LAO

The 2016-17 Budget: Higher Education Analysis

Legislative Analyst's Office · lao-3372 · Report · 2016-02-26

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The 2016-17 Budget: Higher Education Analysis MAC TAYLOR • L E G I S L A T I V E A N A L Y S T • FEBRUARY 2016 2016-17 BUDGET TABLE OF CONTENTS Executive Summary ��3 Introduction ��5 Higher Education in Context ��5 Overview of Higher Education ��5 Enrollment ��5 Tuition and Financial Aid ��12 Performance ��18 University of California ��22 Overview ��22 Alternative Revenue ��24 Inflation ��25 Unfunded Pension Liability ��26 Meeting Enrollment Growth Expectations for 2016-17 ��28 Setting Enrollment Target for 2017-18 ��29 Maintenance ��29 Academic Quality ��30 California State University ��31 Overview ��31 Compensation��31 Enrollment ��32 Deferred Maintenance ��33 Other Expenditures ��34 California Community Colleges ��35 Overview of Governor’s CCC Budget Proposals ��35 Workforce Proposals ��37 Enrollment Levels and Funding ��47 Basic Skills Initiative ��48 Other Ongoing Proposals ��55 One-Time Funding ��59 Hastings College of the Law ��63 Overview ��63 Enrollment ��64 Tuition and Financial Aid ��66 Deferred Maintenance ��66 Compensation��67 California Student Aid Commission ��68 Overview ��68 Cal Grants ��69 Middle Class Scholarships��70 Summary of LAO Recommendations ��73 2 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET EXECUTIVE SUMMARY Overview Under Governor’s Budget, Total Funding for Higher Education Reaches $48.2 Billion. Accounting for funds from all sources, the Governor’s budget includes $48.2 billion for higher education in 2016-17, an increase of $1.4 billion (3 percent) from the revised 2015-16 level. This funding primarily supports the University of California (UC), the California State University (CSU), the California Community Colleges (CCC) and the California Student Aid Commission. Though many fund sources help support higher education, the main fund sources for undergraduate and graduate education are state General Fund, student tuition revenue, and, at CCC, local property tax revenue. These fund sources for UC, CSU, and CCC combined grow from $20.7 billion in 2015-16 to $21.6 billion in 2016-17, an increase of $916 million (4 percent). The Governor assumes tuition charges for resident students at each segment remain flat. Governor’s Budget Contains a Few Proposals for UC and CSU, Many for CCC. The Governor’s budget increases state General Fund for UC and CSU each from $3.3 billion to $3.5 billion. These proposed increases include ongoing unrestricted base increases for UC ($125 million, 4 percent) and CSU ($148 million, 5 percent), one-time funding of $171 million for paying down a portion of UC’s unfunded pension liability, and one-time funding of $35 million each for UC and CSU deferred maintenance. For CCC, the Governor’s budget increases Proposition 98 funding to $8.3 billion, an increase of $262 million (3 percent) from the revised current-year level. The Governor’s budget increases CCC apportionments by $115 million to fund 2 percent enrollment growth and augments various categorical programs, most notably, providing $200 million for a new program to expand access to career technical education (CTE) and $30 million to revamp the existing Basic Skills Initiative. The Governor provides $290 million for CCC deferred maintenance and instructional support. Key Messages Recommend Linking UC and CSU Funding Increases With Legislative Priorities. Under the Governor’s budget, UC and CSU would have significant discretion over their ongoing budget augmentations. We recommend the Legislature review the expenditure plans that UC and CSU have developed to determine if they conform with legislative priorities. We further recommend the Legislature designate funding in the state budget for areas it deems high priorities. Recommend Legislature Continue Enrollment-Based Budgeting. The Governor’s budget does not set enrollment targets for UC and CSU. Though the state has been inconsistent in recent years in setting enrollment targets, it set targets last year. In doing so, it took a new approach by setting expectations for one year after the budget year. This was an effort to better align state budget decisions with UC’s and CSU’s admission decisions. We recommend the Legislature use the same approach in crafting this year’s budget. Specifically, if the Legislature desires to fund enrollment growth, we recommend it (1) set a target for 2017-18 and (2) schedule any associated enrollment www.lao.ca.gov Legislative Analyst’s Office 3 2016-17 BUDGET funding for 2017-18 in this year’s trailer legislation. For CCC, we believe the proposed enrollment growth rate is somewhat high given recent enrollment trends. We recommend the Legislature revisit the issue in May, at which time it will have updated information about current-year enrollment. Recommend Modifying CCC Workforce Proposals. We recommend the Legislature create a new workforce program, as the Governor proposes, but better structure it to address the high costs of certain CTE programs. Under the modified program, CCC would have ongoing funding streams for (1) equipment and other one-time costs and (2) programs with exceptionally high ongoing costs (typically due to faculty and class-size requirements). We also recommend the Legislature fold into this new program an existing supplemental funding program for nursing education and any CCC projects the Legislature desires to maintain from the CTE Pathways Program. In addition, we recommend consolidating planning processes so that colleges are not required to create parallel regional plans for adult education, CTE, and other workforce-related programs. Recommend Learning From Efforts Now Underway Before Augmenting Basic Skills Initiative. We believe the Governor’s proposed augmentation is premature. Last year, the state funded two new grant programs intended to improve basic skills practices. The state required evaluations of both programs, with the results of the evaluations due in a few years. We recommend the Legislature learn more about the outcomes of these programs before augmenting the Basic Skills Initiative. In 2016-17, the Legislature could redirect the proposed funding to allow more colleges to participate in one of the two grant programs created last year or use the funds for other one-time priorities. Recommend Working With Segments to Improve Budgeting of Maintenance. For decades, the state has had difficulty getting clear, reliable information about each segment’s annual maintenance spending and maintenance backlog. Given this longstanding challenge, coupled with the size and complexity of the segments’ capital programs, we believe the Legislature should begin exploring new ways of budgeting for maintenance. The Legislature could work with the segments to develop reasonable estimates of the amount of annual spending required to keep their backlogs from growing. Once it has made reasonable estimates of these amounts, the Legislature could consider earmarking funding in the annual budget. In tandem with developing these earmarks, the state could work with the segments to develop plans for eliminating their existing maintenance backlogs. These plans should identify funding sources and propose a multiyear schedule of payments. Once reasonable plans have been developed, the Legislature could consider including them in trailer legislation. Given their backlogs are substantial, developing these plans likely would take time, such that if the Legislature were to begin this work now it could help inform next year’s budget. Recommend Directing UC and CSU to Provide More Information About Some of Their Proposals at Spring Budget Hearings. We recommend that UC provide additional information on its plans for (1) changing its pension benefits, (2) expanding graduate enrollment, and (3) providing general purpose monies to campuses to boost academic quality. We also recommend the Legislature direct CSU to provide additional information at spring budget hearings on its plans for student success initiatives and capital outlay. 4 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET INTRODUCTION In this report, we analyze the Governor’s of the Law, and (5) the California Student Aid proposed budget for higher education. We begin Commission (CSAC). In each of these sections, we by providing background on three areas of higher provide relevant background, describe the proposals, education: enrollment, tuition and financial provide an assessment, and make recommendations. aid, and performance. In the next five sections, The final section consists of a summary of the we analyze the Governor’s budget proposals recommendations we make throughout the report. for (1) the University of California (UC), (2) the Various additional higher education budget tables California State University (CSU), (3) the California not included in this report may be accessed from the Community Colleges (CCC), (4) Hastings College Education page of our website. HIGHER EDUCATION IN CONTEXT This section provides background on key on three main areas of higher education: access, aspects of the state’s higher education system. We affordability, and performance. The state’s begin with an overview of the state’s public and longstanding interest in access is to ensure that its private institutions. Next, we present information residents have the opportunity to attend higher on public higher education enrollment, tuition education. The state also has had a longstanding and financial aid, and institutional and student interest in ensuring that higher education is performance. In cases where data is available, we affordable for those residents choosing to attend. provide perspective on how California’s public In more recent years, the state has taken a higher education system compares to other states. heightened interest in a number of performance Throughout this section, we cite the most recent measures, including whether students complete data available from government sources. In some their studies on time. The remainder of this cases, particularly for national comparison data, section addresses each of these areas by providing the most recent data may be several years old. context on enrollment, tuition and financial aid, and performance in California’s public higher Overview of Higher Education education system. Higher Education in California Delivered by Enrollment Public and Private Institutions. The Master Plan for Higher Education in California sets forth the Below, we discuss higher education eligibility missions of the state’s three public segments. In policies, enrollment demand, enrollment funding, addition to public higher education, California has enrollment trends, and nonresident enrollment. a private sector consisting of many nonprofit and Eligibility Policies for-profit colleges and universities. Figure 1 (see next page) provides basic information about each 1960 Master Plan Differentiates Among the segment and sector. Three Segments. The state’s Master Plan establishes Key Issues in Higher Education in California. different eligibility requirements for each of the The state in recent years has focused primarily three higher education segments. Under the www.lao.ca.gov Legislative Analyst’s Office 5 2016-17 BUDGET Master Plan, any student may enroll in the CCC the universities to admit resident private high system. The CCC system has the broadest level school graduates and nonresident students if these of access both because it (1) has the broadest applicants meet similar academic standards as mission (including vocational training leading eligible public high school graduates. to certificates and credentials, adult education, Universities Supposed to Align Admission and instruction leading to associate degrees Policies With Freshman Eligibility Pools. Both and transfer) and (2) is the least expensive per UC and CSU require freshman applicants to student. In contrast, both university systems set complete a set of high school coursework known as admission criteria because (1) their missions are “A through G” (A-G) that includes English, history, more narrowly focused on undergraduate and graduate education and (2) they are more Figure 1 expensive per student. Between the university Higher Education in California systems, UC has the most rigorous admission 2015-16 criteria and the highest cost. Though the Master Plan does not explicitly assign areas of California Community Colleges service to each of the three systems, the state 72 districts 113 colleges typically views UC as a statewide system, 1.2 million FTE students CSU as a regional system, and CCC as a $9.2 billion total funding system of local campuses. (The state did not California State University include Hastings in the Master Plan, nor has 23 campuses the state otherwise specified an eligibility 394,000 FTE students $8.7 billion total funding policy for Hastings.) All Adult Californians May Attend University of California Community Colleges. The CCC system 10 campuses 5 medical centers is known as an “open access” system 3 national labs because it is available to all Californians 254,000 FTE students $28 billion total funding 18 years or older. The CCC system has no admission criteria, such as grades or Hastings College of the Law previous course-taking, to screen out or 1 campus 909 FTE students select certain students. (While CCC does not $62 million total funding deny admission to students, it also does not guarantee access to particular classes and Private Nonprofit Sector some classes may set prerequisites.) 178 institutions 306,700 FTE students Master Plan Sets Freshman Eligibility $253 million Cal Grant funding Pools at UC and CSU. The Master Plan calls for UC to draw its incoming freshman Private For-Profit Sector class from the top 12.5 percent (one-eighth) 1,071 institutions of public high school graduates. It calls for 319,900 FTE students $21 million Cal Grant funding CSU to draw its applicant pool from the top 33 percent (one-third) of public high FTE = full-time equivalent. school graduates. The Master Plan allows 6 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET math, and science courses. These coursework Master Plan Establishes Minimum requirements are intended to help prepare students Qualifications for Students Transferring to UC for college-level work. In 2013-14, 42 percent of and CSU. The Master Plan calls for UC and CSU public high school graduates had successfully to accept qualified transfer students who complete completed A-G coursework. In addition to 60 units of transferrable credit at a community completing A-G coursework, UC and CSU have college and meet minimum GPA requirements other admission criteria, including requiring (2.4 for UC and 2.0 for CSU). The Master Plan certain test scores and grade point averages also calls on UC and CSU to maintain at least (GPAs), they use to select students from within 60 percent of their total enrollment as upper- their respective eligibility pools. (UC and CSU division to allow room for transfer students (who also admit some freshmen who do not meet these typically transfer as juniors). To achieve this target, criteria. The Master Plan calls for UC and CSU the universities typically aim to admit one transfer to limit such special admissions to no more than student for every two freshmen. Though not part 2 percent of all freshman admissions.) of the Master Plan, recent legislation—Chapter 428 Available Evidence Suggests UC and CSU of 2010 (SB 1440, Padilla)—also requires CSU to Drawing From Beyond Their Freshman Eligibility accept applicants who earn “associate degrees for Pools. For fall 2014, UC and CSU admitted transfer” from the community colleges. 13 percent and 30 percent, respectively, of public For Fall 2014, UC Admitting All Eligible high school graduates as freshmen. Had CSU Transfer Students, CSU Denying Admission to also admitted an additional 17,500 freshman 13 Percent. Unlike for freshmen, the universities applicants who met CSU’s admission criteria but themselves are able to track whether they are whom the university system turned away, it would admitting all eligible transfer students. This have admitted 34 percent of all public high school is because the Master Plan sets the minimum graduates. Because not all public high school admission standards for transfer students, students within the eligibility pools apply to UC or rather than establishing an eligibility pool as CSU, and many only apply to UC or CSU but not for freshmen. UC has been admitting all eligible both, the universities currently are drawing from transfer students for many years. CSU has not been even larger pools of students. admitting all eligible transfer students the past few State Currently Conducting Freshman years. It asserts that part of the reason it recently Eligibility Study to Obtain Better Data. Over the has been unable to accommodate all eligible last several decades, the state has conducted studies transfer students is due to inadequate state funding. periodically to determine the proportion of public Master Plan Does Not Include Eligibility high school graduates eligible for admission to UC Criteria for Graduate Students. Instead, the and CSU as freshmen. As part of these studies, UC Master Plan calls for the universities to consider and CSU admission counselors examined a sample graduate enrollment in light of workforce needs, of public high school transcripts and determined such as for college professors and physicians. the number of students the universities would have Master Plan Eligibility Policies Last Reviewed admitted had all students applied. Chapter 324 of in 2010. Over the last several decades, the 2015 (SB 103, Committee on Budget) directs the Legislature has periodically revisited the Master Office of Planning and Research to complete such a Plan’s provisions, doing so most recently in 2010. study by December 1, 2016. To date, the Legislature has not modified any of the www.lao.ca.gov Legislative Analyst’s Office 7 2016-17 BUDGET original Master Plan eligibility policies. In recent than all but ten states and three percentage points years, however, the Legislature has taken an interest higher than the national average of 43 percent. in access to particular campuses at UC, even Compared to other states, California has a higher though the Master Plan establishes eligibility on a percentage of its undergraduate enrollment in systemwide basis. two-year institutions. In California, 60 percent of all undergraduates attend two-year institutions—a Enrollment Demand higher share than all but two other states (Illinois Demographic Changes Affect Enrollment and Wyoming) and 14 percentage points higher than Demand. Other factors being equal, an increase the national average of 46 percent. in the number of California public high school For Community Colleges, Economy Affects graduates causes a proportionate increase in the Enrollment Demand. Though changes in the state’s number of students eligible to enter UC and CSU college-age population affect community college as freshmen. Similarly, increases in the state’s enrollment demand, CCC enrollment demand is traditional college-age population (18- to 24-year also affected by various other factors. For example, olds) generally correspond with increases in CCC enrollment demand tends to be tightly UC and CSU eligible students. In 2013-14, more linked with economic conditions. In particular, than 90 percent of UC undergraduates and about demand for CCC’s workforce and career technical 80 percent of CSU undergraduates were in this age education courses tends to rise during economic group. The CCC system enrolls students from a downturns (when more people tend to be out of broader age range, with 57 percent of its students work) and fall during economic recoveries (when being under the age of 24. Its enrollment is affected job opportunities are better). by changes in both the college-age population and Enrollment Demand Varies by Campus. the overall adult population in California. Student demand can vary greatly by campus. For College Participation Rates Another Factor instance, at UC, the Berkeley and Los Angeles in Enrollment Demand. For any subgroup (for campuses receive the most applicants and are example, the traditional college-age group), the the most selective. In fall 2015, the two campuses percentage of individuals who are enrolled in admitted 19 percent and 16 percent of California college is that subgroup’s college participation rate. resident freshman applicants, respectively. By Other factors remaining constant, if participation contrast, the least selective UC campus (Merced) rates increase (or decrease), then enrollment admitted 62 percent. Differences in enrollment demand increases (or decreases). Participation rates demand also exist at CSU and CCC. can change due to a number of factors, including Enrollment Funding student fee levels, availability of financial aid, state and institutional efforts to promote college going, State Traditionally Sets Enrollment Target and the availability and attractiveness of other for Each Segment. Under the traditional approach postsecondary and employment options. to funding enrollment, the state first considers College Participation in California Higher the various factors discussed above and sets an Than National Average. The federal Department of enrollment target for each segment. Over the past Education estimates that 46 percent of 18- to 24-year few decades, the state typically has set one overall olds in California were enrolled in postsecondary enrollment target for each segment rather than education in 2013. This participation rate is higher separate targets for undergraduate and graduate 8 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET students. If the state increases a segment’s overall and all academic disciplines excluding health enrollment target, then the state decides how sciences). The state provided each system flexibility much associated funding to provide for enrollment to determine how to distribute enrollment funding growth. (As an exception to these practices, the to its campuses. If the systems did not meet the state traditionally has not provided enrollment enrollment target specified in the budget within funding to Hastings. Instead, the state provides a certain margin, then the associated enrollment unallocated base increases and gives discretion to growth funding reverted back to the state. the school in setting its enrollment level.) In Recent Years, State Has Not Consistently UC and CSU Enrollment Growth Traditionally and Clearly Linked Funding to Enrollment Growth Funded Based on Marginal Cost Formula. In for UC and CSU. As shown in Figure 2, the state did the case of the universities, the state for decades not set enrollment targets for UC and CSU in four funded enrollment growth based on the estimated of the nine years between 2007-08 and 2014-15. The cost of admitting one additional student. The state state first omitted enrollment targets in the 2008-09 used a formula to calculate this “marginal cost.” budget, when it entered the most recent recession The most recently used formula assumed the and reduced base funding for UC and CSU. The universities would hire a new professor for roughly purpose was to provide UC and CSU flexibility to every 19 additional students and linked the cost manage state funding reductions. The state resumed of the new professor to the average salary of newly enrollment funding from 2010-11 through 2012-13, hired faculty. In addition, the formula included but, in two of the three years, it did not require the the average cost per student for faculty benefits, universities to return money to the state if they fell academic and instructional support, student short of the target. In effect, the targets these two services, instructional equipment, and operations years largely were symbolic. In 2013-14 and 2014-15, and maintenance of physical infrastructure. The the state again chose not to include enrollment marginal cost formula was based on the cost of all targets in the budget, primarily due to concerns the enrollment (undergraduate and graduate students Governor had raised regarding enrollment-based Figure 2 State Has Not Been Setting University Enrollment Targets on a Consistent Basis Resident Full-Time Equivalent Students 2007‑08 2008‑09 2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 UC Enrollment target 198,455 None None 209,977 209,977a 209,977a None None Noneb Actual enrollment 203,906 210,558 213,589 214,692 213,763 211,212 209,867 212,002 210,669 Percent changec 3.3% 1.4% 0.5% -0.4% -1.2% -0.6% 1.0% -0.6% CSU Enrollment target 342,553 None None 339,873 331,716a 331,716a None None Noned Actual enrollment 353,915 357,223 340,289 328,155 341,280 343,227 351,955 359,679 371,217 Percent changec 0.9% -4.7% -3.6% 4.0% 0.6% 2.5% 2.2% 3.2% a State budget did not require the universities to return money if they fell short of this target. b The 2015-16 budget directs UC to add 5,000 undergraduate students by the 2016-17 academic year, as compared to the number enrolled in 2014-15. The budget provides $25 million to UC if it meets this expectation. c Reflects percent change in actual enrollment. d The 2015-16 budget directs CSU to add 10,000 full-time equivalent students by the end of fall 2016, as compared to the number enrolled in 2014-15. The budget does not identify a specific dollar amount for enrollment growth, but it fully funds CSU’s budget request, which assumed this level of growth. www.lao.ca.gov Legislative Analyst’s Office 9 2016-17 BUDGET funding. (The Governor argued it distracts from a percentage point each year. Looking over a somewhat focus on institutional and student outcomes.) longer period, enrollment in 2015-16 is expected to New Approach Taken Last Year. In 2015-16, be 3.3 percent higher than it was in 2007-08 (prior to the state resumed connecting funding to the start of the last recession), but 1.9 percent lower enrollment but took a different approach than it than in 2010-11 (when enrollment at UC peaked). We had in the past. Specifically, the state set enrollment estimate the 18- to 24-year old population has grown targets in the 2015-16 budget but allowed each by roughly 3 percent from 2007-08—around the system until 2016-17 to meet the target. The state same rate of change as UC enrollment. took this approach in recognition of the fact that CSU Enrollment Increasing Moderately in by the time the state budget was being finalized Recent Years. Enrollment at CSU has increased in June 2015, UC and CSU had already largely by 2 to 3 percentage points over the last few years. determined their enrollments for fall 2015. The Enrollment in 2015-16 is expected to be at an state also deviated from its traditional approach all-time high (4.9 percent above the 2007-08 level). by specifying that the target for UC was for During the recession, enrollment decreased more undergraduate students only. notably at CSU than at UC, as CSU chose to reduce State Continues to Link Funding to enrollment in order to manage state funding Enrollment Growth for CCC. The budget annually reductions. Since 2007-08, enrollment at CSU has sets an enrollment target for CCC. State law grown faster than the 18- to 24-year-old population. requires that the system’s annual budget request CCC Enrollment Has Fluctuated Notably for enrollment growth be based, at minimum, This Economic Cycle. Beginning in 2007-08, on changes in the adult population and excess CCC enrollment surged. While the state provided unemployment (defined as an unemployment enrollment growth funds in both 2007-08 and rate higher than 5 percent). The CCC also may 2008-09, student demand outpaced growth in request enrollment growth to cover “unfunded” funding, resulting in actual enrollment exceeding (or over-cap) enrollment. The Governor and funded enrollment. In 2009-10, a particularly Legislature do not have to approve enrollment difficult budget year, the state reduced enrollment growth at the requested level. Their decisions tend funding but actual CCC enrollment remained to reflect the state’s budget condition—increasing about the same. At the trough of the recession, the enrollment target when revenue increases (and actual CCC enrollment exceeded funded the Proposition 98 guarantee rises) and reducing enrollment by about 95,000 full-time equivalent it when revenue falls. This approach often works (FTE) students. As the state continued to reduce counter to economic conditions and student CCC funding, community college districts demand. That is, unemployment tends to rise eventually responded by reducing their course during recessions, stimulating enrollment demand, offerings. Actual enrollment began to drop, yet recessions likely mean a tighter state budget and presumably less from a drop in student demand fewer, if any, funds available for enrollment growth. and more from a lack of funding. By the end of 2012-13, actual enrollment was 12 percent (123,000 Enrollment Trends FTE students) below its 2008-09 peak. Since UC Enrollment Relatively Flat in Recent Years. 2012-13, the state’s fiscal situation has improved, As shown in Figure 2, enrollment at UC over the past with the state funding enrollment growth in each few years has increased or decreased by less than one of the past three years. With greater funding have 10 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET come greater course offerings. Student demand, at CSU. (Comparing these per-student funding however, appears to be weakening, with many figures back to 2007-08 is not possible due to community college districts indicating difficulty in certain changes in the way the state accounts for meeting their current funded enrollment targets. university expenditures.) Hastings Has Sharply Curtailed Enrollment. Nonresident Enrollment Juris Doctor (JD) enrollment at Hastings reached a high point in 2009-10 at 1,179 FTE students. Nonresident Enrollment Traditionally Not Enrollment has declined to an estimated 778 FTE Factored Into State Budget Decisions. The state’s students in 2015-16—a drop of 34 percent from the funding approach to enrollment traditionally has peak. Hastings indicates the decline was a strategic considered only resident students. This is because move intended to (1) address slackening workforce the state does not provide funding for nonresident demand for attorneys and (2) increase the academic students. As a result, each segment has had qualifications of its student body. discretion to set nonresident enrollment levels. Enrollment in California Has Grown More UC Has Largest Percentage of Nonresident Slowly Than in Other States. Enrollment at Students. Currently, nonresidents make up California public institutions has grown more 17 percent of all students at UC, 11 percent at slowly since the start of the most recent recession Hastings, 6 percent at CSU, and 4 percent at CCC. compared to other states. Specifically, public UC also has experienced the largest growth in higher education FTE enrollment in California nonresident students in the recent past, particularly grew 2.2 percent from 2007-08 through 2013-14, among undergraduates. (Most nonresident while the average growth across other states was graduate students are able to establish residency 11 percent. Growth was slower in California after one year, thereby limiting their numbers.) UC for both four-year institutions and community undergraduate nonresident enrollment increased colleges. Various factors might explain why public from about 7,100 students in 2007-08 to an higher education enrollment in California has estimated 29,000 students in 2015-16. Nonresidents’ grown more slowly than in most other states, share of the UC undergraduate student body including differences in demographic growth and quadrupled during this time. changes in state funding levels. Some enrollment Nonresidents Growing as a Share of UC in California also appears to have shifted to private Undergraduate Students at Nearly Every Campus. sector institutions, as private sector FTE enrollment As shown in Figure 3 (see next page), the share grew by 34 percent between 2007-08 and 2013-14. of nonresident undergraduates has grown from Funding Per Student Has Increased in 2007 to 2015 at every UC campus, except for Recent Years. Per-student funding has increased Merced. Though nonresidents have grown notably at each segment the past few years. From 2012-13 as a share of undergraduate students at nearly through 2015-16, per-student funding increased every campus, large differences still exist across by 27 percent at CCC, 16 percent at UC, and campuses. For example, as shown in the figure, 13 percent at CSU. Inflation generally was quite close to 25 percent of undergraduates at Berkeley low during this period—running at 1 to 2 percent currently are nonresidents, compared to 3 percent annually. As a result, even after adjusting for at Riverside. A number of factors could account inflation, funding per FTE student increased for differences in the resident to nonresident 22 percent at CCC, 11 percent at UC, and 9 percent ratio across campuses. Berkeley, which is a more www.lao.ca.gov Legislative Analyst’s Office 11 2016-17 BUDGET selective campus, Figure 3 likely has greater Nonresident Share of Undergraduates ability to attract Has Grown Significantly at Nearly Every UC Campus more applicants from outside of the 30% state. Berkeley also Fall 2007 25 might have higher Fall 2015 costs relative to 20 Riverside and it 15 might have decided 10 to partly pay for these by generating 5 more nonresident tuition. (UC allows Berkeley Los San Irvine Davis Santa Santa Riverside Merced Angeles Diego Barbara Cruz campuses to retain the tuition revenue $17,000 excess funding generated by nonresidents they generate from is used to cross-subsidize services for California nonresident students.) Cost differences across resident students. Since 2007-08, the UC system has campuses could be attributable to a different mix of allowed individual campuses to retain the revenue programs (with the sciences being more expensive associated with nonresident supplemental tuition. to operate) as well as higher faculty compensation. (Prior policy had been to collect the revenue Nonresident Enrollment at UC Lower Than centrally and distribute it back out to all campuses Other Similar Public Universities. Compared based on systemwide priorities.) to other public universities with a similar level of research, UC has a lower share of incoming Tuition and Financial Aid undergraduate students who are nonresidents. Below, we examine affordability from a variety Specifically, across 64 comparison institutions, of angles, beginning with a focus on student nonresidents make up 30 percent of new freshmen. tuition, then turning to financial aid. The average across the UC system is 18 percent. (This percentage is different than the 17 percent Tuition noted above because it includes only new freshmen.) State Currently Does Not Have a Tuition Specific UC campuses, however, are near or slightly Policy. A tuition policy establishes how tuition above the national average. For instance, 31 percent levels are to be adjusted over time. Depending on and 27 percent of incoming freshmen at Berkeley the policy, the tuition charge either explicitly or and Los Angeles, respectively, are nonresidents. implicitly represents the share of education cost UC Nonresident Students Generate More to be borne by students, with the remainder of Revenue Than Resident Students. In addition to cost primarily subsidized by the state through paying the resident tuition charge, UC nonresident base funding appropriated to each of the higher students pay a supplemental tuition charge of about education segments. (The full tuition charge only $27,000. The UC system requests $10,000 from the affects certain students, as financial aid policies state to serve a resident student. UC asserts that the 12 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET can cover some or all of the tuition charge for 10 of the 65 largest public research universities in financially needy students.) Though California other states. By contrast, tuition and fees at CSU are had a tuition policy for several years during the lower than all but 42 universities among a group of late 1980s and early 1990s, it has not had a tuition 244 masters-level public universities in other states. policy the last couple of decades. CCC tuition and fees are the lowest in the country, Each Segment Charges Different Tuition about 40 percent of the national average. and Fees. UC’s systemwide charge for full-time Tuition and Fees Tend to Be Volatile. As undergraduate students is the highest—$12,240. shown in Figure 5 (see next page), tuition and fee CSU charges such students $5,472, while CCC levels in California tend to follow a pattern of flat charges $1,380 for a full course load (or $46 per periods punctuated by sharp increases. The flat unit). Campuses in each system also can charge periods generally correspond to years in which additional fees for specific services or activities— the state experienced economic growth, while the such as student health services. periods of steep increases generally correspond to Student Share of Education Cost Varies periods when the state experienced a recession. by Segment. Figure 4 shows the proportion of During recessions, the state has often balanced its education cost for a student paying full tuition budget in part by reducing state funding for the that is covered by the state, the student, and other segments. UC and CSU, in turn, increased tuition sources. (As discussed further below, about half charges to make up for the loss of state support, and of students at each segment pay no tuition.) UC the state increased fees at CCC. This pattern could students paying full tuition cover slightly more be affected by the new state reserve requirements than half of their education cost, CSU students enacted under Proposition 2 (2014), which could cover about one-third of their education cost, and mitigate state revenue losses during recessions. CCC students cover 15 percent. (The federal government Figure 4 also covers a share of cost Student Share of Education Cost Varies by Segmenta for students paying tuition, 2015-16 as some students [or their $25,000 families] are eligible for a Otherb federal tax credit of up to 20,000 State Share $2,500 annually to reimburse Student Share for tuition costs.) 15,000 Segments’ Tuition and Fee Levels Vary Compared 10,000 to Public Colleges in Other States. Compared to other 5,000 public universities with a similar level of research activity, UC tends to have UC CSU CCC higher tuition and fees. a For students paying full tuition only. (About half of students at UC, CSU, and CCC pay no tuition.) Education cost calculated based on Delta Cost Project methodology. Specifically, UC’s tuition and b Includes nonresident supplemental tuition, some endowment income, and other funds. fees are higher than all but www.lao.ca.gov Legislative Analyst’s Office 13 2016-17 BUDGET is not always the Figure 5 case. For instance, Extended Tuition Freezes Followed by Periods of Steep Increases Coastline Percent Change in Systemwide Tuition and Fees Community College (located 100% UC in Orange 80 CSU County) reports a CCC cost of attendance 60 for students living 40 off campus not with family that 20 exceeds the cost for students in the same living -20 arrangement at 85-86 90-91 95-96 00-01 05-06 10-11 15-16 all CSU campuses and one UC campus. Financial Aid Cost of Cost of Attendance Includes Tuition and Attendance in California Typically Higher Than Other Expenses. These other expenses include in Other States. Even the least expensive UC housing and food, personal expenses, books and campus has a higher cost of attendance than nearly supplies, and transportation. The cost of attendance all other public universities with high research varies across campuses within each system because activity. CSU campuses also tend to have a higher some expenses (such as housing) vary by location. cost of attendance relative to most other masters- The cost also varies depending on whether a level public universities in the country. A similar student lives on campus, off campus not with pattern holds for CCC compared to community family, or off campus with family. Figure 6 shows colleges in other states. the range of attendance costs across campuses Various Types of Financial Aid Help Students at each system, by living arrangement. For each Cover Their Cost of Attendance. Types of aid system, students living at home with family have the Figure 6 lowest cost of attendance. Cost of Attendance Varies by Segment and The cost of attendance for Living Arrangementa students living on campus 2014-15 and off campus not with Off Campus Off Campus family tend to be similar. On Campus (Not With Family) (With Family) The cost of attendance UC $31,300 to $34,800 $26,700 to $30,000 $24,500 to $26,100 tends to be highest at UC, CSU $19,600 to $26,200 $21,700 to $25,000 $10,100 to $13,200 CCC $11,000 to $15,400b $14,400 to $28,200 $5,400 to $12,300 next highest at CSU, and a Reflects the range across campuses, rounded to the nearest hundred. lowest at CCC, though this b Only 9 of 112 colleges report a cost of attendance for students living on campus. 14 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET include grants, scholarships, and tuition waivers state provides for all students through direct (collectively called gift aid, because students do not appropriations to the segments.) For costs not have to pay back these amounts); student loans; covered by these sources, students typically rely on federal tax benefits; and subsidized work-study family income and assets, their own earnings and programs. Financial aid may be need based (for savings, and other types of borrowing. students who otherwise might be unable to afford Gift Aid Covers Full Tuition for About Half college) or nonneed based (typically scholarships or of Public College Students. About 55 percent of other payments based on academic merit, athletic undergraduate students at UC and CSU receive aid talent, or military service). About two-thirds of sufficient to fully cover systemwide tuition and fees, resident undergraduate students at UC and CSU and an additional 9 percent of UC students and receive need-based financial aid in the form of 7 percent of CSU students receive partial tuition gift aid, loans, or work study. At the community coverage. At CCC, 45 percent of students receive colleges, 46 percent of students receive such aid. full fee waivers, paying for two-thirds of all course (CCC students are much more likely to attend units taken. part-time and many aid programs require full-time State Provides Need-Based Gift Aid Through attendance.) Cal Grants. The state’s Cal Grant program Eligibility for Need-Based Aid Determined guarantees gift aid to California high school Using Federal Methodology. To be eligible Figure 7 for federal, state, and institutional need-based Over Half of Aid Is Need‑Based Gift Aid financial aid programs, students must complete 2013-14 (In Billions) a common, web-based application form (the Free Application for Federal Student Aid, or FAFSA). Gift Aid (Need Based) Federal $2.8 The federal Department of Education uses Institutional 2.0 information from this form, including household State 1.4 income, certain available assets, and number Subtotal ($6.2) Loans of children in college, to determine a student’s Federal (subsidized) $1.1 expected family contribution (EFC) toward college Federal (unsubsidized) 1.1 costs. A student’s financial need is the total cost Other 0.1 Subtotal ($2.3) of attendance at a particular campus less his or Tax Benefits her EFC. Campuses then combine (or “package”) Federal $1.4 various types of financial aid to meet as much of Gift Aid (Nonneed Based) Institutional $0.2 each student’s financial need as possible. Other 0.1 Three-Fifths of Financial Aid at UC, CSU, Subtotal ($0.2) and CCC Comes in Form of Need-Based Gift Aid. Work Study Federal $0.1 Figure 7 displays how much financial aid students Total $10.2 at California’s public institutions receive from Federal $6.5 various sources. As shown in the figure, California Institutional 2.2 students received an estimated $10.2 billion from State 1.4 Other 0.2 these sources in 2013-14, with over 60 percent Note: Figure reflects aid for UC, CSU, and CCC undergraduate of it in need-based gift aid. (This is in addition students. Only programs providing more than $50 million in aid are shown. Some gift aid, institutional loans, and nonfederal work-study to $12 billion in nonneed-based subsidies the programs do not meet this threshold. www.lao.ca.gov Legislative Analyst’s Office 15 2016-17 BUDGET graduates and community college transfer students State Also Recently Created Middle Class who meet financial need criteria and academic Scholarships for Certain UC and CSU Students. criteria. In addition, students who do not qualify The Middle Class Scholarship program took effect for high school or community college entitlement starting in 2014-15. Under the program, students awards but meet other eligibility criteria may apply with household incomes up to $100,000 qualify for a limited number of competitive grants. Awards for an award that covers 40 percent of their tuition cover full systemwide tuition and fees at the (when combined with all other public financial public universities and up to a fixed dollar amount aid). The percent of tuition covered declines for toward costs at private colleges. The program also students with household income between $100,000 offers stipends (known as access awards) for some and $150,000, such that a student with a household students. Access awards are intended to help cover income of $150,000 qualifies for an award covering some living expenses, such as the cost of books, up to 10 percent of tuition. The program is being supplies, and transportation. A student generally phased in, with awards in 2015-16 set at 50 percent may receive a Cal Grant for a maximum four years of full award levels, then 75 percent and 100 percent of full-time college enrollment or the equivalent. for the following two years, respectively. CSAC Cal Grant Spending Has Grown Significantly, provides these scholarships to eligible students who Driven by Increased Tuition and Participation. fill out a federal financial aid application, though State spending on Cal Grants has increased from the program is not need-based according to the $813 million in 2007-08 to an estimated $2 billion federal government’s financial aid formula. Unlike in 2015-16. The increase primarily is due to sharp Cal Grants, the program is not considered an increases in the number of award recipients as well entitlement, with program funding levels capped in as increases in award amounts for students at the state law. If funding were insufficient to cover the public universities. The number of award recipients maximum award amounts specified in law, awards increased from 207,300 in 2007-08 to 340,500 in would be pro-rated downward. 2015-16 (a 64 percent increase), while systemwide State Changed Certain Aspects of Middle tuition and fees at the universities nearly doubled. Class Scholarship Program Starting in 2016-17. Implementation of the California Dream Act, Whereas the program previously had no asset which beginning in 2013-14 made certain ceiling, 2015-16 trailer legislation establishes a undocumented and nonresident students eligible ceiling of $150,000. (The asset ceiling excludes for state financial aid, accounts for $67 million of primary residences and funds in retirement the increase in Cal Grant spending. accounts.) The legislation requires CSAC to State Recently Created New Program to adjust income and asset ceilings annually for Supplement Cal Grant Access Award. The 2015-16 inflation. The legislation also specifies that a budget provided $39 million for a new Full-Time student may receive a scholarship for no more Student Success Grant to supplement the access than the equivalent of four years (or, in some award for CCC students who are enrolled in 12 or cases, five years) of full-time attendance. To more units. The CCC Chancellor’s Office expects reflect savings from these changes as well as the program to increase the access award by $600 lower-than-anticipated participation in the in 2015-16—bringing the total access award for program, the legislation adjusted the original CCC students to $2,256. statutory appropriations for the program down from $152 million to $82 million in 2015-16, from 16 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET $228 million to $116 million in 2016-17, and from institution is the cost of attendance (tuition $305 million to $159 million thereafter. and living expenses) minus the average grant Segments Offer Institutional Need-Based Gift aid received by grant recipients. The federal Aid. In addition to Cal Grants and Middle Class government reports an average net price for Scholarships, UC and CSU operate institutional first-time, full-time undergraduate students by need-based programs. UC and CSU pay for these institution that is weighted according to how programs largely by redirecting a portion of tuition many students live on campus, off campus not revenue. When packaging financial aid, UC first with family, and off campus with family. At UC, applies any applicable federal and state aid on a the average net price ranges from $12,000 (at student’s behalf and assumes each student must the Merced campus) to $16,700 (at the Berkeley contribute $9,500 through work or borrowing. It campus). The range across CSU campuses is much then uses institutional aid to fill any remaining broader, spanning from $1,600 (at the Dominguez gap between available resources and the cost of Hills campus) to $16,800 (at the San Luis Obispo attendance. UC’s average gift aid per recipient campus). A similar range exists at CCC campuses, from all sources exceeds tuition by about $4,600— with average net prices spanning from $1,400 meaning the average aid award pays for some living (at College of the Sequoias) to $12,200 (at Irvine costs. By comparison, CSU uses its State University Valley College). Because aid policies largely are Grant program to cover full tuition for certain standardized across campuses, the variation in net students based on their EFC. It does not cover other price across campuses mostly relates to differences costs of attendance. At CCC, the Board of Governors in cost of attendance (due to regional differences (BOG) Fee Waiver program fully covers enrollment in housing and other costs) as well as differences in fees (but not other costs of attendance) for financially students’ financial need across campuses. needy students. Though commonly considered Net Price Also Varies Considerably by Income institutional aid, as it is unique to CCC, the state Level. For instance, at UC campuses, the average effectively funds the BOG fee waiver program net price for students whose families earn less than through CCC apportionments. (If the state did not $30,000 annually ranges from $8,000 to $10,900, use these associated funds for apportionments, it while the average for students whose families earn likely would use them for other CCC purposes.) more than $110,000 annually ranges from $26,900 Institutional Need-Based Gift Aid Has Grown to $30,900. Variations by income group also exist at Significantly. Between 2007-08 and 2015-16, CSU campuses and CCC campuses. This is because institutional aid spending more than doubled financial aid programs typically target lower- at the universities, growing from $313 million income students who might otherwise be unable to to an estimated $735 million at UC and from afford college. $241 million to an estimated $581 million at CSU. Student Borrowing Much More Common at At CCC, spending on BOG Fee Waivers has nearly Universities Than CCC. Each year, 43 percent of quadrupled from $221 million in 2007-08 to an UC and CSU undergraduates take out loans, with estimated $777 million in 2015-16. The increases an average loan amount of $6,500 at UC and $7,600 at each segment primarily occurred as a result of at CSU. By the time they graduate, 55 percent of UC increases in tuition and fees over this time. students and 48 percent of CSU students have taken Net Price Ranges Considerably by Segment out student loans. Among those borrowing, the and Campus. The “average net price” for an average student loan debt at graduation is $19,100 www.lao.ca.gov Legislative Analyst’s Office 17 2016-17 BUDGET for UC students and $15,700 for CSU students. (In balances after 20 years, or 10 years for eligible addition, about 6 percent of UC and CSU parents borrowers in public service careers. who apply for financial aid take out loans, with Performance average annual loan amounts of about $15,100 and $12,000, respectively.) By contrast, only 2 percent of Below, we describe the state’s performance CCC students borrow each year. measures for higher education and review data on Average Student Debt Comparatively Low the segments’ recent performance in certain areas. in California. About 60 percent of students at Performance Measures four-year public universities nationally graduate with loan debt, with an average debt load of State Recently Adopted Broad Goals for $25,900. This is 36 percent higher than the average Higher Education. Chapter 367 of 2013 (SB 195, debt at UC and 65 percent higher than CSU. Liu) establishes three goals for higher education. Nationally, 17 percent of students attending public The goals are: (1) improve student access and two-year institutions report borrowing—ten times success, such as by increasing college participation the proportion at CCC. and graduation rates; (2) better align degrees and Small Share of UC and CSU Students Default credentials with the state’s economic, workforce, on Loans. About 95 percent of all borrowing at and civic needs; and (3) ensure the effective and UC and CSU is through federal loans. Three-year efficient use of resources to improve outcomes default rates on these loans vary by UC and CSU and maintain affordability. The law states the campus but tend to be relatively low. For instance, Legislature’s intent that these goals guide state over two-thirds of UC and CSU campuses have budget and policy decisions for higher education. default rates that are less than 5 percent, and no The law also calls for the creation of performance campus has a default rate greater than 10 percent. measures to monitor progress toward these goals. In comparison, the national default rate for To date, the state has not adopted these measures. four-year public universities is 8 percent. State Recently Adopted Specific Performance Federal Loans Have Income-Driven Measures for UC and CSU. Separate from Repayment Plans. The most common type of Chapter 367, the 2013-14 budget package codified federal loan—William D. Ford federal direct a new requirement for UC and CSU to report loans—currently offers new borrowers six annually on a number of performance measures. repayment plans. Three of these plans, known The university systems are required to report as income-driven repayment plans, vary loan by March 15 of each year their graduation rates, repayments based on the income of the borrower spending per degree, and the number of transfer as a way to improve affordability and reduce the and low-income students they enroll, among other likelihood of a student defaulting. For example, measures. In addition, recent state budgets have the Pay As You Earn Repayment Plan (PAYE) caps required the UC and CSU governing boards to monthly repayments at 10 percent of a borrower’s adopt academic plans each year that set their own discretionary income (defined as income earned targets for each statutory performance measure for above 150 percent of the poverty level, adjusted for each of the following three years. Figure 8 shows location and household size). Each of these three UC’s and CSU’s current performance and their plans also forgives any remaining loan balances respective performance targets. after a set period. For example, PAYE forgives 18 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET State Also Required CCC to Set Performance of Governors to adopt measures and targets for Targets. The 2014-15 budget package required student performance by June 30, 2015. The Board each community college and the CCC Board of Governors adopted systemwide measures and Figure 8 Comparing UC’s and CSU’s Current Performance and Performance Targetsa University of California California State University Current Current State Performance Measure Performanceb Targetc Performanceb Targetc CCC Transfers Enrolled. Number and as a percent of 34,344 (18%) 34,425 (18%) 143,322 (36%) 145,480 (35%) undergraduate population. Low-Income Students Enrolled. Number and as a 76,452 (41%) 76,708 (40%) 207,528 (50%) 213,614 (50%)d percent of total student population. Graduation Rates.e • 4-year rate—freshman entrants. 63% 66% 19% 20% • 4-year rate—low-income freshman entrants. 57% 60% 12% 14% • 6-year rate—freshman entrants (CSU only). 57% 59% • 6-year rate—low-income freshman entrants (CSU only). 52% 56% • 2-year rate—CCC transfer students. 57% 60% 30% 32% • 2-year rate—low-income CCC transfer students. 53% 56% 29% 31% • 3-year rate—CCC transfer students (CSU only). 62% 66% • 3-year rate—low-income CCC transfer students (CSU only). 62% 65% Degree Completions. Annual degrees awarded for: • Freshman entrants. 33,123 36,270 36,704 45,238 • CCC transfer students. 14,745 15,080 42,771 45,443 • Graduate students. 13,917 15,110 18,831 19,513 • Low-income students. 23,999 25,660 45,660 50,030 • All students. 62,988f Not reported 105,693 117,146 First-Year Students on Track to Graduate on Time. 51% 51% 51%g 55%g Percentage of first-year undergraduates earning enough credits to graduate within four years. Funding Per Degree. State General Fund and tuition revenue divided by number of degrees for: • All programs. $105,100f $121,400 $38,548f $42,322 • Undergraduate programs only. Not reported $28,900 Not reported $51,830 Units Per Degree. Average course units earned at graduation for: Quarter Units Semester Units • Freshman entrants. 187 183 138 138 • Transfer students. 97 93 141 140 Degree Completions in STEM Fields. Number of STEM degrees awarded annually to: • Undergraduate students. 16,371f Not reported 18,519 24,531 • Graduate students. 8,167 8,830 4,278 4,766 • Low-income students. 8,775 9,382 8,802 10,628 a Targets based on administration’s General Fund and tuition revenue assumptions for 2016-17 through 2018-19. b Fall 2015 for enrollment and annual 2014-15 for completions and units, unless otherwise specified. c Fall 2018 for enrollment and annual 2018-19 for completions and units, unless otherwise specified. d Fall 2017. e For most recent and future cohorts as reported by segments. f 2013-14. g CSU excludes students not enrolled at the beginning of the second year. STEM = science, technology, engineering, and math. www.lao.ca.gov Legislative Analyst’s Office 19 2016-17 BUDGET targets in July 2014. (The measures come from State Has Not Directly Linked Funding CCC’s Student Success Scorecard, which was for UC, CSU, or CCC to Their Institutional developed in 2012.) These measures are tracked for Performance. The state to date has not adopted a a cohort of students over a six-year period. Figure 9 performance funding formula that adjusts funding shows CCC’s current performance and targets. based upon the segments’ performance. The state, Figure 9 CCC Systemwide Performance Measures and Targets Measure Current Performancea Target Completion Rate. Completion defined as: 39% for underprepared Increase rate by (1) earning an associate degree or credit certificate, 70% for prepared 2.5 percent (of rate) (2) transferring to a four-year institution, or 47% overall annually. (3) completing 60 UC/CSU transferable units with a GPA of at least 2.0 within 6 years of entry. Remedial Progress Rate. Success in college- 43% in English Increase rate by level English or math class for students who took 31% in math 2.5 percent (of rate) remedial English, remedial math, or English as a 28% in English as a second annually. second language. language CTE Completion Rate. CTE students who completed 50% Increase rate by a degree, certificate, 60 transferable units, or 2.5 percent (of rate) transferred. annually. Associate Degrees for Transfer. Number of these 11,448 Increase number by degrees completed annually. 5 percent annually for next five years. Equity Rate. Index showing whether a subgroup’s 0.73 American Indian Increase annually until completion rate is low compared with overall 0.79 African American all indices are 0.80 or completion rate. An index of less than 1.0 indicates 0.82 Hispanic above. underperformance. 0.88 Pacific Islander 1.09 White 1.38 Asian Education Plan Rate. Share of students who have an Not availableb To increase percent- education plan. age each fall term. FTE Years Per Completion. A measure of efficiency 5.3 for underprepared Decrease measure showing amount of instruction, on average, required 2.85 for prepared (increase efficiency). for each completion. (A student completing 60 units, 4.39 overall the standard length of an associate degree or preparation for transfer, would generate two FTE years.) Participation Rate. Number of students ages 18-24 265 Increase participation attending a community college per 1,000 California rate each year. residents in the same age group. Participation Among Subgroups. Index comparing a 0.87 White Maintain index above subgroup’s share of enrollment with its share of the 1.01 Hispanic 0.80 for all subgroups. state population. An index of less than 1.0 indicates 1.01 African American underrepresentation.c 1.22 Asian a 2013-14 for annual data and 2008-09 cohort for cohort data, unless otherwise specified. b New data measure. Reporting was optional in 2013-14. c Reflects participation rates in 2012-13. Rate for 2013-14 not yet available. CTE = career technical education and FTE = full-time equivalent. 20 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET however, has provided some targeted funding in for students entering UC and CSU as freshmen recent years related to institutional performance. have increased slightly in recent years. At UC, Most notably, the state increased CCC’s Student more than 60 percent of incoming full-time Success and Support Program from $49 million in freshmen graduate within four years and more 2012-13 to $427 million in 2015-16. It also created than 80 percent graduate within six years. By a one-time $50 million program in 2014-15 to comparison, most public institutions similar to UC promote innovative models of higher education at in terms of research activity have lower graduation CCC, CSU, and UC campuses. In some cases, the rates, with an average four-year graduation rate segments also have chosen to dedicate otherwise of 45 percent and six-year graduation rate of unallocated resources to improving performance. 70 percent. Graduation rates are much lower at Most notably, CSU is dedicating $38 million of its CSU than UC. Less than 20 percent of incoming unallocated base increase in 2015-16 to expanding full-time freshmen graduate within four years and its student success initiatives. just over half graduate within six years. These rates Governor Trying to Boost Institutional are similar to the graduation rates at masters-level Performance Through an Agreement With UC. public institutions in other states, which have an In May 2015, the Governor and the UC President average four-year graduation rate of 24 percent and announced they had reached an agreement that average six-year rate of 45 percent. UC would undertake certain operational changes Graduation Rates for UC and CSU Transfer intended to improve its institutional performance. Students Also Increasing Slightly. A two-year (The agreement also calls for multi-year funding graduation rate for transfer students is analogous to increases for UC and allows UC to increase its a four-year graduation rate for entering freshmen. tuition charge starting in 2017-18.) Among other The two-year graduation rate for transfer students changes, the agreement calls for UC to (1) more at UC has increased from 46 percent a decade ago closely align its lower-division requirements for its 20 most Figure 10 popular majors with those Graduation Rates for First-Time, used by CSU and CCC for Full-Time Freshmen Increasing Slightly associate degrees for transfer, (2) initiate a pilot program 90% UC Six-Year Rate to use adaptive learning 80 technologies to improve 70 instruction and student UC Four-Year Rate 60 persistence, and (3) identify 50 three-year degree pathways in CSU Six-Year Rate 40 10 of its top 15 majors. 30 Performance Trends 20 10 CSU Four-Year Rate Slight Increases in UC and CSU Graduation Rates 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 for Freshmen. As shown in Year Cohort Entered University Figure 10, graduation rates www.lao.ca.gov Legislative Analyst’s Office 21 2016-17 BUDGET to 55 percent today. The two-year rate at CSU has increased slightly in recent years. For instance, increased from 21 percent to 28 percent over the the three-term persistence rate has risen from same time. UC’s two-year rate for transfer students 71 percent in 2009-10 to 72 percent in 2013-14. is less than its four-year rate for freshmen, while CCC Program Completion Rates Declining at CSU the opposite is true. This means freshmen Slightly. Instead of measuring the share of entering generally outperform transfer students (in terms of students that completes a degree within a specified graduation rates) at UC, whereas transfer students period, CCC measures the success of a “completion generally outperform freshmen at CSU. Graduation cohort.” A student in a completion cohort is one rates for transfer students at both UC and CSU who enters CCC as a first-time student, enrolls in increase notably when measured over longer period six units within three years of first enrolling, and of times. For instance, the four-year graduation attempts any math or English course during that rate for transfer students is 88 percent at UC and period (typically an indicator that the student has 73 percent at CSU. some academic goal). A successful completion Based on Certain Milestone Measures, CCC outcome is earning an associate degree or a credit Performance Improving Slightly. Milestone certificate, transferring to a four-year institution, performance measures show the share of students or becoming “transfer prepared” by successfully passing certain academic milestones commonly completing 60 transferable units with at least a associated with completion. CCC milestone “C” average. Completion rates have been declining measures include the percentage of students slightly in recent years. They peaked at 49 percent persisting over three terms, completion rates of in 2011-12 and since have dipped to 47 percent for college-level English and math courses for students 2013-14. More recent data likely will begin showing entering unprepared and English as a second a reversal of this trend, as completion rates appear language students, and the percent of students somewhat linked with state funding, and state completing 30 units. Each of these measures has funding has increased notably in recent years. UNIVERSITY OF CALIFORNIA In this section, we begin with an overview comes from state General Fund and student tuition of the Governor’s proposed budget for UC. We revenue. These two fund sources primarily support then analyze specific UC revenue and expenditure UC’s mission of providing undergraduate and proposals and make associated recommendations. graduate education. As a major research university, (In a separate report released on February 10— UC is involved in various other activities. For Review of UC’s Merced Campus Expansion—we example, more than one-quarter of UC’s revenue discuss UC’s one large capital outlay proposal for comes from its five medical centers, which provide 2016-17.) health care services to patients. UC also annually receives a substantial amount of federal funding to Overview support specific research activities. Governor’s Budget for UC Consists of Governor Proposes to Continue His $29 Billion From All Sources in 2016-17. This is a Long-Term Funding Plan for UC. In 2013-14, the $903 million (3 percent) increase from the current Governor announced a four-year funding plan year. Of total UC funding, about one-quarter for UC. Under the plan, the state provided UC 22 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET 5 percent General Fund Figure 11 base increases in the first University of California Budget two years (2013-14 and (In Millions) 2014-15) and a 4 percent Revenuea increase in the current year (2015-16). The plan 2015‑16 Revised General Fund $3,257 includes another 4 percent Tuition and fees 3,028 increase for UC in 2016-17. Total $6,285 In order to receive these 2016‑17 Changes base augmentations, the General Fund $209 Tuition and feesb 158 Governor has required Subtotal ($367) UC not to increase Otherc 145 tuition for resident Total $512 students. The Governor 2016‑17 Proposed has not tied these base General Fund $3,467 Tuition and fees 3,186 increases to specific Total $6,652 budgetary priorities (such Changes in Spending as enrollment growth). UC’s Plan for Unrestricted Funds Instead, UC has set its own General salary increases (3 percent) $152 priorities with its state Resident undergraduate enrollment growth (3.4 percent)d 50 funding. (In May 2015, Academic quality initiativese 50 Faculty merit salary increases 32 the Governor announced Operating expenses and equipment cost increases 30 his intention to propose Health benefit cost increases (5 percent) 27 4 percent General Fund Deferred maintenance 25 Pension benefit cost increases 24 increases for UC in 2017-18 Debt service for capital improvements 15 and 2018-19. The Governor Nonresident enrollment growth (3.2 percent)f 14 also proposed for UC to Dream Loan Program 5 Retiree health benefit cost increases 4 begin increasing tuition at Subtotal ($428) around the rate of inflation Restricted General Fund beginning in 2017-18.) Proposition 2 payments for UC Retirement Plan (one time) $171 Governor Proposes Deferred maintenance (one time) 35 Remove one-time funding provided in 2015-16 -122 General Fund Increase of Subtotal ($84) $209 Million (6.4 Percent). Total $512 Figure 11 shows the a Includes all state General Fund. Reflects tuition after discounts. (In 2016-17, UC is projected to provide $1.1 billion in discounts.) Governor’s January b Reflects increases in nonresident supplemental tuition (8 percent), the Student Services Fee (5 percent), revenue assumptions and increased enrollment, offset by increases in discounts. c Reflects: (1) General Fund for enrollment growth UC intends to carry over into 2016-17, (2) savings from and UC’s corresponding administrative efficiencies, (3) increased revenue from investments, and (4) philanthropy. d UC has not yet indicated its final plan for resident graduate enrollment growth. expenditure plan. e For purposes such as increasing instructional support, reducing student-to-faculty ratios, recruiting faculty, increasing faculty salaries, and providing stipends to graduate students. UC indicates it will allow Consistent with his campuses to determine how to spend the funds. f long-term plan, the Funded from nonresident tuition. Governor proposes a www.lao.ca.gov Legislative Analyst’s Office 23 2016-17 BUDGET $125 million (4 percent) ongoing, unrestricted The 2015-16 budget set an expectation for UC to General Fund base increase. The Governor’s enroll 5,000 more resident undergraduate students budget also includes two one-time General in 2016-17 compared to 2014-15. The budget Fund augmentations for specific purposes: authorizes the Director of Finance to augment UC’s (1) $171 million to pay down a portion of budget by $25 million (ongoing) in May 2016 if UC’s unfunded pension liability (scored as a UC demonstrates it will meet this expectation. In Proposition 2 debt payment) and (2) $35 million his 2016-17 budget, the Governor assumes UC will for deferred maintenance. These augmentations are meet this target and receive the associated funding. offset by $122 million in expiring one-time funds. UC, however, asserts it will not be able to spend the Governor Assumes Tuition Revenue Increases $25 million during 2015-16 and indicates it intends $158 Million (5.2 Percent). Specifically, the to carry the funds over into 2016-17. UC intends Governor assumes increases of: (1) $88 million to dedicate $50 million toward supporting the in nonresident supplemental tuition revenue due 5,000 students in 2016-17 (equating to $10,000 per to an 8 percent rate increase, coupled with an student). (In Figure 11, we include this enrollment increase in nonresident students; (2) $76 million in funding in the “other” revenue changes.) other tuition revenue due to resident enrollment Key Issues Before the Legislature. UC growth and the phasing out of tuition discounts developed an expenditure plan that is based on the for nonresident students; (3) $19 million in Student level of funding proposed in the Governor’s budget. Services Fee revenue from a 5 percent rate increase We analyze key features of this expenditure plan. and enrollment growth; and (4) $4 million in We start by considering the alternative revenue professional supplemental tuition revenue from sources identified by UC to support its education enrollment growth. These tuition revenue increases program. Afterward, we analyze the following are offset by a $30 million increase in tuition expenditure areas: inflationary cost increases, UC’s discounts. unfunded pension liability, enrollment growth, UC Assumes $95 Million in Ongoing Savings maintenance, and UC’s proposal to enhance and Revenue From Other Sources. UC indicates academic quality. As we have discussed in past it has identified four ways to generate new savings years, we have major concerns with the Governor’s and revenue for its education program. First, UC approach to allow UC to set its own spending expects $40 million in new revenue from increased priorities without legislative input. We continue to investment returns. (The increase is due to UC recommend the Legislature designate funding in shifting a portion of its reserves from a lower-yield, the budget for high state priorities. short-term investment fund into a higher-yield, Alternative Revenue longer-term investment fund.) Second, UC assumes it will save $30 million through improved UC Recently Began Directing More procurement practices across its campuses. Alternative Fund Sources to Education Costs. Third, UC anticipates $15 million in savings from The state historically has considered state funding self-insuring for certain risks. Finally, UC assumes and student tuition revenue the primary sources a $10 million increase in philanthropic donations of funding for UC education. In addition, the state available for instructional purposes. and UC by longstanding practice have considered UC Assumes $50 Million Additional General a small amount of certain other UC revenues, Fund for Meeting Enrollment Expectations. such as a portion of UC’s patent royalty income, as 24 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET paying for education. In recent years, however, UC on how the state and the university share the cost of has been factoring funding from different revenue education. sources, such as philanthropy, into its annual Inflation state budget plan. Moreover, in a recent biennial report to the Legislature on the cost of education, Inflation Affects Three Areas of UC’s Budget. UC estimated it spends $24,157 per student, with These areas are (1) employee compensation costs; $7,871 (one-third) originating from sources other (2) other operating expenses, such as utility than state funding and student tuition. The report, bills and equipment costs; and (3) capital outlay. however, did not itemize these other sources of (Because the state now combines UC’s support and funding. (The $24,257 estimate is an average of the capital budgets and adjusts annually by a certain cost of education for undergraduate and graduate percentage, it is effectively making an inflationary students. It excludes the health sciences.) adjustment to capital spending.) We discuss these Required Report Lacked Key Information three areas in greater detail below. on Other Funds Used for Education. To better Compensation Costs Are UC’s Largest understand what revenue sources UC uses to pay Expense. Compensation consists of the salaries for students’ education, the state, as part of the and benefits UC pays its employees. Employee 2015-16 budget package, required UC to submit compensation is the largest driver of UC’s a report by December 2015 describing all fund instruction costs (over 80 percent of UC’s core sources it can legally use to pay for students’ academic budget). Instruction-related employees education. Though the report UC submitted include faculty, administrators, counselors, identified all fund sources UC is legally allowed to librarians, and management staff. spend on education, it did not itemize the amount Operating Expenses and Equipment Costs it uses from each source. As a result, the state still Are a Smaller Portion of UC’s Budget. UC also lacks key information on the funds UC makes spends money on goods and services. For instance, available for education. UC procures instructional equipment and library Recommend Requiring UC to Identify Fund materials and it pays for utilities. In 2015-16, UC’s Sources in Cost of Education Reports. UC’s operating expenses and equipment costs made up identified alternative revenues may have positive about 13 percent of its core academic budget. implications for state budgeting. The Legislature, Funding for Capital Outlay Recently Shifted however, lacks key information on these revenue Into UC’s Operating Budget. For most state sources. For example, are these sources mostly agencies, the state issues bonds for capital outlay one time or ongoing in nature? Is education the projects and funds the associated debt service appropriate use of these funds? Does UC plan to separately from agencies’ operating budgets. rely more or less heavily on them moving forward? Recently, the state began treating capital outlay as To obtain better information on how UC pays for an operating expense for UC and CSU. That is, the students’ education, we recommend the Legislature state shifted all funding for debt service associated modify existing state law to require UC’s biennial with UC projects into UC’s operating budget. The cost of education report (next due in October 2016) state also provided UC the authority to (1) issue to identify the amount of each alternative fund bonds by pledging its General Fund appropriation source used in its calculations. Understanding these and (2) repay the associated debt service using its fund sources could facilitate future conversations General Fund. Given these changes, the state has www.lao.ca.gov Legislative Analyst’s Office 25 2016-17 BUDGET not issued bonds for UC projects the past few years however, has revenue available from the alternative and instead has expected UC to fund new capital sources described above to help pay for the cost projects from within its operating budget. increases. UC’s Expenditure Plan Provides a Unfunded Pension Liability $239 Million Ongoing Increase for Compensation. The majority of this compensation increase Employers May Offer Different Types of ($152 million) is for a 3 percent salary increase for Retirement Plans. Employers can offer employees UC employees. An additional $32 million is for defined benefit pension plans, defined contribution faculty merit salary increases as tenured faculty plans, or a combination of these two types of plans. move up the academic ladder. Another $27 million A defined benefit plan guarantees a retired employee is to pay for cost increases for UC employees’ health a lifetime pension based on a formula that includes benefits. UC also proposes $24 million to pay for factors at the time the employee retires—such as increased costs for its employees’ pensions and the employee’s age, salary, and the number of years $4 million for increased costs for its retirees’ health of service with the employer. This type of benefit benefits. typically is prefunded through regular contributions UC’s Expenditure Plan Provides a $30 Million made by both the employer and employee to a Ongoing Increase for Operating and Equipment pension fund that is invested and managed by a Expenses. UC indicates this amount represents pension board. A defined contribution plan, by a 2 percent increase for non-salary costs and contrast, does not guarantee employees a lifetime additional funding for utility costs that it expects to pension. Instead, employers and employees can rise above inflation. make contributions to a retirement savings account UC’s Expenditure Plan Provides a $15 Million established by the employer. Ongoing Increase for Debt Service for Capital Major Difference Between Plans Is Who Projects. UC indicates this funding would service Bears the Risk. In the case of a defined benefit the debt on completed capital outlay projects, plan, the employer is responsible for providing though currently it is unable to identify the specific set benefits to retirees. During periods of market projects. (UC indicates that it will have a final list losses, employers typically must make larger of completed capital projects later in the year.) contributions to ensure the plan is funded. That UC asserts that any funding available in excess of is, when actuaries determine that a defined benefit the amount needed for debt service on completed plan has less than 100 percent of assets to pay for all projects will be set aside for debt payments on accumulated benefits, the plan incurs an “unfunded future projects. liability” that the employer must pay. In the case UC’s Proposed Increases Higher Than of a defined contribution plan, the employee bears Inflation. UC’s proposed cost increases for the risk. In these cases, the plans still are subject to compensation, operating expenses and equipment, market losses, and the employee directly bears the and capital outlay total $284 million, a 4.5 percent consequence in the form of less retirement income. increase from UC’s General Fund and tuition base UC’s Retirement Program Has Significant in the prior year. This rate exceeds the standard Unfunded Liability. In the late 1980s, UC’s measure of inflation used by many state and local defined benefit plan became “superfunded” due governments, which is estimated to be 2.5 percent to exceptional investment returns. This means in 2016-17 (equivalent to $154 million). UC, the system had well over 100 percent of the assets 26 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET needed to pay all accumulated benefits. In response, UC Task Force Recently Proposed Changes to the UC Regents allowed a “funding holiday” for Retirement Plan for New Employees. Following the nearly two decades during which neither UC enactment of the budget in June, the UC President nor its employees made new contributions to the appointed a task force comprised of faculty and retirement plan. During the mid-2000s, however, administrators across the UC system to consider investment returns declined and, in 2009, the changes to its retirement plan. In January 2016, the university estimated the plan had an unfunded task force publicly released its recommendations. liability. In response, the UC Regents began The task force asserts that adopting the requiring UC and its employees to contribute to the PEPRA pensionable salary limit without other plan. A June 2015 valuation of the plan estimates corresponding benefit increases would make it its unfunded liability to be $12.1 billion, with the more difficult for the university to hire and retain plan having only enough assets to pay 82 percent of ladder-rank faculty. Under the task force’s proposal, accumulated benefits. UC employees hired on or after July 1, 2016 would State Provided $96 Million One Time in have two options for a retirement plan: 2015-16 for Unfunded Liability. The 2015-16 • First Option. An employee can elect to Budget Act provided UC with $96 million for its have the existing defined benefit plan but pension liabilities. (The state scored this funding with the PEPRA pensionable salary limit. as a Proposition 2 debt payment.) As a condition In addition, the employee can participate in of receiving this funding, the state required a supplemental defined contribution plan. UC to make a change to its pension benefits. For the defined contribution plan, UC and Specifically, the state required UC to establish a the employee would contribute 10 percent pensionable salary limit (the maximum amount and 7 percent, respectively, of any salary of an employee’s salary that can be factored into between the PEPRA limit and the IRS his or her benefit calculation) consistent with the limit. limits specified in the Public Employees’ Pension Reform Act (PEPRA). In 2015, this limit is $117,020 • Second Option. An employee can for employees covered by Social Security. By opt to participate only in the defined contrast, UC’s retirement plan currently has a contribution plan. UC and the employee limit of $265,000—the maximum allowed by the would contribute 10 percent and 7 percent, federal Internal Revenue Service (IRS). The 2015-16 respectively, of salary up to the IRS limit. budget authorized the Department of Finance to UC officials indicate they expect the UC Regents release the $96 million to UC once it adopts the to hear the task force proposal at their March 2016 change. (Though not specified in the budget, the board meeting. new pension limit presumably would apply only Task Force Proposal Does Not Maximize to new UC employees because California case law Savings. The task force found that adopting the generally prohibits reducing pension benefits for PEPRA pensionable salary limit would reduce UC’s current employees.) annual pension costs by an average of $80 million Governor Proposes $171 Million One Time annually over 15 years. (UC would achieve most in 2016-17 for Unfunded Liability. The proposal of these savings in future years because the change includes the same condition specified in the only applies to new employees.) The report also 2015-16 budget. estimated the addition of the defined contribution www.lao.ca.gov Legislative Analyst’s Office 27 2016-17 BUDGET plan reduces these savings to $15 million. (This UC Anticipates Meeting Undergraduate estimate assumes 60 percent of new employees Enrollment Expectation for 2016-17. UC reports would enter into the first option and 40 percent that it intends to meet the 2015-16 budget’s of new employees into the second option.) UC, enrollment growth expectation for 2016-17 by however, would not bear any investment risk enrolling 5,050 more new freshman and transfer associated with the defined contribution plans. This students in fall 2016, as compared to fall 2014. risk instead would be borne by UC employees. Figure 12 shows UC’s growth plan by campus. UC Recommend Legislature Have UC Report on has planned for 45 percent of new enrollment to Retirement Proposal at Budget Hearings. UC be at the system’s three most selective campuses could share its task force’s proposal at hearings, (Berkeley, Los Angeles, and San Diego). and the Legislature could consider whether it meets UC’s Plan for Graduate Student Enrollment the Legislature’s overarching policy objective of Growth Unclear. Under the Governor’s budget, reducing retirement costs at UC. UC does not plan to increase resident graduate enrollment. (For reasons not entirely clear, the Meeting Enrollment Growth Governor’s budget documents show UC growing Expectations for 2016-17 resident graduate enrollment by 423 FTE students.) UC Projecting Decline in Resident Enrollment UC is requesting $6 million on top of the for 2015-16. UC anticipates enrolling 1,300 fewer Governor’s budget to fund 600 additional resident resident FTE students in 2015-16 compared to graduate students (reflecting 1.6 percent growth). 2014-15, with the entirety of the decrease consisting Recommend UC Clarify Plans Regarding of undergraduate students. UC reports that, Resident Graduate Enrollment. We recommend throughout spring 2015, it instructed campuses the Legislature require UC to report in spring to keep resident enrollment flat in 2015-16 due budget hearings on its plans for resident graduate to uncertainty over the amount Figure 12 of state funding Expected Growth in New UC Undergraduate Students it would receive. UC indicates UC’s Growth Plan, 2016-17 Compared to 2014-15 that campuses 800 responded by 700 enrolling fewer 600 new students in 500 fall 2015. As noted earlier, the 2015-16 400 budget did not set 300 an expectation for 200 2015-16 resident 100 enrollment but instead set an Berkeley Los Riverside San Irvine Merced Davis Santa Santa expectation for Angeles Diego Barbara Cruz 2016-17. 28 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET enrollment. Specifically, we recommend UC projections show declines in the state’s college-age (1) clarify the number of graduate students it population in the coming years. Some campuses, intends to add under the Governor’s proposal, however, historically have relatively low admission (2) identify corresponding growth by campus, and rates and, in recent years, have become even more (3) explain its justification for growing resident competitive. graduate enrollment at its proposed level. Recommend Legislature Set Enrollment Target for 2017-18. To the extent the Legislature Setting Enrollment desires to grow UC enrollment for 2017-18, we Target for 2017-18 recommend setting an enrollment target (based State Took New Approach to Enrollment in on FTE students) as part of the 2016-17 budget. 2015-16 Budget. Traditionally, the state budget has We recommend scheduling any associated set resident enrollment targets for the budget year. enrollment growth funding for 2017-18 in this The state took a different approach in the 2015-16 year’s trailer bill legislation. This would ensure that Budget Act by setting an enrollment target for funds are appropriated for the year in which the 2016-17, one year after the budget year. associated enrollment growth occurs. To ensure Out-Year Enrollment Targets an Effective Tool UC complies with the enrollment expectation, we to Influence Admissions. The state’s traditional recommend the Legislature further specify in the enrollment budgeting approach does not align well trailer legislation that the funding would revert to with UC’s admission calendar. UC makes most the state if UC falls below the target by a certain admission decisions for its fall term in the early margin. spring, prior to the enactment of the state budget Maintenance in June. This means the state budget is enacted too late to influence UC’s fall admission decisions. The UC Reports Sizeable Backlog of Maintenance state, however, can influence UC’s admissions for Projects. UC recently compiled a list of deferred the following year by setting a budget-year-plus-one maintenance projects from its campuses. The target. project list totals $1.2 billion, with 42 percent of UC Has Two Enrollment Growth Objectives the backlog attributable to the San Diego campus, for Next Few Years. One objective is to grow 17 percent to the San Francisco campus, and enrollment systemwide by 3,200 resident FTE 11 percent at the Davis campus. UC asserts this students in each 2017-18 and 2018-19, for a total list is not exhaustive and understates its total of 6,400 new resident FTE students across the maintenance backlog. two years. A second objective is to almost double UC’s Expenditure Plan Dedicates $25 Million enrollment at the Merced campus, growing from Ongoing for Maintenance. UC asserts this funding about 6,000 FTE students in 2015-16 to 10,000 FTE will allow it to continue addressing campuses’ students in 2020-21. maintenance backlogs. A Few Key Factors to Consider in Setting Governor Proposes $35 Million One Time Enrollment Target. As noted in the “Higher for Deferred Maintenance. Similar to a proposal Education in Context” section, UC has been from the Governor in 2015-16, the Governor for meeting or exceeding the Master Plan’s access 2016-17 calls for deferred maintenance funding for goals, indicating it accepts every eligible student various agencies statewide. The proposal does not within the system. Moreover, demographic identify specific projects, though agencies would be www.lao.ca.gov Legislative Analyst’s Office 29 2016-17 BUDGET required to submit project lists to the Department an annual earmark for major maintenance that of Finance after the enactment of the budget, and could be used moving forward, the state could the Joint Legislative Budget Committee would have work with UC to develop a plan for eliminating 30 days to review these lists prior to the department its existing maintenance backlog. We believe this approving them. plan should identify funding sources and propose a UC Lacks Long-Term Maintenance Plan. multiyear schedule of payments. Once a reasonable Though UC has begun to identify its backlog plan has been developed, the Legislature could by providing the Legislature a list of deferred consider codifying it in trailer legislation. Given maintenance projects, it has not yet created a UC’s backlog appears substantial, developing such long-term plan to pay down the backlog and a plan likely also will take time, such that if the prevent future backlogs from developing. Without Legislature were to begin this work now it could such a plan, UC’s infrastructure may be poorly help inform next year’s budget. maintained, potentially driving up future facility Academic Quality costs. Consider Establishing Earmark for UC’s Expenditure Plan Dedicates $50 Million Maintenance Funding. The Legislature could to Academic Quality. Under UC’s proposal, work with UC to develop a reasonable estimate of campuses would have discretion in setting their the amount required to be spent annually to keep own priorities for these monies. In conversations UC’s maintenance backlog from growing. In effect, with our office, UC has suggested campuses could this estimate would represent the ongoing amount use the funding to pay for new faculty hires, required to adequately maintain its facilities. Once instructional equipment, and graduate student it has made a reasonable estimate of this amount, stipends. Given that this funding is ongoing, this the Legislature could consider earmarking funding augmentation effectively would increase UC’s for this purpose in the annual budget. This would per-student funding rate. lend much greater transparency to the budgeting of Recommend Legislature Require UC to major maintenance, helping the state to track and Present a More Detailed Spending Plan. In our monitor maintenance funding over time. Providing view, UC’s proposal raises concern because campus this earmark every year would ensure UC is not spending decisions may not align with legislative developing a maintenance backlog. If the earmark priorities. We therefore recommend that the were suspended a few years, the state would be able Legislature require UC to present a more detailed to track the resulting backlog and develop plans plan. The plan could include detail on the number for eliminating the backlog in subsequent years. As of faculty hires for each campus and an analysis as developing an estimate such as the one described to why hiring additional faculty is needed. To the above might take several months of work with UC, extent that UC is not able to provide the Legislature the Legislature could begin this work now in hopes with a plan that aligns with legislative priorities, of it informing next year’s budget decisions. the Legislature could set its own priorities for this Consider Building Plan for Eliminating funding in the budget. Existing Backlog. In tandem with determining 30 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET CALIFORNIA STATE UNIVERSITY In this section, we begin with an overview of Figure 13 (see next page) summarizes the the Governor’s proposed budget for CSU. We then Governor’s revenue assumptions and CSU’s analyze specific CSU revenue and expenditure corresponding expenditure plan for 2016-17. The proposals and make associated recommendations. Governor proposes a $148 million (5 percent) ongoing unrestricted General Fund increase and Overview an additional $27 million General Fund increase Governor’s Budget Proposes $9 Billion From for retiree health. The Governor also proposes All Sources for 2016-17. This is a $238 million one-time General Fund of $35 million for deferred (3 percent) increase from 2015-16. Of total CSU maintenance. These increases are offset by funding, nearly two-thirds comes from state $25 million in expiring one-time funds provided in General Fund and student tuition. These two 2015-16 for deferred maintenance. fund sources support CSU’s mission of providing Governor Assumes Tuition Revenue Increases undergraduate and graduate education. CSU $16 Million (1 Percent). This increase comes also operates various enterprises, such as student entirely from enrollment growth. CSU does not dormitories and parking facilities. The remainder propose increasing systemwide fee levels in 2016-17. of CSU’s revenue generally supports these other Four Key Issues Before the Legislature. CSU operations. developed an expenditure plan that is based on Governor Proposes to Continue Main Features the level of funding provided in the Governor’s of Long-Term Funding Plan for CSU. In 2013-14, budget. Below, we analyze key features of this the Governor announced a four-year funding plan plan: employee compensation, enrollment growth, for CSU. The plan consists of annual base increases maintenance, and a small set aside for either for CSU equal to his proposed base increases for student success initiatives or capital outlay, as UC (5 percent of UC’s base budget in 2013-14 and yet not determined. As we have discussed in past 2014-15 and 4 percent in 2015-16 and 2016-17). years, we have major concerns with the Governor’s The plan calls for CSU to have full discretion in approach to allow CSU to set its own spending spending these funds, though it requires CSU to priorities without broader state involvement. We keep tuition flat. For 2013-14 and 2014-15, the state continue to recommend the Legislature itemize budget generally followed the Governor’s plan. funding in the budget for high state priorities. The 2015-16 budget, however, departed from the Compensation plan by providing CSU a much larger General Fund increase than UC. It also set an enrollment State Funds CSU Compensation in a Few expectation for CSU. For 2016-17, the Governor Different Ways. Current budgetary practice is for proposes a continuation of the main contours the state to provide funding augmentations for two of his long-term plan—no tuition increases specific areas of CSU compensation. First, the state and significant discretion for CSU to spend its funds the portion of CSU’s pension cost increases monies—though he proposes a larger base increase linked to the system’s 2013-14 payroll. Though not for CSU than the one he proposes for UC. shown in Figure 13 due to initial timing issues, this Governor Proposes to Increase General increase is estimated to be $52 million for 2016-17. Fund by $187 Million (6 Percent) in 2016-17. (The state began this practice in 2013-14 as a way to www.lao.ca.gov Legislative Analyst’s Office 31 2016-17 BUDGET encourage CSU to consider pension costs in its new percent roughly aligns with estimated inflation hiring and salary decisions.) Second, the state funds rates for 2016-17. CSU’s retiree health benefit cost increases. This Enrollment increase is estimated to be $27 million for 2016-17. The state expects CSU to cover any other increases State Took New Approach to Enrollment in compensation costs from its unrestricted base in 2015-16 Budget, Set Target for 2016-17. increase. Traditionally, the state budget sets resident CSU Proposes to Spend $112 Million on Figure 13 Compensation. Of CSU’s California State University Budget proposed higher spending, (In Millions) about two-thirds Revenuesa Amount ($112 million) is related to 2015‑16 Revised employee compensation General Fund $3,297 not funded separately Tuition 2,273 Total $5,570 by the state. Specifically, 2016‑17 Changes CSU proposes spending General Fund $187 $70 million to increase Tuitionb 16 salaries by 2 percent, Total $203 $37 million to pay for 2016‑17 Proposed active employee health General Fund $3,484 Tuition 2,288 benefit rate increases, and Total $5,772 $7 million for pension cost Changes in Spending increases above its 2013-14 CSU’s Plan for Unrestricted Funds payroll. Employee compensation increase (2 percent) $70 CSU’s Proposed Resident enrollment growth (1 percent) 37 Employee health benefits 35 Spending on Lease-revenue debt service 8 Compensation Generally Pension benefitsc 7 in Line With Inflation. Maintenance of newly constructed facilities 1 Otherd 7 CSU’s proposed Subtotal ($164) compensation spending Restricted General Fund increase is approximately Deferred maintenance (one time) $35 2.5 percent of its General Retiree health benefits 27 College Textbook Affordability Act (ongoing) 2 Fund and tuition base Remove one-time funding in 2015-16 -25 budget. (This base budget Subtotal ($39) excludes funding for Total $203 a retiree pension benefits Reflects General Fund, including most appropriations outside of CSU’s main appropriation. Reflects tuition after discounts. In 2016-17, CSU is projected to provide $668 million in discounts. based on 2013-14 payroll b Generated from 1 percent enrollment growth. c Reflects higher pension costs that CSU must fund from within its base increase. The state is providing and health benefits CSU an estimated $52 million (not shown) for higher pension costs attributed to its 2013-14 payroll level. d because the state funds CSU has not yet specified how it would allocate this funding. It has identified capital improvements and student success initiatives as possible priorities. This amount slightly differs from CSU’s Academic them separately.) This Sustainability Plan due to different tuition revenue assumptions made by the Governor and CSU. 32 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET enrollment targets for the budget year. The state as UC. This is because CSU has a larger spring took a different approach in the 2015-16 Budget admission cycle that can help it meet budget-year Act by setting an expectation for CSU to enroll enrollment targets.) If the Legislature desires to 10,400 more resident FTE students by 2016-17, as grow CSU enrollment, we recommend setting an compared to 2014-15. The state took this approach enrollment target for 2017-18 and scheduling any in recognition of the fact that CSU had made most associated appropriation for 2017-18 in this year’s of its fall admission decisions prior to the state trailer legislation. To ensure CSU complies with budget being finalized in June. the enrollment expectation, we recommend the CSU Indicates It Expects to Meet Enrollment Legislature specify in the trailer legislation that Target in 2015-16. CSU currently estimates that funding would revert if CSU falls below the target 2015-16 enrollment will grow by 11,538 FTE by a certain margin. students (3.2 percent) over 2014-15. CSU indicates Deferred Maintenance it had not expected enrollment to be this high as of June 2015. Given its current enrollment level, CSU CSU Reports Sizeable Backlog of Maintenance will have exceeded its 2016-17 target in 2015-16. Projects. CSU estimates that campuses have CSU Plans to Spend $37 Million to Grow accumulated a maintenance backlog of $2.6 billion, Enrollment 1 Percent Over 2015-16 Level. Under with nearly $2 billion for facilities and the the Governor’s proposal, CSU indicates it would remainder for campus infrastructure. More than grow enrollment by 3,713 FTE students in 2016-17. half of this backlog is concentrated in seven (of Various Factors for Legislature to Evaluate in CSU’s 23) campuses (Los Angeles, Chico, San Deciding Whether to Grow Enrollment. As noted Luis Obispo, Fresno, San Diego, San Francisco, in the “Higher Education in Context” section of and Sacramento). CSU estimated the facility this report, CSU likely is drawing from beyond component of the backlog using a statistical model its freshman eligibility pool, yet it is denying that calculates the expected lifespan of building admission to eligible transfer students. Given these systems. It estimated the infrastructure component factors, the Legislature could consider targeting of the backlog by undertaking campus assessments. CSU enrollment growth funding to additional CSU estimates it would need to set aside transfer enrollment. The Legislature also could $181 million annually to prevent its maintenance consider changing its policy for CSU freshman backlog from growing. eligibility, though any such changes would Governor Proposes $35 Million One Time for have significant implications moving forward Deferred Maintenance. This proposal for CSU is for CSU enrollment, enrollment at the other part of a larger package of deferred maintenance higher education segments, and state costs. (The funding for various agencies statewide. The overall Legislature may wish to wait at least one year before proposal does not require agencies initially to considering such changes, as a CSU freshman identify specific maintenance projects, though eligibility study currently is underway.) agencies would be required to submit project lists If Further Enrollment Growth Desired, to the Department of Finance after enactment of Recommend Target for 2017-18. As with UC’s the budget. The Joint Legislative Budget Committee admission decisions, CSU’s decisions are not well would have 30 days to review these lists prior to the aligned with the timing of the state budget process. department approving them. (CSU is not affected by this misalignment as much www.lao.ca.gov Legislative Analyst’s Office 33 2016-17 BUDGET CSU Making Progress in Tracking Other Expenditures Maintenance, but Still Lacks Plan for Backlog. In CSU Left $7 Million Undesignated in Its past years, our office has recommended that state Expenditure Plan. After specifying how it would agencies develop a long-term plan that identifies spend the bulk of its funding under the Governor’s how much funding they need to set aside annually proposal, CSU left $7 million undesignated. CSU for maintenance to prevent a growing backlog. CSU indicates it might spend this money on either appears to be making efforts in this direction by student success initiatives or capital outlay projects. attempting to estimate its long-term maintenance We describe both of these below. needs. CSU, however, has not yet identified a CSU Seeks to Improve Graduation Rates plan to retire its existing backlog of deferred Through Student Success Initiatives. In recent maintenance. years, CSU campuses have begun to implement Consider Establishing Earmark for new initiatives to improve graduation rates. These Maintenance Funding. The Legislature could initiatives tend to vary by campus, but generally review CSU’s estimate of the amount required to include hiring additional faculty, improving be set aside for maintenance. If the Legislature advising methods, and redesigning courses. In determines this amount to be reasonable, it could 2015-16, CSU expects to increase spending on consider earmarking funding for this purpose these initiatives by $38 million. Given the funding in the annual budget. This would lend much is ongoing, this augmentation effectively increases greater transparency to the budgeting of major CSU’s per-student funding rate. maintenance, helping the state to track and monitor CSU’s Capital Outlay Plan Includes New maintenance funding over time. As reviewing Space and Improvements to Existing Space. CSU’s an estimate such as the one described above 2016-17 capital outlay request includes 21 projects might take several months of work with CSU, the totaling $535 million. To pay for these projects, Legislature could begin this work now in hopes of it CSU would issue bonds worth $473 million in the informing next year’s budget decisions. coming year, and campuses would provide the Consider Building Plan for Eliminating remaining funds from their operating reserves. Existing Backlog. In tandem with determining The projects include $194 million for new facility an annual earmark for major maintenance that space at eight campuses and $341 million for could be used moving forward, the state could improvements and renovations to facilities work with CSU to develop a plan for eliminating and infrastructure at every campus across the its existing maintenance backlog. We believe this system. CSU estimates the total debt service on plan should identify funding sources and propose a these projects would range from $30 million to multiyear schedule of payments. Once a reasonable $47 million, depending on market conditions plan has been developed, the Legislature could at the time the bonds are sold. Because this consider codifying it in trailer legislation. Given amount exceeds the $7 million available in CSU’s CSU’s backlog appears substantial, developing such expenditure plan, CSU indicates it would fund a plan likely also will take time, such that if the a subset of these projects under the Governor’s Legislature were to begin this work now it could proposal. (Under current law, the Legislature only help inform next year’s budget. has until April 1 to review CSU’s capital outlay proposals.) 34 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Recommend Legislature Direct CSU to this plan should include information on how CSU Provide Additional Details on Expenditure would distribute funding to each campus, how Plan. We recommend the Legislature require campuses would use the funding, and how CSU CSU to present a detailed plan in March budget is tracking the effectiveness of the initiatives. For hearings for the $7 million it left undesignated in capital outlay, the plan should include the specific its expenditure plan. For student success initiatives, list of projects CSU would undertake. CALIFORNIA COMMUNITY COLLEGES In this section, we provide background adjustments (COLAs), faculty salaries, and higher on the community colleges; summarize the funding rates for certain courses; $620 million in Governor’s budget for the CCC system; discuss categorical support for student success, student his specific CCC proposals related to workforce equity, and other student support services; and education, apportionment funding, and basic $500 million for an Adult Education Block Grant skills and other categorical programs; provide our for school districts and community colleges. assessment of those proposals; and offer associated Overview of Governor’s recommendations for the Legislature’s consideration. CCC Budget Proposals (We discuss the Proposition 98 minimum guarantee and cross-cutting K-14 education issues in our Proposes to Increase CCC Proposition 98 Proposition 98 Education Analysis.) Funding by $262 Million (3 Percent) Over Revised System Supported Primarily by Proposition 98 2015-16 Funding. As shown in Figure 14 (see next Funds. The main sources of support for community page), the 2016-17 Governor’s Budget increases colleges include Proposition 98 General Fund, local Proposition 98 funding for CCC to $8.3 billion. property tax revenue, and enrollment fees. The The proposed budget includes $438 million in CCC’s share of Proposition 98 funding traditionally ongoing programmatic increases and $358 million is 10.9 percent, though this share has fluctuated in one-time funding. (The Governor’s budget somewhat over time. In addition, the state provides package includes an additional $38 million in non-Proposition 98 General Fund for CCC general one-time funding available from prior years.) obligation bond debt service, teacher retirement These programmatic increases are partly offset by costs, and Chancellor’s Office operations. the removal of prior-year, one-time spending and State Has Provided Large Augmentations in other technical adjustments. Under the Governor’s Recent Years. Annual CCC funding in 2015-16 was proposal, CCC would receive 10.9 percent of total $2.2 billion (33 percent) higher than in 2007-08 Proposition 98 funding in 2016-17 (excluding the (the previous peak), not adjusted for inflation. Over $500 million Adult Education Block Grant from the the past few years, growth has been particularly calculation). notable, with annual funding in 2015-16 Major Proposed Augmentations. Figure 15 $2.9 billion (47 percent) higher than in 2011-12. (see next page) shows the changes the Governor Major ongoing augmentations since 2011-12 have proposes for community college Proposition 98 included more than $1 billion in apportionment spending in the current and budget years. Major funding for enrollment growth, cost-of-living base increases in 2016-17 include $248 million www.lao.ca.gov Legislative Analyst’s Office 35 2016-17 BUDGET Figure 14 California Community College Funding (Dollars in Millions) Change From 2015‑16 2014‑15 2015‑16 2016‑17 Actual Revised Proposed Amount Percent Proposition 98 Funds General Funda $4,979 $5,373 $5,447 $74 1% Local property taxes 2,302 2,624 2,812 188 7 Subtotals ($7,281) ($7,997) ($8,259) ($262) (3%) Other Funds Non-Proposition 98 General Fundb $387 $440 $524 $84 19% Enrollment fees 410 420 426 6 1 Lottery 189 202 202 — — Special funds and reimbursements 86 95 95 — — Subtotals ($1,072) ($1,157) ($1,247) ($90) (8%) Totals $8,353 $9,154 $9,506 $352 4% a Includes $23 million in 2014-15 and $25 million in 2016-17 for innovation awards. Beginning in 2015-16, includes $500 million for Adult Education Block Grant, of which more than $400 million goes to school districts. b Includes funding for state contributions to the State Teachers Retirement System and state general obligation bond debt service. Figure 15 for career technical CCC Proposition 98 Spending Changes education (CTE), of (In Millions) which $200 million is to implement the 2015‑16 Budget Act Spending Level $7,914 Pay down mandate backlog (one time) 73 recommendations of Technical adjustments 11 a Board of Governors Total Changes $83 task force on workforce Revised 2015‑16 Spending $7,997 education and $48 million Technical Adjustments Remove one-time spending -$372 is to make the expiring Other technical adjustments -90 CTE Pathways Initiative Subtotal (-$461) ongoing. Other Policy Changes significant increases Fund deferred maintenance and instructional equipment (one time) $255 include $115 million for Implement workforce recommendations of BOG task force 200 Fund 2 percent enrollment growth 115 2 percent enrollment Make CTE Pathways Initiative ongoing 48 growth, $31 million for Augment Basic Skills Initiative 30 a 0.47 percent COLA Provide 0.47 percent COLA for apportionments 29 Fund Innovation Awards at community colleges (one time) 25 on apportionments and Increase funding for Institutional Effectiveness Initiative 10 selected categorical Fund development of “zero-textbook-cost” degree programs (one time) 5 programs, and $30 million Improve systemwide data security 3 Increase apprenticeship reimbursement rate 2 to improve basic Provide 0.47 percent COLA for selected student support programs 1 skills instruction. We Subtotal ($723) discuss each of these Total Changes $262 2016‑17 Proposed Spending $8,259 augmentations later in this BOG = Board of Governors; CTE = Career Technical Education; and COLA = cost-of-living adjustment. section. 36 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET No Change to Enrollment Fee Levels. The offering a bachelor’s degree in an occupational Governor proposes no change to the current field as part of a CCC pilot program. The Board of enrollment fee amount of $46 per credit unit (or Governors selected pilot colleges based on several $1,380 for a full-time student taking 30 units per factors identified in statute, including documented year). This fee has remained unchanged since local or regional unmet workforce needs in the 2011-12. The Board of Governors Fee Waiver subject area of the degree. In addition, statute program waives enrollment fees for nearly half of specifies that CCC bachelor’s degree programs may students, accounting for two-thirds of units taken not duplicate curricula already offered by CSU or at the community colleges. Community colleges UC. Approved programs include dental hygiene, continue to offer noncredit instruction at no charge. mortuary science, health information technology, aerospace manufacturing technology, and Workforce Proposals industrial automation, among others. Legislation The Governor’s budget includes two main directs our office to conduct an interim evaluation workforce education proposals for the community of the pilot by July 1, 2018 and a final evaluation colleges. The first proposal is to create a large by July 1, 2022. The pilot program is scheduled to new program to support CTE. The second is to sunset in 2023. re-establish an otherwise expiring CTE program. Four CCC Categorical Programs Address Below, we provide background on CCC’s existing Unique CTE Issues. These programs, described workforce education activities, describe the below, provide $136 million for direct instruction, Governor’s workforce education proposals, and planning and coordination, and student services provide our assessment and recommendations. related to workforce education. Apprenticeship Program Supports Classroom Background: Several CCC Programs Instruction That Accompanies On-the-Job Support Workforce Education Training. During an apprenticeship, apprentices More Than One-Third of CCC Instruction receive supervised, hands-on training from an Is Workforce-Related. This estimate is based employer and take classes relevant to their trade. on enrollment in basic skills and occupational This categorical program reimburses school courses. Basic skills courses include elementary districts and community colleges for classroom and secondary math, reading, writing, and English instruction related to approved apprenticeship as a second language. Student enrolling in these programs. Most apprenticeship instruction courses may be improving their skills in order to offered by the community colleges provides be able to enter the workforce. Students enrolling college credit, and all apprenticeship instruction, in occupational courses may be seeking applicable whether provided by colleges or school districts, certificates or associate degrees, or learning is reimbursed on an hourly basis at the same new skills to help them advance their careers. rate as CCC credit instruction. In 2015-16, the Altogether, these courses generate more than state is providing a total of $51.9 million for $2 billion in annual apportionment funding for apprenticeship instruction ($20.5 million for school community colleges. district instruction, $16.4 million for community CCC Pilot Program Will Offer Bachelor’s college instruction, and $15 million for ongoing Degree in Occupational Fields. Over the next two development of new apprenticeship programs years (2016-17 and 2017-18), 15 colleges will begin regardless of provider). www.lao.ca.gov Legislative Analyst’s Office 37 2016-17 BUDGET CTE Pathways Program Funds Consortia Regional Coordination. Under this longstanding of Community Colleges and High School program, the Chancellor’s Office has used labor Districts. The goal of this grant program is to market analysis to define 15 economic regions and help regions develop sustainable CTE pathways identify 10 priority industry sectors. In 2013-14, among schools, community colleges, and regional the program funded six initiatives, summarized in business and labor organizations. The grants are Figure 16, to improve the delivery of CTE within to help consortia meet eight specific objectives these economic regions and industry sectors. (The identified in the program’s authorizing legislation. program has not yet reported on its more recent These objectives include aligning secondary and projects.) The 2013-14 initiatives emphasized postsecondary CTE programs to create seamless collaboration among community colleges, transitions for students, providing professional employers, labor unions, civic organizations, and development to facilitate CTE partnerships, and economic and workforce development officials increasing the number of students who engage in in meeting workforce needs. The program also work-experience programs. The Legislature created has established common performance measures the CTE Pathways Program in 2005, reauthorized designed to apply to all CCC workforce programs. it in 2012, and has provided $48 million each year State Provides Supplemental Funding for since reauthorization. The program was set to Nursing Education. The purpose of this program expire at the end of 2014-15, but the 2015-16 budget is to increase the number of students who complete provided an additional $48 million and extended CCC nursing programs and pass the national the program one more year. Of the $48 million licensure exam for registered nurses. Specifically, provided in 2015-16, $33 million is going to the program provides funding to create additional community college CTE programs and $15 million enrollment slots, identify (through diagnostic to high school programs. The community college assessment) students who are ready to enter a portion supports a mix of specialized programs nursing program, provide pre-entry preparation (such as Career Advancement Academies, which for students who do not pass the assessment, and provide basic skills instruction in a CTE context provide support (such as tutoring) for enrolled for students who dropped out of high school or are students to reduce attrition. The Chancellor’s otherwise underprepared) and more centralized Office annually allocates to each nursing program efforts (such as a network of regional industry $5,700 per additional enrollment slot (over a liaisons for the colleges). The majority of the school baseline level) to expand capacity and a base grant district funding ($9 million) goes to the California of $32,000 to $50,000 for student assessment and Partnership Academies, a California Department of retention activities. In addition to paying for Education (CDE) categorical program supporting direct instructional and support services, funds small high school learning communities, each may be used for equipment purchases and faculty with a career theme. (Last year, the state created professional development related to the program a new competitive CTE grant program for high goals. schools. The state committed to provide a total of Career Technical Education Students May $900 million for the program over a three-year Receive Financial Aid. In addition to the CCC period, 2015-16 through 2017-18.) categorical programs described above, the state Economic and Workforce Development supports CTE through need-based student (EWD) Program Supports Statewide and financial aid programs. Community college 38 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET students may qualify for one or more of these apply for a limited number of Cal Grant C awards. programs if they demonstrate financial need These Cal Grant awards provide $547 annually for and meet other requirements. CCC Board of books and supplies for CCC students enrolled in Governors fee waivers cover enrollment fees. a vocational program four months to two years in The Cal Grant B access award, administered by length. Students also may apply for federal financial CSAC, provides up to $1,656 annually for books, aid, including Pell Grants, education tax credits, supplies, and living expenses for students enrolled and federal student loans. in a certificate or degree program of one year or Background: Board of Governors more. Community college students who are recent Strong Workforce Task Force high school graduates and meet certain eligibility requirements are guaranteed a Cal Grant B award. Board of Governors Commissioned Task Other students, including those who have been out Force to Recommend Improvements in CTE. The of school for more than one year, must compete board established the Task Force on Workforce, for a limited number of Cal Grant B awards. Job Creation, and a Strong Economy in late 2014. A supplemental award funded through a CCC The board appointed 26 members from inside and categorical program provides $600 annually for outside of the CCC system, including leaders from Cal Grant B recipients who attend CCC full time, the Chancellor’s Office and community colleges, bringing their total award to $2,256. Students who the business community, organized labor, public do not qualify for a Cal Grant B award (mainly agencies involved in workforce training and K-12 because they are in a program shorter than one education, and community-based organizations. year in length or have been out of school longer The group collected input on CTE issues through than a year, as many CTE students have been), may a series of regional community college meetings, Figure 16 Economic and Workforce Development (EWD) Program 2013-14 Initiatives (In Millions) Initiative Description Amount Deputy Sector Navigators Industry experts who connect businesses and community colleges within a region to $13 enhance alignment between career pathways and employer needs. Sector Navigators Industry experts for each of the ten priority industry sectors who coordinate the deputy 6 sector navigators and perform similar work at a statewide level. Industry‑Driven Regional Regional networks of public, private, and community-based organizations that support 2 Collaboratives CCC efforts to meet regional industries’ training and education needs. Centers of Excellence for Labor market and data resource centers for education and industry stakeholders that 1 Labor Market Research provide real-time and forecasted regional labor market research. Technical Assistance Contractors who provide expertise and technical assistance in specific areas of need to 1 Providers the Chancellor’s Office, colleges, and other EWD grantees. CTE LaunchBoard Online data tool funded in part by EWD that provides the Chancellor’s Office and — colleges with CTE performance data, including transitions from K-12 CTE programs to colleges, college enrollment and completions, attainment of industry or state certifications, employment in field of study, and earnings. Total $23 CTE = career technical education. www.lao.ca.gov Legislative Analyst’s Office 39 2016-17 BUDGET town hall meetings, and public task force meetings community colleges’ capacity to create, adapt, and spanning from November 2014 through July 2015. maintain CTE courses and programs that respond Task Force Identified Workforce Education to regional labor market needs. The request and Training Priorities. Based upon its meetings specifically called for funding to offset the high cost and the input it received, the task force identified of CTE programs and provide a funding stream to a set of workforce priorities. These priorities purchase equipment and outfit facilities. include securing adequate funding for high-cost Governor’s Proposals CTE programs, including a stream of funding to keep equipment and facilities up to date with Proposes Large New Workforce Education industry developments; speeding the development Program. The proposed budget includes and approval of new programs in response to $200 million in ongoing Proposition 98 General workforce needs; increasing colleges’ flexibility Fund support for a new “Strong Workforce to hire experienced professionals to teach certain Program.” This amount would fully fund the Board skills courses; providing learning opportunities of Governors’ request. The purpose of the program that better align across educational levels within would be to expand the availability of quality CTE a region and focus on attainment of skills and and workforce development courses, pathways, competencies; expanding student support services; and programs resulting in certificates, degrees, and and improving the use of labor market and student other credentials. success data to inform program planning. The Proposes Regional Planning Approach for task force developed 76 detailed recommendations New Workforce Program. Under the proposed related to these priorities. While some funding for process, CCC would coordinate its CTE coordination could help, CCC could implement programs within 14 regions identified under the most of the task force’s recommendations with state’s implementation of the federal Workforce existing funding and authority. Innovation and Opportunity Act (WIOA) “to A Few Task Force Recommendations Could the extent possible.” (Five of the WIOA regions Require Legislation or Funding. These include coincide with five of CCC’s 15 economic regions, targeting funds for high-cost CTE programs as defined for the EWD program, and nine have (including funds for equipment), removing various degrees of overlap with the remaining ten statutory barriers to hiring CTE faculty who CCC regions.) Within these regions, CCC would may have industry experience in place of formal create “collaboratives” of community college education, and increasing financial aid for CTE districts, local education agencies, interested students. CSU and UC campuses, civic representatives, Board Adopted Task Force Report, Requested workforce development boards, representatives Additional State Funding. At its November 2015 from the organized labor community, and meeting, the Board of Governors formally adopted economic development and industry sector leaders. the task force recommendations. The board already Collaboratives would meet at least annually to had included a $200 million funding request in develop four-year plans to meet regional workforce its system budget, approved in September 2015, education needs. These plans would include a as a placeholder pending finalization of the task needs assessment based on regional labor market force report. The funding request called for a analyses, efforts to coordinate existing programs sustained, supplemental funding source to increase in the region, student success goals, and work 40 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET plans for meeting regional priorities. The proposed Leaves Distribution of Funds Within Region planning process mirrors the existing planning to Community College Districts. The Governor’s process for regional consortia under the state’s proposed legislation calls for the regional Adult Education Block Grant program. Under collaboratives to allocate funds in accordance that program, 71 consortia of school districts and with their plans. In an apparent contradiction, the community colleges, working with the same types proposal also requires that any decisions relating to of partner organizations, develop similar plans the distribution of funds be determined exclusively based on similar data and criteria. by the community college districts participating in Requires Chancellor’s Office to Implement a collaborative. The proposal requires that districts Performance Measures. The proposal calls for receiving an allocation use the region’s plan to the Chancellor to align the measures, to the inform their campus CTE planning, but it does extent possible, with federal WIOA performance not specify what types of activities colleges could measures. (These include measures of degree and support with the funding. certificate completion, employment, and earnings.) Requires Chancellor’s Office to Make Collaboratives would set measurable goals for Recommendations to Board of Governors performance in each of these areas and provide Regarding Workforce Efforts. The annual updates of their progress in meeting recommendations would include policies, the goals. The Chancellor would post regional regulations, and guidance necessary to facilitate plans on CCC’s website. Beginning January 1, sharing of best practices and curricula across 2018, the Chancellor would be required to report colleges, streamline course and curriculum annually to the Governor and Legislature on each approval, and eliminate barriers to hiring qualified region’s performance outcomes (disaggregated instructors (including reevaluating the required for underserved demographic groups). As part of minimum qualifications for CTE instructors), these reports, the Chancellor would be required among other efforts. The Chancellor is to present to provide recommendations for program the recommendations by June 30, 2017. (See the improvement and for future allocations to box on page 42 for a discussion of the curriculum collaboratives based on program outcomes. approval process.) Tasks Chancellor’s Office With Developing Makes Otherwise Expiring CTE Pathways Allocation Formula for New Workforce Program Ongoing. The budget also includes Program. Under the proposal, the Chancellor $48 million in ongoing funding to make the would recommend a funding allocation to the CTE Pathways Program ongoing. The Governor Department of Finance for approval prior to proposes that future CTE Pathways funding distributing funds. The allocation would reflect “align” with the regional plans developed under each region’s share of the state’s: (1) unemployment, the Strong Workforce Program, but the Pathways (2) CTE enrollment, (3) projected job openings, program would continue to have separate statutory and (4) after the first year, successful performance requirements. outcomes. Each collaborative would designate one Increases Funding Rate for Apprenticeship community college district to serve as a fiscal agent Instruction. This proposal is consistent with last to receive and distribute funds. The Chancellor year’s action to bring the reimbursement rate for could reserve up to 5 percent of annual program apprenticeship instruction up to the funding rate funding for statewide coordination activities. for noncredit Career Development and College www.lao.ca.gov Legislative Analyst’s Office 41 2016-17 BUDGET Preparation (CDCP) courses, which is now the priorities but the Governor’s approach to meeting same as the rate as for credit courses. (Unlike the these objectives is unlikely to result in the desired CDCP rate, which increases automatically as a improvements. Below, we discuss these issues. result of COLA, faculty salary augmentations, and Unclear if Recent Augmentations Have other apportionment increases, the apprenticeship Resulted in Notable Improvements. Before rate is specified as a fixed dollar amount in the spending more on CTE, the state likely would want annual budget act and must be adjusted each year.) to know the effect of its former CTE augmentations. The proposed adjustment costs $1.8 million. Over the last decade, the state has provided more than $500 million in CTE Pathways funding, Assessment of Governor’s $500 million in Career Pathways Trust funding Overall CTE Proposal (a similar grant program for community colleges Mixed Review of Proposal. We think some and high schools funded in 2013-14 and 2014-15), aspects of the Governor’s Strong Workforce $350 million for the Economic and Workforce proposal are reasonable. In general, we believe the Development Program, and support for several program’s objectives are in line with legislative other smaller categorical programs to improve Curriculum Approval Process Lengthy Process. To develop new CTE programs, faculty members typically work with local advisory committees that include industry representatives. New curriculum proposals require approval from a college, a district governing board, a regional consortium, and the Chancellor’s Office before they can be implemented. The role of the Chancellor’s Office is to ensure that proposed courses and programs comply with all statutory and regulatory requirements to qualify for apportionment funding. Completing these steps often can take two years or longer. This extended time line is especially problematic in occupational fields with frequent industry changes. Governor Interested in Expediting Process. The Governor proposes that the Chancellor make recommendations to the Board of Governors regarding streamlining curriculum approval, at both the state and local levels, including potentially eliminating the state approval process for CTE courses, programs, and certificates. Options for Improving Process Without Reducing Accountability. We are concerned about the Governor’s proposal to consider eliminating the Chancellor’s Office role in CTE curriculum review. Currently, the office’s review provides a way to ensure taxpayer resources are used appropriately and to take corrective action if necessary. Internal policy changes, however, could reduce duplication in review processes while still retaining this important state function. For example, colleges could collaboratively develop model CTE programs that meet CCC and industry standards. Such models have the potential to speed the curriculum development and approval process (much as they did for associate degrees for transfer under the state’s recent transfer reform initiative). Potential CCC policy changes could include specifying the respective roles for each curriculum review, minimizing overlap among them, and providing a fast-track approval process for programs that meet the requirements of model curricula. These changes would require no additional state action. 42 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET the coordination, alignment, supply, and quality causes. It would distinguish between those issues of CTE programs. Given these large infusions of the CCC system already can address and those funding, some of the ongoing issues the Board of that require state funding or authority. Below, we Governor’s task force identified raise a number of discuss three areas where a new state program questions for the Legislature. In particular, why could have a direct positive impact on longstanding does the state still face widespread problems of concerns regarding CTE program availability and course and program alignment? Why has effective student success: (1) high-cost courses, (2) faculty coordination across providers and with employers qualifications, and (3) student financial aid. proved so difficult to accomplish? How would Addressing High-Cost Programs providing another large influx of resources for similar activities, as the Governor proposes, yield Offsetting High Costs of Some CTE Programs better results? Has Merit. As explained in the box on page 44, Governor’s Proposal Contributes to Even More some CTE courses are relatively expensive to Duplication of Planning Efforts. The Governor’s deliver. Because these courses receive the same proposal to create a regional planning process for funding rate per student as other courses, their CTE programs that so closely mirrors the adult relatively high cost creates a disincentive for education consortium planning process would colleges to expand their availability. Community add significant duplication of efforts that already colleges in the past typically have increased are plagued by a troubling level of duplication. their CTE enrollment more slowly than other Moreover, continuing the CTE Pathways Program types of enrollment during periods of growth, would maintain another similar regional and decreased it more quickly during funding planning process. Finding a way to integrate reductions. (For example, in 2014-15, CTE adult education and CTE planning efforts within enrollment was about the same level it had been existing WIOA planning processes under the ten years earlier whereas non-CTE enrollment was state’s workforce development boards would reduce 15 percent higher.) A funding mechanism that the administrative burden on colleges and their offsets the higher cost of creating and expanding planning partners, including employers. CTE programs (when justified by labor market Governor’s Proposal Does Not Link Funding demand) could reduce this disincentive and to Root Issues. The Governor’s proposal does not encourage the colleges to expand and maintain require any particular programmatic activities CTE enrollment. for community colleges (other than participating Ongoing Funding Stream for Equipment in planning). Under his proposal, it is unclear Would Address Major Cost Driver. Under the to what extent funds would directly support Governor’s proposal, collaboratives could fund increased enrollment in instructional programs equipment and other one-time costs, such as versus other uses, such as planning, collaboration, program startup, from their regional allocations. professional development, and equipment. A They also, however, could choose to incorporate more structured approach would better connect all their funding into base budgets for existing funding to program objectives. A more structured programs, leaving none available for new program approach would be based on a clear definition of development and equipment purchases over the the problems the state is trying to address, their long term. To remain available for these periodic root causes, and specific strategies to address those (but not annual) costs, a targeted, ongoing funding www.lao.ca.gov Legislative Analyst’s Office 43 2016-17 BUDGET stream would have to be kept separate from CTE set for each discipline based on recommendations programs’ base budgets. of the statewide Academic Senate. For academic Other Approaches Would Be Problematic disciplines (which include some CTE subjects), the at CCC. Two other approaches for supporting minimum qualification is a master’s degree. For high-cost programs—differential funding and many CTE areas, a master’s degree is not generally fees—would be extremely difficult to implement in expected (or available). For these disciplines, the California. The state lacks systematic cost data on minimum qualification is a bachelor’s degree which it could base course-specific funding rates. in any major and two years of experience in the Moreover, under a more differentiated funding occupational area of the assignment, or an associate model, a college would not necessarily receive degree and six years of experience. Each community more total funding because lower-cost courses college district may establish “equivalency” criteria would receive lower rates. The state also has limited for a degree, for example, allowing relevant work capacity for increasing revenue through higher experience or industry certifications to satisfy a fees, particularly if any new revenue is offset by portion of the educational requirement. additional financial aid for low-income students. Qualifications Apply to Entire Disciplines. Recent CCC fee increases yielded almost no new The statewide discipline qualifications and locally revenue because of increases in the number of determined equivalencies apply to entire disciplines students qualifying for fee waivers. rather than individual courses. On occasion, colleges find themselves unable to hire an expert Addressing Faculty Requirements for a particular CTE course because that individual Board of Governors Establishes Minimum does not meet the qualifications to teach every Faculty Qualifications. These qualifications are course within the discipline. Some Disciplines Consistently Have Higher Instructional Costs Equipment and Class Sizes Account for Higher Costs. Research identifies equipment costs and student-to-instructor ratios (including for supervised practicums and laboratory sections) as the two main factors explaining cost differences across subject areas within a college. (Other one-time costs, such as keeping curricula aligned with industry developments, also contribute to higher costs for some programs.) National cost studies have shown that nursing and engineering courses cost, on average, about three times as much to deliver as math, social science, and humanities courses and more than twice as much as computer science, business, and many science courses. Colleges Cross-Subsidize. Colleges typically offset the cost of these relatively expensive courses with lower costs in other courses, such as large lecture courses that have high student-to-teacher ratios and lower-than-average costs. Changes in a college’s mix of disciplines can change its average instructional costs. States Have Used Various Strategies to Fund High-Cost Programs. These strategies include differential course funding (colleges receive a higher rate for certain courses), differential student fees (students pay a higher fee for certain courses), and targeted funding for equipment or program development. 44 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Limitations Are Statutory. The requirement and with employer needs. Below, we provide that qualifications be established by discipline is set recommendations that try to accomplish these in state law. To permit colleges to hire instructors goals by building on the strengths of the Governor’s who are qualified to teach only some courses in a proposals and avoiding their drawbacks. For discipline would require (1) amending statute to purposes of illustration, we use the Governor’s create a limited exception for certain industry- proposed funding level as a starting point and qualified professionals to teach individual courses; suggest how those dollars could be reallocated or (2) creating a separate classification of CTE under our recommendations. Without substantial instructors colleges may hire, at their discretion, data on the costs of community college CTE under narrowly defined circumstances and with programs and more time to grapple with the extent mentorship or other support. of CTE expansion the state wants, determining exactly how much funding the state should Addressing Financial Aid provide is difficult. If the Legislature wanted to Governor’s Proposal Does Not Address pursue either the Governor’s proposal or our Financial Aid. Although the Board of Governor’s recommendations, it could work with CCC over the task force identified financial aid as an issue, the coming months to develop more refined budgetary Governor’s proposal is silent on it. estimates. CTE Students Often Receive Less Financial Consolidate Planning Processes. Whether or Aid Than Other Students. Many financially needy not it adopts the Governor’s workforce funding CTE students do not qualify for Cal Grant B awards proposal, we recommend the Legislature better because their CTE programs are less than one year integrate planning across adult education and CTE in length or they have been out of school too long programs, regardless of funding source, within one to still qualify for Cal Grant entitlement awards. set of regions. Ideally, local workforce development If these students receive Cal Grant C awards, the boards could approve comprehensive plans that cash assistance they receive for books, supplies, and include adult education and CTE programs (instead living expenses is one-quarter the value of a Cal of individual representatives from those bodies Grant B award with the CCC full-time supplement. approving separate plans through adult education We see no policy reason for this discrepancy in consortia, CTE Pathways consortia, and any new award amounts, and the discrepancy could possibly collaboratives). Operational plans for smaller units, suppress completion rates for CTE students. This is such as the 71 adult education consortia or the because students who receive less financial aid may providers within a collaborative, would have to have to work longer hours. Research shows that align with the larger regional plans and could rely working more than 20 hours per week is associated on those plans for labor market analyses and other with lower academic performance. inputs. Integrated planning would provide greater opportunity to ensure programs are working Recommendations in concert to meet regional needs for workforce The state has made efforts over the past education and training at all levels. It also could several decades to increase the availability and reduce inefficient duplication of meetings, planning quality of CTE programs, and, through planning efforts, programs, and reporting. and coordination, improve the alignment Replace Governor’s $200 Million Workforce of CTE programs across education sectors Proposal With a Better Structured Program www.lao.ca.gov Legislative Analyst’s Office 45 2016-17 BUDGET Linked to Key Cost Drivers. We recommend areas that align with regional plans. Given not the Legislature modify the Governor’s proposal all CTE courses have high costs, the Legislature to create a CTE categorical program focused on could direct the Chancellor’s Office to develop addressing high CTE costs, thereby reducing associated criteria to ensure this component any disincentives to expand CTE programs. supports only CTE areas that have significantly We recommend this new program have two higher-than-average costs. This component could components—one largely for equipment and one use a similar allocation model to the equipment for CTE programs with especially high costs. component, except that the outcome factors could Create Ongoing Equipment Funding Stream. take precedence. We recommend the Legislature designate a Fold Nursing Supplements Into The New CTE portion of funding under the new program for Categorical Program. If the Legislature adopts CTE equipment and other one-time costs such as the above recommendations, nursing education program start-up. As an ongoing source of funds, programs could receive equipment funds and this component could support additional CTE high-cost supplements under the new program. development and expansion each year based on Including outcomes in the allocation factors would regional priorities. Funding could be based on a address the student success goals of the current regional allocation model similar to the one the nursing supplements. As a result, separate funding Governor proposes in his budget, which considers for nursing programs would no longer be necessary. workforce needs and program outcomes, or it could Reject Continuation of CTE Pathways be based on similar factors at the district level. In Program, Fold Activities Into Other Programs. either case, funding should be only for specific We see no justification for maintaining this equipment or other one-time costs required to program as a separate grant program with distinct meet identified regional workforce needs that are requirements. We recommend rejecting the aligned with regional WIOA plans. Regions or Governor’s proposal to make the program ongoing. districts could use their full allocation annually Should the Legislature wish to continue funding or save a portion of their allocations for a year some of the specific projects under the current CTE or more to support infrequent, more expensive Pathways Program grants, such as the California equipment purchases. To ensure the colleges have a Partnership Academies, it could move the substantial, ongoing funding source for these costs, associated funding to the existing CDE categorical we recommend using at least half of the proposed program for the same projects. Similarly, any CCC funding for this component. activities the Legislature wished to maintain could Create Ongoing Supplemental Funding be incorporated into the new CTE categorical Stream to Address Programs With Especially program described above. High Faculty Costs. In addition to an equipment Require Chancellor to Report on Options earmark, we recommend the state also provide to Facilitate Hiring of Experienced Industry ongoing, supplemental funding to address Professionals. The Governor’s proposal would unusually high faculty costs in some CTE require the Chancellor to recommend changes programs. The Legislature could consider whether to policies regarding faculty qualifications to the it wants to embed outcome-based funding into this Board of Governors. Given the possibility that component as a way to create new incentives for statutory changes may be needed to address this colleges to increase student success in occupational issue, we recommend the Legislature direct the 46 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Chancellor to present it with options that would shall be established in the annual budget act, the remove statutory barriers, authorize (but not language could specify that the rate shall be the require) colleges to use an exception or newly hourly equivalent of the funding rate established created special hiring category, and delineate the for CDCP courses in the same fiscal year. circumstances under which using such exceptions Enrollment Levels and Funding would be appropriate. The Legislature’s direction to the Chancellor could include soliciting input In the “Higher Education in Context” section, from CTE faculty organizations, the Academic we described how the economy affects CCC Senate, and other stakeholders and providing the enrollment demand and capacity and reviewed associated report by March 1, 2017. recent trends in enrollment at the community Consider Increasing Cal Grant C Award colleges. Below, we describe how the state funds Amount. If the Legislature wishes to increase CCC enrollment and provide an update on the financial aid for CTE students who do not qualify use of 2015-16 enrollment funds. In addition, for the larger Cal Grant B entitlement awards, we describe the Governor’s proposal for 2016-17 it could consider increasing Cal Grant C award enrollment funding and provide our assessment of amounts. It could accomplish this by raising that proposal. the award amount for all Cal Grant C recipients Background through the CSAC budget. Alternatively, it could provide a targeted increase for community college CCC Enrollment Funding Has Three students through a CCC supplemental grant, as it Components. The state decides how much to did last year for Cal Grant B recipients attending provide for CCC enrollment by considering CCC full time. Costs to increase the award for all (1) enrollment growth, (2) declining enrollment, students, including those at private colleges, would and (3) enrollment restoration. In setting the CCC range from $3 million in General Fund support for enrollment growth level, the state typically bases its a $600 annual supplement for full-time Cal Grant C decision on an estimate of the average enrollment recipients (the same as the current Cal Grant B growth rate that districts likely can support given supplement) to $9 million for a $1,700 supplement student demand and available funding. The state’s that would equalize the total book, supply, and declining enrollment adjustment allows districts to living expenses awards for full-time Cal Grant B claim the higher of their current-year or prior-year and Cal Grant C recipients. Providing the same enrollment levels—effectively a one-year hold increases only for community college students harmless provision. Districts have three years to would cost about $2.5 million and $7 million, earn back funding associated with enrollment respectively, from Proposition 98 General Fund. declines. The third component, accordingly, is an Adopt Apprenticeship Rate Increase and estimate of the amount of enrollment districts Consider Tying to CDCP Rate. We recommend likely will earn back (or “restore”) during the adopting the conforming adjustment to reimburse budget year. apprenticeship instruction at the same rate as Statute and Budget Language Specifies How CDCP instruction. If the Legislature’s intent is to Enrollment Funds May Be Used. In recent years, continue funding apprenticeship instruction at budget language has required CCC to give highest the CDCP and credit rate, it could amend statute priority to expanding enrollment in courses related accordingly. Instead of specifying that the rate to its primary mission of transfer, workforce www.lao.ca.gov Legislative Analyst’s Office 47 2016-17 BUDGET training, and basic skills. In 2014, the state adopted Assessment legislation codifying these enrollment priorities. Governor’s Proposed Growth Rate Appears Systemwide, CCC Falling Short of Meeting Somewhat High. The Governor’s proposals for 2015-16 Enrollment Target. After adjustments for enrollment growth, declines, and restoration enrollment declines and restoration, the 2015-16 generally appear reasonable to us. The recent trend budget funded 2.3 percent net enrollment growth in enrollment suggests the Governor’s budget for CCC. This followed actual enrollment growth overstates enrollment in both the current year and of 1.8 percent from 2013-14 to 2014-15. Preliminary the budget year. As a result, relatively little in new estimates suggest that systemwide enrollment base funding could be needed to fund enrollment is growing 0.9 percent in 2015-16. In addition, growth in 2016-17. 0.5 percent of CCC enrollment remained unfunded Use Updated Information in May to Make at the end of 2014-15. In total, the system would be Final Enrollment Decisions. By the time of the able to use growth funding of up to 1.4 percent for May Revision, the CCC Chancellor’s Office will both existing unfunded enrollment and 2015-16 have received some updated 2015-16 attendance enrollment growth. Because these estimates were reports from districts. These data will show the not available at the time the Governor prepared his extent to which districts are meeting, exceeding, budget proposal, the proposal does not reflect the or falling short of their enrollment targets in the 2015-16 shortfall in enrollment and its implications current year. At that time, the Legislature will have for projected 2016-17 enrollment. better information to assess the extent to which Three-Quarters of Districts Not Meeting colleges will use the 2015-16 enrollment growth Growth Targets. Of the CCC’s 72 districts, 54 funds and be able to grow in the budget year. If estimate that their enrollment in 2015-16 will fall the Legislature decides the full amounts are not short of their targets. (These targets include any justified for one or both years, it could use any restoration to which districts are entitled plus their associated freed-up funds for other Proposition 98 new growth allocations.) priorities. Governor’s Proposals Basic Skills Initiative Funds Enrollment Growth and Adjusts Below, we provide background on basic skills for Enrollment Declines and Restoration. The education at the community colleges, describe the Governor proposes $115 million for 2 percent CCC Governor’s proposal to augment funding for a basic enrollment growth (an additional 23,000 FTE skills program, and provide our assessment and students). The Governor’s budget also assumes recommendations regarding this proposal. declining enrollment in 2015-16 (and the loss of associated funding in 2016-17) at 1.3 percent Background of overall CCC enrollment. Additionally, the Three-Quarters of First-Time CCC Students Governor’s budget assumes 0.7 percent restoration Assessed as Unprepared. This represents more in 2016-17. Accounting for changes in enrollment than 150,000 incoming degree, certificate, and growth, declines, and restoration, the net change is transfer-seeking students annually. Various factors a 1.4 percent increase (about 17,000 FTE students) contribute to the high rate of unprepared students. in funded enrollment compared to the 2015-16 Many students did not fully master basic English Budget Act level. and math skills during prior schooling. Some may 48 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET have mastered the skills in the past but forgotten focus on teaching specific skills through repetitive them. For some students, performance on the drills, with an emphasis on correct procedures assessment tests may not accurately reflect their and answers. These teaching methods have been mastery of the material (for example, because of criticized as ineffective because they do not their test anxiety or not grasping the importance of necessarily promote conceptual understanding the test and taking it seriously). or provide interesting, relevant context to help Unprepared Students Are Less Likely to students connect what they are learning in Graduate. Among degree, certificate, or transfer- the classroom to their broader educational or seeking students who enter CCC prepared for professional goals. Moreover, traditional course college-level work, 71 percent achieve one of those sequences extend students’ time in school. For outcomes within six years compared to 39 percent example, a student beginning three levels below for unprepared students. transferable college courses must complete three Basic Skills Education Encompasses Several semesters of remediation. Types of Courses. These courses—sometimes called Some Promising Innovations in Basic Skills remedial, developmental, or foundational courses— Education. Many community colleges in recent include those in elementary and secondary reading, years have made significant improvements to their writing, and math as well as English as a second processes of preparing students for college-level language (ESL). Most basic skills English and math courses. These improvements generally fall into courses, and about one-third of ESL courses, are four areas: (1) changing how colleges assess and offered for credit. (Though technically offered advise entering students, to place more of them for credit, these credits generally do not count directly into college-level courses; (2) accelerating toward associate degrees or transfer.) Colleges or compressing remedial courses and sequences to also may offer tutoring, study skills courses, and get students through faster; (3) offering alternative learning skills courses for adults with disabilities as math pathways for non-STEM majors that focus noncredit basic skills instruction. on statistics instead of calculus; and (4) adopting Basic Skills Courses Account for More Than student-centered instructional methods and One-Quarter of All CCC English and Math support services and integrating student support Enrollment. In 2014-15, 28 percent of all English, services into basic skills courses. reading, and writing units taken at CCC (not State Provides Most Basic Skills Funding including ESL) were remedial. Similarly, 24 percent Through Apportionments, Some Through of all math units taken were remedial. Categorical Programs. The vast majority of CCC’s Shortcomings of Traditional Approach to basic skills funding is from apportionments. Basic Skills Instruction. Under the traditional Apportionment funding supports direct instruction. approach to basic skills instruction, colleges The state allocates apportionment funding on the administer assessment tests to entering students basis of FTE enrollment. In 2015-16, we estimate and, based on the results, place them into a the state provided $700 million for basic skills sequence of courses they must complete before through apportionments (accounting for 11 percent enrolling in transferable college-level courses. of all apportionment funding). Of this amount, (A math sequence, for example, could include more than $400 million was for English, math, arithmetic, pre-algebra, elementary algebra, and tutoring, and study skills courses. In addition, a intermediate algebra.) Basic skills courses often number of categorical programs support basic skills www.lao.ca.gov Legislative Analyst’s Office 49 2016-17 BUDGET coordination, innovation, professional development, program to promote African-American student and student services, as described below. success; Disabled Students Programs and Services; State Has Provided More Than $20 Million and student services for CalWORKs recipients. Annually for Basic Skills Initiative Since 2007-08. Another categorical program—the Institutional The purpose of this categorical program is to Effectiveness Partnership Initiative—helps colleges improve the effectiveness of CCC basic skills evaluate and improve their operational and instruction. Of the total, 95 percent goes to educational practices, including their basic skills colleges and 5 percent is for statewide professional instruction. development activities. Funding to colleges is Two One-Time Grant Programs Created in allocated based on the number of basic skills FTE 2015-16 to Improve Basic Skills Practices. Last students they serve. Colleges may use the funds for year, trailer legislation established the Community curriculum planning and development; student College Basic Skills and Student Outcomes assessment, advisement, and counseling services; Transformation Program. As the name implies, supplemental instruction and tutoring; articulation; the intent of the program is to transform how instructional materials and equipment; and any colleges deliver basic skills instruction in order other purpose directly related to enhancement to improve student outcomes. The legislation of basic skills, English as a second language also established the Basic Skills Partnership Pilot instruction, and related student programs. The Program to promote more and better collaboration statewide professional development component in delivery of basic skills instruction among high supports workshops, conferences, publications, and schools, community colleges, and CSU campuses. “communities of practice” (collaborative learning The state provided one-time funding of $60 million opportunities for practitioners focused on a specific for the transformation program and $10 million type of reform, such as basic skills acceleration). for the partnership program. We provide further Several Other Categorical Programs Include information about each of these programs below. Basic Skills Components. Most notably, the Transformation Program. Districts may apply Student Success and Support Program supports for one-time, three-year grants of up to $1.5 million assessment and placement for incoming students. to help them adopt or expand the use of evidence- Student equity plan funding also can support based models for basic skills assessment, placement, basic skills improvement strategies. Additionally, instruction, and student support. Statute identifies various categorical programs offer counseling, six such strategies (shown in Figure 17) and tutoring, and other basic skills support. These requires participating colleges to adopt or expand programs include the Extended Opportunity the use of at least two of them. Eligible activities Programs and Services for students with under the grant program include curriculum language, social, economic, and educational redesign, professional development, release time disadvantages; the Mathematics, Engineering, and for faculty and staff, and data collection and Science Achievement (or “MESA”) Program for reporting. The Chancellor’s Office released a underrepresented students seeking careers in math, request for applications January 21, 2016. Districts science and engineering fields; the Puente Project will be selected for awards primarily based on the to help Latino and other underrepresented students quality of their improvement plans rather than transfer, earn college degrees, and return to their their current basic skills outcomes. Applications community as mentors and leaders; the Umoja are due from districts March 25, and grants are 50 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET to commence July 1. Statutory language specifies categorical program to $50 million (Proposition 98 data collection requirements for participating General Fund). community colleges and directs our office to Expands Purposes of Initiative. The Governor evaluate the program’s effectiveness in interim and proposes to add four activities to the allowable final reports to be issued by December 1, 2019 and uses of program funding: (1) implementing or December 1, 2021, respectively. expanding the use of evidence-based practices Partnership Pilot. Under this smaller one-time and principles identified in the legislation creating grant program, the Chancellor’s Office will award the transformation program; (2) accelerating the five grants of $2 million each to community adoption and use of open educational resources college districts. To qualify for awards, districts in basic skills English, math, or ESL courses; must collaborate with nearby school districts and (3) collaborating with high schools and CSU CSU campuses to better articulate English and campuses to better align remedial instruction math instruction across segments. Participating methodologies, curricula, and course offerings CSU campuses must commit to directing their among local education agencies, community underprepared students—either currently enrolled colleges, and CSU campuses; and (4) implementing or planning to enroll—to basic skills instruction assessment and placement practices that increase at community colleges. Statute requires the the likelihood students will be appropriately placed Chancellor’s Office to report by April 1, 2017 on in college-level rather than remedial courses. program effectiveness and cost avoidance, as well Requires Districts to Complete as make recommendations regarding the expanded Self-Assessments of Their Programs. The Governor use of community colleges to deliver basic skills proposes to require community colleges to assess instruction to CSU students. their basic skills efforts using a specified tool. Trailer legislation in 2007-08 required that each Governor’s Proposal college commit to conducting a self-assessment Augments Basic Skills Initiative by as a condition of receiving Basic Skills Initiative $30 Million (Ongoing). The proposed funding that year. The associated assessment tool augmentation would bring annual funding for the was developed as part of a comprehensive report Figure 17 Six Evidence‑Based Strategies for Improving Basic Skills Education 9 Using multiple measures to assess and place students into English and math courses. 9 Increasing placement of students directly into transferable college-level courses and providing co-requisite basic skills instruction. 9 Requiring students to master only those English and math skills needed for their programs of study. 9 Contextualizing remedial instruction to relate to students’ programs of study. 9 Integrating student support services with instruction. 9 Developing shorter sequences for completion of a college-level English or math course by using technology, the above strategies, or other strategies and practices that the college can substantiate are effective. www.lao.ca.gov Legislative Analyst’s Office 51 2016-17 BUDGET commissioned by the Chancellor’s Office. The based on three main factors: (1) the percentage assessment tool helps colleges evaluate their use of of basic skills English, math, or ESL students 26 practices identified in the research as effective completing a college-level course in the same for improving basic skills outcomes. Colleges subject within one year and two years; (2) the completed the self-assessments in 2007-08 and have percentage of incoming students (regardless of basic not since been required to repeat them. skills status) who complete college-level English Requires Annual Action and Expenditure and math courses within one year and two years of Plans. In addition, the Governor proposes enrolling; and (3) a weighting factor of 20 percent requiring districts to report the strategies they will for colleges participating in the transformation implement to improve the successful transition program or adopting similar reforms. The first of students to college-level English and math factor could disadvantage colleges that adopt courses. The Governor also would require colleges one of the recommended reforms—placing more to provide performance targets for increasing the students directly into transferable college-level number of students transitioning to college-level courses. The Governor included the second factor, work and reducing the amount of time it takes. on which these same colleges likely would perform Requires a Plan for Implementing Multiple well, to offset any such disadvantage. The proposed Measures of Assessment and Placement. Statute legislation provides for a minimum allocation of already requires colleges to use multiple assessment $100,000 per college and permits the Chancellor measures for the purpose of advising and placing to include additional factors and adjustments as students. The extent of compliance with this deemed necessary. The legislation would require requirement, however, varies. The administration the Chancellor to receive concurrence from the suggests that requiring a plan for using multiple Department of Finance prior to adding factors and measures will encourage broader and more prior to allocating funds. effective implementation of existing state law. Holds Colleges Harmless. The proposed Gives Funding Priority to Colleges That Are legislation would guarantee that colleges receive Participating in Transformation Program or as much funding under the revised Basic Skills Independently Undertaking Similar Activities. Initiative as they received from the categorical The administration has indicated that this program in 2015-16. provision is intended to provide an incentive Directs Chancellor to Urge Colleges With Low for colleges to participate in the transformation Basic Skills Success Rates to Seek Assistance. The program. Under the proposal, colleges could receive proposal would require the Chancellor to “strongly priority for Basic Skills Initiative augmentations at encourage” each of the five districts with the lowest the same time they receive initial funding under basic skills completion outcomes to apply for help the transformation program. They could direct in improving their outcomes. The assistance would funding from both sources to implement their be provided by visiting teams of peer experts as selected improvement strategies. part of the Institutional Effectiveness Initiative, Introduces Performance Funding Into described later in this report. (The proposal Program. Proposed trailer legislation requires the avoids creating a mandate by encouraging and not Chancellor to use a new method for distributing requiring the application.) basic skills initiative grant funds. Specifically, the Directs Chancellor to Work With Department Chancellor would be directed to distribute funds of Finance and Legislative Analyst to Recommend 52 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Annual Accountability Measures. The CCC college-level courses—more than double the odds already has a student success measure related to for English and more than four times for math. To one of the proposed program goals (increasing date, more than half of community colleges have the share of basic skills English, math, and ESL participated in professional development activities students who complete a college-level course in related to acceleration. Statewide training and the same subject). While the stated goal of the communities of practice also have fostered the Governor’s proposed basic skills augmentation is to adoption and expansion of other types of reforms improve completion of a college-level course within at dozens of colleges. one year and two years, the existing student success . . . But Limited Impact on Systemwide measure looks at completion within six years. The Outcomes. Innovations tend to spread slowly across data are readily available, however, to look at the the CCC system given the highly decentralized same outcome within one and two years. The CCC structure of the colleges. This is especially true for currently does not have a measure for the second instruction, where individual faculty members proposed goal (increasing the share of entering have considerable latitude regarding how to teach students, regardless of whether they initially take a subject. While the Basic Skills Initiative has had basic skills courses, who complete college-level some success spreading effective practices, adoption English and math courses within one year and two of these practices is far from universal and many years). colleges continue to use traditional approaches that have poor outcomes. As a result, systemwide Assessment outcomes have improved only modestly. Below, we review the performance of the Remedial Success Rates Have Increased existing Basic Skills Initiative. We next provide our Modestly, but Remain Very Low. As shown in assessment of the Governor’s proposal to modify Figure 18 (see next page), 43 percent of students and augment the initiative. who enrolled in a basic skills English course in Evaluations of Existing Basic Skills Initiative 2008-09 completed a college-level English course Have Identified Some Successes . . . The statewide within six years—up slightly from 42 percent for professional development component has provided students entering four years earlier. The increase in many learning opportunities for faculty, staff, and math success, from 28 percent for the earlier cohort administrators. Often supported by these statewide to 31 percent for students entering in 2008-09, is activities, many colleges have implemented somewhat greater. Nearly 70 percent of students effective basic skills strategies. One of the most taking basic skills math, however, still do not touted successes associated with the initiative is make it past elementary algebra within six years. the California Acceleration Project. This project Though these systemwide results are lackluster, promotes several models for reducing the length performance varies widely by college. English of remedial sequences and reducing the number remediation success rates range from 19 percent of transitions, where students can lose momentum to 73 percent across community colleges. In math, by not passing one course or not enrolling in the rates range from 8 percent to 54 percent. next course. A study of 16 colleges implementing Hold Harmless Provision Undermines Goal accelerated pathways in English and math of Program. The Governor’s proposal to guarantee developed through this project showed significant ongoing funding (equal to a college’s current Basic increases in students’ odds of completing Skills Initiative allocation) dampens the potential www.lao.ca.gov Legislative Analyst’s Office 53 2016-17 BUDGET research has since been Figure 18 undertaken that could help Lackluster Results for Basic Skills Students refine the instrument. Second, Six-Year Outcomes for Cohorts Entering From 2004 to 2008a we are concerned about the proposal to prioritize funding 50% for colleges participating in 45 English 42.9 43.6 43.4% the transformation program. 41.7 42.0 As few as 40 of 113 colleges 40 might participate in the 35 transformation program, and these colleges will not 30 Math 30.7 31.0% necessarily be those with the 29.2 28.0 25 27.5 poorest basic skills outcomes. Further concentrating basic 20 skills resources on this select 2004-05 2005-06 2006-07 2007-08 2008-09 subset of colleges could a Percent of students who enrolled in a basic skills course and completed a college-level course in the same discipline within six years. significantly disadvantage other colleges—including impact of his other proposed changes. Up to some that could have less $20 million of the proposed $50 million total for grant-writing expertise but just as much need to the program could go to colleges continuing their transform their basic skills practices. Moreover, current practices, whether or not those practices colleges that receive funding for both the have proven effective. transformation program and the augmented Basic Focus on Outcomes Warranted. The Skills Initiative might struggle to accommodate Governor’s proposal to base the allocation of Basic such large simultaneous increases. Skills Initiative funding primarily on two measures Recommendations of student progress would send a clear message regarding the state’s expectations. It would convey, Reject Governor’s Proposal to Augment for example, that the state expects colleges to help Basic Skills Initiative by $30 Million. Given more students complete college-level English and the initiative’s modest impact on statewide basic math courses, and to do so within the first two skills completion rates over the last ten years, we years of attendance (rather than over six years recommend not augmenting the program at this as the CCC’s current student success measure time. The transformation and partnership pilot suggests). programs funded last year have the potential Other Design Considerations. We have two to more substantially improve outcomes. The other concerns with the Governor’s proposal. Legislature could wait until these two programs First, whereas a self-assessment could help colleges have been fully implemented and evaluated to identify weaknesses in their basic skills programs help it better target additional ongoing resources and build on strengths, the previous assessment for basic skills improvement. In the meantime, instrument likely is outdated. This assessment was the Legislature has better options for using the developed more than ten years ago and substantial $30 million in 2016-17. If it wishes to redirect 54 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET the funds for basic skills improvement, it could reduce the number of accreditation sanctions and augment the transformation program to allow negative audit findings for colleges. The 2014-15 more colleges to participate. Alternatively, it budget provided ongoing funding of $2.5 million could use the funds for deferred maintenance or for local assistance and $1.1 million for state other one-time purposes. Following any of these operations (nine positions) for the program. Trailer one-time uses, the Legislature could later augment legislation that year required the Chancellor’s the Basic Skills Initiative and make further Office to develop a set of effectiveness indicators refinements, if warranted, based on the results of (summarized in Figure 19, next page). It also the transformation and partnership pilot programs. required colleges, as a condition of receiving Modify Basic Skills Initiative Requirements Student Success and Support Program funds, and Transition to Performance Funding. Whether to develop, adopt, and publicly post goals and or not it decides to augment the Basic Skills performance outcomes using these indicators. Initiative, we recommend the Legislature adopt The budget directed the Chancellor’s Office to many of the Governor’s proposed new requirements provide technical assistance to districts that are not for the program in 2016-17. Specifically, we improving their performance outcomes. recommend: (1) expanding the allowable activities Broad Definition of Technical Assistance. under the program as proposed and requiring As used in this program, the term means the that colleges engage in at least two evidence-based providing of operational or management advice strategies, including working with other education and coaching, much as a consultant might offer agencies and institutions to articulate instruction; to an organization. (An initiative leader recently (2) adopting a revised funding allocation based explained the process as “professional development primarily on the proposed performance factors; for colleges” rather than for individuals.) (3) adopting a short-term hold harmless provision Chancellor’s Office Created Institutional for colleges that would phase out over no more than Effectiveness Division to Implement New three years; and (4) not weighting the Basic Skills Initiative. The new division developed an Initiative allocation toward colleges that already implementation approach that relies on a partner will be receiving funding from the transformation campus (College of the Canyons) to administer program. We also suggest directing the Chancellor the program and peer subject-matter experts, to develop a revised self-assessment tool for organized into “partnership resource teams,” colleges. to work directly with colleges and districts that request assistance. Funding supports coordination, Other Ongoing Proposals outreach, training for team members, travel expenses, and $150,000 implementation grants for Institutional Effectiveness institutions receiving assistance. (Statute requires Partnership Initiative (IEPI) a local match for these grants but authorizes the Initiative Established in 2014-15 to Provide Chancellor to waive the match requirements if Technical Assistance to Colleges and Districts. he initiates the technical assistance. Though all The purpose of this program is to improve institutional reviews to date have been voluntary, institutions’ student outcomes, fiscal viability, the Chancellor has waived the requirement in all and programmatic compliance with state and cases, deeming them have been initiated by his federal guidelines, as well as to significantly office.) www.lao.ca.gov Legislative Analyst’s Office 55 2016-17 BUDGET Institutional Effectiveness Initiative Expanded “one-stop shop” of effective practices, training in 2015-16. The 2015-16 budget added ongoing materials, and other resources for faculty, staff, and funding of $3 million to expand partnership administrators. resource team activities (bringing the total to Significant Activity in First Two Years. $5.5 million) and provided $12 million for a new In 2014-15, more than 450 attendees from 104 statewide professional development component for colleges and 22 district offices attended six faculty, staff, and administrators. The Chancellor’s regional workshops on using the indicators and Office awarded a specialized training contract to setting local performance goals. More than 100 Chabot-Las Positas Community College District subject-matter experts volunteered to participate to administer the professional development in partnership resource teams, and the initiative component. Under this contract, the district deployed 46 of them in eight teams averaging six works with the Success Center for CCC (a partner members each. Each team began working with a organization) to (1) develop and coordinate college or district that had requested assistance. workshops on practices that promote student (The composition and size of each team depends success, improve college operations, develop on the problems each institution identified and leadership, and meet other statewide priorities; the range of expertise needed to address them.) As and (2) develop an online clearinghouse as a part of each review, a team conducts at least three Figure 19 Institutional Effectiveness Indicators Student Performance and Outcomes Percent of degree, certificate, and transfer-seeking students who achieve goal within six years. Percent of remedial English and math students who complete a college-level course in the same subject within six years. Percent of career technical education students who complete a degree, certificate, or transfer preparation within six years. Percent of students who earn a grade of “C” or better in the fall term. Annual number of associate degrees awarded. Annual number of Chancellor’s Office-approved certificates awarded. Annual number of students successfully transferring to a university.a Accreditation Status Latest action of Western Association of Schools and Colleges, Accrediting Council for Community and Junior Colleges. Fiscal Viability Salaries and benefits as a percent of unrestricted General Fund expenditures. Annual number of full-time equivalent students. Net increase or decrease in unrestricted General Fund balance. Ending unrestricted General Fund balance as a percent of total expenditures. Unrestricted and restricted General Fund cash balance, excluding investments. Programmatic Compliance With State and Federal Guidelines Findings of independent audit of financial statements, state compliance, and federal award compliance. College Choice Indicators Each college must identify an indicator focused on unprepared students or basic skills students. Each college may identify an additional indicator. a Informational only, as outcome is affected by UC and CSU admission policies. 56 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET in-person visits and provides additional support by the Chancellor’s Office to report on the use of the telephone and e-mail, with the assistance spanning professional development funds from the prior year the course of several months. In the second year by December 1 of each year. of implementation (2015-16), the pool of experts Proposed Expansion Worth Considering. volunteering to serve on partnership resource Judging from participation to date, community teams increased to more than 230. Teams began college demand for technical assistance and working with 17 colleges and districts in the fall faculty, staff, and student demand for professional 2015 semester and another nine in the spring development opportunities is strong. Moreover, 2016 semester. The Chancellor’s Office expects the the Chancellor’s Office has proposed additional professional development component to provide worthwhile activities it could undertake if given an between 40 and 50 regional workshops in 2015-16, augmentation. serving several thousand participants. The online Caution Regarding Speed of Growth. The clearinghouse, named the Professional Learning institutional effectiveness initiative has grown Network, went live in early 2016. very quickly in its first two years. The Chancellor’s Governor Proposes $10 Million Augmentation Office expects to initiate about the same number (Ongoing) in 2016-17. The Governor proposes of technical assistance projects in 2016-17 as in augmenting statewide professional development 2015-16 while still completing engagements begun activities by $8 million, bringing the total for earlier. It plans to roughly triple the number of this component of the program to $20 million. workshops and other professional development The Chancellor’s Office would use this funding opportunities and launch the communities of to: (1) provide between 75 and 125 regional practice. While each of these activities has merit workshops and statewide summits on effective individually, faculty, staff, and administrators practices; (2) continue adding content to the have limited time they can devote to professional online Professional Learning Network, focusing development. especially on areas of statewide interest such Expand Proposed Reporting Requirement. We as basic skills improvement; and (3) develop suggest the Legislature monitor the program over communities of practice to bring together faculty, the next year to ensure it does not grow beyond the staff, and administrators who are working on demand for technical assistance and professional common issues to learn from each other. The development. To help it monitor the program, the proposal would augment technical assistance Legislature could amend the proposed reporting funding by $2 million, bringing the total for this requirement to include information about activities component of the program to $7.5 million. The under both components of the program, including Chancellor’s Office would use this funding to: college participation in those activities, as well as (1) expand partnership resource teams to more colleges’ progress toward their goals for each of the than 300 experts, (2) respond to an anticipated 30 institutional effectiveness indicators. technical assistance requests from colleges and Systemwide Data Security districts, (3) develop separate communities of practice for institutions that recently received team Growing Concerns About Information visits, and (4) develop “micro teams” of experts to Security Generally . . . As the Governor noted provide short-term, follow-up technical assistance in an October 2015 proclamation, the state’s on specific topics. Budget language would require information infrastructure faces an increasing www.lao.ca.gov Legislative Analyst’s Office 57 2016-17 BUDGET threat of malicious cyber attack, loss of privacy projects that address 2012 recommendations of the from spyware and adware, and significant financial Student Success Task Force—an online education and personal privacy losses due to identity theft and planning tool, a common assessment system fraud. At the same time, citizens and institutions for entering students, and an online education are increasing their reliance on technology. initiative. . . . And Information Security at Community Chancellor’s Office Funds Six Colleges. A 2013 CCC survey found that most Systemwide Technology Projects Through colleges did not have a staff member dedicated to the Telecommunications and Technology information security, did not have an information Infrastructure Program (TTIP). The state created security awareness program, felt that their TTIP in the 1996-97 budget to coordinate the information security program was fledgling, and system’s technology activities. Figure 20 describes lacked sufficient information about data security the programs the Chancellor’s Office funds under policies. the TTIP umbrella. The 2015-16 budget provides Recent Growth in Systemwide Technology $44 million for these programs (consisting of Projects Also Has Increased Security Risks. This $20 million for the technology infrastructure growth includes the expanded use of student program; $14 million under the Student Success outcome data (including creation of the CCC and Support Program for e-transcript, e-planning, Student Success Scorecard, Salary Surfer, and and common assessment tools; and $10 million to College Wage Tracker). It also includes the expand the availability of courses through the use development of three major systemwide technology of technology). Figure 20 Telecommunications and Technology Infrastructure (TTIP) Program Online Education Initiative (In Development). Will enable a student from any participating college to enroll in and complete a course from another participating college and easily apply that course towards completion of a degree at the student’s home college. Project involves creating several resources, including a common course management system, course design rubrics, tutorials to assess student readiness for online courses, arrangements among colleges sharing courses, and an online course catalog. Host district: Butte-Glenn, with assistance from Foothill-De Anza. Education Planning Initiative (In Development). Will facilitate college education planning and degree audit systems—key tools for students to define and track progress toward their educational goals—by providing access to transcript, articulation, and curriculum inventory information systemwide. Also will provide a student services portal to help lead students toward successful completion of their goals. Host district: Butte-Glenn. Common Assessment Initiative (In Development). Will develop a common assessment system providing information, test preparation, test delivery, test administration, data collection and course placement guidance for CCC colleges and students. Host district: Butte-Glenn. CCC Technology Center. Incorporates CCC systemwide technology platform, CCC Apply (online college application system), Open CCC project (allows a single sign-on for students and staff to access multiple CCC web-based programs), eTranscript service, CCC Information Security Center, and CCC access to fiber optic backbone and network services through the Corporation for Education Network Initiative in California. Host district: Butte-Glenn. 3C Media Solutions. Distributes educational video content, podcasts, streaming services, and event coverage for the community colleges. Host district: Palomar. Cal-PASS Plus—California Partnership for the Achievement of Student Success. Enables collection, analysis, and sharing of student data to track student performance and improve student success from elementary school through university. Host district: San Joaquin Delta. 58 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Projects Include Information Security substantial personal information about students, Center. The CCC Technology Center incorporates and weaknesses identified in college data security several interrelated projects, including a CCC practices, we recommend providing funds to Information Security Center. The Security Center enhance data security. The amount required to coordinates information security for the colleges’ adequately fund data security is unclear. The local information systems and statewide technology proposed uses of the $3 million augmentation projects. The center offers vulnerability scanning, appear sensible, however, and we believe that the server monitoring, and model policies and Chancellor’s Office could productively use the procedures for colleges. The center also promotes proposed amount. information security awareness and provides One-Time Funding up-to-date information on new threats and solutions. The Governor proposes to use $285 million Governor Proposes $3 Million (Ongoing) to in 2016-17 Proposition 98 funds for three Improve CCC Systemwide Data Security. The one-time purposes: (1) deferred maintenance and budget proposal would support a range of technical instructional support, (2) innovation awards to services for community colleges and statewide CCC colleges, and (3) a new “zero-textbook-cost projects through the system’s TTIP program. The degree” initiative. In addition, the Governor proposed augmentation would bring total funding proposes one-time Proposition 98 funding from for TTIP and related projects to $47 million earlier years of $76 million to address community annually. colleges’ education mandates backlogs and Augmentation Would Expand Security $35 million for deferred maintenance. Our Services. The Chancellor’s Office reports that the Proposition 98 Education Analysis discusses the proposed funding would enable the system to Governor’s mandate proposal. Below, we discuss create a comprehensive suite of security services the Governor’s proposals for augmenting deferred for community colleges and statewide technology maintenance and instructional support and projects. Services would include providing support funding new innovation awards. We will discuss for colleges in the event of a data breach, offering the textbook-cost proposal in a forthcoming brief. more in-depth vulnerability scans and risk Deferred Maintenance analyses, promoting the CCC information security standards and creating incentives for institutions CCC Maintains Inventory of Facility to meet these standards, and enhancing security Conditions. Community college districts jointly monitoring and “threat intelligence” (knowledge developed a set of web-based project planning that helps individuals identify security threats). and management tools called FUSION (Facilities The funding also would support creation of a CCC Utilization, Space Inventory Options Net) in systemwide data sharing committee to ensure the 2002. The Foundation for California Community security of personally identifiable information. Colleges (the Foundation), with assistance from Adopt Governor’s Proposal to Provide San Joaquin Delta Community College District, $3 Million to Improve Systemwide Data Security. operates and maintains FUSION on behalf of Given growing reliance on information technology districts. The Foundation employs assessors to systems at the colleges, the state’s creation of complete a facility condition assessment of every several new technology projects that will house building at districts’ campuses and centers on www.lao.ca.gov Legislative Analyst’s Office 59 2016-17 BUDGET a three- to four-year cycle. These assessments, projects) augmented by local bond funds (for more together with other facility information entered expensive projects). into FUSION, provide extensive data on CCC State Has Provided Substantial Funding for facilities and help districts with their local CCC Maintenance, Instructional Equipment, and planning efforts. All 72 districts pay annual fees Library Materials Over Past Few Years. The 2014-15 to the Foundation to support the facility condition and 2015-16 budgets each provided $148 million assessments and the FUSION system. for this categorical program. Historically, this CCC Reports Sizeable Maintenance Backlog. program has received large appropriations when a From the districts’ facility condition assessments, large amount of one-time Proposition 98 funding the CCC system has identified about $6 billion in is available and no appropriations in tight budget scheduled and deferred maintenance projects over years. Historically, the budget allocated half of the the next five years. The system has narrowed down program’s funding for deferred maintenance and the list to identify a more feasible maintenance plan half for replacement of instructional equipment and of $1 billion in the highest-priority projects to be library materials. In 2014-15, the budget removed completed over this period. The Governor’s budget this split, leaving associated allocation decisions documents show $504 million in CCC deferred up to districts. Data are not available on how much maintenance, which is based on projects from the of the 2014-15 and 2015-16 funding community first two years of this plan. colleges have spent on deferred maintenance. Data State Has a Categorical Program for CCC also are not available on how much the colleges Maintenance and Repairs. This categorical expect to spend from their apportionments and program also funds the replacement of bond funds on maintenance. instructional equipment and library materials, Governor Proposes $290 Million for hazardous substances abatement, architectural These Purposes. The budget proposal includes barrier removal, and water conservation projects. $255 million in 2016-17 funds, $28 million in Historically, budget language for this program has Proposition 98 settle-up funds, and $6 million in required a one-to-one match for any maintenance unspent Proposition 98 prior-year funds for this spending (using apportionments, local bond categorical program. monies, or other general-purpose funds), but Recommend Adopting Governor’s Funding no match has been required since 2013-14. To Proposal With Stronger Reporting Requirements. use this categorical funding for maintenance The proposed funding would help address CCC’s and repairs, districts must adopt and submit to large maintenance backlog and help update the CCC Chancellor’s Office a five-year plan of instructional equipment and materials. In addition, maintenance projects. Districts also must spend by dedicating $255 million in 2016-17 Proposition 98 at least 0.5 percent of their current operating funding to one-time purposes, the proposal would budgets on ongoing maintenance and at least as provide a corresponding cushion against future much on maintenance as they spent in 1995-96 revenue declines and drops in the Proposition 98 (about $300 million statewide) plus what they minimum guarantee. For these reasons, we receive from the categorical program. In addition recommend adopting the Governor’s proposal. We to categorical funds, CCC districts fund scheduled recommend, however, that the Legislature require maintenance from their apportionments and other additional reporting as described in our February general-purpose operating funds (for less expensive 2016 brief, Governor’s General Fund Deferred 60 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Maintenance Proposal, to help the Legislature improve four-year completion rates, or ease identify and address the underlying causes of CCC’s transfer across segments could apply for awards. maintenance backlog. In that report, we suggested Because awards were based on initiatives already collecting information about the factors that have led implemented at the campuses, they functioned to the accumulation of maintenance backlogs and more like prizes or rewards than grants for how the institutions could address maintenance on specified future activities. Campuses could apply on an ongoing basis so that deferred maintenance does their own or in collaboration with other campuses. not continue to accumulate. A committee of seven members—five Governor’s Inventory System Requires Updating. appointees (one each representing DOF, the three Districts report that the FUSION system is segments, and the State Board of Education) as well becoming outdated and cumbersome. It is as two legislative appointees selected by the Speaker compatible with only one operating system and of the Assembly and the Senate Rules Committee, one Internet browser. It cannot be used on mobile respectively—made award decisions. devices, a capability that would allow staff to Committee Approved 14 of 57 applications. In input information while inspecting buildings. It March 2015, the committee selected 14 applicants, also does not have the flexibility to include new including 6 community colleges, to receive functions such as inventorying instructional awards. The winning applications described equipment. Districts are planning to upgrade the several strategies they had undertaken that FUSION system to address these deficiencies. To met the initiative’s priorities. These strategies fund the cost of the desired upgrades, estimated included improving K-12 alignment to higher at $1.1 million, the districts have decided to defer education standards and expectations, redesigning their facility condition assessments—likely for a curriculum and teaching practices to improve full three- to four-year cycle—and redirect funding outcomes, and using technology to expand access toward the upgrade. In the interim, they would use to courses. The winners included individual outdated facility condition assessments to estimate institutions and teams of institutions, and each their maintenance needs. received from $2.5 million to $5 million in award Authorize Districts to Use a Portion of funds. The budget scored $23 million in awards Maintenance Funding for Inventory System. to community colleges as Proposition 98 General To ensure the state continues to receive current Fund. The winning institutions will report on the and useful information about CCC facilities, we effectiveness of their strategies by January 1, 2018 recommend the Legislature authorize districts to and January 1, 2020. use up to $1.1 million (in aggregate) of the one-time Legislature Rejected Governor’s Proposal for maintenance funding toward the FUSION upgrade. Additional Awards in 2015-16. Last year’s proposal would have provided $25 million for new awards Awards for Innovation using a similar application process. The proposal Awards for Innovation Funded in 2014-15. differed from the 2014-15 program, however, in that The 2014-15 budget provided $50 million in it would have (1) narrowed the priorities to focus one-time funding to promote innovative models of only on improving four-year graduation rates and higher education at UC, CSU, and CCC campuses. (2) provided awards only to CSU campuses. Campuses that had undertaken initiatives to Governor Proposes $25 Million for Awards increase the number of bachelor’s degrees awarded, to Community Colleges in 2016-17. The Governor www.lao.ca.gov Legislative Analyst’s Office 61 2016-17 BUDGET proposes to provide six innovation awards of at across the three public higher education least $4 million each in 2016-17. This proposal segments. differs from the 2014-15 and 2015-16 proposals • “Predominant” use of open educational in four ways: (1) only CCC districts would be resources (freely available instructional able to apply for awards, which would be funded materials) in a college’s course offerings. by Proposition 98 General Fund; (2) awards would be based on proposed activities instead of Potential Benefits to State Not Commensurate initiatives applicants already have implemented; With Funding Amounts. We have two main (3) awards would need to focus specifically on concerns about these awards. Our most significant effective articulation and transfer pathways, concern is that, under the proposal, the state successful transitions from higher education into would provide relatively large sums to a handful of the workforce, and innovations in technology community colleges to implement local initiatives and data; and (4) the Governor would have more that would not necessarily have significant discretion in selecting his appointees to the awards statewide value. The administration has indicated committee. (Members no longer would have to that the award amounts are intended as incentives represent any of the higher education segments or for innovation and may have no relation to the the State Board of Education.) costs of implementing a winning initiative. As an Awards Would Support Six Specific Activities. example, the award for creating online general Under the proposal, each applicant would apply to education courses likely involves redesigning a implement one of six innovations and the award dozen or fewer courses. The award would provide committee would recommend one award in each of more than $300,000 per course for this effort. This these areas: is more than ten times the per-course amount under the Governor’s zero-textbook-cost degree • Concurrent enrollment permitting proposal, and more than 70 times the per-course high school students to earn industry- amount under an existing state incentive grant recognized credentials or associate degrees for colleges to adopt free course materials. Yet, all for transfer while completing high school. of these efforts would involve the same types of • Programs permitting college students to activities to redesign courses and select appropriate earn industry-recognized credentials and instructional materials. Moreover, the proposal associate degrees for transfer concurrently. does not provide for dissemination of innovations to other colleges across the state. • Use of prior learning assessment and Award Program Further Fragments Efforts competency-based credit to accelerate to Improve Student Outcomes. Our second main students’ completion of industry- concern is that the proposal would add yet another recognized credentials. program to the state’s numerous existing efforts • Fully online courses for basic skills in to improve CCC student outcomes. The current English and mathematics. range of programs, including the Student Success and Support Program, Student Equity Program, • Fully online courses for completion Institutional Effectiveness Partnership Initiative, of intersegmental general education Basic Skills and Student Outcomes Transformation requirements, using courses that articulate Program, Basic Skills Partnership Pilot Program, 62 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Online Education Initiative, Common Assessment focus on ensuring that existing programs with Initiative, Education Planning Initiative, and broader statewide impact are implemented well. others already are challenging for colleges and the Reject Governor’s Proposal to Provide state to coordinate. Additionally, the Governor $25 Million for CCC Awards. For these reasons, we has proposed large programs to enhance CTE and recommend the Legislature reject this proposal. If incentivize colleges to adopt free course materials the Legislature still wishes to use the $25 million in place of textbooks. Rather than creating a new, one-time funding in the higher education budget, separate incentive program providing generous it could target the funding to other priorities, like awards to a handful of colleges, the state should deferred maintenance, that are one-time in nature. HASTINGS COLLEGE OF THE LAW In this section, we begin with an overview of Figure 21 key aspects of the Governor’s proposed budget Hastings College of the Law Budget for Hastings. We then examine specific revenue (In Millions) and expenditure proposals and offer associated Revenuea Amount recommendations. 2015‑16 Revised Overview Tuition and fees $27.0 General Fund 12.1 Governor Proposes $62 Million From All Total $39.1 Sources for Hastings in 2016-17. Hastings’ two 2016‑17 Changes largest fund sources are tuition ($22 million, after Tuition and fees -$4.6b General Fund 3.3 discounts) and state General Fund ($15 million). Subtotal (-$1.3) The state traditionally has focused on these two Draw down reserves $3.8 fund sources because they provide the most Total $2.5 support for Hastings’ education program. Hastings, 2016‑17 Proposed however, also receives $25 million from numerous Tuition and fees $22.5 General Fund 15.4 other sources, such as investment income, federal Total $37.8 grants, donations, and student housing fees. Some Changes in Spending of this revenue supports education but some Restricted General Fund supports other operations, such as student housing, Deferred maintenance (one time) $2.0 General obligation bond debt service 0.3 student health services, and parking. Subtotal ($2.3) Governor Assumes $4.6 Million Decrease in Hastings’ Plan for Unrestricted Funds Tuition Revenue, Proposes $3.3 Million Increase Benefit cost increases $0.2 in State General Fund. As shown in the top part of Salary increases (2.5 percent)c 0.1 Subtotal ($0.3) Figure 21, the Governor’s budget assumes tuition Total $2.5 revenue decreases by $4.6 million (17 percent). a Reflects tuition after discounts. (In 2016-17, Hastings is projecting to The decrease in tuition revenue is due to Hastings provide $16.3 million in discounts.) Includes all state General Fund. b Reflects a 3.7 percent decrease in enrollment (-$1.3 million) and a (1) offering more tuition discounts ($3.3 million), 25 percent increase in tuition discounts (-$3.3 million). c Increases only apply to certain employees comprising about and (2) decreasing enrollment ($1.3 million). one-quarter of Hastings’ workforce. The Governor’s budget augments Hastings’ www.lao.ca.gov Legislative Analyst’s Office 63 2016-17 BUDGET General Fund by $3.3 million (27 percent). Of the basic budgetary approach because it diminishes $3.3 million increase, $2 million is one time and legislative oversight. We believe the Legislature $1.3 million is ongoing. These changes result in should consider each of these areas when reviewing a net decrease of $1.3 million in Hastings’ state Hastings’ budget. funding and tuition revenue combined. Enrollment Hastings Plans to Draw Down $3.8 Million From Its Reserves. Hastings’ reserve is estimated Below, we consider both Hastings’ enrollment to total $11 million at the end of 2015-16. In part level and associated enrollment funding. to cover the drop in revenue mentioned above, Enrollment Level Hastings plans to draw down its reserve in 2016-17 by $3.8 million. This would leave Hastings with State Has No Eligibility Policy for Hastings. a $7.2 million reserve at year’s end. This reserve The state did not include an eligibility policy level equates to 12 percent of Hastings’ annual for Hastings in its original 1960 Master Plan for operating costs. Hastings plans to draw down an Education, and the state to date has not developed amount greater than its projected drop in revenue such a policy. Moreover, the state traditionally has to support $2.5 million in augmentations (the main not set enrollment targets for Hastings in the state ones we discuss later in this section). budget. Governor Dedicates Most New Spending Hastings Plans to Decrease Enrollment by to Facilities. As shown in the bottom part of 3.7 Percent in 2016-17. Specifically, Hastings plans Figure 21, the Governor proposes $2 million in to reduce resident JD enrollment from 778 FTE one-time spending on deferred maintenance. He students in 2015-16 to 749 FTE students in 2016-17. provides another $264,000 ongoing to pay for (As noted in the “Higher Education in Context” general obligation bond debt service associated section, this decrease follows a series of sharp with Hastings’ facilities. With the remaining decreases in enrollment in recent years.) Hastings unrestricted revenue, Hastings plans to increase cites a few reasons for the enrollment decrease. employee compensation. Specifically, it plans to First, Hastings argues it has reduced enrollment increase spending on benefits for all employees by because it is concerned about the job market for its $153,000 and salaries (for specified employees) by graduates. Second, Hastings indicates it is aiming $111,000 (2.5 percent). These salary increases only to boost the qualifications of its student body. affect about one-quarter of Hastings’ workforce, That is, the school is attempting to increase the those enrolled in a particular bargaining unit. The incoming class’s average GPA and standardized test affected bargaining unit represents custodians, scores by being more selective in its admissions. food service workers, bus drivers, nursing Various Factors for Legislature to Consider assistants, and certain other non-academic job When Evaluating Enrollment Levels for Hastings. classifications. To help it evaluate Hastings’ proposed enrollment Key Issues for the Legislature. The Governor level, the Legislature could adopt a policy specifying proposes to allow Hastings to set its own its overarching enrollment objective for the law enrollment, tuition levels and financial aid school. A state enrollment policy for Hastings packages, and spending priorities (aside from the could be based on various factors. For instance, the Governor’s earmark for maintenance). As we have Legislature might consider workforce demand for discussed in past years, we have concerns with this lawyers or student demand for law school. 64 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Enrollment Funding • Fixed Costs. Because some costs are fixed and do not vary with student enrollment, State Historically Has Not Had an Enrollment the state’s traditional enrollment formulas, Funding Formula for Hastings. Though the state and the enrollment formula Hastings has lacked such a formula to date, the Supplemental uses, excludes fixed costs for executive Report of the 2015-16 Budget Package required management, human resources, public Hastings to submit a report to the Legislature by safety, community relations, and certain fall 2015 proposing an enrollment funding formula. administrative services. The reporting requirement stemmed from the Legislature’s concerns that Hastings’ enrollment • Incentives. Hastings presumes the had decreased significantly in recent years, yet the state would want to expand enrollment school’s state funding had increased. regardless of the labor market for its Hastings’ Report Raises Concerns With students. The state, however, could craft an Using an Enrollment Funding Formula. Hastings’ enrollment policy that explicitly takes the report cites four objections to the state using labor market into account (as discussed an enrollment funding formula for its budget. above). First, Hastings argues that its relatively small size (compared to law schools that are part of a • Timing. Under some enrollment budgeting larger university system) means it has relatively approaches, Hastings might not know how high fixed costs that do not fluctuate in tandem much enrollment funding it would receive with enrollment. Second, Hastings asserts that until late June, past when it will have made an enrollment funding formula might encourage its fall enrollment decisions. To address the school to enroll more students, even if those this issue, the state could set its enrollment students were to face poor job prospects. Third, target and provided the associated Hastings believes its academic planning would be enrollment funding in trailer legislation for made more difficult due to uncertainty regarding the year after the budget year. (Recently, the amount of funding it would receive through the state has moved toward using budget- the formula. Fourth, Hastings maintains achieving year-plus-one enrollment targets and a specific enrollment target would be difficult due funding for UC and CSU to address this to challenges in predicting how many students same issue.) accept offers of admission. Despite these concerns, • Forecasting Challenges. Hastings’ concern Hastings fulfilled the reporting requirement by about forecasting how many students will calculating a state funding rate of $4,705 per accept its admission offers also has merit. student, using an enrollment funding formula the The state, however, has addressed this state in the recent past has used for UC and CSU. concern in the past for UC and CSU by (Based on this formula, Hastings calculated the establishing an acceptable margin of error total cost per new student as $34,513, with $29,910 around the enrollment target. For example, covered by student tuition revenue.) the state could reduce Hastings’ enrollment Hastings’ Concerns Not Particularly funding only if Hastings missed its target Persuasive. Below, we address each concern cited by more than 5 percent. by Hastings. www.lao.ca.gov Legislative Analyst’s Office 65 2016-17 BUDGET Recommend Legislature Adopt Funding priority than other areas. Another consideration Formula if Enrollment Target Used. We believe the for the Legislature is whether it shares Hastings’ Legislature should link some portion of Hastings’ priorities for awarding financial aid based on merit, budget to student enrollment. The enrollment- rather than need. based formula suggested by Hastings appears to Deferred Maintenance be a reasonable starting point. If Hastings remains concerned about how fixed costs are treated in the Hastings Cites a $8.4 Million Maintenance formula, the Legislature could direct Hastings to Backlog. Hastings recently included this estimate identify any additional fixed costs it believes should in a report to the Department of Finance. The be excluded and make corresponding modifications report includes examples of maintenance projects to the enrollment formula. by building but does not include a project-level list. Of the $8.4 million, $6.8 million is associated with Tuition and Financial Aid Snodgrass Hall and $1.6 million is associated with State Has No Tuition or Financial Aid Policy Kane Hall. for Hastings. Having no tuition policy is not Governor Proposes $2 Million One-Time unique to Hastings. The state also has no such Spending on Deferred Maintenance. This proposal policies for UC or CSU. for Hastings is part of a larger package of deferred Governor Expects Hastings to Keep Tuition maintenance spending for various state agencies. Flat in 2016-17. Tuition at Hastings is $44,201 in The overall proposal does not require agencies 2015-16. Hastings expects to keep tuition flat in initially to identify specific maintenance projects, 2016-17, except it indicates its board will consider though agencies would be required to submit an increase in its health services fee. (In 2015-16, project lists to the Department of Finance after this fee is set at $633—$15, or 3 percent, higher enactment of the budget. The Joint Legislative than the prior-year level.) Budget Committee would have 30 days to review Hastings Plans to Increase Financial Aid by these lists prior to the department approving them. $3.2 Million (24 Percent) in 2016-17. Hastings Governor’s Proposal Would Address Relatively plans to increase its tuition discounts from Large Share of Hastings’ Backlog. The Governor’s $13.1 million in 2015-16 to $16.3 million in 2016-17. proposal would address nearly one-quarter of Hastings’ tuition discounts typically are awarded Hastings’ deferred maintenance backlog. This is based on merit, not need. As such, Hastings a much higher share than the Governor proposes indicates the increase is intended to help it attract for other higher education agencies, including UC more highly qualified students. and CSU. (For instance, the Governor proposes Various Factors for Legislature to Consider $35 million for UC, though the university asserts it When Evaluating Hastings’ Tuition and Financial has a backlog of over $1.2 billion.) Though differing Aid Decisions. While offering more tuition funding levels may make sense to the extent they discounts might help Hastings attract more reflect differing priorities, the Governor’s proposal academically qualified students, it also reduces did not include a justification for the variation. the amount of revenue Hastings has to spend on Hastings’ Plan Includes Some Projects Not other areas (such as compensation, maintenance, Typically Considered Deferred Maintenance. or instructional equipment). The Legislature could Though not yet required to do so, Hastings has consider whether additional financial aid is a higher submitted a project-level deferred maintenance 66 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET list totaling $2.5 million. Figure 22 summarizes maintenance in the context of the Governor’s Hastings’ project list by building and type of overall proposal for deferred maintenance project. Hastings indicates it would address a statewide. If the Legislature decides to provide subset of these projects under the Governor’s $2 million for Hastings, we recommend it prioritize $2 million proposal. Hastings’ list includes some Hastings’ $2.5 million list by not funding the types of projects not typically considered deferred projects related to lighting replacements and water maintenance, such as installing automatic faucets conservation, as alternative revenues might be (to conserve water) and replacing lighting (to available to support these projects. We further conserve energy). As mentioned in our The recommend the Legislature prioritize projects at 2016-17 Budget: Governor’s General Fund Deferred Kane Hall, given the state has approved replacing Maintenance Proposal, certain energy efficiency the main portion of Snodgrass Hall and Hastings projects identified by departments might be able plans to propose renovating the annex portion. We to be funded by cap-and-trade auction revenues calculate the remaining projects left after setting or various state revolving fund programs (where these priorities would total $2 million. project costs are recouped over time through the Compensation project’s energy savings). Hastings’s Plan Includes Projects in a Building Salary Increases at Hastings Low Compared Targeted for Replacement and Modernization. to Inflation. Hastings’ expenditure plan calls for a The 2015-16 budget funds a replacement project 2.5 percent salary increase for about one-quarter of for the main part of Snodgrass Hall. Additionally, its employees. This increase generally is in line with the Governor’s California’s Five-Year Infrastructure Figure 22 Plan indicates Hastings Hastings’ Proposed List of Deferred Maintenance Projectsa would like to modernize 2016-17 (In Thousands) the remaining annex Project Type Cost portion of Snodgrass Kane Hall Hall in 2017-18. Hastings Roof $1,265 Electrical 478 asserts, however, that the Lighting 140 projects for Snodgrass Heating, ventilation, and air conditioning 130 Hall on its deferred Water conservation 60 Floors 50 maintenance list are urgent Waterproofing 42 and should be undertaken Building exterior 30 soon. Subtotal ($2,195) If Legislature Snodgrass Hall Heating, ventilation, and air conditioning $115 Approves Proposal, Lighting 85 Recommend Targeting Water conservation 60 Funding to Specific Roof 23 Building infrastructure 15 Projects. The Legislature Electrical 10 will want to consider Subtotal ($308) the Governor’s proposal Total $2,503 a for Hastings’ deferred Hastings’ list includes $2.5 million in projects, though the Governor’s proposal is for $2 million. www.lao.ca.gov Legislative Analyst’s Office 67 2016-17 BUDGET inflation. Hastings indicates it intends to hold salaries for 2016-17 total less than 1 percent of its budget flat for the remainder of its workforce. This means (General Fund and tuition combined), notably lower Hastings’ overall salary-related expenditure increases than most standard measures of inflation. CALIFORNIA STUDENT AID COMMISSION In this section, we begin with an overview of Temporary Assistance for Needy Families (TANF) the Governor’s proposed budget for CSAC. We support is $305 million higher than the revised then examine changes in two programs—Cal current-year level. The largest year-to-year spending Grants and Middle Class Scholarships—and make increases are for Cal Grants ($137 million) and associated recommendations. Middle Class Scholarships ($34 million). The Governor anticipates a small reduction ($3 million) Overview in loan assumption program costs. Governor Provides $2.3 Billion for CSAC Governor Assumes $50 Million Decrease in in 2016-17. As shown in Figure 23, this reflects 2015-16 Spending. As part of its budget package, a funding increase of $169 million (8 percent) the administration revises its estimates of 2015-16 from the revised current-year level. General CSAC spending relative to the enacted 2015-16 Fund support is $136 million lower and federal budget. Most notably, the administration lowers Figure 23 California Student Aid Commission Budget (Dollars in Millions) Change From 2015‑16 2014‑15 2015‑16 2016‑17 Actual Revised Proposed Amount Percent Expenditures Local Assistance Cal Grants $1,835 $1,966 $2,103 $137 7% Middle Class Scholarships 62 82 116 34 41 Assumption Program of Loans for Education 19 17 14 -3 -15 Chafee Foster Youth Program 12 12 12 — — Student Opportunity and Access Program 7 8 8 — — National Guard Education Assistance Awards 2 2 2 — — Other programsa 1 1 1 —b 21 Subtotals ($1,939) ($2,088) ($2,256) ($169) (8%) State Operations $13 $14 $14 —b —b Totals $1,952 $2,102 $2,271 $169 8% Funding General Fund $1,539 $1,564 $1,428 -$136 -9% Federal Temporary Assistance for Needy Families 377 521 826 305 58 Otherc 35 17 17 — — a Includes Cash for College, Child Development Teacher/Supervisor Grants, Graduate Assumption Program of Loans for Education, John R. Justice Program, Law Enforcement Personnel Dependents Scholarships, and State Nursing Assumption Program of Loans for Education for Nursing Faculty. b Less than $500,000 or 0.5 percent. c Includes College Access Tax Credit Fund, Student Loan Authority Fund, and other federal funds. 68 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET its estimate of Cal Grant Costs by $49 million Recipients. Each fall and spring CSAC estimates (discussed further below). The Governor’s budget the Cal Grant Caseload for the current year and the also lowers its estimate of loan assumption budget year. For the current-year estimate, CSAC program costs by $2 million. (These decreases looks at how many awards have been offered to are offset by slight increases in state employee date and then assumes a certain percentage of these compensation costs.) awards are paid based on recent paid rates. For the budget-year estimate, CSAC takes the current-year Cal Grants estimate and projects it forward based upon various State’s Main Financial Aid Program Is Cal factors. Most notably, CSAC makes assumptions Grants. As shown in Figure 24, the state’s Cal about the share of new awards converting into Grant program has both Figure 24 an entitlement and a Cal Grant Award Amounts and Eligibility Criteria competitive component. 2015-16 It also has multiple types of awards. One type of Award Amounts award, Cal Grant A, Cal Grant A covers full systemwide Tuition awards for up to four years. Full systemwide tuition and fees ($12,240) at UC. tuition and fees at the Full systemwide tuition and fees ($5,472) at CSU. public universities and up Fixed amount ($9,084) at nonprofit or WASC-accredited for-profit colleges. to a fixed dollar amount Fixed amount ($4,000) at other for-profit colleges. toward costs at private Cal Grant B Up to $1,656 toward books and living expenses for up to four years. colleges, while a second Tuition coverage comparable to A award for second through fourth years. type, Cal Grant B, also Cal Grant C offers stipends (known as Up to $2,462 for tuition and fees for up to two years. access awards) for students Up to $547 for other costs for up to two years. with the lowest household Eligibility Criteriaa income. A third type, High School Entitlement (A and B) Cal Grant C, provides • High school senior or graduated from high school within the last year. • Minimum high school GPA of 3.0 (for A award) or 2.0 (for B award). up to a fixed amount Transfer Entitlement (A and B) for tuition and fees and • CCC student under age 28 transferring to a four-year school. other costs for eligible • Minimum college GPA of 2.4. low- and middle-income Competitive (A and B) students enrolled in • Cannot be eligible for entitlement. • Minimum high school GPA of 3.0 (for A award) and 2.0 (for B award). career technical education • State law authorizes 25,750 new awards per year. programs. A student Competitive (C) generally may receive • Must be enrolled in career technical education program at least four months long. awards for up to four years • No GPA minimum. of full-time study. • State law authorizes 7,761 new awards per year. a To be eligible for any award, family assets (excluding primary residences and retirement plans) are CSAC Estimates Cal capped at $67,500. A and C awards have an income ceiling of $87,200 and the B award has an income ceiling of $45,800. (Income ceiling varies by family size and dependency status. Amounts listed are for Grant Caseload Based dependent students from a family of four entering program in 2015-16.) Largely on Trends in Paid WASC = Western Association of Schools and Colleges and GPA = grade point average. www.lao.ca.gov Legislative Analyst’s Office 69 2016-17 BUDGET renewal awards and the attrition of existing awards. (Though not explicitly factored into CSAC’s renewal awards. CSAC also includes the effects of estimates, we estimate about $14 million of the any policy or administrative changes. For instance, increase in competitive award costs is associated CSAC includes the effects of any tuition increases at with the renewal of 3,250 new competitive awards the public universities as well as any administrative authorized in the 2015-16 budget.) efforts to increase the number of awards that Governor to Provide Updated Cal Grant are paid. CSAC then provides its estimates to Estimates in May Revision. As part of the May the Department of Finance for inclusion in the Revision, the administration will provide the Governor’s budget. Legislature with updated information to determine Governor Assumes a $49 Million Decrease in the appropriate amount to budget for the Cal Grant Cal Grant Spending in 2015-16. This a 2 percent program in both the current and budget years. decrease compared to the enacted 2015-16 Middle Class Scholarships budget. The decrease is concentrated among certain education sectors and certain types of State Placed Appropriations in Statute Cal Grant Awards. By sector, the budget assumes When Program Was Created. The Middle Class a $37 million decrease for awards at private, Scholarship program took effect starting in for-profit institutions and a $31 million decrease 2014-15. The program is being phased in, with for awards at CSU. These decreases are partly offset awards in 2015-16 set at 50 percent of full award by increases for awards at UC. By type of award, levels, then 75 percent and 100 percent for the the budget assumes a $44 million decrease in Cal following two years, respectively. At the time the Grant B awards and a $12 million decrease in Cal program was created, the state scheduled ongoing Grant C awards. These decreases are partly offset by funding for it in statute. In 2015-16, the state estimated increases in Cal Grant A awards. adjusted these statutory appropriations to reflect Governor Proposes a $137 Million Increase eligibility changes that it made to the program. in Cal Grant Spending in 2016-17. As shown in Current state law appropriates $107 million for Figure 25, this is a 7 percent increase over the 2014-15, $82 million for 2015-16, $116 million for revised 2015-16 level. The increase primarily is 2016-17 and $159 million for 2017-18 and each year associated with higher spending on awards at thereafter. As part of last spring’s May Revision, certain segments (particularly UC and CSU), however, the Governor revised 2014-15 spending to certain award groups (particularly high school $62 million. entitlements), and certain types of awards (Cal Governor Proposes No Funding Changes. Grant A and Cal Grant B). A portion of the This means the Governor assumes $62 million for higher spending at UC ($4.1 million) is due to UC 2014-15, $82 million for 2015-16, and $116 million raising its Student Services Fee by $54 (5 percent). for 2016-17. A portion of the higher high school entitlement Current Data Suggests 2014-15 Spending costs ($21 million) is due to recent efforts by the Will Come in Lower Than Budgeted. In February commission to increase the number of awards that 2016, CSAC announced it had finished reconciling are paid. CSAC data also show that $18 million of expenditures for 2014-15. The commission reported the increase occurs among California Dream Act spending $54.3 million—$7.7 million less than the students, primarily for high school entitlement amount assumed by the Governor for 2014-15. 70 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Data Also Suggest Lower Spending in and the final amount it reported spending in 2015-16 and 2016-17. In February 2016, CSAC February 2016. This means the Governor’s reported it had spent $50.1 million to date for proposed funding levels for 2015-16 and 2016-17 2015-16. (This figure reflects the phase-in of the likely overestimate program expenditures by tens of higher award amount in 2015-16 as well as the millions of dollars. effect of the recently enacted asset ceiling for the Recommend Legislature Require CSAC to program.) Though CSAC will not finish reconciling Provide Updated Estimates at May Revision. expenditures for 2015-16 until later this fall, the Specifically, we recommend CSAC provide the most final 2015-16 number likely will not be much recent data available for 2015-16 on the number different. This is because data for 2014-15 show of awards and dollars spent, by segment. We also only a few million dollars variation between the recommend the Legislature direct CSAC to project amount CSAC reported spending in February 2015 final expenditures for 2015-16 and 2016-17. Figure 25 Cal Grant Spending (Dollars in Millions) Change From 2015‑16 2014‑15 2015‑16 2016‑17 Actual Estimated Projected Amount Percent Total Spending $1,809 $1,966 $2,103 $137 7% By Segment: University of California $824 $887 $943 $56 6% California State University 594 669 734 65 10 Private nonprofit institutions 241 253 261 9 3 California Community Colleges 122 137 146 9 7 Private for-profit institutions 27 21 19 -2 -11 By Program: High School Entitlement $1,457 $1,595 $1,711 $116 7% CCC Transfer Entitlement 221 209 204 -5 -2 Competitive 123 157 184 27 17 Cal Grant C 8 5 4 -1 -18 By Award Type: Cal Grant A $1,037 $1,115 $1,178 $63 6% Cal Grant B 764 846 921 75 9 Cal Grant C 8 5 4 -1 -18 By Renewal or New: Renewal $1,247 $1,365 $1,480 $115 8% New 562 601 624 22 4 By Funding Source: General Fund $1,425 $1,443 $1,276 -$167 -12% Federal TANF 377 521 826 305 58 Student Loan Authority Fund 6 — — — — College Access Tax Credit Fund — 2 2 — — TANF = Temporary Assistance for Needy Families. www.lao.ca.gov Legislative Analyst’s Office 71 2016-17 BUDGET 72 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET SUMMARY OF LAO RECOMMENDATIONS University of California • Review expenditure plan developed by UC to determine if priorities align with Legislature’s goals. Align funding in the state budget with priorities. • Modify existing “cost of education” reporting requirement to require UC to identify the amount it uses from each fund source to pay for education. • Require UC to report at spring budget hearings on changes it is considering for its retirement plan. Assess extent to which these changes meet Legislature’s goals. • Require UC to report at spring budget hearings on how many resident graduate students it plans to enroll in 2016-17. • If funding enrollment growth, set enrollment targets for one year after the budget year to influence fall admission decisions at UC. Schedule enrollment-growth funding for budget year plus one in this year’s trailer legislation. • Require UC to develop long-term plans to eliminate deferred maintenance and prevent it from recurring. Moving forward, consider earmarking maintenance funding to ensure campuses are setting aside enough money annually. • Require UC to present a plan at spring budget hearings for the $50 million it intends to spend on academic quality initiatives. California State University • Review expenditure plan developed by CSU to determine if priorities align with Legislature’s goals. Align funding in the state budget with priorities. • If funding enrollment growth, set enrollment targets for one year after the budget year to influence fall admission decisions at CSU. Schedule enrollment-growth funding for budget year plus one in this year’s trailer legislation. • Require CSU to develop long-term plans to eliminate deferred maintenance and prevent it from recurring. Moving forward, consider earmarking maintenance funding to ensure campuses are setting aside enough money annually. • Require CSU to explain how it would spend the $7 million it left “to be determined” in the expenditure plan it submitted to the state. www.lao.ca.gov Legislative Analyst’s Office 73 2016-17 BUDGET California Community Colleges • Replace Governor’s proposed $200 million new workforce proposal with a more structured career technical education (CTE) program that provides ongoing funding streams for (1) equipment and other one-time costs and (2) CTE programs with exceptionally high costs. Fold CCC nursing program supplements and CTE Pathways program into the new program. • Consolidate regional planning for adult education and CTE. • Require Chancellor to report on legislative options to facilitate the hiring of experienced industry professionals as CTE instructors. • Consider increasing the award amount for Cal Grant C (which provides financial aid for CTE students). Cost for the financial aid increase could range from $3 million to $9 million, depending on the amount of the award increase and the students deemed eligible (that is, students attending public and private higher education institutions or only community college students). • Adopt apprenticeship rate increase and consider amending statute to tie apprenticeship rate to Career Development and College Preparation course rate. • Wait until early May for updated estimate of 2015-16 enrollment at community colleges and then adjust apportionments accordingly. Make 2016-17 enrollment decision in light of revised 2015-16 enrollment level. Use any freed-up funds for other Proposition 98 priorities. • Adopt Governor’s proposed changes to Basic Skills Initiative program requirements (with minor modifications) and transition the program to performance funding. • Reject the Governor’s proposed $30 million augmentation to the Basic Skills Initiative at this time. Consider redirecting the funding to support another round of one-time grants under the Basic Skills and Student Outcomes Transformation Program, or using it for deferred maintenance or other one-time purposes. • Consider augmenting and refining the Basic Skills Initiative in the future, if warranted, based on the results of two basic skills grant programs approved last year but not yet implemented. • Adopt Governor’s $290 million one-time funding proposal for deferred maintenance and instructional support and add stronger reporting requirements. Authorize districts to use a small portion of the funding ($1.1 million) to upgrade their systemwide facility condition inventory system (FUSION). 74 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET • Reject Governor’s proposal to provide $25 million in one-time awards for six CCC campuses to implement specified innovations. Redirect funding to other one-time Proposition 98 priorities. • Consider adopting Governor’s proposed $10 million augmentation for the Institutional Effectiveness Partnership Initiative, but be cautious about expanding the program too quickly. Require Chancellor to provide annual information to help gauge whether the initiative is reaching capacity. • Adopt the Governor’s proposal to provide $3 million to augment CCC systemwide data security. Hastings College of the Law • Consider adopting a policy for setting enrollment targets at Hastings based on factors such as student demand for law school and state workforce demand for lawyers. • If setting enrollment target, use enrollment funding formula proposed by Hastings to adjust Hastings’ budget. • Establish spending priorities for financial aid and other program areas. • If funding deferred maintenance, prioritize by type of project. California Student Aid Commission • Revisit Cal Grant Caseload trends in May to determine funding levels for current year and budget year. • Direct the commission to provide more information about Middle Class Scholarship expenditures in May. Specifically, direct commission to project caseload and expenditures for 2015-16 and 2016-17. www.lao.ca.gov Legislative Analyst’s Office 75 2016-17 BUDGET Contact Information Paul Golaszewski Higher Education in Context 319-8341 Paul.Golaszewski@lao.ca.gov Hastings College of the Law California Student Aid Commission Jason Constantouros University of California 319-8322 Jason.Constantouros@lao.ca.gov California State University Judy Heiman California Community Colleges 319-8358 Judy.Heiman@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. 76 Legislative Analyst’s Office www.lao.ca.gov