Overview of May Revision Proposals For Higher Education

May 16, 2016 L E G I S L A T I V E A N A L Y S T ’ S O F F I C E Overview of May Revision Proposals For Higher Education YEARS OF SERVICE May 16, 2016 Higher Education General Fund Changes Higher Education General Fund Supporta (Dollars in Millions) Year-to-Year Change 2015-16 2016-17 at May Revision Governor’s May Governor’s May Budget Revision Change Budget Revision Change Amount Percent CCC $5,813 $5,860 $47 $5,946 $6,034 $88 $174 3% CSU 3,297 3,297 — 3,484 3,510 26 213 6 UC 3,257 3,259 2 3,467 3,471 4 212 6 CSACb 2,085 1,998 -86 2,254 2,152 -102 153 8 CIRM 369 369 — 274 274 — -95 -26 Hastings 12 12 — 15 15 — 3 27 Awards for Innovation — — — 25 25 — 25 N/A Totals $14,833 $14,796 -$38 $15,465 $15,481 $16 $686 5% a Includes General Fund support for retirement, debt service, and deferred maintenance paid from outside higher education agencies’ budgets. Excludes state cost changes in 2016-17 for agencies participating in the California Public Employees’ Retirement System, as these costs have not yet been distributed across agencies’ budgets. For Hastings and CIRM, fi gures do not refl ect May adjustments to general obligation bond debt service. b Includes Temporary Assistance for Needy Families support that directly offsets General Fund costs. CSAC = California Student Aid Commission and CIRM = California Institute for Regenerative Medicine.  The May Revision assumes total General Fund support for higher education is $686 million (5 percent) higher than the revised 2015-16 level of spending.  New proposals in the May Revision include a $75 million increase for community college general purpose apportionments, a $26 million increase for two initiatives to improve California State University (CSU) graduation rates, and a $4 million increase to expand the University of California’s (UC’s) online A-G course offerings.  The May Revision also revises spending to account for new estimates of fi nancial aid program participation. LEGISLATIVE ANALYST’S OFFICE 1 May 16, 2016 University of California A-G Online Course Expansion  Background  Started in 1999, UC Scout currently provides 26 online A-G and advanced placement courses for high school students.  California high schools and students can use UC Scout for free to supplement face-to-face instruction. Alternatively, they (students directly or schools on their behalf) can pay a course fee ranging from $169 to $299 per semester for UC Scout to provide credit-bearing instruction solely online.  In 2013-14, UC Scout served nearly 3,000 students from 405 schools. The program’s budget was $2.4 million.  May Revision Proposal  Provides $4 million (one time) for UC Scout to develop 45 additional A-G online courses.  Requires UC to (1) solicit comments from local education agencies regarding which courses to develop, (2) report on the courses selected for development by January 1, 2017, and (3) develop the courses by January 1, 2018. LEGISLATIVE ANALYST’S OFFICE 2 May 16, 2016 University of California (Continued) A-G Online Course Expansion (Continued)  Assessment and Recommendation  Expanding online access to A-G and advanced placement courses for students who lack access to them at their local high schools may have merit.  The May Revision proposal, however, lacks information on: – How much unmet demand exists for additional online A-G courses and which specifi c courses have the greatest unmet demand. – Whether other online providers could meet any unmet demand. – How the proposed level of funding was determined. – How UC Scout would inform schools statewide of the availability of the additional courses.  Recommend rejecting proposal without prejudice until better information justifying the expansion and associated cost is available. LEGISLATIVE ANALYST’S OFFICE 3 May 16, 2016 University of California (Continued) Release of Current-Year Funding for Retirement and Enrollment  Background on Retirement Issue  The 2015-16 budget included $96 million (one time) for UC’s unfunded pension liability, contingent upon UC adopting a pensionable salary limit consistent with the limit specifi ed under the Public Employees’ Pension Reform Act of 2013 (PEPRA)—$117,020 in 2016. – In March 2016, the UC Regents adopted the PEPRA pensionable salary limit but also created defi ned contribution plans.  Background on Enrollment Issue  The 2015-16 budget authorizes the Department of Finance (DOF) to augment UC’s base funding by $25 million if UC can demonstrate it will enroll 5,000 more undergraduate residents in 2016-17 over the 2014-15 level. – In April 2016, UC provided data on freshman admissions and transfer applications, along with information on campus targets for enrolling 5,000 more undergraduate students.  May Revision Proposals  DOF fi nds UC in compliance with the retirement and enrollment provisions and releases the associated funding. LEGISLATIVE ANALYST’S OFFICE 4 May 16, 2016 University of California (Continued) Release of Current-Year Funding for Retirement and Enrollment (Continued)  Assessment  UC redirected much of the savings associated with establishing the PEPRA limit toward the supplemental defi ned contribution plans. The defi ned contribution plans, however, do not carry the risk of creating a future unfunded liability for UC.  Determining whether UC will meet its enrollment target is diffi cult at this time because UC currently only has data on transfer applications but not transfer admissions. LEGISLATIVE ANALYST’S OFFICE 5 May 16, 2016 California State University Graduation Rate Improvement Plan  Background  The last two budget packages have required CSU to submit a three-year plan to the state that includes (1) proposed expenditures under the Governor’s revenue assumptions and (2) systemwide targets for eight performance measures established in state law.  The Governor’s January budget continued this reporting requirement for 2016-17.  May Revision Proposal  Replaces existing reporting requirement on expenditures and eight performance targets with new reporting requirement focused solely on targets for graduation rates.  Under the new reporting requirement, CSU would set systemwide and campus-level targets to (1) improve four-year graduation rates (for freshman entrants) and two-year graduation rates (for transfer entrants), and (2) reduce the gap in graduation rates between Pell-eligible and non-Pell-eligible students. CSU also would establish a time frame to achieve these targets.  The CSU Trustees would submit the plan to DOF by September 30, 2016.  If DOF approves the plan, CSU would receive $25 million (one time) and report annually on progress toward meeting its targets. LEGISLATIVE ANALYST’S OFFICE 6 May 16, 2016 California State University (Continued) Graduation Rate Improvement Plan (Continued)  Assessment and Recommendation  Proposal focuses only on one performance measure (graduation rates), though other performance measures (such as cost per degree) also are important.  Proposal eliminates CSU report on expenditure plan, which provides the Legislature with valuable information on how the system would spend state funds.  CSU does not need additional funds to produce a report and it is unclear if CSU would spend the funding in ways that improve its graduation rates.  Recommend rejecting the proposal. LEGISLATIVE ANALYST’S OFFICE 7 May 16, 2016 California State University (Continued) Student Success Network  Background  CSU has undertaken numerous strategies over many years to improve its graduation rates. These strategies have aimed to improve both the academic preparation of incoming freshmen and the instructional, advising, and support services offered to enrolled students.  Last year, CSU indicated it would spend $38 million of its ongoing state funding increase on improving student outcomes.  May Revision Proposal  Provides $1.1 million (ongoing) to establish working groups of faculty, staff, and administrators to discuss, develop, and evaluate practices that improve graduation rates.  Funding would provide leave time for participants, as well as support conferences and research.  Program would be administered by a center at CSU Sacramento.  Assessment and Recommendation  Proposal suggests that more faculty and staff interaction is needed to improve graduation rates, and additional state funding is needed to facilitate these conversations. In our view, the administration has not provided suffi cient evidence for these claims.  Given CSU already has available $38 million ongoing to improve student outcomes, the Legislature could earmark funding for this proposal from within CSU’s existing base appropriation. LEGISLATIVE ANALYST’S OFFICE 8 May 16, 2016 California Community Colleges CCC Spending by Source (In Millions) Governor’s May Budget Revision Change 2014-15 Minimum Guarantee General Fund $4,979 $5,025 $46 Local property tax 2,302 2,306 5 Totals $7,281 $7,331 $51 2015-16 Minimum Guarantee General Fund $5,373 $5,422 $48 Local property tax 2,624 2,562 -62 Totals $7,997 $7,983 -$14 2016-17 Minimum Guarantee General Fund $5,447 $5,535 $88 Local property tax 2,812 2,760 -52 Totals $8,259 $8,295 $36  May Revision Provides $73 Million Increase for Community Colleges  $36 million in 2016-17 funds.  $37 million in prior- and current-year funds combined.  Total California Community Colleges (CCC) Proposition 98 Funding Is $8.3 Billion in 2016-17  Up from $8 billion in 2015-16 (revised).  Per-student funding increases $158 (2.3 percent) from revised 2015-16 level (bringing total to $7,053). LEGISLATIVE ANALYST’S OFFICE 9 May 16, 2016 California Community Colleges (Continued) 2016-17 CCC Proposition 98 Changes (In Millions) Governor’s May Budget Revision Change 2015-16 Revised Spending $7,997 $7,983 -$14 Technical Adjustments -$468 -$416 $52 Policy Proposals Implement workforce recommendations of BOG task force $200 $200 — Fund deferred maintenance and instructional equipment (one time)a 255 189 -$66 Fund 2 percent enrollment growth 115 115 — Provide apportionment increase (above growth and COLA) — 75 75 Make CTE Pathways Initiative ongoing 48 48 — Augment Basic Skills Initiative 30 30 — Fund Innovation Awards at community colleges (one time) 25 25 — Revise estimate of energy-effi ciency funds 6 11 4 Increase funding for Institutional Effectiveness Initiative 10 10 — Augment technology infrastructure funding — 5 5 Fund technical assistance to adult education consortia (one-time) — 5 5 Fund development of “zero-textbook-cost” degree programs (one time) 5 5 — Provide instructional materials for incarcerated adults — 3 3 Improve systemwide data security 3 3 — Extend Full-Time Student Success Grant to Cal Grant C recipients — 2 2 Increase apprenticeship reimbursement rate 2 2 — Augment funding for systemwide Academic Senateb — — — Provide COLAc 31 — -31 Subtotals ($730) ($728) (-$2) Total Changes $262 $311 $50 2016-17 Proposed Spending $8,259 $8,295 $36 a Governor’s budget provided an additional $28 million in Proposition 98 settle up and $6.4 million in unspent Proposition 98 prior-year funds for this purpose. The May Revision provides $24 million in settle up and $6.4 million in unspent prior-year funds. b Provides $300,000. c COLA rate was estimated at 0.47 percent in January, fi nalized at zero in May. BOG = Board of Governors; COLA = cost-of-living adjustment; and CTE = Career Technical Education. LEGISLATIVE ANALYST’S OFFICE 10 May 16, 2016 California Community Colleges (Continued) See The 2016-17 Budget: Analysis of the Proposition 98 May Revision Budget Package for a discussion of these recommendations. Summary of California Community Colleges Recommendations Program May Revision Proposal LAO Recommendation General purpose Increase by $75 million. Adopt. Colleges can use fl exible funds to meet highest priorities. apportionment funding Online Education Initiative Provide $20 million one time. Adopt. Accelerates implementation of online courses. Technical assistance for Increase by $5 million one Adopt. Maintains service level to consortia during transition Adult Education Consortia time (over three years). process. Telecommunications and Increase by $7 million one Adopt. Expands Internet capacity for statewide technology projects. Technology Infrastructure time and $5 million ongoing. Full-Time Student Success Increase by $2 million. Adopt. Reduces fi nancial aid disparity between career technical Grant education students and other students. CCC Academic Senate Increase by $300,000. Adopt. Addresses increased workload for statewide initiatives. Energy-effi ciency projects Increase by $4 million. Adopt. Increase for projects consistent with revised Proposition 39 (Proposition 39) revenue estimate. Equal Employment Opportunity Increase by $2 million. Adopt. Uses special fund balance for authorized purposes. Strong Workforce Program Make policy changes. Modify. Remove requirement that LAO approve funding allocations. Zero-Textbook-Cost Make policy changes. Modify. Add requirement for CCC to coordinate with related state Degree Program initiatives. Consider adding component for instructional materials for incarcerated adults. Instructional materials for Provide $3 million. Reject. Proposal lacks adequate information and raises several incarcerated adults concerns. Consider link to zero-textbook-cost proposal. Basic Skills Initiative Make policy changes. Modify. Adopt change in share for statewide professional development (from 2.4 percent to 5 percent of total program funding). Designate fi rst-year funding for grants. Remove requirement that LAO concur on funding factors. Enrollment growth Make no changes to January Modify. Reduce 2015-16 enrollment base to refl ect updated data proposal. and carry adjustment forward into 2016-17. Still assume 2 percent growth year over year. Use freed-up funds for other high priorities. CCC mandates backlog Provide $29 million. Reject. Per-student approach to reducing CCC mandates backlog no longer makes sense. Deferred Maintenance and Increase by $189 million. Modify. To extent Legislature frees up funding by rejecting or Instructional Equipment modifying other CCC proposals, redirect funds for one-time purposes such as maintenance backlog. LEGISLATIVE ANALYST’S OFFICE 11 May 16, 2016 California Student Aid Commission California Student Aid Commission Budget (Dollars in Millions) Year-to-Year Change 2015-16 2016-17 at May Revision Governor’s May Governor’s May Budget Revision Change Budget Revision Change Amount Percent Expenditures Local Assistance Cal Grants $1,966 $1,915 -$51 $2,103 $2,005 -$98 $90 5% Middle Class Scholarships 82 48 -34 116 116 — 68 139 APLE 17 14 -2 14 12 -2 -3 -18 Chafee Foster Youth 12 12 — 12 12 — — — Cal-SOAP 8 8 — 8 8 — — — National Guard Awards 2 2 — 2 2 — — — Other Programsa 1 1 —b 1 1 —b —b -22 Subtotals ($2,088) ($2,001) (-$86) ($2,256) ($2,155) (-$101) ($154) (8%) State Operations $14 $14 — $14 $17 $2 $2 17% Totals $2,102 $2,015 -$86 $2,271 $2,172 -$99 $157 8% Funding General Fund $1,564 $1,477 -$86 $1,428 $1,043 -$385 -$434 -29% Federal TANF 521 521 — 826 1,109 283 588 113 Otherc 17 17 — 17 20 3 3 20 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. APLE = Assumption Program of Loans for Education; Cal-SOAP = California Student Opportunity and Access Program; and TANF = Temporary Assistance for Needy Families.  The May Revision assumes California Student Aid Commission (CSAC) spending from all fund sources is $157 million (8 percent) higher than the revised 2015-16 level of spending.  The major changes in the May Revision for CSAC include (1) adjustments to Cal Grant and Middle Class Scholarship spending to account for revised participation estimates, and (2) two new proposals totaling $2.4 million to strengthen the security of CSAC’s current information technology (IT) system and continue planning for a new system. LEGISLATIVE ANALYST’S OFFICE 12 May 16, 2016 California Student Aid Commission (Continued) Cal Grants  May Revision Proposals  Decreases 2015-16 and 2016-17 spending by $51 million and $102 million, respectively, to refl ect revised estimates of grant recipients and average award amounts.  Increases federal Temporary Assistance for Needy Families support by $238 million and decreases General Fund support by that amount. This is a fund swap and has no programmatic effect.  Increases College Access Tax Credit Fund support for the Cal Grant B access award by $3.2 million. This increases the access award supplement from $8 to $22.  Assessment and Recommendation  Governor’s revised Cal Grant estimates appear reasonable.  Recommend adopting May Revision proposals. LEGISLATIVE ANALYST’S OFFICE 13 May 16, 2016 California Student Aid Commission (Continued) Middle Class Scholarships  Background  Annual appropriations for this program are set forth in state law. State law requires CSAC to reduce award amounts if it projects program spending will exceed the statutory appropriations.  For 2015-16 and 2016-17, state law appropriates $82 million and $116 million, respectively. The larger 2016-17 appropriation refl ects a ramping up of award amounts.  The Governor’s January budget assumed spending at the statutory levels.  May Revision Proposals  For 2015-16, the Governor assumes spending will be $34 million lower than the statutory appropriation. The administration bases its estimate on updated 2015-16 data (showing only $48 million in award offers rather than $82 million).  For 2016-17, the Governor continues to assume spending will equal the statutory appropriation of $116 million. LEGISLATIVE ANALYST’S OFFICE 14 May 16, 2016 California Student Aid Commission (Continued) Middle Class Scholarships (Continued)  Assessment and Recommendation  The May Revision proposal for 2015-16 is reasonable. Recommend adopting.  The May Revision does not acknowledge that lower-than- anticipated participation in 2015-16 likely will impact 2016-17 participation levels.  Recommend assuming spending is $42 million lower than the statutory appropriation for 2016-17. This assumes participation grows in line with UC and CSU enrollment and accounts for the scheduled ramping up of award amounts.  Recommend budget bill language allowing DOF to increase funding up to the statutory limit if actual expenditures are higher than budgeted. This would ensure award amounts are not reduced due to insuffi cient funds. LEGISLATIVE ANALYST’S OFFICE 15 May 16, 2016 California Student Aid Commission (Continued) State Operations  Background  The 2015-16 budget provided CSAC with four positions and $840,000 ($511,000 one time and $329,000 ongoing) to begin planning for a new IT system.  After the enactment of the 2015-16 budget, the Department of Technology determined that CSAC was not ready to undertake all the funded planning activities.  CSAC then redirected a portion of the $511,000 in one-time planning funding to hire consultants to assess security risks with its current IT system.  The security risk assessment identifi ed numerous serious vulnerabilities with CSAC’s current IT system.  May Revision Proposals  Provides $2 million ($1.4 million one time and $526,000 ongoing) for security upgrades to CSAC’s current IT system.  Provides $396,000 (one time) for CSAC to continue planning for a new IT system. LEGISLATIVE ANALYST’S OFFICE 16 May 16, 2016 California Student Aid Commission (Continued) State Operations (Continued)  Assessment and Recommendation  CSAC spent funding provided by the Legislature for one purpose (planning for a new IT system) on a different purpose (assessing the security risks of its current IT system), without legislative approval.  Nonetheless, the risk assessment identifi ed serious vulnerabilities in the current IT system. While the state is planning to replace this IT system, CSAC will need to continue using it for the next few years.  Recommend adopting May Revision proposals to establish better interim data security in the current IT system, while continuing to develop a new IT system. LEGISLATIVE ANALYST’S OFFICE 17 May 16, 2016 California Student Aid Commission (Continued) Cal Grant Spending (Dollars in Millions) Year-to-Year Change 2015-16 2016-17 at May Revision Governor’s May Governor’s May Budget Revision Change Budget Revision Change Amount Percent Total Spending $1,966 $1,915 -$51 $2,103 $2,005 -$98 $90 5% By Segment: UC $887 $865 -$22 $943 $890 -$53 $25 3% CSU 669 650 -19 734 698 -36 48 7 Private nonprofi t institutions 253 247 -6 261 253 -9 6 2 CCC 137 132 -4 146 145 -1 12 9 Private for-profi t institutions 21 21 -1 19 18 -1 -2 -11 By Program: High School Entitlement $1,595 $1,547 -$48 $1,711 $1,637 -$74 $90 6% CCC Transfer Entitlement 209 217 9 204 190 -15 -28 -13 Competitive 157 145 -12 184 172 -12 27 19 Cal Grant C 5 5 —a 4 5 1 —a —a By Award Type: Cal Grant A $1,115 $1,084 -$31 $1,178 $1,122 -$57 $38 3% Cal Grant B 846 826 -20 921 878 -43 52 6 Cal Grant C 5 5 —a 4 5 1 —a —a By Renewal or New: Renewal $1,365 $1,352 -$13 $1,480 $1,419 -$60 $67 5% New 601 563 -39 624 585 -39 22 4 By Funding Source: General Fund $1,443 $1,392 -$51 $1,276 $890 -$385 -$502 -36% Federal TANF 521 521 — 826 1,109 283 588 113 College Access Tax Credit 2 2 — 2 5 3 3 166 Fund a Less than $500,000 or 0.5 percent. TANF = Temporary Assistance for Needy Families. LEGISLATIVE ANALYST’S OFFICE 18 May 16, 2016 California Student Aid Commission (Continued) Cal Grant Recipients Year-to-Year Change 2015-16 2016-17 at May Revision Governor’s May Governor’s May Budget Revision Change Budget Revision Change Amount Percent Total Recipients 340,539 330,650 -9,889 361,608 347,936 -13,672 17,286 5% By Segment: CSU 125,595 121,514 -4,081 136,110 128,956 -7,154 7,442 6% CCC 108,074 105,107 -2,967 114,011 112,725 -1,286 7,618 7 UC 73,398 71,638 -1,760 77,639 73,384 -4,255 1,746 2 Private nonprofi t institutions 29,057 28,386 -671 30,093 29,107 -986 721 3 Private for-profi t institutions 4,415 4,005 -410 3,755 3,764 9 -241 -6 By Program: High School Entitlement 255,904 247,595 -8,309 273,062 262,770 -10,292 15,175 6% Competitive 50,627 48,507 -2,120 56,170 54,215 -1,955 5,708 12 CCC Transfer Entitlement 26,562 27,632 1,070 25,712 23,951 -1,761 -3,681 -13 Cal Grant C 7,446 6,916 -530 6,664 7,000 336 84 1 By Award Type: Cal Grant B 216,439 209,835 -6,604 232,184 223,585 -8,599 13,750 7% Cal Grant A 116,654 113,899 -2,755 122,760 117,351 -5,409 3,452 3 Cal Grant C 7,446 6,916 -530 6,664 7,000 336 84 1 By Renewal or New: Renewal 205,959 201,986 -3,973 222,500 214,991 -7,509 13,005 6% New 134,583 128,668 -5,915 139,109 132,944 -6,165 4,276 3 Totals do not match across all categories due to modeling issues. 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