The 2017-18 Budget: Higher Education Analysis

The 2017-18 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 2017 2017-18 BUDGET i Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET TABLE OF CONTENTS Executive Summary ���������������������������������������������������������������������������������������������������������������������������������1 Introduction ���������������������������������������������������������������������������������������������������������������������������������������������3 Higher Education in Context ������������������������������������������������������������������������������������������������������������������3 Enrollment �������������������������������������������������������������������������������������������������������������������������������������������������������������������������������3 Tuition and Financial Aid ����������������������������������������������������������������������������������������������������������������������������������������������������9 Performance �������������������������������������������������������������������������������������������������������������������������������������������������������������������������14 University of California �������������������������������������������������������������������������������������������������������������������������21 Overview ��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������21 UC’s Spending Plan ������������������������������������������������������������������������������������������������������������������������������������������������������������23 Assessment ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������25 UC’s Capital Outlay Request ��������������������������������������������������������������������������������������������������������������������������������������������28 California State University ��������������������������������������������������������������������������������������������������������������������29 Overview ��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������29 CSU’s Spending Plan ���������������������������������������������������������������������������������������������������������������������������������������������������������31 Assessment ��������������������������������������������������������������������������������������������������������������������������������������������������������������������������32 California Community Colleges ������������������������������������������������������������������������������������������������������������35 Overview ��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������36 Enrollment Levels and Funding �������������������������������������������������������������������������������������������������������������������������������������37 Other Apportionment Changes ������������������������������������������������������������������������������������������������������������������������������������39 Guided Pathways ����������������������������������������������������������������������������������������������������������������������������������������������������������������40 Other Programmatic Proposals �������������������������������������������������������������������������������������������������������������������������������������46 State Operations �����������������������������������������������������������������������������������������������������������������������������������������������������������������51 CCC Facilities �������������������������������������������������������������������������������������������������������������������������������������������������������������������������54 Hastings College of the Law �����������������������������������������������������������������������������������������������������������������56 California Student Aid Commission �����������������������������������������������������������������������������������������������������59 Overview ��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������59 Cal Grants �������������������������������������������������������������������������������������������������������������������������������������������������������������������������������60 Middle Class Scholarships������������������������������������������������������������������������������������������������������������������������������������������������62 Tuition �������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������65 Summary of Recommendations �����������������������������������������������������������������������������������������������������������67 www.lao.ca.gov Legislative Analyst’s Office ii 2017-18 BUDGET iii Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET EXECUTIVE SUMMARY In this report, we analyze the Governor’s higher education budget proposals. Below, we highlight key messages from the report. Key Messages UC’s Spending Plan Raises Several Issues to Consider. First, regarding enrollment, the state recently has begun setting the University of California’s (UC’s) enrollment target one year out to better align with UC’s admissions calendar. We recommend the Legislature continue this approach by setting a 2018-19 enrollment target but waiting to set the specific target until after it has received two forthcoming reports. We recommend using trailer legislation to provide the associated funding in 2018-19. Second, UC’s Academic Excellence initiative lacks clear objectives and detail. If UC is unable to provide sufficient justification for this initiative, we recommend redirecting the associated funding to higher priorities. Finally, the Legislature faces two other significant UC decisions in the coming year: (1) whether to use Proposition 56 funding to replace or augment existing funding for graduate medical education, and (2) whether to allow UC to increase nonresident enrollment in 2017-18. CSU Facing Notable Cost Pressures, Difficult Decisions Between Tuition Increases and Cost Increases. The California State University (CSU) faces significant cost pressures in the budget year—most notably, pressure to fund faculty bargaining agreements already ratified by the Board of Trustees last spring. Given recent compensation increases for faculty, pressure also exists to provide some compensation increase for other employee groups with expiring contracts. Another notable cost pressure is funding enrollment growth for eligible transfer students, some of whom have been denied admission in recent years. Were the Legislature to approve the General Fund level proposed by the Governor, CSU asserts it would be able to cover the costs of the previously ratified faculty contracts and some basic cost increases. It would not be able to provide compensation increases for other employee groups or enroll additional transfer students. Were the Legislature to want these other priorities funded, additional General Fund support or tuition revenue would be required. As tuition charges have been flat at CSU for the past six years, the Legislature may want to consider a tuition increase. A 2.5 percent tuition increase would generate enough revenue to support a 1 percent compensation pool and 1 percent enrollment growth for eligible transfer students. California Community Colleges (CCC) Budget Proposals Could be Improved Around the Edges. The Governor proposes to increase apportionments $197 million to cover enrollment growth, a cost-of-living adjustment, and a further small unallocated increase. We recommend the Legislature approve these increases, as providing substantial ongoing, general purpose funding would help colleges address certain cost pressures, such as covering pension rate increases, as well as implement local priorities. The Governor also provides $150 million for a one-time initiative. Though we recommend the Legislature dedicate some new funding for one-time purposes, we have concerns with the Governor’s guided pathways initiative. In particular, the proposal departs from existing, successful pathway initiatives in key ways and lacks many important details. Nonetheless, www.lao.ca.gov Legislative Analyst’s Office 1 2017-18 BUDGET the concept has potential and we recommend the Legislature ask the administration and the Chancellor to provide specific additional details about it during spring hearings. Hastings College of the Law’s Recent Budgetary Approach Raises Concern. In 2016-17, Hastings anticipates running a $6.4 million operating deficit. Under the Governor’s budget, this trend would continue, with Hastings running an even larger ($8.3 million) deficit in 2017-18, ending the year with a $10.2 million reserve. Hastings’ recent budget problems stem primarily from its decision to provide more generous financial aid packages to incoming students—a strategy designed to attract higher quality students and boost the school’s prestige. To address its operating deficit, Hastings anticipates it soon will have to reduce spending on financial aid and increase tuition levels—effectively counteracting its earlier decisions. We recommend the Legislature question Hastings during spring budget hearings on its recent budgetary approach, as it appears not to achieve any long-term objectives while potentially putting pressure on the state in future years to stabilize the school’s financial condition. Recommend Restructuring State and Institutional Financial Aid Programs. The Governor proposes to phase out Middle Class Scholarships starting in 2017-18. According to the administration, the phase out is intended to address a state budget shortfall while prioritizing state aid for financially needy students served through the Cal Grant program. We concur with the Governor that prioritizing aid for the financially neediest students is the more effective way to promote college access. Meeting this objective, however, is difficult due to the plethora of existing state and institutional aid programs, which have different eligibility criteria and rules. We recommend the Legislature explore ways to restructure these programs, such as by consolidating them into a single grant or establishing uniform and coordinated eligibility requirements. Such an approach would better position the Legislature to use available funds for optimizing college access and affordability. Further Improvement Needed in Segments’ Performance and Performance Framework. The segments’ annual performance reports show that performance is improving in some instances but additional improvement is needed. For example, UC’s and CSU’s graduation rates have increased gradually over time, though even now less than 60 percent of CSU freshmen graduate within six years. At CCC, a slightly greater share of students is successfully moving from remedial into college-level coursework, though overall completion rates are declining. Excess unit-taking remains a problem at CSU and CCC, with the average CSU student taking 18 semester units (six courses) more than required to obtain a bachelor’s degree and the average CCC student generating more than double the required units for an associate degree. We think opportunities exist to improve the state’s overall performance framework. In particular, we recommend the Legislature direct the CCC Chancellor’s Office to adopt a redesigned performance measurement system that promotes greater transparency and more challenging targets. We also recommend the Legislature collaborate with all three segments to develop meaningful measures related to (1) efficiency and (2) outcomes for college graduates. 2 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET INTRODUCTION In this report, we analyze the Governor’s In each of these sections, we provide relevant higher education budget proposals. We begin by background, describe the proposals, assess the providing background on higher education in proposals, and make associated recommendations. California. In the next five sections, we analyze The final section consists of a summary of the the Governor’s budget proposals for (1) the recommendations we make throughout the University of California, (2) the California report. For many higher education budget tables State University, (3) the California Community not included in this report, please see “EdBudget Colleges, (4) Hastings College of the Law, and Tables” on our website. (5) the California Student Aid Commission. HIGHER EDUCATION IN CONTEXT California Has Public and Private Higher Enrollment Education Sectors. As Figure 1 (see next page) Below, we discuss higher education eligibility shows, California has 113 California Community policies, enrollment trends, and enrollment Colleges (CCC), 23 California State University funding. (CSU) campuses, 10 University of California (UC) campuses, and 1 UC-affiliated law school. Its Eligibility private sector includes about 175 nonprofit colleges Master Plan Sets State’s Goals for College and universities and more than 1,000 for-profit Access. Written in 1960, the California Master institutions. About three-fourths of full-time Plan for Higher Education established a number equivalent (FTE) enrollment in California is in of key policies for the state’s public sector. Most the public sector. This share is somewhat higher notably, the Master Plan set forth each of the three than the share in the public sector in the rest of the segments’ missions and student eligibility policies. nation (two-thirds of FTE enrollment). California’s The state and the segments historically have based share of students in nonprofit colleges is lower than their enrollment, budget, and physical capacity the rest of the nation, whereas its share in for-profit decisions upon these policies. colleges is similar to the rest of the nation. Master Plan Assigns Each Public Segment a Three Key Aspects of Higher Education in Different Mission. The Master Plan calls for CCC California. Below, we provide background on: to provide basic skills instruction, career technical (1) public higher education enrollment, (2) tuition education, and lower-division instruction. It also and financial aid, and (3) institutional and student sets forth that CCC is to grant associate degrees performance. In cases where data is available, we and certificates as well as prepare students to provide perspective on how California compares transfer to four-year colleges. It calls for CSU to to other states. Throughout this section, we cite focus on instruction leading to bachelor’s and the most recent data available from government master’s degrees. It envisions UC as the state’s sources. In some cases, particularly for national primary public research university and directs it to comparison data, the most recent data is several grant bachelor’s, master’s, and doctoral degrees. years old. www.lao.ca.gov Legislative Analyst’s Office 3 2017-18 BUDGET Master Plan Has Each Public Segment has the lowest per-student cost and UC the highest Differing in Selectivity and Cost. Each segment per-student (given its research mission). serves somewhat different student populations. Master Plan Sets Different Eligibility Policies The CCC system is to be open to all students over for Each Segment. The Master Plan envisions CCC the age of 18, CSU is to be somewhat selective, as open access, allowing any adult to enroll without and UC is to be the most selective segment. Each set eligibility criteria. By comparison, CSU and UC segment also has different expected costs. CCC have eligibility criteria, with UC’s criteria being more selective. For freshman eligibility, UC is to draw from the top 12.5 percent of public Figure 1 high school graduates, whereas CSU is to Higher Education in California draw from the top 33 percent. For transfer 2016-17 eligibility, UC is to admit students who have completed lower-division coursework with California Community Colleges 72 districts at least a 2.4 grade point average, whereas 113 colleges 1.2 million FTE students CSU is to admit those having at least a 2.0 64,000 FTE faculty and staffa grade point average. The transfer function $8.2 billion Proposition 98 funding is intended both to (1) provide students California State University who do not qualify for freshman admission 23 campuses 400,000 FTE students an opportunity to earn a bachelor’s degree 41,000 FTE faculty and staffa $3.6 billion state funding and (2) reduce costs for students seeking a bachelor’s degree by allowing them to attend University of California 10 campuses CCC for their lower-division coursework. 5 medical centers The Master Plan does not include eligibility 3 national labs 265,000 FTE students 151,000 FTE faculty and staffa criteria for graduate students. Instead, it $3.5 billion state funding calls for the universities to consider graduate Hastings College of the Law enrollment in light of workforce needs, such 1 campus as for college professors and physicians. 943 FTE students 243 FTE faculty and staff UC and CSU Set Admission $15 million state funding Requirements to Reflect Eligibility Policies. For freshmen, the university systems are Private Nonprofit Institutions 176 institutionsb responsible for setting specific admission 279,000 FTE studentsb criteria intended to reflect their respective $229 million Cal Grant funding eligibility pools. As a minimum criterion, both systems require high school students Private For-Profit Institutions Over 1,000 institutionsb to complete a series of college preparatory 261,000 FTE studentsb courses known as the “A-G” series. The series $17 million Cal Grant funding includes courses in math, science, English, and other subjects. To qualify for admission, a Reflects fall 2015 estimates. b Reflects LAO estimates using data from the California Bureau of Private students must complete this series while Postsecondary Education and federal sources. earning a certain combination of course FTE = full-time equivalent. grades and scores on standardized tests. 4 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET In 2014-15, 43 percent of high school graduates school graduates. The last eligibility study was completed the A-G series with a “C” or better in conducted in 2007. The 2015-16 budget provided each course. For transfer students, the university $1 million for the Office of Planning and Research systems set general education and pre-major course to complete a new eligibility study by December 1, requirements. Transfer students completing these 2016. (As of the release of this report, the study was courses and meeting the Master Plan’s grade point not yet published.) average requirements are eligible for admission. Legislature Recently Directed Segments to Available Evidence Suggests Current Develop Plans for Producing More Degree and Admission Criteria Not Perfectly Aligned to Credential Holders. The Public Policy Institute of Eligibility Policies. In 2015, 13 percent of high California prepared a baseline forecast showing UC school graduates were admitted to UC and and CSU awarding around 750,000 and 1.3 million 30 percent to CSU. The segments are likely bachelor’s degrees, respectively, between 2015-16 drawing for admission from larger pools than and 2029-30. The 2016-17 budget requires UC and these percentages, as some eligible students CSU to develop plans to produce 250,000 and likely do not apply. For example, some eligible 480,000 more bachelor’s degrees, respectively, students might apply to UC but not CSU, and than these baseline projections. To reach these some eligible students might not apply to either targets, the budget specifies that the university institution, instead opting to attend community systems could propose changes that would broaden colleges, in-state private universities, or out-of-state eligibility, increase enrollment, or improve institutions. As a result, both university systems are graduation rates. The 2016-17 budget also requires very likely exceeding their Master Plan freshman CCC to develop a plan that recommends policy eligibility targets. For transfer students, in fall 2016, and budget changes needed to produce 1 million UC reports that it admits all eligible applicants, associate and vocational credentials between 2017 whereas CSU reports denying admission to and 2027. Unlike for UC and CSU, no baseline about 10,300 eligible applicants, mostly nonlocal projection was prepared for CCC. The segments are applicants. required to submit these reports to the Legislature State Currently Conducting a Freshman by March 2017. Eligibility Study to Obtain Better Data. To gauge Enrollment Trends whether the universities are drawing from their freshman eligibility pools, the state periodically Public Sector Enrollment Has Increased funds “eligibility studies.” These studies examine Over Past Decade. Over the past decade, resident public high school graduates’ transcripts to enrollment at all three segments has increased. determine the proportion of students meeting (In the box on the next page, we discuss trends in each university system’s admission criteria. If nonresident enrollment.) Compared to 2005-06, the proportion is significantly different from resident enrollment in 2015-16 was 4 percent (about 12.5 percent and 33 percent for UC and CSU, 44,000 FTE students) higher at CCC, 18 percent respectively, the universities are expected to (about 58,000 FTE students) higher at CSU, and adjust their admission policies accordingly. For 12 percent (about 22,000 FTE students) higher at example, UC tightened its admission criteria after UC. Over this period, CCC enrollment was the an eligibility study conducted in 2003 found it most volatile—with a spread of almost 150,000 drawing from the top 14.4 percent of public high FTE students from its peak in 2008-09 to its www.lao.ca.gov Legislative Analyst’s Office 5 2017-18 BUDGET Nonresident Enrollment All Three Segments Enroll Nonresident Students. Currently, nonresidents make up 17 percent of all students at UC, 6 percent at CSU, and 4 percent at CCC. At UC and CSU, a majority of nonresident students are undergraduates. Most graduate students are able to establish residency after one year of enrolling. Nonresident Enrollment Varies Significantly By Campus. Within each segment, some campuses, typically high-demand campuses, have much higher proportions of nonresident students than other campuses. For example, nonresidents comprise more than 20 percent of enrollment at UC’s four most selective campuses (Berkeley, San Diego, Los Angeles, and Irvine). Several selective CSU campuses (San Luis Obispo, San Diego, and San Jose) also enroll greater proportions than other CSU campuses. CCC campuses with notable proportions of nonresident students (such as Santa Monica and Santa Barbara) have higher enrollment demand due to their strong transfer programs. Undergraduate Nonresident Enrollment Has Notably Increased at UC. UC has experienced the largest growth in nonresident students in the recent past, particularly among undergraduates. UC undergraduate nonresident enrollment increased from about 7,100 students in 2007-08 to an estimated 32,300 students in 2016-17. Nonresidents’ share of the UC undergraduate student body more than tripled during this time. As the figure below shows, the share of nonresident undergraduates has grown at every UC campus, except for Merced. UC asserts that the growth in nonresident undergraduate students allowed it to further grow resident enrollment. This is because UC charges nonresidents a supplemental charge (around $27,000) that significantly exceeds their average expected cost (around $10,000). Nonresident Share of Undergraduates Has Grown Significantly at Nearly Every UC Campus 30% Fall 2007 25 Fall 2016 20 15 10 5 Berkeley San Los Irvine Davis Santa Santa Riverside Merced Total Diego Angeles Barbara Cruz 6 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET trough in 2012-13. Average annual growth over In Near Term, High School Graduates this period was 0.5 percent at CCC, 1.8 percent at Projected to Grow Very Slowly. The Department CSU, and 1.2 percent at UC. During the preceding of Finance’s Demographic Unit does projections two decades (1985-86 through 2005-06), average of high school graduates. Its most recent forecast annual growth was 2 percent at CCC, 1.5 percent projects high school graduates increasing from at CSU, and 2 percent at UC. In 2015-16, total about 420,000 in 2016-17 to 445,000 in 2023-24, FTE enrollment reached almost 1,146,000 at CCC, followed by declines in the following two years. 371,000 at CSU, and 210,000 at UC. Over this period (through 2025-26), the projected Some UC and CSU Campuses Much More average annual growth rate is less than 1 percent. Selective Than Other Campuses. Though (In our review, we found the Department of enrollment has been increasing at all three Finance’s projections of high school graduates have public segments, certain UC campuses (such been fairly accurate one to two years out, but its as Berkeley and Los Angeles) continue to deny model tends to underproject high school graduates many applicants admission. Eligible freshmen five to ten years out.) applicants who are not accepted to their first choice College Participation Rates Another Factor campus are redirected to UC Merced. Differences in Gauging Enrollment Demand. For any in enrollment demand also exist across CSU demographic group (for example, high school campuses. High-demand CSU campuses generally graduates), the percentage of individuals who give enrollment priority to eligible applicants from are enrolled in college is that group’s college their surrounding areas. Six campuses (Fresno, participation rate. Other factors remaining Fullerton, Long Beach, San Diego, San Jose, and constant, if participation rates increase, then San Luis Obispo), however, do not guarantee enrollment demand increases. Participation rates admission even to their local students. can change due to a number of factors, including Number of High School Graduates One Factor state and institutional efforts to promote college Driving Enrollment Demand. Enrollment demand going, the availability and attractiveness of other for the three public segments is driven in part by postsecondary and employment options, student changes in the number of high school graduates. fee levels, and the availability of financial aid. Assuming no other change, an increase in the Freshman College Participation Rates number of California high school graduates causes Somewhat Steady. The federal Department of a proportionate increase in the number of students Education estimates that the overall college interested in attending one of the public segments. participation rate of California high school The relationship is particularly strong at CSU and graduates was 59 percent in fall 2012 (the most UC. For these two segments, an increase in freshman recent year of available data), somewhat below enrollment contributes to an increase in transfer the fall 2010 rate of 62 percent. In both years, enrollment, as CSU typically enrolls one transfer participation rates in California were slightly student for every one freshman and UC aims to below the national average. Participation rates in enroll one transfer student for every two freshmen. California’s public sector also have been somewhat Increases in high school graduates also can have a steady. Between fall 2007 and fall 2015, for example, future effect on transfer enrollment, as some of those participation rates have ranged between 7 percent students will work their way through the transfer to 8 percent at UC and 11 to 13 percent at CSU. (No process at CCC over the course of a few years. comparable CCC data are available.) www.lao.ca.gov Legislative Analyst’s Office 7 2017-18 BUDGET Enrollment Funding it entered the most recent recession and reduced base funding for UC and CSU. The purpose was Traditionally, State Sets Enrollment Target to provide UC and CSU flexibility to manage state for Each Segment. Under the traditional approach funding reductions. The state resumed enrollment to funding enrollment, the state first considers funding from 2010-11 through 2012-13, but, in two the various factors discussed above and sets an of the three years, it did not require the universities enrollment target for each segment. Over the past to return money to the state if they fell short of the few decades, the state typically has set one overall target. In 2013-14 and 2014-15, the state again chose enrollment target for each segment rather than not to include enrollment targets in the budget. separate targets for undergraduate and graduate Beginning in 2015-16, the state resumed setting students. If the state increases a segment’s overall enrollment targets for UC and CSU, although its enrollment target, then the state decides how approach for UC differed somewhat from previous much associated funding to provide for enrollment years. We describe this different approach below. growth. New Approach Recently Taken for UC. UC and CSU Enrollment Growth Traditionally Whereas the state traditionally has set enrollment Funded Based on Marginal Cost Formula. In the targets for the budget year, it recently began case of the universities, the state for decades funded setting UC’s enrollment target for the subsequent enrollment growth according to a “marginal academic year. This change was intended to give cost” formula that estimated the cost of admitting UC more time to respond to legislative direction. one additional student. The most recently used In the 2015-16 budget, the state set a goal for UC to formula assumed the universities would hire a new enroll 5,000 more resident undergraduate students professor for roughly every 19 additional students by 2016-17 (than the 2014-15 level) and allocated and linked the cost of the new professor to the an associated $25 million in ongoing funding for average salary of newly hired faculty. In addition, the growth. The state continued this practice in the formula included the average cost per student 2016-17, setting an expectation that UC enroll for faculty benefits, academic and instructional 2,500 more resident undergraduate students in support, student services, instructional equipment, 2017-18 than in 2016-17. It providing an associated and operations and maintenance of physical $18.5 million, contingent on UC providing infrastructure. The marginal cost formula was sufficient evidence by May 1, 2017 that it would based on the cost of all enrollment (undergraduate meet this goal. (The funding also is contingent on and graduate students and all academic disciplines UC adopting a policy by the same deadline that excluding health sciences). The state provided each limits nonresident enrollment.) The state did not system flexibility to determine how to distribute set targets for graduate student enrollment in either enrollment funding to its campuses. If the systems year. did not meet the enrollment target specified in the State Continues to Link Funding to budget within a certain margin, then the associated Enrollment Growth for CCC. Whereas the state’s enrollment growth funding reverted back to the approach to funding UC and CSU enrollment has state. fluctuated in recent years, the state has maintained Over Past Decade, State Has Not Consistently its traditional approach to budgeting for CCC and Clearly Linked Funding to Enrollment enrollment growth. State law requires that CCC’s Growth for UC and CSU. The state began omitting annual budget request for enrollment growth enrollment targets in the 2008-09 budget, when 8 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET be based, at minimum, on changes in the adult other public community colleges, about one-third population and excess unemployment (defined of the national average as an unemployment rate higher than 5 percent). Students and Families Cover Only a Fraction The CCC also may request enrollment growth to of Education Costs, State Pays Much Larger cover “unfunded” (or over-cap) enrollment. The Share. Tuition and fee levels vary across the Governor and Legislature do not have to approve segments because (1) their education costs are enrollment growth at the requested level. As with different, and (2) the state covers a different share UC and CSU enrollment, their decisions tend to of these costs. Figure 2 (see next page) shows the reflect the state’s budget condition. proportion of education cost at each segment that is covered by students and families, the state, Tuition and Financial Aid and other fund sources, such as nonresident Below, we examine affordability for supplemental tuition. The figure shows both state undergraduate students from a variety of angles, support in the form of direct appropriations to beginning with a focus on student tuition and the segments as well as from state financial aid. living costs, then turning to financial aid. At UC and CSU, the student and family share of education costs on average is 24 percent and Tuition and Living Costs 20 percent, respectively, with the state share State Currently Does Not Have a Tuition comprising 63 percent at UC and 69 percent at Policy. A tuition policy establishes how tuition CSU. Other fund sources cover 12 percent at each levels are to be adjusted over time. Depending on system. At CCC, the student and family share is the policy, the tuition charge either explicitly or only 5 percent, versus a state share of 94 percent. implicitly represents the share of education cost to The average share of cost covered by students and be borne by full-fee-paying students and the state. families masks some differences, with the share for The state share of cost consists of the subsidy it a particular student depending on the amount of provides directly to each of the higher education financial aid he or she receives. Even students and segments as well as the financial aid it provides to families paying full tuition, however, pay much less financially needy students to help them cover their than the cost of education. Specifically, they pay for tuition charges. Though California had a tuition 52 percent of education costs at UC, 36 percent at policy for several years during the late 1980s and CSU, and 17 percent at CCC. (Not accounted for in early 1990s, it has not had one the last couple of the figure are federal grants and tuition tax credits decades. that further reduce the average student and family Tuition Highest at UC, Lowest at CCC. share of education costs.) For full-time undergraduate students, UC charges Tuition and Fees Tend to Be Volatile. As $12,294, CSU charges $5,472, and CCC charges shown in Figure 3 (see page 11), tuition and fee $1,380 ($46 per unit for 30 units). Campuses in levels in California tend to follow a pattern of flat each system also charge additional fees for specific periods punctuated by sharp increases. The flat services or activities—such as student health periods generally correspond to years in which services. Compared to similar public universities in the state experienced economic growth, while the other states, UC’s tuition and fees tend to be higher, periods of steep increases generally correspond whereas CSU’s tend to be much lower. CCC tuition to years when the state experienced a recession. and fees are the lowest in the country compared to During recessions, the state has often balanced its www.lao.ca.gov Legislative Analyst’s Office 9 2017-18 BUDGET budget in part by reducing state funding for the across campuses within each system because some segments. UC and CSU, in turn, increased tuition expenses (such as housing) vary by location. Costs charges to make up for the loss of state support, and also vary depending on whether a student lives on the state increased fees at CCC. This pattern could campus, off campus not with family, or off campus be affected by the new state reserve requirements with family. For example, as Figure 4 shows, UC enacted under Proposition 2 (2014), which could estimates students living with family face the mitigate state revenue losses during recessions. lowest costs—about 30 percent lower than students Estimated Living Costs Vary Based on Several living off campus and almost 50 percent lower than Factors. Apart from tuition, students incur other students living on campus. costs to attend college, including housing and Financial Aid food, personal expenses, books and supplies, and transportation. Estimated living costs vary across Various Types of Financial Aid Help Students each system because each system determines Cover Their Cost of Attendance. Types of financial for itself how to estimate these costs. Costs vary aid include gift aid (grants, scholarships, and Figure 2 State Covers Large Share of Education Costa Average Per-Student Education Spending, 2016-17 $25,000 Otherb Student/Family 20,000 State 15,000 Financial Aid 10,000 Financial Aid Direct Appropriations DDiirreecctt 5,000 AApppprroopprriiaattiioonnss Direct Appropriations UC CSU CCC a Excludes cost of institutional tuition discounts and waivers that amount to $3,900 per student at UC and $1,700 at CSU. b Includes nonresident supplemental tuition and endowment income. 10 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Figure 3 Tuition Tends to Increase Sharply After Flat Periods Year-Over-Year Percent Change in Systemwide Tuition and Fees 100% 80 CCC 60 40 UC 20 CSU 0 -20 1986-87 1991-92 1996-97 2001-02 2006-07 2011-12 2016-17 tuition waivers that students do not have to pay has developed a formula that takes into account back); loans (that students must repay); federal tax information reported on the FAFSA—such as benefits (that can reduce income tax payments or household income, certain available assets, and provide a tax refund); and subsidized work-study number of children in college—to determine an programs (that provide income to students while expected family contribution (EFC) toward college making it more attractive for employers to hire costs. A student’s financial need is the total cost of students). Financial aid may be need based (for attendance (tuition and living costs combined) at a students who otherwise might be unable to afford particular campus less his or her EFC. college) or nonneed based Figure 4 (typically scholarships Living Expenses Vary by Student Living Arrangement or other payments based University of California, 2015-16 on academic merit, athletic talent, or military Living With On campus Off campus Family service). Need-based Rent and food $14,199 $9,391 $4,700 aid programs assess Health carea 2,130 2,169 1,818 need based on the Free Transportation 687 1,247 1,659 Application for Federal Otherb 1,700 1,884 2,032 Totals $18,716 $14,691 $10,209 Student Aid, or FAFSA. a Primarily reflects health insurance costs. Students insured through a family member are not required to The federal government purchase insurance. b Includes expenses for clothing, entertainment, and recreation. www.lao.ca.gov Legislative Analyst’s Office 11 2017-18 BUDGET Many Financial Aid Programs Available for Cal Grant Program Is the State’s Largest California Students. Figure 5 shows the main aid Aid Program. The state’s Cal Grant program programs available to undergraduates attending guarantees gift aid to California high school one of California’s public higher education graduates and community college transfer students segments. Most programs are need based and who meet both financial need and academic most provide gift aid. If a student qualifies for criteria. Students who do not qualify for one of more than one program, then campus financial these entitlement awards may apply for a limited aid offices “package” together aid for the student. number of competitive grants if they meet other Generally, a student’s aid package cannot exceed eligibility criteria. Awards cover full systemwide his or her estimated college costs (tuition and living tuition and fees at the public universities and up combined). When packaging aid, campuses first to a fixed dollar amount toward costs at private prioritize awarding gift aid before moving on to colleges. The program also offers $1,678 stipends awarding loans and work study. Campuses do not (known as access awards) for some students. Access award tax benefits. Students and parents claim awards are intended to help cover some living these benefits on their tax returns. expenses, such as the cost of books, supplies, and transportation. State Figure 5 spending on Cal Grants Major Financial Aid Programs for Undergraduates has increased from (In Billions) $813 million in 2007-08 to Program Source Expendituresa an estimated $2 billion Gift Aid in 2016-17, primarily Pell Grant Federal $3.0 due to sharp increases Cal Grant State 1.7 CCC Board of Governor’s Fee Waiver State 0.8 in the number of award UC Grant State 0.8 recipients as well as CSU State University Grant State 0.6 increases in award Supplemental Education Opportunity Grant Federal/state 0.1 Middle Class Scholarship State —b amounts for students at CCC Full-Time Student Success Grant State —b the public universities. Subtotal ($7.0) State Recently Loans Created Two New Direct Student Loans Federal $1.7 Aid Programs. The Parent PLUS Loans Federal 0.4 newest state program Perkins Student Loans Federal 0.1 Subtotal ($2.1) (created in 2015-16) is Tax benefits the Full-Time Student Tuition credits and deductions Federal $1.4c Success Grant—a grant Coverdell education savings account Federal/state —b that supplements the Cal Scholarshare savings plan Federal/state —d Grant access award for Subtotal ($1.4) CCC students who are Work study Federal/state $0.1 enrolled in 12 or more Total $10.6 a 2014-15 for federal programs and 2015-16 for state programs. units. The 2016-17 budget b Less than $50 million. provides $41.2 million c Estimated based on nationwide expenditures. d Not available. for the program to 12 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET increase the access award by $600—bringing the the federal Pell Grant program and some state total access award for qualifying CCC students programs also pay for some or all of financially to $2,078. In 2014-15, the state created Middle needy students’ living expenses. Taken altogether, Class Scholarships. This program provides partial gift aid for financially needy students cuts their tuition coverage for certain UC and CSU students total college costs (tuition and living expenses) with household income and assets each less than in half at the universities. For full-time students $156,000. attending CCC, gift aid covers a somewhat lower Each Segment Also Offers Institutional portion of the cost of attendance—about one-third. Aid. In addition to Cal Grants and Middle About Half of University Students Borrow Class Scholarships, UC and CSU operate to Pay for College, Very Few CCC Students institutional need-based programs. UC and CSU Borrow. Each year, around 40 percent of UC pay for these programs largely by redirecting a and CSU undergraduates take out loans, with portion of tuition revenue generated from full-fee- an average annual loan amount of $6,800 per paying students. When packaging financial aid, UC borrower. Slightly more than half of UC and CSU first applies any applicable federal and state aid on students have loan debt at graduation, with debt a student’s behalf and assumes each student must at graduation averaging $19,500. At CCC, only contribute $9,700 through work and borrowing. 2 percent of students borrow each year, with an It then uses institutional aid to fill any remaining average annual loan amount of $5,500. Student gap between available resources and the total borrowing in California tends to be lower than cost of attendance. About two-thirds of UC’s in other states. For example, about 60 percent of institutional aid covers tuition, with the remaining students at four-year public universities nationally one-third paying for living costs. By comparison, graduate with loan debt, with an average debt load CSU uses its State University Grant program upon graduation of $25,900. (These figures only only to cover tuition for certain students based include student loans, not other forms of debt, such on their federal expected family contribution. It as credit card debt.) does not cover other costs of attendance. At CCC, Student Loan Default Rates Low at UC the Board of Governors Fee Waiver program and CSU, Higher at CCC. About 95 percent of fully covers enrollment fees (but not other costs all borrowing at UC, CSU, and CCC is through of attendance) for financially needy students. federal loans. For each cohort of undergraduate Institutional need-based gift aid spending ranges borrowers entering repayment in a given year, from $803 million at CCC to $764 million at UC to the federal government tracks the percentage $607 million at CSU. of students defaulting within three years, by Half of Public College Students Pay No institution. Three-year student loan default rates Tuition, Many Also Receive Gift Aid for Living tend to be low at UC and CSU but higher at CCC. Expenses. As evident from the above descriptions, Specifically, while no UC campus has a rate greater most state aid programs are geared toward paying than 3.6 percent and no CSU campus has a rate tuition. These programs collectively cover full greater than 6.7 percent, the vast majority of tuition for around 60 percent of undergraduate CCC campuses have rates in excess of 10 percent. students at UC and CSU. At CCC, 44 percent The average rate for all institutions nationally is of students receive full fee waivers, paying 11.3 percent. for two-thirds of all course units taken. In addition, www.lao.ca.gov Legislative Analyst’s Office 13 2017-18 BUDGET Federal Loans Have Income-Driven education segments. In addition, the law states the Repayment Plans. The most common type of Legislature’s intent that progress on these measures federal loan—federal direct loans—currently offers be reported and considered as part of the state’s new borrowers seven repayment plans. Four of annual budget process. these plans, known as income-driven repayment State Has Adopted Performance Measures plans, vary loan repayments based on the income for Universities. Separate from Chapter 367, of the borrower as a way to improve affordability Chapter 50 of 2013 (AB 94, Committee on Budget) and reduce the likelihood of a student defaulting. established eight specific performance measures For example, the Pay As You Earn Repayment Plan for UC and CSU. The measures include graduation (PAYE) caps monthly repayments at 10 percent of a rates, degree completions, units accumulated upon borrower’s discretionary income (defined as income graduation, and funding per degree. For most earned above 150 percent of the poverty level, measures, the segments must track results for adjusted for location and household size). Each specified student subgroups, including low-income of these four plans also forgives any remaining students and transfer students. Chapter 50 requires loan balances after a set period of repayment. For the segments to submit related performance reports example, PAYE forgives balances after 20 years of to the Legislature by March 15 each year. repayment, or 10 years of repayment for eligible State Requires Universities to Set Annual borrowers in public service careers. Performance Targets. Beginning with the 2014-15 Budget Act, UC and CSU also are to submit Performance performance reports (commonly referred to as Below, we provide background on the state’s “academic sustainability plans”) by November 30 higher education goals and performance measures, each year. In these reports, UC and CSU are to set review UC’s and CSU’s performance, and then performance targets for each of the above-referenced assess CCC’s performance. We then discuss statutory measures for each of the coming three (1) replacing an existing performance measure and years. The plans include several years of actual (2) potentially adding a new measure. performance on each of the measures. The Governor proposes to eliminate the requirement for the Background universities to submit these November reports. In State Has Set Forth Broad Goals for Higher the nearby box, we discuss and assess this proposal. Education. Chapter 367 of 2013 (SB 195, Liu) State Also Requires CCC to Set Performance establishes three major goals for higher education: Targets. Chapter 687 of 2014 (SB 876, Committee (1) improve student access and success, such as by on Budget and Fiscal Review) required the CCC increasing college participation and graduation Board of Governors to identify performance rates; (2) better align degrees and credentials with measures and develop annual performance targets the state’s economic, workforce, and civic needs; that are “challenging and quantifiable.” The Board and (3) ensure the effective and efficient use of of Governors adopted systemwide measures resources to improve outcomes and maintain and identified initial targets in July 2014. The affordability. To monitor progress toward these systemwide measures come largely from CCC’s goals, the law calls for the creation and adoption Student Success Scorecard, which was developed of performance measures that take into account in 2012. The measures are tracked for a cohort of the distinct missions of California’s higher students over a six-year period. 14 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Some State Funding Provided in Recent 2019-20. Figure 7 (see page 17) provides the same Years to Boost Performance. To date, the state information for CSU. has not adopted a performance funding formula UC and CSU Met Their Targets for that adjusts funding based upon the segments’ Graduation Rates for Freshmen And Have or individual campuses’ performance. The state, Raised Their Targets. Both UC and CSU have however, has provided some funding in recent years exceeded slightly their original targets for four-year intended to improve institutional performance. graduation rates for freshmen (for all freshman Most notably, the state increased CCC’s Student entrants as well as low-income freshman entrants). Success and Support Program from $49 million Specifically, both segments ended up 1 percentage in 2012-13 to $482 million in 2016-17. In other point higher than their original targets. For its cases, the segments have chosen to dedicate six-year graduation rate for freshman entrants, otherwise unallocated resources for student CSU surpassed its target of 54 percent, graduating success initiatives. Most notably, CSU is dedicating 57 percent of its students. Both segments have set $48 million of its unrestricted ongoing base budget higher targets for 2019-20. Figure 8 (see page 18) to fund its Graduation Initiative, which aims to shows that the universities’ recent improvement is increase degree completion rates and eliminate part of a long-term trend of gradually increasing achievement gaps over a multi-year period. graduation rates. The 2016-17 Budget Act includes an additional Targets for Graduation Rates for Transfer $35 million one time for CSU to further the Students Mostly Met. A two-year graduation rate objectives of the Graduation Initiative. for transfer students is analogous to a four-year graduation rate for entering freshmen. Both UC Review of Universities’ Performance and CSU either met or exceeded their original To date, the universities have submitted three targets for two-year graduation rates for CCC annual reports to the Legislature under the new transfer students. The two-year graduation rate requirements. Based on data from those plans, this for transfer students at UC has increased from section highlights UC’s and CSU’s performance 46 percent a decade ago to 55 percent today. The results compared with their targets. Specifically, two-year rate at CSU has increased from 21 percent Figure 6 (see next page) displays UC’s initial targets to 31 percent over the same period. CSU did not for 2015-16, actual results, and new targets for meet its target for the three-year graduation rate Universities’ November Performance Reports The Governor proposes to eliminate the provisional budget language that requires UC and CSU to submit performance reports to the Legislature each November. Given that these plans provide key performance data—including former targets, actual results, and future targets—we recommend the Legislature reject this proposal. Should the Legislature wish to reduce the universities’ reporting workload, we recommend the Legislature eliminate the segments’ statutorily required March performance reports. The March reports contain the same past actual data as the November reports but, unlike the November reports, do not include the universities’ performance targets and certain other useful information. www.lao.ca.gov Legislative Analyst’s Office 15 2017-18 BUDGET for transfer students (analogous to a six-year typical 180 quarter unit degree requirement. CSU graduation rate for freshmen entrants)—aiming also did better than its 2015-16 target for entering for 65 percent but falling short at 62 percent. As freshmen. The average number of units accumulated with the graduation targets for freshmen entrants, upon graduation, however, was still 18 semester both segments have set higher out-year graduation units (six courses) beyond the typical unit degree targets for transfer students. requirements. Moreover, CSU saw no reduction in Excess Units Remain a Concern for CSU. Both accumulated units for students starting as transfers. university systems must track the number of units Despite considerable efforts by the Legislature to students have accumulated upon graduation. UC did improve the transfer process, transfer students who better than its 2015-16 target. UC’s 2015 graduating graduated from CSU during the 2015-16 academic class (consisting of those who began as freshmen as year accumulated an average of 141 semester well as transfer students) accumulated an average of units—21 semester units (seven courses) beyond the four quarter units (one typical course) beyond the typical semester unit degree requirement. Figure 6 UC’s Performance Measures and Targets Target for Actual 2015-16 Target for State Performance Measure 2015-16 Performance 2019-20 CCC Transfers Enrolled. Number and as a percent of undergraduate population. 33,904 (18%) 34,197 (18%) 37,589 (18%) Low-Income Students Enrolled. Number and as a percent of total student 71,462 (39%) 75,608 (40%) 82,359 (40%) population. Graduation Rates • 4-year rate—freshman entrants 63% 64% 68% • 4-year rate—low-income freshman entrants 57% 58% 62% • 2-year rate—CCC transfer students 55% 55% 59% • 2-year rate—low-income CCC transfer students 51% 51% 55% Degree Completions. Number of degrees awarded annually to: • Freshman entrants 34,200 34,519 39,756 • CCC transfer students 14,600 14,866 16,396 • Graduate students 18,600 14,497 15,580 • Low-income students 21,800 24,660 28,017 • All students 69,100 63,882 73,181 First-Year Students on Track to Graduate on Time. Percentage of first-year 51% 52% 52% 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 $107,771 $111,328 $126,029 • Undergraduate programs only Not reported Not reported $74,981 Units Per Degree. Average quarter units earned at graduation for: • Freshman entrants 187 183 183 • Transfer students 100 95 95 Degree Completions in STEM Fields. Number of STEM degrees awarded annually to: • Undergraduate students 17,100 20,503 23,382 • Graduate students 9,300 8,620 9,264 • Low-income students 7,100 9,284 10,549 CCC = California Community Colleges and STEM = science, technology, engineering, and math. Source: UC Academic Sustainability Plans. 16 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Review of CCC’s Performance performance measures is the percentage of students initially placed into precollegiate coursework that Below, we review data on key community end up later passing college-level math and English college performance outcomes and provide a courses. Over time, CCC has improved slightly in recommendation relating to CCC’s performance this area. For remedial math, its progress rate has measurement system. gone from 29 percent in 2010-11 to 33 percent in At CCC, Rate of Students Progressing From 2014-15. Progress rates for remedial English have Remedial to College-Level Courses Improving . . . increased from 42 percent to 45 percent over the For CCC, one of the most important “milestone” same period. Figure 7 CSU’s Performance Measures and Targets Target for Actual 2015-16 Target for State Performance Measure 2015-16 Performance 2019-20 CCC Transfers Enrolled. Number and as a percent of undergraduate 145,436 (36%) 143,445 (36%) 144,879 (36%) population. Low-Income Students Enrolled. Number and as a percent of total student 207,528 (50%) 206,926 (50%) 218,948 (51%) population. Graduation Rates • 4-year rate—freshman entrants 18% 19% 24% • 4-year rate—low-income freshman entrants 11% 12% 19% • 6-year rate—freshman entrants 54% 57% 62% • 6-year rate—low-income freshman entrants. 47% 52% 57% • 2-year rate—CCC transfer students 28% 31% 36% • 2-year rate—low-income CCC transfer students 26% 30% 36% • 3-year rate—CCC transfer students 65% 62% 69% • 3-year rate—low-income CCC transfer students 64% 62% 69% Degree Completions. Number of degrees awarded annually to: • Freshman entrants 37,915 38,770 47,803 • CCC transfer students 43,152 47,034 51,415 • Graduate students 18,938 20,788 22,248 • Low-income students 40,482 51,226 64,080 • All students 106,788 112,832 127,706 First-Year Students on Track to Graduate on Time. Percentage of first-year 51%a 52%a 57%a 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 $41,049 $40,781 $42,789 • Undergraduate programs only $51,670 $49,991 $46,780 Units Per Degree. Average semester units earned at graduation for: • Freshman entrants 139 138 138 • Transfer students 140 141 141 Degree Completions in STEM Fields. Number of STEM degrees awarded annually to: • Undergraduate students 18,846 20,201 26,994 • Graduate students 3,958 5,693 7,453 • Low-income students 7,470 10,462 13,927 a CSU excludes students who do not return to CSU for their second year. Including these students reduces CSU’s performance by about 8 percentage points. CCC = California Community Colleges and STEM = science, technology, engineering, and math. Source: CSU Academic Sustainability Plans. www.lao.ca.gov Legislative Analyst’s Office 17 2017-18 BUDGET Figure 8 UC and CSU Graduation Rates Gradually Increasing Entering First-Time, Full-Time Freshmen 90% UC Six-Year Rate 80 70 60 UC Four-Year Rate 50 CSU Six-Year Rate 40 30 20 CSU Four-Year Rate 10 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Year Cohort Entered University . . . But Program Completion Rates Declining performance. As a result, CCC’s approach can lead Slightly. Though a somewhat greater percentage to counterintuitive outcomes, such as the system of students are advancing from remedial meeting its target even as a cohort of students courses through college-level math and English performs worse than prior cohorts. courses, CCC program completion rates have For Other Performance Measures, CCC been declining slightly in recent years. Program Has Set Very Low Bar. Though we were unable completion rates peaked at 49 percent in 2011-12, to display CCC’s three completion-related dipping to 47 percent for 2014-15. Completion rates performance measures, Figure 9 shows the six decreased both for entering students that were other measures that community colleges use. initially assessed as underprepared and assigned CCC’s targets for several of these measures are to remedial courses, as well as students who were underwhelming as well as inconsistent with both deemed prepared for college-level coursework. legislative intent and the Board of Governors’ CCC’s Approach to Setting and Reporting own policy on significantly improving outcomes. Completion Targets Is Problematic. Figure 9 shows For example, in 2014-15, 57 percent of students the CCC system’s performance measures. The who were required to develop an education plan targets for the first three performance measures actually had one a year after enrolling. The Board cannot be displayed easily. This is because CCC of Governors’ expressed goal is for 100 percent of does not set a single target for an incoming cohort nonexempt students to have an education plan soon of students to complete a program within a set after enrolling. Nonetheless, for 2015-16, CCC’s period of time (the methodology that UC and target is only to increase—by any amount—above CSU use). Furthermore, CCC rebenches those 57 percent. Given the significant recent investments targets annually based on each cohort’s latest by the Legislature in student support services and 18 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET the Board of Governors’ own policy, we think this prepare for transfer. CCC’s target is to reduce this target is much too low. Similarly, CCC students amount to four FTE years or less. Given that a on average generate just over four FTE years to student completing 60 units (the standard length complete an associate degree or certificate or of an associate degree) would generate two FTE Figure 9 CCC’s Performance Measures and Targets Target for Actual 2014-15 Target for Performance Measure 2014-15 Performance 2015-16 Completion Rate. First-time students who completed a degree, —a 47.1% —a certificate, 60 transferrable units, or transferred within 6 years of entry. Remedial Progress Rate. Students enrolling in remedial math or —a 33% in math —a English or precollegiate English as a second language (ESL) who 45% in English completed a college-level course in that discipline within 6 years. 29% in ESL CTE Completion Rate. CTE students who completed a degree, —a 51.4% —a certificate, 60 transferable units, or transferred within 6 years of entry. Associate Degrees for Transfer. Number of these degrees 12,020 20,737 21,774 completed annually. Equity Rate. Index showing whether a subgroup’s completion rate is low compared with overall completion rate. An index of less than 1.0 indicates underperformance. African American 0.79 0.75 Increase above 0.75 American Indian 0.73 0.88 Stay above 0.8 Asian Stay above 0.8 1.31 Stay above 0.8 Hispanic Stay above 0.8 0.84 Stay above 0.8 Pacific Islander Stay above 0.8 0.81 Stay above 0.8 White, Non-Hispanic Stay above 0.8 1.09 Stay above 0.8 Education Plan Rate. Percent of required students who have an Not reported 57% Above 57% education plan. FTE Years Per Completion. A measure of efficiency showing amount of instruction, on average, required for each completion. (A student completing 60 units, the standard length of an associate degree or preparation for transfer, would generate two FTE years.) Assessed as underprepared Below 5.3 4.98 Stay below 4.98 Assessed as prepared Below 2.85 2.72 Stay below 2.72 Overall Below 4.39 4.15 Stay below 4.15 Participation Rate. Number of students ages 18-24 attending a Above 264.7 266.6 Above 266.6 community college per 1,000 California residents in the same age group. Participation Among Subgroups. Index comparing a subgroup’s share of enrollment with its share of the state population. An index of less than 1.0 indicates underrepresentation. African American Stay above 0.8 0.9 Stay above 0.8 American Indian 0.8 0.8 Stay above 0.8 Asian Stay above 0.8 1.19 Stay above 0.8 Hispanic Stay above 0.8 1.06 Stay above 0.8 Pacific Islander Stay above 0.8 1.10 Stay above 0.8 White, Non-Hispanic Stay above 0.8 0.82 Stay above 0.8 a CCC is unable to provide this information. CTE = career technical education and FTE = full-time equivalent. www.lao.ca.gov Legislative Analyst’s Office 19 2017-18 BUDGET years, we believe such a target is not sufficiently Legislature adopt trailer legislation replacing ambitious. funding per degree with a more meaningful Recommend Legislature Direct CCC to Revise efficiency measure. To develop a more meaningful Performance Measurement System. To promote measure, we recommend the Legislature work greater transparency and more challenging targets with the segments and Department of Finance for CCC, we recommend the Legislature direct the this spring to explore alternatives. Reasonable Chancellor’s Office to redesign its performance alternatives could include using data the segments measurement system. The new system should already report to create a cost per student or cost include performance targets that are clear and per degree measure. In exploring a new measure, understandable and do not change for a given the Legislature also might consider involving CCC cohort as it moves through a program. Also, in its discussions and applying the new measure to consistent with legislative intent, CCC should that segment too. set challenging targets for all of its metrics. In A New Higher Education Performance Measure addition, as part of its review and redesign, the Chancellor’s Office should consider adding shorter State Law Indicates Intent to Track Graduates’ cohort periods (such as two years and three years) Outcomes. In articulating broad statewide goals for its completion and remedial rate metrics. The for higher education, Chapter 367 identifies greater current amount of time a cohort is tracked (over participation by low-income students, higher a six-year period) results in a long lag time that completion rates for all students, and improved makes it difficult to assess the extent to which outcomes for graduates as important components the Legislature’s recent investments in CCC are of student access and success. While each segment affecting student outcomes. has performance measures related to college participation and graduation, none of the segments’ A Modified Efficiency Measure currently adopted measures assesses how graduates Funding Per Degree Does Especially Poor Job do once they leave college and enter the workforce. Measuring Efficiency. Among UC’s and CSU’s Consider Adding a Measure of Graduates’ eight statutory performance measures, two of Outcomes. Measuring students’ outcomes them—units accumulated per degree and funding once they graduate from college could give the per degree—are intended to focus on efficiency. By Legislature a fuller picture of the extent to which tracking how many excess units students take, we the state’s higher education system is meeting think units per degree is a useful and meaningful workforce needs and adding value to students. measure of efficiency. In contrast, funding per One possible new measure could track earnings degree has no obvious nexus with efficiency. Worse, of graduates by segment and campus. (The CCC as implemented to date, the measure seems to Chancellor’s Office already operates a system-level be promoting inefficiency, as both UC and CSU data system that reports earnings gains of recent have set out-year targets to increase their funding graduates by program.) Another possible measure per degree. Moreover, neither segment thinks the could track income mobility by segment and measure is useful. campus. A recent national study, for instance, has Recommend the Legislature Work With UC investigated the extent to which particular colleges and CSU to Develop a More Meaningful Efficiency and universities in the country serve students Measure. For these reasons, we recommend the from lower-income brackets who, over time, move 20 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET into higher-income brackets. We recommend the on potential measures of graduates’ outcomes, Legislature direct the three public higher education including the feasibility of adding an earnings or segments to report at spring budget hearings income mobility indicator. UNIVERSITY OF CALIFORNIA In this section, we provide an overview of UC’s by $839 million (2.6 percent) over the 2016-17 budget, describe UC’s spending plan, assess that level. About one-quarter ($8.4 billion) of UC’s plan, and make associated recommendations. At total funding consists of “core funds” (primarily the end of the section, we summarize UC’s new state General Fund and student tuition revenue) capital outlay requests. that support the university’s undergraduate and graduate education programs. Core funding Overview would increase by $191 million (2.3 percent). The Governor’s Budget Proposes Nearly remainder of UC funding comes primarily from its $33 Billion From All Sources for UC in 2017-18. As five medical centers, sales and services (including Figure 10 shows, UC’s total budget would increase housing, bookstores, and academic extension), and Figure 10 University of California Funding by Source (Dollars in Millions) Change Over 2016-17 2015-16 2016-17 2017-18 Actual Revised Proposed Amount Percent Core Funds General Fund—ongoing $3,135 $3,279 $3,362 $83 2.5% General Fund—one time 124 262 169 -93 -35.0 Subtotals ($3,259) ($3,541) ($3,531) (-$10) (-0.3%) Resident tuition and fees $3,211 $3,371 $3,449 $78 2.3% Nonresident supplemental tuition 833 976 1,050 74 7.6 Subtotals ($4,044) ($4,347) ($4,499) ($152) (3.5%) Lottery $38 $36 $36 — — Othera 318 286 334 $49 17.1% Totals—Core Funds $7,660 $8,209 $8,401 $191 2.3% Other Funds Medical centers $9,467 $9,751 $10,044 $293 3.0% Sales and services 6,045 6,308 6,497 189 3.0 Federal 3,920 3,994 3,988 -6 -0.2 Privateb 2,055 2,149 2,234 85 4.0 State special funds 26 59 106 47 80.0 Other 1,400 1,451 1,490 40 2.7 Totals $22,913 $23,711 $24,359 $648 2.7% Grand Totals $30,573 $31,921 $32,760 $839 2.6% a Includes a portion of overhead funding on federal and state grants and a portion of patent royalty income. Also includes $50 million in funding freed up for core purposes by Proposition 56 funds. b Consists of private gifts and endowment earnings. www.lao.ca.gov Legislative Analyst’s Office 21 2017-18 BUDGET the federal government (primarily for research and but the overall funding level for graduate medical financial aid). education would remain the same. The Governor Governor’s Budget Proposes $3.5 Billion describes the ultimate effect of this fund swap as General Fund Support for UC in 2017-18. Figure 11 providing the university with a total unrestricted shows the proposed General Fund changes to base augmentation of $131 million (4 percent) UC’s budget in 2017-18. The budget contains an in the budget year. The nearby box provides $81 million (2.5 percent) unrestricted ongoing further information on UC-related provisions in base increase and a $2 million ongoing increase Proposition 56. for a specified medical program originally funded Governor’s Budget Assumes UC Will Receive in the 2015-16 budget. In addition, the Governor $18.5 Million in 2016-17 for Enrollment Growth proposes to provide $169 million one time to help in 2017-18. The 2016-17 Budget Act provides UC pay down its unfunded pension liability. The $18.5 million for UC to enroll 2,500 more resident state provided $262 million in one-time funding undergraduate students in 2017-18, a 1.4 percent to UC in 2016-17, including $171 million for the increase over the estimated 2016-17 level. To receive system’s pension liabilities. After factoring in this funding, UC must meet two requirements by all these adjustments, UC’s total General Fund May 1, 2017: (1) provide evidence that it is on track appropriation would decline by $10 million to meet this enrollment expectation and (2) adopt (0.3 percent). a policy that limits nonresident enrollment. The Governor’s Budget Also Redirects $50 Million Department of Finance assumes UC will meet these Freed Up From Proposition 56 Funds. Approved by requirements and includes release of the enrollment voters in November 2016, Proposition 56 imposes funding as part of its budget plan. Because the new taxes on tobacco products and specifies the amount provided in 2016-17 would be released use of the resulting revenue. Among its numerous to UC in May or June 2017, UC intends to carry provisions, the law requires the state to allocate forward this amount into 2017-18. funding to UC for graduate medical education. To Governor’s Budget Does Not Assume Resident implement this provision, the Governor proposes Tuition Increases. Though the administration does to designate $50 million in Proposition 56 funding not assume tuition increases for resident students, for graduate medical education and free up a like the budget reflects 5 percent increases in both amount of existing state General Fund for other UC the Student Services Fee (charged to all students) priorities. Under the proposal, the mix of funding and the undergraduate nonresident supplemental for graduate medical education would change, tuition charge. Coupled with assumptions about enrollment growth in Figure 11 2017-18, the budget 2017-18 University of California General Fund Changes assumes associated (In Millions) year-over-year increases of 2016-17 Revised Funding $3,541 $152 million from tuition Pay down unfunded pension liability (one time) $169 and fees. Provide unrestricted base increase (ongoing) 81 UC Has Identified Resume funding for medical education program (ongoing) 2 Remove prior-year one-time funding -262 Additional Funding It Total Changes -$10 Plans to Use in 2017-18. 2017-18 Proposed Funding $3,531 Beyond the $191 million 22 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET increase in core funding recognized in the (4) $5 million in savings from self-insuring for Governor’s budget, UC has identified an additional certain risks, and (5) $3 million in new revenue $114 million as available in 2017-18. Of the from increased investment returns. Except for $114 million, $74 million is associated with tuition phasing out nonresident aid, which the state called increases. In January 2017, the Board of Regents for in the 2015-16 budget, the revenues are the approved increases in resident tuition charges. result of UC initiatives. Under this action, students will pay $11,502 in UC’s Spending Plan tuition in 2017-18, a $282 (2.5 percent) increase over the 2016-17 level. The board also identified In January 2017, the Regents adopted a core $40 million in savings and redirected revenues. budget plan for 2017-18. The plan incorporates the Specifically, UC indicates this funding consists Governor’s General Fund proposal, as well as other of: (1) $14 million from phasing out financial core funds (including proposed tuition increases, aid for nonresident students, (2) $10 million nonresident enrollment growth, and savings) in philanthropic donations, (3) $8 million in available for the university system to spend. After savings from improved procurement practices, factoring in all of these available revenues, UC Proposition 56 Allocations to UC Proposition 56 includes funding for two UC purposes, as described below. Graduate Medical Education. The measure specifies that $40 million in Proposition 56 tax revenue is to go to UC for graduate medical education. Specifically, the measure indicates the funds are to “sustain, retain, and expand graduate medical education programs.” The measure further specifies that the funds are “for the purpose and goal of increasing the number of primary care and emergency physicians trained in California.” To this end, the measure requires UC to assess annually whether there are regional or statewide shortages of physicians for specific specialties (such as surgery or neurology). To the extent a demonstrated shortage of specialty physicians exists, UC may use funding to expand graduate medical education programs in those specialty areas. The measure does not explicitly prohibit UC from swapping out existing funding for graduate medical education with Proposition 56 funds. (Because the measure does not take effect until April 2017, UC would receive $10 million in 2016-17. The Governor proposes carrying forward this amount, for total funding of $50 million in 2017-18.) Tobacco-Related Disease Research. After covering various specified costs under the measure, Proposition 56 designates 5 percent of remaining tax proceeds be given to UC for tobacco-related disease research. Prior to Proposition 56, some tax proceeds on tobacco products already were directed to tobacco-related disease research administered by UC (which, in turn, provides grants to researchers throughout the state). Proposition 56 augments funding for this research. In 2017-18, the Governor budget’s includes $81 million in Proposition 56 funds for this purpose. (Similar to the other UC-related item, this amount includes an estimated $16 million carried forward from 2016-17.) Unlike its provision for graduate medical education, Proposition 56 expressly prohibits UC from using this funding to supplant existing tobacco-related disease research funding. www.lao.ca.gov Legislative Analyst’s Office 23 2017-18 BUDGET plans to increase ongoing spending by $412 million Builds In $62 Million for Resident and in 2017-18. Figure 12 displays the elements of the Nonresident Enrollment Growth. Consistent with plan. We describe each element below. state expectations, UC plans to spend $45 million Designates $189 Million for Compensation to enroll 2,500 more resident undergraduate Cost Increases. Nearly half of UC’s spending plan students in 2017-18. Spending on resident is for employee compensation increases. Of the enrollment growth is based on the marginal cost total proposed compensation increase, $112 million of education, which UC calculates to be $18,146 would provide a 3.2 percent general salary increase in 2017-18. UC plans to spend an additional for faculty and staff. In addition to this general $16 million to enroll 1,000 (3 percent) more salary increase, UC budgets $32 million to provide nonresident undergraduate students in 2017-18. merit salary increases for tenure-track faculty. UC Nonresident enrollment growth would be funded also recognizes increases in health benefit and from the base tuition charged to these students pension costs. as well as a portion of nonresident supplemental tuition revenue. Provides $50 Million for UC’s Academic Figure 12 Excellence Initiative. This proposal would continue UC’s Spending Plan for 2017-18a past initiatives by UC to enhance funding for its (In Millions) instructional and research programs. Similar Increase to these past initiatives, campuses would have Compensation discretion to set their own priorities for these General salary increasesb $112 monies. UC anticipates campuses would use the Faculty merit increases 32 Health benefit cost increases 19 funds for a broad range of purposes, including Pension cost increases 18 reducing the student-faculty ratio at certain Retiree health benefit cost increases 8 campuses, providing additional start-up research Subtotal ($189) funding for new faculty, increasing stipends for Undergraduate Enrollment Growth graduate students, better maintaining facilities, and Resident students (1.4 percent) $45 Nonresident students (3 percent) 16 replacing more equipment. Subtotal ($62) Increases Financial Aid by $49 Million. Academic Excellence $50 Consistent with longstanding practice, UC Financial Aid $49 plans to increase financial aid spending by Facilities redirecting a portion of tuition revenue to Deferred maintenance $15 need-based institutional aid. This increase Debt service for previously approved projects 15 is derived from (1) $26 million from tuition Subtotal ($30) increases, (2) $18 million from increased tuition Other Operating expenses and equipment $27 revenues generated from enrollment growth, Student mental health 5 and (3) $5 million from the Student Services Fee Subtotal ($32) increase. Total $412 a Augments Facility Spending by $30 Million. Excludes spending items that assumed additional state funding above the Governor’s proposal. UC proposes spending $15 million on deferred b Includes a 3 percent increase for faculty and unrepresented staff and a 3.9 percent increase for represented staff. maintenance projects. The university system also plans to spend $15 million to cover debt service 24 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET payments on previously approved capital outlay limit for new employees than the limit under UC’s projects. retirement program at the time. UC adopted the Provides $27 Million for Operating Expenses lower limit ($117,020, down from $265,000) in and Equipment. UC annually budgets for various March 2016. UC redirected the associated savings cost increases that are separate from employee to develop new defined contribution plans and compensation, such as instructional equipment, accelerate the paydown of UC’s unfunded pension library materials, and utilities. In 2017-18, UC liability. estimates spending about $27 million (2.5 percent) Evidence Suggests Compensation at UC Is more on these costs. Competitive. Past reviews of UC employment Provides $5 Million for Student Mental data, such as our December 2012 report, Faculty Health. In 2015-16, UC adopted a plan to allocate a Recruitment and Retention at the University of portion of Student Services Fee revenue to augment California, have found that UC generally has been mental health services for students. In 2017-18, UC successful at recruiting top-choice candidates and anticipates a $4.6 million increase for this program. retaining faculty. More recent data suggest that UC continues to offer faculty highly competitive Assessment compensation packages. Figure 13 (see next page) UC’s Spending Plan Raises Several Issues for shows that fully tenured professors at nearly every the Legislature. We think the Governor’s funding UC campus earn higher salaries than their peers plan and UC’s spending plan is a mixed bag, with at other public universities with a similar level some components more warranted than other of research activity. As a system, UC also pays components. Below, we provide our assessment of generally higher salaries for other faculty categories several key budget components—compensation, (such as associate professors, assistant professors, resident enrollment, nonresident enrollment, and and lecturers). Certain pressures might be driving academic excellence. (We assess the Governor’s higher faculty salaries at UC. Most notably, some Proposition 56 funding proposal, including his UC campuses compete with wealthy private proposal regarding graduate medical education, in universities, such as Yale or Stanford, for faculty. a separate publication.) The higher cost of living in California relative to the rest of the country also might contribute to Compensation higher salaries. Employee Compensation Is UC’s Largest Resident Enrollment Expense. Similar to most state agencies, employee compensation is UC’s largest cost, accounting State’s Recent Approach to Setting UC’s for over 80 percent of its core budget. Employees Enrollment Targets Better Than Former funded from UC’s core budget include faculty, staff, Approach. Traditionally, the state budget has set and administrators. resident enrollment targets for the budget year. State Has Taken Interest in UC Pension This approach does not align well with UC’s Policies. Over the past two years, the state has admissions calendar, as UC makes most admission provided UC $267 million to help pay down the decisions for the coming fall term (when the vast university system’s unfunded pension liability. majority of its incoming students start) in the As a condition of receiving this funding, the state early spring, prior to the enactment of the state required UC to adopt a lower pensionable salary budget in June. This means the state budget is www.lao.ca.gov Legislative Analyst’s Office 25 2017-18 BUDGET enacted too late to influence UC’s fall admissions Use Updated Information From March Report decisions. Recognizing this fact, the previous two to Help Make Decision on Target for 2018-19. state budgets (in 2015-16 and 2016-17) both have set We withhold making a recommendation on the enrollment targets one year after the budget year. exact amount of new resident enrollment to fund Recommend Legislature Continue Practice in 2018-19 pending the Legislature’s receipt and of Setting Targets One Year Out, but Allocate review of (1) UC’s upcoming March bachelor degree Associated Funding in That Year. We recommend production report and (2) the upcoming freshman the Legislature continue its recent approach and set eligibility study. Both reports will provide enrollment expectations now for 2018-19. Though information that could inform the Legislature’s we recommend setting the 2018-19 target now, enrollment decisions for 2018-19. we recommend not funding the enrollment until Nonresident Enrollment needed (in 2018-19). Specifically, we recommend the Legislature schedule funding for 2018-19 in this Recent Concerns Regarding Nonresident year’s trailer legislation, rather than appropriating Enrollment Growth at UC. Nonresident enrollment the monies in the 2017-18 budget act. To ensure UC at UC has substantially increased in recent complies with the state’s enrollment expectation, we years. This increase has prompted concerns that recommend the Legislature further specify in the nonresident students are displacing resident trailer legislation that a certain portion of funding students across the system and at certain campuses. would revert to the state if UC falls below the target In response to this concern, the 2016-17 budget by a certain margin (for example, 10 percent). requires UC to adopt a policy by May 1, 2017 that Figure 13 Salaries at UC Campuses High Relative to Similar Public Research Institutions Average Salary of Full Professors, 2014 $200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 Los Berkeley San Irvine Davis Santa Riverside Merced Other Santa Angeles Diego Barbara Public Cruz 26 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET limits nonresident enrollment as a condition of initiative, (2) how progress toward those objectives receiving funding for resident enrollment growth. will be measured and evaluated, and (3) the specific Many Different Options for a Nonresident use of the proposed funds. If UC is unable to Policy. The 2016-17 budget does not specify an provide sufficient justification for this program, we exact policy regarding nonresident enrollment, recommend the Legislature redirect the associated instead giving UC flexibility to design it. UC funding to a higher priority. has various choices to make in designing such a Weighing State Funding Increases policy. These choices include: (1) whether to set With Tuition Increases a systemwide limit or a limit at each campus, (2) whether to set a proportionate limit (allowing Key Issue Will Be How to Pay for Cost the number of nonresident students to grow with Increases. After deciding what spending increases resident students) or an absolute limit (setting a to support, the Legislature will want to consider ceiling regardless of the number of residents), and how to cover these cost increases. If the Legislature (3) whether to set separate limits for nonresident supports UC’s spending plan and does not wish undergraduate and graduate students. for students to pay more for their instruction, Recommend Legislature Require UC to Report it could augment the Governor’s General Fund at Spring Budget Hearing. We recommend the proposal and direct UC to hold resident tuition Legislature direct UC to report during a spring flat in 2017-18. Alternatively, if the Legislature budget hearing on (1) its proposed nonresident believes students should contribute to any approved enrollment policy and (2) how its proposed spending increases beyond the Governor’s General nonresident enrollment growth for 2017-18 aligns Fund proposal, it could support the Regents’ tuition with this policy. and fee increases. Two Related Issues Affect UC’s Core Budget. Academic Excellence Two other legislative decisions could affect Program Lacks Clear Objectives. UC’s funding for UC’s core budget in the coming spending plan contains little detail on how the year. The first decision concerns the Legislature’s proposed $50 million for its Academic Excellence goals for nonresident enrollment at UC. Were the initiative would be spent. Without clearer Legislature to decide that UC should not proceed objectives, we are concerned the initiative might with enrolling more nonresident students in not achieve legislative priorities. Furthermore, 2017-18, the university would receive $19 million without clearly defined objectives, UC may less in net funding. The second decision regards continue to request additional funding for this the Legislature’s goals for Proposition 56. Under program in future years without gauging whether the Governor’s approach, UC would supplant the funding was accomplishing its purposes. existing graduate medical education funding with Recommend Legislature Reject Proposal Proposition 56 revenues, holding constant current Unless Stronger Justification Provided. Given medical residency slots. If the Legislature instead these concerns, we recommend the Legislature wishes to use Proposition 56 funds to expand require UC to report at a spring budget hearing medical residency slots, UC would have $50 million on its Academic Excellence initiative. As part of less in core funding than under the Governor’s the hearing, we recommend the Legislature direct proposal. Without associated adjustments to UC to identify (1) the specific objectives of the spending priorities, the Legislature likely would www.lao.ca.gov Legislative Analyst’s Office 27 2017-18 BUDGET need to fund its desired spending level with Proposes $111 Million for Seven Capital additional state funding or tuition increases. Outlay Projects in 2017-18. Six projects (totaling $61 million in state funding) would correct UC’s Capital Outlay Request seismic and life safety deficiencies for specific Under the state’s new capital outlay process academic facilities, and one project (associated for UC and CSU, each university system has with $50 million in state funding) would entail the authority to use its main General Fund constructing a new science facility at the Irvine appropriation to service debt on bonds for campus. In addition to state funding, UC academic facilities. Prior to funding, the segments anticipates spending $103 million in nonstate must submit their academic facility projects funds on these projects. Figure 14 shows the seven for state review and approval. Under the new proposed projects. process, the Legislature has from February 1 to Proposes $50 Million for Deferred April 1 to review projects, with the Department Maintenance. In addition to these seven projects, of Finance finalizing project decisions by April 1. UC requests authority to use $50 million in For 2017-18, UC is requesting $161 million in bond bond funding for deferred maintenance. (This fund authority for capital outlay and deferred deferred maintenance request is separate from maintenance projects. We summarize these the $15 million pay-as-you-go proposal described projects below. earlier.) Of the $50 million, $15 million would fund Figure 14 UC’s 2017-18 Capital Outlay Request (In Millions) 2017-18 Project State Non-State Project Classification Project Description Phase Costs Funds Irvine Program Expansion Construct new science facility to accommodate D/C $50 $69 enrollment growth in three academic departments. Los Angeles Seismic and fire safety Correct seismic deficiencies and provide new C 25 21 fire safety system in one facility Seismic safety Correct seismic deficiencies at the C 25 13 Neuropsychiatric Institute San Francisco Life safety Correct exit barriers at one facility D/C 3 — Berkeley Seismic safety Reinforce seismic support structures to historic P/W 3 — facility. Demolition Demolish vacant and seismically deficient W/C 3 — facility. Seismic safety Develop renovation and seismic correction plan P 2 — for two facilities D = design; C = construction; P = preliminary plans; and W = working drawings. 28 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET a team of experts to visit each campus and assess costs over many years, for a one-time facility the current condition of academic facilities. The assessment. Absent much stronger justification goal of the program would be to provide a more for the one-time assessment, we recommend the accurate estimate of the system’s total deferred Legislature encourage UC to direct the $15 million maintenance backlog and prioritize each facility into maintenance projects. according to its current condition, likelihood Segment Lacks Plan to Eliminate Backlog of failure, and life-safety risk. UC estimates the and Improve Ongoing Maintenance Practices. assessment will take up to three years to complete. UC would benefit from: (1) a long-term funding The remaining $35 million would fund deferred plan to retire its backlog, and (2) a review of its maintenance projects. current scheduled maintenance practices (such Unclear Why UC Does Not Regularly Assess as setting funds aside when new systems are Condition of Facilities. Having an understanding installed) so as to avoid the re-emergence of future of the condition of facilities, building systems, and maintenance backlogs. Without both plans in infrastructure obviously is important and would place, the Legislature cannot have confidence that help in developing a more accurate estimate of UC’s UC’s capital program is being well managed and maintenance backlog. UC’s proposal to conduct maintained. a facilities condition assessment, however, raises Recommend Legislature Require UC to three concerns. First, it is unclear why UC could Develop More Comprehensive Maintenance not produce such an estimate using staff in existing Plan. To address these concerns, we recommend plant and facility divisions. Knowing facility the Legislature require UC (either through budget conditions and system life spans seems a key or supplemental reporting language) to develop responsibility of these divisions. Second, UC has a long-term maintenance plan. This plan should not explained how it plans to continue monitoring include (1) an estimate of the backlog based upon its facilities upon completion of the comprehensive available data; (2) a multiyear expenditure plan assessment. Without continued monitoring, UC’s for eliminating the backlog of projects, including one-time assessment soon would become outdated. proposed funding sources; and (3) a plan for how Third, we question the wisdom of using bonds, to avoid developing a maintenance backlog in the which are intended to spread major infrastructure future. CALIFORNIA STATE UNIVERSITY In this section, we provide an overview of the $182 million (1.8 percent) over revised 2016-17 levels. Governor’s proposed budget for CSU, describe Of total CSU funding, about two-thirds ($6.7 billion CSU’s proposed spending plan, and assess key in 2017-18) comes from core funds—a combination components of that plan. of state General Fund, state lottery, and student tuition and fee revenue. These three fund sources, Overview which would increase by a combined $126 million CSU’s Budget Proposed to Reach $10 Billion (1.9 percent) in the budget year, supporting CSU’s From All Sources in 2017-18. As Figure 15 (see core mission of providing undergraduate and next page) shows, CSU’s budget would increase by graduate education. CSU also receives federal funds www.lao.ca.gov Legislative Analyst’s Office 29 2017-18 BUDGET Figure 15 California State University Funding by Source (Dollars in Millions) Change From 2016-17 2015-16 2016-17 2017-18 Actual Revised Proposed Amount Percent Core Funds General Fund Ongoinga $3,271 $3,479 $3,714 $235 6.8% One time 5 110 1 -109 -99 Subtotals ($3,276) ($3,589) ($3,715) ($126) (3.5%) Lottery $58 $55 $55 — — Tuition and feesb 3,022 2,963 2,963 — — Subtotals, Core Funds ($6,357) ($6,607) ($6,733) ($126) (1.9%) Other Funds Federal funds $1,256 $1,385 $1,385 — — Other CSU fundsc 2,104 1,844 1,899 $55 3.0% Subtotals ($3,360) ($3,228) ($3,284) ($55) (1.7%) Totals $9,717 $9,835 $10,017 $182 1.8% a Includes CSU debt service on general obligation and lease-revenue bonds and funds for pensions and retiree health benefits. b Includes funds that CSU uses to provide tuition discounts and waivers to certain students. In 2017-18, CSU plans to provide $662 million in such aid. c Includes funds such as housing fees, parking fees, and extended education charges. and operates various campus enterprises, such as Most of CSU’s General Fund Augmentation student dormitories and parking facilities. The Unrestricted. Figure 16 details General Fund remainder of CSU’s revenues ($3.3 billion in 2017-18) changes for CSU under the Governor’s budget. mostly supports these other operations. As the figure shows, the Governor proposes a Governor’s Budget Proposes $3.7 Billion $157 million ongoing unrestricted increase. This in General Fund Support for CSU. Under the funding is a continuation of the Governor’s original Governor’s budget, Figure 16 ongoing General Fund 2017-18 California State University General Fund Changes support for CSU would increase by $235 million (In Millions) (6.8 percent) over 2016-17 2016-17 Revised Funding $3,589 Unrestricted base increases: levels. This increase is Funding per Governor’s original long-term plan $131 offset by $109 million Redirected savings from Middle Class Scholarship modifications 26 in expiring one-time Subtotal ($157)a Pension adjustment $50 funds provided to CSU Retiree health benefits adjustment 23 in 2016-17. Altogether, Lease-revenue bond debt service adjustment 5 General Fund support Remove one-time funding provided in prior year -87 Other adjustments -21 for CSU would increase Total Changes $126 a net of $126 million 2017-18 Proposed Funding $3,715 (3.5 percent). a CSU indicates that it would use these funds to cover recently ratified bargaining agreements ($139 million) and various other cost increases ($18 million). 30 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET long-term plan for the universities, which since $1.6 billion. Of these 27 projects, 17 were previously 2013-14 has sought to provide annual unallocated approved by the state (virtually all of them as part base increases. In addition, the Governor’s budget of the 2016-17 budget process) but have not yet been provides a total of $78 million in earmarked funded by CSU. The other ten requests are new augmentations. Specifically, the budget proposes submissions. At its November 2016 meeting, the (1) $50 million for increased pension costs, Board of Trustees approved a multi-year plan for (2) $23 million for higher retiree health care costs, CSU to finance up to $1 billion of the $1.6 billion in and (3) $5 million for higher lease-revenue debt submitted capital projects using university revenue service for previously approved capital projects. bonds. Using this bond authority, the Chancellor’s (In an effort to encourage CSU to consider pension Office would fund 12 of the previously approved costs as part of its new hiring and salary decisions, capital projects. The associated annual debt service the state changed how it budgeted for CSU pension is estimated to be about $50 million. costs a few years ago. Under the new policy, the CSU Proposes Using Existing Funds for state provides direct funding for CSU’s pension Projects. CSU indicates it would support this costs attributed to its 2013-14 payroll level, but CSU associated debt service using existing core funds. is responsible for funding any additional pension This is possible because a like amount of monies costs using its unrestricted funds.) The Governor’s were “freed up” from expiring debt from former budget does not directly fund enrollment growth. projects as well as restructuring of outstanding Governor’s Budget Does Not Assume Tuition State Public Works Board debt. (Under recent Revenue Increases. The Governor’s budget assumes changes in state law, CSU is permitted to pledge its that CSU does not raise its tuition charges. Unlike General Fund main appropriation—excluding the recent years, however, the Governor does not amounts necessary to repay existing debt service— condition his proposed General Fund increases on to issue its own debt for capital outlay projects CSU holding resident tuition levels flat. involving academic facilities.) The CSU estimates that the first $200 million in CSU revenue bond CSU’s Spending Plan proceeds would provide $35 million for new facility CSU Proposes to Spend the Vast Majority of space at CSU Monterey Bay as well as $165 million Its Unrestricted Base Increase on Compensation for building replacements and renovations to Commitments. Of the $157 million unrestricted facilities and infrastructure at most campuses in base increase proposed by the Governor for the system. 2017-18, CSU indicates that it intends to spend CSU Indicates It Would Not Be Able to Fund $139 million (88 percent) for collective bargaining Several Other Priorities Under Governor’s Budget. agreements ratified by the CSU Board of Trustees Due to the size of the employee contract costs in spring 2016. CSU indicates that the remaining that CSU is committed to funding in 2017-18, $18 million would fund basic cost increases, such CSU indicates that the augmentation provided in as higher medical and dental premiums for current the Governor’s budget is insufficient to address employees and additional pension costs (on payroll other budget priorities. These priorities include exceeding the 2013-14 level). enrollment growth, additional targeted funding CSU Proposes to Support 12 Previously for the segment’s Graduation Initiative, and a Approved Capital Projects. CSU’s 2017-18 capital compensation pool for represented employee outlay request includes 27 projects totaling groups that have open contracts in 2017-18 www.lao.ca.gov Legislative Analyst’s Office 31 2017-18 BUDGET (as well as nonrepresented employees, such as Board of Trustees, Not the Legislature, administrative managers). Approves CSU Collective Bargaining Agreements. CSU Considering a Tuition Hike to Boost For most departments and agencies in the state, Funding Primarily for Graduation Initiative. the California Department of Human Resources Given that CSU believes the funding included in represents the Governor in labor negotiations the Governor’s Budget is insufficient to address between the state and its employees. The resulting all of its budget priorities, CSU is considering a agreements must be ratified by the Legislature tuition increase. Under the proposal discussed before going into effect and the state directly funds by the Board of Trustees at its January meeting, the associated costs of the agreements. In the tuition for resident undergraduates would increase case of CSU, state law gives the Board of Trustees by 4.9 percent. Tuition for nonresidents and authority to negotiate collective bargaining resident graduate students would increase by about agreements. The Chancellor’s Office represents 6.5 percent. The proposed increase would generate the Trustees during these negotiations and the $78 million in additional net revenue, which CSU resulting agreements must be ratified by the officials have indicated would be used primarily Trustees before going into effect. The Trustees are to augment funding for the Graduation Initiative. expected to manage these agreements within CSU’s The Board of Trustees likely will vote on the tuition overall budget. proposal at its March 2017 meeting. Trustees Recently Approved Sizeable Collective Bargaining Agreements. The CSU Assessment system has 13 represented employee groups. The CSU’s Spending Plan Raises Several Issues for largest group is the California Faculty Association the Legislature. We think the Governor’s funding (CFA), which represents more than 25,000 CSU plan and CSU’s spending plan is a mixed bag, with faculty, librarians, counselors, and coaches. some components more warranted than other After extensive negotiations with CFA (and a components. Below, we provide our assessment of near-strike by union members), in spring 2016 several key budget components—compensation, the Trustees ratified a multiyear contract. Under enrollment growth, and the Graduation Initiative. the agreement, all faculty unit employees receive In the final part of this section, we consider a cumulative 10.8 percent general salary increase the trade-offs between additional state funding effectively over a two-year period and eligible increases and student tuition increases. faculty unit employees receive an additional 2.7 percent increase in 2017-18. Ratification of the Compensation CFA contract triggered revised agreements with Compensation Is the Largest Component of several other CSU bargaining units, which resulted CSU’s Core Budget. Like other departments and in general salary increases for those members. agencies, salaries and benefits make up a significant Altogether, the Chancellor’s Office estimates share of CSU’s core budget (more than 80 percent). these new contracts will cost CSU an additional As noted earlier, compensation also accounts for the $139 million in 2017-18. largest augmentation in CSU’s spending plan, with Virtually All Other CSU Bargaining Units almost all unrestricted state General Fund allocated Have Open Contracts in 2017-18. With a few for compensation increases. The Legislature has exceptions, CSU’s contracts with its other several compensation-related issues to consider. represented employee groups expire at the end of 32 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET 2016-17. The Chancellor’s Office has expressed a Could Withhold Decision on Freshman desire to provide funds for 2017-18 to support a Enrollment Growth Until May. Existing data compensation pool for these represented groups, as suggests CSU is drawing from beyond its freshman well as nonrepresented employees. The Chancellor’s eligibility pool. Given that a freshman eligibility Office calculates that every 1 percent increase for study is currently underway and that CSU must such a compensation pool would cost $18 million. report by March 2017 on recommended budget Were the Legislature to want compensation to or policy changes to produce more bachelor’s keep pace with inflation year over year, it might degrees, the Legislature may wish to wait until consider increases between 1 percent and 3 percent. the May Revision before deciding on enrollment (In 2017-18, the state and local government price growth funding for freshmen. Regarding potential index is expected to increase 1.1 percent, whereas changes to its policy on the size of CSU’s freshman the California Consumer Price Index is expected eligibility pool, we encourage the Legislature to to increase by 3 percent.) Were CSU to increase take time to explore the potential consequences tuition levels in 2017-18, some or all of the resulting of any specific proposal. Any change to this pool revenue could be dedicated to the desired level of would have significant fiscal and programmatic compensation increases. implications moving forward not only for CSU but also CCC, UC, and the state. Enrollment Growth Graduation Initiative CSU on Track to Meet Enrollment Target for 2016-17. The 2016-17 Budget Act sets an expectation CSU Has Set Ambitious Performance Targets. for CSU to increase resident enrollment by As noted earlier, the state and CSU currently are 1.4 percent (an additional 5,194 FTE students) over funding a Graduation Initiative. The goals of this 2015-16. Based on preliminary enrollment data initiative, which was originally launched by the provided by CSU, campuses appear to be on track Chancellor’s Office in 2009, are to boost graduation to meeting this target, with fall 2016 FTE student rates for freshmen and transfer students as well as enrollment about 1.3 percent higher than the eliminate achievement gaps for low-income and previous fall. other traditionally underrepresented students. Several Factors for Legislature to Consider in For example, CSU seeks to more than double Deciding Whether to Grow Transfer Enrollment its four-year graduation rate (for all entering in 2017-18. The past several years CSU has reported freshmen) between now and 2025, moving from its denying admission to some eligible transfer students. current rate of 19 percent to 40 percent. Given this development, together with statute that CSU Implementing Various Improvement requires CSU campuses to prioritize eligible transfer Strategies as Part of Graduation Initiative. applicants over freshman applicants, the Legislature These strategies include hiring more faculty and may want to consider targeting enrollment growth increasing the faculty-to-student ratio, encouraging funding for transfer students in 2017-18. Every faculty to adopt new instructional methods, and 1 percent growth in transfer enrollment would providing enhanced student support services such result in about 3,600 more FTE students—for a total as tutoring and advising. CSU reports spending cost of $38 million ($20 million state General Fund $48 million in base funds on these Graduation and $18 million in tuition revenue generated by the Initiative strategies. CSU maintains it will need additional students). additional resources to carry out campus plans and www.lao.ca.gov Legislative Analyst’s Office 33 2017-18 BUDGET achieve the segment’s performance goals. CSU has these department exams may be required to enroll not undertaken a systematic evaluation to assess in precollegiate-level courses (such as intermediate the impact each of these strategies is having on its algebra), thereby delaying their progress toward a graduation rates. degree. These secondary diagnostic tests also are CSU Has Much More Work to Do on at odds with national research on effective ways Rethinking Assessment and Placement Policies. to identify students who are capable of success in Though the above strategies may be helping more college-level coursework. students graduate and graduate on time, we believe CSU Also Continues to Have Problem With CSU could be doing more to promote better Students Taking Excess Units. CSU continues to student outcomes. Specifically, we think CSU could have a problem with excess unit-taking by both improve its assessment and placement policies. freshman entrants and transfer students. Students Currently, CSU primarily uses placement tests to who accrue more units that their degree requires assess college readiness. Based on these test results, generally take longer to graduate, generate higher CSU deems more than 40 percent of its admitted costs for the state and themselves, and crowd freshmen as unprepared for college-level math, out other students. Based on the experience of English, or both. Students who do not demonstrate other institutions, a number of causes may be college-level skills are required to enroll in contributing to CSU’s high rate of excess units, remedial coursework. National research has shown including unclear degree pathways for students that relying solely on placement tests routinely and uneven articulation of lower-division transfer results in college-ready students being misplaced courses between community colleges and CSU. into remedial courses, which, in turn, increases Were CSU to reduce excess course-taking, it could education costs for them and the state while also increase the availability of required courses within reducing their chances of graduating on time. (Data existing resources. from the Community College Research Center Recommend CSU Implement Other Strategies and CCC system reinforce these findings, with Before Augmenting Funding for Graduation their data indicating about 30 percent of incoming Initiative. To date, CSU has made progress on community college students are put into remedial improving student outcomes. We believe CSU courses based on placement test results when they would make even more progress were it to modify could have succeeded in college-level coursework.) its assessment methods and placement policies as A growing amount of research is finding that a well as address the issue of excess units. To this better way to assess college readiness is to use end, we recommend the Legislature direct CSU to multiple measures (including data from students’ study these issues in more depth and, based on its high school records) to place students. findings, implement new policies using existing Secondary Assessments Are Exacerbating Graduation Initiative monies and other system Inefficiencies. Additionally, a number of CSU resources. So that the Legislature is kept apprised campuses currently have policies requiring even of CSU’s activities, we recommend the Legislature students who are deemed college ready in math require the segment to report by January 1, 2018 to take a second diagnostic (department) test on (1) its plans to put in place research-based in order to enroll in many lower-division math methods for assessment and placement, as well as courses (such as calculus and college-level algebra). (2) opportunities for campuses to make available Students who fail to obtain a specified cut score on more course slots by reducing the number of excess 34 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET units that students earn. Given these opportunities compensation increases for other employee groups for further reform and given the many other with open contracts in 2017-18. competing cost pressures facing CSU in the budget Various Ways to Share Costs Between General year, the Legislature may wish to place a lower Fund and Students. Were the Legislature to approve priority on providing additional funding for the the General Fund level proposed by the Governor, Graduation Initiative in 2017-18. CSU asserts that it would be able to cover the costs of the previously ratified collective bargaining Weighing State Funding Increases agreements and basic cost increases (such as higher With Tuition Increases health care premiums). A tuition increase could Legislature Has Key Choices to Make on CSU’s provide funds for its other priorities. While CSU Budget. Each year, the Legislature fundamentally resident tuition charges have been flat for the past decides: (1) which costs to fund and (2) how these six years, a 5 percent increase might be considered costs should be shared between students (and high for one year. In addition, a 5 percent increase their families) and the state. In some years, the in 2017-18 would be notably higher than anticipated Legislature has decided to cover all CSU spending inflation. If the Legislature were to consider increases using state General Fund, holding student tuition increases, we suggest it signal to CSU that tuition levels flat. Other years, both General Fund a more modest rate increase would be acceptable. support and tuition levels have increased to cover Based on our calculations, a 2.5 percent increase cost increases. (In still other years, state support has in tuition charges would generate net revenue of declined, with tuition levels rising to cover costs.) roughly $38 million. These funds, in turn, would be CSU Facing Four Notable Cost Pressures. sufficient to support (1) 1 percent enrollment growth Most notably, CSU faces the pressure to fund the for eligible transfer students and (2) a 1 percent collective bargaining agreements already ratified compensation pool for bargaining groups with by the Board of Trustees last spring. It also faces expiring contracts in 2016-17. If the Legislature pressure to cover basic cost increases (for example, wished to support even higher levels of enrollment health care and pension cost increases). Given growth or employee compensation (that is, more that CSU continues to report denying admission than 1 percent increases), the Legislature could to eligible transfer students, another notable cost increase General Fund appropriations for CSU above pressure is funding enrollment growth for transfer the Governor’s proposed level or permit CSU to students. Given recent compensation increases raise tuition along the lines of what the Chancellor’s for faculty, pressure also exists to provide some Office is proposing. CALIFORNIA COMMUNITY COLLEGES In this section, we summarize the Governor’s and offer associated recommendations for budget for the CCC system; discuss his specific the Legislature’s consideration. (We discuss proposals related to apportionments, categorical the Proposition 98 minimum guarantee and programs, and the CCC Chancellor’s Office; crosscutting K-14 education issues in our provide our assessment of those proposals; Proposition 98 Education Analysis.) www.lao.ca.gov Legislative Analyst’s Office 35 2017-18 BUDGET Overview as nonresident tuition, parking fees, and health services fees), and various local sources, including Proposition 98 Funding Is Largest Source community services programs and facility rentals. of CCC Support. As shown in Figure 17, the Governor Proposes to Increase Proposition 98 largest sources of funding for community Funding by $179 Million (2.2 Percent) Over colleges are Proposition 98 General Fund and Revised 2016-17 Level. The 2017-18 Governor’s local property tax revenue. In addition, the state Budget increases Proposition 98 funding for CCC provides non-Proposition 98 General Fund to $8.4 billion. The proposed budget includes for certain purposes (CCC general obligation $387 million in augmentations, partly offset by bond debt service, teacher retirement costs, and $209 million in reductions largely due to the Chancellor’s Office operations). Altogether, these removal of prior-year, one-time spending. Of Proposition 98 and non-Proposition 98 funds the augmentations, $211 million are ongoing comprise about 75 percent of CCC funding. The programmatic increases and $176 million are remaining 25 percent comes primarily from one-time initiatives. In addition to these changes, student enrollment fees, other student fees (such Figure 17 California Community Colleges Funding by Source (Dollars in Millions) Change From 2016-17 2015-16 2016-17 2017-18 Revised Revised Proposed Amount Percent Proposition 98 General Funda $5,304 $5,443 $5,465 $22 0.4% Local property tax 2,630 2,803 2,959 156 5.6 Subtotals ($7,933) ($8,246) ($8,424) ($179) (2.2%) Other State Non-Proposition 98 General Fundb $435 $522 $472 -$50 -9.5% Lottery 232 227 227 — — Special funds and reimbursements 76 104 94 -10 -9.4 Subtotals ($744) ($853) ($793) (-$60) (-7.0%) Other Local Enrollment fees $432 $436 $440 $4 1.0% Other local revenuec 2,437 2,488 2,456 -33 -1.3 Subtotals ($2,869) ($2,924) ($2,896) (-$28) (-1.0%) Federal $298 $297 $297 — — Totals $11,843 $12,320 $12,411 $91 0.7% Full-Time Equivalent (FTE) Students 1,145,637 1,156,810 1,168,379 11,569 1.0% Proposition 98 Funding Per FTE Student $6,925 $7,128 $7,210 $82 1.2% Total Funding Per FTE Student $10,338 $10,650 $10,622 -$28 -0.3% a Includes $500 million each year (and an additional $5 million in 2016-17) for the Adult Education Block Grant, of which more than $400 million goes to school districts for their adult education services. b Includes funding for state general obligation bond debt service, state contributions to the State Teachers’ Retirement System (STRS), and Chancellor’s Office operations. The 2017-18 amount includes a $64 million decline in debt service and a $23 million increase in STRS contributions. c Primarily consists of revenue from student fees (other than enrollment fees), sales and services, and grants and contracts, as well as local debt- service payments. Amounts are estimates and do not include federal and state student financial aid for nontuition costs or bond proceeds for capital outlay. 36 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET the Governor’s budget includes a $44 million Fee Waiver program waives enrollment fees for proposed settle-up payment related to meeting half of students, accounting for two-thirds of credit the 2009-10 minimum guarantee. The Governor units taken at the community colleges. designates this one-time settle-up funding for CCC Enrollment Levels and Funding deferred maintenance and instructional equipment. The budget also authorizes $7.4 million from Below, we provide background on CCC Proposition 51 general obligation bond proceeds. enrollment funding, describe the Governor’s This funding is for preliminary plans for five capital proposal for 2017-18 enrollment funding, and outlay projects. provide our assessment of that proposal. Major Proposed Augmentations. Figure 18 Background shows the changes the Governor proposes for community college Proposition 98 spending in State Considers Various Factors When 2017-18. The budget includes four ongoing base Making CCC Systemwide Enrollment Decision. increases: (1) $98 million for a 1.48 percent cost-of- The state begins by projecting enrollment growth living adjustment (COLA) on apportionments and systemwide based on population changes, select categorical programs, (2) $79 million to fund the economy (specifically, an add-on if the 1.34 percent enrollment growth, (3) $24 million unemployment rate is high), and prior-year for an unallocated apportionment increase, and enrollment demand. It then examines whether (4) $10 million to augment the Online Education any districts have experienced recent enrollment Initiative. The proposed budget package also declines or “restorations.” Regarding declines, the includes three one-time funding proposals: Figure 18 (1) $150 million for a 2017-18 California Community Colleges new “guided pathways” Proposition 98 Changes initiative, (2) $20 million (In Millions) for Innovation Awards, 2016-17 Revised Proposition 98 Spending $8,246 and (3) $6 million to Technical Adjustments Remove one-time spending -$177 develop an integrated Other technical adjustments -32 library system. Subtotal (-$209) No Proposed Change Policy Adjustments to Enrollment Fee. Under Fund guided pathways initiative (one time) $150 state law, CCC students Provide 1.48 percent COLA for apportionments 94 Fund 1.34 percent enrollment growth 79 pay an enrollment fee of Provide unallocated base increase 24 $46 per unit (or $1,380 Fund Innovation Awards (one time) 20 for a full-time student Augment Online Education Initiative 10 Develop integrated library system (one time) 6 taking 30 semester units Provide 1.48 percent COLA for select categorical programsa 4 per year). The Governor Subtotal ($387) proposes no change to this Total Changes $179 2017-18 Proposed Proposition 98 Spending $8,424 fee, which has remained a Applied to Extended Opportunity Programs and Services, Disabled Student Programs and Services, flat since summer 2012. CalWORKs student services, and support for certain campus child care centers. The Board of Governors COLA = cost-of-living adjustment. www.lao.ca.gov Legislative Analyst’s Office 37 2017-18 BUDGET state allows districts to claim the higher of their of $56 million to account for unused 2015-16 current-year or prior-year enrollment levels— enrollment funding. The budget carries the lower effectively a one-year hold harmless provision. base forward into 2016-17, achieving a similar After one year, the state lowers base funding for amount of savings in the current year relative to the the affected districts but gives those districts three 2016-17 Budget Act. years to earn back (restore) funding associated Funds Enrollment Growth for 2017-18. The with enrollment declines. Each year, some of these Governor proposes $79 million for 1.34 percent districts earn restoration funding. Technically, CCC enrollment growth (an additional 15,500 districts receive restoration funding first, then FTE students). The Governor’s budget makes an growth funding. That is, a district receives growth adjustment for districts experiencing enrollment funding only if its actual enrollment exceeds its declines and restorations. Altogether, the restoration target. Governor’s budget funds a net increase of 1 percent Chancellor Sets Enrollment Growth Target for (about 11,600 FTE students) compared to the Each District. The 2014-15 budget package required revised 2016-17 level. the Chancellor’s Office to develop a new district Assessment allocation formula for enrollment growth funding. The purpose of the new formula is to direct a larger Systemwide, CCC Fell Short of Meeting share of enrollment funding to certain districts. Recent Enrollment Targets. After adjustments for Whereas previous district allocations largely were enrollment declines and restoration, the 2016-17 based on year-to-year changes in the local high budget funded 2.1 percent net enrollment growth school graduation and adult population rates, the for CCC in 2015-16 and 1.6 percent in 2016-17. Net new formula instead considers local educational systemwide growth in 2015-16 turned out to be attainment, unemployment, and poverty rates, as only 0.4 percent, and preliminary estimates suggest well as current enrollment and recent enrollment that net systemwide growth in 2016-17 is only trends. 0.2 percent. State Law Specifies How Enrollment Funds Most Districts Not Meeting Their Growth May Be Used. During the recession, the state Targets. About 60 percent of districts are projecting required community colleges to prioritize core some enrollment growth in 2016-17 compared educational programs (including basic skills, with 2015-16 enrollment levels. Most of these transfer preparation, CTE, and English as a second districts, however, do not expect to reach their language) over recreational and avocational growth targets. Of 72 districts, only 14 (just under courses. In 2014, the state codified these enrollment one-fifth) expect to meet their targets in 2016-17. priorities and began requiring the Chancellor’s Current estimates are preliminary, but, historically, Office to report annually on course sections and the districts’ January estimates tend to be even enrollment within and outside of these priority higher than final enrollment numbers. areas. Governor’s Proposed Growth Rate Appears Somewhat High. Given minimal systemwide Governor’s Proposals enrollment growth in 2015-16 and continued Reduces Base Enrollment to Reflect Unused economic and job growth, many campuses Prior-Year Enrollment Growth Funding. The likely will see little to no growth in 2016-17 and Governor’s budget package includes a reduction 2017-08. By the time of the May Revision, the CCC 38 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Chancellor’s Office will receive some updated affect the amount available for CCC Proposition 98 2016-17 attendance reports from districts. At that funding increases. time, the Legislature will have better information Recommend Legislature Fund COLA and to assess the extent to which colleges will use the Additional Unallocated Base Increase. We 2016-17 enrollment growth funds. If the Legislature recommend the Legislature adopt the Governor’s decides to reduce enrollment funding for one or proposed apportionment increases. These both years, it could use any associated freed-up apportionment increases can help community funds for other Proposition 98 priorities. colleges cover higher pension costs, as well as Recommend Legislature Continue to Monitor meet other local priorities and cost pressures. CCC Course Offerings. In 2014-15 and 2015-16, If additional revenues are available in May, the courses outside of the priority areas accounted Legislature may wish to provide an even larger for 4 percent and 1 percent of enrollment growth, base increase than the Governor proposes. The respectively. Given slowing or declining demand Legislature, however, likely will want to weigh for CCC enrollment in many districts, we any ongoing apportionment increases against recommend the Legislature continue to monitor one-time priorities, as dedicating some CCC CCC course offerings to ensure that colleges do not funding to one-time priorities can help protect unduly expand enrollment in nonpriority areas to ongoing programs from cuts were the economy to meet enrollment targets. experience a downturn in 2018. Other Apportionment Changes Proposed Statutory Change Below, we cover the Governor’s proposals to Proposal Repeals Authority to Allocate (1) provide apportionments with a COLA and an Excess Local Revenues. Under current law, if local additional unallocated increase and (2) make a property tax or student fee revenues exceed budget statutory change related to apportionments. estimates, the Chancellor may allocate the excess amounts to community college districts on an FTE General Operating Funds basis for one-time purposes. The administration Governor’s Budget Provides $94 Million proposes to repeal this authority, noting that it is COLA and $24 Million Unallocated Base Increase. unnecessary and rarely applied. As set forth in state law, the COLA for CCC Recommend Approving Repeal. According apportionments is based on the price index for state to the Chancellor’s Office, it has only exercised and local governments. The preliminary COLA its existing statutory authority to use excess local estimate for 2017-18 is 1.48 percent. The Governor revenues for one-time purposes once in the last also proposes a $24 million additional base increase 20 years. This is because the state regularly adjusts to account for higher operating expenses in areas current-year and prior-year appropriations during such as employee benefits. the annual budget process. In years when the state Numbers Likely to Change in May. The COLA initially has underestimated local CCC revenues, rate the state uses for CCC apportionments (and it subsequently raises its estimates based on more some categorical programs) will be locked down in current data. When local revenues come in below April when the state receives updated data. By the budget expectations, the state provides a General May Revision, the Legislature also will have better Fund backfill, state fiscal condition permitting. information on state revenues, which, in turn, will Because the state typically makes these adjustments www.lao.ca.gov Legislative Analyst’s Office 39 2017-18 BUDGET as part of its regular budget process, repealing the (Chapter 428 of 2010, SB 1440, Padilla). This existing authority that allows CCC to redirect excess legislation required community colleges to local revenues to its own local one-time priorities create 60-unit associate degrees for transfer that likely would have little to no practical effect. streamlined and expedited transfer to CSU. Nonetheless, it would align state law more closely The legislation required CSU, in turn, to ensure with traditional state practice. entering transfer students could graduate from a bachelor’s degree program requiring no more than Guided Pathways 60 additional units. (For additional information, The Governor’s budget includes a proposal to see our 2014 and 2016 progress reports on implement guided pathways—commonly described implementation of the Student Success Act and our as a comprehensive framework for student success— 2012 and 2015 progress reports on implementation at all community colleges. Below, we provide of the Student Transfer Achievement Reform Act.) background on the recent CCC student success In Recent Years, State Has Significantly efforts and the guided pathways model, describe the Increased Ongoing Funding for Student Governor’s proposal, and provide our assessment of Support Programs. As Figure 19 shows, the the proposal and associated recommendations. state increased annual funding for various CCC student success programs from $243 million in Background on CCC Student Success Efforts 2012-13 to $820 million in 2016-17—an increase Several Years Ago, Legislature Enacted of $577 million. The bulk of new spending Policies Designed to Improve Student Outcomes ($391 million) has been for the Student Success and Streamline Transfer Pathways. In response and Support Program (SSSP) and student equity. to longstanding concerns about low completion In addition to the funding shown in the figure, the rates of CCC students, the state in 2010 enacted state has provided $500 million annually beginning legislation directing the CCC Board of Governors in 2015-16 to improve adult education outcomes to develop a comprehensive plan for improving and $200 million beginning in 2016-17 to improve student success. To this end, the board formed career technical education outcomes. Both of these a task force that ultimately produced a report new programs emphasize creating streamlined containing 22 related recommendations. The pathways for students. Legislature subsequently passed the Student Background on Guided Pathways Success Act of 2012 (Chapter 624 of 2012, SB 1456, Lowenthal), which provided the statutory Guided Pathways Represent a Comprehensive authorization required to implement some of Approach to Improving Student Outcomes. The these recommendations. (The CCC system could guided pathways model relies on work of the implement many of the recommended changes Community College Research Center at Columbia administratively.) Most notably, Chapter 624 University based on 20 years of community college required the Board of Governors to establish research. It holds that most colleges are poorly policies intended to ensure that every incoming designed for students, who often have difficulty student received assessment, orientation, and navigating the myriad choices available to them education planning support. In a companion when selecting academic programs and courses. reform effort, the Legislature also enacted the Due to this plethora of choices, students often Student Transfer Achievement Reform Act end up taking a winding path through college, 40 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Figure 19 Ongoing State Funding for CCC Student Success Programs (In Millions) 2012-13 2013-14 2014-15 2015-16 2016-17 Increase Actual Actual Actual Revised Enacted From 2012-13 Student Success and Support Program $49 $85 $185 $285 $285 $236 Student Equity Plans — — 70 155 155 155 Extended Opportunity Programs and Services 74 89 89 123 123 49 Disabled Student Program and Services 69 84 114 115 115 46 Basic Skills Initiative 20 20 20 20a 50 30 CalWORKs Student Services 27 35 35 35 44 17 Institutional Effectiveness — — 3 18 28 28 Technology Projectsb — 14 14 14 14 14 Fund for Student Successc 4 4 4 4 6 2 Totals $243 $331 $604 $769 $820 $577 a In addition to the ongoing funding shown, the state provided $85 million in one-time funding—$60 million for the Community Colleges Basic Skills and Outcomes Transformation Program, $15 million for the College Promise Innovation Grant Program, and $10 million for the Basic Skills Partnership Pilot Program. b Consists of the Common Assessment Initiative, Education Planning Initiative, and electronic transcripts. c Supports the Mathematics, Engineering, and Science Achievement program; Middle College High School program; and Puente Project. characterized by excess units, extra years in college, • Institutional and program-specific student and high dropout rates. To remedy these problems, learning outcomes that are aligned with the researchers contend that colleges need to requirements for transfer and careers. fundamentally redesign their approach to student In addition, students upon initial enrollment services, instruction, and administrative practices. typically are required to choose an exploratory Figure 20 (see next page) compares the traditional major (also called a meta-major) in a broad area community college student experience with a such as business, health sciences, or arts and guided pathways model. humanities. Early courses in the meta-major are Key Elements of Guided Pathways. The four designed to (1) help students select a specific major key elements of guided pathways are: and (2) count toward all majors within the broad • Academic program maps detailing the area. Another feature of guided pathways is basic courses students must complete each skills instruction that is integrated into college- semester to earn a credential as efficiently level, program-relevant courses, often accompanied as possible (often including default course by required tutoring sessions or other academic selections and schedules). support. Colleges implementing these elements have documented significant improvements in • An intake process that helps students certain measures of student progress and success, clarify their college and career goals, as summarized in Figure 21 (see page 43). choose a program of study, and develop an Several Pathway Initiatives Underway. To academic plan based on a program map. date, a number of national organizations and state • Close monitoring of student progress higher education systems have initiated guided paired with proactive student support pathways demonstration projects. The largest of services and feedback to help students stay these is the Pathways Project led by the American on track. Association for Community Colleges (AACC), www.lao.ca.gov Legislative Analyst’s Office 41 2017-18 BUDGET launched in 2015 with 30 community colleges in Governor’s Proposals 17 states (including 3 in California). Participating Proposes $150 Million One Time for Colleges colleges attend six three-day institutes over to Develop Guided Pathways. The stated purpose two years to help them design and implement of the administration’s proposal is to integrate structured academic and career pathways for colleges’ many separate student success programs all their students. Colleges receive professional into a coherent system based on the guided development and technical assistance from AACC pathways model. The administration expects that and seven partner organizations, but no direct better organizing and coordinating these existing funding from the project. In 2016, the Foundation programs, as well as modifying them as needed, for California Community Colleges announced will significantly improve student outcomes. the California Guided Pathways Project, closely Largely Delegates Program Design to modeled on the AACC project, that will assist 15 to Chancellor. Proposed trailer legislation establishes 20 California community colleges to develop and the CCC Guided Pathways Grant Program and implement guided pathways. Figure 20 Comparing Traditional Student Experience and Guided Pathwaysa Traditional Student Experience Guided Pathways Choosing a Major New students are encouraged to explore New students are required to enter majors on their own and choose a an exploratory major (interest area) to specific major by a set time. help them choose a specific major by a set time. Making an Academic Plan Students are encouraged to meet with College has detailed, term-by-term, a counselor to develop a customized default academic plans by major. academic plan. Students must adopt or modify a default plan. Mastering Basic Skills Many students are directed to remedial Colleges use multiple measures to algebra and writing courses, mainly diagnose students’ specific math and based on standardized tests. A minority English weaknesses and provide of these students ends up completing associated instruction and support college-level math and English courses that is integrated into courses in their and moving on to courses in the major. majors. Meeting Goals Students can face difficulty figuring out Students rely on clear academic how to satisfy all requirements for a maps tied to explicit student learning major, transfer, or credential. outcomes and academic and career goals. Getting Into Classes Students navigate extensive course Colleges offer predictable course catalogs and schedules to construct a schedules based on analysis of the customized class schedule each term. courses students need to follow academic plans. Staying on Track Counselors contact students who are Students, counselors, and instructors not making satisfactory academic routinely monitor students’ progress. progress and offer them support Early warning systems mobilize services. counselors and faculty to work collaboratively to get struggling students back on track. a Adapted from work of Community College Research Center, Teachers College, Columbia University. 42 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET tasks the Chancellor’s Office with administering integrates existing student success programs. The it. The language directs the Chancellor’s Office, remaining funding proposed by the Governor (up to the extent feasible, to leverage the work of the to 10 percent) would be for statewide assistance and California Guided Pathways Project, which already programmatic support. has developed programmatic requirements. Requires Chancellor to Submit Annual Most of the Funding Goes to Colleges. Reports for Five-Year Period. The trailer legislation Unlike other pathways initiatives that devote requires the Chancellor to submit a report by all of their funding to centralized professional July 1, 2018 and annually thereafter for four more development and technical assistance for colleges, years. The first report is to detail the funding the Governor’s proposal would provide at least allocations, the second to summarize colleges’ 90 percent of funding directly to colleges. Of this guided pathways implementation plans, and amount, the Chancellor’s Office would allocate the three remaining reports to summarize each 45 percent based on each college’s share of the district’s progress toward implementing its plan. state’s Pell Grant-eligible students, 35 percent based In addition, the Chancellor is to include in each of on each college’s share of full-time equivalent the five reports any statutory or regulatory changes enrollment, and 20 percent as a fixed base grant it believes are needed to facilitate colleges’ further for each college. To receive funding, colleges would implementation of guided pathways. have to demonstrate their commitment toward Assessment implementing guided pathways by (1) submitting a commitment letter signed by the governing board System Generally Making Progress president, chief executive officer, and Academic Implementing Student Support Programs . . . Senate president; (2) attending a workshop; and As described in our four progress reports (3) submitting an implementation plan that between 2012 and 2016, the CCC system has Figure 21 Evidence on Effectiveness of Guided Pathwaysa Full Pathways Implementation. Following Florida State University’s implementation of default academic plans, exploratory majors, and proactive advising, four-year graduation rates at the university increased from 44 percent to 61 percent and the share of students graduating with excess credits declined from 30 percent to 5 percent. New Pathways-Based Program. Guttman Community College in New York (a new, pathways-based college) achieved a 30 percent two-year graduation rate, compared with a median of 13 percent for community colleges in large cities. Pathways With Comprehensive Supports. The City University of New York’s Accelerated Study in Associate Programs (ASAP)—which combines structured academic programs, an array of support services and incentives, and full-time study—documented 2-year and 3-year graduation rates nearly double those for comparison groups. The ASAP students also were 50 percent more likely to enroll in a 4-year college by the end of their third year. Entering a Major Early On. Among students in one statewide community college system, more than half of those who entered a major in their first year earned a credential or transferred within 5 years, compared with around 20 percent of students who did not enter a major in their first year. Taking Major Courses Early On. In Tennessee, 40 percent of community college students who earned at least 9 semester units in a major within their first year earned a college credential within 6 years, compared with 16 percent of those who did not attempt at least 9 units. a Adapted from publications of Community College Research Center, Teachers College, Columbia University. www.lao.ca.gov Legislative Analyst’s Office 43 2017-18 BUDGET made significant progress implementing recent implementation of evidence-based practices. student success and transfer reforms. It has Another concern is that existing student success implemented policies to increase the number of programs are not reaching a large proportion of students receiving orientation, assessment, and students. Specifically, many students still do not education plans and developed clearer statewide complete “mandatory” orientation, assessment, transfer pathways in more than 40 majors. and education planning, and many colleges have Colleges have hired more counselors and other not sufficiently aligned their course offerings student success personnel, boosted student with students’ education plans. This suggests support services and student equity efforts, and that, despite receiving funding for the state’s adopted evidence-based models of basic skills student success initiatives, some colleges have assessment and instruction. Many colleges also not fundamentally changed how their student have started implementing technology systems support and instructional services are organized that help students explore careers and develop for students. This may be due to weak incentives education plans; access counseling, tutoring, and to change established practices and lack of broad- student services; and track their progress toward based support on campuses for such changes. completion. Additionally, colleges are developing State Policy Changes Likely Needed. Operating streamlined CTE pathways, support services, and existing academic support, student success, and contextualized basic skills instruction under the student equity programs in separate silos reflects, new workforce program created in 2016. in part, how the state funds these services. The . . . But Problems Remain. Despite progress state supports them through separate programs, in these areas, significant problems remain. At each with its own programmatic objectives, many colleges, campus decision making related statutory requirements, and funding allocations. to the various student success programs resides in The Legislature could help break down these separate organizational units (such as academic institutional silos and foster better coordination by affairs or student services) or is directed by combining them, streamlining their requirements, separate groups within a single unit. Consequently, and funding them through one allocation formula. the programs often operate independently with The Legislature also could change state law to inadequate coordination among them. This lack (1) provide more guidance to colleges regarding of coordination results in duplication of services, their use of SSSP and student equity funds for gaps in services, and inefficient resource allocation. evidence-based practices and (2) strengthen In addition, little agreement sometimes exists incentives for students and colleges to adopt these across the system regarding how best to pursue the practices. Alternatively, the Legislature could goals of the various student success programs. For require the Board of Governors to adjust these basic skills programs, state law lists a number of policies through regulations to more effectively evidence-based practices and requires colleges to implement existing law. implement them, but other programs, such as SSSP Guided Pathways Framework Could Improve and student equity, have no such requirement in Coordination and Effectiveness of Programs. state law. As a result, some colleges allocate small Just as the state should ensure its policies support amounts of funding to numerous unconnected rather than impede colleges’ student success efforts, and sometimes experimental projects rather colleges also have an important role in examining than concentrating their funds on larger-scale and revising their practices. Consistent with the 44 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET guided pathways model, colleges could examine colleges likely would use their funding mainly for and reorganize their instructional practices, release time (or summer pay) for faculty, staff, and student support programs, and administrative administrators to work on developing maps and procedures to improve student outcomes. In other components. The administration, however, addition to orienting these practices toward has not indicated the amount of release time improved student success (redesigning them envisioned or how it would be apportioned over the where needed), the model emphasizes putting five-year implementation period. these practices together intentionally so that they Proposal Missing Many Details. The proposal help all students at a college choose and succeed also contains few details about how colleges could in programs and graduate with the knowledge use their funds, what would be expected of them, and skills they need for transfer or employment. or how the program would operate. Furthermore, It would be hard to overstate the difficulty of the Governor’s proposal lacks mechanisms to integrating programs and departments that monitor progress, provide feedback for midcourse historically have operated independently. If corrections, or contribute to the research on guided successfully implemented, however, the guided pathways implementation. pathways model could help colleges improve Not All Colleges Likely Ready for program coordination and achieve better student Fundamental Reform. Colleges that have outcomes. implemented guided pathways indicate that doing Proposal Does Not Build Off Best Practices so requires a high level of commitment from college to Date. As noted earlier, existing large-scale leaders, faculty, and staff. This is because the types guided pathways initiatives have retained funding of changes required often challenge longstanding centrally to provide professional development and patterns of organizational behavior and pedagogy. technical assistance to colleges, rather than funding Building commitment takes time and is not colleges directly. Under these existing initiatives, always possible in all institutions. The Governor’s only colleges with a strong interest in developing proposal, however, would fund all colleges, even guided pathways and a willingness to reallocate those that likely are not fully committed to or existing resources choose to apply. The Governor’s prepared for the associated work. proposal takes a notably different approach, giving Recommendations substantial grants directly to colleges and setting aside a relatively small share (10 percent) for Require Additional Information From centralized support. Such a decentralized approach Chancellor and Administration. The guided could have the unintended effect of funding pathways model could provide an effective colleges that do not have a strong, broad-based superstructure for CCC student success efforts. For commitment to the work, while shortchanging this reason, we think the Governor’s proposal has colleges on the professional development and potential. The proposal, however, does not contain technical assistance component. many important details about how the initiative No Basis for Specific Amount. In addition would work. We recommend the policy and budget to providing no justification for his different committees further explore the Governor’s concept approach to encouraging guided pathways, the through hearings. The Legislature could ask the Governor provides no explanation for his proposed Chancellor—who ultimately would be responsible funding amount. The administration has indicated for leading such an effort—to share his vision for www.lao.ca.gov Legislative Analyst’s Office 45 2017-18 BUDGET how it should be structured, implemented, and led, attributed to the appropriate colleges.) The state including how existing CCC resources (such as the initially funded the Online Education Initiative Institutional Effectiveness Partnership Initiative with $17 million in 2013-14 and has provided a and CCC Success Center) would contribute to the base amount of $10 million annually thereafter effort. The Chancellor could discuss the outcomes to increase CCC students’ access to and success the state could expect from colleges receiving in online courses. In addition, the 2016-17 budget funding. The Chancellor also could address what includes $20 million one time to accelerate progress changes might be needed in how the state organizes on the initiative. and funds CCC student success efforts, and how Common Course Management System is Key he would ensure that the proposed initiative does Component of Initiative. All colleges use a course not become yet another programmatic silo. The management system for both online and in-person Legislature also could ask the administration classes. Faculty use the system to post course to present a rationale for its proposed dollar information (such as the syllabus), instructional amount and timeline. With this information, the content (such as readings and videos), assignments, Legislature would be in a far better position to and other material. Students use the system to weigh the Governor’s guided pathways proposal submit assignments, collaborate with classmates, against its other priorities for one-time funds. and communicate with instructors. Historically, each college or district has selected its own course Other Programmatic Proposals management system from among several vendors. Below, we discuss three of the Governor’s other To facilitate statewide, online course sharing, the proposals—one relating on an ongoing expansion CCC selected the Canvas course management of the Online Education Initiative, another relating system in February 2015. The Chancellor’s Office to more one-time awards for colleges to implement is requiring colleges that want to participate in the innovative improvement strategies, and a third Online Course Exchange to use Canvas as their relating to establishing an Integrated Library course management system and not maintain their System for all community colleges. former course management systems. Governor Proposes $10 Million Ongoing Online Education Initiative Augmentation. The proposed augmentation would Initiative Aims to Provide Statewide Access to bring ongoing annual funding to $20 million. The Online Courses. The Online Education Initiative new funds primarily would pay for faster-than- includes several projects: a common course anticipated implementation of Canvas. Whereas management system for colleges, resources to CCC expected interested colleges to adopt the new help faculty design high-quality courses, online system over three or four years, 103 of 113 colleges learner readiness modules, tutoring and counseling already have implemented the new system or platforms, exam-proctoring solutions, and the CCC committed to doing so within the past two years. Online Course Exchange. (The course exchange, The initiative also committed to cover all Canvas which is being piloted in Spring 2017, is a system subscription and implementation costs through enabling students at any community college to 2018-19 (using the state appropriation), and a see what degree-applicable online courses are substantial portion of these costs thereafter. The offered at other colleges, enroll in those courses, proposed augmentation instead would permit the and have their attendance and associated funding initiative to cover full ongoing subscription costs 46 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET for all colleges indefinitely. In addition, the new Canvas subscription and maintenance costs. Given funds would support annual subscriptions to an lower costs for the new system and the existing online tutoring platform, additional software that state earmark that will cover a substantial portion permits students and their academic counselors of these costs (currently estimated at 40 percent to meet virtually (over the Internet), and various once all colleges are at full implementation), most accessibility, plagiarism detection, and student colleges would be able to pay the remaining costs authentication features. and still have savings to redirect to other local Common Course Management System Is priorities. Benefiting Students and Faculty. The common Online Education Initiative May Curtail course management system is providing a Services. Initiative leadership has indicated consistent interface for students enrolled at multiple it wishes to minimize the extent to which it colleges (about 20 percent of all CCC students). reneges on its commitment to fund 100 percent In addition, the system is expanding access for of Canvas costs through 2017-18, in an effort to all students to academic support resources (such avoid diluting the enthusiasm it has generated as the online tutoring and counseling services) for CCC technology projects. To mitigate canvas through their course web pages. The system also is cost increases for colleges, therefore, the initiative providing more consistency for faculty who teach at would reduce some services if it does not receive multiple colleges and making the sharing of course the Governor’s proposed increase. For example, it materials and best practices easier. likely would reduce the technical support hours it Savings for Community Colleges. In currently funds, requiring colleges needing evening addition to better serving students and faculty, a and weekend support to contract for this service common course management system has lower separately. subscription and administrative costs compared Recommend Rejecting Online Education to maintaining dozens of college-specific course Initiative Augmentation. Because most colleges systems. Moreover, at most colleges, the initiative’s otherwise would be paying for their own course shouldering of all Canvas costs to date has freed up management systems and the new central system is funds colleges otherwise would have used toward both less expensive and already state subsidized, we their own course management systems. Currently, recommend the Legislature reject the Governor’s no requirement exists that campuses use freed-up proposal to augment the Online Education funds for statewide purposes or benefits. As a Initiative. While rejecting the augmentation might result, colleges that have implemented Canvas have result in some colleges changing their budget been able to redirect these funds toward any local plans (since they no longer would receive the full priority. The Governor’s proposal, by providing subsidy they are anticipating), most colleges still ongoing funding for all Canvas costs, would extend will realize savings from implementing Canvas. indefinitely colleges’ ability to use freed-up funds The initiative as currently funded is achieving for local purposes. its purpose: it successfully began rolling out a Colleges’ Savings Could Help Support Ongoing common course management system and a suite of Course Management System Costs. Instead of related products, with nearly all campuses signing redirecting freed-up course management system up to implement these statewide resources. With funds to other local purposes, colleges could this momentum, we believe the initiative could contribute a portion of those funds toward ongoing continue its progress without an augmentation. The www.lao.ca.gov Legislative Analyst’s Office 47 2017-18 BUDGET Legislature could redirect the $10 million to other on improving four-year graduation rates and ongoing CCC Proposition 98 costs, such as general (2) provided awards only to CSU campuses. apportionments. Second Round of Awards Funded in 2016-17. After rejecting the administration’s proposal for Innovation Awards more awards in 2015-16, the Legislature accepted First Awards Funded in 2014-15. The 2014-15 a revised proposal the following year. The 2016-17 budget provided $50 million in one-time funding awards program, also funded with $25 million to promote innovative models of higher education one time, differs from the 2014-15 program in at UC, CSU, and CCC campuses. Campuses four ways: (1) only CCC districts can apply for (or teams of campuses) that had undertaken awards, which are supported by Proposition 98 initiatives to increase the number of bachelor’s General Fund; (2) awards are based on proposed degrees awarded, improve four-year completion activities instead of initiatives applicants already rates, or ease transfer across segments could have implemented; (3) awards focus specifically apply for awards. Because awards were based on on effective articulation and transfer pathways, initiatives already implemented at the campuses, successful transitions from higher education into they functioned more like prizes or rewards than the workforce, and innovations in technology and grants for specified future activities. A committee data; and (4) the Governor has more discretion in of seven members—five Governor’s appointees selecting his appointees to the awards committee. (one each representing DOF, the three segments, (Members no longer have to represent any of the and the State Board of Education) as well as two higher education segments or the State Board of legislative appointees selected by the Speaker of Education.) Applications for these awards were due the Assembly and the Senate Rules Committee, February 3, 2017. respectively—made award decisions, approving Governor Proposes Third Round of Awards. 14 of 57 applications, including 6 from community The Governor’s budget includes $20 million colleges. The winning applications were for one-time Proposition 98 General Fund for strategies that included improving K-12 alignment innovation awards to community colleges. Whereas to higher education standards and expectations, the administration has been closely involved in redesigning curriculum and teaching practices to implementing innovation awards in previous years, improve outcomes, and using technology to expand the proposal this year provides the Chancellor’s access to courses. Each winning applicant received Office substantial latitude to set award criteria and from $2.5 million to $5 million in award funds. select winners, with no requirement to use the Award recipients are to report on the effectiveness existing awards committee. The Chancellor’s Office of their strategies by January 1, 2018 and January 1, has indicated it would prioritize applicants that 2020. focus on addressing statewide needs like improving Legislature Rejected Governor’s Proposal adult learning and better serving veterans. The for Additional Awards in 2015-16. The proposal Chancellor’s Office also indicates that, as in would have provided $25 million in one-time previous rounds, awards would be competitive and funding for a new round of awards using a similar undergo a rigorous selection process. application process. The proposal differed from Potential Statewide Benefits Unclear. One of the 2014-15 program, however, in that it would our most significant concerns with the proposal have (1) narrowed the priorities to focus only is that the awards might provide relatively large 48 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET sums to a small number of community colleges have some form of ILS. The CCC Council of Chief to implement local initiatives that would not Librarians conducted surveys of community college necessarily have statewide impact. This is because library directors in 2014 and early 2017 to assess the proposal does not provide for dissemination the adequacy of their existing ILS and interest of innovations to other colleges across the state in a systemwide ILS. The council found that a nor does it do anything to promote buy-in among large majority of colleges’ existing systems were colleges to implement the innovations. older, locally hosted ones serving a single college. Award Program Further Fragments Efforts to In contrast, the current leading technology is Improve Student Outcomes. We also are concerned cloud-based, hosted by a vendor, and often serving that the proposal would add yet another program multiple campuses or institutions. The council also to the state’s numerous existing efforts to improve found that more than three-fourths of respondents CCC student outcomes. The current plethora were interested in pursuing a systemwide ILS. of programs, detailed earlier in our discussion New Generation of ILS Offers More Functions. of guided pathways, already are challenging for In addition to using a different architecture, colleges and the state to coordinate. Moreover, newer ILS have a number of features typically not compared to the innovation awards, these existing available in the older systems. These include, for programs are designed to have much broader example, comprehensive discovery tools that search statewide impact, with funds going to all colleges across all types of resources—including physical to implement already well-documented student books and periodicals in a library’s collection, success strategies. Rather than funding another electronic books and journals, digital archives, round of generous awards to a small number and holdings in other participating libraries. (In of colleges, we believe the state should focus older systems, users often must search multiple on ensuring that existing CCC student success catalogs or databases at multiple institutions.) programs are implemented effectively. Other features include the ability to deliver Reject Governor’s Proposal to Provide resources across the system more efficiently, better $25 Million for CCC Awards. For these reasons, collection management tools for libraries, and rapid we recommend the Legislature reject this proposal. systemwide updating of software and electronic The Legislature could instead target the funding to collections as needed. other priorities, like deferred maintenance, that are Governor Proposes $6 Million One Time one-time in nature. to Support Development of Systemwide ILS. The proposal, which was included in the Board Integrated Library System of Governors’ System Budget Request, reflects Purpose of an Integrated Library System (ILS). a recommendation from the Council of Chief An ILS is software that libraries use to manage Librarians. Under the proposal, the CCC their collections and activities. Typical functions Technology Center would receive the funding to include acquisition and cataloging of books and procure and implement a systemwide ILS. The other materials, providing ways for library users to Technology Center also would assist colleges with search catalogs and access materials, and tracking local implementation, which generally involves the circulation of these materials. “migrating” existing catalogs and databases to Library Systems Outdated at Most the new system, integrating it with their student Community Colleges. All CCC academic libraries information systems (for student authentication) www.lao.ca.gov Legislative Analyst’s Office 49 2017-18 BUDGET and learning management systems (for seamless Ongoing Costs Would Be Lower With access through course websites), and training Systemwide ILS. As part of its 2014 survey, the library personnel and others to use its features. Council of Chief Librarians collected information Some Funding Would Go for “Critical about colleges’ existing ILS spending. It then Thinking Tool.” Of the $6 million for the ILS, compared existing spending with the projected the chief librarians propose to use $775,000 for ongoing cost of a new systemwide ILS. As Figure 22 a statewide subscription to a service that helps shows, the council estimates that a systemwide students research more than 150 contemporary, ILS (including the critical thinking tool) would controversial issues. This service provides curated result in about $4.5 million in ongoing savings to resources—15,000 primary and secondary CCC overall. In addition to lower ongoing costs materials selected and validated by educators—that for annual licenses to the ILS, the council believes students can compare and analyze for course colleges could achieve substantial staff savings, assignments. A student writing a paper on an having to devote fewer library and technology environmental controversy, for example, could staff to maintaining the new system. Much of the gain exposure to different perspectives on the issue, “back office” work of adding statewide library research current data, and use that information to acquisitions and installing software updates could draw conclusions about the issue. be done centrally and more efficiently. Colleges still Students and Faculty Would Benefit From would need some “front office” staffing to add local Common System. Because an ILS would facilitate acquisitions, keep the system integrated with the sharing of library materials across colleges, it campus website and other technologies, and ensure would especially benefit students and faculty at uninterrupted access for users. colleges with more limited collections. Moreover, Strong Fiscal Incentives for Colleges to Support students who attend—and faculty who teach Systemwide ILS but Requires Coordination. Given at—multiple community colleges would benefit a systemwide ILS would be less costly than colleges’ from having a single user account and a single existing ILS spending, colleges have strong fiscal interface for all their library needs. Additionally, incentives to support a centralized system. Colleges colleges could coordinate their library acquisitions would need to coordinate, however, to pursue a to reduce duplication and expand the depth of their systemwide ILS. In particular, colleges would have acquisitions in particular subject areas. to find a way to commit and pool their funds to Figure 22 Current and Projected Ongoing Costs for CCC Integrated Library Systema Current Costs Projected Costs Savings (All Local) Local Central Combined ILS service cost $4,633,000 — $2,225,000 -$2,408,000 Hardware/server costs 90,400 — — -90,400 Staff costs 4,181,000 $1,921,000 250,000 -2,010,000 Totals $8,904,400 $1,921,000 $2,475,000b -$4,508,400 a Estimates from the CCC Council of Chief Librarians. b The Board of Governors has requested the state support this cost beginning in 2019-20. ILS = Integrated Library System. 50 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET pay for the new system. Each college also would Council of Library Deans, with financial support have to identify one-time funds from reserves or from the CSU Chancellor’s Office, began the other sources to pay for initial development costs, process of developing a systemwide ILS. The costs they would incur while simultaneously university conducted an extensive vetting process maintaining their existing ILS systems throughout to select a vendor and now is in the process of the conversion process. CCC librarians indicate that implementing its new system. The CCC effort, these administrative obstacles have prevented the if it proceeds, could benefit from the experience systemwide ILS from moving forward for several gained by the CSU council. Under state law, CCC years. could also potentially procure its system using Recommend CCC Move Forward With ILS. the university’s ILS contract, if CCC leaders Given the cost-effectiveness of a systemwide ILS determine that the same product meets community and the likelihood of it resulting in better and more colleges’ needs. (Chapter 366 of 2015 clarifies consistent services for students and faculty across that community colleges may purchase goods the system, we believe implementing it would be an and services through contracts awarded to the effective use of one-time funds. We encourage the state’s public universities.) The primary benefit of CCC Chancellor’s Office to pursue development leveraging CSU’s recent adoption in this way is the of this system, whether or not the state provides considerable time it would save in the procurement specific funding for it. process. (Procuring the same system as CSU likely Recommend Legislature Consider ILS would not reduce CCC costs, as the one-time costs Proposal in Context of Other Priorities for primarily are for the work of transitioning to a One-Time Funding. As noted, colleges have new system, and ongoing costs largely are based on strong incentives to fund development and student enrollment.) implementation of a systemwide ILS, given it is State Operations less costly on an ongoing basis than their existing library systems. To date, however, colleges Below, we provide background on the CCC have been unable to overcome accompanying Chancellor’s Office and then discuss the Governor’s administrative hurdles. A one-time infusion of state proposal to add new positions (with associated funds could move the project forward. In deciding funding) and revise the organizational framework whether to approve state funds for the project, of the office. the Legislature could consider (1) the anticipated Background benefits to students and faculty of the new system, (2) the likelihood of the colleges developing a Chancellor’s Office Provides System systemwide ILS on their own, and (3) competing Leadership and Oversight. The 17-member priorities for use of one-time Proposition 98 funds. CCC Board of Governors, appointed by the One alternative use of these one-time funds would Governor, sets policy and provides guidance for be reducing CCC deferred maintenance. The the 72 districts and 113 colleges that constitute the system currently reports more than a $5 billion CCC system. The board selects a chancellor for maintenance backlog, yet the Governor’s budget the system, and under state law, it may delegate its package includes only $44 million for addressing it. duties and powers to the chancellor. In practice, Recommend Leveraging CSU’s Recent the board relies on the Chancellor’s Office to Systemwide ILS Adoption. In 2013, the CSU conduct a formal consultation process with CCC www.lao.ca.gov Legislative Analyst’s Office 51 2017-18 BUDGET stakeholder groups and bring recommendations Board of Governors, appoints an executive vice to the board for action. The Chancellor’s Office chancellor, deputy chancellor, and four of the eight also carries out oversight required by statutes and vice chancellors. The deputy chancellor appoints regulations, manages the day-to-day operations one additional vice chancellor. These appointees of the system, and manages implementation of are exempt from state civil service. The three other statewide programs. In addition, the Chancellor’s vice chancellor positions are within the state civil Office provides technical assistance to districts service, in the career executive assignment (CEA) and colleges and conducts regional and statewide classification. professional development activities—a role that has Governor’s Proposal expanded in recent years with state funding for the Institutional Effectiveness Partnership Initiative. Governor Proposes Increase of Two Positions Current Structure of Office. As Figure 23 and $378,000. The Governor’s budget includes shows, the Chancellor’s Office has an executive funding for two additional exempt vice chancellor office led by the chancellor, executive vice positions. The Governor proposes to make chancellor, and deputy chancellor, as well as ten conforming changes to statute to authorize the divisions. (The executive vice chancellor position two additional Governor’s appointments. The currently is not used.) Other than Legal Affairs administration indicates that the additional and Human Resources, which are led by a general positions are to assist the Chancellor’s Office’s counsel and a director, respectively, each of the efforts to improve student success, address remaining divisions is headed by a vice chancellor. disparities in outcomes for disadvantaged groups, Altogether, the Chancellor’s Office has 166 and develop the proposed guided pathways authorized positions, of which between 85 percent program. and 90 percent typically are filled. Governor Also Proposes to Revise Governor Appoints Six Senior Managers. “Organizational Framework.” In the Governor’s The Governor, with the recommendation of the Budget Summary, he notes that the Department Figure 23 Senior Leadership Positions Position Exempt? Status Executive Office Chancellor Yes Filled Executive Vice Chancellor Yes Vacant since 2014 Deputy Chancellor Yes Filled Divisions Academic Affairs Vice Chancellor Yes Filled Workforce and Economic Development Vice Chancellor Yes Filled Institutional Effectiveness Vice Chancellor Yes Filled College Finance and Facilities Planning Vice Chancellor Yes Filled Governmental Relations Vice Chancellor Yes Filled Communications and Marketing Vice Chancellor No Filled Technology, Research, and Information Systems Vice Chancellor No Filled Human Resources and Internal Operations Director No Filled Legal Affairs General Counsel No Vacant Student Services and Special Programs Vice Chancellor No Vacant since 2014 52 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET of Finance will collaborate with the Chancellor’s Among other notable findings, three-quarters Office throughout spring 2017 to revise the office’s of respondents generally agreed that the policy organizational framework. According to the changes implemented by the Chancellor’s Office administration and the Chancellor’s Office, a goal over the last five years (such as new student success of the review is to enable the new chancellor to regulations) are having a positive impact on student shift the emphasis of the office from primarily outcomes, and 81 percent agreed that improving conducting regulatory oversight toward primarily staffing and resources at the Chancellor’s Office helping colleges meet statewide goals. could lead to better support for colleges. Proposed Solutions May Not Fit Problem. Assessment and Recommendations The addition of more vice chancellors would not Chancellor’s Office Defines the Problem. necessarily best address the shortcomings identified Asked to clarify the goals of the organizational by the Chancellor’s Office and the administration. review, Chancellor’s Office representatives It could turn out that the office needs greater described insufficient capacity to drive the capacity among research analysts, program system toward improvement. (Such work is specialists, or deans. Moreover, the proposed new more difficult in a decentralized system like positions would not necessarily address the office’s the community colleges than within a more difficulty in attracting and retaining senior leaders. centralized or hierarchical organization.) They Additionally, given the field’s general agreement on believe the organization is tasked with myriad the importance of existing oversight provided by mandates and expectations without adequate the Chancellor’s Office, as well as the state’s reliance staffing and expertise to meet those requirements. on this oversight to ensure the effective use of state They also believe few resources are available for funds, a notable shift away from this oversight work unrelated to compliance, including the role—as proposed by the Governor—may not be more supportive work of improving systemwide warranted. outcomes. Moreover, the office has had a difficult Request Additional Information. Given the time attracting and maintaining senior leadership, administration and the chancellor are in the midst in part due to compensation levels that are of reviewing the organizational framework of the significantly below those typically available at Chancellor’s Office, it would be premature to add districts and colleges. As one example, the vice more vice chancellor positions at this time. We chancellor for student services position has not had believe the Governor’s staffing and organizational a permanent occupant since late 2014. proposal is in effect a placeholder, pending CCC Stakeholders Provide Feedback. As conclusions from the review. We recommend one of his early actions, the new chancellor the Legislature ask the administration and the conducted a survey of CCC faculty, staff, and other Chancellor’s Office to report on the results of their stakeholders to gauge their perceptions of the review during spring budget hearings. At that office’s role. In the survey, the Chancellor asked time, the Chancellor’s Office might offer better about the office’s level of regulatory oversight. justification for any proposal to add positions or A large majority (79 percent) of respondents funding to the office. The Chancellor’s Office also generally agreed that the current level of oversight could identify lower-value oversight activities is reasonable, given the office’s responsibility to that could be curtailed without adverse effect, report to the Legislature, Governor, and taxpayers. thereby freeing up existing staff for higher priority www.lao.ca.gov Legislative Analyst’s Office 53 2017-18 BUDGET work, including better supporting systemwide • Projects to increase instructional capacity. improvement. • Projects to modernize instructional space. CCC Facilities • Projects to complete campus build-outs. Below, we provide background on state funding for CCC facilities and discuss the Governor’s • Projects that house institutional support proposal to authorize five general obligation services. bond-funded community college projects. In addition, projects with a local contribution receive greater consideration. (Districts raise their Background local contributions mainly through local general State Primarily Funds Community College obligation bonds.) Based on these criteria, the Facilities Through General Obligation Bonds. The Chancellor submits capital outlay project proposals state typically issues general obligation bonds to to the Legislature and Governor for approval and help pay for community college facility projects. funding as part of the annual state budget process. A majority of voters must approve these bonds. Chancellor Recommended 29 Projects for From 1998 through 2006, voters approved four 2017-18. These projects, located at 24 colleges, facility bonds that provided a total of $4 billion for would require $71 million in state funding for community college facilities. Virtually no funding planning in the first year and $621 million for remains from these facility bonds. construction and equipment in the following years. New State Bond Approved in 2016. After In addition, districts have committed $438 million a ten-year gap, voters approved Proposition 51 in local funding for these projects. Of the in November 2016. It authorizes the state to 29 priorities, the Chancellor ranks 3 in the highest- sell $2 billion in general obligation bonds for priority category, 11 in the second highest-priority community college projects (in addition to category, 11 in the third category, 4 in the fourth $7 billion for K-12 school facilities projects). The category, and none in the last category. funds may be used for any CCC facility project, including buying land, constructing new buildings, Governor’s Proposal modernizing existing buildings, and purchasing Governor Proposes Five CCC Projects for equipment. 2017-18. The administration proposes to fund 5 Community College Facility Projects of the 29 projects submitted by the Chancellor’s Recommended by Chancellor and Approved in Office. As summarized in Figure 24, the Governor’s Annual Budget. To receive state bond funding, budget includes $7.4 million in 2017-18 for initial community college districts must submit planning costs. Total state costs for the five projects project proposals to the Chancellor’s Office. The (including construction) are estimated to be Chancellor’s Office ranks all submitted facility $182 million. The Governor proposes to fund all projects using the following five criteria adopted by three highest-priority projects—those addressing the Board of Governors (in order of priority): seismic issues and failing utility infrastructure. • Life-safety projects, projects to address The other two projects the Governors proposes seismic deficiencies or risks, and are from the third priority category—projects to infrastructure projects (such as utility modernize instructional space. In selecting these systems) at risk of failure. projects, the administration bypassed 11 new 54 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Figure 24 Governor’s Proposed CCC Capital Outlay Projects Reflects State Costs (In Thousands) 2017-18 Total College Project Cost Cost City College of San Francisco, Ocean Campus Utility Infrastructure Replacement $2,978 $76,855 Pasadena City College Armen Sarafain Building Seismic Replacement 2,199 58,287 El Camino College, Compton Center Instructional Building 2 Replacement 765 16,591 Fullerton College Business 300 and Humanities 500 Building Modernization 711 15,270 City College of San Francisco, Alemany Center Seismic and Code Upgrades 715 15,148 Totals $7,368 $182,151 building projects that would expand instructional Given a substantial backlog of facility projects at capacity. According to the Department of Finance, the community colleges, we see no justification for this is because the two selected projects, in addition funding so few projects in the first year. to modernizing instructional facilities, address Recommendations significant life safety concerns in those facilities. (These projects do not appear in the first-priority Require Administration to Provide More category because they also include some elements Information. We recommend the Legislature ask that are unrelated to life-safety concerns.) the administration during spring budget hearings to clarify its plans for rolling out the $2 billion in Assessment Proposition 51 bond funding for CCC projects as Proposed Projects Address State Priorities. expeditiously as possible. As noted, all five projects the administration Develop Five-Year Expenditure Plan. Based proposes to fund involve significant life-safety on the information provided by the administration issues. Notably, two of the projects—both in and the Chancellor’s Office, we recommend the San Francisco—do not include a local funding Legislature consider authorizing additional CCC contribution. Both of these projects, however, projects in 2017-18. The Legislature’s plan for the address critical life safety issues, and thus were budget year could be part of a more extensive among the Chancellor’s top three priorities even five-year expenditure plan. One option for such a without a local contribution. The other three plan would be to approve projects totaling about proposed projects have substantial local funding one-fifth ($400 million) of the available funding for contributions. each of the next five years. Having a multiyear plan Governor’s Proposal Too Small Relative to for spending Proposition 51 bond monies would Voter-Approved Bond Funding. The total state (1) help community colleges plan their capital cost of the five proposed projects amounts to outlay programs, (2) ensure that voter-authorized 9 percent of the CCC bond funding authorized in funds are put to use within a reasonable time, and Proposition 51. If the state were to fund a similar (3) spread bond sales over several years, thereby amount each year, it would take more than 11 years allowing more time for the Legislature to review to use the full $2 billion approved by the voters. proposed projects. www.lao.ca.gov Legislative Analyst’s Office 55 2017-18 BUDGET HASTINGS COLLEGE OF THE LAW In this section, we provide an overview of the Governor Proposes $1.1 Million (9.2 Percent) Governor’s proposed budget for Hastings, describe General Fund Base Increase. The Governor the school’s proposed spending plan, assess that proposes to give Hastings flexibility to decide how plan, and offer an associated recommendation. to spend the state augmentation. The Governor’s budget also includes a technical adjustment that Overview removes $2 million in one-time funding provided Governor’s Budget for Hastings Consists of in the 2016-17 budget for deferred maintenance $55.5 Million in Core Funds for 2017-18. This projects. As a result of this technical adjustment, reflects a $1.4 million (2.5 percent) decrease from General Fund support declines by $933,000 the current year. As the top half of Figure 25 shows, (6.8 percent) from the 2016-17 level. Hastings’ primary source of funding is student Hastings Anticipates Slight Decrease in tuition and fee revenue ($41 million), followed by Tuition and Fee Revenue in 2017-18. Neither the state General Fund ($12.7 million), with a small Governor nor Hastings’ governing board proposes amount ($1.6 million) coming from other sources to raise tuition charges in 2017-18, which would (including investment income, lottery, and a portion make 2017-18 the fifth consecutive year of flat of funding from the school’s auxiliary programs.) tuition charges. Despite proposing to hold tuition Figure 25 Hastings Core Budget (Dollars in Millions) Change From 2016-17 2015-16 2016-17 2017-18 Actual Revised Proposed Amount Percent Reserve at start of year $26.1 $24.9 $18.5 -$6.4 -25.8% Funding General Fund—ongoing $10.6 $11.7 $12.7 $1.1 9.2% General Fund—one time 0.0 2.0 0.0 -2.0 — Subtotals ($10.6) ($13.7) ($12.7) (-$0.9) (-6.8%) Gross tuition and fee revenue $40.3 $41.7 $41.1 -$0.6 -1.3% Other corea 1.6 1.6 1.6 — 2.8 Totals $52.5 $56.9 $55.5 -$1.4 -2.5% Spending Instruction $21.2 $21.8 $22.1 $0.3 1.2% Tuition discounts 12.1 16.0 18.9 2.9 17.9 Institutional support 10.9 12.7 12.4 -0.3 -2.1 Student services 4.4 4.9 4.9 -0.0 -0.2 Law library 2.8 3.0 3.1 0.0 0.8 Facility maintenance 2.4 4.9 2.5 -2.5 -49.6% Totals $53.7 $63.4 $63.8 $0.4 0.7% Annual Deficit -$1.2 -$6.4 -$8.3 -$1.9 29.2% Year-end reserve $24.9 $18.5 $10.2 -$8.3 -45.0% a Includes funding from auxiliary programs for overhead, investment income, income from scholarly publications, and state lottery. 56 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET charges flat, Hastings anticipates tuition and fee which generally consists of tuition and other revenue to decline by $600,000 (1.3 percent) from nonstate monies. The school plans to use this 2016-17 levels. This reduction is due to a projected reserve to cover its anticipated operating deficits. decrease in enrollment. The school indicates the Under its proposed spending plan, Hastings’ decline is part of a continuing strategy intended reserve would drop from $25 million at the start of to (1) respond to weaker workforce demand 2016-17 to $10.2 million by the end of 2017-18. for attorneys and (2) increase the academic Hastings Anticipates Deficit Spending qualifications of its student body. Through 2019-20. Because the size of Hastings’ deficit in 2017-18 ($8.3 million) would be nearing Hastings’ Spending Plan Under the size of its reserve at the end of the year the Governor’s Budget ($10.2 million), the school likely would soon Hastings Would Increase Significantly exhaust its reserve absent corrective actions. Spending on Its Tuition Discount Program. As the Recognizing this risk, Hastings has developed lower half of Figure 25 shows, Hastings officials a plan to bring spending in line with projected indicate that they intend to spend $63.8 million revenues. The key components of the plan are to from the core budget in 2017-18. This reflects a (1) reduce spending on tuition discounts beginning year-over-year increase of $431,000 (0.7 percent). in 2018-19 and (2) increase tuition charges by The largest spending increase by far would be for 10 percent in 2019-20, followed by an additional its tuition discount program. Specifically, Hastings 7 percent increase in 2020-21. Figure 26 (see next proposes to augment spending on tuition discounts page) shows that under this plan, spending would by $2.9 million (17.9 percent) over current-year exceed revenues each year through 2019-20, which levels. This increase would continue an initiative would result in its reserve dropping down to about begun by the school in the current year which $300,000 by the end of that year. By 2020-21, seeks to attract additional higher-performing Hastings indicates it hopes to end its deficit students by offering richer tuition discounts. Under spending and start building back a reserve. Hastings’ spending plan, compensation and other LAO Assessment and Recommendation cost increases would be covered by anticipated operational savings identified by the college. Substantially Increasing Merit-Based Tuition Hastings is not proposing any notable reductions in Discounts Is a Questionable Spending Priority . . . faculty or staffing levels. By substantially increasing its tuition discounts, Hastings’ Spending Plan Would Increase Its Hastings is attempting to provide a stronger Operating Deficit . . . Due largely to the school’s financial incentive for students with higher grades decision to increase spending on tuition discounts, and standardized test scores to attend to school. Hastings is on track to spend $63.4 million in core In so doing, Hastings indicates that it hopes to funds in 2016-17 while only receiving $56.9 million boost its competitiveness and national ranking in revenues—reflecting a $6.4 million operating among law schools. While national reputation is deficit. Under Hastings’ 2017-18 spending plan, this understandable from an institution’s perspective, gap between spending and revenues would grow to it is unclear what state goals this boost in prestige $8.3 million. would advance. Furthermore, because these . . . And Gradually Draw Down Its Reserves. discounts typically are awarded based on merit Hastings maintains a reserve of core funding, rather than need, this increased aid likely is www.lao.ca.gov Legislative Analyst’s Office 57 2017-18 BUDGET benefitting applicants who would attend law school of students while creating a deficit that likely will anyway, rather than targeting resources toward the be paid down by future students through tuition school’s neediest applicants. increases. In addition to increasing costs for future . . . As Well as Shortsighted. Although the students, Hastings’ budget shortfall also could put tuition discounts would provide a financial benefit pressure on the Legislature to provide additional to the fall 2017 cohort (and perhaps attract a funding to help stabilize the school’s financial higher-performing class), the school acknowledges condition. that for budgetary reasons it will have to begin Recommend Legislature Review Hastings’ reducing spending on discounts in 2018-19. Spending Plan at Spring Budget Hearings. Given Because these enhanced discounts would only the concerns we describe above, we recommend be offered to students for one additional year, the Legislature ask Hastings to report on its Hastings’ proposed approach likely would not spending plan during spring budget hearings. accomplish any long-term policy goals. Instead, it In its review, the Legislature will want to ensure would provide a short-term benefit to one cohort that Hastings’ budget plan for 2017-18 and the next few years aligns with the state’s education and Figure 26 workforce priorities and Hastings Planning to Deficit Spend Through 2019-20 brings spending in line (In Millions) with revenues. To ensure $70 that Hastings’ plan achieves both goals, the Legislature 60 might direct Hastings to consider various strategies, 50 including: (1) reducing 40 Funding proposed spending on tuition discounts for the budget Spending 30 year, (2) increasing tuition Reservea charges sooner than currently 20 planned by the school, and (3) adjusting staffing levels 10 in line with enrollment reductions or, alternatively, 2016-17 2017-18 2018-19 2019-20 2020-21 increasing its student-faculty a Reflects year-end reserve. ratio. 58 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET CALIFORNIA STUDENT AID COMMISSION In this section, we provide an overview of the of one-time funding for CSAC state operations Governor’s budget for the California Student Aid ($2 million). The two main fund sources for CSAC Commission (CSAC), analyze his proposals for are state General Fund and federal Temporary Cal Grants and Middle Class Scholarships, and Assistance for Needy Families (TANF) funds. estimate state financial aid costs associated with Under the Governor’s proposal, General Fund increases in UC and CSU tuition. spending increases by $23 million, while TANF funds remain flat. Overview Governor Revises Spending Estimates for Governor Proposes $2.1 Billion for CSAC 2015-16 and 2016-17. The Governor assumes in 2017-18. As Figure 27 shows, the Governor virtually no change in 2015-16 spending, aside from proposes a $28 million (1.4 percent) increase for a few minor decreases totaling less than $300,000. CSAC over the revised 2016-17 level. The largest For 2016-17, he assumes spending decreases by increase is for Cal Grants ($34 million), offset $54 million, primarily due to a $52 million decrease by smaller decreases for the phase out of a loan in Cal Grant costs. assumption program ($3 million) and the removal Figure 27 California Student Aid Commission Budget (Dollars in Millions) Change From 2016-17 2015-16 2016-17 2017-18 Revised Revised Proposed Amount Percent Expenditures Local Assistance Cal Grants $1,916a $1,952 $1,986 $34 1.7% Middle Class Scholarships 48 74 74 — — Assumption Program of Loans for Education 14 10 7 -3 -33 Chafee Foster Youth Program 11 14 14 — — Student Opportunity and Access Program 8 8 8 — — National Guard Education Assistance Awards 2 2 2 — — Other Programsb 1 1 1 —c 3.7 Subtotals ($2,002) ($2,062) ($2,093) ($31) (1.5%) State Operations $14 $17 $14 -$2 -14% Totals $2,016 $2,079 $2,107 $28 1.4% Funding State General Fund $1,479 $1,130 $1,153 $23 2% Federal TANF 521 926 926 — — Other federal funds and reimbursements 15 18 18 -1 -2.8 College Access Tax Credit Fund 1 5 11 6 119 a Reflects amount assumed in the Governor’s budget. The California Student Aid Commission estimates expenditures to be $56 million lower. b 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. c Less than $500,000. TANF = Temporary Assistance for Needy Families. www.lao.ca.gov Legislative Analyst’s Office 59 2017-18 BUDGET Cal Grants Cost Estimates CSAC Estimates Cal Grant Caseload Based Below, we provide background on the program, Largely on Previous Trends. Each fall and spring, review the Governor’s cost estimates, and then CSAC estimates the Cal Grant caseload for the discuss a scheduled reduction to the award for prior year, current year, and budget year. For students attending private, nonprofit schools. the prior year, CSAC looks at actual monthly Background payments to institutions and makes projections for outstanding months based on historical monthly State Has a Long History of Providing Cal payment trends. For the current year, CSAC looks Grants. The Cal Grant program traces its roots at how many awards have been offered to date back to 1955, when the Legislature established a and then assumes a certain percentage of these merit-based, competitive State Scholarship program awards are paid based on recent paid rates. For for financially needy students attending either the budget year, CSAC takes the current-year public or private institutions. In the late 1970s, estimate and projects it forward based upon the Legislature consolidated the State Scholarship various assumptions, such as the expected share program and other aid programs that it had created of new awards converting into renewal awards over the years into the Cal Grant program. In 2000, and the attrition of existing renewal awards. For the Legislature restructured the Cal Grant program current- and budget-year estimates, CSAC also into an entitlement program for students meeting includes the effects of any policy or administrative certain financial and merit-based eligibility criteria, changes. For instance, CSAC includes the effects as well as a competitive program for students not of any tuition increases at the public universities meeting all the entitlement criteria. as well as any administrative efforts to increase Cal Grant Program Has Multiple Award the number of awards that are paid. CSAC then Amounts and Eligibility Criteria. The Cal Grant provides its estimates to the Department of Finance programs offer three types of awards. One type, Cal for inclusion in the Governor’s budget. Grant A, covers full systemwide tuition and fees Governor Assumes No Change in Spending for at the public universities and up to a fixed dollar 2015-16. In spring 2016, the state revised 2015-16 amount toward costs at private colleges. The second Cal Grant spending to $1.9 billion, based on type, Cal Grant B, is designed for students with CSAC’s spring estimates. The Governor’s 2017-18 the lowest household income. It provides stipends budget assumes the same level of spending. (known as access awards) to help pay for books, More Recent Data Suggests Spending Is supplies, and transportation as well as covers $56 Million Lower in 2015-16, Recommend tuition in all but the first year of college. The third Recognizing Savings. In September 2016, CSAC type of award, Cal Grant C, provides up to a fixed revised its estimate of 2015-16 Cal Grant spending amount for tuition and fees and other costs for down by $56 million. By that time in the year, eligible low-and middle-income students enrolled CSAC has almost exact data on program costs, as in career technical education programs. A student historically 99.9 percent of Cal Grant payments generally may receive a Cal Grant A or B award for have been made for the prior fiscal year. We up to the equivalent of four years of full-time study, recommend the Legislature recognize CSAC’s whereas a Cal Grant C award is available for up to updated estimate of 2015-16 program costs. two years. Figure 28 displays the award amounts Recognizing the drop in costs increases the state’s and eligibility criteria for each type of Cal Grant. 60 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET incoming General Fund Figure 28 balance by $56 million Cal Grant Award Amounts and Eligibility Criteria compared to the 2016-17 Governor’s budget. Award Amounts Governor Assumes Cal Grant A Lower Spending in Tuition awards for up to four years. 2016-17, Higher Spending Full systemwide tuition and fees ($12,294) at UC. in 2017-18. The Governor Full systemwide tuition and fees ($5,472) at CSU. Fixed amount ($9,084) at nonprofit or WASC-accredited for-profit colleges. revises down estimated Fixed amount ($4,000) at other for-profit colleges. Cal Grant costs in Cal Grant B 2016-17 by $52 million Up to $1,678 toward books and living expenses for up to four years. to reflect an estimated Tuition coverage comparable to A award for all but first year. 3 percent drop in Cal Grant C recipients from 2016-17 Up to $2,462 for tuition and fees for up to two years. Up to $547 for other costs for up to two years. Budget Act assumptions. Compared to the revised Financial Eligibility Criteria (for Dependent Students) 2016-17 level of spending, Cal Grant A and C Family income ceiling: $81,300 to $104,600, depending on family size. he projects a $34 million Asset ceiling: $70,000. increase in 2017-18. The Financial need: varies by institution.a increase primarily is due Cal Grant B to a projected 2 percent Family income ceiling: $38,000 to $57,500, depending on family size. Asset ceiling: $70,000. increase in participation, Financial need: at least $700.a offset by savings from Nonfinancial Eligibility Criteria a scheduled decrease to the award for students High School Entitlement (A and B) • High school senior or graduated from high school within the last year. attending private, • Minimum high school GPA of 3.0 for A award or 2.0 for B award. nonprofit colleges. The Transfer Entitlement (A and B) Governor’s estimate for • CCC student under age 28 transferring to a four-year school. 2017-18 does not assume • Minimum college GPA of 2.4. any changes in tuition Competitive (A and B) • Not eligible for entitlement award. and fees except for a $54 • Minimum high school GPA of 3.0 for A award and 2.0 for B award. increase (5 percent) in • State law authorizes 25,750 new awards per year. UC’s Student Services Competitive (C) Fee. • Must be enrolled in career technical education program at least four months long. • No GPA minimum. Recommend • State law authorizes 7,761 new awards per year. Revisiting 2016-17 and a Financial need is the difference between (1) total cost of attendance (including living expenses) and 2017-18 Estimates at (2) the expected family contribution, as calculated based on the Free Application for Federal Student Aid. For Cal Grant A and C awards, the minimum financial need a family must have is linked to tuition at UC May Revision. CSAC will and CSU and Cal Grant award levels at private, nonprofit and for-profit institutions. WASC = Western Association of Schools and Colleges and GPA = grade point average. update its current-year and budget-year estimates www.lao.ca.gov Legislative Analyst’s Office 61 2017-18 BUDGET in April for inclusion in the May Revision. As these Private Award Has Student and State Benefits. estimates will be based on more recent trends in Throughout its history, the Cal Grant program has paid recipients, we recommend the Legislature provided aid to students attending either public or revisit CSAC’s estimates at that time. private institutions, thereby providing financially needy students choice over their postsecondary Private, Nonprofit Award education. At times, the state also has used the Cal Private Award Used to Be Linked to Costs and Grant program to incentivize students to attend Tuition at UC and CSU. Prior to the restructuring private colleges in order to alleviate enrollment of the Cal Grant program in 2000, state law called pressures at the public segments. for the maximum private award to be set by adding Recommend Legislature Consider Establishing together (1) 75 percent of the General Fund cost Policy for Private Award Amount. Unlike awards per CSU student, and (2) the average of the tuition for the public segments (which are pegged to tuition), and fees charged by UC and CSU. (At that time, the state currently has no guiding policy for how to the state had one award for all private institutions, set awards for private institutions. We recommend unlike today where it differentiates for nonprofit the Legislature establish a statutory policy for private versus for-profit institutions.) The policy served awards similar to the one in effect prior to 2000. If as an aspirational goal against which to measure the Legislature were to use the same policy from back state funding. In 1997-98, for example, the state then, we calculate the award amount (or aspirational met 97 percent of the statutory goal. As part of goal) would be $16,500. Given the 2016-17 funding the Cal Grant program restructuring in 2000, the rate of $9,084, the state would be funding 55 percent Legislature removed these provisions from state of its goal. Depending on the specific policy adopted, law. the Legislature could determine the exact adjustment Current Law Lowers Private, Nonprofit Award to make to the award in 2017-18, potentially also Beginning in 2017-18. As a savings measure, the adopting a multiyear plan to ramp up the award over 2012-13 budget amended state law to lower the time were the policy to result in a notably higher private, nonprofit award from $9,084 to $8,056 award amount. starting in 2014-15. Subsequent budget actions have Middle Class Scholarships postponed the reduction. Most recently, the 2015-16 budget delayed the reduction until 2017-18. The Middle Class Scholarships Started in 2014-15. reduction is set to apply prospectively to new award Under the program, students with household recipients only. incomes and assets each under $156,000 may Governor Proposes to Allow Scheduled qualify for an award that covers their tuition Reduction to Go Into Effect. CSAC estimates the (when combined with all other public financial reduction will affect about 8,500 new Cal Grant aid). The program is being phased in, with awards recipients in 2017-18 and projects an associated in 2016-17 set at 75 percent of full award levels, $7.4 million in savings. The number of recipients increasing to 100 percent at full implementation affected and the associated savings will more than in 2017-18. CSAC provides these scholarships to triple over the following three years as recipients eligible students who fill out a federal financial “grandfathered” in at the higher rate exit the aid application, though the program is not program. need-based according to the federal government’s financial aid formula. Unlike Cal Grants, the 62 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET program is not considered an entitlement, with in their student populations (with CSU students program funding levels capped in state law. If tending to have lower household incomes) and their funding were insufficient to cover the maximum institutional aid programs (with CSU having less award amounts specified in law, awards would be grant aid available per student). prorated downward. Current state law appropriates Two Main Reasons Why Students in $74 million for 2016-17, increasing to $117 million Lowest Income Bracket Receive a Middle Class in 2017-18 to reflect the phase in of award coverage. Scholarship. Typically, students with household Middle Class Scholarships Serve Students income at or below $50,000 have their tuition From Varying Household Incomes. In 2016-17, covered through Cal Grants or institutional aid about 5 percent of UC students and 12 percent of programs and therefore would not qualify for a CSU students are expected to receive a Middle Middle Class Scholarship. According to CSU, many Class Scholarship. Figure 29 shows the share of of the lowest-income students receiving a Middle recipients for each segment by three household Class Scholarship have exceeded the time limits income brackets. The figure shows that recipients for other sources of aid. (A time limit for Middle at CSU tend to have lower household incomes Class Scholarships is taking effect for the first than recipients at UC. For instance, students with time starting in 2016-17.) The vast majority also household income of $50,000 or less make up are considered independent—meaning they are only a small share of UC recipients but comprise over age 24, married, or have dependents. These nearly one-fifth of CSU recipients. This difference independent students generally require a very low between the segments likely is due to differences income to receive other forms of grant aid. Figure 29 Middle Class Scholarships by Household Income 2016-17 UC CSU Less than $50,001 $50,001 to $100,000 $100,001 to $156,000 www.lao.ca.gov Legislative Analyst’s Office 63 2017-18 BUDGET Various Reasons Students in Next Highest associated with the phase out, the Governor also Bracket Receive an Award. Students with proposes to set the program’s statutory funding household income between $50,001 and $100,000 level at $45 million in 2018-19, $28 million in also might have exceeded time limits for other 2019-20, and $2 million in 2020-21. According to programs or be considered independent for the administration, the phase out is intended to financial purposes. Additionally, many students in address a state budget shortfall while prioritizing this income bracket might not meet the eligibility state aid for financially needy students served requirements for other aid programs. For instance, through the Cal Grant program. students in this bracket could be excluded from Prioritizing Aid for Financially Neediest the Cal Grant program because they exceed that Students Most Effective Approach to Providing program’s income ceiling, which varies depending Access. Research indicates that grant programs on the student’s family size and high school can increase college attendance (and, in some grade point average. Moreover, most students in cases, improve persistence and completion). Some this income bracket would not qualify for CSU’s research also suggests that grant programs can institutional aid and some at the higher end might affect access more significantly for lower-income not qualify for UC’s aid program. students as compared to middle- and upper-income Governor Proposes No Changes to 2016-17 students. Spending. Though he proposes no change at this Prioritizing Aid Difficult Due to Patchwork time, the Governor has indicated his intention as of Financial Aid Programs. Though the Governor part of the May Revision to provide any additional aims to prioritize aid for the financially neediest funding necessary such that 2016-17 awards are students, targeting financial aid reductions is not prorated downward. CSAC’s most recent difficult because financial need criteria are different projections suggest expenditures could exceed the for Middle Class Scholarships, Cal Grants, and 2016-17 statutory appropriation by $7 million. UC’s and CSU’s institutional aid programs. Governor Proposes to Lower Spending, Phase Another complicating factor in prioritizing aid Out Program Starting in 2017-18. The Governor across programs is that programs have different proposes to reduce the statutory appropriation nonfinancial requirements. For example, Cal for 2017-18 from $117 million to $74 million. The Grants have a grade point average requirement, $43 million reduction is linked to two factors. but Middle Class Scholarships do not. Even when First, the Governor projects spending will be lower programs have a similar eligibility requirement, the than expected based on current participation programs are not always coordinated. For instance, trends ($7 million). Second, he proposes phasing a student exceeding the four-year time limit for a out the program and funding only renewal awards Cal Grant still could qualify for CSU’s institutional for prior-year recipients ($36 million). Despite aid as that program allows for over six years of the phase out, the Governor proposes increasing full-time attendance. the maximum amount of these renewal awards Recommend Legislature Consider Ways to in accordance with original statutory intent Restructure Aid Programs. Even if the Legislature (increasing from 30 percent to 40 percent of does not concur with the Governor that reductions the tuition charge). To reflect out-year savings should be made to state financial aid programs 64 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET to address a state budget shortfall, it could take Governor’s Budget Assumes Flat Tuition in the opportunity to explore ways to restructure 2017-18. The Governor assumes no changes to state and institutional aid to make it more UC and CSU tuition, aside from a $54 (5 percent) comprehensible and consistent for students. One increase in UC’s systemwide Student Services Fee. potential restructuring approach is to consolidate His budget assumes the increase in the UC fee in existing aid programs into a single state grant. turn increases Cal Grant spending in 2017-18 by Alternatively, the Legislature could retain the $3.8 million. current array of programs but establish a core set of UC Regents Recently Approved a 2.5 Percent uniform and coordinated eligibility requirements Tuition Increase, CSU Trustees Considering a across them. Under either approach, the Legislature 4.9 Percent Increase. In January, the UC Regents would be better positioned to assess ways to approved a $282 (2.5 percent) increase in UC’s prioritize aid among students. systemwide tuition charge. The CSU Trustees are expected to consider approving a $270 (4.9 percent) Tuition increase in its systemwide tuition charge at its UC and CSU Tuition Charges Affect State March board meeting. Financial Aid Costs. The state budget funds Cal Tuition Increases Combined Would Grant costs assuming full tuition coverage for Increase State Cal Grant Costs by $47.4 Million. students attending UC and CSU. This means that Specifically, we estimate UC’s and CSU’s tuition Cal Grant costs increase when the universities raise increases would cause state Cal Grant spending tuition (all else constant). Tuition increases also to go up by $20.2 million and $27.2 million, can affect Middle Class Scholarships as state law respectively, in 2017-18. (For every 1 percent sets those awards to equal a percentage of tuition, increase in UC’s and CSU’s systemwide tuition though this program’s costs are capped in state law. charges, we estimate Cal Grant costs increase $8 million and $5.5 million, respectively.) www.lao.ca.gov Legislative Analyst’s Office 65 2017-18 BUDGET 66 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET SUMMARY OF RECOMMENDATIONS Performance • Reject Governor’s proposal to eliminate provisional budget language that requires UC and CSU to provide November performance reports (“academic sustainability plans”). Consider instead eliminating the segments’ March performance reports. • Direct CCC Chancellor’s Office to revise its performance measurement system to promote greater transparency and more challenging targets. • Adopt trailer legislation replacing UC’s and CSU’s funding per degree performance measure with a more meaningful efficiency measure. Consider involving CCC in discussions and also applying the new measure to that segment. • Direct UC, CSU, and CCC to report at spring hearings on potential ways to measure outcomes of graduates, including the feasibility of adding an earnings or income mobility indicator. University of California • Set enrollment target for 2018-19. Use upcoming reports on UC’s degree production and freshman eligibility to inform enrollment decision. Schedule any associated enrollment growth funding for 2018-19 in trailer legislation. • Direct UC at spring budget hearings to report on (1) its proposed nonresident enrollment policy and (2) how proposed nonresident enrollment growth in 2017-18 aligns with that policy. • Direct UC to (1) identify the specific objectives of its Academic Excellence initiative, (2) explain how progress toward those objectives will be measured and evaluated, and (3) detail the specific uses of the proposed funds. If UC is unable to provide sufficient justification for the program, redirect the associated funds to a higher priority. • Consider whether Proposition 56 funding for graduate medical education should (1) replace existing UC funding, holding constant current medical residency slots and freeing up a like amount for other UC cost increases; or (2) augment existing funding to expand medical residency slots. • Encourage UC to redirect $15 million in bond funding from a proposed one-time facility assessment to specified facility projects. • Require UC to develop a long-term plan to (1) retire its maintenance backlog and (2) improve its ongoing maintenance practices moving forward to prevent a backlog from reemerging. www.lao.ca.gov Legislative Analyst’s Office 67 2017-18 BUDGET California State University • Recognize four significant cost pressures—funding (1) collective bargaining agreements ratified by the Board of Trustees last spring, (2) basic cost increases (such as for health care and pensions), (3) compensation increases for employee groups with open contracts, and (4) transfer enrollment (as some eligible transfer students have been denied admission in recent years). • Signal to CSU that a 5 percent increase in tuition charges is too high given anticipated inflation in the budget year. Instead, consider a tuition increase of a lesser amount (such as 2.5 percent) to generate funding for (1) additional transfer enrollment growth and (2) a compensation pool for bargaining groups with open contracts. • Wait on deciding whether to provide enrollment growth funding for freshman entrants pending the Legislature’s receipt and review of upcoming reports on CSU’s degree production and freshman eligibility. • Require CSU to report to the Legislature by January 1, 2018 on (1) plans to implement research-based methods for assessing and placing students into remedial coursework and (2) opportunities for campuses to make available more course slots by reducing the number of excess units students earn. California Community Colleges • Wait until early May for updated estimate of 2016-17 enrollment and then adjust apportionments for that year and 2017-18 accordingly. Use any freed-up funds for other Proposition 98 priorities. • Continue to monitor CCC course offerings to ensure that colleges do not unduly expand enrollment in nonpriority areas to meet enrollment targets. • Adopt Governor’s proposal to repeal authority for Chancellor’s Office to allocate excess local revenues to districts for one-time purposes. Authority has not been used to date, as the state routinely reallocates excess revenues through the budget process. • Approve $98 million COLA for apportionments and select categorical programs (adjusting the final amount in May). Also approve $24 million general purpose apportionment increase and consider a larger increase if additional state revenue is available in May. • Reject $10 million augmentation to permanently, fully subsidize a statewide course management system. The existing subsidy already enables most colleges to realize significant savings from adopting the new software. 68 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET • Reject $20 million innovation awards proposal. Rather than providing large sums to a small number of colleges to implement local initiatives, focus on ensuring that existing CCC student success programs are implemented effectively. • Direct CCC to develop statewide integrated library system (ILS) whether or not the state provides funding. The ILS would substantially lower costs for most colleges giving them a strong incentive to develop it on their own. If the Legislature wished to facilitate development, it could consider the $6 million proposal in the context of its other priorities. • Ask the administration and Chancellor to report on the results of their organizational review of the Chancellor’s Office. As part of their report, ask them to offer better justification for any positions or funding they propose adding to the office. Ask the Chancellor also to identify lower-value oversight activities that could be curtailed without adverse effect. • Ask the administration and Chancellor to provide information in hearings about (1) how the proposed $150 million guided pathways program would be structured, implemented, and led; (2) what changes might be needed in how the state organizes and funds CCC student success efforts; and (3) the rationale for the proposed funding amount and timeline. With this information, the Legislature would be in a better position to weigh the proposal against its other priorities. • Ask the administration during spring budget hearings to clarify its plans for rolling out the $2 billion in Proposition 51 bond funding for CCC facility projects as expeditiously as possible. Based on the information provided, consider authorizing additional CCC projects in 2017-18 and developing a five-year expenditure plan. Hastings College of the Law • Direct Hastings to report at spring budget hearings on how it plans to right its budget over the next few years while still ensuring the school furthers the state’s education and workforce priorities. California Student Aid Commission • Recognize $56 million in Cal Grant savings from 2015-16 based on recent expenditure information. Revisit cost estimates for 2016-17 and 2017-18 at the May Revision. • Establish a policy for setting Cal Grant award amount for students attending private institutions. Determine 2017-18 award amount based on this policy. • Restructure state and institutional financial aid programs by either consolidating them into one program or establishing a core set of uniform and coordinated eligibility requirements. Then, prioritize aid for the financially neediest students in the state. www.lao.ca.gov Legislative Analyst’s Office 69 2017-18 BUDGET 70 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET www.lao.ca.gov Legislative Analyst’s Office 71 2017-18 BUDGET Contact Information Paul Golaszewski California Student Aid Commission 319-8341 Paul.Golaszewski@lao.ca.gov Jason Constantouros University of California 319-8322 Jason.Constantouros@lao.ca.gov Hastings College of the Law Judy Heiman California Community Colleges 319-8358 Judy.Heiman@lao.ca.gov Paul Steenhausen California State University 319-8303 Paul.Steenhausen@lao.ca.gov LAO Publications This report was reviewed by Jennifer Kuhn. The Legislative Analyst’s Office (LAO) is a nonpartisan office that pro- vides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, CA 95814. 72 Legislative Analyst’s Office www.lao.ca.gov