The 2014-15 Budget: Maintaining Education Facilities in California

The 2014-15 Budget: Maintaining Education Facilities in California MAC TAYLOR • L E G I S L A T I V E A N A L Y S T • APRIL 11, 2014 2014-15 BUDGET 2 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET EXECUTIVE SUMMARY Overview California Has Vast Inventory of Education Facilities. The state’s public education system consists of a substantial amount of infrastructure. California currently has about 10,000 public elementary and secondary schools sites, as well as three State Special Schools (SSS) for blind and deaf children. Together, these public schools serve more than 6 million students statewide, with a total operating budget in excess of $50 billion. The state also has an extensive system of public higher education, with 145 main campuses comprised of more than 13,000 buildings situated on 75,000 acres. Together, the California Community Colleges (CCC), California State University (CSU), and University of California (UC) serve almost 3 million students, with a total core operating budget of $18 billion. Education Segments Have Routine, Scheduled, and Deferred Maintenance. Whereas routine maintenance of education facilities consists of the frequent upkeep of facilities and grounds (such as annual roof inspections and regular servicing of air conditioning systems), scheduled maintenance involves larger projects intended to preserve the useful life of facilities (such as replacing roofs and air conditioning systems). When these types of projects are not done on time, education segments develop a deferred maintenance backlog. Due to a combination of poor budgeting practices and competing funding priorities, all of the state’s education segments currently have a backlog of deferred maintenance projects. Whereas routine maintenance typically is funded annually from segments’ operating budgets, major maintenance projects historically have been funded from various sources, including certain categorical programs as well as state and local general obligation bond funds. Governor’s Proposals Governor’s Budget Includes a Package of Proposals for Addressing Maintenance of Education Facilities. The Governor’s 2014-15 budget contains several proposals for addressing the education segments’ deferred maintenance backlogs. Specifically, the Governor proposes $188 million for the Emergency Repair Program (ERP), which funds urgent projects at certain low-performing schools; $1.4 million in additional maintenance funding for the SSS; and $87.5 million for CCC maintenance. (Because community colleges would be required to provide a one-to-one local match, the Governor’s proposal would result in total funding of $175 million for CCC maintenance projects.) For CSU, the Governor proposes a different approach whereby state general obligation and lease revenue bond debt-service payments would be shifted into CSU’s main appropriation and the university would become responsible for funding all maintenance and debt-service from within that appropriation. The Governor also proposes authorizing CSU to issue university revenue bonds for certain maintenance projects. The CSU proposal is similar to the new capital outlay process approved for UC last year. (Due to this approach, the Governor does not have a specific maintenance proposal for UC in 2014-15.) www.lao.ca.gov Legislative Analyst’s Office 3 2014-15 BUDGET Recommendations Opportune Time to Address Deferred Maintenance but Various Concerns With Specific Proposals. We commend the administration for highlighting deferred maintenance as a problem and beginning to address it. To the extent the state reduces deferred maintenance at the education segments, it will have taken a positive step toward preserving this infrastructure and potentially reducing future costs. We have certain concerns, however, with the Governor’s specific proposals. Our most notable concerns are with the CSU proposal, which would greatly diminish the Legislature’s role in reviewing maintenance and capital projects as well as make statewide infrastructure planning even more difficult. We provide the Legislature with recommendations in response to each of the Governor’s specific education maintenance proposals. For example, we recommend the Legislature reject the Governor’s CSU proposal but begin examining whether systemwide revenue bonds would be a reasonable option for financing future CSU projects. State Lacks Long-Term Strategy for Addressing Maintenance at Education Segments. Looking beyond 2014-15, we believe the state should have a long-term strategy for ensuring existing maintenance backlogs are addressed, infrastructure is properly maintained moving forward and future backlogs do not develop, associated costs are contained, and students have both safe and academically appropriate facilities. Currently, a long-term strategy for meeting these objectives does not exist. A one-size-fits-all response very likely is not appropriate for such a diverse array of education segments, but segment-specific plans likely could be very helpful in addressing these issues. Recommend Requiring Segments to Develop and Submit Maintenance Plans to the Legislature. Before the state can determine the best long-term strategy for addressing problems with maintaining educational facilities, it must clearly ascertain the nature and extent of those problems. To this end, we recommend the Legislature require SSS, CCC, CSU, and UC to develop plans that detail how much they set aside annually for scheduled maintenance, how they plan to eliminate their existing deferred maintenance backlogs over the next several years, and how they plan to avoid creating new backlogs thereafter. The information the segments provide in these plans would help not only identify the amount of additional spending that may be warranted but also clarify whether new statutory requirements might be needed to protect state facility investments. That is, if a segment is not setting aside a sufficient amount for scheduled maintenance, the state could consider requiring a certain set aside be made each year. We believe the state working with the segments to develop such long-term plans is critical for ensuring educational facilities are properly maintained moving forward. Monitor Local Decisions and Conditions at Schools. In contrast to the other segments, we believe the state should not impose additional requirements on elementary and secondary schools at this time. The different approach for schools acknowledges the state’s recent decision to shift fiscal decision making and accountability for many aspects of schools’ operations—including maintenance—to the local level. If evidence were to emerge in the future indicating that many schools were failing to dedicate sufficient funds to maintaining their facilities, the state could consider imposing additional spending requirements at that time. 4 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET INTRODUCTION The state’s public education system includes we assess the Governor’s 2014-15 maintenance an immense inventory of infrastructure. This proposals for each education segment and provide report focuses on the maintenance of this existing associated recommendations. We then discuss infrastructure at elementary and secondary problems with the state’s overall approach to schools, the SSS, CCC, CSU, and UC. The report funding maintenance of educational facilities and has three sections. First, we provide background recommend a first step the state could take to on maintenance terms and funding sources. Next, improve it. BACKGROUND Below, we define key maintenance terms and • Scheduled Maintenance Replaces Systems discuss how the education segments typically fund on a Timely Basis. Scheduled maintenance maintenance projects. projects are those involving on-time replacements to building systems and Defining Key Maintenance Terms other infrastructure that have reached the Routine, Scheduled, and Deferred end of their useful life. Examples include Maintenance. As used in this report, replacing an obsolete electrical system “maintenance” refers to one of three types of or aging and unreliable HVAC unit. activities. Figure 1 displays various types of common scheduled maintenance projects. • Routine Maintenance Is Part of Regular, Ongoing Operations. Routine maintenance • Deferred Maintenance Is Created consists of recurring, usual upkeep for When Projects Are Not Addressed in a the preservation of facilities and grounds. Timely Manner. Deferred maintenance The purpose of routine maintenance is to keep roofs, mechanical equipment, Figure 1 utilities, and other infrastructure in good Typical Scheduled Maintenance Projects condition and working order so they achieve their full useful life span. Examples 9 Replace: of routine maintenance include annual • Roof roof inspections (and, when needed, • Heating, ventilation, and air conditioning systems minor patchwork) and regular servicing of • Electrical system heating, ventilation, and air conditioning • Boiler and chiller (HVAC) systems. Lack of proper routine • Fire alarm system • Sewer line maintenance can result in more serious 9 conditions and shorten the useful life of Repaint building exterior facilities and their physical systems. 9 Repave roadways and walkways www.lao.ca.gov Legislative Analyst’s Office 5 2014-15 BUDGET occurs when building systems or other fire alarm systems). In addition, schools and infrastructure are at the end of their campuses may differ on their determinations of useful life and need replacement, but such what is considered deferred maintenance. For projects have been delayed due to a lack example, one institution might label a noisy HVAC of resources or a desire to address other system that is beyond its useful life (according to funding priorities. When replacements and industry standards) as deferred maintenance, while repairs are put off, schools and campuses another may not as long as the system remains in increase the risk of facility conditions working order and replacement reasonably can be eventually disrupting instructional services postponed another year. and requiring more expensive investments, Criteria for Prioritizing Maintenance Projects such as emergency repairs (when systems Also Can Differ. Just as terms and definitions may break down unexpectedly) or capital vary, the education segments historically have improvements (such as major renovations). taken different approaches towards prioritizing As a result, while deferring maintenance maintenance projects. Based on our review, the avoids expenses in the short run, such an CCC system appears to have the most explicit and approach can result in higher costs in the comprehensive approach for classifying projects long run. by type and prioritizing them, as discussed in the nearby box. Terms Are Not Always Clear-Cut. Though this report uses the above terms and definitions, we Funding Maintenance Projects acknowledge that in practice the characterization Various Funding Sources for Maintenance of some projects may be ambiguous as well as Projects. Education segments typically fund differ by school or campus. For example, a college routine maintenance using their general operating or university that replaces or reconstructs a funds. Scheduled and deferred maintenance are water or sewer system throughout a campus may supported by various sources, with the specific consider the project to be capital outlay rather than types of funds varying by education segment. scheduled or deferred maintenance. Similarly, while For example, Figure 2 shows that school districts major facility renovations generally are considered traditionally have used general purpose monies, a type of capital outlay, these projects also often categorical funds, and both state and local bonds address maintenance needs within a given building to pay for scheduled and deferred maintenance. (such as replacement of obsolete electrical and Figure 2 Traditional Funding Sources for Maintenance Vary Across Education Segments General State General Local General State Purpose Categorical Obligation Obligation Lease Revenue University Monies Program Bonds Bonds Bondsa Bonds K-12 Schools X X X X State special schools X X Community colleges X X X CSU X X X UC X X X X a To use lease revenue bonds for maintenance projects the state must employ a special financing mechanism known as “asset transfer.” 6 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET All three of the state’s higher education segments Major Maintenance Projects Commonly traditionally have used general purpose monies and Financed by Bonds. The education segments tend bonds for scheduled and deferred maintenance. to use bond financing (rather than paying cash) As shown in the figure, the specific types of bonds for particularly large scheduled and deferred traditionally used have varied somewhat among the maintenance projects. For example, segments higher education segments. (We discuss differences sometimes use bond financing for roofs given they in types and uses of bonds below.) tend to have a relatively long life span (typically CCC Approach to Prioritizing Maintenance Projects Regulations Set Forth General Criteria for Identifying Maintenance Projects. Statute requires the California Community College’s (CCC’s) Board of Governors (BOG) to establish criteria for ranking maintenance project proposals. Regulations adopted by BOG require the Chancellor’s Office to identify projects in the following three areas—those that are necessary to (1) protect the safety of students and campus staff, (2) prevent disruption to instructional programs, or (3) avoid increased repair or replacement costs in the future. Equal weight is to be given to projects in these three areas. The CCC Chancellor’s Office Has Priority Ranking System by Type of Project. . . For those projects in these three areas, the CCC Chancellor’s Office has established a priority ranking by type of maintenance project. Project types, from highest to lowest priority, are as follows: • Roofs. • Utilities (such as electrical panels, plumbing, and fire alarm systems). • Mechanical (such as heating, ventilation, and air conditioning systems). • Exterior (such as painting and replacing doors and windows). • Other projects (including resurfacing floors and repaving roadways and walkways). . . . As Well as Type of Facility. The Chancellor’s Office further prioritizes among projects based on the type of facility affected. Facility types, from highest to lowest priority, are as follows: • Classrooms and laboratories. • Libraries. • Faculty and administrative offices. • Cafeterias. • Theaters and physical education facilities. • Roadways and walkways. • Warehousing and maintenance facilities. www.lao.ca.gov Legislative Analyst’s Office 7 2014-15 BUDGET about 25 years). Bonds also are used to renovate • University Bonds. The CSU and UC entire facilities and replace all (or most) of systems can issue their own bonds to associated physical systems (thereby sometimes finance infrastructure projects. The CSU addressing considerable deferred maintenance). may use university bonds only for auxiliary As discussed in more detail in our office’s August facilities (such as dormitories, dining halls, 2011 report, A Ten-Year Perspective: California and parking structures) that generate user Infrastructure Spending, bonds come in several fees to pay the debt-service. The UC may different forms. issue university bonds for academic and research facilities as well as auxiliaries. The • State and Local General Obligation UC may pledge general revenues (including Bonds. General obligation bonds for state General Fund and tuition revenue) for education infrastructure may be issued by debt-service payments. (1) the state or (2) school or CCC districts. In both cases, general obligation bonds Funding Choices Have Trade-Offs. The state must be approved by voters to take effect. and segments face various trade-offs in deciding Whereas the debt-service on state general whether to fund maintenance projects upfront obligation bonds typically is paid directly using cash or over time using bond financing. Due by the state General Fund through the to interest costs, bonds are more expensive than annual budget act, the debt-service on local paying for costs upfront (typically using general bonds typically is covered by local property purpose or categorical monies). For this reason, taxes. paying costs upfront often can be the best financing option. A large backlog of maintenance projects, • State Lease Revenue Bonds. Unlike general however, might be difficult to pay for all at once. obligation bonds, lease revenue bonds do In this case, the disadvantage of paying more for not require voter approval and instead can bond financing may be outweighed by the benefits be authorized directly by the Legislature. of completing more projects sooner and mitigating These types of bonds are retired using lease the risk of even more expensive infrastructure costs payments financed primarily by the state in the future. Bond financing is most appropriate General Fund. The payments traditionally when the projects being financed preserve the life have been made through the annual budget of a facility. In these cases, the projects will have life act, with specific payments linked to the spans at least as long as the life of the bond (such affected education segment. that projects are paid off before the end of their useful life). GOVERNOR’S 2014-15 MAINTENANCE PROPOSALS In this section, we discuss the Governor’s an overview of existing maintenance practices 2014-15 proposals for maintenance at K-12 schools, and identified projects, (2) describe the Governor’s SSS, CCC, CSU, and UC. We begin by providing a proposal for 2014-15, (3) assess the merits of the summary and assessment of the Governor’s overall Governor’s proposed approach, and (4) recommend approach. Then, for each segment, we: (1) provide an alternative approach for the Legislature to 8 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET consider. (Since the Governor does not have a new routine and scheduled maintenance practices, and proposal for UC, our discussion for that segment differences in the segments’ funding priorities focuses only on its existing practices.) during the most recent recession. Opportune Time to Address Education Overview of Segments’ Deferred Maintenance. In our recent Governor’s Proposals report, The 2014-15 Budget: A Review of the 2014 The Governor’s budget includes a package of California Five-Year Infrastructure Plan, we proposals for addressing maintenance of education commend the administration for highlighting facilities. Figure 3 lists the proposals for each deferred maintenance as a problem and beginning education segment and provides our corresponding to address it. To the extent the state reduces recommendations. The figure also shows the cost deferred maintenance at the education segments, of identified maintenance projects at each segment. it will have taken a positive step toward preserving Differences in identified maintenance costs are this infrastructure and potentially reducing future due to various factors, including the overall size of costs. Given that recent improvements in state each of the segments, differences in the segments’ revenues are reliant on volatile income sources, Figure 3 Summary of Governor’s 2014‑15 Maintenance Proposals and LAO Recommendations Cost of Segment Identified Projects Governor’s Proposal LAO Recommendation K‑12 Schools Unknown (likely Provide $188 million Fund projects using LCFF funds several billion Proposition 98 funds for certain or provide $188 million but explore dollars) low-performing schools. best ways to allocate. SSS $25 million Provide $5 million non- Reject proposed augmentation but Proposition 98 funds for sustain existing funding level for maintenance but cut base by maintenance.b $3.6 million, for a net increase of $1.4 million.a CCC $1 billionc Provide $87.5 milliond Approve Governor’s proposal. Proposition 98 funds. Consider providing higher amount, if funds available. CSU $1.8 billione Require CSU to fund maintenance Reject Governor’s proposals but within its main budget explore bond financing options. appropriation. Authorize CSU to issue revenue bonds for certain maintenance projects. UC Unknown (likely No new proposal. Assumes all N/A several billion infrastructure projects, including dollars) maintenance, are addressed within main support appropriation. a Augmentation could be spent across 2014-15 and 2015-16. b Provide $3.6 million in one-time funds to backfill proposed base cut. c This estimate primarily includes deferred maintenance but also some scheduled maintenance projects. d Colleges would be required to dedicate a like amount of local funding for maintenance. e Estimate provided by CSU. Associated data to support this estimate not available. The university has requested funding and authority to finance $250 million in deferred maintenance projects in 2014-15. LCFF = Local Control Funding Formula and SSS = State Special Schools. www.lao.ca.gov Legislative Analyst’s Office 9 2014-15 BUDGET now appears to be a particularly opportune time for county offices of education, and charter schools. the state to make significant one-time investments Altogether, 6.2 million students are enrolled in maintaining infrastructure (while avoiding at about 10,000 school sites operated by these increasing ongoing spending commitments that agencies. Of the three groups of agencies, school may be difficult to sustain if state revenues dip in districts are by far the largest group, with about 950 future years). school districts serving 5.8 million students and Governor’s Proposed Funding Amounts operating the vast majority of school sites (about Largely Arbitrary. While we believe dedicating 9,000). Each school district is overseen by a locally one-time funding for deferred maintenance makes elected governing board. State-level administration sense, we are concerned that the Governor’s is provided by Department of Education (CDE). package does not apply consistent criteria for In 2013-14, public elementary and secondary how much maintenance funding to provide each schools are receiving operational funding totaling education segment. The Governor’s proposals do about $50 billion (state General Fund and local not appear to consider the existing maintenance property tax revenues). Of this amount, more practices at each segment, the degree to which each than $40 billion is allocated for general purposes segment’s deferred maintenance backlog currently through the Local Control Funding Formula is being addressed, or the size of each segment’s (LCFF)—a recently established K-12 funding backlog. formula designed to provide schools with more Recommend Legislature Establish General flexibility over their spending decisions. Guidelines for Determining How Much LCFF Funds Maintenance at Every School. Maintenance Funding to Provide Each Segment. All schools are to use a portion of their LCFF While how much funding to provide each segment allocations for maintenance, as maintenance likely will differ based on circumstances unique is considered a basic service and is one of eight to that segment, we recommend the Legislature areas identified as state priorities. Prior to the develop general guidelines for deciding how much LCFF, schools funded maintenance through to provide each segment. For example, funding various sources, including a deferred maintenance amounts for the segments could be based on criteria categorical program. Deferred maintenance such as: the degree to which projects address categorical funds could be used for many types urgent life and safety needs; the degree to which of maintenance projects, including major repairs, existing funding practices are addressing ongoing replacement of roofs and flooring, painting, and maintenance needs; the size of the existing deferred lead removal. Schools generally were to match maintenance backlogs; and the extent to which state categorical funds dollar for dollar, though the projects reduce future state costs, fulfill legal some schools received additional state funding to requirements, or leverage nonstate funding sources. help with the matching requirement. The deferred maintenance program was eliminated in 2013-14 K-12 Schools as part of the LCFF restructuring. In addition, school districts that receive funding from state Overview facility bonds are required to set aside at least California Has About 10,000 Public School 3 percent of expenditures for facility maintenance Sites. The state’s public elementary and secondary each year for 20 years—a requirement that still education system consists of school districts, affects many districts. 10 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET ERP Funds Maintenance at Small Set of approved. Just over 100 districts have approved Schools. The state also currently has a categorical applications on file for emergency repair projects program called the ERP that provides funding at over 700 school sites. Common projects include for urgent maintenance projects at certain school replacing or repairing heating and air conditioning sites. This program was created in 2004 as part of a units, plumbing, electrical systems, and roofs. legal settlement with several advocacy groups that Assessment and Recommendation asserted the state was responsible for addressing poor facility conditions at low-performing schools. Three Notable Concerns With Governor’s The program was designed to provide grants to ERP Proposal. Because ERP projects are focused these schools to address urgent projects, such as on emergencies, most projects likely already have fixing gas leaks or broken plumbing. The enacting been addressed by school districts since they legislation specified the state was to contribute a originally applied for funding back in 2008. For total of $800 million for the program over several example, a district almost certainly would have years. The state provided a total of $388 million had to address gas leaks, broken heating and air over the first several years of the program but has conditioning units, and leaking roofs. Because not provided any additional funding since 2008-09. most (if not all) originally approved projects likely Maintenance at Existing School Sites Likely have been completed, the ERP funds allocated Costs Several Billions Annually. The state has under the Governor’s proposal effectively would neither a comprehensive inventory of schools’ provide some districts with additional general scheduled and deferred maintenance projects nor purpose monies. The Governor’s proposal also an estimate of total associated costs statewide. A may provide funds to districts that no longer recent school infrastructure study estimated the are among the lowest-performing schools—that annual cost of all scheduled school maintenance is, they may no longer meet the program’s basic at between $3.5 billion and $7.1 billion. No studies eligibility criteria. Finally, providing special have been undertaken recently to estimate the funding for maintenance through a categorical magnitude of schools’ deferred maintenance. program such as ERP runs counter to the state’s Estimating deferred maintenance costs is more recent decision to eliminate categorical substantially more difficult because these costs programs, including the deferred maintenance depend on the decisions of individual schools program, and require schools to address their regarding whether to complete particular scheduled facility maintenance with LCFF funds. (The LCFF maintenance projects on time. also provides substantially higher funding levels to schools with high concentrations of low-income Governor’s Proposal students—some of the same schools intended to Provides $188 Million for ERP. The Governor benefit from ERP.) proposes to provide $188 million (one-time, Recommend One of Three Options for Proposition 98 General Fund) for ERP. The funds Addressing ERP Obligation. The first option is would be made available only for districts that to approve the Governor’s proposal, which would submitted ERP applications to the state in 2008 provide funds to districts that applied several and had those applications approved. Funds would years ago for emergency repairs. This option be disbursed to districts in the order in which would honor the state’s commitment from many the applications were originally submitted and years ago to pay these districts, but it may not www.lao.ca.gov Legislative Analyst’s Office 11 2014-15 BUDGET have much impact on improving school facilities remained relatively constant in recent years— today since the funding likely would function as even throughout the economic downturn—and general purpose monies for most of these districts. historically has not been linked directly to the The second option is to open up a new round number of students actually served by the schools of ERP applications for either low-performing and centers. schools or all schools. This option has the Maintenance Projects Typically Funded From advantage of targeting funding to projects that SSS Operating Budget. The state budget does not exist today but would change the distribution of provide funding explicitly for maintenance at the funding across school districts. A third option SSS. Rather CDE is responsible for determining for the Legislature is to adopt statutory language how much to set aside for maintenance projects indicating the state has met its obligation for ERP from the operating funding provided for the since it provided billions of dollars in new LCFF SSS. According to CDE, prior to 2002 the funding in 2013-14 and requires that districts department dedicated about $500,000 annually use a portion of this money to maintain their for maintenance. This was insufficient to address facilities. This option would streamline the state’s scheduled maintenance and a corresponding school finance structure but also would change backlog of deferred maintenance projects the distribution of funding across districts. developed. Beginning in 2002, CDE began setting aside $2.4 million (or slightly more than SSS 2 percent of the SSS operating budget) for annual maintenance projects. The department indicates Overview this amount is sufficient to address scheduled State Operates Three Special Schools and maintenance projects and begin to “chip away” at Three Diagnostic Centers. The SSS consist of three the backlog of deferred projects. (In 2012-13, CDE specialized schools for deaf and blind students: redirected an additional $2.3 million in unspent the California Schools for the Deaf in Fremont prior-year funds to address a larger number of and Riverside (which each serve around 400 deferred projects, spending a total of $4.7 million.) students) and the California School for the Blind The existing list of deferred maintenance projects in Fremont (which serves around 70 students). for the six SSS facilities totals $25 million. About half of the students attending these schools Legislature Reduced Ongoing SSS Budget, reside in on-site dormitories while about half Backfilled With One-Time Funds in Two Most attend as “day students.” Additionally, the state Recent Years. Beginning in 2012-13, the state operates three diagnostic centers (located in reduced annual ongoing state General Fund Fremont, Fresno, and Los Angeles) that identify support for the SSS by $1.8 million. In both students’ disabilities and offer training to families 2012-13 and 2013-14, however, the Legislature and local educational agencies. (Throughout provided a like amount of one-time federal special this report, our discussion of SSS includes all six education funds to backfill this reduction. As locations—the three schools and three centers.) such, the SSS has been able to sustain overall The schools are administered by CDE and have spending levels—including maintenance a support budget of about $95 million annually. expenditures—despite the reduction in state The annual budget appropriation for the SSS has support. 12 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET Governor’s Proposal represent pressing health and safety needs. For example, we do not believe Governor Proposes Additional One-Time that buildings would be unsafe or at risk Funds for SSS Maintenance. The Governor of further damage if funding were not proposes providing $5 million (one-time, immediately dedicated to painting interior non-Proposition 98 General Fund) to SSS. classrooms and replacing carpets. Of this amount, $3.6 million would continue backfilling the $1.8 million reduction to the In-Depth Review of State’s Approach SSS operating budget (described earlier) for to Funding SSS Needed Prior to Additional 2014-15 and 2015-16. (The administration has Investments. We believe making additional not indicated whether the SSS operating budget investments in the SSS would be premature before would be reduced permanently beginning in the state addresses several longstanding concerns 2016-17.) The remaining $1.4 million represents we have identified with the overall SSS funding additional maintenance funding for SSS to structure. Issues we believe merit more in-depth spend across 2014-15 and 2015-16. Though the exploration include the disconnect between administration has not provided detail on which funding levels and student enrollment, as well as specific maintenance projects would be supported inconsistencies in the state’s approach to funding with the additional funds, CDE has indicated it comparable special education services provided by would undertake some major projects (including the SSS and local educational agencies. replacing roofing and improving theater Recommend Sustaining Existing Funding accessibility) and some minor projects (including Level for Maintenance, Not Providing Additional painting classrooms and replacing carpets). Funding. Because we do not believe the SSS are among the highest priorities for additional Assessment and Recommendation state investments, we recommend rejecting the Governor’s SSS Proposal Provides Too Much Governor’s proposed $1.4 million augmentation. Funding. We believe the Governor’s proposal Nonetheless, we think the state should prioritize for funding maintenance projects at the SSS is maintaining existing facilities in safe, working excessive for two reasons. condition. To this end, we recommend the • Solid Maintenance Plan Already Being Legislature provide the $3.6 million in one-time Implemented. The CDE already is state funds to continue backfilling the base implementing a long-term plan to budget reduction in the SSS operating budget, thereby $2.4 million annually to address both enabling CDE to sustain its existing maintenance scheduled and deferred maintenance. practices over this period. This funding We believe this plan is adequate both to level would be sufficient to complete projects avoid worsening conditions and to make addressing urgent health and safety needs. While progress on addressing the deferred this approach would use one-time funds to maintenance backlog. backfill an ongoing cut over the next two years, we believe such an approach makes sense given • Not All Projects Represent Urgent Needs. it would provide the Legislature time to conduct In reviewing how CDE plans to use any an in-depth review of the SSS before making new additional maintenance funding, we ongoing state commitments. believe not all of CDE’s identified projects www.lao.ca.gov Legislative Analyst’s Office 13 2014-15 BUDGET CCC propose to fund from their five-year plans, including the nature of and justification for each Overview project, estimated cost, and implementation time frame. As discussed earlier, districts rank their Community Colleges Consist of 112 Colleges project proposals in priority order using criteria Located Throughout the State. The CCC system developed by the CCC Chancellor’s Office. Upon is made up of 112 colleges operated by 72 locally approval of these plans, the CCC Chancellor’s governed districts throughout the state. The Board Office allocates categorical funds to districts on a of Governors oversees the statewide system and per-student basis. appoints a chancellor to run day-to-day statewide Funding for CCC’s Maintenance Categorical operations at the Chancellor’s Office (located in Program Has Been Sporadic. Over the past Sacramento). The system has a total of about 5,300 decade, the state has been inconsistent in buildings and 24,000 acres of land. In 2013-14, providing dedicated funding for CCC maintenance CCC is providing instruction to about 2.3 million through the categorical program. Throughout students and receiving about $7 billion in state the mid-2000s, annual budgets provided between operational support (which includes state General $11 million and $14 million (Proposition 98 Fund, local property taxes, and student fee General Fund) for scheduled and deferred revenues). maintenance through the categorical program. Due Categorical Program Provides Funds for to the state’s fiscal crisis, the 2009-10 Budget Act Maintenance. Community colleges typically cover eliminated all funding for the categorical program. maintenance costs using three primary funding The program did not receive another appropriation sources: categorical funds, apportionments (general until the 2013-14 Budget Act, which provided purpose funds), and local general obligation $15 million for maintenance. bond monies. The CCC’s maintenance categorical CCC Has Plan to Undertake About $1 Billion program is called “Physical Plant and Instructional in Maintenance Projects Over Next Five Years. Support.” The “Physical Plant” component of The CCC system has identified a total of about the program funds scheduled and deferred $1 billion in scheduled and deferred maintenance maintenance. (The “Instructional Support” projects that it would like to see addressed over component of the program funds replacement of the next five years if funding is available. The instructional equipment and library materials.) CCC Chancellor’s Office’s database that contains To qualify for these maintenance funds, districts districts’ five-year plans does not disaggregate costs must meet three statutory requirements: (1) adopt by scheduled and deferred maintenance projects. and submit to the CCC Chancellor’s Office a Based on our discussion with several districts, five-year plan of maintenance projects, (2) dedicate however, we estimate that roughly 90 percent of at least half of 1 percent of district apportionment overall costs identified in the plans (approximately funds for routine maintenance; and (3) provide a $900 million) are deferred maintenance projects. one-to-one local match (using apportionments, local bond monies, or other non-categorical Governor’s Proposal program funds). Before districts receive categorical Governor Proposes Additional Support monies, they must submit to the CCC Chancellor’s for CCC Maintenance. The Governor’s budget Office information on the specific projects they provides $87.5 million (one-time, Proposition 98 14 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET General Fund) for CCC’s maintenance categorical higher Proposition 98 minimum funding guarantee program. Because districts would be required to for 2013-14, 2014-15, or both years.) provide a one-to-one local match, the Governor’s Rethink State’s Long-Term Approach to proposal would result in total funding of Funding CCC Maintenance. If the Legislature $175 million for CCC maintenance projects. were to provide roughly $100 million per year for Districts would use these maintenance monies the subsequent four years and community colleges to fund various types of projects, beginning with continued to match this funding, then CCC’s the highest priority projects—roof repairs and existing $1 billion deferred maintenance backlog replacements in classrooms and laboratories. (The would be eliminated by the end of 2018-19. As we Governor’s proposal would provide an additional discuss in more detail in the last section of this $87.5 million for the Instructional Support report, we recommend the Legislature consider component of this categorical program.) ways to ensure a new deferred maintenance backlog does not arise thereafter. To avoid a new Assessment and Recommendations backlog, CCC requires better ongoing maintenance CCC Maintenance Has Been Underfunded. practices. Community colleges generally do not As noted earlier, CCC has identified $1 billion appear to have a regular practice of investing in near-term maintenance projects. This is adequate amounts in scheduled maintenance considerably higher than the about $600 million such that projects are done on time and not in costs identified by the system in the late 1990s deferred. Moving forward, we recommend the and early 2000s. The major reason for the growth Legislature revisit the current state policy of having of these costs is that maintenance in recent years a special pot of funding for deferred maintenance has been underfunded. Despite its importance (which ideally would not exist) in favor of a new in supporting CCC’s educational mission, expectation that districts accommodate annual maintenance generally has been viewed both by maintenance needs within their general operating the state and districts as a lower priority than other budgets. Such an approach would send a stronger CCC programs. message to community colleges that proper Recommend Approval of Governor’s ongoing maintenance is a core local responsibility. Maintenance Proposal, Consider Additional Insufficient Justification for Instructional Increases. Given the relative lack of state funding Support Proposal, Recommend Legislature for CCC maintenance in recent years, we commend Request Additional Information. While we believe the Governor for making CCC maintenance one the Governor’s maintenance proposal has merit, of his budget priorities, and we recommend the the administration has not justified its companion Legislature approve the proposed $87.5 million request for $87.5 million to replace CCC for the CCC maintenance program. Even with the instructional equipment and library materials. required local match, however, we note that the According to the administration, the proposed amount dedicated to maintenance in 2014-15 would amount was determined merely by following be well short of the $1 billion in total identified the historic practice of splitting categorical costs. If additional funding were available, we program funds evenly between maintenance and recommend the Legislature consider increasing the instructional support. Unlike with maintenance, amount of one-time funding for CCC maintenance. the CCC Chancellor’s Office does not maintain (Updated May revenue estimates could result in a a systemwide list of instructional support www.lao.ca.gov Legislative Analyst’s Office 15 2014-15 BUDGET priorities and corresponding costs. In fact, the about $135 million in core operating funds on administration has not been able to provide any maintenance in 2012-13 (about 3 percent of CSU’s information (such as annual systemwide equipment core operating budget). expenditures) that would suggest whether Larger Maintenance Projects Approved $87.5 million is an appropriate level of funding. Through Capital Outlay Process, Funded Using This lack of data makes assessing the merit of the Bonds. The CSU annually submits a five-year Governor’s proposal difficult. We recommend the capital outlay plan to the Department of Finance Legislature direct the administration to provide (DOF). The CSU Chancellor’s Office prioritizes justification for the requested $87.5 million. If those campus projects that address structural and the administration is not able to provide such health or safety code deficiencies as well as those justification, we recommend the Legislature projects that make facilities operable by providing redirect all or a portion of these monies to deferred equipment or replacing physical systems. Both maintenance or other Proposition 98 priorities. of these priority areas may include maintenance projects (such as utility system replacement) as well CSU as projects not considered maintenance (such as new construction or program-related renovation). Overview The Governor typically includes some projects from CSU Includes 23 Campuses and 8 Centers. the CSU five-year plan in his proposed budget, The CSU serves a total of 445,000 undergraduate financing them with state general obligation or and graduate students at its 23 campuses and lease revenue bonds. The state has approved no 8 off-campus centers located across the state. higher education general obligation bonds since The system is overseen by a 25-member Board of 2006, however, and state lease revenue financing Trustees, with most of the members appointed by has been minimal in recent years. As a result, the Governor. The Trustees appoint a chancellor CSU has continued to defer a number of large, that oversees campus presidents and serves as the high-priority maintenance projects. head of the CSU Chancellor’s Office (located in CSU Estimates $1.8 Billion in Deferred Long Beach). The CSU system has a total of 2,180 Maintenance. Based on campus surveys, buildings on 21,364 acres of land. The system’s CSU estimates the value of this backlog at facilities currently are valued at about $14 billion. $1.8 billion. (Both the Governor’s budget and In 2013-14, CSU is receiving $5.5 billion in core Trustees’ budget request mention a different funding ($2.8 billion General Fund support and total backlog—$473 million. This lower amount, $2.7 billion student fee revenue). identified as CSU’s “priority” deferred maintenance Campuses Fund Some Maintenance Through backlog, is not associated with specific projects. Operating Budget. The uses of core operating Instead, it is a decades-old amount of deferred funds are determined by the CSU Trustees, maintenance adjusted for inflation.) The CSU’s CSU Chancellor’s Office, and individual campus estimate of total deferred maintenance reflects a presidents. Between 2007-08 and 2012-13, many high-level assessment because the Chancellor’s campuses reduced maintenance spending in Office does not maintain a detailed, project-level response to reductions in state funding, particularly maintenance list. (That is, CSU does not have a list to help mitigate reductions to academic programs of all maintenance projects that is comparable to its and student services. Systemwide, campuses spent five-year capital outlay plan.) 16 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET Governor’s Proposal payments for these bonds, approximately $15 million annually for each $250 million in Governor Proposes New Capital Outlay debt issued, would come from CSU’s support Process for CSU. Similar to a new capital outlay appropriation. Annual augmentations under process approved for UC last year, the Governor the Governor’s long-term funding plan for the proposes to shift general obligation and lease university would provide about $10 million in new revenue bond debt-service payments into CSU’s funding each year from rolling CSU’s debt-service main appropriation. Moving forward, the state into its support budget, and CSU would provide no longer would adjust CSU’s budget for changes the remaining $5 million from the university’s in debt-service costs. Instead, the state would general purpose funding. More recently, however, provide annual, unallocated base increases and the CSU Chancellor’s Office has indicated that the the university would be responsible for funding university is reluctant to commit operating funds to all maintenance and debt-service from within its begin addressing the deferred maintenance backlog main appropriation. (The proposed unallocated unless it receives full funding of the Trustees’ base increase for 2014-15 is $142 million.) Under budget request and additional funding to recognize the Governor’s proposal, CSU would issue its own upcoming spikes in debt-service payments for university bonds for various types of capital and already-approved projects. (The Governor’s maintenance projects and could restructure its proposed budget provides about 60 percent of the existing lease revenue bond debt. Compared to Trustees’ requested amount and does not address state lease revenue bonds, university bonds likely future increases in debt-service payments.) would allow CSU to finance large maintenance projects more easily. (To use state lease revenue Assessment and Recommendations bonds for maintenance, the university typically Several Serious Concerns With Governor’s has to undertake a special process known as Proposal. The Governor’s approach for CSU has “asset transfer” to identify sufficient collateral.) several serious drawbacks. Most troubling, the To use its new authority, CSU would be required Governor’s approach diminishes the Legislature’s to submit project proposals to DOF for approval, role in capital and maintenance decisions for with a 60-day notification period provided to the university. That is, the Governor takes the the Joint Legislative Budget Committee. (For Legislature out of the business of reviewing CSU energy efficiency and maintenance projects, the projects through the regular budget process. The notification period would be 30 days.) The CSU’s DOF would approve the university’s projects capital and maintenance projects no longer would through an abbreviated review process, further be reviewed as part of the regular budget process. reducing transparency and precluding public input. Using Governor’s Approach, CSU Proposes In addition, the Governor’s proposal would make to Reduce Deferred Maintenance Backlog—but planning for infrastructure spending statewide Only If Fully Funded. According to the CSU more difficult, as the state would not be able to Trustees’ November 2013 budget request, the prioritize funding as easily among higher education university would use the proposed new authority and other program areas. Another concern with and a portion of its General Fund augmentation to the Governor’s proposal relates to the amount of issue $250 million in university bonds each year for funding initially rolled into CSU’s main support the next three years primarily to address priority appropriation. Specifically, the proposal presumes deferred maintenance projects. Debt-service www.lao.ca.gov Legislative Analyst’s Office 17 2014-15 BUDGET the amount of debt-service related to one particular hand, borrowing tends to be about one-third more fiscal year is an appropriate amount upon which to expensive than pay-as-you-go funding. base ongoing infrastructure needs, yet it offers no Recommend Legislature Reject Governor’s evidence to this effect. In fact, general obligation Proposal. We recommend rejecting the Governor’s bond debt-service for existing projects can fluctuate proposal to (1) move current debt-service amounts notably over time due to bond authorizations and into the university’s support budget, (2) change sales. Furthermore, past bond authorizations may the approval process for university projects, and not accurately reflect future facility demands. (3) provide statutory authority for CSU to issue Proposal Does Not Specifically Address university bonds to address deferred maintenance Maintenance Funding. Because the Governor’s needs. If the Legislature wishes to begin exploring proposed General Fund augmentation for CSU the possibility of using university bonds to is unallocated, it does not specifically address finance large maintenance projects at CSU (while maintenance needs. A recent CSU internal maintaining the current process for reviewing audit estimated that an additional $99 million projects), it could direct CSU and DOF to provide in annual maintenance spending would be additional information regarding the relative costs, necessary to prevent growth in the current deferred benefits, and risks of state and university bonds. maintenance backlog. Given their stated priorities, Depending on what it learned, the Legislature the Trustees would be unlikely to allocate this could consider authorizing this financing amount for maintenance from the university’s mechanism for CSU next year. proposed $142 million General Fund augmentation. UC In addition, the CSU Chancellor’s Office has indicated that it would not address maintenance Overview needs for several years if provided the funding level proposed in the Governor’s budget. As a result, the UC Operates Ten Campuses Across the State. deferred maintenance backlog would continue to The UC serves a total of 243,000 undergraduate, grow. graduate, and professional students at ten Proposal Raises Questions About Appropriate university campuses, including five medical Funding Sources for Deferred Maintenance centers, located across the state. Campus facilities Projects. The university’s plans for financing include classrooms, laboratories, libraries, deferred maintenance project with long-term dormitories, dining halls, student unions, and bonds raises larger questions regarding borrowing research and office space. In total, UC maintains for these costs. On the one hand, if the projects nearly 5,800 buildings but only about half of its preserve the useful lives of facilities for at least space is eligible for state funding. State funding the term of borrowing, this approach may be generally is limited to buildings serving core justified. Debt-service costs could be lower for instruction and research purposes. In 2013-14, UC university bonds than for state lease revenue expects to spend $5.8 billion on its core instruction bonds because the university program currently and research programs, with $2.8 billion coming has a slightly better credit rating than the state. from the state General Fund and $2.5 billion from In addition, university bonds would provide student tuition payments. (The remainder comes more flexibility than state lease revenue bonds to from a few other revenue sources, such as a portion finance large maintenance projects. On the other of federal research grant overhead.) The university 18 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET is overseen by a Board of Regents, comprised issue university bonds backed by state funds. (As mainly of members nominated by the Governor. noted in the CSU discussion, the state also shifted The Regents appoint a president that oversees funding for state debt-service into UC’s operating campus chancellors and serves as the head of the budget and removed the review of projects from the UC Office of the President (located in Oakland). regular budget process.) Maintenance Funded Through Operating UC Estimates Billions of Dollars in Deferred Budget and Bond Funds. The state does not Maintenance but Cannot Provide Associated designate any operating funds in UC’s state budget Data. The UC indicates it has billions of dollars in appropriation specifically for maintenance. Instead, deferred maintenance. The university states that the state allows the university to decide how it does not have a more specific estimate because much to spend on maintenance. (The UC Office it does not have a project-level maintenance list. of the President, in turn, allows each campus to The university reports that it currently uses a determine how much to spend on maintenance.) In “life-cycle” model to track maintenance that assigns 2013-14, UC expects to spend about $200 million a standard useful life to each building system based from its operating budget on routine maintenance, on age. For example, the model might assume that including $176.5 million for building maintenance a roof lasts 25 years. In reality, however, building and $24.4 million for grounds maintenance. The systems may need to be replaced earlier or later university reports that some campuses spend depending on a variety of factors. To have more operating funds on scheduled and deferred accurate data on building conditions, UC is in the maintenance too, but was unable to provide related process of implementing a new tracking system that expenditure information. Regarding bond funds, would provide real-time condition assessments on the state historically issued general obligation and all university buildings. The university states that lease revenue bonds that could be used for certain it will have a more accurate estimate of scheduled large scheduled and deferred maintenance projects. and deferred maintenance once this new system is In 2013-14, the state granted UC the authority to ready in 2017. STATE NEEDS A LONG-TERM STRATEGY Below, we discuss our concerns with the state’s Concerns With State’s Existing Approach overall approach toward maintaining education We have three main concerns with the state’s facilities and then recommend a first step for overarching approach to maintaining education how the state might develop a long-term strategy facilities. Given some education segments have for reducing—and eventually eliminating— more sophisticated maintenance practices and data the state’s significant deferred maintenance compared to others, these concerns more strongly backlog. Our main concerns and corresponding relate to some segments than others. recommendations echo issues we raised earlier this Existing Budget Practices Contributing to year in related reports, including A Review of the Deferred Maintenance Backlog. The existing 2014 California Five-Year Infrastructure Plan. backlog of deferred maintenance projects suggests that the education segments have not dedicated sufficient funds to maintaining facilities. These www.lao.ca.gov Legislative Analyst’s Office 19 2014-15 BUDGET trends likely result from problematic budgeting will prioritize among overdue and otherwise practices at both the state and local levels. scheduled maintenance projects. During the recent economic downturn, the state Recommendations for Improving implemented unallocated funding reductions Overall System across the education segments, yet encouraged the segments to preserve existing service levels Require Segments to Develop and Submit for students. The segments responded by reducing Maintenance Plans to the Legislature. Before expenditures for facilities and deferring scheduled the state can determine the best strategy for maintenance projects. Though most of the addressing existing problems with maintaining segments’ backlogs grew during the recession, the educational facilities, it must clearly ascertain the segments had deferred maintenance backlogs even nature and extent of those problems. To this end, prior to that time, suggesting they historically we recommend the Legislature require SSS, CCC, have not adequately prioritized spending on CSU, and UC to submit maintenance plans to the maintenance. legislative fiscal committees by January 1, 2015. State Lacks Consistent Definitions and (As discussed below, we recommend a somewhat Adequate Data to Assess Magnitude of Deferred different approach for school districts.) Maintenance Backlog. Determining the Producing these plans likely will be easier for appropriate amount of maintenance funding to the two segments (SSS and CCC) that already provide is difficult when the state cannot identify maintain relatively detailed information on their the magnitude of maintenance projects at each maintenance projects, whereas compiling the segment. As discussed in the previous section, requested data may be a more involved process for some education segments (SSS and CCC) have CSU and UC. We recommend the plans be required provided the state with a comprehensive list of their to contain information on both scheduled and existing deferred maintenance projects, whereas deferred maintenance, including: others (school districts, CSU, and UC) have not. • A description of the definitions used to Moreover, each segment uses somewhat different classify maintenance projects and the definitions for classifying maintenance projects as criteria used to prioritize among types of well as different criteria for prioritizing amongst projects. projects, making cross-segmental comparisons challenging. • A description of the approach used over No Long-Term Plan for Eliminating Existing the last ten years to fund maintenance Deferred Maintenance Backlog. Even if the state projects, as well as the separate amounts could identify the existing backlog of all segments’ and funding sources annually allocated for deferred maintenance, neither the segments nor the scheduled and deferred maintenance. state has developed a comprehensive plan for how • A brief description of types of outstanding and when to address these projects. As a result, the deferred maintenance projects along with state does not know if backlogs over the next few associated costs. years will grow, shrink, or be eliminated. It also does not know how most of the segments would • A multiyear expenditure plan for how to finance any reductions in their backlogs over time. address this backlog of projects, including It also does not know how most of the segments proposed funding sources. 20 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET • A plan for how to avoid developing a that traditionally has applied to school districts maintenance backlog in the future. This receiving state facility bond funding.) plan should identify how much funding the Monitor Local Decisions and Conditions at segment annually would need to set aside Schools. In contrast to the other segments, we for maintenance to achieve this objective believe the state should not impose additional based on a clearly specified industry maintenance requirements on elementary and standard practice. secondary schools at this time. A different approach for schools acknowledges the state’s Consider Future Budgetary Requirements recent decision to shift fiscal decision making to Encourage Proper Maintenance Practices. and accountability for many aspects of schools’ The information the segments provide in these operations—including maintenance—to the local maintenance plans would help not only identify level. Schools are required to spend a portion of the amount of additional spending that may be their LCFF allocation on maintenance because warranted but also clarify whether new statutory maintaining facilities in good repair is one state requirements might be needed to protect state priority area that schools must address in their facility investments. That is, if a segment is not Local Control and Accountability Plans. Should regularly setting aside enough to cover scheduled evidence emerge—via these plans or other maintenance, the state could consider requiring means—that many schools are failing to dedicate the segments moving forward to set aside a certain sufficient funds to maintaining their facilities, the amount annually to maintain facilities. (Such a state could consider imposing additional spending practice would be comparable to the requirement requirements in the future. CONCLUSION A deferred maintenance project is one that backlogs are addressed, infrastructure is properly should have been addressed earlier under a maintained moving forward and future backlogs properly functioning maintenance program. The do not develop, associated costs are contained, existence of deferred maintenance thus represents and students have both safe and academically a maintenance program failure. As such, the state appropriate facilities. Currently, a long-term should pursue a strategy that seeks to eliminate strategy for meeting these objectives does not deferred maintenance from its education segments. exist—with no clear strategy evident among the While a one-size-fits-all solution is not appropriate administration, state, or segments. We believe the for such a diverse array of education segments, state working with the segments to develop such we believe the state should have a long-term long-term plans is critical for ensuring educational strategy for ensuring existing maintenance facilities are properly maintained moving forward. www.lao.ca.gov Legislative Analyst’s Office 21 2014-15 BUDGET 22 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET www.lao.ca.gov Legislative Analyst’s Office 23 2014-15 BUDGET Contact Information Rachel Ehlers State Special Schools 319-8330 Rachel.Ehlers@lao.ca.gov Paul Golaszewski Elementary and Secondary Schools 319-8341 Paul.Golaszewski@lao.ca.gov University of California Judith Heiman California State University 319-8358 Judy.Heiman@lao.ca.gov 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 pro- vides 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. 24 Legislative Analyst’s Office www.lao.ca.gov