areas (such as student success) at budget hearings each spring, establish state expectations for performance, and use this information to guide funding decisions. Community Colleges 9 Enrollment Growth. Withhold recommendation on Governor’s proposal to provide $155 million (3 percent) enrollment growth pending receipt of updated information on current-year enrollment trends. Postpone implementation of new CCC enrollment growth allocation formula to 2015-16 and release any 2014-15 enrollment growth funds to districts on across-the-board basis. Further recommend the Legislature request CCC Chancellor’s Office and California Department of Education to report periodically throughout 2014 on development of funding allocation formula for new adult education initiative. 9 Student Support Programs. Reject Governor’s proposals to augment funding for Student Success and Support Program (SSSP) and allow partial flexibility for three other student support programs. Instead provide CCCs with substantially more flexibility by consolidating seven student support programs (including SSSP) into block grant. 9 Technical Assistance Program. Withhold recommendation on Governor’s proposal to create new CCC technical assistance program pending receipt of additional detail on the need for requested positions and local assistance funds. If Legislature agrees with need for new positions in the CCC Chancellor’s Office, recommend using administrative savings from creation of block grant (recommended above) to fund added costs. Tuition and Financial Aid 9 Tuition. Reject proposal for extended tuition freeze at the universities. Adopt share-of-cost tuition policy. 9 Middle Class Scholarship Program. If funding is insufficient to cover maximum award levels, consider prioritizing awards for students with the greatest financial need. Set a statutory time limit for scholarships, comparable to Cal Grant limit (four years of full-time instruction or the equivalent). 9 Cal Grant Eligibility Change. Adopt Governor’s proposal to permit students who become ineligible because they exceed the income cap to become eligible again in a subsequent year if their income falls below the cap. 42 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET www.lao.ca.gov Legislative Analyst’s Office 43 AN LAO REPORT Contact Information Paul Golaszewski University of California 319-8341 Paul.Golaszewski@lao.ca.gov Judith Heiman California State University 319-8358 Judy.Heiman@lao.ca.gov Tuition and Financial Aid Paul Steenhausen California Community Colleges 319-8324 Paul.Steenhausen@lao.ca.gov LAO Publications This report was reviewed by Jennifer Kuhn. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, CA 95814. 44 Legislative Analyst’s Office www.lao.ca.gov