The 2018-19 Budget: Hastings College of the Law

The 2018-19 Budget: Hastings College of the Law MAC TAYLOR LEGISLATIVE ANALYST FEBRUARY 2018 Summary College’s Budget Condition Is Somewhat Improved, Though Legislature Faces Key Upcoming Decisions. In recent years, Hastings College of the Law has been deficit spending, largely due to its decision to increase the amount of tuition discounts it provides to students. In 2018-19, the college is starting to implement a multiyear plan to eliminate its deficit. The key components of the plan are reducing tuition discounts and increasing resident student tuition charges. Though the plan would eliminate the college’s structural budget imbalance by 2021-22, the plan comes at significant cost to the college’s students. In 2019-20, for example, the college proposes to increase resident tuition for its juris doctor program by $4,349 (10 percent). We recommend the Legislature ask Hastings to report during spring hearings on its multiyear budget plan and consider a broader array of strategies to eliminate the school’s deficit. In this report, we provide an overview of the Hastings Anticipates Slight Increase in Tuition Governor’s proposed budget for Hastings College of and Fee Revenue Due to Enrollment Growth. Neither the Law (Hastings), describe the school’s proposed the Governor nor Hastings proposes to increase tuition spending plan, assess that plan, and offer an charges in 2018-19, leaving tuition flat for the sixth associated recommendation. consecutive year. Hastings anticipates gross tuition and fee revenue will rise by $658,000 (1.6 percent) due to Governor’s Budget Proposal planned enrollment growth. Hastings plans to enroll 926 full-time equivalent (FTE) juris doctor students Hastings Estimated to Receive $57.7 Million From Core Fund Sources in 2018-19. This level in 2018-19, reflecting an increase of 17 students reflects a $1.8 million (3.2 percent) increase from the (1.9 percent) over the current year. Hastings plans no current year. As the top half of Figure 1 (see next page) enrollment growth in its two smaller master’s degree shows, Hastings’ primary source of funding is student programs, which currently enroll 23 FTE students. tuition and fee revenue ($42.2 million in 2018-19), Hastings’ Spending Plan followed by state General Fund ($13.8 million), with a small amount ($1.6 million) coming from other sources Hastings Would Increase Spending by Governor Proposes $1.1 Million (8.7 percent) $1.2 Million (1.8 Percent) in 2018-19. Most of this General Fund Base Increase. The bulk of this increase is for (1) a 3 percent general salary increase for funding is unrestricted, but $20,000 is specifically for faculty and staff ($676,000), and (2) Hastings’ portion of debt-service costs on recently sold lease-revenue implementation costs for UCPath ($350,000). UCPath bonds. is the University of California’s new payroll system. analysis full gutter 2018-19 BUDGET The remaining increase would be for a variety of other year. As the bottom half of Figure 1 shows, Hastings cost increases, including financial aid grants ($90,000), anticipates a $7.5 million deficit in 2018-19, down from employee benefits ($84,000), and debt service for $8.1 million in the current year. Hastings projects having lease-revenue bonds ($20,000). The school also a $9.5 million reserve at the end of 2018-19. anticipates achieving $40,000 in savings due to various Hastings Anticipates Increasing Tuition in Later operational changes, including reduced procurement Years to Eliminate Its Deficit Spending. The budget costs. year would represent the first year of a multiyear plan Hastings Is Beginning to Reduce Its Deficit by Hastings to eliminate its budget deficit. The plan Spending. In recent years, Hastings has been deficit makes three key assumptions: (1) no increases to spending—that is, spending more annually than it state funding over the period, (2) increases to resident receives in funding. This deficit spending has been tuition charges beginning in 2019-20, and (3) tuition due primarily to the school’s decision, beginning in discounting of 30 percent. Hastings’ plan also assumes 2015-16, to increase merit-based and need-based the school will steadily grow its operating costs, as student financial aid (known as “tuition discounting”). well as slightly reduce and then hold juris doctor The increase in tuition discounting was part of an effort enrollment to about 900 FTE students. According to the by the school to attract additional higher performing school, this enrollment level reflects a long-term trend students. Hastings has covered deficit spending from of declining enrollment due to slackening workforce a reserve it maintains of tuition and other nonstate demand for lawyers. As Figure 2 shows, Hastings monies. In 2018-19, the school plans to reverse this projects this plan would gradually reduce the amount of course and begin to reduce tuition discounting and, its deficit spending each year, with no operating deficit in turn, its deficit spending. Specifically, Hastings in 2021-22. Although Hastings would continue drawing proposes a tuition discount rate of 38 percent for down its reserve each year through 2020-21, it projects its incoming fall 2018 cohort, a decrease from the having a reserve of $6.2 million at the end of 2021-22. 42 percent discount rate provided in the current Figure 1 Hastings Core Budget (Dollars in Millions) Change From 2017-18 2016-17 2017-18 2018-19 Actual Revised Proposed Level Percent Reserve at Start of Year $26.3 $25.0 $16.9 -$8.1 -32.4% Core Funding General Fund Ongoing $11.7 $12.7 $13.8 $1.1 8.7% One time 2.0 — — — — Subtotals ($13.7) ($12.7) ($13.8) ($1.1) (8.7%) Tuition and fee revenue $41.3 $41.6 $42.2 $0.7 1.6% Othera 4.2 1.6 1.6 0.1 5.5 Totals $59.2 $55.9 $57.7 $1.8 3.2% Spending Operational spending $45.1 $45.9 $46.9 $1.1 2.4% Financial aid 15.3 18.1 18.2 0.1 0.5 Totals $60.4 $64.0 $65.2 $1.2 1.8% Annual Deficit -$1.3 -$8.1 -$7.5 $0.6 -7.8% Year-End Reserve $25.0 $16.9 $9.5 -$7.5 -44.1% a Includes investment income, a portion of funds from auxiliary programs, and state lottery funds. 2 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET Assessment and Recommendation decisions this year and in the coming years regarding Hastings’ tuition levels and state funding levels. To help Hastings’ Core Budget on a Somewhat Better inform these decisions, we recommend the Legislature Path. As part of deliberations on the 2017-18 budget, ask Hastings to report during spring hearings on its Hastings presented the Legislature with a five-year multiyear budget plan to eliminate its operating deficit. budget plan to eliminate its deficit. At the time, the As part of its review, the Legislature may want to ask school projected having a reserve of $300,000 before Hastings to consider a broader array of strategies to eliminating its deficit. Though the school still eliminate its operating deficit. Such strategies could anticipates deficit spending over the next three years, include: (1) increasing Hastings student-faculty ratio its budget condition has improved somewhat. The by adjusting staffing levels; (2) increasing tuition more improved outlook is due largely to the school having gradually by instituting a modest increase in 2018-19; higher-than-expected endowment earnings and and (3) reducing the school’s planned employee implementing some cost controls. While Hastings’ compensation and other operating cost increases. budget appears to be on a somewhat better trajectory compared to last year, the plan is subject to some uncertainty. For example, the Legislature could face pressure to reduce General Fund support to the school were the state to experience a recession. On the Figure 2 other hand, revenues could exceed Hastings Plans to Stop Deficit Spending by 2021-22 expectations were the school to (In Millions) continue to experience strong endowment earnings. $70 Students Could Face Notable 60 Cost Increases in Future Years. Tuition at Hastings has remained 50 flat for several years. The upcoming tuition charges proposed under 40 Deficit spending Hastings’ plan, however, would Funding 30 represent significant cost increases Reserve for students. In 2019-20, for 20 example, Hastings plans to grow resident tuition for its juris doctor 10 program by $4,349 (10 percent). Recommend Legislature 2017-18 2018-19 2019-20 2020-21 2021-22 Review Hastings’ Multiyear Budget Plan in the Spring. The Legislature likely will face important www.lao.ca.gov 3 analysis full gutter 2018-19 BUDGET LAO PUBLICATIONS This report was prepared by Jason Constantouros and reviewed by Paul Steenhausen and Jennifer Kuhn. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, CA 95814. 4 LEGISLATIVE ANALYST’S OFFICE