The 2018-19 Budget: Analysis of the May Revision Education Budget Proposals

The 2018-19 Budget: Analysis of the May Revision Education Proposals MAC TAYLOR LEGISLATIVE ANALYST MAY 14, 2018 INTRODUCTION In this report, we analyze the May Revision education proposals. We first provide an overview of Proposition 98 funding and then focus on the Governor’s major proposals for K-12 education, child care and preschool, community colleges, universities, and student financial aid. This year, the May Revision does not contain substantially higher amounts of education funding. It does, however, contain a few major new policy proposals and many notable policy revisions to the Governor’s January proposals. Most notably, the May Revision includes a major proposal relating to a new process for certifying and truing up the Proposition 98 minimum guarantee. We believe this proposal merits serious legislative consideration. The May Revision also makes notable revisions to the Governor’s January proposals for building a new system of support for low-performing school districts, restructuring the community college apportionment formula, and creating a new online college. We think some of the policy revisions in the May Revision reflect improvements, but we think they tend not to go far enough in addressing key underlying issues. In the pages that follow, we offer many specific recommendations for the Legislature to consider on these and other issues. Our package of recommendations includes adopting some proposals, modifying others in certain ways, rejecting others but inviting better proposals next year, and rejecting some proposals in their entirety. CONTENTS Proposition 98 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 K-12 Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Child Care and Preschool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Community Colleges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 California State University . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 University of California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Student Financial Aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 analysis full gutter 2018-19 BUDGET PROPOSITION 98 OVERVIEW Below, we explain and assess the May Revision affecting the guarantee relates to a rebenching changes in the Proposition 98 minimum guarantee proposal. In 2015-16, the state changed the way it and analyze the administration’s certification accounted for certain preschool costs. Previously, proposal. the state had funded the part-day preschool program using Proposition 98 General Fund and Major Changes in the Guarantee all wraparound care using non-Proposition 98 General Fund. In 2015-16, the state began using Increases Proposition 98 Funding by $727 Million Over the Period. Figure 1 compares Proposition 98 to pay for the portion of wraparound Proposition 98 funding under the Governor’s care provided by school districts and county offices January budget and the May Revision. Compared of education (with wraparound care provided by with January, the May Revision proposes nonprofit agencies still funded from non-Proposition $727 million in additional funding across the 98 General Fund). The Governor now proposes 2016-17 through 2018-19 period ($252 million in to adjust (or “rebench”) the minimum guarantee 2016-17, $407 million in 2017-18, and $68 million upward to account for this cost shift. Rebenching in 2018-19). Under the May Revision, total for the shift accounts for approximately $350 million Proposition 98 funding in 2018-19 is $78.4 billion, (or half) of the total increase in the guarantee a $2.8 billion (3.7 percent) increase over the revised over the period. (The California School Boards 2017-18 level. For each year of the period, the Association sued the state over its previous action Governor proposes to fund at the revised estimate not to rebench the guarantee. A trial court ruled of the minimum guarantee. against the state in late 2016, and the state is in the midst of appealing that decision.) Revises General Fund Revenue Estimates Upward Significantly. Several factors affecting Incorporates Lower Per Capita Personal the guarantee have changed since January. Income Rate for 2018-19. Whereas the above One notable change relates to state General two changes increase the guarantee, the recent Fund revenue estimates. Compared to January adjustment to the per capita personal income estimates, the May Revision has General Fund rate has a downward effect on the guarantee. tax revenue up nearly $8 billion over the three-year period. In Figure 1 most years, upward revisions of this magnitude lead to significant Comparing Proposition 98 Funding increases in the Proposition 98 Under Governor’s Budget and May Revision guarantee. These increases often (In Millions) reflect higher required maintenance 2016-17 2017-18 2018-19 factor payments. The Governor’s budget, however, already assumed Governor’s Budget the state would end 2017-18 General Fund $49,993 $52,741 $54,564 Local property tax 21,397 22,470 23,761 with relatively little maintenance Totals $71,390 $75,211 $78,324 factor outstanding. Given these May Revision conditions, the increase in the General Fund $50,234 $53,381 $55,025 minimum guarantee attributable to Local property tax 21,407 22,236 23,368 the higher revenue is only about Totals $71,642 $75,618 $78,393 $450 million over the period. Change Proposes to Rebench the General Fund $241 $641 $461 Guarantee for 2015-16 Shift of Local property tax 11 -234 -393 Preschool Costs. Another factor Totals $252 $407 $68 2 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET The administration in January estimated that A New Certification Process growth in per capita personal income would be State Originally Created Certification Process 4.25 percent. (For purposes of calculating the to Finalize the Calculation of the Minimum minimum guarantee, the data underlying the per Guarantee. The state created the certification capita personal income rate is lagged one year.) process through statute in 1989 after voters The May Revision incorporates revised data from approved Proposition 98 the previous year. the federal government showing the growth rate Under the law, the Director of Finance, State now at 3.67 percent. This lower growth rate offsets Superintendent of Public Instruction, and California about $80 million of the increase in the 2018-19 Community Colleges Chancellor are to agree guarantee that otherwise would result from the upon and certify a final calculation of the minimum increase in General Fund revenue. guarantee within nine months following the end of Makes No Notable Changes to Student the fiscal year. Though intended to be an annual Attendance Estimates. Data from the California process, those responsible for certification have Department of Education show that final rarely agreed on all aspects of the Proposition student attendance for 2016-17 came in slightly 98 calculations. These disagreements have tended higher than the administration had projected in to delay certifications for many years after the January. The May Revision updates the 2016-17 statutory deadline. The last time the state certified guarantee to account for the new data but makes the minimum guarantee was in 2008-09. Even essentially no changes to 2017-18 or 2018-19 that year, the Legislature decided to set forth the attendance estimates. Under the administration’s minimum guarantee in statute rather than use the projections, attendance increases by 0.01 percent process outlined above. in 2017-18 then declines by 0.29 percent in May Revision Proposes New Process for 2018-19. Similar to January, the assumption Certifying the Minimum Guarantee. The Governor about attendance growth in 2017-18 is significant proposes a new certification process that would because it triggers a two-year hold harmless be managed by the Director of Finance. Under the provision set forth in the State Constitution. new process, the administration would publish a The provision effectively prevents the projected tentative recalculation of the prior-year minimum attendance decline in 2018-19 from affecting the guarantee in the May Revision. This estimate would 2018-19 minimum guarantee. include all of the underlying factors used in the Property Taxes Down From January Budget. calculation of the guarantee. Similar to current Compared to January, the administration estimates practice, some of these factors (such as General that Proposition 98 property tax revenue is down Fund revenue and state population) would reflect $627 million over the period (down $234 million the administration’s final estimates for the year in 2017-18 and down $393 in 2018-19). The whereas other factors (such as student attendance administration updates its 2017-18 estimate using and local property tax revenue) would reflect data recently reported by schools and colleges. amounts reported by the California Department of This data shows some weakness relative to Education and the California’s Community Colleges January. Some of the weakness is the result of Chancellor’s Office. The publication of this tentative lower-than-expected revenue from the 1 percent calculation would begin a public comment period tax levied on the value of most properties. that would allow any interested party to submit The administration assumes this weakness feedback on the estimates. After reviewing and in 2017-18 carries forward to 2018-19. The responding to these comments, the administration administration also makes a downward adjustment would publish a final calculation of the guarantee by to the estimates of revenue attributable to local June 30. Over the next 90 days, a concerned party Educational Revenue Augmentation Fund accounts could submit a legal challenge over any issue not in 2018-19. resolved through the comment process. Assuming no legal challenges, the guarantee would be deemed certified at the end of the 90-day period. www.lao.ca.gov 3 analysis full gutter 2018-19 BUDGET May Revision Also Includes New Companion Assessment Process for Finalizing Prior-Year Spending. Potential Upside for State Revenue but Not The Governor also proposes a new process that for the Minimum Guarantee. Our estimates of would automatically adjust the spending that General Fund revenue from the personal income counts toward the minimum guarantee when tax are higher than the administration’s estimates the guarantee increases and decreases based in 2017-18 and 2018-19. The difference primarily upon the final certification. For years in which the reflects our higher projections of capital gains in guarantee drops, the state on paper would reduce 2017 and 2018 and higher wages and salaries in spending counting toward the guarantee and 2019. (Our estimates of the other major sources credit the difference to a newly created true-up of General Fund revenue—the sales tax and the account called the “Proposition 98 Cost Allocation corporation tax—together are somewhat lower Schedule.” For years in which the guarantee than the administration’s estimates, offsetting ends up higher during certification, the state a small portion of our higher personal income would apply any available credits in this account tax estimates.) If General Fund revenue were to toward the spending required to meet the higher increase a few billion dollars in either or both years minimum guarantee. If the credits in the account from the May Revision estimates, the minimum were insufficient to meet the higher guarantee, guarantee, however, would not increase. This is the state would provide the remaining difference because the May Revision already assumes the to schools and community colleges through a state pays all remaining maintenance factor in settle-up payment. As under current practice, 2017-18 and the minimum guarantee grows based the Legislature could decide how to allocate this upon per capita personal income. Faster revenue settle-up payment. If the Legislature did not specify growth under these conditions does not increase an allocation method, the State Controller would the Proposition 98 guarantee. As a result of these distribute the payment to schools and community dynamics, any additional revenue beyond the levels colleges based on student attendance. included the May Revision would be available for Proposal Caps Credits in the True-Up any legislative priority. Account. The administration proposes to limit the Administration’s Estimate of 2018-19 total amount of credits in the account to 1 percent Minimum Guarantee Likely High Based on of the minimum guarantee being certified that year. Recent Attendance Data. Not only is the minimum Each year, the state would adjust spending and guarantee unlikely to increase further in 2017-18 or add credits to the account only to the extent the 2018-19, but the administration’s estimate of the minimum guarantee dropped and existing credits 2018-19 guarantee could be too high. In March in the account were below the 1 percent threshold. 2018, the state received preliminary student Any spending above this threshold would continue attendance data for the first half of the 2017-18 to count toward the guarantee. school year. The data suggest attendance is likely Proposal Also Entails Certifying All Earlier to decline by 0.03 percent, compared with the Years. As part of the switch to a new certification 0.01 percent increase included in the May Revision. process, the administration proposes to certify Since this change equates to only a few thousand the guarantee for 2009-10 through 2015-16. The students, the effect on the 2017-18 guarantee certified amounts would reflect final Proposition would be minor. The effect on the 2018-19 98 spending for each of those years. The guarantee, however, would be more significant administration proposes using a similar public (a several hundred million dollar drop) because process over the coming year to share these the hold harmless provision would no longer be amounts publicly and allow for a set period of operative and the 2018-19 guarantee would decline comment, review, and potential challenge. in tandem with the decline in attendance projected for that year. Assuming this drop occurs, the state would have provided more funding than required to meet the minimum guarantee in 2018-19, which 4 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET could lead to a higher minimum guarantee moving • Less Financial Risk for the State. As part of forward. the 2001-02 May Revision, the administration Administration’s Property Tax Estimates Seem revised its state population estimates as far a Bit Low. We estimate Proposition 98 property back as 1995-96. These revisions increased tax revenue is nearly $650 million higher over the the 1995-96 through 1997-98 minimum period than the administration’s estimate. About guarantees by nearly $600 million, even $500 million of this difference is in 2018-19. though schools and community colleges Our higher estimate primarily reflects higher had long since closed their books on these assumptions about growth in assessed property years. Certifying the guarantee more promptly values. Whereas the administration assumes would reduce the likelihood of such post-year property values will grow 5.6 percent in 2018-19, budget surprises. we assume growth of 6.4 percent. In 2017-18, • Greater Transparency. Currently, the key assessed property values grew 6.2 percent. We inputs and assumptions affecting the final believe a modest uptick in the growth rate for calculation of the guarantee are not widely 2018-19 seems likely given recent trends in home available to the public. The Governor’s price and building permits. Home prices ticked up proposal would make these factors available from 7 percent in 2016 to 8 percent in 2017 and and could help legislators and the public have grown at a 9 percent annual rate thus far better understand the complex calculations in 2018. In addition, residential building permits underlying the minimum guarantee. increased from 101,000 in 2016 to 113,000 in For all these reasons, we recommend the 2017 and are on pace to be above 2017 levels thus Legislature adopt the May Revision certification far in 2018. Though higher property tax revenue proposal. would not affect the minimum guarantee, it would New True-Up Process Would Automate reduce General Fund spending required to meet the Common Budget Practice. Managing changes minimum guarantee dollar for dollar. in the minimum guarantee can be one of the Certification Proposal Has Clear Advantages Legislature’s more difficult budget responsibilities. Over Current Process, Recommend Adopting. Over the past ten years, changes to the guarantee Though straightforward in concept, the current within the fiscal year have ranged from an increase certification process has a number of drawbacks. of more than $6 billion to a drop of nearly $9 billion. Below, we describe four ways the Governor’s Somewhat smaller changes have occurred after proposal would improve upon the current process. the fiscal year is over, ranging from an increase • Clearer Lines of Accountability. By diffusing of more than $1.3 billion to a decrease of nearly responsibility across three separate entities, $200 million. When the guarantee increases, the the current certification process hinders the state typically responds by making additional Legislature’s ability to hold any one actor appropriations as part of next year’s budget plan. accountable for the timely certification of When the guarantee drops, the state typically the guarantee. The Governor’s proposal responds with various actions to reduce spending addresses this issue by clearly assigning the to the lower guarantee. In some cases, such as duty to the Director of Finance. payment deferrals or mid-year budget reductions, • Faster Resolution of Disputes. Many these actions affect school and community college disputes over the Proposition 98 calculations budgets directly. More commonly, however, the have lingered for years because the current Legislature enacts statute to reclassify some or all certification process does not promote a of the spending above the guarantee as a payment timely resolution of these disputes. By limiting toward a different fiscal year when the state legal challenges to a specified period, the did not fully fund the guarantee. This approach state would encourage these disputes to be allows schools and community colleges to retain resolved more quickly. appropriations the state previously approved while www.lao.ca.gov 5 analysis full gutter 2018-19 BUDGET still setting spending equal to the guarantee. The help it align spending with the guarantee. For these Governor’s proposal automates this practice, reasons, we recommend the state approve the making it the state’s default action. Governor’s proposal without the cap and monitor Proposed Cap on True-Up Account Works the true-up calculations over the next several years Counter to Intent of Proposal. As we understand to see whether additional refinements might be the Governor’s proposal, the true-up account needed. is intended to make the process of aligning Recommend Adopting Proposal to Certify spending with the minimum guarantee a routine Guarantee From 2009-10 Through 2015-16. The part of the state’s budget closeout. The proposed state last certified the guarantee nearly ten years cap, however, seems to work counter to this ago—the longest delay in certification since the intent. If drops in the guarantee exceeded the passage of Proposition 98. Holding the calculation 1 percent threshold (approximately $785 million in open for such a long time (1) invites further 2018-19) or if the state had credited amounts to disputes over past calculations of the guarantee, the account in previous years, the state would not (2) complicates the state’s efforts to calculate future be able to align spending with the guarantee that minimum guarantees correctly, and (3) exposes year. Moreover, the cap might result in the state the state to higher potential costs if some taking other actions to align spending with the unexpected development emerged to increase the guarantee that would be more disruptive to district guarantee for many years retroactively. For all these budgets. For example, if the state were anticipating reasons, we recommend the Legislature adopt the a drop in the guarantee, it might choose to make Governor’s proposal to certify the guarantee from a larger mid-year programmatic reduction knowing 2009-10 through 2015-16 using a transparent that the true-up process would not necessarily process. K-12 EDUCATION K-12 Proposition 98 Funding Up $812 Million that reduce the amount available for new Across Period. Figure 2 compares total K-12 spending. Of the $697 million in K-12 spending funding under the Governor’s January budget with proposals, $289 million is for ongoing programs the May Revision. The May Revision provides an and $409 million is for expanded or new one-time additional $812 million in Proposition 98 funding initiatives. Figure 3 (see page 8) shows these for K-12 education across the 2016-17 through proposals. Below, we describe and assess them. 2018-19 period. Under the May Revision, total We focus first on the three largest K-12 proposals, Proposition 98 funding for K-12 education in then highlight a few other notable K-12 proposals. 2018-19 is $67.9 billion, reflecting an increase We discuss preschool proposals in the next of $2.2 billion (3.4 percent) over the revised section. 2017-18 level. Proposition 98 funding per student Major Changes is $11,428, an increase of $404 (3.7 percent) over the revised 2017-18 level. Increases One-Time Discretionary Funding by $286 Million. The Governor’s January May Revision Contains Mix of Ongoing budget included nearly $1.8 billion for one-time and One-Time K-12 Proposals. Though K-12 discretionary grants to local education agencies Proposition 98 funding that counts toward the (LEAs). The May Revision provides an additional minimum guarantee is up $812 million over the $286 million, bringing total one-time discretionary period, notable K-12 May Revision spending funding to more than $2 billion. This funding would proposals total $697 million. The difference is be scored against LEAs’ outstanding mandate largely due to certain automatic cost increases backlog claims. Consistent with the January proposal, the administration proposes to distribute 6 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET to the program (3 percent rather Figure 2 than the statutory COLA rate of Comparing K-12 Proposition 98 Funding Under 2.71 percent). Governor’s Budget and May Revision Continuously Appropriates (Total Funding in Millions) LCFF COLA. Under current law, school districts and charter 2016-17 2017-18 2018-19 schools automatically receive last Governor’s Budget year’s LCFF allocation adjusted General Fund $44,435 $46,964 $48,413 for changes in attendance. Any Local property tax 17,485 18,320 19,375 other LCFF increases, including Totals $61,920 $65,283 $67,788 Studentsa 5,960,037 5,961,253 5,944,090 COLA, require annual budget Dollars per student $10,389 $10,951 $11,404 authorization. As part of the May May Revision Revision, the Governor proposes General Fund $44,676 $47,530 $48,811 to begin continuously appropriating Local property tax 17,484 18,186 19,117 the LCFF COLA. Totals $62,160 $65,715 $67,928 Studentsa 5,960,770 5,961,379 5,944,010 Other Changes Dollars per student $10,428 $11,024 $11,428 Provides $22 Million to Change General Fund $241 $566 $398 Convert the English Language Local property tax -1 -134 -258 Proficiency Assessments for Totals $240 $432 $140 California (ELPAC) From Paper Studentsa 733 126 -80 to Computer Based. The ELPAC Dollars per student $39 $72 $24 assesses whether students from a Reflects average daily attendance. non-English speaking households require special support to learn these grants based on student attendance, with English. The pencil-and-paper the rate increasing to about $340 per student (up version of the ELPAC is being rolled out this from about $300 per student in January). An LEA spring. The ELPAC replaces the California English could use the funds for any education purpose, Language Development Test (CELDT), which is but the administration encourages LEAs to use no longer aligned with state academic content the funds for deferred maintenance, professional standards. development, and employee benefits, among other Provides $5.9 Million to Develop Alternative priorities. The administration also retains its January ELPAC for Students With Disabilities. Some proposal to deduct each district’s obligation under students with severe cognitive disabilities cannot the Medi-Cal billing agreement from its individual be accurately assessed using the ELPAC, as grant amount but revises its estimate of these developed to date. Currently, these students’ obligations down from $222 million to $145 million. Individualized Education Program (IEP) teams are Increases Local Control Funding Formula tasked with identifying appropriate alternative (LCFF) by $277 Million. This increase brings the assessments on a case-by-case basis. The Governor’s total proposed LCFF augmentation Governor’s proposal would replace this case-by in 2018-19 to $3.2 billion. This augmentation case method of selecting alternatives with a single, is slightly more than needed to reach the statewide alternative assessment. LCFF target funding rates. Of the $3.2 billion, Provides $21.1 Million Backfill for Charter $3.1 billion is provided for reaching the target School Facility Grant Program (CSFGP) in rates and $166 million is provided on top of the 2017-18, Adjusts 2018-19 Appropriation target rates (reflecting a 0.3 percent increase). Downward. The CSFGP helps some charter The May Revision proposal effectively serves to schools in privately leased facilities cover their rent provide a larger cost-of-living-adjustment (COLA) and certain other facilities costs. The Governor www.lao.ca.gov 7 analysis full gutter 2018-19 BUDGET proposes $21.1 million one time to backfill a for Multi-Tiered Systems of Support (MTSS), CSFGP shortfall in 2017-18. Absent this backfill, which involves strategies for serving academically current-year CSFGP awards would be prorated and behaviorally challenged students. The May down to 80 percent of the full statutory rates. Revision proposes that these COEs partner with For 2018-19, the Governor adjusts ongoing a California institution of higher learning to design program funding down by $3.6 million, for a a pilot program that would test out new strategies year-over-year augmentation of $24.8 million (rather for addressing issues such as bullying and student than the $28.4 million proposed in January). The trauma. The May Revision requires the two COEs, administration indicates that the adjustment is in coordination with the selected institution of based upon updated program data. higher learning, to submit to the administration and Provides $15 Million for New School Climate Legislature an expenditure plan for the funds by Pilot Program. The May Revision proposes to December 1, 2018. award this funding to the Orange and Butte County Increases K-12 Strong Workforce Proposal by Offices of Education (COEs). In recent years, these $2 Million Ongoing. This augmentation is intended COEs received a total of $30 million (one-time to help Strong Workforce consortia administer Proposition 98) to develop a statewide framework the new high school career technical education Figure 3 Comparing K-12 Proposition 98 Proposals Under Governor’s Budget and May Revision Reflects New Spending, 2016-17 Through 2018-19 (In Millions) Governor’s Budget May Revision Change Ongoing Increase LCFF funding $2,883 $3,160 $277 Provide COLA for select categorical programsa 106 114 8 Increase state preschool funding 68 70 2 Fund more regional and county support for low-performing districts 70 69 — Augment Charter School Facility Grant Program 28 25 -4 Support the California Collaborative for Educational Excellence 7 12 5 Provide additional funding for online educational resources 1 1 — Provide additional support for districts in fiscal distress — 1 1 Reimburse additional costs related to teacher dismissals — —b — Subtotals ($3,162) ($3,451) ($289) One Time Provide K-12 discretionary grants $1,757 $2,042 $286 Provide grants for preschool and childcare providers $125 $167 $42 Establish special education teacher residency program 50 50 0 Provide grants for addressing special education teacher shortage 50 50 0 Convert ELPAC to computer based — 22 22 Backfill for shortfall in Charter School Facility Grant Program — 21 21 Fund new “school climate” initiative — 15 15 Create grant program to support community engagement — 13 13 Create alternative ELPAC for students with disabilities — 6 6 Backfill basic aid districts for fire-related property tax decline — 4 4 Support Southern California Regional Occupational Center 3 3 — Subtotals ($1,985) ($2,393) ($409) Totals $5,147 $5,844 $697 a Applies to special education, child nutrition, mandates block grant, services for foster youth, adults in correctional facilities, and American Indian education. Rate increased from 2.51 percent (Governor’s Budget) to 2.71 percent (May Revision). b May Revision proposes $60,000 for this purpose. LCFF = Local Control Funding Formula; CTE = Career Technical Education; and ELPAC = English Language Proficiency Assessments for California. 8 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET (CTE) program proposed in the Governor’s budget. support within its geographic region. Regarding The funds would support consortia staff (likely special education lead agencies, the May Revision community college administrators) in performing specifies that at least three of these lead agencies various functions, such as managing the Workforce will focus on building the capacity of Special Pathway Coordinators that serve as liaisons to high Education Local Planning Areas to work with school CTE programs. low-performing districts. Clarifies COEs’ Role in Supporting Provides $234,000 to CCEE for Administrative Low-Performing Districts. The May Revision Operations. The May Revision increases funding provides greater detail regarding the types of to CCEE by $234,000 to reflect updated estimates support COEs may provide low-performing of the agency’s administrative costs. The total districts. Specifically, the proposal allows COEs to appropriation for CCEE in 2018-19 would be assist a school district in identifying its strengths $11.5 million. and weaknesses, reviewing its performance data, Provides $13 Million for Professional Learning and identifying evidence-based strategies for Networks Focused on Community Engagement. addressing its areas of weaknesses. Rather than The May Revision provides $13 million one time providing direct support, COEs also may work for CCEE and a lead agency to jointly administer with a school district to access assistance from professional learning networks focused on another academic, fiscal, or programmatic expert to community engagement. Funding would be used to determine areas of weakness and identify strategies operate the professional learning networks over the to address those weaknesses. COEs may request next six years. the California Collaborative for Educational Excellence (CCEE) provide advice and assistance to Assessment and Recommendations the school district. COE assistance is not required Figure 4 (see next page) summarizes if a school district chooses to work with another our recommendations for the May Revision entity in undertaking these activities. K-12 proposals. We provide our assessment of the Reduces Funding for Single-District COEs. most notable of these proposals below. The Governor decreases the January augmentation Use One-Time Funding to Strategically Retire for COEs by $1 million—from $55.2 million Mandates Backlog. Although the May Revision to $54.2 million. The May Revision removes identifies the discretionary grants as a component base funding for COEs serving a single district. of the administration’s broader goal of reducing Specifically, these COEs would not receive the debt, the Governor’s proposal would do relatively proposed $200,000 in base funding that goes little to retire the K-12 mandates backlog. By to other COEs for building capacity to support distributing discretionary funding purely based districts. on attendance, we estimate less than 20 percent Makes Modest Programmatic Changes to ($334 million) of the $2 billion included in the May Lead Agencies. The May Revision makes minor Revision would reduce the mandate backlog. This changes to the responsibilities for the proposed is because nearly two-thirds of LEAs have no COE and special education lead agencies. outstanding claims and the claims for other LEAs Regarding COE lead agencies, the May Revision vary widely on a per-student basis. We estimate specifies that a COE or a school district identified that continuing to use a per-student approach in need of assistance could request a COE lead to retire the entire backlog would cost nearly agency provide it with support. The proposal $200 billion (about $34,000 for every student in the also specifies that prior to reselecting a COE to state). As in the previous years, we recommend the continue serving as a lead agency, the COE must Legislature use one-time funding more strategically demonstrate it is fulfilling its lead responsibilities. to retire the mandate backlog. Under our Its performance assessment is to be based on recommended alternative, all districts could receive its progress in building COEs’ capacity and the funding but districts with outstanding claims would number of school districts required to receive need to agree to write off their existing claims. www.lao.ca.gov 9 analysis full gutter 2018-19 BUDGET May Revision LCFF Proposal is One of COLA for LCFF is consistent with typical state Several Reasonable Options. Of the $277 million budget practice. Beyond adjusting the target rates increase in LCFF funding under the May Revision, for COLA, the Legislature has many options for $111 million funds the higher statutory COLA further augmenting LCFF. Though providing an (which increased from 2.51 percent to 2.71 percent additional 0.3 percent to LCFF funding rates is based upon updated data). Funding the higher one reasonable option, we lay out several other Figure 4 Summary of K-12 Education Recommendations Issue May Revision Proposal LAO Recommendation One-time discretionary grants Increases by $286 million (raising total funding Modify. Link additional one-time discretionary to $2 billion). grants to a strategic plan to pay off remainder of K-12 mandates backlog. LCFF funding Provides $277 million ongoing. Adopt. Approve total funding amount but could consider alternative ways to augment rates. LCFF COLA Changes statute to continuously appropriate Reject. Proposal would limit legislative discretion LCFF COLA increases. in future budget cycles. Computer-based ELPAC Provides $22 million to convert ELPAC from Reject. Proposal seems unreasonably pencil to computer based. expensive. Revisit issue next year. Alternate ELPAC Provides $5.9 million to create alternate ELPAC Withhold Recommendation. Request additional for students with disabilities. information from CDE concerning relevant federal requirements and project costs. Charter School Facility Grant Program Provides $21.4 million one time to fully fund Modify. Provide either (1) $24 million to fully fund backfill 2017-18 awards under administration’s 2017-18 awards or (2) $3 million to ensure all estimates. recipients receive at least as much as they received in 2016-17. Charter School Facility Grant Program Decreases by $3.6 million, bringing the total Modify. Provide either (1) $50 million to fund augmentation augmentation to $24.8 million. program under rules enacted last year or (2) $8 million to fund program under its historical rules. School Climate initiative Provides $15 million for a pilot program for Reject. Proposal has few details and is poorly addressing “school climate” issues. justified. K-12 Strong Workforce Provides an additional $2 million for program Reject. Support high school CTE either through administration. LCFF or through an approach similar to the CTE Incentive Grant Initiative. County offices of education (COEs) Decreases January augmentation by $1 million Modify. Require COEs to help districts identify and clarifies COEs’ role in supporting and respond to performance issues. Require low-performing districts. COEs to use existing LCFF funds. COE lead agencies and special Makes modest changes to lead agencies’ roles. Reject. Role of lead agencies is duplicative of education lead agencies COEs and CCEE. Additionally, core function of special education lead agencies is unclear. California Collaborative for Increases by $234,000 ongoing. Adopt. Funding aligns with CCEE’s proposed Educational Excellence roles. Community Engagement Initiative Provides $13 million one time for CCEE and a Reject. CCEE could use existing resources to lead agency to jointly administer professional administer professional learning networks learning networks focused on community focused on this topic. engagement. LCFF = Local Control Funding Formula; COLA = cost-of-living adjustment; ELPAC = English Language Proficiency Assessments for California; CDE = California Department of Education; CCEE = California Collaborative for Educational Excellence; and CTE = career technical education. 10 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET basic augmentation options in The 2018-19 inexpensive. The proposed cost for this conversion, Budget: Proposition 98 Education Analysis. For however, is more than twice what was originally example, the Legislature could designate all the requested to develop the pencil-and-paper version. additional funds for increasing supplemental Consequently, we recommend the Legislature reject and/or concentration rates. In considering its this proposal. Given the potential benefits of a augmentation options, we recommend the computer-based exam, the Legislature could invite Legislature weigh competing priorities, such as the Department of Finance (DOF) and the California alleviating broad-based cost pressures facing all Department of Education (CDE) to submit a new districts versus addressing persistent achievement budget proposal next year which either reduces the gaps among student groups. estimated cost or better justifies the cost. Recommend Rejecting Continuous Withhold Recommendation on Alternative Appropriation of LCFF COLA. The Governor’s ELPAC Pending Additional Information. School proposal to continuously appropriate the LCFF districts’ current practice of selecting alternative COLA would limit the ability of future Legislatures to assessments on a case-by-case basis for students build both the K-12 part of the budget and, in turn, with disabilities might be resulting in some students the overall state budget. Deciding how much to not being assessed appropriately. In addition, CDE augment LCFF is one of the most important—and indicates the case-by-case method of selecting costly—budget decisions the Legislature makes alternative assessments might violate federal each year. In a year with a particularly high COLA law, which requires that all students receive an rate (for example, 5 percent), the associated LCFF appropriate assessment of their English proficiency. augmentation costs more than $3 billion. Though The state, however, has never before had such the Legislature historically has been inclined to an assessment. Additionally, CDE estimates that provide a COLA to schools’ general purpose only about 8,000 students take an alternative funding, we believe making this decision as part assessment each year. Moreover, we do not have of annual budget deliberations is important both sufficient information at this time to know whether for the sake of transparency and flexibility. Such the proposed cost is justified, as the documentation flexibility is particularly important for helping the CDE provided does not clearly separate the costs state build its budget in any given year, as fiscal of developing the alternate ELPAC from the costs conditions change—allowing for augmentations of converting the traditional ELPAC from pencil to beyond COLA in some years and not supporting computer based. Were the Legislature interested in any augmentation in other years. For these reasons, authorizing a new English proficiency assessment we recommend rejecting the proposed continuous for students with disabilities, it could request appropriation and maintaining the state’s current DOF and CDE to submit better documentation. practice of providing LCFF augmentations as part Specifically, it could request more information about of the regular budget process. (1) relevant federal requirements (including whether Reject Computer-Based ELPAC Proposal, the federal government has issued any formal Revisit Next Cycle. A computer-based complaints against California’s current practice) ELPAC likely would have advantages over and (2) the cost of developing the alternative the pencil-and-paper version. For example, assessment. computer-based assessments typically allow for Recommend One of Two Approaches on more timely feedback to teachers and students. CSFGP Backfill. Last year, the state increased The May Revision proposal, however, seems the maximum per-student CSFGP award from particularly expensive. In developing the pencil $750 to $1,117. The increase was driven by two and paper ELPAC, the state already completed the main considerations: (1) the original $750 rate most challenging elements of test design, such established in 2001 had never received a COLA as developing questions and ensuring validity. By and (2) the program had unspent funds that contrast, converting an existing test from pencil could support the award increase. Despite this and paper to computer based should be relatively understanding last year, revised budget estimates www.lao.ca.gov 11 analysis full gutter 2018-19 BUDGET show that a sizeable augmentation will be needed May Revision augmentation. As we discussed in in 2017-18 to fund the higher award amount. The 2018-19 Budget: Proposition 98 Education To address this situation, we recommend the Analysis, we believe the Governor’s approach is Legislature take one of two actions. It could fund inconsistent with the state’s broader approach of the program consistent with the new statutory supporting local control and fails to leverage CDE’s rules. We estimate this would cost $24 million (or existing expertise in high school CTE. We continue $3 million more than the May Revision proposal). to recommend the state support CTE through LCFF Alternatively, it could provide $3 million to ensure or else adopt a categorical approach similar to the no charter school receives less in 2017-18 than existing CTE Incentive Grant Initiative. 2016-17. This latter option helps to address an Recommend Further Clarifying COEs’ Role. unintended consequence of last year’s budget We recommend the Legislature provide greater decisions, while positioning the Legislature were clarity regarding the role of COEs in supporting it to want to rescind the 2017-18 actions moving districts. Specifically, we recommend requiring forward (as discussed below). COEs to help districts (1) determine their strengths Recommend One of Two Approaches on and weaknesses and (2) implement effective Ongoing CSFGP Augmentation. Regarding strategies to address identified weaknesses. A COE the ongoing augmentation, we believe the could be exempt from these activities if the district administration still is underestimating the likely demonstrates it is working with another entity to growth in program costs. If the Legislature wishes perform them. A COE also could request that CCEE to fund the program under current statutory provide the assistance directly to the district. Given rules, we estimate it would need to provide COEs’ existing levels of LCFF funding specifically an augmentation of $50 million (relative to the intended for district support, we recommend not Governor’s January budget, for total program providing any additional funding to COEs for these funding of $162 million). Alternatively, if the activities. Legislature wishes to rescind last year’s increase Continue to Recommend Rejecting Lead in the maximum grant award and return to funding Agencies Proposal. We continue to have concerns the program under its historical $750 maximum that the administration’s lead agencies proposal is per-student award, we estimate it would need to duplicative of existing entities and blurs the lines of provide an augmentation of $8 million (also relative accountability across numerous support providers. to the Governor’s January budget, for total program Notably, the COE lead agencies are tasked with funding of $120 million). supporting districts—a key COE responsibility.Their Reject School Climate Proposal. The other core responsibility—supporting COEs—is a administration has not clearly identified what key CCEE responsibility. In addition, the proposal school climate issues it wants to address that does not clarify the role of special education lead have not already been addressed through other agencies. For these reasons, we recommend state and local efforts. Importantly, the state’s rejecting the proposals. earlier $30 million MTSS grant was intended to CCEE Does Not Need Additional Funding address many of the general issues of school to Focus on Community Engagement. We climate that the administration is now highlighting. recommend rejecting the Governor’s proposal The administration also has not explained how to set aside funding for CCEE and another lead the proposed funds are to be used, nor has it agency to establish community engagement submitted an expenditure plan for use of the professional learning networks. The CCEE currently funds. For all of these reasons, we recommend the administers 56 professional learning networks on Legislature reject this proposal. a variety of topics. If the Legislature is interested Continue to Have Overarching Concerns With in more focus on community engagement, it could K-12 Strong Workforce Proposal. We recommend add provisional budget language requiring CCEE to rejecting the Governor’s approach to supporting undertake such work using its existing funding. high school CTE, including rejecting the $2 million 12 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET CHILD CARE AND PRESCHOOL Child Care and Preschool Funding Major Changes Down Slightly From Governor’s Budget. Increases CalWORKs Child Care Spending Figure 5 compares child care and preschool by $104 Million in 2018-19. The May Revision funding under the Governor’s January budget with is based on updated data regarding CalWORKs the May Revision. Compared to the Governor’s child care caseload and cost of care. Under the January budget, the May Revision reduces total administration’s estimates, caseload is up but child care and preschool funding by $40 million. cost of care in down since January. Specifically, Though overall funding is down, non-Proposition 98 the administration assumes caseload is up about General Fund increases $124 million and support 13,000 cases (about 5,000 Stage 2 cases and from the federal Child Care and Development Fund 8,000 Stage 3 cases). The associated cost (CCDF) increases $17 million. These increases are increase is $120 million. This increase is offset by a offset by a $121 million reduction in Proposition 98 $16 million reduction in the administration’s average General Fund and a $59 million reduction in federal cost of care estimates. The administration assumes Temporary Assistance for Needy Families (TANF) average cost of care decreases from $9,614 funding. Under the May Revision, total 2018-19 (January) to $9,529 (May) for Stage 2 and from funding for child care and preschool programs is $9,295 (January) to $8,973 (May) for Stage 3. $4.3 billion. Changes Fund Source but Maintains Inclusive May Revision Makes a Few Notable Early Education Expansion Initiative. The Adjustments to Funding. Figure 6 (see next page) Governor’s January budget funded this initiative summarizes May Revision proposals for child care using $125 million 2018-19 Proposition 98 General and preschool programs, including the California Fund and $42 million TANF. The May Revision Work Opportunity and Responsibility to Kids eliminates the TANF funds used for the initiative (CalWORKs) child care programs, non-CalWORKs and funds the entire $167 million with 2017-18 programs, and the California State Preschool Proposition 98 General Fund. The May Revision Program. Below, we describe and assess these largely maintains the original programmatic aspects proposals. of the proposal, making only modest changes intended to clarify certain aspects of the initiative. The initiative still Figure 5 would provide grants to school Comparing Child Care and Preschool Funding Under districts and other child care and Governor’s Budget and May Revision preschool providers, with the intent (In Millions) of helping staff work with children who have special needs and 2018-19 ensuring facilities are equipped to Governor’s May Budget Revision Change serve these students. Provides Increase for Quality Proposition 98 General Fund $2,117 $1,996 -$121 Improvement Activities. The Non-Proposition 98 General Fund 1,240 1,364 124 Federal Child Care and 626 644 17 May Revision provides $26 million Development Fund one-time federal carryover funds Federal Temporary Assistance for 389 330 -59 for quality improvement activities, Needy Families an increase of $17 million from Federal Title IV-E of the Social 9 10 —a the January budget. These funds Security Act represent prior-year funding that Totals $4,383 $4,343 -$40 a Less than $500,000. remain unspent. We have no concerns with this proposal. www.lao.ca.gov 13 analysis full gutter 2018-19 BUDGET Includes $4 Million to Increase COLA for Assessment and Recommendations Non-CalWORKs Child Care Programs. The Figure 7 summarizes our recommendations May Revision provides $4 million to increase the for the most notable May Revision child care and COLA for non-CalWORKs child care and preschool preschool proposals. We provide our assessment programs from 2.51 percent to 2.71 percent. The of these proposals below. COLA is statutory for most child care programs. We Despite Large May Revision Augmentation, have no concerns with this proposal. Governor Likely Underestimates Caseload. Provides $624,000 for CDE State Operations. CalWORKs Stage 2 and Stage 3 caseload has The May Revision increases CDE state operations increased substantially during 2017-18 due to funding for state-level administration of county major policy changes the Legislature adopted child care pilot programs. Legislation enacted in last year. Specifically, the 2017-18 budget 2017 increased the number of county pilots from substantially increased the exit income threshold 4 to 13. The county pilots can adopt policies (from $42,216 per year to $63,235 per year for a that differ from state law—such as higher income family of three) and allowed families to demonstrate eligibility thresholds or higher reimbursement eligibility only once a year (rather than maintaining rates—but must have their plans approved by CDE. eligibility throughout the year). These changes have reduced significantly the number of families that exit the CalWORKs Stage 2 and Stage 3 child care Figure 6 Comparing Child Care and Preschool Proposals Under Governor’s Budget and May Revision 2018-19 (In Millions) Change Governor’s Budget May Revision Change Reimbursement Rates Provides COLA to certain child care and preschool programsa $50 $54 $4 Increases Standard Reimbursement Rate (SRR) 2.8 percent starting July 1, 2018 48 48 0 Annualizes Regional Market Rate (RMR) increase initiated January 1, 2018 24 24 0 Permanently extends RMR hold harmless provisionb 14 14 0 Subtotals ($136) ($140) ($4) Caseload and Cost of Care Annualizes cost of State Preschool slots initiated April 1, 2018 $19 $19 $0 Provides 2,959 full-day State Preschool slots at LEAs starting April 1, 2019 8 8 0 Makes CalWORKs caseload and average cost of care adjustments –c 105 104 Reduces non-CalWORKs slots by 0.48 percentd -9 -9 0 Subtotals ($19) ($123) ($104) Other Funds one-time early education expansion grantse $167 $0 -$167 Adjusts Transitional Kindergarten for increases in attendance and LCFF funding rate 41 42 1 Provides one-time increase to quailty services 9 26 17 Annualizes funding for bridge program for foster children initiated January 1, 2018 20 21 1 Makes other technical adjustments 7 7 0 Subtotals ($244) ($96) (-$148) Totals $399 $359 -$40 a Under Governor’s January budget, COLA is 2.51 percent. Under May Revision, COLA is 2.71 percent. b Under current law, the RMR hold harmless provision expires December 31, 2018. c Less than $500,000. d Reflects statutory adjustment based on the projected decrease in the birth-through-four population. e Governor’s January budget funds proposal using 2018-19 Proposition 98 General Fund and Temporary Assistance for Needy Families. May Revision funds proposal entirely using 2017-18 Proposition 98 General Fund. COLA = cost-of-living-adjustment; LEA = local education agency; and LCFF = Local Control Funding Formula. 14 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET Figure 7 Summary of Child Care and Preschool Recommendations Issue May Revision Proposal LAO Recommendation CalWORKs child care Increases spending by $104 million due Modify. Provide at least $154 million to changes in Stage 2 and Stage 3 ($50 million more than May Revision) for caseload. CalWORKs Stage 2 and Stage 3 caseload to mitigate the risk of having a midyear shortfall. Inclusive Early Education Replaces $42 million in TANF funding Reject. One-time funding is unlikely to improve Expansion Initiative with Proposition 98 General Fund. program quality on a lasting basis and facility Scores all $167 million Proposition 98 needs could be funded through the state’s General Fund to 2017-18 rather than existing revolving loan program. 2018-19. Subsidized county child Increases CDE state operations by Reject and Revisit Next Year. Require CDE to care pilot programs $624,000 to administer 13 child care provide better documentation to justify need pilot programs previously authorized for additional staff. by the Legislature. TANF = Temporary Assistance for Needy Families and CDE = California Department of Education. programs. The administration’s estimate assumes on serving children with special needs. We also recent growth in the programs slows down. We remain concerned that the initiative does not use estimate caseload in 2018-19 to be at least 6,500 the state’s existing Child Care Facilities Revolving slots above the administration’s estimate. Our Fund (CCFRF) to promote facility improvements. estimate assumes monthly caseload trends in We recommend the Legislature improve the existing 2017-18 continue into 2018-19. We recommend program before allocating new state funding for providing at least $154 million ($50 million more the same purpose. Given the existing program has than May Revision) for CalWORKs Stage 2 and been underutilized, we recommend modifying the Stage 3 caseload to mitigate the risk of having a program to make it more attractive to providers. For midyear shortfall in the programs. example, the Legislature could allow the program to Continue to Recommend Rejecting Early fund a broader array of facility costs. Education Expansion Initiative. We continue Recommend Rejecting State Operations to have concerns that the Governor’s one-time Increase and Revisiting Next Year. We initiative is unlikely to provide the type of ongoing recommend the Legislature reject the proposed training required to ensure child care and preschool CDE state operations augmentation and revisit the providers are equipped to serve children with issue next year. Although CDE submitted some special needs. If the Legislature is interested in staffing information in fall 2017, this material was increasing professional development opportunities submitted prior to the enactment of legislation in this area, it could reallocate some of the in March intended to streamline administrative roughly $45 million in existing quality improvement oversight of the pilot programs. Additionally, CDE funding used for training. The May Revision also has not yet provided sufficient documentation includes $17 million in federal carryover for quality detailing what previous administrative work it no improvement activities in 2018-19. Furthermore, longer has to do on behalf of the counties now California expects to receive $231 million in participating in the pilot programs. The department additional federal CCDF funding in each of the could provide revised documentation this fall to next two years. Some of this funding also could be justify the need for additional staff. used for more professional development focused www.lao.ca.gov 15 analysis full gutter 2018-19 BUDGET COMMUNITY COLLEGES Community College Funding Up $52 Million Changes Value of Formula Components. Across Period. Figure 8 compares total funding The May Revision proposal provides 60 percent for the California Community Colleges (CCC) of apportionment funding based on enrollment, under the Governor’s January budget with the 20 percent based on low-income student counts, May Revision. The May Revision provides an and 20 percent based on performance. The additional $52 million in Proposition 98 funding for corresponding shares in January were 50/25/25. community colleges across the 2016-17 through Excludes Noncredit Funding. The May Revision 2018-19 period. Under the May Revision, total excludes noncredit funding from the new formula. Proposition 98 funding for community colleges Apportionments for noncredit enrollment would be in 2018-19 is $9.2 billion, reflecting an increase allocated based on current law. of $518 million (6 percent) over the revised Uses Three-Year Rolling Average for 2017-18 level. Proposition 98 funding per full-time Enrollment Funding. Allocation for the enrollment equivalent (FTE) student is $8,078, an increase of portion of the new funding formula would be based $447 (6 percent) over the revised 2017-18 level. on average enrollment for the past three years. May Revision Contains Mostly New Ongoing Under current law, community college districts CCC Proposals. Though CCC Proposition 98 are funded based on the higher of current-year or funding that counts toward the minimum guarantee prior-year enrollment. is up $52 million over the period, notable CCC May Revision spending proposals total $39 million. The difference is Figure 8 largely due to certain automatic Comparing CCC Proposition 98 Funding Under cost increases that reduce the Governor’s Budget and May Revision amount available for new spending. Of the new CCC proposals in the (Total Funding in Millions) May Revision, $38 million is for 2016-17 2017-18 2018-19 ongoing programs and a net of Governor’s Budget $1 million is for one-time initiatives. General Fund $5,473 $5,682 $6,066 Figure 9 shows these proposals. Local property tax 2,809 2,972 3,141 Below, we describe and assess Totals $8,283 $8,654 $9,207 them. We focus first on changes to FTE students 1,134,809 1,135,081 1,136,813 the apportionment proposal, then Dollars per FTE student $7,299 $7,624 $8,099 cover other major changes, and end May Revision by highlighting a few other notable General Fund $5,473 $5,757 $6,129 proposals. Local property taxa 2,822 2,934 3,080 Totals $8,295 $8,691 $9,209 Major Revisions to FTE students 1,124,320 1,138,947 1,139,978 Dollars per FTE student $7,378 $7,631 $8,078 Apportionment Proposal Change Makes Major Modifications General Fund — $75 $63 to Funding Formula Proposal. Local property tax $13 -38 -61 The May Revision includes several Totals $12 $37 $2 major modifications to the January FTE students -10,489 3,866 3,165 proposal for a new apportionment Dollars per FTE student $79 $7 -$21 funding formula, as described a Does not include estimated $18.8 million over the three-year period related to a property tax settlement with Orange County. below. FTE = full-time equivalent. 16 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET Changes Metrics for Supplemental Grants. includes a more complex set of performance The May Revision proposal provides districts metrics. The proposal includes different award additional funding for every student who is (1) a Pell amounts for obtaining various degrees and Grant recipient, (2) 25 years or older and receiving certificates, completing transfer-level math and a need-based fee waiver, or (3) undocumented and English within a student’s first year, and having qualifying for resident tuition. The January proposal students obtain a regional living wage within a year distributed this funding based on the total number of completing community college. It also includes of all students receiving a need-based fee waiver additional award amounts for the outcomes of Pell and the number of first-time freshman receiving a Grant students. The January proposal had fewer Pell Grant. performance metrics and did not provide additional Includes More Performance Metrics. As funding for outcomes of any specific student Figure 10 (see next page) shows, the May Revision groups. Figure 9 Comparing CCC Proposition 98 Proposals Under Governor’s Budget and May Revision Reflects New Spending, 2016-17 Through 2018-19 (In Millions) Governor’s May Budget Revision Change Ongoing Fund high school CTE initiative through Strong Workforce program $212 214 $2 Hold districts harmless for transition to new apportionment formula 175 175 — Provide COLA for apportionments 161 173 12 Fund 1 percent enrollment growth 60 60 — Provide COLA for select student support programsa,b 33 34 2 Fund AB 19 fee waivers for first-time full-time students 46 46 — Fund consolidated financial aid program 33 41 8 Provide ongoing support for new online college 20 20 — Increase funding for Apprenticeship Programs 14 19 5 Fund adult education data system alignment 5 5 — Fund financial aid and processing improvements — 5 5 Augment NextUp program for foster youth — 5 5 Subtotals ($759) ($796) ($38) One Time Fund deferred maintenance and instructional equipment $275 $144 -$132 Ensure 2018-19 apportionment funding increases by at least 2.71 percent — 104 104 Provide one-time support for new online college 100 100 — Cover Apprenticeship prior-year shortfalls 31 37 6 Fund Innovation Awards 20 20 — Fund financial aid technology improvements — 14 14 Develop open educational resources — 6 6 Fund certified nursing assistant program 2 2 — Backfill for fire-related property tax declines — 2 2 Fund Puente program — 1 1 Fund course identification numbering system — 1 1 Subtotals ($428) ($429) ($1) Totals $1,186 $1,225 $39 a COLA increased from 2.51 percent under the Governor’s Budget to 2.71 percent under the May Revision. b Applies to Extended Opportunity Programs and Services, Disabled Students Programs and Services, CalWORKs student services, and the campus child care support. For the Adult Education Block Grant, includes a 4.1 percent COLA in January and a 4.3 percent COLA in May. CTE = Career Technical Education and COLA = cost-of-living adjustment. www.lao.ca.gov 17 analysis full gutter 2018-19 BUDGET Provides More Generous “Hold Harmless” and placement policies, as specified under current Provisions. The May Revision expands the fiscal law. Funding for the new program would be based protections provided to districts in transitioning to on districts’ 2017-18 allocations for the existing a new funding formula. Most notably, it provides categorical programs. In January, the Governor $104 million to ensure districts’ 2018-19 allocations tasked the Chancellor’s Office with developing are no less than their 2017-18 allocations, adjusted a proposal to consolidate existing categorical by COLA (2.71 percent). For 2019-20, no district programs and provide greater flexibility for districts. would receive less apportionment funding than The May Revision reflects the Chancellor’s Office it received in 2017-18. Beginning in 2020-21, proposal. districts would receive no less than their FTE Makes Several Modifications to Online enrollment multiplied by their 2017-18 per-student Community College Proposal. The May Revision funding rate. The Governor’s January proposal makes various changes to the Governor’s ensured districts’ 2018-19 funding levels were no online community college proposal. Regarding less than 2017-18, with the hold harmless based governance, the May Revision identifies the Board on 2017-18 per-student funding beginning in of Governors as the governing board of the online 2019-20. college, with authority to choose the president of the college. The president of the college would Other Major Changes be required to establish an advisory council that Consolidates Three Student Support includes local trustees from other community Programs Into New Block Grant. The May colleges as well as employees of the online college. Revision combines the Student Success and Regarding collective bargaining, the proposal Support Program, including funding for student requires the online community college to bargain equity plans, and the Student Success for Basic with its employees through a contract with a Skills Students program into a new block grant— local community college district. The proposal the Student Equity and Achievement Program. As also requires the online college to comply with a condition of receiving funds, districts would be the same disability and accessibility requirements required to develop student equity plans, deliver for students with disabilities that apply to other student matriculation services (such as orientation, community colleges. Additionally, the proposal counseling, and advising), and adopt assessment requires the Workforce Development Board and Figure 10 Comparing Performance Funding Under Governor’s Budget and May Revision Award for Additional Award for Outcome Measure Each Student Each Pell Grant Recipient Governor’s Budget Degree, certificate, and/or transfer completed within three years $6,395 — Chancellor’s Office-approved degree, certificate, and award 5,533 — Associate degree for transfer 976 — May Revision Associate degree for transfer $3,504 $2,640 Associate degree 2,628 1,980 Credit certificate requiring 18 or more units 1,752 1,320 Transfer-level math and English courses completed within the 1,752 1,320 student’s first academic year of enrollment Transfer to a four-year university 1,314 990 Nine or more career technical education units completed 876 660 Regional living wage obtained within one year of community 876 660 college completion 18 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET Employment Development Department to determine that occurred between 2013-14 and 2017-18. The whether programs offered by the online college May Revision provides an additional $5.9 million have job market value while the college is seeking for this purpose. This increase is due to updated accreditation. estimates of the total number of instructional Reduces Deferred Maintenance Spending hours that sponsors provided apprentices in by $132 Million. The May Revision provides 2016-17 and 2017-18 and the amount of pro-rata $144 million for this purpose—down from the reductions applied those years. The January $275 million the Governor had proposed in budget also proposed $13.8 million ongoing January. The reduction effectively is required to to fund the same level of instructional hours in accommodate the May Revision proposal to the 2018-19 as the estimated level in 2017-18. The increase one-time funding for certain districts as May Revision provides an additional $4.8 million part of the expanded apportionment formula hold ongoing, which is the net effect of three changes: harmless provision. (1) a higher estimated number of instructional hours provided by sponsors in 2017-18 ($5.6 million); Other Changes (2) the transition of California Apprenticeship Initiative grantees into the regular apprenticeship Proposes $13.5 Million One Time and program, whereby they earn hourly reimbursement $5 Million Ongoing to Upgrade Financial ($1.3 million); and (3) a correction to the hourly Aid Technology. The May Revision provides instructional rate, resulting in a reduction from 2017-18 one time funds so colleges can acquire $6.49 in the Governor’s January budget to $6.26 more advanced financial aid processing and (-$2.0 million). management systems. The stated intent of these proposed upgrades is to (1) reduce the financial Provides Additional $7.8 Million Ongoing aid processing that colleges currently undertake for Proposed Student Success Completion manually, thereby freeing up staff time for direct Grant. The Governor’s January budget included financial aid advising; and (2) support colleges’ $124 million ongoing to create a financial aid capacity to implement the Governor’s proposed program called the Student Success Completion Student Success Completion Grant, which would Grant. The proposed program would consolidate require financial aid staff to provide different awards two existing aid programs and change the depending on the number of units students take. underlying award rules. The May Revision adds (The administration indicates that colleges’ current $7.8 million to reflect revised estimates of students financial aid processing systems generally are expected to be eligible for a Student Success not set up to calculate students’ unit loads and Completion Grant in 2018-19. make related adjustments to grant amounts.) The Proposes $6 Million One Time for Open May Revision also includes $5 million ongoing Educational Resources (OER). The May Revision for subscription, maintenance, and training costs provides $6 million in 2017-18 Proposition 98 related to the technology upgrades. funding for the Chancellor’s Office to contract with a community college district or group of districts Provides $14 Million Ongoing to Cover Higher COLA. The May Revision increases the to develop and expand the use of OER. Proposed COLA for apportionments and selected categorical funding would be used for various purposes, programs from 2.51 percent to 2.71 percent based including (1) identifying courses that currently lack on updated data. We have no concerns with this OER; (2) providing grants to faculty to create OER; proposal. (3) acquiring a technology platform for editing and storing OER; and (4) raising awareness among and Increases Apprenticeship Funding by $5.9 providing technical assistance to faculty throughout Million One Time and $4.8 Million Ongoing. The the CCC system about adopting OER for their Governor’s January budget included $30.6 million courses. in one-time retroactive reimbursements to apprenticeship sponsors (such as labor unions Increases NextUp Program for Foster Youth and businesses) to backfill for pro-rata reductions by $5 Million. The May Revision increases by www.lao.ca.gov 19 analysis full gutter 2018-19 BUDGET $5 million funding for the NextUp Program, is a notable improvement, we have concerns that which provides support services for current and the Legislature will not have time before budget former foster youth enrolled in the community closeout to thoroughly review and vet some of the colleges. The program—also known as the specific changes proposed in the May Revision. Cooperating Agencies Foster Youth Educational For example, the administration has not yet shared Support Program—initially received $15 million in a district-level analysis of the impact of the new 2015-16 and was authorized to operate in up to formula or explained how providing additional 10 community college districts. Chapter 722 of performance funding based on the number of 2017 (SB 12, Beall) authorized up to 20 districts Pell Grant recipients—rather than the number of to participate in the program, but it did not provide students receiving need-based fee waivers—would additional funding to support the expansion. affect the way funds are distributed. To allow more Provides $685,000 One Time for Course time for review of the specific components of Identification Numbering (C-ID) System. The the new formula, we recommend the Legislature May Revision provides this funding to the CCC adopt the May Revision framework as part of Academic Senate in support of the C-ID system. budget closeout but work out specific details of This system, which was created in 2007, is the formula in legislation this summer and then intended to promote common numbering of begin implementing the new formula in 2019-20. By comparable courses offered by college campuses. waiting to transition until 2019-20, the Legislature (For example, a college algebra course numbered would free up $279 million in hold harmless funding “C-ID Math 150” would reflect the same basic ($175 million included in January and $104 million course content regardless of which college campus added in the May Revision) that could be used offered it.) Faculty groups develop and review “C-ID for other one-time priorities, such as deferred descriptors” for courses. These descriptors include maintenance. basic information about the course, such as the Consider Including Other Student Support topics that are covered, how students are evaluated Programs in Block Grant and Modifying (such as through research papers), and sample Allocation. We recommend the Legislature textbooks or other instructional materials that are consolidate the three student support programs commonly used. Campus courses that match a identified in the May Revision into a block grant particular descriptor are assigned that same C-ID but also consider adding other student support course identifier. All course descriptor information categorical programs. The state currently funds can be accessed on a C-ID website. nine other student support programs. We recommend revisiting how to allocate the block Assessment and Recommendations grant funding depending upon whether other Figure 11 summarizes of our recommendations categorical programs are added to the new for the May Revision CCC proposals. We provide block grant and whether the Legislature adopts our assessment of the most notable of these a new apportionment funding formula that has a component focused on supporting low-income proposals below. students. Ultimately, we think the allocation method Recommend Adopting Funding Formula should be designed such that block grant funding Framework but Delaying Implementation. complements other community college funding The Governor’s revisions to the funding formula streams and is well aligned to the expectations proposal address many of the concerns raised regarding the objective of the block grant funds. by our office and various stakeholders over the Recommend Rejecting Online Community past few months. Most notably, the proposal College Proposal. The May Revision changes provides greater performance-based funding for to the online community college proposal do the outcomes of low-income students, ensuring not address the key concerns we had with the that colleges have a strong incentive to focus on Governor’s January proposal. Most importantly, the improving outcomes for students most likely to proposal does not identify specific problems within need additional support. Although the proposal 20 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET Figure 11 Summary of CCC Recommendations Issue May Revision Proposal LAO Recommendation Apportionment funding Makes numerous changes to January proposal. Modify. Adopt general framework as part of budget formula closeout but delay implementation until 2019-20. Work out details of formula components in legislation this summer. Categorical program Consolidates funding for Student Success and Modify. Consider including other student support consolidation Support Program, student equity plans, and programs in block grant and revisit allocation method Student Success for Basic Skills Students after making other related decisions. program into block grant. Online community college Makes numerous changes to January proposal. Reject. Explore systemwide improvements to existing programs for working adults. Enrollment growth Makes no changes to 2017-18 and maintains Modify 2017-18 Proposal. Reduce 2017-18 funding 2018-19 January proposal to fund 1 percent by $25 million to reflect updated attendance data growth. and redirect freed-up funds to deferred maintenance or other one-time priorities. Adopt 2018-19 January proposal. Deferred maintenance Reduces amount by $132 million, bringing Adopt. Provide at least the amount proposed by total to $144 million one time. (Down from the Governor. Consider increasing funding if other $275 million in January.) one-time funding is freed up. Financial aid technology Provides $13.5 million one time and $5 million Reject. State already provides campuses with funding ongoing for campuses to upgrade financial aid for basic operating costs such as technology and processing and management systems. software. Apprenticeship programs Increases one-time funding by $5.9 million and Reject One-Time Funding and Modify Ongoing ongoing funding by $4.8 million. Funding. Add $9.4 million ongoing to accommodate projected 2018-19 growth in apprenticeship instructional hours. Student Success Completion Increases ongoing funding by additional Reject. Pursue a more holistic and straightforward Grants $7.8 million. approach to covering unmet living costs for financially needy students. Open Education Resources Provides $6 million one time. Modify. Provide proposed funding but add an annual reporting requirement. NextUp Program Increases by $5 million ongoing to expand Modify. Adopt increase in funding but consider program to 10 additional colleges. consolidating program with other student support programs and giving foster youth first call for funds. Course Identification Provides $685,000 one time to CCC Academic Reject. Direct Department of Finance to develop Numbering system Senate to support system. funding plan that aligns desired improvements with an appropriate (ongoing) funding source. the community college system that prevent working Recommend Reducing 2017-18 Enrollment adults from accessing existing programs, nor does Funding. Based on recent attendance reports, it clarify how a new online community college we estimate the state will have at least $25 million would better meet the needs of working adults. in unused enrollment growth funding for the Rather than create a new college, we recommend current year. The Legislature could redirect this the Legislature reject the proposal and explore funding to deferred maintenance or other one-time systemwide improvements designed to improve Proposition 98 priorities. Though data indicate services for working adults with no postsecondary 2017-18 enrollment funding is overbudgeted, the credentials. amount needed for 2018-19 enrollment funding www.lao.ca.gov 21 analysis full gutter 2018-19 BUDGET is less clear at this point. This is because recent Recommend Providing $9.4 Million policy changes could be spurring an increase in Ongoing Augmentation for Apprenticeships student demand, but modeling the exact effect in 2018-19. As regards ongoing funding for of the policy changes is difficult. For this reason, apprenticeships in 2018-19, we recommend we recommend the Legislature wait to adjust providing $9.4 million more than the May 2018-19 enrollment funding until better information Revision—for a total year-over-year augmentation is available next year. of $32 million. Whereas the May Revision funds Recommend Funding Deferred Maintenance. 2018-19 instructional hours at the 2017-18 level, Given CCC has a substantial backlog of deferred we estimate 15 percent year-over-year growth in maintenance, we recommend approving the May hours. This rate reflects average annual growth in Revision proposal to reduce this backlog. We also apprenticeship instructional hours over the past five recommend the Legislature designate any other years. Moving forward, we continue to recommend one-time funds it may free up through other budget the Legislature annually adjust the number of decisions for deferred maintenance. Addressing apprenticeship instructional hours it funds so that deferred maintenance issues earlier rather than the hours the state reimburses moves up and down later often can prevent the need for more expensive with demand for apprentices. maintenance repairs in future years. Continue to Recommend Rejecting Proposal Recommend Rejecting More Funding for for Restructured Student Completion Grants. Financial Aid Technology. Each year, the state As we discussed in The 2018-19 Budget: Higher provides funds to community colleges to support Education Analysis, we believe the administration’s their operating costs. The colleges use these proposal to consolidate and restructure two monies to cover personnel salaries and benefits, financial aid programs would make the underlying utilities, software and technology, and other basic award rules even more complex and would further costs. Over the past several years, the Legislature complicate the financial aid landscape for students has provided community colleges with hundreds and administrators. We continue to recommend the of millions of dollars in additional discretionary Legislature take a more holistic and straightforward funds to support these types of operating costs. approach—consolidating all four existing state Moreover, the California Student Aid Commission is financial aid programs into one program with currently developing a new financial aid technology one set of rules. In this vein, we recommend the system intended to streamline financial aid Legislature reject the January and May Revision processing for campuses. For these reasons, we Completion Grant proposals. The May Revision recommend the Legislature reject the May Revision proposal only makes a small funding adjustment proposal to provide additional CCC funding for based upon updated estimates of the students financial aid technology. likely to be eligible for the proposed grants but makes no underlying programmatic improvements Continue to Recommend Rejecting Funding to the proposal. Prior-Year Apprenticeship Costs. We recommend the Legislature reject the May Revision proposal Recommend Approving Funding for OER but to provide even more funding retroactively to Adding Reporting Requirement. Based on our apprenticeship sponsors for prior-year costs. review of CCC’s work plan for this May Revision State law makes clear that if funding is insufficient proposal, we recommend the Legislature adopt to cover all apprenticeship hours in any given the proposal. The May Revision proposal builds year, sponsors are to make adjustments to stay upon the state’s efforts to date to expand the within the overall budget allocation, such that availability of free instructional materials. The May sponsors should not be expecting retroactive Revision proposal also is designed to reach a large funding. Furthermore, the number of instructional number of faculty and, by extension, students. We hours provided by apprenticeship sponsors grew recommend, however, that the Legislature add rapidly the past few years, even as the state was a reporting requirement to enhance oversight of pro-rating reimbursement rates downward. these funds. Specifically, we recommend that the 22 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET Chancellor’s Office provide annual reports over the youth, the Legislature could require them to next three years on the progress of the initiative. At prioritize block grant funds for these students a minimum, the annual reports should track (1) the and other students who are the highest risk for number of OER materials that have been created dropping out and not meeting their educational with the funds, (2) the number and percentage of goals. faculty at each campus that have adopted OER Recommend Rejecting C-ID Proposal and textbooks for their courses, (3) the number of Revisiting Next Year. According to the CCC students enrolled in course sections that use OER Academic Senate, it would like additional ongoing textbooks, and (4) the estimated average savings funding to sustain and enhance the C-ID system. that these students have realized as a result of The Academic Senate envisions making various using OER. improvements, such as (1) providing ongoing review Recommend Adopting NextUp Program of existing course descriptors, (2) developing new Augmentation but Consider Consolidating descriptors as courses emerge, and (3) maintaining and Prioritizing Services for Foster Youth in the C-ID website. Though these activities generally New Block Grant. Given the Legislature recently are ongoing in nature, the May Revision provides enacted legislation to authorize expanding the one-time funding. We recommend the Legislature NextUp program to additional colleges, we reject the May Revision proposal and direct DOF recommend adopting the augmentation. As part to come back next year with a proposal that aligns of its deliberation on consolidating categorical desired improvements with an appropriate funding programs, however, we recommend the Legislature source. (That is, next year’s proposal should link consider shifting the program into the new student ongoing improvements with ongoing funds and any support block grant. To ensure that colleges one-time improvements with one-time funds.) continue to provide support services to foster CALIFORNIA STATE UNIVERSITY California State University (CSU) Core Revision adjusts CSU’s ongoing General Fund Funding Up $98 Million From January Levels. support downward by $2 million to reflect recently Figure 12 (see next page) compares state General revised state contribution rates for CSU pensions. Fund, tuition revenue, and other state funds The May Revision does not change the Governor’s (primarily lottery revenue) for CSU under the January proposal to provide a $92 million Governor’s January budget and May Revision. (2.4 percent) ongoing unrestricted increase for CSU Under the May Revision, combined CSU funding (the same dollar amount the Governor proposes for from these sources is $98 million higher than in the University of California). January. CSU funding in 2018-19 is $190 million Proposes to Reduce General Fund Support if (2.7 percent) higher than the revised 2017-18 level. CSU Raises Tuition. The May Revision proposes Under the May Revision, CSU’s core funding provisional budget language that would allow the reaches $7.2 billion in 2018-19. Below, we describe director of DOF to reduce CSU’s General Fund and assess the May Revision proposals for CSU. appropriation were CSU to increase tuition levels The May Revision contains a slight reduction in in 2018-19. The proposed amount of any such ongoing funding ($2 million) and $100 million reduction would equal the amount of estimated increase for one-time purposes. state costs to the Cal Grant and the Middle Class Scholarship programs resulting from a CSU tuition Major Changes increase. The proposed provisional language would Revises Base General Fund Downward by require the Finance director to provide notice to $2 Million Compared With January. The May the Joint Legislative Budget Committee at least 30 www.lao.ca.gov 23 analysis full gutter 2018-19 BUDGET days before making the reduction to CSU’s General reductions in state funding were CSU not to Fund support. honor a tuition agreement it had made with the Provides $100 Million for Deferred Legislature. (With tuition hikes off the table for the Maintenance. The May Revision provides coming year, the Legislature would need to provide $100 million one-time General Fund to address additional General Fund support in 2018-19 were CSU’s deferred maintenance backlog. This proposal iit to approve additional CSU funding priorities. We is part of a larger May Revision package of deferred identify and assess CSU’s key cost drivers in The maintenance funding for numerous agencies 2018-19 Budget: Higher Education Analysis.) statewide. Recommend Adopting Deferred Maintenance Proposal but Require Plan for Eliminating Assessment and Recommendations Backlog. CSU estimates that campuses have Figure 13 summarizes of our recommendations accumulated a maintenance backlog of $2.7 billion, for the May Revision CSU proposals. We provide with $2 billion for facilities and the remainder for our assessment of these proposals below. campus infrastructure. We think that providing funds for deferred maintenance is a reasonable use Proposed Language on Linking CSU Funding of one-time monies and recommend the Legislature With Tuition Decision Is Unnecessary This Year. adopt the May Revision proposal. In tandem with Though we believe the Governor’s idea of linking providing this funding, however, we recommend the state General Fund and tuition decisions would help Legislature require CSU to submit by December 1, make for more rational and transparent budgeting, 2018 a long-term plan for eliminating its existing the May Revision language proposed for CSU is backlog of deferred maintenance. This plan should unnecessary this year. This is because Chapter identify funding sources and propose a multiyear 620 of 2012 (AB 970, Fong) prohibits CSU from schedule of payments. In addition, CSU estimates approving tuition increases fewer than 90 days that it would need to set aside $142 million annually before the start of the fall term. Since fall classes to prevent its maintenance backlog from growing. are scheduled to begin by mid-August, CSU would To prevent a growing or reemerging backlog in be unable to raise tuition by the time the budget is future years, we thus recommend the Legislature enacted. Though the language is unnecessary this require CSU to identify ways to improve existing year, the Legislature prospectively could approve maintenance practices, including by setting language linking the segment’s state funding aside the necessary level of funds for scheduled with tuition levels and authorize dollar-for-dollar maintenance. Figure 12 Comparing Core Funding for CSU Under Governor’s Budget and May Revision (In Millions) 2018-19 Year-to-Year 2017-18 Governor’s May Change at Revised Budget Revision Change May Revision Core Funds General Fund Ongoinga $3,719 $3,856 $3,854 -$2 $135 One time 47 2 102 100 55 Subtotals ($3,765) ($3,858) ($3,956) ($98) ($190) Tuition and Feesb $3,168 $3,168 $3,168 — — Other State Fundsc 53 53 53 — — Totals $6,986 $7,078 $7,176 $98 $190 a Includes funding for pensions and retiree health benefits. b Includes funds that CSU uses to provide tuition discounts and waivers to certain students. In 2018-19, CSU would provide $701 million in such aid. c Includes lottery funds and, beginning in 2017-18, $2 million ongoing from the State Transportation Fund for transportation research. 24 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET Figure 13 Summary of CSU Recommendations Issue May Revision Proposal LAO Recommendation Repercussions if tuition increase Reduces General Fund appropriation Reject This Year. Not relevant adopted if CSU increases tuition. Ties given the statutory time frames reduction to associated Cal Grant for adopting tuition increases and Middle Class Scholarship cost already have elapsed this year. increases. Prospectively, could adopt language (1) linking segment’s state support with tuition levels and (2) reducing state support dollar for dollar if CSU were not to honor a tuition agreement with the Legislature. Deferred maintenance Provides $100 million one time. Modify. Require CSU by December 1, 2018 to submit a plan to eliminate its backlog and improve maintenance practices. Cost-of-living adjustment (COLA) Provides $5,000 ongoing increase. Adopt. Reflects revised COLA. for Capital Fellows Program UNIVERSITY OF CALIFORNIA Core Funding for the University of California of transfer-to-freshman students at each campus, (UC) Higher Than January Level by $157 Million. adopting restrictions on supplemental retirement Figure 14 (see next page) compares core funding benefits for newly hired senior managers, and for UC under the Governor’s budget and the piloting activity-based costing at three campuses. May Revision. Under the May Revision, General Though the May Revision assumes the $50 million Fund support is $157 million (1.7 percent) higher eventually will be released, the administration than the Governor’s budget. UC core funding in indicates its intends to delay the release at least a 2018-19 is $227 million (2.6 percent) higher the few weeks, as UC has not yet completed some of revised 2017-18 level. Under the May Revision, the expectations. The administration indicates it UC’s core funding reaches $9 billion in 2018-19. may release the funds after the Board of Regents Below, we describe and assess the May Revision meet in late May, if the board takes actions to proposals for UC. The proposals contain $1 million address the remaining issues. for ongoing purposes and $156 million for Implements Plan to Fund Enrollment Growth expanded or new one-time initiatives. in 2018-19. The May Revision shifts $8.5 million from the UCOP budget to the campuses to Major Changes support enrollment growth in 2018-19. In addition, Delays $50 Million in 2017-18 Funding campuses are redirecting $6.5 million from within Pending UC Meeting Budget Conditions. The their existing budgets to support growth. Together May Revision delays release of $50 million ongoing the $15 million redirection is intended to support General Fund support to UC—originally scheduled 1,500 additional undergraduate resident students for release May 1, 2018. The 2017-18 budget (0.8 percent growth). The plan is consistent with conditioned this funding on UC meeting certain legislative direction provided last year to UC conditions: making a good faith effort to implement regarding how the system was to cover enrollment certain expectations regarding the UC Office of the growth in 2018-19. President’s (UCOP) budget, meeting a certain ratio www.lao.ca.gov 25 analysis full gutter 2018-19 BUDGET Sets Repercussions for UC Were It to Raise for psychiatric residency programs. Of this amount, Tuition in 2018-19. The May Revision authorizes $40 million would fund residency positions at DOF to reduce UC’s General Fund appropriation UC. The remaining $15 million would be for a were the university to increase tuition in 2018-19. grant program, administered by UC, to increase The reduction would be tied to Cal Grant and the number of psychiatric residents at non-UC Middle Class Scholarship cost increases resulting hospitals. The Accreditation Council for Graduate from a UC tuition increase. DOF would be required Medical Education lists 23 accredited psychiatric to give the Joint Legislative Budget Committee residency programs in California, with a total of 30 days advance notice before making any 576 currently filled residency positions. The May associated reduction. Unlike for tuition increases, Revision funding would be restricted to UC and no repercussions would be linked to UC increasing non-UC programs that serve rural areas of the the systemwide Student Services Fee. The Board state that the federal government designates as of Regents does not plan to increase tuition or the having health professional workforce shortages. Student Services Fee at its upcoming May meeting, (The federal government designates 208 regions though the board discussed plans at earlier in California as “Medically Underserved Areas” and meetings to increase tuition by 2.5 percent and the 167 regions as mental health “Health Professional Student Services Fee by 5 percent for the 2018-19 Shortage Areas.” Many regions have both academic year. designations.) According to the administration, Provides One-Time Funding for Deferred grant funding would cover the total cost of a Maintenance Projects. The May Revision provides resident’s two-year program. The funds would $100 million to UC for deferred maintenance be available for expenditure beginning June 30, projects. The proposal is part of a broader package 2019 and remain available through June 30, 2023. of one-time funding for deferred maintenance UC would be authorized to use up to $5.5 million projects across numerous state agencies. (10 percent) of the funding for administrative costs. Increases Psychiatric Residency Positions. Funds Anti-Bias Training. The May Revision The May Revisions provides $55 million one time provides $1.2 million one time for UC to contract Figure 14 Comparing Core Funding for UC Under Governor’s Budget and May Revision (In Millions) 2018-19 Year-to-Year 2017-18 Governor’s May Change at Revised Budget Revision Change May Revision General Fund Ongoing $3,367 $3,469 $3,470 $1 $103 One time 177 — 156 156 -20 Carryovera 5 39 39 — 34 Subtotals ($3,549) ($3,509) ($3,666) ($157) ($117) Tuition and feesb $4,816 $4,936 $4,936 — $120 Lottery 42 42 42 — —c Other core fundsd 405 395 395 — -10 Totals $8,813 $8,882 $9,039 $157 $227 a Of the one-time funding provided to UC in 2016-17, $45 million was unspent. UC plans to spend $5 million in 2017-18 and the remainder in 2018-19. b Includes funds that UC uses to provide tuition discounts and waivers to certain students. In 2018-19, UC plans to provide $1 billion in such aid. Includes 5 percent increase in the Student Services Fee in 2018-19. UC has not adopted tuition and fee increases for the 2018-19 academic year. c Less than $500,000. d Includes a portion of overhead funding on federal and state grants, a portion of patent royalty income, and Proposition 56 funding designated for graduate medical education. 26 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET for a two-year pilot program to train UC and CSU Assessment and Recommendations employees and student leaders on responding Figure 15 (see next page) summarizes of to on-campus hate and extremist incidents. our recommendations for the May Revision UC Provisional language would authorize UC to spend proposals. We provide our assessment of these up to $200,000 (17 percent) on administrative costs proposals below. associated with managing the contract. Recommend Allowing Delay in Release of Provides Support for Research on Global Funds. While UC has met most of the conditions Affairs. The May Revisions provides $1 million set forth in the 2017-18 budget, a few conditions ongoing for the Institute for Global Conflict remain unmet. The university indicates that it will and Cooperation, located at the UC San Diego take action to address the remaining conditions at campus. The institute, which was founded in the its upcoming May board meeting. We recommend early 1980s and received state funding until the the Legislature consent to the administration’s early 2000s, supports research on challenges to proposed delay in the release of the funds to international security due to nuclear proliferation, ensure UC continues to make a good faith effort to climate change, and other emerging issues. meet outstanding budget conditions. According to the institute’s staff, the proposed Recommend Stronger Provisional Language ongoing augmentation would support (1) work If Tuition Increase Not Desired. We believe the groups on various high-priority topics, including Governor’s idea of linking state General Fund denuclearization negotiations in North Korea and and tuition decisions would help make for more relations between the United States and Russia; rational and transparent budgeting. We recommend (2) research grants for faculty and graduate strengthening the proposed language, however, students; and (3) educational workshops for to reduce General Fund support dollar for dollar if policymakers in Sacramento and the District of UC were not to honor a tuition agreement with the Columbia. Legislature. We think this dollar-for-dollar approach Authorizes UC to Charge Campuses for is a much stronger and better incentive than linking UCPath Cost Increases. UCPath is a human a General Fund reduction only to the associated Cal resources management system that provide various Grant and Middle Class Scholarship cost increases. business services, such as payroll processing, to We believe such language would be particularly campuses. The May Revision bifurcates budgeting helpful prospectively, in that more time would be for UCPath by funding a portion of costs through given to send signals to the university systems UCOP’s budget and a portion of costs through about what cost and tuition increases would be campus charges. Specifically, the May Revision acceptable to the state. This year, with the budget provides up to $67.7 million for UCPath, with season almost over, the language might have less $52.4 million funded through UCOP’s budget effect. (Were tuition hikes to be deemed off the and up to $15.3 million funded through campus table for 2018-19, the Legislature would need to charges. The May Revision includes a special provide additional General Fund support if it wanted provision allowing UC to charge campuses more to approve additional UC funding priorities. We than $15.3 million but only after receiving approval identify and assess UC’s key cost drivers in The from DOF and the Joint Legislative Budget 2018-19 Budget: Higher Education Analysis.) Committee. Recommend Adopting Deferred Maintenance Equal Employment Opportunities. The Proposal but Require Plan for Eliminating May Revision reappropriates unspent one-time Backlog. In the past, UC has indicated that its General Fund provided in 2016-17 and 2017-18 maintenance backlog is billions of dollars. It has for identifying equal employment opportunity best not provided a more specific estimate because it practices. indicates that its campuses lack a standardized way to track the condition of their facilities. In November 2017, the university embarked on www.lao.ca.gov 27 analysis full gutter 2018-19 BUDGET a multiyear study to develop a more accurate UC to develop a long-term plan for eliminating estimate of its backlog using a consistent set its existing backlog of deferred maintenance. We of standards across all campuses. Though UC recommend the plan also identify ways to improve currently is unable to provide an accurate estimate annual maintenance practices, including by setting of its total backlog at this time, we think the aside a certain amount of funding regularly for university system’s total maintenance backlog scheduled maintenance. To align the plan with likely exceeds $100 million. Given addressing UC’s current efforts to estimate its maintenance deferred maintenance issues earlier rather than needs, we recommend the plan be submitted to the later often can prevent the need for more expensive Legislature shortly after UC completes its facility maintenance repairs in future years, we recommend condition assessment. the Legislature approve the $100 million May Psychiatric Residency Proposal Raises Revision proposal. In tandem with approving the Several Issues for the Legislature to Consider. funding, we recommend the Legislature require Workforce data suggest that staffing shortages Figure 15 Summary of UC Recommendations Issue May Revision Proposal LAO Recommendation Conditions on 2017-18 Delays release of $50 million by a few Adopt. Legislature has interest in ensuring monies weeks pending UC meeting remaining UC makes a good faith effort to meet all budget conditions. of the 2017-18 budget conditions. Enrollment growth Shifts $8.5 million ongoing from UCOP Adopt. Conforms with legislative direction to campuses (an additonal $6.5 million to fund enrollment growth in 2018-19. redirected from within campus budgets). Repercussions if tuition Reduces General Fund appropriation if Modify. Strengthen language to reduce increase adopted UC increases tuition. Ties reduction to General Fund dollar for dollar were associated Cal Grant and Middle Class tuition increased in excess of legislative Scholarship cost increases. agreement. Apply language prospectively. Deferred maintenance Provides $100 million one time. Modify. Require UC to develop long-term plan to eliminate backlog and improve maintenance practices. Psychiatric residency Provides $55 million one time. Modify. If additional residency slots programs funded, allocate all funding competitively, use independent body to select grant recipients, add reporting requirement, and cap administrative allotment. Anti-bias training Provides $1.2 million for a two-year pilot Reject. Direct segments to report on program for training faculty, staff, and anti-hate training activities and use student leaders at UC and CSU. existing resources for such training. Center for Global Conflict Provides $1 million ongoing. Reject. Unclear that existing research and Peace activities across the nation on global conflict are inadequate. UCPath operations Retains budget line item ($52.4 million), Modify. Do not bifurcate budget between but authorizes UC to charge campuses UCOP and campuses. Consider cost for cost increases (up to $15.3 million). sharing agreement among state and nonstate funds. Vigilantly monitor cost increases over next few years. Equal employment Reappropriates one-time funding provided Adopt. Authorizes UC to spend remaining opportunity in 2016-17 and 2017-18. unspent monies. UCOP = University of California Office of the President. 28 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET exist in certain health fields and certain geographic • Establish Reporting Requirements. To help areas of the state. The Legislature would need assess the effectiveness of the program, to decide whether it considers the shortage of we recommend the Legislature require psychiatric staff to be the highest priority among UC to submit an annual report over the all the staffing shortage areas that currently exist duration of the program. We recommend in California. If the Legislature desired to address the annual report include: (1) a list of grant this one staffing area, then it likely would want data recipients each year, (2) the growth in to help it assess the core underlying causes of residency positions as a result of the grant the shortage. Though more residency slots might program, and (3) employment information on be an effective way to address the shortage, the grant-supported residents a few years after Legislature might want to explore other options that completing the program to gauge whether the potentially could be more effective. For example, funded slots resulted in more psychiatrists in a portion of the Mental Health Service Act funds a areas of high need. variety of programs, including a loan forgiveness • Reduce Administrative Allotment. We think program and recruitment and retention programs, a 10 percent allotment for administration to incentivize mental health professionals to work in is high relative to similar health workforce areas of high need. The May Revision proposal also programs in the state. For example, the provides one-time funding but solving the shortage Office of Statewide Health Planning and might require at least some ongoing funding, Development sets aside 6 percent of funding without which the infusions of one-time funding to administer a grant program for primary care might be especially ineffective. residency slots. If Decide to Pursue Psychiatric Residency Recommend Using Existing Staff and Existing Proposal, Recommend Improvements. Given Operational Funding for Anti-Bias Training. the issues mentioned above are numerous and According to the Anti-Defamation League, white fundamental, we question whether the Legislature supremacist propaganda has increased notably has adequate time to address them before budget at college campuses since 2016. For example, closeout. Nonetheless, if the Legislature were the organization indicates that it has tracked to decide to fund more residency positions in 53 incidences of extremist flyers posted on UC and 2018-19, we recommend four changes to the CSU campuses. Ensuring campus employees and May Revision proposal to improve the proposed student leaders are adequately prepared to respond program’s design. to these and other hate incidents is a laudable goal. • Make All Funding Competitive. We We believe, however, that the activities proposed by recommend making the entire $55 million the Governor should be the ongoing responsibility open to competitive grants, rather than of existing UC administrative staff and a high specifying a certain amount go only to UC. priority for the use of existing training funds. If the This would allow funding to go to programs Legislature were concerned that UC and CSU were with the highest demonstrated impact. not giving sufficient priority to anti-hate training, • Use an Independent Body to Select Grant then it could require the systems to report next year Recipients and Conduct Oversight. To on their existing and new efforts to train employees ensure the funds are allocated without and student leaders in this area. preference for UC programs, we recommend Recommend Rejecting Funding for Global the Legislature use an independent body to Affairs Research. According to the federal U.S. administer the program and distribute grants. Institute of Peace, over 90 university research In implementing this provision, the Legislature centers in the United States study international could consider using an existing body with relations issues. Several of these institutes focus sufficient expertise, such as the Office of specifically on global peace and conflict issues, Statewide Health Planning and Development. such as the Stanford Center on International www.lao.ca.gov 29 analysis full gutter 2018-19 BUDGET Conflict and Negotiation and the School for budget or campus assessments, it could consider Conflict Analysis and Resolution at George Mason establishing a cost sharing agreement that University. Similar to the UC San Diego center, attributes a portion of UCPath costs to state funds these programs conduct research on a number and a portion to nonstate funds. As UCPath is a of multidisciplinary topics and support graduate human resources system, a cost sharing agreement students. In our view, the administration has could be based on the share of W-2s of employees not sufficiently demonstrated that the combined serving in state capacities (typically general campus activities of these centers provide an inadequate staff) or nonstate capacities (typically research and level of research on global issues. For this reason, hospital staff). Based upon these data, we estimate and given the many other state-specific priorities the state share of cost would be about 40 percent, facing the Legislature this year, we recommend with the nonstate share 60 percent. rejecting this proposal. Continue to Monitor System Vigilantly. To Recommend Rejecting Proposal to Bifurcate date, UCPath has taken much longer to develop UCPath Budget. The May Revision proposal to and costs much more than originally expected. fund a portion of the UCPath budget through the Additionally, according to a recent analysis from UCOP budget and a portion through campus the California State Auditor, campuses might charges in unnecessarily complicated. We not reduce their staffing levels once the center recommend the Legislature choose one budgetary is fully deployed in 2019-20, thereby negating approach. At this time, we see advantages to much of the anticipated savings. We recommend using the campus assessment method, as we the Legislature continue to monitor the UCPath think it might provide stronger incentives to contain budget vigilantly over the next few years to ensure UCPath costs. that cost increases are justified, campuses find Could Consider Cost Sharing Arrangement the system useful, campuses want to transition Between State and Nonstate Funds for UCPath. from their legacy systems to the UCPath system, Regardless of whether the Legislature elects and budgeting for the system is transparent to continue to fund UCPath through UCOP’s and appropriate, with strong cost containment incentives. STUDENT FINANCIAL AID Student Financial Aid Funding Up Under 2017-18 and $29 million in 2018-19 to reflect May Revision. Figure 16 compares total funding updated Cal Grant participation estimates. for the California Student Aid Commission (CSAC) Decreases TANF Support, Increases General under the Governor’s January budget and the May Fund Accordingly. The May Revision decreases Revision. Compared to the Governor’s January federal TANF support by $29 million and increases budget, the May Revision includes an additional state General Fund by that amount. This fund swap $24 million for CSAC programs. Under the May has no programmatic effect. Revision, total funding for CSAC in 2018-19 is Revises Expectations for Transfer Enrollment $2.3 billion, reflecting an increase of $21 million at Private Nonprofit Institutions. The May (0.9 percent) over the revised 2017-18 level. Revision continues to tie a portion of the nonprofit Below, we describe and assess the May Revision Cal Grant award amount ($1,028) to the nonprofit proposals for CSAC. sector meeting overall transfer student targets. The May Revision differs from the Governor’s January Major Changes proposal only in the specific targets set for the Adjusts Cal Grant Funding Based on Updated sector over the next three years (see Figure 17 on Participation Estimates. The May Revision page 32). For example, the May Revision reduces increases Cal Grant funding by $76 million in 30 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET Figure 16 Comparing Funding for the California Student Aid Commission Under Governor’s Budget and May Revision (In Millions) 2018-19 Year-to-Year 2017-18 Governor’s May Change at Revised Budget Revision Change May Revision General Fund $1,256 $1,201 $1,254 $53 -$2 Federal TANF 1,043 1,095 1,066 -29 23 Other federal funds and reimbursements 18 18 18 —a —a College Access Tax Credit Fund 6 6 6 — —a Totals $2,323 $2,319 $2,343 $24 $21 a Less than $500,000. TANF = Temporary Assistance for Needy Families. the target number of students with associate Assessment and Recommendations degrees for transfer admitted across the sector Figure 18 (see next page) summarizes of our from 2,500 to 2,000 in 2018-19. The May Revision recommendations for the May Revision financial aid does not change the repercussions if the sector proposals. We provide our assessment of the most does not meet the target in a given year—the notable of these proposals below. Cal Grant award amount still is set to drop from Recommend Adopting May Revision Cost $9,084 to $8,056. Estimates for Cal Grant and Other Financial Aid Authorizes Short-Term General Fund Loans Programs. Based upon our preliminary review of to Help CSAC Manage Cal Grant Cash Flow. The the administration’s budget documentation, the May Revision authorizes DOF to issue short-term May Revision participation and cost estimates General Fund loans of up to $125 million to appear to be in line with the updated underlying cover Cal Grant costs throughout the fiscal year. data submitted by CSAC. Specifically, the loans would be provided to CSAC Change to Nonprofit Expectations Does Not to address cash flow issues resulting from delays Address Underlying Concerns With Proposal. In in receiving TANF funds. To receive a loan, CSAC The 2018-19 Budget: Higher Education Analysis, would have to receive confirmation from the we noted three major concerns with the Governor’s Department of Social Services that no TANF monies January proposal for the private nonprofit Cal could be advanced at that time. The loans would Grant award. The change would deemphasize the be interest free and would have to be repaid within award’s longstanding goal of ensuring financially 90 days. needy students have the choice to attend a private Small Adjustments to Other Financial institution. Additionally, the administration was Aid Programs. The May Revision makes small not able to substantiate that nonprofit institutions adjustments in participation and award amounts to currently have inadequate transfer pathways. several other financial aid programs, including the Thirdly, the proposal has a poor accountability Middle Class Scholarship program, the Assumption mechanism—effectively holding individual Program of Loans for Education, the State Nursing students and nonprofit institutions accountable Assumption Program, the Child Development for a sectorwide expectation which is out of their Teacher and Supervisor Grant Program, the John direct control to meet. The May Revision does R. Justice Loan Assumption Program, and the Law not address these core concerns. Furthermore, Enforcement Personnel Dependent Grant Program. the current number of students with associated degrees for transfer who are admitted to nonprofit www.lao.ca.gov 31 analysis full gutter 2018-19 BUDGET institutions remains unknown. Figure 17 Without this data, the Legislature Revised Admission Expectations for Nonprofit Institutions lacks a baseline to set reasonable targets. The May Revision targets Number of Students With Associate Degree for Transfer could be lower than the number of 2018-19 2019-20 2020-21 2021-22+ students with associated degrees Governor’s Budget 2,500 3,000 Proportiona Proportiona for transfer already admitted to the May Revision 2,000 3,000 3,500 Proportiona sector. a Based on the percent change over the prior year in the number of all transfer students admitted Withhold Recommendation at nonprofit institutions. on Short-Term Loans Until Additional Information Received. state funds, is not well timed with award payments. Federal TANF funding represents around half of The administration, however, has not provided the funding for the Cal Grant program. Given the Legislature with a cash flow analysis to determine large reliance on TANF funding, CSAC could be if such problems currently exist. Without this experiencing cash flow issues if the receipt of information, we are unable to assess this proposal. TANF funds, in combination with the release of Figure 18 Summary of Financial Aid Recommendations Issue May Revision Proposal LAO Recommendation Cal Grant participation Increases by $76 million in 2017-18 Adopt. Based on preliminary review, and $29 million in 2018-19. participation estimates appear reasonable. TANF funding for Cal Grants Decreases federal TANF support by Adopt. Reflects fund swap and has $29 million and increases General no programmatic effect. Fund support by same amount. Cal Grant awards for students at Continues to require nonprofit sector Reject. Minor change to targets does private, nonprofit schools to admit specified number of not address underlying problems students with associate degrees for with proposal. transfer, but revises the targets. Short-term state loans to cover Authorizes Student Aid Commission Withhold. Assessment pending delays in TANF funds for Cal to receive up to $125 million in receipt of additional data on Grant costs interest-free General Fund loans. underlying cash flow issues. Requires loans to be paid back within 90 days. TANF = Temporary Assistance for Needy Families. 32 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET www.lao.ca.gov 33 analysis full gutter 2018-19 BUDGET 34 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET www.lao.ca.gov 35 analysis full gutter 2018-19 BUDGET LAO PUBLICATIONS This report was prepared by the Education Unit of the Legislative Analyst’s Office (LAO). The 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 and staff contact list, 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. 36 LEGISLATIVE ANALYST’S OFFICE