The 2019-20 Budget: Higher Education Analysis

The 2019-20 Budget: Higher Education Analysis GABRIEL PETEK LEGISLATIVE ANALYST FEBRUARY 21, 2019 analysis full gutter 2019-20 BUDGET LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Table of Contents Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 California Community Colleges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Apportionments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 College Promise Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 California State University . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Compensation and Other Operational Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Enrollment Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Graduation Initiative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Project Rebound . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Covering Cost Increases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 University of California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Compensation and Other Operational Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Enrollment Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Student Success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Extended Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Covering Cost Increases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 California Student Aid Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Cal Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Nontuition Coverage for Student Parents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Cal Grant Competitive Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Middle Class Scholarships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Summary of Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 www.lao.ca.gov analysis full gutter 2019-20 BUDGET LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Executive Summary In this report, we analyze the Governor’s higher education budget proposals . Below, we highlight key messages from the report . California Community Colleges Opportunities Exist for Improving Student Success Component of New Apportionment Formula. The Governor is concerned about the quality of student outcome data and initial increases in formula costs . In response, he proposes to (1) postpone for one year the scheduled increase in the share of funding linked to student outcomes and (2) cap annual growth in this part of the formula at 10 percent . We recommend adopting the postponement but rejecting the proposed growth cap, as it could dampen districts’ efforts to make genuine improvements in their student outcomes . We recommend exploring more targeted options, such as linking outcome-based funding to the highest award a student earns . To address regular year-to-year fluctuations in student outcome data, we also recommend using a three-year rolling average for funding purposes . Recommend Rejecting Governor’s Proposal to Expand California College Promise Program. The Governor proposes to increase College Promise funding by $40 million . This proposal would allow community colleges to waive two years of enrollment fees for nonfinancially needy students enrolled full time or use the funds for various student support purposes . We have three concerns with the proposal . First, expansion is premature, as data on how the program is affecting students is not yet available . Second, while College Promise is intended to incentivize community colleges to improve student outcomes, the state now has other programs that create much stronger incentives to improve . Third, waiving fees for students without financial need might be a lower priority for the Legislature, given the remaining unmet need of other students . We recommend the Legislature reject the proposal and use the $40 million for higher Proposition 98 priorities . Universities Compensation Decisions Are a Key Part of University Budgets. The largest of the Governor’s proposed augmentations for the California State University (CSU) and University of California (UC) are increases in employee salaries and benefits . The Governor’s budget, however, supports increases for all CSU employees whereas it supports increases only for represented employees at UC . We encourage the Legislature to consider the extent to which the segments are attracting and retaining employees when evaluating CSU’s and UC’s compensation decisions . Several Factors to Consider When Setting Enrollment Targets. The Governor proposes $62 million to fund 2 percent enrollment growth at CSU in 2019-20 but sets no enrollment target for UC . The Legislature could consider several factors when setting enrollment targets . On the one hand, the number of high school graduates is projected to decline slightly the next couple of years . Both segments also are drawing from beyond their traditional freshman eligibility pools . On the other hand, many eligible applicants at both segments are not admitted to their preferred www.lao.ca.gov 1 analysis full gutter 2019-20 BUDGET campus . Whereas the first two factors suggest the Legislature might wish to hold enrollment flat, the last factor suggests some growth might be warranted . Recommend Increasing Transparency and Accountability for Student Success Initiatives. The Governor proposes funding student success initiatives at both segments ($45 million for CSU’s Graduation Initiative and $50 million for a new UC initiative) . Were the Legislature interested in supporting these initiatives, we recommend linking the funding to the segments achieving certain performance expectations (such as improving graduation rates, reducing excess units, and narrowing achievement gaps by specified amounts) . Many Proposed Capital Outlay Projects Have Merit, but Some Not Justified. We have concerns with 4 of CSU’s 18 proposed projects and 2 of UC’s 7 proposed projects . We have concerns when projects are especially costly without justification, when the space requested is not warranted given existing facility utilization, and when promising, less costly alternatives exist . We recommend the segments not proceed with these six projects, though the segments could resubmit project proposals if they found ways to lower costs or better substantiate need . Opportunities Exist for Making Tuition More Predictable. The Governor calls for more fiscal predictability for students and their families . The best way to promote such predictability is through sizeable state reserves—sufficient to sustain university spending during an economic downturn and prevent steep tuition hikes . One way to free up General Fund for higher reserves is to have student tuition cover a share of proposed 2019-20 cost increases . In tandem with building higher reserves, we encourage the Legislature to adopt a policy explicitly establishing what share of cost nonfinancially needy students should pay . Such a policy would improve budget transparency and aim to treat student cohorts similarly, whether enrolling in college during good or bad economic times . Cal Grants Recommend Rejecting Proposal to Increase Financial Aid for Student Parents. The Governor proposes $122 million to help some financially needy student parents attending the three public segments with more of their living costs . We have several concerns with this proposal . By creating new rules that apply only to one group of students, the proposal further complicates the state’s financial aid system . By allocating additional aid based on students’ parental status rather than financial need, the proposal does not necessarily prioritize the highest-need students . By focusing only on existing Cal Grant recipients, the proposal would not benefit most financially needy student parents, who do not currently receive Cal Grants because of the limit on available awards . We recommend the Legislature reject the Governor’s proposal but potentially pursue more information on this issue . To this end, it could request certain state agencies work with the segments to assess the extent to which current financial aid and public assistance programs collectively address student parents’ needs . Recommend Prioritizing Funding for More Cal Grant Competitive Awards. The state currently provides up to 25,750 new competitive awards each year for students who do not qualify for an entitlement award (typically older students) . The Governor proposes $9 .6 million to fund an additional 4,250 awards . Because the number of eligible applicants far exceeds the number of competitive awards, each year nearly 300,000 financially needy students do not receive an award . Given this figure, we think increasing the number of competitive awards is warranted . If the Legislature wishes to go further, we estimate every $1 million augmentation funds 440 additional awards . 2 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET INTRODUCTION In this report, we analyze the Governor’s of the Law as well as a few other higher education major higher education budget proposals . The proposals, including ones relating to student report has sections covering the Governor’s food and housing insecurity . For background on major proposals for the California Community the state’s college students, staffing, campuses, Colleges (CCC), California State University (CSU), funding, outcomes, and facilities, please see our University of California (UC), and California Student recently released report, California’s Education Aid Commission . The final section of the report System: A 2019 Guide . For tables providing consists of a summary of our recommendations . additional higher education budget detail, please Forthcoming analyses will cover Hastings College see the “EdBudget” section of our website . CALIFORNIA COMMUNITY COLLEGES In this section, we provide an overview of 2019-20, an increase of $207 (2 .6 percent) from the CCC budget, then analyze the Governor’s the prior year . The Governor proposes no change proposals for community college apportionments, to the CCC enrollment fee—leaving it at $46 per the College Promise program, and CCC facilities . unit (or $1,380 for a full-time student taking 30 semester units per year) . The state last raised the OVERVIEW CCC enrollment fee in July 2012 . Total CCC Budget Reaches $15.9 Billion APPORTIONMENTS Under Governor’s Budget. Community colleges receive their core support from Proposition 98 Below, we provide background on community funds (Figure 1, see next page) . In addition, the college apportionment funding, describe the state provides CCC with non-Proposition 98 Governor’s major apportionment proposals, General Fund for certain purposes . Most notably, analyze those proposals, and offer associated non-Proposition 98 funds cover debt service on recommendations . state general obligation bonds for CCC facilities, Background a portion of CCC teacher retirement costs, and Chancellor’s Office operations . Altogether, these State Adopted New Credit Apportionment Proposition 98 and non-Proposition 98 funds Funding Formula in 2018-19. Prior to 2018-19, the comprise about two-thirds of CCC funding . The state based general purpose apportionment funding remaining one-third of funding comes primarily from for both credit and noncredit instruction almost student enrollment fees, other student fees (such entirely on FTE enrollment . Last year, the state as nonresident tuition, parking fees, and health changed the credit-based apportionment formula services fees), and various local sources, including to include three main components, described in community service programs and facility rentals . the next three paragraphs . For each of the three Proposition 98 Funding Grows to $9.4 Billion components, the state set new per-student funding Under Governor’s Budget. As Figure 2 (see next rates . In future years, these underlying rates are page) shows, the Governor has several policy to receive a cost-of-living adjustment (COLA) . The proposals that together account for $290 million in new formula does not apply to credit enrollment new Proposition 98 spending . These augmentations generated from incarcerated students or high are partly offset by expiring one-time funds . Under school students . It also does not apply to noncredit the Governor’s budget, Proposition 98 funding per enrollment . Apportionments for these students full-time equivalent (FTE) student rises to $8,306 in remain based entirely on enrollment . www.lao.ca.gov 3 analysis full gutter 2019-20 BUDGET Figure 1 California Community Colleges Funding by Source (Dollars in Millions Except Funding Per Student) Change From 2018-19 2017-18 2018-19 2019-20 Actual Revised Proposed Amount Percent Proposition 98 General Fund $5,757 $6,055 $6,117 $62 1.0% Local property tax 2,963 3,119 3,321 202 6.5 Subtotals ($8,720) ($9,174) ($9,438) ($264) (2.9%) Other State Other General Funda $466 $819 $683 -$136 -16.6% Lottery 231 253 253 —b -0.1 Special funds 96 95 93 -2 -2.2 Subtotals ($793) ($1,167) ($1,028) (-$138) (-11.9%) Other Local Enrollment fees $457 $457 $459 $2 0.4% Other local revenuesc 4,644 4,663 4,685 22 0.5 Subtotals ($5,102) ($5,120) ($5,145) ($24) (0.5%) Federal $288 $288 $288 — — Totals $14,903 $15,749 $15,899 $150 1.0% Full-Time Equivalent (FTE) Students 1,125,224 1,132,757 1,136,214 3,457 0.3% Proposition 98 Funding Per FTE Student $7,749 $8,099 $8,306 $207 2.6% Total Funding Per FTE Student $13,244 $13,903 $13,993 $89 0.6% a In 2018-19 and 2019-20, includes the Governor’s proposal to provide supplemental payments to the California State Teachers’ Retirement System. b Projected to decline by $211,000. c Primarily consists of revenue from student fees (other than enrollment fees), sales and services, and grants and contracts, as well as local debt-service payments. Figure 2 Base Allocation. As with the 2019-20 Changes in CCC Proposition 98 Spending prior apportionment formula, the base allocation gives each (In Millions) district certain amounts for each 2018-19 Revised Spending $9,174 of its colleges and state-approved Technical Adjustments centers . It also gives each district Prior-year one-time spending -$110 funding for each credit FTE Other 83 student ($3,727 in 2018-19) . Subtotal (-$26) Calculating a district’s FTE student Policy Proposals count involves several somewhat COLA for apportionments (3.46 percent) $248 complicated steps, but basically College Promise fee waivers (extend program to sophomores) 40 COLA for select student support programs (3.46 percent)a 32 a district is funded based on a Enrollment growth (0.55 percent) 26 three-year rolling average of its FTE Student Success Completion Grants (caseload adjustment) 11 student count . The rolling average Legal services for undocumented students 10 takes into account a district’s Strong Workforce Program (portion of costs shifted to one-time funds) -77 current-year FTE count and Subtotal ($290) counts for the prior two years . As Total Changes $264 discussed later, enrollment growth 2019-20 Proposed Spending $9,438 for the budget year is funded a Applies to Adult Education, Apprenticeship Programs, Extended Opportunity Programs and Services, mandates block separately . grant, Disabled Students Programs and Services, CalWORKs student services, and campus child care support. COLA = cost-of-living adjustment. 4 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Supplemental Allocation. The formula provides 15 percent in 2019-20 and 20 percent in 2020-21 . an additional $919 for every student who receives To achieve these changes in shares, statute a Pell Grant, receives a need-based fee waiver, or specifies changes to the base and student success is undocumented and qualifies for resident tuition . rates for each of the next two years . Whereas Student counts are “duplicated,” such that districts the base rate is set to decrease from $3,727 to receive twice as much supplemental funding $3,046 over the period, the student success rates ($1,838) for a student who is included in two of are set to double . these categories (for example, receiving both a Pell New Formula Insulates Districts From Grant and a need-based fee waiver) . The allocation Funding Losses During Transition. The new is based on student counts from the prior year . formula includes several hold harmless provisions Student Success Allocation. As Figure 3 for community college districts that would shows, the formula also provides additional funding have received more funding under the former for each student achieving specified outcomes— apportionment formula than the new formula . obtaining various degrees and certificates, For 2018-19, 2019-20, and 2020-21, these completing transfer-level math and English within community college districts are to receive their the student’s first year, and obtaining a regional total apportionment in 2017-18, adjusted for COLA living wage within a year of completing community each year of the period . Beginning in 2020-21, college . Districts receive higher funding rates for districts are to receive no less than the per-student the outcomes of students who receive a Pell Grant rate they generated in 2017-18 under the former or need-based fee waiver, with somewhat greater apportionment formula multiplied by their current rates for the outcomes of Pell Grant recipients . As FTE student count . To help districts with declining with the supplemental allocation, funding is based enrollment, the state also retained its longstanding on outcome data from the prior year . one-year hold harmless provision that allows Over Next Two Years, Base Allocation to districts to receive the greater of their calculated Decrease, Student Success Allocation to current- or prior-year allotments . Increase. In 2018-19, roughly 70 percent of the State Allocates Enrollment Growth Separately cost of the formula stems from the base allocation, From Other Components of the Apportionment 20 percent from the supplemental allocation, and Formula. Enrollment growth funding is provided 10 percent from the student success allocation . on top of the funding derived from all the other The share for the base allocation is scheduled to components of the apportionment formula . Statute decrease to roughly 65 percent in 2019-20 and does not specify how the state is to go about 60 percent in 2020-21, whereas the share for the determining how much growth funding to provide . student success allocation is set to increase to Historically, the state considers several factors, Figure 3 Student Success Allocation in New CCC Formula 2018-19 Amounts by Student Outcome Measure and Student Type Additional Funding for Each: Pell Grant Need-Based Fee Outcome Measure All Students Recipient Waiver Recipient Associate degree for transfer $1,760 $666 $444 Associate degree 1,320 500 333 Credit certificate requiring 18 or more units 880 333 222 Transfer-level math and English courses completed within first academic year 880 333 222 Transfer to a four-year university 660 250 167 Nine or more career technical education units completed 440 167 111 Regional living wage obtained within one year of community college completion 440 167 111 www.lao.ca.gov 5 analysis full gutter 2019-20 BUDGET including changes in the adult population, the allocation . Under the Governor’s proposal, the unemployment rate, and prior-year enrollment . 2019-20 funding formula rates would be the When the state funds growth, the Chancellor’s same as in 2018-19, adjusted for COLA . The Office uses a statutory formula to allocate that administration indicates the proposal is intended to funding across community college districts . provide additional time for the Chancellor’s Office The allocation formula takes into account local to assess the reliability and quality of the student educational attainment, unemployment, and poverty outcome data used in determining districts’ funding rates, as well as recent local enrollment trends . allocations . In 2020-21, rates would change as The formula is designed to direct a larger share of currently scheduled, with base rates decreasing enrollment growth to high-need districts . and student success rates doubling . Community College Districts Required to Caps Year-to-Year Growth in Student Success Conduct Annual Financial Audits. Districts must Allocation. The Governor also proposes to limit contract annually with a certified public accountant growth in a district’s student success allocation to conduct an audit that reviews their financial such that it can increase no more than 10 percent statements and verifies compliance with state and each year . This proposal helps to constrain the total federal programs . The compliance portion of the costs of the formula and limits the fiscal effects of audit includes a review of districts’ documentation student outcome data that is of potentially poor relating to FTE enrollment . The Chancellor’s Office quality . annually publishes an audit manual that provides Assessment guidelines for the documentation that must be collected and reviewed in assessing compliance . A Few Key Considerations in Deciding Whether to Cover Apportionment Shortfall. Governor’s Proposals On the one hand, the Legislature could cover the Projects Higher Cost of 2018-19 shortfall, thereby signaling support for the new Apportionments but Does Not Cover Shortfall funding formula, with its emphasis on improving at This Time. The administration estimates that community college student outcomes . On the 2018-19 apportionments cost $69 million more other hand, the Legislature could choose not to than provided for in the Governor’s current budget the cover the shortfall . Were the shortfall not to package . The higher cost is primarily a result be covered, current practice would result in each of the student success allocation exceeding district having its apportionment amount prorated levels assumed in the 2018-19 Budget Act . The downward . Based on the current estimated administration indicates it will decide whether shortfall, district apportionments would be reduced to provide additional funding to address the by about 1 percent . Some of the 72 community apportionment shortfall in May, at which time college districts likely would be affected by the the state will have updated estimates of both reduction more than others . For the 18 “hold apportionment costs and General Fund revenues . harmless” districts—which expected to receive Funds COLA and Enrollment Growth. The their 2017-18 allotments adjusted by COLA—the Governor’s budget includes $248 million to cover shortfall would result in year-over-year growth a 3 .46 percent COLA for apportionments . In slightly lower than COLA . These districts could addition, the budget includes $26 million to cover be in a relatively difficult position if they increased 0 .55 percent enrollment growth (equating to about employee salaries in 2018-19 based on COLA . For 6,000 additional FTE students) . the other 54 districts—which expected to grow at rates higher than COLA—the prorated reduction Postpones Scheduled Changes in Funding likely would be less difficult to accommodate, with Formula Rates. The administration proposes to their annual growth rates still relatively high . (For postpone for one year the scheduled changes in purposes of this comparison, we exclude the new the share of apportionment funding linked with online community college district created last year .) the base allocation and the student success 6 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Proposed Enrollment Growth Is in Line With to significant year-to-year variation (Figure 4) . Recent Systemwide Demand. The Governor The variability is particularly large when looking proposes lower enrollment growth than the state at individual districts . Although the number of has budgeted for CCC the past few years . The associate degrees awarded annually has increased lower growth rate, however, is consistent with statewide by an average of 7 percent per year the growth districts have experienced the past since 2008-09, almost all districts had at least one few years . In 2016-17, districts used $38 million year where their awards declined from the previous of $114 million budgeted for enrollment growth . year . During that same period, 59 districts had In 2017-18, districts used $32 million out of at least one year where the number of associate $60 million budgeted for growth . For 2018-19, the degrees awarded increased more than 20 percent . administration projects districts will use $33 million Similar variability also exists in historical data for of the $60 million provided . Given these trends, we certificates of greater than 18 units . Were these think the $26 million proposed by the Governor for trends to continue, districts could see substantial 2019-20 is reasonable . year-to-year variation in their student success Student Outcome Data Can Fluctuate Year to allocations . Year. The administration has expressed concern Likely Several Causes of Data Variability. with anomalies in the preliminary 2017-18 student Because this data has not traditionally been outcome data . For example, 2017-18 statewide audited or reviewed by external entities, the data growth in the number of associate degrees may not be accurate or collected consistently . The awarded was the highest reported growth rate degree counts for any particular year also could since 2008-09 . Our review of historical data, be affected by administrative decisions or delays however, shows student outcome data to be prone in the actual processing or reporting of degrees . Figure 4 Associate Degrees Awarded Vary Significantly Year to Year Annual Change in Degrees Awarded 30% 20 El Camino Statewide 10 Mendocino Palomar -10 -20 -30 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 Note: Shows change in associate degrees and associate degrees for transfer. The three community college districts selected reflect the variation among small, medium, and large districts. www.lao.ca.gov 7 analysis full gutter 2019-20 BUDGET (Some students who complete their coursework in Recommendations May, for example, might not receive their degree Use a Three-Year Rolling Average to until July due to processing issues .) Data also could Distribute Student Success Allocation. Given vary by year because of differences in student initial concerns with student outcome data, we cohorts, with larger incoming cohorts producing a recommend adopting the Governor’s proposal larger set of outcomes in subsequent years . Finally, to postpone the scheduled changes in funding some of the changes could be due to specific local formula rates . Although postponing the changes circumstances . For example, a district might see and implementing new audit guidelines likely will an increase in its number of transfer students if help improve data quality and reliability, we are a local CSU campus were to increase its transfer concerned that accurate and reliable data might admissions rate that year . still be prone to significant year-to-year volatility . Chancellor’s Office Plans to Add Auditing To limit volatility in districts’ annual funding levels, Guidelines for All Funding Formula Data. The we recommend the student success allocation 2018-19 audit manual released by the Chancellor’s be calculated using a three-year rolling average Office does not require auditors to review the data of student outcome data . This approach is similar used to calculate the supplemental and student to the approach used to smooth out enrollment success allocations of the apportionments formula . funding in the base allocation . Using a rolling The Chancellor’s Office indicates it will update average would mitigate the fluctuations that auditing guidelines for 2019-20 to include a review might occur because of data irregularities while of this additional data . These new guidelines will still creating incentives for districts to improve provide the state with greater assurance that the outcomes over the long run . data is being properly collected, tabulated, and Consider Ways to Promote Genuine reported . Improvements Instead of Capping Student Chancellor’s Office Plans to Conduct Review Success Allocation. Rather than implementing of Data Collection Processes This Spring. a cap on all outcomes-based funding, we In addition to updating the audit manual, the recommend the Legislature explore other Chancellor’s Office plans to hire an independent cost-containment options that continue to entity this spring to review the data collection provide strong incentives for districts to make and reporting processes of a random sample of genuine improvements in student outcomes . For districts . The goal of this review is to identify ways example, the Legislature could limit the amount of to improve the consistency and quality of data outcomes-based funding generated by an individual reported by districts . The review is expected to be student to the highest award earned in any completed by early May, such that its findings and particular year . Under such an approach, a student recommendations could be incorporated into the who earns an associate degree and a certificate final 2019-20 budget . would only generate outcomes-based funding for Cap on Student Success Allocation Is a Crude the associate degree . This would prevent districts Approach to Containing Formula Costs. In from generating additional funding by encouraging adopting the new funding formula, the Legislature associate degree students to obtain unnecessary tied a portion of funding to student outcomes to certificates, yet still reward districts that see ensure districts had strong financial incentives improvement in student completion . Targeted to focus on student success . Capping the entire modifications of this type would allow the state to student success allocation is a crude approach reduce formula costs without reducing the incentive that could work counter to this purpose . Most for districts to improve outcomes for students . notably, the cap could reduce financial incentives for districts that are making genuine improvements COLLEGE PROMISE PROGRAM in student outcomes . Below, we (1) provide background on the Board of Governors (BOG) fee waiver program and the 8 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET California College Promise program, (2) describe postsecondary coursework, enroll in 12 or more the Governor’s proposal to increase funding for the units per semester, and submit a FAFSA . Under the College Promise program, (3) assess that proposal, program, colleges also are permitted to use their and (4) make an associated recommendation . College Promise funds for a broad range of other purposes, such as providing supplemental services Background to students . Longstanding Program Provides Fee Waivers Statute Requires Colleges to Meet Six for CCC Students With Financial Need. When Requirements to Receive College Promise the Legislature introduced a CCC enrollment fee in Funds. Figure 5 shows these requirements . The 1984, it created the BOG fee waiver program . This requirements are intended to incentivize colleges to program waives enrollment fees—currently $46 per adopt certain promising student support practices . unit—for students who have some financial need . In 2018-19, 105 colleges have indicated they (Financial need is defined as the difference between are meeting all six requirements and are, in turn, the total cost of attendance and the amount a receiving College Promise funds . Nine colleges student’s family can contribute toward that cost, have opted out of the program, primarily out of as calculated by a federal formula .) Students concern that the sixth requirement—offering federal apply for a fee waiver by completing either the student loans—will increase their cohort default Free Application for Federal Student Aid (FAFSA) rates . (Colleges must maintain cohort default or a shorter form developed by the Chancellor’s rates below a certain threshold to remain eligible Office . Students may receive this fee waiver for any for federal financial aid, including the Pell Grant number of units taken . In 2017-18, 41 percent of program .) CCC students—representing almost two-thirds of Some Colleges Are Using Funds for Purposes units taken—had their enrollment fees fully waived Other Than Fee Waivers. The Chancellor’s Office through this program . allocates College Promise funds primarily based State Recently Created New Program With on the estimated number of students at each Multiple Objectives. Chapter 735 of 2017 college who are eligible for fee waivers under this (AB 19, Santiago) created the California College program . According to the Chancellor’s Office, Promise program . This program was inspired by 85 of the 105 colleges receiving College Promise tuition-free college programs in other states (as explained in Figure 5 the box on page 10), but it had Colleges Must Meet Six Requirements to broader goals beyond affordability . Receive College Promise Funds The Legislature’s stated intent in creating the program was Participating Community Colleges Must: to support CCC in increasing 9 Partner with school districts on college outreach efforts. college readiness, improving student outcomes, and reducing 9 Partner with school districts to support practices that improve college achievement gaps . The state readiness and reduce the need for remediation. provided $46 million for the 9 program in 2018-19, the first Use evidence-based practices for the assessment and placement of year it was funded . Colleges are incoming students. permitted—but not required—to 9 Implement Guided Pathways to help students enter and stay on a use these funds to provide fee defined academic path. waivers to first-time, full-time 9 students without financial need Ensure students complete the Free Application for Federal Student during their first year of college . Aid or California Dream Act Application. To be eligible for these waivers, 9 Participate in federal student loan program. students must have no prior www.lao.ca.gov 9 analysis full gutter 2019-20 BUDGET funds are using some or all of their funds to provide of the program, colleges could use their additional fee waivers to first-time, full-time students without College Promise funds to waive enrollment fees for financial need . The remaining colleges are using the qualifying students or for other purposes, such as funds for other purposes . Examples of other uses student support services . The proposal does not include book stipends for financially needy students change the six requirements colleges must meet to and additional financial aid staff positions . The receive funds under this program . Chancellor’s Office indicates that some colleges Assessment are opting to use College Promise funds for other purposes because they already had local programs Outcomes From First Year of Program Are waiving fees for students without financial need . Not Yet Known. The state first funded the College Promise program in 2018-19 . As of this writing, Governor’s Proposal current-year data from the colleges is not available . Governor Proposes $40 Million Ongoing This means the state does not yet know the effect for College Promise Expansion. The Governor of the program on overall enrollment, full-time proposes to augment funding for the program enrollment, financial aid participation, and other based on the estimated cost of waiving enrollment student outcomes . Without this information, the fees for first-time, full-time CCC students in their Legislature may consider it premature to expand first two years of college who do not have financial the program . need under the BOG fee waiver program . Under the Proposal Likely to Primarily Benefit Students Governor’s proposal, total ongoing funding for the Without Financial Need. Although the Chancellor’s program would be $80 million . (Though the 2018-19 Office does not know exactly how much colleges Budget Act included $46 million for the College spent on College Promise fee waivers, it reports Promise program, the administration now estimates that 85 of the 105 participating colleges are using that first-year fee waivers cost only $40 million— some or all of their allocation for fee waivers . the same as its estimated cost for second-year We anticipate that many colleges would use the fee waivers .) Consistent with the existing design proposed augmentation for the same purpose . College Promise Programs in National Context In Other States, College Promise Programs Are Primarily Intended to Increase Affordability. California’s College Promise program was inspired by other states’ College Promise programs, which primarily focused on providing tuition-free college . These other programs typically emerged in states that had not previously waived tuition for students with financial need . Accordingly, the programs are intended to reduce financial barriers to enrollment and simplify the messaging around affordability . Some programs are limited to full-time students, with the intent of incentivizing students to take a higher course load that allows them to graduate more quickly . In California, Existing Programs Already Addressed Affordability Goal. Before the California College Promise program, the BOG fee waiver program already waived enrollment fees for California Community Colleges (CCC) students with financial need, regardless of course load or prior academic experience . California also was already funding the Cal Grant program, which helps CCC recipients cover a portion of their living costs . In 2016-17, the state began providing additional incentives for financially needy CCC students to enroll full time . Specifically, the Student Success Completion Grant provides full-time CCC students receiving a Cal Grant with up to an additional $4,000 each year for living expenses . Because of these existing financial aid programs, California’s College Promise program is not as strictly focused on affordability as other states’ programs . 10 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Because the students qualifying for fee waivers FACILITIES under this program are not considered financially In this section, we provide background on needy, the Legislature may have higher priorities CCC facilities, describe the Governor’s proposal for these funds . Were the Legislature to reject the to authorize 12 new community college projects, Governor’s proposal, CCC students with financial assess the Governor’s proposal, and offer need would continue to have their second-year associated recommendations . enrollment fees covered by the BOG fee waiver program . Background Colleges Have Other Stronger Fiscal Incentives to Improve Student Support. The State Funds Community College Facilities College Promise program was designed to create a Through General Obligation Bonds. The state financial incentive for colleges to adopt six student typically issues general obligation bonds to cover support practices . Since creating the program, a portion of the cost of community college facility the Legislature has adopted other reforms that projects . A majority of voters must approve these provide more explicit requirements and stronger bonds . From 1998 through 2006, voters approved financial incentives for colleges to improve student four facility bonds that provided a total of $4 billion support . Chapter 745 of 2017 (AB 705, Irwin) for community college facilities . Virtually no funding requires colleges to use multiple measures to remains from these facility bonds . determine whether incoming students can be New State Bond Approved in 2016. After a placed into transfer-level coursework—one of the ten-year gap, voters approved Proposition 51 in six practices required under the College Promise November 2016 . The measure authorizes the state program . The Student Equity and Achievement to sell $2 billion in general obligation bonds for Program, a $475 million block grant created in community college projects . The funds may be 2018-19, requires colleges to adopt practices that used for an array of CCC projects, including buying overlap with two of the College Promise program land, constructing new buildings, modernizing requirements . The 2018-19 budget package existing buildings, and purchasing equipment . also created a new funding formula that bases a Community College Districts Raise Local portion (roughly $800 million in the current year) Funding for Facilities. The bulk of community of a college’s general purpose apportionments college facility costs are covered with local funds . on student outcomes . Together, these recent Districts typically sell local general obligation bonds reforms create incentives that are similar to—and to raise this support . Districts currently must get at considerably larger than—those created under the least 55 percent of their voters to approve the sale College Promise program . of these local bonds . Since 1998 (when the voting threshold for local facility bonds was reduced from Recommendation two-thirds), community college districts have sold Reject Governor’s Proposal to Increase $26 billion in local general obligation bonds for Funding for College Promise Program. Because facility projects . (1) it is too soon for the Legislature to evaluate the Community College Facility Projects Ranked current College Promise program, (2) the program by Chancellor’s Office and Reviewed by the primarily benefits students without financial need, State. To receive state bond funding, community and (3) colleges now have stronger incentives college districts must submit project proposals to provide student support and improve student to the Chancellor’s Office . The Chancellor’s outcomes, we recommend the Legislature reject Office ranks all submitted facility projects using the Governor’s proposed $40 million augmentation . prioritization criteria adopted by the Board of Rejecting the proposal would free up a like amount Governors . Projects are prioritized in the following of funding for other Proposition 98 priorities . order: www.lao.ca.gov 11 analysis full gutter 2019-20 BUDGET • Life safety projects, projects to address proposes to fund 12 of the 39 projects submitted seismic deficiencies or risks, and by the Chancellor’s Office . As Figure 6 shows, infrastructure projects (such as utility systems) the Governor’s budget includes $18 million in at risk of failure . Proposition 51 funds for these projects . The funding • Projects to increase instructional capacity . would cover the cost of preliminary plans and working drawings . Total state costs for all phases of • Projects to modernize instructional space . the projects, including construction, are estimated • Projects to complete campus build-outs . to be $254 million . Of the 12 projects, 1 is in the • Projects that house institutional support Chancellor’s Office’s highest-priority category, 3 are services . in the second priority category, 5 are in the third Within these categories, projects with a local priority category, and 3 are in the fourth category . contribution receive greater consideration . After The administration indicates it funded all projects ranking the projects, the Chancellor’s Office that address life safety issues and include substantial submits capital outlay project proposals to the local matches . (For two projects with little or no local Legislature and Governor in the fall . The projects match, the administration indicates it included the are reviewed as part of the annual state budget projects because the districts demonstrated financial process . hardship .) Review Process Works Somewhat Differently Governor Supports Next Phase of 15 for Life Safety Projects. To be approved in the Previously Approved Projects. The Governor’s highest-priority category under the Chancellor’s budget also includes $341 million in Proposition 51 Office process, a district must (1) have a third party funds for the construction phase of 15 projects entity identify the facility as an imminent danger that were initially approved in 2017-18 or 2018-19 to the occupants and (2) submit a project scope (Figure 7) . that is the least costly option for permanently Governor Postpones Additional Funding addressing the problem . A project to address for Five Previously Approved Projects. For immediate electrical safety issues, for example, five projects that previously received funding could not include renovations related to other for preliminary plans and working drawings, the building issues . administration proposes postponing construction Almost Two Dozen Proposition 51 Projects funding . Figure 8 (see page 14) lists these projects, Already Approved, Many More Recommended the year they were initially approved, and their by Chancellor’s Office. To date, the state has estimated construction cost . Most of these projects approved 21 Proposition 51-funded community have encountered delays with earlier project phases college projects . The total state cost for all and, in three cases, the administration is concerned phases of these projects is estimated to be districts still are contributing little or no local match $587 million . For 2019-20, the Chancellor’s Office toward the project . is recommending 39 additional projects . Of the Assessment 39 projects, 6 projects were proposed last year but not funded . The remaining 34 projects were newly Governor Proposes More Projects Than approved by the Chancellor’s Office in fall 2018 . in Previous Years. The Newsom administration Of the projects, the Chancellor’s Office ranked shows a greater commitment to allocating 3 in the highest-priority category, 15 in the second Proposition 51 bond funding than the previous highest-priority category, 15 in the third category, administration . Compared to the 12 projects and 6 in the fourth category . The projects are Governor Newsom is proposing, the Brown estimated to have total state costs of $689 million . administration proposed only five projects each of the past two years . Despite proposing more Governor’s Proposals projects, the state still would be on a somewhat Governor Proposes Funding 12 New CCC slow track to expend all Proposition 51 bond funds . Projects for 2019-20. The administration Accounting for all phases of all projects to date 12 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET (including the 12 proposed projects), the state Proposition 51 bond funding in about nine years (by would have committed $668 million of the $2 billion 2025-26) . Given the amount of projects approved authorized by Proposition 51 . (This amount excludes by the Chancellor’s Office, this somewhat slow construction funding for the postponed projects .) At pace is driven by state-level decisions, not lack of this pace, the state would be on track to exhaust demand from community colleges . Figure 6 Governor Proposes to Fund 12 New CCC Capital Outlay Projects (In Thousands) All Years 2019-20 College Project State Cost State Cost Total Costa San Bernardino Technology replacement building $2,313 $34,411 $75,647 Redwoods Physical education replacement building 5,379 60,648 60,648 American River Technology replacement building 1,258 29,959 57,966 Saddleback New Gateway Building 1,719 26,080 52,338 Alameda Auto and diesel technologies replacement building 1,278 17,044 33,650 Los Angeles City Theater arts replacement building 1,112 15,140 30,095 Merced New agricultural science and industrial technologies complex 431 12,974 25,629 Santa Monica Art replacement complex 793 10,901 21,526 Rio Hondo Music/Wray theater renovation 847 9,873 20,486 Sequoias Basic skills replacement center 1,365 15,635 17,350 Fresno Child development replacement center 1,036 13,520 16,850 Butte Technology building renovation 518 8,088 10,722 Totals $18,049 $254,273 $422,907 a Community college districts typically issue local general obligation bonds to pay for a share of project costs. Figure 7 State Would Support 15 Continuing CCC Capital Outlay Projects (In Thousands) All Years 2019-20 College Project State Cost State Cost Total Costa Santa Monica Science and mathematics building addition $37,031 $39,615 $78,102 Laney Learning resource replacement center 22,812 24,417 75,686 Mount San Antonio New physical education complex 53,993 57,541 72,238 Santa Rosa Science and mathematics replacement building 30,882 33,076 65,589 Orange Coast Language arts and social sciences replacement building 28,305 30,353 59,803 Allan Hancock Fine arts replacement complex 22,873 24,526 48,318 Golden West Language arts replacement complex 21,925 23,540 46,478 West Hills (North District Center) New library and instructional facility 40,275 42,403 43,285 Santa Ana Russell Hall replacement 19,192 20,729 40,948 Solano Library replacement building 17,396 20,148 39,739 Compton Instructional replacement building 14,891 16,167 24,995 Mission Portables replacement 10,073 10,814 21,500 Merritt New child development center 5,692 6,128 20,013 Imperial Academic buildings renovation 8,647 9,043 17,741 Long Beach (Pacific Coast Campus) Construction trades building renovation, phase 1 6,712 7,304 13,107 Totals $340,699 $365,804 $667,542 a Community college districts typically issue local general obligation bonds to pay for a share of project costs. www.lao.ca.gov 13 analysis full gutter 2019-20 BUDGET Figure 8 Five Previously Approved Projects Not Receiving Construction Funding in 2019-20 (In Thousands) Estimated Construction Cost Year Initially College Project Approved State Total San Francisco (Ocean Campus) Utility infrastructure replacementa 2017-18 $76,257 $76,257 Pasadena City Armen Sarafian building seismic replacementb 2017-18 53,458 55,523 Redwoods Arts building replacementc 2018-19 22,191 22,191 Fullerton Business 300 and Humanities 500 Renovationc 2017-18 15,714 30,115 San Francisco (Alemany Center) Seismic and code renovationsa 2017-18 14,398 14,398 a Both project delays and insufficient local match. b Insufficient local match. c Project delays. For Redwoods project, district demonstrated financial hardship and no local match is expected. Different Approaches to Life Safety Issues however, could be the result of poor district Is Creating Confusion for Districts. Although maintenance practices . The Chancellor’s Office the Chancellor’s Office has a specific process for approach, which requires third-party review and addressing life safety issues, the administration has limits the scope of life safety projects, does not its own approach . The administration reviews every create these poor incentives to the same degree . project approved by the Chancellor’s Office and Recommendations prioritizes those that appear to be addressing life safety issues, even if life safety is not the primary Consider Approving Additional CCC Projects. reason for the project . In contrast, the Chancellor’s Given the somewhat slow pace of project approvals Office may deem a project higher priority because and our concerns with the administration’s rationale it addresses a lack of instructional capacity, even for which projects it has included in its budget, the if no life safety issues are involved . Inconsistency Legislature may want to consider approving more in how the two agencies are reviewing projects is projects than the Governor . In choosing which resulting in confusion for districts, as their projects projects to fund, the Legislature could evaluate the are effectively being subjected to two competing projects based on the Chancellor’s Office priority standards . categories or work with the Chancellor’s Office Unclear if Prioritizing Life Safety Is the and administration to develop another set of clear, Right Approach for Community Colleges. agreed-upon criteria . Figure 9 lists the projects The administration’s approach to prioritizing approved by the Chancellor’s Office but not funded community college projects is consistent with in the Governor’s budget . the approach generally used for state-owned Explore Better Ways to Address Life buildings, where the state is directly responsible Safety Concerns. We recommend directing the for safety . This approach, however, might not be administration and the Chancellor’s Office to the right approach within the context of community develop one agreed-upon framework for how life college facilities . Community college districts are safety issues should be considered in the review of the ones directly responsible for any life safety community college projects . If the administration issues related to their facilities . Additionally, the and Chancellor’s Office cannot come to an administration’s approach can reward districts that agreement, we recommend the Legislature codify have done a poor job maintaining their facilities . an approach in statute . We believe the framework For example, if two districts submit requests to should ensure state funding is available in case of modernize buildings that are of the same age, the a facility emergency but also have strong incentives administration’s approach prioritizes the project for districts to maintain their facilities in good that has a life safety issue . The life safety issue, condition . Additionally, we think the framework 14 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Figure 9 Projects Approved by Chancellor’s Office but Not Included in Governor’s Budget (In Thousands) All Years Priority 2019-20 College Project Categorya State Costb State Cost Total Cost Folsom Lake Instructional buildings phase 2 2 $1,280 $31,374 $58,488 Mount San Jacinto Math and Sciences building 2 1,560 26,816 50,673 Clovis Applied Technology building 2 1,794 26,091 49,893 Irvine Valley Fine arts building 2 1,624 23,202 45,072 Long Beach City Music/theatre complex 2 1,681 23,212 44,606 Mount San Jacinto Science and Technology building 2 1,854 23,203 44,071 Santa Barbara City Physical education replacement 1 3,189 41,103 41,928 West Valley Learning resource center renovation 3 1,623 19,993 40,132 Los Rios (Natomas Education Center) Natomas Center phases 2 and 3 2 886 27,805 39,386 Woodland Performing arts facility 4 1,427 19,426 37,659 West Hills Lemoore Instructional Center phase 1 2 1,634 23,413 31,726 Kern (Delano Center) LRC multipurpose building 2 1,191 16,106 31,242 Skyline Workforce development center 3 860 14,621 28,750 Laney Theater buildings renovation 3 709 8,213 26,454 Chaffey Instructional Building 1 2 951 12,990 26,132 Cerritos Health Sciences Building 26 renovation 3 1,054 12,665 24,712 Merritt Horticulture building replacement 3 755 10,065 24,506 Cañada Instructional center renovation 3 676 8,253 23,682 Lake Tahoe RFE and Science renovation 3 1,447 11,056 21,564 Porterville Allied health building 2 835 10,919 20,827 Monterey Peninsula Public safety center phase 1 4 714 9,223 19,058 Los Rios (Elk Grove Center) Elk Grove Center phase 2 2 410 8,946 17,013 Reedley New child development center 4 818 10,388 14,366 Canyons Boykin Hall renovation 3 334 4,057 7,755 Cabrillo Buildings 500, 600 and 1600 renovation 3 252 3,622 7,268 Monterey Peninsula Music facilities phase 1 renovation 3 222 2,454 6,347 San Mateo Water supply tank replacement 1 505 5,669 6,298 Totals $30,285 $434,885 $789,608 a Reflect’s Chancellor’s Office priority categories. b Reflects cost of preliminary plans and working drawings. should ensure districts provide a local contribution for districts, and help the state more thoughtfully based on their local resources . Creating one set of prioritize among projects . rules will simplify the process, clarify expectations CALIFORNIA STATE UNIVERSITY In this section, we provide an overview of CSU’s facility projects . We conclude by discussing options budget, then assess the Governor’s proposals to for how the Legislature might cover the costs fund (1) compensation and other operational cost associated with these budget priorities or other increases, (2) enrollment growth, (3) the Graduation priorities it identifies . Initiative, (4) Project Rebound, and (5) a set of www.lao.ca.gov 15 analysis full gutter 2019-20 BUDGET OVERVIEW spending increases the Governor proposes . The Governor links his proposed funding increases Below, we provide an overview of the Governor’s with an expectation that CSU not increase tuition proposed budget for CSU, highlighting how CSU’s in 2019-20 . On a per-student basis, ongoing core and noncore funding levels would change . core funding in 2019-20 would increase by $661 CSU Receives Its Funding From Four Main (3 .7 percent)—reaching $18,445 . Sources. In 2018-19, CSU is receiving a total Governor Proposes $264 Million in One-Time of $10 .9 billion in funding from all sources . As Initiatives. The Governor’s budget package Figure 10 shows, about two-thirds ($7 .4 billion) also contains three one-time initiatives for CSU . comes from core funds—a combination of state The largest is $247 million for CSU to undertake General Fund, student tuition and fees, and other additional deferred maintenance projects or state funds (primarily lottery funds) . The remaining expand its campus child care facilities . Building off one-third ($3 .5 billion) comes from federal funds certain budget actions last year, the Governor also and other CSU funds (which includes revenue proposes $15 million to further CSU’s partnerships from various campus enterprises such as parking with social services agencies to address student facilities and student dormitories) . food and housing insecurity . In addition, the Under Governor’s Budget, CSU Funding Governor proposes $2 million for the Chancellor’s Would Increase by a Total of $504 Million Office to conduct a study of a potential new (4.6 Percent). Funding from all sources (core campus in Stockton . and noncore funds) would grow to $11 .4 billion in 2019-20 . The Governor’s budget assumes that COMPENSATION AND OTHER federal funds and other CSU funds are flat year OPERATIONAL COSTS over year, with all of the increase coming from core funds . Greater state General Fund support Below, we provide background on CSU accounts for the bulk of the increase ($465 million, employee compensation and other operating costs, 11 .3 percent) . Student tuition and fee revenue would increase slightly ($39 million, 1 .2 percent) due to proposed Figure 10 enrollment growth . In 2019-20, CSU Relies on Four Major Fund Sources General Fund and tuition support for CSU would be $4 .6 billion and 2018-19 $3 .3 billion, respectively . Ongoing Core Funding Noncore Funds Would Increase by $404 Million Federal (5.6 Percent). Figure 11 looks at Funds only ongoing core funding for CSU, removing noncore and one-time funding . As with CSU’s overall CSU Funds State General Fund budget, greater state General Fund support accounts for the bulk of the proposed increase in ongoing Student Tuition core funding . Year-over-year Other State Funds and Fee Revenue ongoing General Fund support Core Funds would increase by $364 million (9 .2 percent) . Figure 12 shows the specific ongoing General Fund 16 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Figure 11 Ongoing Core Funding for CSU Increases Under Governor’s Budget (Dollars in Millions Except Funding Per Student) Change From 2018-19 2017-18 2018-19 2019-20 Actual Revised Proposed Amount Percent State General Fund $3,713 $3,959 $4,324a $364 9.2% Tuition and Feesb 3,275 3,251 3,290 39 1.2 Other State Fundsc 57 44 44 — — Totals $7,046 $7,254 $7,657 $404 5.6% FTE studentsd 410,060 407,867 415,133 7,266 1.8% Funding per student $17,182 $17,784 $18,445 $661 3.7% a In addition, Governor’s budget includes $7 million ongoing General Fund to the Department of Social Services for provision of legal services to undocumented students and immigrants at CSU campuses. b Includes funds that CSU uses to provide tuition discounts and waivers to certain students. In 2019-20, CSU plans to provide $701 million in such aid. c Includes lottery funds and $2 million ongoing from the State Transportation Fund for transportation research. d One FTE represents 30 credit units for an undergraduate and 24 credit units for a graduate student. Includes resident and nonresident students. FTE = full-time equivalent. then describe the Governor’s associated proposals, Figure 12 assess those proposals, and identify issues for legislative consideration . Governor’s Budget Includes Six Ongoing General Fund Increases for CSU Background (In Millions) Compensation Is the Largest Component of CSU’s Core Budget. Like other state agencies, Compensation and other operational costs $193.0 salaries and benefits make up a significant Enrollment growth (2 percent) 62.0 share of CSU’s core budget (about 75 percent) . Graduation Initiative 45.0 Compensation almost always represents CSU’s Pension costs 44.2 largest cost pressure each year . Retiree health benefit costs 19.8 Most CSU Employees Are Represented Project Rebound 0.3 by a Union. Currently, CSU has more than Total $364.2a 50,000 permanent employees across 23 campuses a In addition, the Governor’s budget proposes $7 million ongoing General Fund to the Department of Social Services for provision of legal services to undocumented and the Chancellor’s Office . About 90 percent of students and immigrants at CSU campuses. these employees (primarily consisting of faculty and support staff) are represented, while the remaining cost of the agreements . In the case of CSU, 10 percent of employees (primarily consisting of state law gives the Board of Trustees authority to managers and supervisors) are nonrepresented . negotiate collective bargaining agreements . The Throughout the year, CSU also employs more than Chancellor’s Office represents the Trustees during 15,000 student assistants and other temporary these negotiations and the resulting agreements staff . These groups are not part of a bargaining unit . must be ratified by the Trustees before going into Board of Trustees, Not the Legislature, effect . The Trustees are expected to manage the Approves CSU Collective Bargaining cost of these agreements within CSU’s overall Agreements. The California Department of Human budget . The Trustees also have delegated authority Resources typically represents the Governor to the Chancellor and campus presidents to set in labor negotiations between the state and its salary levels for nonrepresented employees and any employees . The resulting bargaining agreements associated salary increases must be funded within must be ratified by the Legislature before going into CSU’s overall budget . effect and the state directly funds the associated www.lao.ca.gov 17 analysis full gutter 2019-20 BUDGET CSU Participates in CalPERS, Is Directly CSU is subject to California’s minimum wage law . Responsible for a Share of Its Pension Costs. According to the Chancellor’s Office, only student CalPERS administers pension benefits for CSU assistants and other temporary staff earn the and most other state employees . Employer minimum wage at CSU . All other CSU employees contributions to CalPERS are set by the CalPERS (represented and nonrepresented) currently earn board . Historically, the state directly funded all more than minimum wage . Chapter 4 of 2016 of CSU’s employer costs in the annual budget . (SB 3, Leno) increases the statewide minimum Several years ago, the state modified its approach wage over a period of several years, reaching to covering CSU pension costs . Under the new $15 per hour by January 2022 . approach, CSU is to take into account pension Virtually All Represented Employees Currently costs when it makes new staffing and salary Under Contract Through 2019-20. The CSU decisions . Any new pension costs incurred system has 13 represented employee groups . The beyond the 2013-14 payroll level are CSU’s direct largest group is the California Faculty Association responsibility . (CFA), which represents more than 25,000 CSU No Clear Expectation on How CSU Is to faculty, librarians, counselors, and coaches . In Cover Its Share of Pension Costs. In 2015-16 November 2017, the Trustees ratified a contract and 2016-17, the state provided sufficient with CFA that provides a 3 .5 percent general unrestricted funding to CSU for it to cover its direct salary increase in November 2018, followed by a pension costs . In the last two fiscal years, CSU’s 2 .5 percent increase in July 2019 . In January 2017, unrestricted augmentation has not been sufficient the Trustees ratified an agreement with CSU’s to cover all of its bargaining agreements and direct second largest group (CSU Employees Union), pension costs . CSU indicates it covered its direct which represents more than 15,000 employees pension costs these past two years by redirecting across four bargaining units . Under the agreement, funds from other activities . represented employees receive a 3 percent salary CalPERS Also Administers CSU’s Health increase retroactive to 2017-18 and 3 percent Plans. Every year, CalPERS negotiates with health increases in both 2018-19 and 2019-20 . Of the care providers to establish the premiums for the remaining eight bargaining units (which collectively plans offered to state employees, including CSU represent less than one-quarter of CSU employees), employees . Like other state employers, CSU’s seven have approved contracts in place through the contribution amount to employee health benefits end of 2019-20 . CSU’s approximately 300-member is determined by identifying the four health plans police association currently is the only bargaining with the highest enrollment of state employees and unit with an open contract for 2019-20 . calculating a weighted average of the premiums Salary Costs for Represented and for these plans . Statute sets a default contribution Nonrepresented Employees to Increase level whereby CSU pays 100 percent of the average by $148 Million in 2019-20. CSU’s contract premium cost for employees and 90 percent of the obligations for salary increases totaled $122 million average additional premium costs for dependents in 2018-19 . The state effectively covered this cost (known as the “100/90” formula) . Though the by providing an unrestricted base augmentation 100/90 formula is a default, statute permits CSU of a like amount in the 2018-19 Budget Act . to collectively bargain a different formula for CSU estimates that these continuing bargaining employees . (In practice, the 100/90 formula applies agreements, coupled with a planned 3 percent to nearly all CSU employees .) Each year when the salary increase for nonrepresented employees, will average premium cost increases, CSU must cover total $148 million in additional costs in 2019-20 . the associated cost for its active employees . The CSU Has Identified Four Other Operational state directly covers the associated cost for retired Cost Pressures. In addition to new salary costs in CSU employees . 2019-20, CSU has identified three other ongoing Some CSU Workers Subject to State’s compensation-related cost increases: Minimum Wage Law. Like other employers, 18 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET • $26 million attributed to retirement costs Assessment above CSU’s 2013-14 pensionable payroll Recent Bargaining Agreements Generally level . (Of this amount, $14 million is Have Been More Favorable to CSU Employees associated with 2019-20, $5 million with Than Other State Employees. Though collective 2018-19, and $7 million with 2017-18 . bargaining agreements vary among state Though CSU redirected funds on a short-term bargaining units and strict comparisons among basis to cover the prior-year amounts, it would the agreements are difficult, represented CSU like an ongoing increase to cover the costs employees generally have received better terms moving forward .) than their state employee counterparts the past • $7 .3 million resulting from a 1 .3 percent few years . This is because most state agreements increase in CalPERS-negotiated employer are now requiring employees to pay a larger share health care premium costs . of their pension and retiree health care costs . In • $6 .8 million resulting from an increase in the contrast, CSU agreements have not been requiring state minimum wage from $11 to $12 per these higher employee contributions . As a result, hour beginning January 2019 . the roughly 3 percent annual salary increases that have been granted the past few years to CSU and In addition to these operational costs, CSU is other state workers are stretching farther for CSU scheduled to open about 400,000 square feet workers . of new facility space in 2019-20 . Based on past analysis, CSU estimates the cost to fund the Legislature May Want to Revisit Approach regular operation of these facilities (such as utilities, to Funding CSU Staffing and Pension Costs. general upkeep, and basic repairs) is $11 .75 per The policy that the state enacted in 2013-14 is square foot . Based on this amount, CSU estimates predicated on CSU being able to control any that it will incur $4 .7 million in costs associated with new staffing and salary decisions . One might this new space in the budget year . hold this view given CSU is responsible for its bargaining agreements and the Legislature does Governor’s Proposal not ratify them . Another perspective is that CSU has limited ability to control these costs given Proposes $193 Million Ongoing for legislative expectations most years for CSU to Compensation and Other Operational Costs. grow enrollment, hire associated faculty, provide According to the administration, this amount is cost-of-living adjustments, and offer other salary intended to cover CSU’s $148 million in higher enhancements . Going forward, the Legislature salary costs, as well as its four other identified may want to revisit how prescriptive it wishes to operational cost pressures . (The amount includes be with CSU staffing decisions, including whether the $12 million CSU requested to cover its direct to fund all CSU pension costs directly or devolve pension cost increases in 2017-18 and 2018-19 .) full responsibility for these costs to CSU and its Provides $64 Million Ongoing for Some bargaining agreements . Pension Costs and Retiree Health Care Costs. Opportunity for Legislature to Signal Its Due to higher CalPERS-determined employer Expectations on Future CSU Contracts. At a contribution rates for 2019-20, the budget provides minimum, the Legislature has an opportunity to CSU a $44 million adjustment . This amount signal to the Chancellor’s Office what it thinks is based on CSU’s 2013-14 payroll level, per is reasonable to fund in bargaining contracts current policy . In addition, the budget provides for 2020-21 . For example, the Legislature could a $20 million adjustment to cover higher health signal its expectation that CSU salary increases benefit costs for CSU retirees . This adjustment be aligned with inflation . Prior to negotiations, the is due to an anticipated increase in the number Legislature also could encourage the Chancellor’s of retirees in the budget year as well as higher Office to commission an analysis comparing CSU premium costs . faculty and staff compensation levels with peer institutions . Such an analysis could include an www.lao.ca.gov 19 analysis full gutter 2019-20 BUDGET examination of employee retention rates and the State Typically Sets Enrollment Growth Target extent to which campuses report having sufficient and Funds Growth According to Per-Student candidate pools for open positions . Considerations Formula. In most years, the Legislature provides such as these could assist CSU and the Legislature funding in the annual budget act to support a in negotiating and funding new agreements . specified level of enrollment growth at CSU . The total amount of funding provided each year is ENROLLMENT GROWTH based on the number of additional students the Legislature wants CSU to enroll multiplied by a Below, we provide background on the state’s per-student funding rate (derived by a “marginal eligibility policies and CSU enrollment levels, cost” formula) . The formula takes into account describe the Governor’s proposal to fund the additional faculty, support services, and other enrollment growth, and highlight factors for the resources that are required to serve each additional Legislature to consider when deciding on an student . The per-student costs are shared by the enrollment level for CSU in the budget year . state General Fund and student tuition revenue . In 2019-20, CSU’s marginal cost is $11,322 per FTE Background student, with a state share of $8,499 . Longstanding State Policies Determine Which CSU Enrollment Is at an All-Time High. Students Are Eligible to Attend CSU. Under the Figure 13 shows that resident enrollment levels state’s 1960 Master Plan for Higher Education, at CSU have increased each year since 2010-11, community college students who complete their growing at an average annual rate of about lower-division work with a minimum 2 .0 grade 2 percent over the period . In 2017-18, CSU point average (GPA) are eligible to attend CSU enrolled 386,000 FTE students, about 30,000 more as upper-division undergraduate students . The than campuses were serving in 2008-09 (its Master Plan limits freshman admission to CSU previous peak) . to the top one-third of high school graduates . To Legislature Provided CSU One-Time draw from the top 33 percent, CSU has historically Enrollment Growth Funding in 2018-19. Typically, structured its admission policies to require high the Legislature provides ongoing funding for school students to (1) complete a specified set of enrollment growth . In a departure from traditional college-preparatory coursework and (2) attain a practice, the 2018-19 budget provided CSU certain mix of high school GPA and standardized with $120 million one time for enrollment growth . aptitude test scores (historically SAT or ACT Provisional language permits CSU to spend these scores) . Through periodic eligibility studies, CSU funds over a four-year period to support a student is able to determine if it is drawing its freshman cohort of 3,641 FTE students (1 percent over the admits from its Master Plan eligibility pool . If 2017-18 level) . For 2018-19, CSU has allocated CSU is drawing from a smaller or larger pool, the $21 .9 million of the $120 million to campuses state traditionally has expected CSU to adjust its (representing 2,677 FTE students) . Campuses are admission requirements accordingly . using these funds for various purposes, including CSU Has Higher Admission Standards for hiring temporary faculty to teach more course Impacted Campuses and Programs. While CSU sections in spring 2019 . has minimum systemwide eligibility requirements for Governor’s Proposal transfer and freshman applicants, some “impacted” campuses and programs (those with more student Provides $62 Million Ongoing for 2 Percent demand than available slots) adopt stricter Enrollment Growth. This amount would fund admissions criteria . Currently, six campuses are about 7,300 resident FTE students in 2019-20 . The fully impacted—having higher admissions criteria administration has indicated its intention that this for all their programs . Most campuses have at least funding be for resident undergraduate students . In one impacted program, often nursing . addition, CSU plans to use about $30 million of the $120 million in one-time funding the state provided 20 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET in 2018-19 for enrollment growth . CSU intends to eligibility study found that CSU has been drawing support about 3,600 additional FTE students in from beyond its Master Plan pool . Specifically, CSU 2019-20 with these funds . in 2014-15 was drawing from the top 41 percent of high school graduates rather than the top Assessment one-third . Updated information from the California Several Factors to Consider in Deciding Department of Education on the proportion of high Enrollment Growth. The Legislature has at least school graduates completing college-preparatory four key factors to consider when setting a CSU coursework (known as “A through G” courses) enrollment target, discussed below . Whereas most suggests that CSU likely is drawing from an even factors suggest enrollment growth funding may larger pool today . Despite this knowledge, CSU has not be needed in the budget year, a few factors not changed its freshman eligibility requirements suggest that some level of enrollment growth may in over a decade . Going forward, the Legislature be justified . will need to decide whether CSU should be permitted to continue drawing from such a large Demographic Projections Show Decline in pool or whether its admissions criteria should be High School Graduates. The number of high realigned with the Master Plan expectations . By school graduates in the state is expected to taking a larger share of students than the Master decrease by 0 .8 percent in 2018-19 . This means Plan envisioned, CSU is drawing students away that, all other factors staying the same, enrollment from community colleges, increasing CSU costs, demand for freshman slots in 2019-20 would and increasing the state’s overall cost to provide decrease accordingly . High school graduates Californians with access to higher education . in 2019-20 also are projected to decrease (by 0 .4 percent) . CSU Reports Some Eligible Students Are Being Denied Access. Likely due in part to CSU Drawing From Notably Beyond Its drawing beyond its traditional eligibility pool, Historic Eligibility Pool. The state’s most recent Figure 13 After Dropping During the Last Recession, CSU Enrollment Has Reached an All-Time High Full-Time Equivalent Resident Students 400,000 390,000 380,000 370,000 360,000 350,000 340,000 330,000 320,000 310,000 300,000 290,000 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18 www.lao.ca.gov 21 analysis full gutter 2019-20 BUDGET CSU indicates that about 19,000 freshman and Background 12,000 transfer applicants who met CSU’s eligibility CSU Is Seeking to Improve Graduation Rates. requirements for fall 2018 were not accepted at Historically, CSU’s six-year graduation rate for any CSU campus to which they applied . (These incoming freshmen has been below 50 percent and students are commonly referred to as “denied its four-year rate has been below 15 percent . To eligible” students .) These students include an address its low graduation rates, CSU launched the unknown mix of eligible students denied access to Graduation Initiative in 2009 . CSU has set a goal their local campus and eligible students applying to to increase six- and four-year graduation rates for an out-of-region campus . Chancellor’s Office data first-time freshmen to 70 percent and 40 percent, indicates that most denied eligible students applied respectively, by 2025 . The Graduation Initiative to just one CSU campus . Some of these students also seeks to increase graduation rates for transfer may have applied to and been accommodated by students . In addition, CSU has a goal to eliminate colleges in other segments (such as CCC, UC, or a achievement gaps among student groups . private institution) . CSU Is Currently Designating $198 Million New Redirection Policy Likely to Increase Ongoing for the Graduation Initiative. Funding for Enrollment. In response to legislative direction, this initiative has increased over the past few years, CSU is implementing a redirection policy . Beginning with a $75 million General Fund augmentation in 2019-20, CSU will notify all denied eligible in 2018-19 . The Chancellor’s Office allocates applicants of the opportunity to enroll in a CSU almost all Graduation Initiative funds directly to campus with capacity . Applicants will be informed campuses, reserving a small portion of funds of the available campuses and asked to select their (about $2 million) for systemwide coordination and first and second choice . CSU is unable to predict technical assistance . While the Chancellor’s Office the impact of this new policy on its enrollment gives campuses flexibility on how to spend their (take) rates . If 10 percent of the approximately allocation, most campuses have used their funds to 30,000 denied eligible students end up enrolling hire additional faculty, offer more course sections at CSU, it would mean about 3,000 additional in high-demand areas, and provide more student students (headcount), or 2,500 FTE students, support services . The Chancellor’s Office reported would need to be accommodated . CSU intends in January 2019 that campuses used $75 million in to use the second year of one-time enrollment 2017-18 to add more than 2,800 course sections, monies the Legislature provided in 2018-19 to fund equating to about 80,000 new seats for students . these redirected students . If redirected students In tandem with adding more course sections, have about a 10 percent take rate in 2019-20, the Chancellor’s Office reports that the system CSU likely has enough funding for that cohort of has been able to increase the average unit load students through 2021-22 . (Depending upon the for students from 13 .0 in fall 2015 to 13 .3 in fall results of the new policy, pressure could emerge 2018—equating to about 8,500 FTE students . In in 2020-21 to fund another cohort of redirected addition, a number of campuses report using funds students .) to provide targeted outreach and support services to student groups with historically low graduation GRADUATION INITIATIVE rates, including former foster youth and African American males . Below, we provide background on CSU’s Graduation Initiative goals and activities, describe CSU Is Revising Assessment and Remedial the Governor’s proposal to augment funding for Policies for Incoming Freshmen. Historically, the initiative, assess several issues related to the CSU has relied heavily on placement tests to initiative, and make associated recommendations . assess students’ college readiness . In recent years, the Legislature has expressed concern with this practice, citing national research that suggests such tests routinely place students in remedial math and English classes when they could have 22 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET succeeded in college-level coursework . A growing Though CSU does not have a specific spending amount of research is finding that a better way plan for the additional funds, the Chancellor’s Office to assess college readiness is to use multiple indicates campuses likely would use the bulk of the measures (typically data from students’ high funds to hire additional faculty, offer more sections school records) to place students . In an effort to of high-demand courses, and provide more improve student outcomes, the 2017-18 Budget academic advising and other support services, Act included provisional language requiring the particularly to students at risk of not graduating . Trustees to adopt new assessment policies that These activities are similar to CSU’s current include placing “significant weight” on incoming Graduation Initiative spending priorities . students’ high school grades in math and English . Assessment In August 2017, the Chancellor issued an executive order that requires campuses to discontinue using Graduation Rates Continue Upward CSU’s math and English placement tests and Trajectory. As Figure 14 (see next page) shows, instead rely on high school grades and other data graduation rates have been increasing steadily (such as Smarter Balanced assessment results over time for both first-time freshmen and transfer and SAT scores) to place students . In addition, students . For first-time freshmen, both four-year the executive order limits the number of remedial and six-year graduation rates have shown (noncredit-bearing) units that academically improvement . For students transferring to CSU underprepared students can be required to take from a community college, both two-year and and requires campuses to provide students with three-year graduation rates continue to increase . academic support (such as targeted tutoring) . Achievement Gaps Narrowing Slightly, With CSU reports that campuses are designating Much More Progress to Be Made. Historically, some Graduation Initiative funds for professional graduation rates for low-income students and development so faculty can redesign math and students from other traditionally underrepresented English curriculum for underprepared students and groups have been significantly lower than other evaluate results . students . The most recent data shows the six-year CSU Is Also Seeking to Reduce Students’ gap in graduation rates between low-income and Excess Unit Taking. Standard requirements for non-low-income students has declined slightly graduation typically total 120 semester units (180 (narrowing from an 11 percentage point gap to quarter units) for a bachelor’s degree . Historically, a 10 percentage point gap) . Figure 15 (see next CSU students have accumulated notably more page) shows the six-year graduation gap between units than required for graduation . CSU has some racial/ethnic groups also was slightly smaller identified a number of factors that likely have been for the cohort entering in 2012 than the cohort that contributing to excess unit accumulation, including began six years earlier . insufficient access to the courses that students Excess Unit Taking Gradually Decreasing. need to fulfill degree requirements and too few Data indicates that the average number of units academic advisors . To help reduce excess unit per CSU graduate is starting to decline . Figure 16 taking, a number of campuses report that they (see page 25) breaks out unit accumulation are using data from students’ education plans to by freshman entrants and transfer students . better inform which courses to offer each term . In Average unit accumulation among freshman addition, campuses have hired additional academic entrants has fallen three of the past six years, advisors and acquired technology-enhanced with average unit accumulation down three units advising tools (known as “eAdvising”) . in 2017-18 compared with four years earlier . For transfer students, average unit accumulation Governor’s Proposal did not begin decreasing until 2016-17, when it Provides $45 Million Ongoing Augmentation dropped one unit . Average unit accumulation for for Graduation Initiative. This would bring ongoing transfer students dropped another unit in 2017-18 . funding for the Graduation Initiative to $243 million . www.lao.ca.gov 23 analysis full gutter 2019-20 BUDGET Figure 14 CSU Graduation Rates Continue to Improve Cohort Rates 80% Three-Year Rate for Transfers 70 60 50 Six-Year Rate for First-Time Freshmen 40 30 Two-Year Rate for Transfers 20 Four-Year Rate for First Time Freshmen 10 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Figure 15 Achievement Gaps Among Some Groups Are Narrowing Slightly Six-Year Graduation Rates for First-Time Freshman Cohorts by Race/Ethnicity 90% 80 White 70 60 Asian 50 Latino 40 Black 30 20 10 2006 2007 2008 2009 2010 2011 2012 24 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Opportunities Exist for CSU to Further Reducing Excess Unit Taking Would Have Reduce Excess Units. While CSU appears to Benefits for Students and the State. Students be making some progress reducing excess unit who accrue more units than their degree requires taking, two institutional policies are working at generally take longer to graduate, generate higher cross purposes with CSU’s goal of improving costs for the state and themselves, and crowd timely graduation . First, students can receive a out other students . In a January 2018 report, State University Grant (which covers tuition costs the Chancellor’s Office calculated that if all for qualifying financially needy students) for up to CSU graduates reduced their excess units 150 semester units—one full year’s worth of units by 1 unit, CSU could free up 1,333 additional beyond what is typically required for a bachelor’s course sections . Using this calculation, reducing degree . By contrast, state law limits Cal Grants to excess unit taking by half (an average of about four years of full-time attendance or the equivalent 10 semester units per graduate) would be the (120 semester units) . Second, Chancellor’s Office equivalent of freeing up more than 10,000 course policy permits campuses to let students take sections—representing about 30,000 FTE students courses multiple times to improve on previous and $250 million in General Fund support for the grades . Most campuses allow students to take the system . same course up to three times . (Students repeat Recommendations courses either because they previously failed the course or passed but received a C-minus or D Place Key Expectations on Graduation grade .) Students typically are allowed to repeat Initiative Funding. Overall, CSU has shown up to 28 units of coursework in this way . The improvement in a number of areas pertaining to Chancellor’s Office allows campuses to adopt student performance . If the Legislature chooses alternate course-repeat policies, and some to continue supporting the Graduation Initiative campuses allow students to take the same course going forward, we recommend it link funding for twice (rather than three times) . the initiative to an expectation that CSU continue to make progress on key student outcomes . Figure 16 CSU Seeing a Decline in Units Accumulated by Its Graduates Average Number of Semester Units Earned by Bachelor's Degree Recipients 142 140 138 136 134 132 130 128 126 124 122 120 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 Freshman Entrants CCC Transfer Students www.lao.ca.gov 25 analysis full gutter 2019-20 BUDGET At a minimum, we recommend expecting CSU graduate, and pursue a career after release from to continue: (1) improving four- and six-year jail or prison . To that end, Project Rebound staff graduation rates for first-time freshmen, provide academic advising, personal counseling, (2) improving two- and three-year graduation rates mentoring, and other services to students . Project for transfer students, (3) narrowing achievement Rebound seeks to create a space for students with gaps among student groups, and (4) reducing similar backgrounds to support each other . excess units . Program Operated on One CSU Campus Direct CSU to Align State University Grant for Many Years, Recently Expanded to Eight With Cal Grant Unit Limit. To create a better Other Campuses. The program was founded in incentive for students to avoid excess unit the late 1960s at San Francisco State University . accumulation and maximize aid for other students Until 2016, no other CSU campus offered the who are on track, we recommend the Legislature program . In 2016, the Opportunity Institute, a direct CSU to limit institutional grants to no more nonprofit organization based in Berkeley, provided than four years of full-time attendance or its a total of $1 .7 million (spread over three years) for equivalent . This modification would align CSU’s Project Rebound to expand to other campuses . policy with the state’s policy for Cal Grants . The Chancellor’s Office provided $600,000 in Direct Chancellor’s Office to Tighten Up one-time matching funds for the grant . Currently, Course-Repeat Policy. We recommend the 9 of CSU’s 23 campuses have a program . As of Legislature direct the Chancellor’s Office to modify fall 2018, Project Rebound was serving a total its systemwide policy on repeating courses . of 295 students (headcount), the vast majority of Specifically, we suggest systemwide policy limit whom were undergraduate students . According to students to taking the same course twice . Given the Chancellor’s Office, most program participants that the Chancellor’s Office does not currently are transfer students . Many formerly incarcerated collect data on units accumulated due to course students find their way to the program after repetition, we further recommend the Legislature enrolling at CSU . Other program participants first require CSU to report this data as part of its learn about the program through outreach activities statutorily required annual performance report . The that program staff undertake at community experience in other states suggests that course colleges, correctional facilities, and elsewhere . failures and repeats can significantly exacerbate Project Rebound Is Staffed by a Mix of excess unit taking . Moreover, by allowing struggling Full- and Part-Time Staff. Staffing size varies by students to take the same course multiple times, campus, with generally between two and seven campuses may be to contributing to students full- or part-time staff employed at each program . staying in a course or program that is inappropriate Several programs also employ part-time student for them . assistants . Program Outcome Data Are Limited but PROJECT REBOUND Appears to Be Promising. The Chancellor’s Office does not centrally collect data on graduation Below, we provide background on the Project rates of Project Rebound students, and eight of Rebound program, describe the Governor’s CSU’s nine Project Rebound campuses have only proposal to provide state support for the program, been launched within the past three years . The assess the proposal, and make an associated Chancellor’s Office, however, recently conducted recommendation . a survey of Project Rebound campuses . These campuses reported having a total of 119 program Background participants graduate in either 2016-17 or 2017-18 . Program Provides Outreach and Support Of that number, 104 students (87 percent) either Services to Formerly Incarcerated CSU found employment after graduating or enrolled in Students. The purpose of Project Rebound is to graduate school . According to the survey, none of help program participants enroll, stay on track, the graduates have reoffended to date . 26 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Governor’s Proposal have many challenges too, this funding also is appropriate for supporting them . Provides $250,000 Ongoing State Support for the Program. The administration’s intent is Recommendation for CSU to expand the program to new campuses Address Goals of Project Rebound by or increase program enrollment among the nine Leveraging Resources the State Already campuses currently operating Project Rebound . Provides. Given the state’s interest in rehabilitating The administration does not have a detailed offenders, the Legislature might agree with the expenditure plan specifying how CSU is to use the Governor that serving this population of at-risk state funding . students is a high priority . The Legislature also Assessment might be encouraged by the success to date of Project Rebound participants . If so, we believe Project Rebound Provides Support to a Project Rebound efforts would benefit more Group of Students Facing Notable Challenges. from leveraging larger existing pots of funding As nontraditional students, many Project Rebound for student support than the very small Project participants report feeling doubt about whether Rebound augmentation proposed by the Governor . they belong on a university campus and question Specifically, to improve outreach and support whether they can succeed academically . Formerly services for formerly incarcerated students across incarcerated students also may be unfamiliar with the CSU system, the Legislature could encourage using academic technology (such as how to use CSU to place a high priority on using Graduation a course management system) . Additionally, given Initiative funding for this purpose . To better monitor their criminal records, these students may need outcomes for this student group, the Legislature special assistance exploring the career options also may want to begin requiring the Chancellor’s that are open to them . Project Rebound can help Office to include this group in CSU’s regular students address these kinds of issues . performance reports . Specifically, these reports CSU Serves Other Student Groups That Face could begin including the number of students Tough Challenges Too. In addition to formerly participating in Project Rebound programs, their incarcerated students, campuses serve many other graduation and recidivism rates, and the amount of nontraditional students with unique needs . These Graduation Initiative and other funding campuses include undocumented students, former foster care are providing to support these students . youth, military veterans transitioning back to civilian life, and students from historically underserved FACILITIES and educationally disadvantaged backgrounds . To succeed, these students may need additional Below, we provide background on CSU capital support too, including mentorship, enhanced outlay, describe CSU’s 2019-20 capital outlay academic advising, personal counseling, and job proposals, describe the Governor’s proposal counseling . relating to deferred maintenance, and assess those State and CSU Provide Funding for At-Risk proposals . Student Groups Through Graduation Initiative. Background As noted in the previous section, campuses use Graduation Initiative funds and general operating Since 2014-15, CSU Has Been Authorized to funds to address the unique needs of various Issue Its Own Bonds. Prior to 2014-15, the state student groups . Though specific priorities vary sold bonds to support CSU’s academic facilities among campuses, campuses use these funds and paid the associated debt service . Beginning to provide additional support for former foster in 2014-15, the state altered this approach by youth, African American males, veterans, and authorizing CSU to begin issuing its own university undocumented students, among other high-priority bonds for academic facilities . In a related action, groups . Given that formerly incarcerated students the 2014-15 budget package shifted $302 million www.lao.ca.gov 27 analysis full gutter 2019-20 BUDGET in ongoing base funding into CSU’s main support CSU has identified $3 .7 billion in building systems appropriation . The amount equated to what the and components that have reached the end of state was paying for CSU debt service at the time . their useful life and need to be replaced . The Moving forward, CSU is expected to pay off all Chancellor’s Office maintains a campus-by-campus debt—both for outstanding state bonds and any list of deferred maintenance needs and their new university bonds—from its main General Fund associated costs . Identified deferred maintenance appropriation . The new process limits the university costs vary widely by campus, from $8 million at the to spending a maximum of 12 percent of its main Bakersfield campus to nearly $368 million at San General Fund appropriation on debt service and Jose State University (the oldest campus in the pay-as-you-go academic facility projects . By CSU system) . Additionally, CSU estimates that it combining capital outlay and support into one would need as a system to set aside $337 million CSU budget item, the state intended to incentivize annually to prevent its maintenance backlog from CSU to weigh the trade-offs of supporting more growing . operating costs (such as compensation increases Past Deferred Maintenance Projects Have and enrollment growth) with funding new capital Been Funded Through Mix of Direct State projects . Funding and CSU Bonds. Over the past five years, Administration and Legislature Review CSU’s the state has been providing one-time General Project Proposals. Under the process now in Fund appropriations to a number of state agencies, place, CSU must notify the Legislature and receive including CSU, to address deferred maintenance . approval from the administration on the projects it Through 2018-19, these statewide initiatives have intends to pursue with its General Fund support . provided CSU a total of $145 million . In addition State law establishes the following project approval to these one-time funds, CSU uses university timeline: bonds to finance deferred maintenance projects . Whether funded with one-time General Fund or • In December, CSU submits written university bonds, CSU sometimes funds targeted documentation (commonly referred to as deferred maintenance projects, such as replacing “capital outlay budget change proposals”) for a heating, ventilation, and air conditioning system review by the Legislature and administration . in a particular building . In other cases, particularly • In February, the administration submits a list with the use of university bonds, CSU finances the of projects it preliminarily approves to the renovation or replacement of an entire building that Legislature . has many components beyond their useful life . • No sooner than April, the administration Proposals submits a final list of approved projects to the Legislature . CSU Proposes 18 Projects for 2019-20. Figure 17 lists these proposed projects . The first Under this process, the Legislature can influence project shown consists of various infrastructure which projects are undertaken by (1) signaling its improvements throughout the CSU system . broad infrastructure priorities to the administration (Many of these improvements address campuses’ and CSU, (2) conveying any concerns with specific deferred maintenance .) The remaining 17 projects project proposals during February and March are campus-specific proposals to renovate an legislative hearings, and (3) adjusting CSU’s existing building, demolish an old building and General Fund appropriation to reflect changes in replace it with a new one, construct a building debt service costs or authorized pay-as-you-go addition, or construct a new building to add projects . capacity . The $1 .5 billion in state costs for these CSU Has Identified Large Backlog of Deferred projects would be covered with university bonds Maintenance. CSU recently contracted with a and some one-time state General Fund . The total third party to visit and assess the condition of cost of these projects is $1 .8 billion when campus its academic buildings and infrastructure . Based primarily on that comprehensive assessment, 28 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET contributions (such as campus reserves and (sufficient to cover $1 .3 billion of the $1 .5 billion in philanthropic support) are included . proposed 2019-20 projects) . CSU Has Identified Existing Bond Capacity Governor Proposes $247 Million One Time It Can Use for Proposed Projects. CSU believes for Deferred Maintenance or Child Care it can accommodate the bulk of the cost for Facilities. This amount is part of a larger package 2019-20 projects within its existing budget using of proposed spending across numerous state freed-up bond capacity . This is because CSU agencies . The Chancellor’s Office has indicated that projects that its out-year debt service payments will campuses likely would use the bulk of these funds be considerably lower than the $302 million shifted to address projects on CSU’s 2019-20 systemwide into its base in 2014-15 . The reduction in cost infrastructure improvements list (effectively funding stems both from certain past debts being retired the remainder of CSU’s proposed projects) . and other debts being refinanced a few years Proposed provisional language also gives ago, with the benefit of lower associated annual campuses the option to use these funds “to expand costs . Through this additional bond capacity, campus-based child care facility infrastructure to CSU believes it can accommodate approximately support student parents .” $85 million in new annual debt service costs Figure 17 California State University Capital Outlay Projects Reflects List of Projects CSU Submitted to the State in December 2018 (In Thousands) 2019-20 Campus Projecta State Costsb Total Costc Systemwide Infrastructure improvements $359,128 $473,522 Long Beach Peterson Hall 1 replacement building 152,506 167,318 San Francisco Science replacement building 101,196 150,028 San Bernardino College of Arts and Letters building renovation and 97,863 111,000 addition Chico Butte Hall renovation 80,195 89,846 Sonoma Stevenson Hall renovation and addition 83,374 89,434 Stanislaus New Classroom Building II 80,426 86,701 Dominguez Hills New Innovation and Instruction building 51,530 83,530 Fresno Central plant replacement 71,619 79,577 Sacramento Engineering and Classroom replacement building 67,720 78,328 Channel Islands Gateway Hall renovation and new instruction building 65,178 71,131 Fullerton Visual Arts Complex renovation 49,985 65,680 San Marcos New Applied Sciences and Technology building 50,754 53,226 Northridge New Sierra Annex building 44,809 49,959 Bakersfield New Energy and Engineering Innovation Center 40,779 44,605 San Diego Dramatic Arts building renovation and new theater 33,212 36,902 building Monterey Bay Classroom renovations in multiple buildings 29,224 29,696 Maritime Academy Mayo Hall renovation and addition 18,666 18,867 Totals $1,478,164 $1,779,350 a Reflects preliminary plans, working drawings, construction, and equipment for all projects, except for the San Bernardino, Fresno, and San Diego projects, which do not have an equipment component. b Reflects total state cost for all but two projects. The San Bernardino project has total state costs of $103.9 million and the Sonoma project has total state costs of $86.4 million, after accounting for all future phases of the projects. c Total cost includes campus funds (typically reserves or philanthropic support). d Under CSU’s original plan, the $1.5 billion in state costs would be covered entirely with university bonds. The estimated annual debt service on the bonds is $98 million, as estimated by the Chancellor’s Office. Under the Governor’s deferred maintenance proposal, CSU would plan to use up to $247 million in one-time General Fund for a portion of its systemwide infrastructure improvement projects. www.lao.ca.gov 29 analysis full gutter 2019-20 BUDGET Assessment renovation alternative was rejected . In its documentation, CSU indicates the option Overall, Quality of CSU’s Capital Outlay was rejected because the existing Peterson Proposals Is an Improvement Over Last Hall 1 building is “utilitarian” and CSU would Year. In The 2018-19 Budget: Higher Education prefer a “signature facility to match the Analysis, we identified several serious deficiencies aspirations of the students and faculty that with CSU’s 2018-19 capital outlay requests come to the campus .” and supporting documentation . As a result, we recommended the Legislature direct CSU to Given the significantly higher costs of the compile standard information, including stronger proposed project compared with last year and the justification for each project, and resubmit its higher cost of replacing rather than renovating proposals . (The state ended up authorizing 5 of the existing buildings, the Legislature may wish to CSU’s 27 proposed projects last year .) In reviewing have CSU address these issues and come back CSU’s 2019-20 project proposals, we generally find next year . At that time, CSU could either submit a them to be of higher quality—containing more detail revised project proposal or offer more compelling and better justification than last year . We do have justification for the project as currently proposed . concerns, however, with four proposed projects . Premature to Approve New Applied Sciences We discuss these concerns below . and Technology Building at San Marcos. The High Costs Not Justified for Long Beach San Marcos project involves constructing a new Peterson Hall 1 Replacement Building. The 43,000 asf/69,000 gsf facility . The facility would, Long Beach project entails demolishing the 39,800 accommodate an additional 545 FTE students assignable square feet (asf)/65,000 gross square (70 FTE students in lecture space and 475 FTE feet (gsf) Peterson Hall 1 and two temporary faculty students in laboratory space) and 35 faculty offices . office buildings . CSU has identified these buildings, We have three concerns with this project . First, the which are more than 50 years old, as in need of proposal is not clear as to which department or significant repair, energy efficiencies, and more programs would be supported in the new facility . flexible collaborative space for students and faculty . Some parts of the supporting documentation These buildings would be replaced with a notably indicate the new building would house the larger 99,600 asf/153,200 gsf building . We have biological sciences, chemistry and biochemistry, two concerns with this proposed project . and physics departments . Other parts indicate the building is needed to accommodate two new • Significant Increase in Cost Without engineering programs that the campus plans to Satisfying Explanation. The campus add . Second, according to a recent report by the submitted a proposal for a nearly identical Chancellor’s Office, as of fall 2017 the campus project in 2018-19 . At the time, the project is somewhat underutilizing its existing laboratory was estimated to cost $130 million . Due space . The proposal does not provide any analysis to various concerns with the project, the of why the campus needs to construct new state did not approve it last year . CSU has laboratory space as opposed to more fully use the resubmitted the project for 2019-20 but with space it already has . Finally, the proposal does a new estimated cost of $167 million—a not provide any alternatives to constructing a new 28 percent cost increase in just one year . building, stating only that the “campus is currently The proposal lacks an explanation as to why studying alternatives .” Without a clear statement of project costs have changed so significantly in the project’s purpose, justification of space needs, such a short period of time . and a more thorough evaluation of alternatives, we • Less Costly Alternatives Likely to Exist. The believe state approval for this project is premature . proposal acknowledges that a replacement Space Proposed for New Energy and building would cost roughly 10 percent Engineering Innovation Center at Bakersfield more than renovating the existing buildings . Is Not Justified. This project entails construction The proposal indicates that the less costly 30 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET of a new 36,000 asf/57,000 gsf building to theater as the campus “rarely needs more than house the physics and engineering departments, [that amount] for its largest performances .” By research space, teaching laboratories, office building a second theater, however, the campus space, and a 240-seat auditorium . The project would be able to stage “multiple simultaneous would accommodate an additional 730 FTE productions for music, dance and theater .” The students (681 FTE students in lecture space proposal notes that an alternative would be to and 49 FTE students in laboratory space) and just renovate the existing theater without adding 28 faculty offices . We have two concerns with a second theater . This alternative would cost this project . Our primary concern is that CSU about $17 million less (about half the cost) of the has not justified the need for additional space, combined renovation-and-new-theater proposal . In particularly lecture space . The Chancellor’s Office’s assessing this proposal, the Legislature may wish most recent facilities report indicates that the to weigh whether the benefit of having two theaters campus’ classroom utilization was 71 percent in on campus that are available for simultaneous arts fall 2017, the second lowest in the CSU system . performances outweighs the additional cost and Laboratory utilization also was below legislative the other possible projects that could be supported guidelines, at 86 percent . Moreover, enrollment with $17 million . and capacity projections for the campus indicate Recommend Providing Funds for Deferred overall facility utilization is likely to fall even further Maintenance but Requiring Reporting and below legislative guidelines by 2025-26 (dropping a Plan to Eliminate Backlog. We think that to 68 percent) . Our other concern is that the providing funds for deferred maintenance, as proposal did not consider any alternatives . In proposed by the Governor, is a prudent use of the “Recommended Solutions” section of the one-time funds . To promote transparency and proposal, the narrative states, “Only one solution legislative oversight of these funds, however, we was considered, that being construction of a new recommend the Legislature require (1) CSU to facility .” Given the considerable amount of current report at spring hearings on the specific projects and projected excess space, we would expect it plans to undertake and (2) the Department of the campus to have at least studied the option of Finance to report no later than January 1, 2023 on repurposing available space in existing facilities the status of the various CSU projects that were to accommodate programmatic needs . Due to funded . In addition, we recommend the Legislature these concerns, we do not believe this proposal is require CSU to submit by December 1, 2019 a justified at this time . long-term plan for eliminating its existing backlog Trade-Offs to Consider for Theater Projects of deferred maintenance . This plan should identify at San Diego. This proposal entails two funding sources and propose a multiyear schedule theater-related projects . First, CSU proposes to of payments to retire the backlog . In addition, to renovate 12,300 asf/18,800 gsf of theater space prevent the backlog from growing or reemerging within the campus’ Dramatic Arts building . The in future years, we recommend the Legislature renovation project would address over $3 million in work with CSU to identify ways to improve existing deferred maintenance issues and provide seating, maintenance practices . For example, CSU could restrooms, a lobby, and sound/light booth space commit to setting aside the necessary level of that is accessible to persons with disabilities . These funds for its scheduled maintenance or the state modifications would result in the loss of 150 seats could earmark a like amount of funds directly in the in the theater, leaving 350 remaining seats . Second, annual budget act for that purpose . CSU proposes to construct at an adjacent location Withhold Recommendation on Proposal to a new 4,100 asf/6,600 gsf theater with 150 seats . Use One-Time Funds for Campus Child Care The new theater would offset the loss of seats Facilities. As of this writing, the administration from the renovation project . CSU acknowledges had not provided any specific information on the that, based on findings from an earlier feasibility Governor’s proposal to permit CSU to use some study, 350 seats is sufficient for the renovated one-time facility funds for campus child care www.lao.ca.gov 31 analysis full gutter 2019-20 BUDGET facilities . To date, the Legislature lacks information charges are lowest for resident undergraduates, on the number of CSU campuses that have child with students in teaching credential programs, care facilities, how these facilities are currently master’s programs, and doctoral programs having funded, who operates them, the general condition somewhat higher tuition charges . For full-time of these facilities, and whether the facilities currently resident undergraduate students, CSU currently have capacity issues . Without this type of basic charges $5,742 per year . More than 60 percent of information, the Legislature is unable to assess the resident undergraduate students receive financial merit of the Governor’s proposal . We recommend aid to cover this charge . The nearby box describes the Legislature request the administration provide the various financial aid programs available to CSU this type of information at spring hearings so the students . Legislature can make an informed decision about Tuition Charges Driven Not by Policy but by whether to approve the proposal . Economic Cycle. For many decades, the state has implicitly shared college costs with nonfinancially COVERING COST INCREASES needy students through their tuition charge . The state does not have a policy, though, for what After setting its CSU budget priorities, the share of cost each of these groups should expect Legislature faces choices in how to cover the to bear . Historically, the state also has not carried associated cost . At CSU, costs are shared primarily sufficiently large General Fund reserves to maintain by the state and nonfinancially needy resident a share-of-cost policy during economic downtowns . students . In the remaining portion of the CSU In the absence of a share-of-cost policy or section, we provide information intended to help the sufficient reserves (and not being bound by Legislature decide how to share costs among these constitutional or federal higher education spending fund sources . Specifically, we provide background requirements), the state has tended to make tuition on changes in tuition levels and state support over decisions based entirely on its fiscal condition— time, describe the Governor’s proposal for how to raising tuition in bad fiscal times and keeping tuition cover university budget priorities in 2019-20, and flat (or even lowering it) in good fiscal times . Given assess those proposals . the volatility in state revenues, fluctuations in tuition levels have often been pronounced (Figure 18) . As Background a result, student groups have borne different shares CSU Charges Tuition but Aid Covers Cost of cost depending on the state’s fiscal fortunes for Many Resident Undergraduate Students. during the years they attend college . The Board of Trustees sets tuition charges . Tuition Several Programs Help CSU Undergraduates Cover College Costs At the Califorina State University (CSU), financially needy students receive aid to cover tuition and a portion of their living costs . Many financially needy students at CSU have their tuition covered from the state Cal Grant program . Students who qualify for a Cal Grant typically also receive a federal Pell Grant to cover a portion of their living costs (up to $6,095 per year) . In addition to these programs, CSU redirects a portion of student tuition revenue into aid for financially needy students . CSU’s aid program provides tuition coverage for students not qualifying for state tuition assistance (due to age, time out of high school, grade point average, or no further Cal Grant eligibility) . In 2016-17, the average award from this program was about $4,700 . In addition to these needs-based programs, the state funds a tuition-assistance program for higher-income students . The Middle Class Scholarship program provides up to 40 percent tuition coverage for students with household income of up to $114,000 and 10 percent tuition coverage for students with family incomes of up to $171,000 . Coverage is graduated within that range . 32 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET CSU Generates Some Tuition and Fee provisional language that effectively triggers a Revenue From Nonresident Students. reduction in General Fund support if the Board of Nonresident students attending CSU pay the base Trustees adopts a tuition increase for the coming tuition amount charged to resident students as academic year . The language ties the General Fund well as a supplemental tuition charge . Nonresident reduction to the additional Cal Grant and Middle undergraduate students attending full time currently Class Scholarship costs associated with the tuition pay a $11,880 supplemental charge . For 2018-19, increase, thereby making CSU’s action fiscally we estimate that CSU is generating $412 million neutral to the state . The Governor is proposing to revenue from the tuition and supplemental fee that cover virtually all of his identified proposed cost nonresident students pay . increases with state support . In the Governor’s State Still Comprises Largest Share of Core Budget Summary, the Governor also expresses a Funds. We estimate the state’s current share desire to work with CSU to provide fiscal certainty of core funds at CSU is 70 percent . This share for students and their households moving forward . includes direct General Fund and lottery support that the state annually provides CSU as well as state-funded Figure 18 tuition coverage provided to CSU students . Through this Tuition Levels at CSU state support, financially needy Tend to Follow the Economic Cycle resident students have all of their education costs covered . Of the Change From Prior Year, Systemwide Tuition for Resident Undergraduates remaining portion of core funding, we estimate that nonfinancially 40% needy resident students contribute 23 percent and nonresident 35 students contribute 7 percent . Figure 19 (see next page) shows 30 that the state’s share declined during the economic downtown, 25 but has since rebounded . As the figure shows, the state’s current share is virtually the same as in 20 2008-09 . Meanwhile, students’ share increased during the 15 recession but has declined in recent years . 10 Proposals 5 Governor Proposes No Tuition Increase, With State Covering Proposed Cost Increases. The Governor expects CSU -5 not to increase resident tuition in 2019-20 . To create a strong -10 incentive for CSU to hold resident 1990-91 1994-95 1999-00 2004-05 2009-10 2014-15 2018-19 tuition charges flat, the Governor proposes to retain budget www.lao.ca.gov 33 analysis full gutter 2019-20 BUDGET Figure 19 State's Share of Core CSU Funding Is Back to Prerecession Levels 100% Nonresident Student Tuition Revenue 90 80 Resident Student Tuition Revenue 70 60 State Financial Aid 50 40 30 Direct State Support 20 10 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 Assessment In this latter scenario, the Legislature likely would feel more pressure to reduce university spending Fiscal Predictability Is a Reasonable Goal. For and permit steeper tuition increases . To minimize many years, we have encouraged the Legislature the possibility of having to take those actions, to consider ways to make student tuition increases the Legislature could increase reserve levels in less volatile . Though the administration does not 2019-20 . We discuss state reserve levels in detail appear to have a specific stability plan at this time, in our recently released report, Structuring the it too seems interested in exploring ways to make Budget: Reserves, Debt and Liabilities . tuition levels more predictable for students and Sharing Cost Increases With Students in their families . 2019-20 Could Help Build Reserves. One way to Best Way to Promote Tuition Predictability build more reserves would be to have nonfinancially Is by Continuing to Build Up State’s Reserves. needy CSU students bear a portion of any cost Increasing reserves helps prepare the state for an increases in the budget year . Sharing costs in this economic downtown . The Governor’s proposed way would free up some General Fund money that reserve level for 2019-20 likely would be enough could be redirected to higher reserves . for the state to cover most of a budget problem A Formal Share-of-Cost Tuition Policy Could associated with a mild recession . In this scenario, Guide Annual Tuition Decisions. The decision the Legislature likely would not need to reduce in 2019-20 regarding how to share costs among university spending and CSU likely would not need groups could be linked with a new state policy to initiate steep tuition increases . The proposed that set an explicit expectation about what share reserve level, however, likely would be insufficient of cost is reasonable for nonfinancially needy to weather a longer, moderate-sized recession . 34 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET students to bear . A share-of-cost policy would 21 percent in 2019-20 . If the Legislature wanted give the Board of Trustees and the Legislature to build higher reserves in 2019-20 and share cost a transparent rationale for setting tuition levels increases with nonfinancially needy students, it each year . Though the Governor does not set an could keep these students’ share at 23 percent . explicit share-of-cost expectation, his approach Alternatively, the Legislature could choose to set of covering costs solely from the General Fund a higher or lower share of cost as a policy target . implies the current share of cost for nonfinancially The overriding goal in setting an explicit target needy students is too high . Under the Governor’s would be to treat cohorts of students similarly— proposal, these students’ share of cost would whether they happen to enter college during an drop from an estimated 23 percent in 2018-19 to economic recovery or recession . UNIVERSITY OF CALIFORNIA In this section, we provide an overview of UC’s 2019-20. As Figure 21 (see next page) shows, budget, then assess the Governor’s proposals to the Governor’s budget assumes nearly half of fund (1) compensation and other operational cost this increase would come from UC’s five medical increases; (2) enrollment growth; (3) student success initiatives; Figure 20 (4) extended education; and UC Relies on Many Fund Sources (5) facility maintenance, renovation, and construction . We conclude Total Funds of $36.5 Billion, 2018-19 by discussing options for how the Legislature might cover the costs Core Funds associated with these budget priorities or other priorities it State General Fund identifies . Other Private OVERVIEW Student Tuitiona Federal UC Estimated to Receive $36.5 Billion From All Sources in 2018-19. As Figure 20 shows, one quarter of UC funding comes from core funds (primarily General Fund and student tuition revenue) that support the university’s educational programs . The remainder of UC funding comes primarily from Sales and Services its five medical centers, sales and services (including housing, Medical Centers bookstores, and extended education) and the federal Other Funds government (primarily for research and student financial aid) . a Includes Student Services Fee and a small amount of other core funds Governor’s Budget Assumes (lottery, a portion of overhead on federal research contracts, and a portion of patent royalty income). $1.7 Billion (4.7 Percent) Increase in Total Funding in www.lao.ca.gov 35 analysis full gutter 2019-20 BUDGET centers, reflecting a 7 percent Figure 21 increase in hospital revenues Some UC Fund Sources Projected to Grow Notably over the revised 2018-19 level . Growth of $1.7 Billion, 2018-19 to 2019-20 The Governor also assumes sizeable increases in sales and services (5 .3 percent) and privately Core Funds donated funds (8 .4 percent) . State General Fund Total core funding would grow Other Student Tuitiona more slowly . In 2019-20, Private core funding would increase $184 million (2 .0 percent)—rising to $9 .5 billion . Provides $299 Million (3.3 Percent) Increase in Ongoing Core Funding. As Figure 22 shows, most of the increase in ongoing core support Sales and would come from the state Medical Centers Services General Fund, with a smaller portion coming from student tuition and fee revenue . The increase in tuition and fee revenue is based on projected growth in Other Funds nonresident enrollment coupled with a proposed increase in a Includes Student Services Fee and a small amount of other core funds (lottery, a portion of overhead on federal research grants, and a portion nonresident supplemental tuition . of patent royalty income). The Governor ties his proposed General Fund increase to UC not Figure 22 State Covers Bulk of Proposed Increase in Ongoing Core Funds for UC (Dollars in Millions Except Funding Per Student) Change From 2018-19 2017-18 2018-19 2019-20 Actual Revised Proposed Amount Percent State General Fund $3,367 $3,475 $3,715 $240 6.9% Student tuition and fee revenue 5,012 5,206 5,269 63 1.2 Lottery 43 27 27 —a -0.1 Other core fundsb 388 384 381 -3 -0.9 Totals $8,811 $9,093 $9,393 $299 3.3% FTE studentsc 272,104 279,002 279,802 800 0.3% Funding per student $32,381 $32,593 $33,569 $977 3.0 a Less than $500,000. b Includes a portion of overhead on federal and state grants, a portion of patent royalty income, and Proposition 56 funding designated for graduate medical education. c One FTE represents 30 credit units for an undergraduate and 24 credit units for a graduate student. Includes resident and nonresident students. FTE = full-time equivalent. 36 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET increasing resident tuition or the Student Services Figure 23 Fee in 2019-20 . Governor Sets Priorities for UC Ties General Fund Increases to Specific Ongoing General Fund Increases Priorities. Figure 23 shows the specific ongoing General Fund spending increases the Governor (In Millions) proposes for UC . Half of the ongoing increase would be for certain compensation and operational Operational cost increases $120 cost increases, with the remainder for student Student success initiatives 50 success initiatives, sustaining enrollment growth Graduate medical educationa 40 from the previous year, and various other priorities . Student food and housing initiatives 15 In contrast to the General Fund, the administration Additional enrollment in 2018-19 10 does not set expectations regarding the use of Student mental health services 5 additional nonresident tuition and fee revenue . Total $240 a Funds Two One-Time Initiatives. In addition Proposal effectively allows a like amount of Proposition 56 funds to support physician residency programs on an ongoing basis. to the proposed ongoing augmentations, the Governor provides a total of $153 million General academic employees . Noncore funds generally Fund for two one-time initiatives . The largest cover staff, such as medical center employees one-time proposal is $138 million to support and dining services staff, who are involved in deferred maintenance projects across the other aspects of the university’s operations . In system . The remaining $15 million would provide some cases, UC uses a mix of funds to support start-up funding for UC extended education employees who oversee both core and noncore programs . These one-time funds are intended to functions of the university . For example, UC uses establish degree completion programs and other a mix of core funds, federal grants, and private course-taking opportunities for adults who have philanthropy to pay graduate teaching assistants some college experience but no degree . and research assistants . COMPENSATION AND OTHER Many UC Employees Are Not Represented by a Union. Tenured and tenure-track faculty at OPERATIONAL COSTS UC, along with many academic administrators and certain other employees, are not represented by a Below, we provide background on UC employee union . Approximately one-third of UC employees compensation and other operational costs, who are supported by core funds are represented describe the Governor’s associated proposals, and by a union . These employees are members of assess those proposals . one of 13 systemwide bargaining units . Examples Background of represented employees include lecturers, teaching assistants, librarians, clerical workers, and Compensation Is the Largest Component custodial staff . of UC’s Core Budget. Like most state and UC, Rather Than Legislature, Approves educational agencies, salaries and benefits Compensation Increases. Unlike most other comprise a significant share of UC’s budget . In state agencies, state law grants the UC Board 2017-18, 67 percent of UC’s core budget was for of Regents authority to negotiate collective salaries and benefits . The remaining share of UC’s bargaining agreements directly with its employee budget was for equipment and utilities (17 percent) unions . The Office of the President represents the and student financial aid (16 percent) . board during these negotiations and the resulting A Portion of UC Employees Are Supported by agreements must be ratified by the board . (As Core Funds. In 2017-18, UC employed 159,000 with CSU’s bargaining agreements, the Legislature FTE faculty and staff, of which 41,000 (26 percent) does not ratify UC’s bargaining agreements .) The were supported by core funds . Core funds support board also grants the UC President authority faculty, librarians, academic advisors, and other www.lao.ca.gov 37 analysis full gutter 2019-20 BUDGET to determine compensation increases for Proposal nonrepresented employees . The President typically Proposes $120 Million for Certain determines compensation increases for tenured Compensation and Operational Cost Increases. and tenure-track faculty after consulting with the The Governor proposes to fund several operational Academic Senate . components of UC’s budget request . As Figure 24 UC Also Determines Employee and Retiree shows, the largest single component supports Health Benefits. In addition to setting salary utility and equipment cost increases . For planning increases, UC operates its own health benefit purposes, UC assumes this portion of its budget programs for current employees and retirees . Under will grow roughly at the rate of inflation . The next the program, the Office of the President negotiates largest component supports negotiated salary premiums with health care providers . The Board of increases for represented employees . According to Regents, in turn, adopts policies establishing what the university, the anticipated cost increase reflects share of premium costs UC and its employees each a mix of final contracts and contracts that are still pay . Under existing policy, UC’s share of premium under negotiation . The remaining increase would costs depends on the employees’ health plan and cover projected cost increases for UC’s employee salary level . On average, UC estimates it covers health, pension, and retiree health programs . The 87 percent of premium costs for active employees . increase relating to health benefits is due to an For retirees, the maximum UC share of premium anticipated 4 percent increase in premium costs, as costs is 70 percent . well as growth in the number of retirees . Pension UC Operates Its Own Pension Program. UC’s cost increases are based on projected growth in pension program is known as the UC Retirement payroll . Program . Like most other state employees, UC Governor’s Budget Does Not Provide Funding pensions are based on employees’ salary and years for Nonrepresented Employee Salary Increases. of service upon retiring . The Board of Regents The Department of Finance has offered two oversees UC’s pension program and is responsible explanations as to why the administration chose for determining benefits, establishing the plan’s not to support salary increases for tenured and funding policy, and setting contribution rates . tenure-track faculty and other nonrepresented staff . In Recent Years, State Has Mostly Supported First, it notes that UC’s budget request described Compensation Costs With Unrestricted compensation increases for these employees Increases. Because of UC’s substantial control as a lower priority compared with increases for over its staffing and compensation costs, the state represented employees and covering benefit costs . is not required to cover compensation decisions The lower prioritization is because nonrepresented made by the Board of Regents . Nonetheless, employees do not receive salary increases under the Legislature historically has recognized UC’s contract . Second, the administration notes that UC compensation-related cost pressures . Consistent with past practice, the state in recent years has Figure 24 generally provided unrestricted, ongoing General Fund augmentations to help UC cover these costs . Governor Proposes Funding Certain UC Operational Cost Increases UC Also Incurs Operational Costs for Equipment and Utilities. In addition to (In Millions) compensation decisions, the university purchases equipment that supports its operations . Operating expenses and equipment $41 Academic-related equipment includes laboratory Salary increases for represented employees 30 supplies, computers, and library materials . Health benefit cost increases 21 Campuses also have utility costs . Similar to Pension benefit cost increases 20 compensation, equipment and utility costs that are Retiree health cost increases 7 not related to the university’s academic mission are Total $120 supported by noncore funds . 38 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET identified some nonstate funds in its budget request Background that could be used to address additional priorities, State Policy Determines Which Students such as salary increases for these employees . Are Eligible to Attend UC. Under longstanding Assessment state policy, UC is expected to draw from the top 12 .5 percent of California high school graduates Funding a Few Key Operational Cost for freshman admission . Historically, UC has set Increases Is a Reasonable Starting Point. its admission criteria to align with this freshman Absent making changes to its existing policies, UC eligibility pool . Specifically, UC traditionally has very likely will face cost increases in the budget required completion of a set of college preparatory year for its health and pension benefits . It also work, certain grades in those courses, and certain likely will face cost increases for its equipment scores on standardized tests . In past years, UC purchases and utilities . The state may want to start typically adjusted its admission criteria in response its UC budget planning by recognizing these cost to freshman eligibility studies, with UC tightening increases . its criteria if found to be drawing from a pool larger Recommend Considering Recruitment and than 12 .5 percent of high school graduates and Retention Issues When Making Compensation loosening its criteria if drawing from a smaller Decisions. With regard to whether to provide pool . Students who do not qualify for admission compensation increases in the budget year, we as freshmen can still become eligible for transfer encourage the Legislature to consider UC’s ability admission if they complete their lower-division to recruit and retain employees—whether they are coursework at a community college with a minimum represented or nonrepresented . At a minimum, the 2 .4 grade point average . Legislature could consider UC’s ability to attract Eligible Students Have Access to UC System, top candidates to open positions, retain existing Not First-Choice Campus. For both freshman employees, and offer competitive compensation . and transfer applicants, eligibility guarantees If UC is able to recruit top candidates and admission to the UC system but not to a particular retain tenured and tenure-track faculty but not campus . When applicants are not admitted to their represented staff, for example, the Legislature campus of choice, UC refers them to less-selective might agree with the Governor’s proposal to campuses . Currently, Merced serves as the referral prioritize additional funding for represented campus for freshman applicants, whereas both employees . Alternatively, the Legislature might wish Riverside and Merced serve as referral campuses to target compensation increases toward different for transfer applicants . groups or provide higher or lower compensation State Budget Traditionally Includes increases . At the time of this analysis, UC was not Enrollment Targets and Provides Ongoing able to provide data on these key indicators to our Funds to Support Growth. The state typically office . As we note in the box on page 40, however, sets enrollment targets for UC in the annual budget some data suggest UC is competitive in recruiting act . Similar to CSU, the state typically covers the faculty . cost of enrollment growth at UC using a formula that is linked to the marginal cost of instruction . ENROLLMENT GROWTH The formula estimates the cost to hire new faculty and teaching assistants, purchase instructional Below, we provide background on UC eligibility equipment, and cover other ongoing costs to and admission policies, the state’s approach to support new students . The total cost is then shared budgeting for enrollment growth, recent enrollment between the state General Fund and student trends, and the state’s expectations regarding tuition revenue . In 2018-19, the marginal cost of enrollment growth in 2018-19 . We then describe instruction was $18,900 per student, with a state the Governor’s proposal to sustain a portion of share of $10,000 . 2018-19 enrollment growth . Next, we assess the proposal and offer associated recommendations . www.lao.ca.gov 39 analysis full gutter 2019-20 BUDGET UC Faculty Retention and Recruitment Previously Collected Data Suggested the University of California (UC) Was Competitive in Attracting Faculty. In our December 2012 report, Faculty Recruitment and Retention at the University of California, we analyzed data collected by the Office of the President in 2010-11 and 2011-12 on several faculty recruitment and retention indicators . At that time, we found that UC was hiring among the best available faculty candidates, less than 2 percent of faculty leave each year, and most entry-level faculty remain at UC long enough to earn tenure . Based on the data at that time, we concluded that UC faculty was competitive with other higher education institutions . In discussions with our office, the Office of the President was not able to provide updated data for these indicators . Compensation Comparisons Suggest UC Is Competitive Among Other Public Research-Intensive Universities. Historically, UC has used compensation data from a group of eight research universities to gauge the competitiveness of its faculty compensation . The group includes four private institutions (such as Stanford and Harvard) and four public flagship institutions (such as the University of Michigan and the University of Virginia) . As the below figure shows, average salaries for full professors at UC are lower than the average of all eight comparison institutions but above the average of the four public comparison institutions . Salaries for associate and assistant professors compare similarly . In past UC Faculty Salaries Are Higher Than at analyses, we have noted Other Public Research Universities that this comparison Average Salary of General Campus Full Professors, group reflects a small 2017-18 (In Thousands) group of institutions and $200 may not accurately reflect the broader academic 190 market in which UC 180 campuses compete for 170 faculty . To provide a 160 broader picture of UC’s 150 labor market, the figure 140 also compares average 130 UC faculty salaries to 73 public institutions 120 across the country that 110 conduct a similar level 100 of research as UC . Traditional UC Public All Public Comparison Comparison High-Research The figure shows that Group Group Only Institutions UC professors make Number of 8 9 4 73 notably higher average Campuses salaries than the average across all of these public institutions . 40 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET State Recently Started Setting Enrollment the practice it had used the past three years and Expectations for the Following School Year. did not set a 2019-20 enrollment target . Instead, it Traditionally, the state has set enrollment set an expectation that UC meet a higher growth expectations for the academic year starting a few target in 2018-19 than initially set in the 2017-18 months after budget enactment . For example, the Budget Act . Accounting for growth funded in 2007-08 budget set an enrollment target for the both the 2017-18 and 2018-19 budgets, the total 2007-08 academic year . This traditional approach enrollment target in 2018-19 was 2,000 resident does not align well with the timing of UC admission FTE undergraduate students . The state identified decisions . UC makes most admission decisions $20 million in ongoing funds to support this growth for the coming academic year in early spring, prior (based on the marginal cost of instruction) . The to enactment of the state budget in June . This 2018-19 budget also included $105 million in means the state budget is enacted too late to one-time funding for UC . Provisional language influence UC’s admission decisions that year . To specified legislative intent that UC use the one-time have a more significant influence on UC’s admission funding to enroll additional resident undergraduate decisions, the state has begun setting enrollment students as well as fund services and programs expectations for the following academic year . In that improve student outcomes . The language did the 2015-16 budget, for example, the state set UC not specify the number of additional students UC enrollment expectations for the 2016-17 academic was expected to enroll with the one-time funds . year . Subsequent budgets in 2016-17 and 2017-18 continued the practice of setting enrollment targets one year Figure 25 in advance . UC Resident Undergraduate UC Enrollment Level Is at All-Time High Enrollment Increasing. From Full-Time Equivalent Resident Undergraduate Students 2008-09 to 2015-16, resident undergraduate enrollment at UC 190,000 Actual hovered between 170,000 and Target 175,000 FTE students (Figure 25) . 185,000 UC’s enrollment trend changed notably beginning in 2016-17 . 180,000 In each of the past three years, UC has exceeded its enrollment targets . The state has counted 175,000 the over-target students as part of UC’s enrollment base when 170,000 setting its growth target for the following year . (Though the state has reset the base to reflect the 165,000 higher-than-expected growth, it has not funded UC directly for the 160,000 over-target students .) In 2018-19, resident undergraduate enrollment 155,000 is at an all-time high of 189,000 FTE students . 150,000 State Used Mix of Ongoing 2008-0909-10 10-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18 18-19 and One-Time Funds to Support Enrollment Growth in 2018-19. Last year, the state departed from www.lao.ca.gov 41 analysis full gutter 2019-20 BUDGET UC Currently Estimates Substantial Enrollment Targets Set Clear Priorities. Enrollment Growth in 2018-19. As of January The ambiguities regarding the one-time funds in 2019, UC estimates resident undergraduate 2018-19 demonstrate the importance of setting enrollment is growing in 2018-19 by 3,900 FTE clear expectations in the budget . Without clear students . This amount is 1,900 more FTE students enrollment expectations, the university may make than explicitly expected by the state that year . enrollment decisions that differ from the state’s According to UC, the additional growth was intentions . Once students are enrolled, the higher largely unplanned and the result of campuses enrollment level also puts added pressure on the under-predicting the percent of applicants who Legislature to provide ongoing support . would accept an admission offer . In conversations Setting Targets in Advance Ensures State Can with our office, staff at the Office of the President Influence UC Admission Decisions. In addition indicate that at least some of the one-time to the importance of setting clear expectations, $105 million General Fund provided in 2018-19 is we think the state’s practice of setting those being used to support the additional enrollment expectations for the following academic year has growth . merit . Because of the timing of UC’s admission decisions, the state has already lost most of Proposal its ability to influence UC’s 2019-20 admission Proposes $10 Million Ongoing to Sustain a decisions . By setting a target for 2020-21, however, Portion of 2018-19 Enrollment Growth. According the state could still influence UC’s upcoming to the Department of Finance, the $10 million admission decisions . would support an additional 1,000 FTE students Recommendations above the explicit 2018-19 enrollment target . The $10 million is based on a $10,000 per-student Governor’s 2018-19 Enrollment Growth state rate using the marginal cost of instruction . Proposal Is Reasonable. Given the provisional Effectively, the funds would support a little more budget language connected to the $105 million than half of the additional 1,900 students UC is in one-time 2018-19 funding is confusing, the enrolling this academic year . Legislature will need to consider how it wants to Does Not Propose Enrollment Targets for respond now . The Legislature could adopt the Coming Few Years. The Governor does not Governor’s proposal and provide ongoing funding propose enrollment targets or enrollment growth to support about half of the students UC enrolled funding for either 2019-20 or 2020-21 . above last year’s explicit enrollment target . Given the ambiguity of what was intended last year, we Assessment think this approach is reasonable . Alternatively, Language Guiding Use of One-Time Funding the Legislature could decide to fund any higher or in 2018-19 Is Confusing. Whereas the 2018-19 lower enrollment level . Funding all of the additional Budget Act contained a clear 2018-19 enrollment students UC enrolled in 2018-19 would require an target for the ongoing funds the state provided additional $9 million ongoing above the amount UC (2,000 FTE students), it did not specify how included in the Governor’s budget . many more students UC should enroll with the Recommend Adopting Enrollment Target $105 million in one-time funding . In addition, the for 2020-21. To influence UC’s future admission provisional language offered no explanation for decisions, we recommend the Legislature set how UC was to support the ongoing costs of an enrollment target for the 2020-21 academic higher 2018-19 enrollment moving forward . As year . The target could be to hold enrollment flat a result, the Legislature has little basis to assess or increase it . If the Legislature wishes to grow whether UC’s 2018-19 enrollment level meets its enrollment, we recommend (1) using the marginal expectation or determine whether ongoing funding cost formula to derive the associated state cost is now warranted . and (2) covering the cost with ongoing funds . In deciding upon a 2020-21 target, we suggest the 42 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Legislature consider several factors, discussed improve graduation rates, assess the proposal, and below . offer associated recommendations . UC Drawing From Beyond Its Traditional Background Eligibility Pool. According to the state’s most recent eligibility study, UC drew from 13 .9 percent UC Has Highest Graduation Rates of Three of high school graduates in 2015-16 . This is higher Public Higher Education Segments. UC students than UC’s traditional pool (12 .5 percent) . More graduate at higher rates than CSU and CCC recent studies undertaken by the UC Academic students . Of freshman students entering UC in fall Senate also conclude that UC is drawing from 2011, 84 percent graduated within six years . This beyond its traditional eligibility pool . Given UC rate is 25 percentage points higher than at CSU is already meeting its historical commitment to and 36 percentage points higher than at CCC . The freshman access, the Legislature could treat further six-year rate at UC has increased slightly over the enrollment growth at the university as a lower last two decades . The fall 1997 freshman cohort priority . had a six-year graduation rate of 80 percent . High School Graduates Projected to Decline Compared to the six-year rate, the four-year Slightly. The Department of Finance projects a graduation rate has improved more notably . 0 .8 percent decline in the number of high school Of freshman students entering UC in fall 1997, graduates in 2018-19 and a 0 .4 percent decline in 46 percent graduated in four years, compared to 2019-20 . This means that, all other factors staying 66 percent for the fall 2013 cohort . Compared to the same, enrollment demand for freshman slots freshmen, transfer students at UC are less likely to in 2020-21 would decrease accordingly . This slight graduate on time . Of transfer students entering in decline in high school graduates over the next two fall 2015, 57 percent graduated within two years . years also suggests that enrollment growth at UC Transfer students, however, have slightly higher could be a lower priority for the Legislature . overall graduation rates (with a four-year graduation rate of 89 percent) . Many Students Not Getting Into Campus of Choice . Although UC is admitting all UC’s Graduation Rates Vary Among eligible freshman applicants, some of these Campuses and Student Groups. UC’s relatively applications are redirected to Merced . In fall 2017, high systemwide graduation rates mask differences 10,700 eligible freshman applicants (14 percent) among campuses . As Figure 26 (see next page) were referred to Merced . Very few of these students shows, Berkeley and Los Angeles (UC’s most (119 or 1 .1 percent) elected to enroll at that selective campuses) have six-year graduation campus . Students who do not accept admission at rates at or near 90 percent . By contrast, the UC may end up attending CSU, a private school, six-year rate for Merced (UC’s least selective or a community college (then transferring to a campus) is 67 percent . In addition, as Figure 27 four-year school, including UC, upon completing (see next page) shows, student outcomes vary their lower-division coursework) . Supporting by race/ethnicity . For example, the difference in more enrollment growth could enable UC to six-year graduation rates between Latino and white accommodate more applicants at their campus of students ranged between 8 and 13 percentage choice . The Legislature could weigh this benefit points for freshman cohorts entering from against its other budget priorities . 2001 through 2011 . While outcomes also vary by socioeconomic status, the gaps are somewhat STUDENT SUCCESS smaller . For example, the six-year graduation rate for Pell grant recipients is 5 percentage points Below, we provide background on student lower than for students who did not receive a Pell outcomes at UC as well as the university’s new grant . graduation improvement plan . We then describe UC Recently Adopted Improvement Plan. the Governor’s proposal to support UC’s efforts to In November 2018, UC laid out a 12-year undergraduate improvement plan . In January 2019, www.lao.ca.gov 43 analysis full gutter 2019-20 BUDGET UC further elaborated on this plan . As part of the graduation rates, reducing differences between plan, which focuses on undergraduate students, campuses, and virtually eliminating differences UC has set targets it would like to meet by 2030 . between student groups at most campuses . The targets focus on increasing systemwide According to staff at the Office of the President, Figure 26 Graduation Rates Vary Among UC Campuses Freshman Graduation Rates 100% Six-Year Rate (Entered Fall 2011) Four-Year Rate (Entered Fall 2013) 90 80 70 60 50 40 30 Los Angeles Berkeley Davis Irvine San Diego Santa Santa Cruz Riverside Merced Barabara Figure 27 UC Has Persistent Graduation Gaps Six Year Graduation Rates for First-Time Freshman Cohorts by Race/Ethnicity 95% 90 Asian 85 White 80 Latino 75 Black 70 65 60 2001 2003 2005 2007 2009 2011 44 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET the plan is part of a broader policy framework to improving student outcomes at CSU and CCC . enhance education and research activities in the Though student success at UC has been less of system . The office indicates that it will present the a concern, the state has taken actions to try to Board of Regents with a separate plan focused ensure UC remains accessible and affordable . on graduate education, faculty, and research in its Regarding accessibility, the state has attempted March 2019 meeting . to improve resident students’ access to selective campuses by limiting nonresident enrollment at Proposal those campuses . The state has attempted to Provides $50 Million Ongoing to Support UC’s contain costs for resident students by having UC Improvement Plan. The Governor indicates the achieve operational efficiencies, redirecting funds funds are intended to support UC’s improvement previously supporting nonresident students, and plan . UC would have flexibility to use the funds, identifying alternative fund sources to support though the administration suggests activities costs . might include hiring additional faculty, increasing Legislature May Want to Address UC academic counseling services, and addressing Achievement Gaps. Though the state has been facility needs . focused more on improving outcomes of the other UC Has Identified Some Possible Uses of segments and has tended not to fund specific Proposed Funds. In its improvement plan, UC student success initiatives at UC, the Legislature highlights several strategies campuses have may wish to address UC’s achievement gaps . The undertaken in recent years to increase student Legislature could weigh this priority against other retention and graduation . These strategies include possible UC priorities (such as increasing access, offering summer bridge and orientation programs, reducing cost, enhancing graduate education, and creating new student learning communities, addressing faculty issues) . expanding and streamlining student tutoring and Proposal Lacks Critical Information. We have academic counseling services, and developing several specific concerns with the Governor’s online courses . The plan notes that campuses proposal . hope to expand programs and services such as • Proposal Lacks Focus. UC indicates the these to improve graduation rates . At the time of funds will support its improvement plan, which our analysis, university officials indicated it could includes many objectives that go far beyond not provide further detail as to how campuses reducing undergraduate achievement gaps . specifically would use the ongoing funds included • No Justification for Proposed Amount. in the Governor’s budget . The Office of the Without clarity on the specific objectives to be President also notes that it has not yet released addressed, the Legislature cannot determine the second part of its long-term plan, which is if $50 million is justified . The amount could intended to focus on graduate education and be too little or too much, depending on the faculty issues (such as retention, diversity, and objectives . research opportunities) . Campuses, however, might use a portion of the Governor’s proposed funds to • Proposal Lacks Accountability. The proposal address those goals . neither specifies allowable uses of the funds nor establishes performance expectations . Assessment Without this information, the Legislature would not have any basis in future years to evaluate For UC, State Has Tended to Focus More whether funding is being used to meet its on Access and Cost Than Student Success. goals . Because UC has the highest graduation rates among the segments, the state typically has not Recommendations focused on funding specific initiatives designed to improve UC student outcomes . Especially in If the Legislature decides to provide UC with recent years, the state has been more focused on state funding to improve in one or more areas, we www.lao.ca.gov 45 analysis full gutter 2019-20 BUDGET recommend making several enhancements to the Background Governor’s proposal, discussed below . Extended Education Offers Classes to Adults Direct UC to Focus on a Set of Explicit Goals. Outside of Campuses’ Regular Academic We recommend the Legislature identify a few core Programs . In California, all three public higher objectives . In particular, the Legislature would want education segments operate extended education to decide whether to focus on undergraduates, programs . At UC, each of the nine general graduate students, faculty, or research . campuses has its own extended education division Establish Performance Expectations. After called UC Extension . UC Extension primarily determining its core objectives, we recommend serves lifelong learners and working professionals . the Legislature establish clear performance goals . Students enrolling in UC Extension do not have to For example, were the Legislature to focus on meet the same academic standards as students undergraduates, it could establish targets for seeking admission to UC’s regular academic reducing or eliminating gaps in graduation rates programs . Whereas the state intends for UC is among campuses and student groups . to enroll any eligible freshmen or transfer student Direct UC to Develop an Expenditure Plan. into its undergraduate degree programs, extended After determining a one-time or ongoing funding education classes and programs generally are amount sufficient to accomplish identified goals, offered on a first-come, first-served basis . we recommend the Legislature direct the university Extended Education Is Self-Supporting. to develop an associated expenditure plan and Extension programs do not receive state funding . present it at spring hearings . In the plan, UC Instead, programs are self-supporting—generally should explain how it would allocate the funds receiving their support from course fees charged among campuses, how each campus would use to students . (In some cases, professional its allocation, and how planned activities align with organizations or state agencies offer their identified objectives . employees extended education opportunities and Require Regular Reporting. We also pay the associated course fees for them .) Because recommend the Legislature require UC to report they must earn enough money to cover costs, on how it uses improvement funds and track the extension divisions tend to be entrepreneurial . progress it has made toward achieving identified Extension staff develop and offer courses largely objectives . The Legislature could model its based on market research that gauges student reporting expectations based on the existing demand . Extension divisions cover some marketing reporting requirements for CSU’s Graduation costs as part of their annual operating budgets . Initiative . Alternatively, the state already requires UC They also maintain reserves to cover special to report annually on systemwide graduation rates . one-time costs associated with developing new As part of this report, UC establishes performance courses . targets for the coming three years . Were the state UC Extended Education Programs Generally interested in addressing achievement gaps by Offer Three Types of Courses. First, campuses campus and race/ethnicity, it could incorporate offer a variety of noncredit classes and seminars these expectations into this existing performance covering topics ranging from conflict resolution report . to music appreciation . Extension divisions have considerable latitude to develop these classes . EXTENDED EDUCATION Second, extended education offers programs that confer professional certificates and awards . In Below, we provide background on extended contrast to noncredit courses, UC has developed education, describe the Governor’s proposal to common academic standards for professional fund the development of additional UC extended certification programs . For example, these education programs, assess the proposal, and offer programs must contain at least 120 hours of an associated recommendation . instruction . Third, UC offers a limited number of courses that confer academic credit toward a UC 46 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET degree . To develop a degree-applicable course, initial planning, curriculum development, outreach, extended education divisions must undergo the and other start-up costs for the new programs . same Academic Senate approval process as regular The budget bill specifies that the funds would degree programs . These courses tend to be taught remain available until June 30, 2024 . The Governor by regular UC faculty . In 2016-17, 52 percent of expects the new programs would be offered on a extended education was in noncredit courses, fee-basis and self-supporting after initial start-up . 41 percent in professional certification courses, and Assessment 7 percent in degree courses . Unlike UC, CSU Grants Some Bachelor’s Proposal Lacks Explanation of Why Existing Degrees Through Its Extended Education Re-Entry Options Are Inadequate. Currently, Programs. Although certain classes can count former students who did not complete a degree for credit toward a degree, UC Extension currently program have several options for returning to does not confer bachelor’s degrees . In a limited school . An individual could apply for readmission number of cases, academic departments have to the school . Depending on how much time partnered with their campus’s extension division has elapsed since the student last attended and to offer graduate degrees . In these partnerships, the student’s academic standing at the time of UC Extension provides much of the administrative withdrawal, an institution can decide whether to support, such as marketing the degree and permit re-enrollment . Another potential option for providing student services . UC faculty develop the students is to transfer to another institution . For curriculum and instruct students in these programs . example, a student who completed the first two In contrast to UC, CSU campuses offer both years of college coursework before withdrawing bachelor’s and master’s degrees through extended could apply as an upper-division transfer student education . CSU’s extended education bachelor’s to CSU or UC . Additionally, some private schools degree programs focus on upper-division cater to returning students . For example, Brandman instruction (with the expectation that applicants University, a nonprofit institution with campuses complete lower-division coursework at a community located throughout the state, specializes in college or elsewhere before applying) . Currently, degree completion for working adults and other CSU campuses offer a total of 38 bachelor’s degree nontraditional students . Beyond these options, a completion programs through their extended student could enroll in one of CSU’s bachelor’s education divisions . Many of these programs are degree completion programs . The administration offered online or in a hybrid format (a combination has not provided data indicating that these existing of online and face-to-face instruction) to make them re-entry options are insufficient to meet students’ more accessible, particularly for students with work needs . and family responsibilities . Proposal’s Objectives Are Not Well Defined. In addition to lacking a clear problem statement, Proposal the proposal does not have clear objectives . While Funds Expansion of UC Extended Education. it is true that millions of Californians have some In the Governor’s Budget Summary, the Governor college experience but no degree, the Governor’s notes that millions of Californians have some proposal does not specify whether the new UC college experience but have no degree and are programs would be for former UC students only or not currently enrolled in college . To address the for a larger group of Californians who previously issue, the Governor’s proposes $15 million one attended other schools . In addition, the Governor’s time for UC Extension . The only detail the Governor proposal suggests various possible uses of the has on the proposal is a budget bill provision funds—each of which is centered around a different indicating that the funds are “to develop or expand objective . Under the Governor’s proposal, UC could degree and certificate completion programs .” In use the funds to create new degree completion discussions with our office, the Department of programs, add professional certificate programs, Finance has indicated the funds would support or undertake outreach to noncompleters . Without www.lao.ca.gov 47 analysis full gutter 2019-20 BUDGET clearer objectives, the Legislature would not be service . Beginning in 2013-14, the state altered able to assess whether the proposal was ultimately this approach by authorizing UC to begin issuing effective . its own university bonds . In a related action, the Unclear Why State Funding Needed 2013-14 budget package transferred ongoing base for Extension Education. Even were the funds into UC’s main General Fund appropriation administration able to provide compelling evidence in an amount equal to what the state was then that existing re-entry options were inadequate and paying on UC debt service . Moving forward, UC clarify its specific objectives, state funds might not is expected to pay off all debt—for both previous be needed to expand extended education options . state bonds and new university bonds—from its As a self-supporting enterprise, UC Extension main General Fund appropriation . By combining routinely identifies new courses and programs capital outlay and support into one UC budget item, that are of interest to potential students . It then the state intended to incentivize UC to weigh the supports the planning and development of those tradeoffs of supporting more operating costs (such offerings using existing funding, including its as enrollment growth and compensation increases) reserves of fee revenue . Given this current practice, with funding new capital projects . To ensure UC Extension would not need state General adequate resources are available for operations, Fund support for the purpose of developing new state law limits debt service on university bonds to programs aimed at re-entry students . 15 percent of UC’s General Fund support . State Also Revised Project Approval Process. Recommendation Under the process now in use, UC must notify Recommend Rejecting Proposal. For the the Legislature and receive approval from the reasons stated above, we recommend the administration on the projects it intends to pursue Legislature reject the Governor’s proposal . To with its General Fund support . The timeline for the extent the Legislature remains interested in review of UC projects is almost identical to the further expanding higher education opportunities timeline for CSU projects, with the exception that for re-entry students, we recommend it direct UC submits its project proposals in September the administration and UC to present a more (rather than December) . As with the review process complete analysis next year . At a minimum, such for CSU projects, the Legislature can influence an analysis should include research into which which projects are undertaken by (1) signaling its groups of students are interested in returning, why infrastructure priorities to the administration and the state’s current array of re-entry options for UC, (2) conveying its concerns with specific project them are inadequate, how UC Extension would fill proposals during February and March legislative the unmet need better than CSU or other possible hearings, and (3) adjusting UC’s General Fund alternatives, and why state General Fund support appropriation to reflect changes in debt service would be needed to build out program offerings . costs or authorized pay-as-you-go projects . UC Currently Studying Maintenance Needs. FACILITIES Like other state agencies, UC is expected to maintain facilities as part of its ongoing operations . Below, we provide background on UC capital Over the years, UC, as well as many other state outlay, describe UC’s 2019-20 capital outlay agencies, have deferred undertaking maintenance proposals, describe the Governor’s proposal projects to address other operating costs and relating to deferred maintenance, and assess those budget priorities . Currently, the university maintains proposals . a running list of state-supportable maintenance projects for each campus . As of September 2018, Background the list of projects totaled $4 .4 billion . Although this UC Authorized to Issue Its Own Bonds. Prior list currently is the best estimate of the university’s to 2013-14, the state sold bonds to support UC’s maintenance backlog, the Office of the President academic facilities and paid the associated debt reports that campuses used different definitions 48 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET and methodologies to identify their projects and costs of $213 million . The proposed projects fall estimate associated costs . As a result, UC believes into four categories, described below . the list does not completely and accurately reflect • New Facilities ($140 Million). The Santa its maintenance needs . To provide a more detailed Barbara and Santa Cruz campuses have and standardized estimate of the condition of its projects to construct new academic buildings facilities, UC is funding a team of experts to visit (with classrooms, computer laboratories, and each campus and provide an assessment of each faculty office space) . A third project at Irvine facility . The study, which UC anticipates completing would consolidate and expand various student by the end of 2020, is funded by $15 million in service programs into one building . university bonds, which the state authorized in • Deferred Maintenance ($35 Million). Similar 2017-18 . to the previous two fiscal years, UC would Deferred Maintenance Funded Through use its bonds to fund deferred maintenance Mix of One-Time General Fund and University projects across the system . At the time of this Bonds. In recent years, the state has tended to analysis, UC had not provided a list of the provide one-time General Fund to address deferred specific projects to be funded . In its proposal, maintenance projects across many state agencies . UC indicates that it may use a portion of the From 2014-15 through 2018-19, these statewide $35 million to support a one-time condition initiatives provided UC a total of $145 million . In assessment of campus utilities and other addition to these one-time funds, the state recently infrastructure . This study would be separate expanded UC’s bond authority to include the ability from the facility assessment described earlier . to finance deferred maintenance projects . Since • Renovations ($19 Million). The Riverside 2017-18, the state has authorized UC to issue campus proposes renovating existing $70 million in bond funds for deferred maintenance laboratory space in Pierce Hall, with the projects . goal of modernizing certain spaces and Proposals converting some research space into teaching laboratories . The Berkeley campus proposes UC Proposes Seven Projects for 2019-20. As a project to improve the seismic rating of Figure 28 shows, the total cost of these projects University Hall, an administrative building . (including private donations, campus reserves, and other UC funds) would be $314 million, with state Figure 28 UC Proposes Seven Capital Outlay Projects for 2019-20 (In Thousands) State Cost in Total Cost Campus Projecta 2019-20b Across All Years Systemwide Deferred maintenance $35,000 $35,000 Santa Barbara New classroom building 79,787 97,133 Irvine New Student Wellness and Success Building 13,000 69,606 Santa Cruz New Kresge College academic building 47,200 53,000 Riverside Pierce Hall renovation 13,000 22,747 ANR Renovation of research and extension centers 19,237 19,237 Berkeley University Hall seismic renovation 6,050 17,475 Totals $213,274 $314,198 a At the Santa Cruz project, state funds supported the working drawings phase in 2018-19. All other previous phases for all projects were supported by nonstate funds. b Funded by university bonds. The annual debt service on the bonds is estimated to be $16 million. ANR = Agriculture and Natural Resources. www.lao.ca.gov 49 analysis full gutter 2019-20 BUDGET • Agriculture and Natural Resources (ANR) projects that would be funded with the proposed ($19 Million). As Figure 29 shows, UC appropriation . proposes a mix of new space to expand Assessment outreach activities, renovations, and abatement projects at four regional ANR Concerns With a Few Proposals. We have research and extension centers located concerns with the proposed new classroom throughout the state . building at Santa Barbara, the new Kresge College academic building at Santa Cruz, and Debt Service on Proposed 2019-20 Projects UC’s preliminary plan to use university bonds to Anticipated to Be Paid in Future Years. UC fund an infrastructure conditions assessment . We estimates it would pay $16 million annually in debt also believe the Legislature could improve upon service costs from financing the seven projects . the Governor’s deferred maintenance proposal According to the university, it will not begin paying by adding some transparency and accountability debt service on the projects until 2021-22 . The lag provisions . We discuss these issues below . is due to the university’s practice of waiting a few years after receiving state approval to issue bonds . Demand for Large Lecture Halls at Santa (The projects’ initial costs would be covered through Barbara Could Be Met Instead Through Online low-interest interim borrowing . UC would repay Education. The new building would contain this initial borrowing with a portion of the bonds’ 53,940 asf/95,250 gsf of new lecture hall and proceeds .) After adding the $16 million in costs, small classroom space . According to the campus, UC estimates its total debt service costs would the primary purpose of the project is to add more peak at 6 .8 percent of its General Fund support lecture hall space . The campus states that demand in 2023-24 . Although the seven projects would for large lectures exceeds capacity, and it currently not increase UC’s debt service costs immediately, must use large assembly and event spaces to the university expects to begin financing several accommodate demand . The campus intends to previously approved projects . The financing of those redirect instruction from these assembly and event projects would increase UC’s debt service costs, as spaces into the new building once it is complete . highlighted in the nearby box . In so doing, the campus would free up more special-event space for its intended uses (such Governor Proposes $138 Million One-Time as musical performances and public lectures) . General Fund for Additional Deferred Our primary concern is that the Santa Barbara Maintenance Projects. This one-time amount project continues UC’s traditional approach of would be in addition to the $35 million in deferred delivering instruction in large in-person lectures . maintenance projects that UC proposes to Over the past decade, the state has been moving finance with university bonds . As of this writing, in a different direction—providing UC with ongoing the administration had not provided a list of funds to develop and expand its online course Figure 29 Agriculture and Natural Resources Proposal Has Several Components Project Costs in 2019-20 (Dollars in Thousands) South Coast Desert Elkus Ranch Kearney Total Construct new building $7,200 $5,400 — — $12,600 Upgrade fire suppression system 428 — $3,000 — 3,428 and roadways Abate hazardous materials 305 607 — 950 1,862 Improve accessibility 275 380 — 390 1,045 Upgrade water treatment system — — — 302 302 Totals $8,208 $6,387 $3,000 $1,642 $19,237 50 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET UC Debt Service Costs Rising in 2019-20 According to the Office of the President, the university plans to issue bonds in March 2019 to finance several previously approved projects . The bond issuance will increase the University of California’s (UC’s) debt service costs . To cover these costs, the university has requested $15 million in additional state General Fund . The Governor’s budget proposal does not include funds for this cost increase . The Legislature may wish to factor this higher cost into its budget decisions for the university . offerings . Through online courses, UC can reach identify . The Legislature may consider shifting a large number of students without the added personnel around the campus to one central infrastructure costs . Given the impersonal nature location a relatively low priority . of traditional lectures and the state’s current efforts Several Concerns With Proposed to increase online instruction, the Legislature may Infrastructure Conditions Assessment. The deem the Santa Barbara project a lower priority . university has not satisfactorily explained why it Two Concerns With Santa Cruz Project. needs new resources—rather than using existing This project would add 25,000 asf/36,000 gsf in resources—to assess its utilities and related space to Kresge College—one of Santa Cruz’s ten infrastructure . It also has not explained how it residential colleges . Specifically, the new building plans to support ongoing infrastructure monitoring would accommodate two lecture halls (one with after the initial assessment . We also think using 600 seats and one with 150 seats), two classrooms long-term bond funding for a one-time needs (one with 50 seats and one with 35 seats), and one assessment is poor budget practice . (We raised computer lab (48 seats) . The project also would these same types of concerns regarding UC’s add administrative space, consisting mostly of use of bond funds to support its facility condition faculty offices and conference rooms . We describe assessment in 2017-18 .) For these reasons, our two concerns below . we encourage the Legislature to reject UC’s • Online Education an Alternative to Large proposal to use bond funds for the infrastructure Lecture Space. Here too we think using assessment . online education would mitigate demand Recommend Adding Transparency and for the proposed large lecture spaces . The Accountability to Governor’s Deferred project’s proposed smaller classrooms and Maintenance Proposal. We think that providing computing laboratory, by contrast, is justified funds for deferred maintenance, as proposed by given current capacity constraints in the the Governor, is a prudent use of one-time funds . campus’s existing space . To promote greater transparency and legislative • Administrative Space Shifts Personnel oversight of these funds, we recommend the Around Campus. According to the campus, Legislature require UC to report at spring hearings the project would relocate various academic on the specific projects it plans to undertake . We divisions from existing buildings into the recommend requiring the Department of Finance new offices . Vacated buildings resulting from to report no later than January 1, 2023 on the the project either would be demolished or status of the various projects that are undertaken . reprogrammed in future projects for student In addition, we recommend the Legislature require services and housing supported by nonstate UC to submit a long-term plan for eliminating its funds . In its proposal to the state, the campus backlog once it completes its facility condition argues that relocating these divisions into one assessment (anticipated by December 31, 2020) . building will give Kresge College more of an UC’s plan should identify funding sources and academic anchor upon which its students can propose a multiyear schedule of payments to www.lao.ca.gov 51 analysis full gutter 2019-20 BUDGET eliminate its backlog . To prevent the backlog Background from growing or reemerging in future years, we UC Charges Nonfinancially Needy Resident recommend the Legislature require UC to identify Students Tuition. UC charges resident ways to improve existing maintenance practices . undergraduate and graduate academic students UC, for example, could commit to setting aside the same systemwide tuition amount, with the necessary level of funds for its scheduled professional school students (for example, law maintenance or the Legislature could earmark a like school students) paying higher charges that vary amount of funds directly in the annual budget act by program . In addition, UC charges all students a for that purpose . Student Services Fee, which supports counseling, career guidance, cultural activities, student health COVERING COST INCREASES services, and other student-related activities . The Board of Regents, rather than the Legislature, sets After setting its UC budget priorities, the the systemwide charges . In 2018-19, the total Legislature faces choices in how to cover the systemwide charge for an undergraduate student associated cost . At UC, costs are shared primarily is $12,570 ($11,442 for tuition and $1,128 for by the state, nonfinancially needy resident students, the Student Services Fee) . Though UC charges and nonresident students (who effectively subsidize all resident undergraduate students tuition and a small but growing portion of education costs for the Student Services Fee, more than half of resident students) . In recent years, UC also has these students receive financial aid to cover the identified other fund sources (such as redirected charges . The nearby box describes the financial aid savings from lower-cost procurement contracts) programs available to UC students . that it uses to support cost increases . In the remaining portion of the UC section, we provide Tuition Charges Driven Not by Policy but information intended to help the Legislature decide by Economic Cycle. For many decades, the how to share costs among these possible fund state has implicitly shared college costs with sources . Specifically, we provide background on nonfinancially needy students through their tuition changes in tuition levels and state support over charge . The state does not have a policy, though, time, describe the Governor’s as well as UC’s for what share of cost each of these groups should proposals for how to cover university budget expect to bear . Historically, the state also has not priorities in 2019-20, and assess those proposals . maintained sufficiently large General Fund reserves to maintain a share-of-cost policy during economic Several Programs Help UC Undergraduates Cover College Costs At the University of California (UC), financially needy students receive aid to cover tuition and a portion of their living costs . Many financially needy students have their tuition covered from the state Cal Grant program . Students who qualify for a Cal Grant typically also receive a federal Pell Grant to cover a portion of their living costs (up to $6,095 per year) . In addition to these programs, UC redirects a portion of student tuition and fee revenue to need-based financial aid . UC reports that about two-thirds of this aid provides tuition coverage, with the remainder providing living coverage . In 2016-17, the average award from this program was $7,498 . Much of the tuition coverage provided by UC’s aid program assists financially needy students in their fifth year (after their four years of Cal Grant eligibility have been used) . In addition to these needs-based programs, the state funds a tuition-assistance program for higher-income students attending UC . The Middle Class Scholarship program provides up to 40 percent tuition coverage for students with household income of up to $114,000 and 10 percent tuition coverage for students with family incomes of up to $171,000 . Coverage is graduated within that range . 52 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET downtowns . In the absence of a Figure 30 share-of-cost policy or sufficient reserves (as well as constitutional Tuition Levels at UC Tend to Follow the Economic Cycle or federal higher education Change From Prior Year, Systemwide Tuition and spending requirements), the Fees for Resident Undergraduates state has tended to let economic 40% developments drive its university 35 spending and tuition decisions . When economic times are good, 30 state funding for UC tends to 25 increase and tuition remains flat . 20 Conversely, when economic times 15 are poor, state funding for UC 10 tends to decrease and tuition 5 increases . Given the volatility in state revenues, fluctuations in tuition levels have often been -5 1990-91 1994-95 1998-99 2002-03 2006-07 2010-11 2014-15 2018-19 pronounced (Figure 30) . Resident Systemwide Tuition and Fees Fluctuations Continue This Reactive both nonresident enrollment and nonresident Trend. As Figure 31 shows, charges for supplemental tuition . In 2018-19, nonresident resident undergraduates notably increased from undergraduate enrollment is 4 .8 times the level in 2008-09 to 2011-12 (a period encompassing the 2008-09 . By comparison, resident undergraduate Great Recession) . Most of the increase during enrollment grew by 10 percent over same period . that period was the result of steep tuition hikes Including both base tuition and the supplemental enacted in 2010-11 and 2011-12 . These increases charge, nonresident tuition is 53 percent higher in were intended to partially offset reductions in state 2018-19 compared to the 2008-09 level . funding those years . Since the last tuition increase in 2011-12, systemwide charges have remained virtually flat the Figure 31 past seven years Steep Hikes Followed by Virtually Flat UC Tuition Levels UC Has Turned to Relying More on Nonresident Systemwide Tuition and Fees for Resident Undergraduates Enrollment and Tuition Revenue. $15,000 All nonresident undergraduate 14,000 Adjusted (2018-19 Dollars) students pay supplemental tuition 13,000 in addition to systemwide tuition 12,000 and fees . The additional charge is Unadjusted 11,000 intended to cover costs the state 10,000 General Fund would otherwise subsidize for resident students . 9,000 Nonresident undergraduate 8,000 students at UC, however, pay 7,000 more than their education 6,000 2008-09 2010-11 2012-13 2014-15 2016-17 2018-19 costs (effectively subsidizing resident students) . In recent years, UC has notably increased www.lao.ca.gov 53 analysis full gutter 2019-20 BUDGET UC Also Has Turned to Relying More on Other State Still Comprises Largest Share of Core Alternative Fund Sources. UC has undertaken Funds. We estimate the state’s current share of a number of strategies in recent years to improve core UC funds in 2018-19 is 60 percent . This operations and increase funding from nonstate share includes direct General Fund and lottery sources . Some of these activities UC has initiated, support that the state annually provides UC as well whereas others the state directed UC to implement . as state-funded tuition coverage provided to UC UC initiatives include improving procurement students . Through this state support, financially practices to realize operational savings, soliciting needy resident students have 100 percent of private donations to cover operating costs, and their education costs covered . Of the remaining increasing investment earnings by shifting cash portion of core funding, we estimate nonfinancially reserves into investment pools with higher returns . In needy resident students contribute 13 percent addition, the state in 2015-16 directed UC to begin and nonresident students contribute 27 percent . phasing out financial aid it was offering nonresident Though the state provides a majority of core students . In its annual budget request, UC identifies funding, its share has declined since 2008-09 . As the projected savings and funds from these activities Figure 32 shows, the state’s share in 2008-09 was as available resources to cover costs . notably higher, whereas the nonresident student Figure 32 Revenue From Nonresident Students Is a Growing Share of Core UC Funds Share of Core Funding From Each Source 100% 90 Nonresident Student Tuition Revenue 80 Resident Student 70 Tuition Revenue 60 State Financial Aid 50 40 30 Direct State Support 20 10 2008-09 2010-11 2012-13 2014-15 2016-17 2018-19 54 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET share was notably smaller . The share resident Assessment students and their households pay has been Fiscal Predictability Is a Reasonable Goal. For relatively stable . In 2008-09, the state share was many years, we have encouraged the Legislature 73 percent, the resident share was 17 percent, and to consider ways to make student tuition increases the nonresident share was 10 percent . less volatile . Though the administration does not Proposals appear to have a specific plan at this time, it too seems interested in exploring ways to make tuition Governor Proposes No Tuition Increase, With levels more predictable for students and their State Covering All of Proposed Cost Increases. families . In the Governor’s Budget Summary, the Governor Best Way to Promote Tuition Predictability expresses his expectation that UC not increase Is by Continuing to Build Up State’s Reserves. resident tuition . To create a strong incentive for UC Increasing reserves helps prepare the state for an to hold resident tuition charges flat, the Governor economic downturn . The Governor’s proposed proposes to retain budget provisional language reserve level for 2019-20 likely would be enough adopted in 2018-19 that effectively triggers a for the state to cover most of a budget problem reduction in General Fund support if the Board of associated with a mild recession . In this scenario, Regents adopts a tuition increase for 2019-20 . The the Legislature likely would not need to reduce language ties the General Fund reduction to the university spending and UC likely would not need additional Cal Grant and Middle Class Scholarship to initiate steep tuition increases . The proposed costs associated with the tuition increase, thereby reserve level, however, likely would be insufficient making UC’s action fiscally neutral to the state . The to weather a longer, moderate-sized recession . Governor is proposing to cover all of his identified In this latter scenario, the Legislature likely would proposed cost increases with state support . In the feel more pressure to reduce university spending Governor’s Budget Summary, the Governor also and permit steeper tuition increases . To minimize expresses a desire to work with UC to provide fiscal the possibility of having to take those actions, certainty for students and their households moving the Legislature could increase reserve levels in forward . 2019-20 . UC Proposes to Increase Nonresident Sharing Cost Increases With Students in Enrollment and Supplemental Tuition Charge. 2019-20 Could Help Build Reserves. One way to In its budget request to the state, UC indicates build more reserves would be to have nonfinancially its plans to grow nonresident undergraduate needy UC students bear a portion of any cost enrollment by 800 students (2 .2 percent) and increases in the budget year . Sharing costs in this increase nonresident supplemental tuition by $762 way would free up some General Fund money that (2 .6 percent) . The combined enrollment growth could be redirected to higher reserves . and tuition increase would provide $53 million in A Formal Share-of-Cost Tuition Policy Could ongoing funds to the university . Of this amount, Guide Annual Tuition Decisions. The decision we estimate UC would have to spend $9 .2 million in 2019-20 regarding how to share costs among for additional instructors, teaching assistants, and groups could be linked with a new state policy that other costs to support the additional nonresident set an explicit expectation about what share of cost students . The remaining $43 million would be is reasonable for nonfinancially needy students to available for other ongoing priorities . bear . A share-of-cost policy would give the Board UC Proposes to Use $74 Million in Other of Regents and the Legislature a transparent Funds and Savings for Core Costs. The additional rationale for setting tuition levels each year . Though ongoing resources would come from many of the Governor does not set an explicit share-of-cost the activities described earlier, including savings expectation, his approach of covering costs from improved procurement practices, increased solely from the General Fund implies the current philanthropy, investment returns on reserves, and share of cost for nonfinancially needy students is phasing out financial aid for nonresident students . www.lao.ca.gov 55 analysis full gutter 2019-20 BUDGET too high . Under the Governor’s proposal, these Were the Legislature to direct UC to implement the students’ share of cost would drop from an plan and begin reducing nonresident enrollment in estimated 13 percent in 2018-19 to 12 percent in 2019-20, UC would receive less, rather than more, 2019-20 . If the Legislature wanted to build higher nonresident tuition revenue . reserves in 2019-20 and share cost increases with Factor All Available Resources Into Budget nonfinancially needy students, it could keep these Decisions for UC. Although UC has identified students’ share at 13 percent . Alternatively, the additional resources to cover costs in 2019-20, Legislature could choose to set a higher or lower the Governor does not indicate which additional share of cost as a policy target . The overriding budget priorities he expects these funds will cover . goal in setting an explicit target would be to treat We encourage the Legislature to account for UC’s cohorts of students similarly—whether they happen identified alternative revenues and anticipated to enter college during an economic recovery or operational savings (as well as any nonresident recession . revenue increases that do materialize) and factor Legislature’s Decisions About Nonresident all those resources into its budget decisions for the Enrollment Could Impact Associated Revenue university . These nonstate funds could be applied Available in Budget Year. There is some to any UC budget priority . Though we encourage uncertainty whether UC’s planned nonresident the Legislature to account for these alternative fund enrollment growth and $43 million in associated sources, some of them are less reliable sources to net revenue will be available to help cover costs support ongoing operations . Most notably, UC is in 2019-20 . In the Supplemental Report of the applying $30 million in higher investment income to 2018-19 Budget Act, the state directed UC to its ongoing programs, but investment returns may develop a plan to reduce nonresident students rise or fall with the state’s economy, putting those to 10 percent of enrollment at every campus by programs at some risk of future reductions . 2030 . UC must submit the plan in April 2019 . CALIFORNIA STUDENT AID COMMISSION In this section, we provide an overview (TANF) . Under the Governor’s CSAC proposal, of the Governor’s proposed budget for the General Fund support increases by $289 million California Student Aid Commission (CSAC) . We (22 percent) whereas TANF funds remain flat . then (1) assess the Governor’s Cal Grant cost Cal Grant Spending Accounts for Nearly estimates, (2) analyze his proposal to expand Cal All of Proposed Increase. As Figure 34 Grant nontuition coverage for student parents, shows, the Governor proposes three Cal Grant (3) analyze his proposal to increase the number of augmentations—together accounting for nearly Cal Grant competitive awards, and (4) assess his all new CSAC spending . The remaining small cost estimates for the Middle Class Scholarship increases in proposed CSAC spending are offset program . by spending reductions, largely from the phase out of a loan assumption program and the removal of OVERVIEW one-time 2018-19 funds . Governor Proposes $2.7 Billion for CSAC CAL GRANTS in 2019-20. As Figure 33 shows, the Governor proposes a $289 million (12 percent) increase for Below, we provide background on the Cal Grant CSAC over the revised 2018-19 level . The two main program and review the Governor’s cost estimates fund sources for CSAC are state General Fund and for the program . federal Temporary Assistance for Needy Families 56 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Figure 33 California Student Aid Commission Budget (Dollars in Millions) Change From 2018-19 2017-18 2018-19 2019-20 Actual Revised Proposed Amount Percent Spending Local Assistance Cal Grants $2,105 $2,271 $2,560 $289 12.7% Middle Class Scholarships 100 103 106 3 2.8 Chafee Foster Youth Program 13 18 18 — — Student Opportunity and Access Program 8 8 8 — — Assumption Program of Loans for Education 5 3 1 -2 -55.2 Other programsa 3 6 3 -3 -47.8 Subtotals ($2,234) ($2,408) ($2,696) ($288) (11.9%) State Operations $16 $21 $22 $1 4.1% Totals $2,249 $2,430 $2,719 $289 11.9% Funding General Fund $1,185 $1,337 $1,626 $289 21.6% Federal TANF 1,043 1,066 1,066 — — Other federal funds and reimbursements 16 21 21 —b 0.1 College Access Tax Credit Fund 5 6 6 — — a Includes Cash for College, Child Development Teacher/Supervisor Grants, Every Kid Counts, John R. Justice Program, Law Enforcement Personnel Dependents Scholarships, Military Department GI Bill Awards, and State Nursing Assumption Program of Loans for Education for Nursing Faculty. b Less than $500,000. TANF = Temporary Assistance for Needy Families. Background Figure 34 State Offers Multiple Types California Student Aid Commission Spending Changes of Cal Grant Awards. In the late (In Millions) 1970s, the state consolidated its 2018-19 Revised Spending $2,429.8 financial aid programs into the Cal Local Assistance Grant program . As Figure 35 (see Cal Grant baseline cost increases $158.1 next page) shows, there are three Additional Cal Grant nontuition coverage for student parents 121.6 types of Cal Grant awards today . Additional Cal Grant competitive awards 9.6 One type, Cal Grant A, covers full Middle Class Scholarship baseline cost increases 2.9 Assumption Program of Loans for Education phase out -1.6 systemwide tuition and fees at the Other financial aid programs —a public universities and up to a fixed Removal of one-time 2018-19 funds -2.9 dollar amount toward tuition costs Subtotal ($287.8) at private colleges . The second State Operations type, Cal Grant B, covers tuition Grant Delivery System modernization (one time) $6.2 in all but the first year of college Financial aid program administration 0.3 and provides additional aid to Foster youth eligibility expansion (one time) 0.1 help pay for nontuition expenses, Removal of one-time 2018-19 funds -5.7 including books, supplies, and Subtotal ($0.9) transportation . The third type of Total Changes $288.7 award, Cal Grant C, provides a 2019-20 Proposed Spending $2,718.5 fixed amount of aid for tuition and a Net spending increases less than $100,000 for all the following programs combined: Cash for nontuition expenses for students College, Chafee Foster Youth Program, John R. Justice Program, Law Enforcement Personnel Dependents Scholarships, Military Department GI Bill Awards, Student Opportunity and Access enrolled in career technical Program, and State Nursing Assumption Program of Loans for Education for Nursing Faculty. www.lao.ca.gov 57 analysis full gutter 2019-20 BUDGET Cost Estimates Figure 35 Cal Grant Award Amounts CSAC’s Cal Grant Caseload Estimates Are Largely Based on Maximum Annual Award for Full-Time Students, 2018-19 Previous Trends. Each fall and spring, CSAC estimates Cal Grant Cal Grant A participation for the current year Tuition awards for up to four years. and budget year . For the current Full systemwide tuition and fees ($12,570) at UC. year, CSAC looks at how many Full systemwide tuition and fees ($5,742) at CSU. awards have been offered to date Fixed amount ($9,084) at nonprofit colleges. and then assumes a certain share Fixed amount ($8,056) at WASC-accredited for-profit colleges. of these awards will be taken Fixed amount ($4,000) for other for-profit colleges. based on recent paid rates within Cal Grant B each segment . For the budget Tuition coverage comparable to A award for all but first year. year, CSAC takes the current-year $1,648 toward nontuition expenses for up to four years.a estimate and projects it forward Cal Grant C using various assumptions, such as $2,462 for tuition and fees at private colleges for up to two years. the expected share of new awards $1,094 for nontuition expenses at CCC for up to two years. $547 for nontuition expenses at private colleges for up to two years. that will convert into renewal a awards within each segment . Excludes $24 add-on from College Access Tax Credit. WASC = Western Association of Schools and Colleges. Governor’s Budget Reflects Higher Spending in 2018-19 and education programs . A student may receive a 2019-20 Largely Due to Growth Cal Grant A or B award for up to the equivalent in Participation. The budget revises 2018-19 Cal of four years of full-time study, whereas a Cal Grant spending upward by $33 million from the Grant C award is available for up to two years . 2018-19 Budget Act level . This upward revision Students apply for Cal Grants by submitting a is due entirely to higher-than-expected caseload . Free Application for Federal Student Aid (FAFSA) Compared with the revised 2018-19 level, the or California Dream Act Application . They must budget provides a $158 million (7 .0 percent) reapply each year in which they wish to renew their increase for 2019-20, excluding augmentations award . for proposed policy changes . The budget-year Entitlement and Competitive Programs Have increase is due to a projected 6 .1 percent increase Certain Eligibility Criteria. In 2000, the Legislature in recipients coupled with a small increase ($48 or restructured Cal Grants into a relatively large 0 .8 percent) in average award size . The cost entitlement program and a smaller competitive estimate for 2019-20 assumes no changes in program . As Figure 36 shows, students must meet tuition and fees at UC and CSU . certain income and asset criteria to qualify for these Cost Estimates Appear Reasonable. From programs . The entitlement program also has age 2013-14 to 2017-18, Cal Grant caseload increased requirements . Specifically, only recent high school by an average annual rate of 5 .8 percent . For graduates and transfer students under age 28 are 2018-19, caseload is estimated to increase eligible for entitlement awards . The competitive 7 .6 percent . Given these recent growth rates, we program is designed for those students ineligible think CSAC’s projection that caseload will increase for entitlement awards—typically older students by 6 .1 percent in 2019-20 is reasonable . Regarding who have been out of school for at a least a few average award size, CSAC’s estimated increase years . Both programs generally require a minimum for 2019-20 (0 .8 percent) is somewhat higher than GPA ranging from 2 .0 to 3 .0 . the average annual increase in award size from 2013-14 to 2017-18 (0 .1 percent) . We think the higher adjustment is reasonable because caseload is expected to grow faster at the universities than 58 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET at CCC in 2019-20 . (Awards Figure 36 for students attending UC and Cal Grant Eligibility Criteria CSU cost more than awards for students attending CCC .) We 2018-19 anticipate that CSAC will update Financial Criteriaa its current- and budget-year cost Cal Grant A and C estimates at the May Revision to Family income ceiling: $88,900 to $114,300, depending on family size. reflect the latest Cal Grant data Asset ceiling: $76,500. available . Cal Grant B Governor Assumes No Family income ceiling: $41,500 to $62,800, depending on family size. Reduction in Award Size for Asset ceiling: same as A and C. Nonprofit Colleges. Last year, Other Major Criteria the state placed a new condition High School Entitlement (A and B) on Cal Grant awards at private • High school senior or graduated from high school within the last year. nonprofit colleges . Specifically, • Minimum high school GPA of 3.0 for A award and 2.0 for B award. this sector must admit at Transfer Entitlement (A and B) least 2,000 students with an • CCC student under age 28 transferring to a four-year school. associate degree for transfer in • Minimum community college GPA of 2.4. 2018-19 or the award amount Competitive (A and B) for all Cal Grant recipients at • An individual ineligible for one of the entitlement awards, typically due to that sector will be reduced from age or time out of high school. $9,084 to $8,056 in 2019-20 . • Minimum GPA requirements same as for entitlement awards. (The target number of students Competitive (C) admitted with an associate • Must be enrolled in career technical education program at least four degree for transfer is scheduled months long. to increase in subsequent years .) • No minimum GPA. a The Governor’s budget assumes Reflects criteria for dependent students. Different criteria apply to independent students (generally those over age 24). that the sector will meet its target, GPA = grade point average. thus maintaining the higher award amount for 2019-20 . The Background administration will report at the May Revision as to whether the sector is on track to meet the target . Total Cost of Attendance Includes Both Were the sector not to meet the goal, we estimate Tuition and Living Costs. Apart from tuition, that the associated Cal Grant costs would decline college students incur costs for housing, food, by $9 million in 2019-20 . transportation, books, and personal expenses . For many students, these nontuition costs exceed their NONTUITION COVERAGE FOR tuition costs . State Provides Cal Grant B and C Recipients STUDENT PARENTS With Nontuition Coverage. The nontuition Below, we provide background on financial component of these awards is described below . aid programs that assist undergraduate students • Cal Grant B Access Award. The Legislature with nontuition costs such as housing, food, and created this award in the late 1960s with the transportation . Then, we discuss the Governor’s intent of helping students from disadvantaged proposal to increase nontuition coverage for CCC, backgrounds pursue higher education . Today, CSU, and UC undergraduates who have dependent this award provides low-income students with children (referred to as student parents) . Next, up to $1,648 annually to cover living costs . we assess the proposal and offer an associated In 2017-18, about 243,000 students across recommendation . www.lao.ca.gov 59 analysis full gutter 2019-20 BUDGET all segments (public and private) received this 62,000 student parents who were eligible for a award . new competitive award in 2017-18, about 44,000 • Cal Grant C Book and Supply Award. The (71 percent) did not receive one . Legislature created this award in the early Governor’s Proposal 1970s to help financially needy students pursue career technical education . Originally, Governor Proposes $122 Million Ongoing students were required to use the award on to Increase Nontuition Coverage for Student training-related costs such as equipment, Parents. As Figure 38 shows, the proposal would clothing, and transportation . Chapter 692 of create a Cal Grant A Access award and would 2014 (SB 1029, Jackson) expanded the increase the size of the Cal Grant B Access award allowable uses of the award to include living and Cal Grant C Book and Supply award for eligible costs . Today, this award provides low- and student parents . The maximum grant for student middle-income students with $1,094 annually parents attending full time would range from at CCC and $547 annually at private colleges . $4,000 to $6,000, depending on the award type . In 2017-18, about 8,000 students received As with all Cal Grants, the award amount would this award . be prorated downward for part-time students . Only student parents enrolled at CCC, CSU, In addition to Cal Grants, other state and federal and UC would be eligible for the higher grants . aid programs assist students with their living Student parents attending private colleges would expenses . We describe these programs in the be ineligible . The administration’s $122 million nearby box . cost estimate assumes that most eligible student Student Parents Comprise 9 Percent of Cal parents would receive the maximum award . Grant Recipients. In 2017-18, about 371,000 The administration will likely adjust this estimate students received a Cal Grant A, B, or C . As downward at May Revision to account for student Figure 37 shows, about 32,000 (9 percent) of parents who enroll part time . these students had a dependent child or children . Most student parents awarded a Cal Grant received a competitive award . Two-thirds of student parents awarded a Figure 37 Cal Grant attended CCC, and Profile of Student Parents Receiving Cal Grants 20 percent attended CSU . 2017-18 Most Student Parents Eligible Number Percent for a Cal Grant Do Not Receive an Award. Under state law, only Recipients by Award Type:a recent high school graduates and Competitive award 25,215 79% university students who transferred Cal Grant C 3,149 10 from a community college by a High School Entitlement award 2,217 7 Transfer Entitlement award 1,270 4 certain age are guaranteed a Cal Totals 31,851 100% Grant entitlement award . Most student parents do not meet Recipients by Segment: these criteria and must instead California Community Colleges 21,392 67% apply for a competitive award . California State University 6,475 20 State law authorizes a limited Private for-profit schools 1,600 5 Private nonprofit schools 1,589 5 number of competitive awards University of California 766 2 annually . Each year, the number of Other public schools 29 —b eligible applicants for new awards Totals 31,851 100% significantly exceeds the number of a Reflects new and renewal awards. authorized new awards . Of about b Less than 0.5 percent. 60 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Assessment Figure 38 Governor Identifies Potentially Proposed Increase in Nontuition Coverage for Important Area of Need, but Student Parents Proposal Has Downsides. Maximum Annual Award for Full-Time Students at Public Segments Student parents typically have higher living costs than other Current Award Size Under Award Award Size Governor’s Proposal students . Beyond paying for child care, student parents provide Cal Grant A Access — $6,000 food and cover other living costs Cal Grant B Accessa $1,648 6,000 Cal Grant C Book and Supply 1,094 4,000 for their dependents . Though a student parents might benefit Excludes $24 add-on from College Access Tax Credit. from additional financial aid, the Governor’s specific proposal for proposal to increase nontuition coverage for addressing their needs raises several concerns . student parents acts counter to this objective . Below, we describe three concerns with the Rather than streamlining the Cal Grant program, the proposal, then we discuss two areas where Governor’s proposal creates a new award (the Cal we believe additional information would allow Grant A Access award), adds tiers to two existing policymakers to support student parents more awards (the Cal Grant B Access award and the Cal effectively . Grant C Book and Supply award), and introduces Proposal Further Complicates Financial Aid a new set of eligibility criteria and rules that applies System for Students. Over the past few years, the only to one subset of financially needy students . Legislature has expressed an interest in making the Proposal Does Not Strictly Target Aid Toward state’s financial aid system easier for students to Highest-Need Students. A student’s financial understand and navigate . Much of this conversation need is determined primarily by a federal formula, has centered around streamlining the Cal Grant which takes into account family size . While all program, which currently consists of multiple award Cal Grant recipients have financial need, the level types that each have different rules regarding of need varies widely . Because the Governor’s eligibility and award amounts . The Governor’s proposal provides additional aid based on a Other Programs Assist Low-Income Students With Living Costs Students May Receive Assistance From Other Financial Aid Programs. The federal Pell Grant program provides low-income students with awards of up to $6,095 annually that can be used for tuition or other expenses . Because Pell Grant recipients at California’s public segments typically receive tuition coverage through Cal Grants or other state-funded fee waivers, these students commonly use Pell Grants for living costs . At some segments, students with financial need also qualify for nontuition coverage beyond that provided through the Cal Grant program . At California Community Colleges, Cal Grant recipients who enroll full time are eligible for Student Success Completion Grants, which provide up to $4,000 annually for living costs . In addition, University of California’s institutional aid program provides grants on a sliding scale to assist with students’ living costs . Qualifying Students Also May Participate in Public Assistance Programs. Some low-income students are also eligible for programs such as CalWORKs (cash assistance), CalFresh (food assistance), and subsidized child care and preschool . While student financial aid programs are administered by the California Student Aid Commission and the segments, public assistance programs are primarily administered by state and local social services agencies . www.lao.ca.gov 61 analysis full gutter 2019-20 BUDGET student’s parental status rather than financial need, This survey collects data on what students in the proposal could have unintended distributional various demographic groups (including students consequences . For example, the proposal could with dependents) spend on housing, food, provide an additional $6,000 in aid to a student transportation, child care, and other living costs . parent receiving a Cal Grant A award, while CSAC anticipates that survey results will be providing no additional aid to a lower-income available in fall 2019 . These data on living costs, dependent student receiving a Cal Grant B award . coupled with information on unmet financial need, This is inconsistent with a need-based approach to would allow the Legislature to make more informed prioritizing funding . decisions about nontuition coverage for student Under Proposal, Most Student Parents Still parents . Would Not Receive a Cal Grant. Based on recent Recommendation caseload data, the administration estimates that about 29,000 student parents would receive the Reject Governor’s Proposal, but Consider proposed Cal Grant awards . Tens of thousands of Further Study of Student Parents’ Unmet other financially needy student parents, however, Needs. The Governor’s proposal to expand would not benefit from the proposal . Specifically, nontuition coverage for student parents would we estimate about 44,000 eligible student parents further complicate the state’s financial aid system with financial need would not receive any Cal Grant and could have unintended distributional effects . award because of the limited number of competitive For these reasons, we recommend the Legislature awards authorized each year . Additionally, we reject this proposal . The proposal, however, raises estimate another 3,000 student parents would important questions about the unmet financial not benefit from the proposal because they are need of student parents . If the Legislature wishes attending private colleges . to pursue further information in this area, it could More Information Needed on Other Public request that CSAC, the segments, and relevant Assistance for Student Parents. Currently, state social services agencies assess the costs facing agencies do not collect and report comprehensive student parents and the extent to which current data on student parents’ participation in programs financial aid and public assistance programs meet such as CalWORKs, CalFresh, and subsidized child student parents’ needs . care and preschool . As a result, policymakers have a limited understanding of the total benefits that CAL GRANT COMPETITIVE AWARDS student parents receive across these programs . Data on this issue would allow the Legislature Below, we provide background on the Cal Grant to better understand the extent to which these competitive program, describe the Governor’s programs collectively meet student parents’ proposal to increase the number of competitive needs and how much unmet need remains . The awards, assess the proposal, and offer an Legislature also may wish to explore options associated recommendation . for (1) improving coordination between student Background financial aid and public assistance programs or (2) delivering students’ nontuition coverage all CSAC Selects Competitive Award Recipients through one system . (As the Legislature evaluates Based on Several Criteria. Cal Grant applicants its options, it likely will face tradeoffs between who do not qualify for an entitlement award are expanding nontuition coverage for students and considered for a limited number of competitive expanding public assistance for low-income awards . CSAC uses a scoring matrix to prioritize individuals more broadly .) among applicants . Each applicant is assigned State in Midst of Collecting Updated a score out of a maximum 1,000 points . Those Cost of Attendance Data. CSAC is currently with the highest scores receive award offers . administering the Student Expenses and Resources As Figure 39 shows, the scoring matrix places Survey (SEARS) for the first time since 2006-07 . greatest weight on an applicant’s financial 62 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET need . Applicants also receive points for certain Figure 39 socioeconomic factors and their GPA . Competitive Award Scoring Matrix Statute Authorizes 25,750 New Competitive Awards Annually. The Legislature most recently 2018‑19 expanded the competitive program in 2015-16, Component Maximum Points when it increased the number of new awards Expected family contributiona 250 authorized annually from 22,500 to 25,750 . Family income and size 250 Under state law, half of the authorized awards are Dependentsb 100 reserved for students attending CCC, while the Parents’ educational level 100 remaining awards are available to students at all Disadvantaged high school experiencec 100 segments . Although competitive award recipients Disadvantaged family experienced 100 are eligible for either Cal Grant A or Cal Grant B, Grade point average 100 nearly all of them receive Cal Grant B (signifying Total 1,000 a they are lower income) . Refers to how much a student’s family is expected to pay for college, as calculated by a federal need-based formula. b Points awarded to single independent students with dependents. Governor’s Proposal c Points awarded to students who attended schools with high poverty rates, schools with low college-going rates, or continuation schools. Proposes Increasing Number of Competitive d Points awarded to students who are foster youth, orphans, wards of the court, unaccompanied, or at risk of homelessness. Awards. The Governor proposes to augment ongoing Cal Grant funding by $9 .6 million to support 4,250 additional competitive awards . This Remaining Unserved Applicants Also Have proposal would increase the total number of new High Financial Need. In 2017-18, the average competitive awards authorized annually to 30,000 . income among approximately 290,000 eligible Consistent with current law, half of these awards applicants not offered a competitive award was would be reserved for students attending CCC . about $26,000 . This suggests that the Legislature could expand the supply of competitive awards by Assessment a substantial amount and still serve students who Number of Eligible Applicants Far Exceeds have high financial need . (As discussed in the box Current Supply of Awards. Since the competitive on page 64, additional data on Cal Grant recipients’ program was last expanded, between 295,000 outcomes could further inform legislative decisions and 325,000 eligible students have applied for regarding potential expansion of the competitive a competitive award annually . Each year, only program .) 11 percent of applicants have been offered awards . Recommendation We estimate expanding the number of authorized awards by 4,250 would increase the share of Recommend Legislature Prioritize Increasing eligible applicants offered an award to 12 percent, the Number of Competitive Awards. If the assuming no change in the number of eligible Legislature chooses to augment funding for Cal applicants or the associated paid rate . Grants, we think that increasing the number of Students Receiving Awards Have Relatively competitive awards would be a reasonable use of Low Income. The average income among students funds . Currently, the number of applicants vastly offered a competitive award in 2017-18 was exceeds the number of authorized awards, and under $8,000 . This is considerably lower than the applicant pool is relatively low income . Should the average income of students offered a high the Legislature wish to increase the number of new school entitlement award (about $32,000) and competitive awards beyond the 4,250 proposed students offered a transfer entitlement award (about by the Governor, we estimate that every $1 million $30,000) . In contrast, competitive recipients have would allow the state to authorize about 440 an average high school GPA that is comparable to additional awards . (This estimate assumes no that of entitlement recipients (3 .1) . changes in tuition, the distribution of awards across www.lao.ca.gov 63 analysis full gutter 2019-20 BUDGET More Data on Competitive Cal Grant Recipients’ Outcomes Could Inform Future Legislative Decisions The California Student Aid Commission currently does not track the impact of competitive awards on students’ academic and labor market outcomes . As a result, little is known about how the program affects key student outcomes, including degree completion, employment, earnings, college borrowing, and default rates . Moving forward, additional information on outcomes such as these would allow the Legislature to make more informed decisions about the competitive program . segments and award types, and the percentage of Program Funding Is Capped Under State available awards that are paid .) Law. Unlike Cal Grants, Middle Class Scholarships are not considered entitlements, and the program MIDDLE CLASS SCHOLARSHIPS funding level has a statutory cap . If program funding is insufficient to cover the intended award Below, we provide background on the Middle amounts, awards are prorated downward . To date, Class Scholarship program and assess the CSAC has not had to prorate awards . Current Governor’s cost estimates for the program . law appropriates $101 million in 2018-19 and $117 million each year thereafter . Background Cost Estimates Middle Class Scholarship Program Provides Partial Tuition Coverage at UC and CSU. Created Governor’s Budget Reflects Higher Spending in 2014-15, this state program benefits students in 2018-19 and 2019-20. The administration at CSU and UC . To receive an award, students revises the cost estimate for Middle Class must complete a FAFSA or California Dream Act Scholarships upward in 2018-19 by $1 .6 million Application, but the program is not need-based (1 .6 percent) . Compared with the revised according to the federal government’s financial 2018-19 level, the administration projects a aid formula . Students qualify for the program if $2 .9 million (2 .8 percent) increase in 2019-20 . they have household income and assets under As Figure 40 shows, the increase for 2019-20 is a specified ceiling ($171,000 in 2018-19) . In driven by modest projected growth in both the 2018-19, a student with a household income number of recipients and average award amount . of up to $114,000 qualified for the maximum Based on the limited data available on trends award—40 percent of tuition and systemwide fees over time, the administration’s estimates appear when combined with all other public financial aid . reasonable . Awards are graduated downward as household income increases, Figure 40 with the minimum award set Middle Class Scholarships—Key Cost Information at 10 percent of tuition and systemwide fees . 2017-18 2018-19 2019-20 Change From 2018-19 Actual Revised Proposed Amount Percent Recipients 51,293 51,848 52,420 572 1.1% Average award $1,948 $1,986 $2,019 $33 1.7 Total cost (in millions) $100 $103 $106 $2.9 2.8 64 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET SUMMARY OF RECOMMENDATIONS CALIFORNIA COMMUNITY COLLEGES Apportionments • Adopt the Governor’s proposal to postpone the scheduled changes in apportionment formula rates by one year, allowing time for improvements in data quality . • To limit volatility in state and district apportionment funding, use a three-year rolling average of student outcome data for distributing the student success allocation . • Reject the Governor’s proposal to set a cap on annual growth in districts’ student success allocations . The cap is a crude cost-containment approach that would reduce the incentives districts have for making genuine improvements in student outcomes . • Explore cost-containment options that retain strong incentives for districts to make genuine improvements in student outcomes . For example, link outcomes-based funding to the highest award a student earns . College Promise • Reject the Governor’s proposal to provide a $40 million ongoing augmentation for the California College Promise program because (1) first-year results of the program are not yet available, (2) the program primarily benefits students without financial need, and (3) colleges now have stronger incentives to boost student support . Facilities • Consider approving more capital outlay projects than proposed by the Governor . Evaluate projects based on the Chancellor’s Office priority categories or develop another set of clear, agreed-upon criteria . • Direct the administration and the Chancellor’s Office to develop an agreed-upon framework for assessing life safety issues . • If the administration and Chancellor’s Office cannot come to an agreement, codify a life safety framework in statute that (1) ensures state funding is available in case of a facility emergency, (2) has strong incentives for districts to maintain their facilities in good condition, and (3) ensures districts provide a local contribution based on their local resources . www.lao.ca.gov 65 analysis full gutter 2019-20 BUDGET CALIFORNIA STATE UNIVERSITY (CSU) Compensation and Other Operational Costs • Consider revisiting how prescriptive to be with CSU staffing decisions, including whether to fund all CSU pension costs directly or give full responsibility for those costs to CSU and its bargaining units . • Prior to the next round of collective bargaining negotiations, encourage the Chancellor’s Office to commission a staffing and compensation analysis . • Signal to CSU legislative expectations on employee contracts that will be negotiated for 2020-21 . Enrollment • Set an enrollment expectation for CSU in the budget year . Consider several demographic and policy factors in setting the expectation . Whereas most factors suggest holding CSU enrollment flat in 2019-20, a few factors suggest some enrollment growth may be justified . Graduation Initiative • If funding is provided for the Graduation Initiative, set an expectation that CSU continue to make progress on key student outcomes, including improving graduation rates for all students, narrowing achievement gaps, and reducing excess unit taking . • To create a stronger incentive for students to avoid excess unit accumulation and maximize aid for other students, direct CSU to limit its State University Grants to four years of full-time attendance or its equivalent in units . • To reduce excess unit taking, direct CSU to allow a student to repeat a course only once for the purpose of earning a higher grade . • Require CSU to submit data on course repetition as part of its statutorily required annual performance report . Project Rebound • Rather than providing a very small augmentation ($250,000) for Project Rebound, as proposed by the Governor, encourage CSU to place a high priority on leveraging Graduation Initiative and campus funding to support formerly incarcerated students . • Consider requiring the Chancellor’s Office to report regularly on the academic outcomes of formerly incarcerated students . 66 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Facilities • Direct CSU to examine less-costly alternatives to the Peterson Hall 1 replacement building project at the Long Beach campus . • Signal to the administration to reject the proposed new Applied Sciences and Technology Building at the San Marcos campus given the proposal’s lack of (1) a clear statement about its purpose, (2) justification for space needs, and (3) a thorough evaluation of alternatives . • Signal to the administration to reject the proposed new Energy and Engineering Innovation Center at the Bakersfield campus given that additional space is not justified based upon a utilization analysis of the campus’ existing facilities . • Consider the cost/benefit tradeoffs of building a new theater at the San Diego campus in addition to renovating an existing theater at the campus . • Adopt proposed $247 million in one-time General Fund support for deferred maintenance on the condition that CSU report at spring hearings on the specific projects it plans to undertake . Require Department of Finance to report no later than January 1, 2023 on the status of these projects . • Require CSU to submit by December 1, 2019 a long-term plan for eliminating its maintenance backlog . • Withhold recommendation on permitting CSU to use one-time monies for campus child care facilities pending receipt of additional information and justification from the administration on the proposal . Covering Cost Increases • To improve tuition predictability for nonfinancially needy students and their households, consider increasing the state’s budget reserve beyond the level proposed in the Governor’s budget . • Consider having student tuition cover a share of CSU’s 2019-20 cost increases to free up state General Fund that could be used for building higher reserves . • Adopt a policy explicitly establishing what share of costs nonfinancially needy students should pay . Such a policy improves budget transparency and signals to students an expectation that they be treated similarly whether enrolling in college during an economic recovery or recession . www.lao.ca.gov 67 analysis full gutter 2019-20 BUDGET UNIVERSITY OF CALIFORNIA (UC) Compensation and Other Operational Costs • Recognize $89 million in estimated 2019-20 cost increases for UC’s equipment purchases, utilities, employee health program, pension program, and retiree health program . • Consider recruitment and retention issues when evaluating UC’s compensation decisions for represented and nonrepresented employees . Enrollment Growth • Consider how to cover the ongoing cost of enrollment growth that UC supported with one-time funds in 2018-19 . The Governor’s proposal to provide $10 million ongoing to sustain about half of that growth is one reasonable approach . • Align the state’s budget decisions with the timing of UC’s admission decisions by adopting an enrollment target for 2020-21 . • Regarding whether to grow enrollment in 2020-21, consider (1) UC’s recent practice of drawing beyond its traditional freshman eligibility pool, (2) the slight decline in the projected number of high school graduates in spring 2019, and (3) the notable number of eligible freshman applicants who are referred to Merced . • If enrollment growth is desired in 2020-21, fund it based upon the marginal per-student cost of instruction and support with ongoing funds . Student Success • Before approving funding for a new student success initiative at UC: » Identify a few explicit objectives, such as increasing graduation rates at all campuses and narrowing undergraduate achievement gaps . » Set clear performance targets, such as increasing graduation rates at all campuses to a specified level and eliminating achievement gaps among student groups within a specified timeframe . » To ensure funding aligns with the cost of meeting performance expectations, direct UC to develop an expenditure plan . • If funding is provided, require UC to report annually on its progress in meeting performance targets and campuses’ use of the funds . Extended Education • Reject the Governor’s proposal to provide UC $15 million in one-time funding to expand its extended education programs, as the existing proposal lacks adequate justification . • If the administration and UC remain interested in expanding these programs, direct them to present a more complete analysis next year . Such an analysis should include research into which groups of students are interested in returning, why the state’s current array of 68 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET re-entry options is inadequate, how UC Extension would fill the unmet need better than CSU or other possible alternatives, and why state General Fund support would be needed to build out program offerings . Facilities • Recognize estimated $15 million in UC debt service cost increases as part of budget decisions for 2019-20 . • Make proposed classroom building at Santa Barbara campus a lower priority, as the project’s primary goal of accommodating demand for more large lectures could be met by using online education . • Make proposed new classroom and administrative building at Santa Cruz campus a lower priority, as (1) the campus could accommodate large lectures through online education instead of the proposed new classrooms, and (2) the administrative space component shifts personnel around the campus without providing a notable academic benefit . • Discourage UC from using bond funds to finance a one-time utilities and related infrastructure condition assessment . • Adopt proposed $173 million ($138 million one-time General Fund and $35 million UC bond funds) for deferred maintenance on the condition that UC report at spring hearings on the specific projects it plans to undertake . Require Department of Finance to report no later than January 1, 2023 on the status of these projects . • Require UC to submit a long-term plan for eliminating its backlog once it completes its facility condition assessment (anticipated by December 31, 2020) . Covering Cost Increases • To improve tuition predictability for nonfinancially needy students and their households, consider increasing the state’s budget reserve beyond the level proposed in the Governor’s budget . • Consider having student tuition cover a share of UC’s 2019-20 cost increases to free up state General Fund that could be used for building higher reserves . • Adopt a policy explicitly establishing what share of costs nonfinancially needy students should pay . Such a policy improves budget transparency and signals to students an expectation that they be treated similarly whether enrolling in college during an economic recovery or recession . • Recognize $74 million in operational savings and nonstate funding increases as available to support UC’s core operations . • Though UC anticipates generating $43 million in additional nonresident tuition revenue in 2019-20 to cover budget priorities, the funding increase is uncertain . The state has asked UC to develop a plan to notably reduce nonresident enrollment by 2029-30 . If adopted, UC would not obtain its projected increase in nonresident tuition revenue . www.lao.ca.gov 69 analysis full gutter 2019-20 BUDGET CALIFORNIA STUDENT AID COMMISSION (CSAC) Cal Grants • Reject providing $122 million ongoing for nontuition coverage for student parents receiving Cal Grants, as proposal would complicate the state’s financial aid system and could have unintended distributional effects . • Consider requesting additional information from CSAC, the segments, and relevant social services agencies on the extent to which financial aid and public assistance programs currently meet student parents’ needs . • Prioritize the Governor’s proposal to provide $9 .6 million ongoing for 4,250 additional Cal Grant competitive awards, as the current number of financially needy applicants greatly exceeds the number of authorized awards . • For each additional $1 million, the Legislature could authorize 440 additional Cal Grant competitive awards . 70 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET www.lao.ca.gov 71 analysis full gutter 2019-20 BUDGET Contact Information Edgar Cabral California Community Colleges 916-319-8343 Edgar.Cabral@lao.ca.gov Jason Constantouros University of California 916-319-8322 Jason.Constantouros@lao.ca.gov Lisa Qing California Student Aid Commission 916-319-8306 Lisa.Qing@lao.ca.gov Paul Steenhausen California State University 916-319-8303 Paul.Steenhausen@lao.ca.gov LAO PUBLICATIONS This report was reviewed by Jennifer Kuhn Pacella. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, CA 95814. 72 LEGISLATIVE ANALYST’S OFFICE