The 2020-21 Budget: Higher Education Analysis

The 2020-21 Budget: Higher Education Analysis GABRIEL PETEK LEGISLATIVE ANALYST FEBRUARY 20, 2020 analysis full gutter 2020-21 BUDGET LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET Contents Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 California Community Colleges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Apportionments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Apprenticeship Instructional Hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 California Apprenticeship Initiative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Work-Based Learning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Food Pantries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Faculty Diversity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Part-Time Faculty Office Hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Zero-Textbook-Cost Degrees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 California State University . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Operating Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Enrollment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Covering Cost Increases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 University of California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Operating Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Enrollment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Covering Cost Increases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Agriculture and Natural Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Animal Shelters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Extended Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Summary of Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 www.lao.ca.gov analysis full gutter 2020-21 BUDGET LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET Executive Summary In this report, we analyze the Governor’s higher education budget proposals . Similar to last year, these proposals are wide ranging—including large base increases; targeted increases for apprenticeship programs and food pantries; one-time initiatives relating to extended education programs, work-based learning, faculty diversity, and animal shelters; and many facility projects . Below, we highlight some key takeaways from our analysis . California Community Colleges Bulk of Proposed Apportionment Increase Needed to Cover Higher Pension Costs. The largest ongoing spending proposal for the California Community Colleges (CCC) is $167 million to cover a 2 .29 percent cost-of-living adjustment (COLA) for apportionments . Augmenting apportionments can help community colleges cover employee salary increases, health care premiums, and pension costs . We estimate that districts’ pension costs alone are likely to increase by about $120 million in 2020-21 . Under the Governor’s budget, districts would have less than $50 million remaining . By early May, the Legislature will know the final COLA rate and have better information on state revenues, which will affect the amount of state funding available for the colleges . If additional funding becomes available, the Legislature may wish to provide a larger apportionment increase . Systemwide CCC Enrollment Has Plateaued. The Governor’s budget includes $32 million for 0 .5 percent CCC enrollment growth (equating to about 7,800 additional full-time equivalent students) . The proposed growth rate is about the same as the growth used by districts in the past couple of years . Though a few areas of the state (notably, the Central Valley and Inland Empire) continue to grow, other areas (including the Bay Area and Los Angeles/Orange County region) are seeing declines . By May, the Legislature will have better data to help it set the 2020-21 CCC enrollment target . Universities Governor Leaves Little Assurance Legislative Priorities Will Be Addressed. The largest ongoing spending proposals for the universities are base increases of $199 million for the California State University (CSU) and $169 million for the University of California (UC) . The Governor’s budget does not link these proposed augmentations with clear, specific state spending priorities . This budgetary approach is fraught with problems—leaving the Legislature not knowing how CSU and UC will spend the proposed augmentations (including how many students they will serve), whether the universities’ budget priorities will be aligned with legislative interests, or whether the proposed augmentations are too little or too much to meet state objectives . Tuition Increases Are One Way to Expand Budget Capacity. Both CSU and UC have been contemplating possible tuition increases . One of the options being considered would raise tuition by 3 percent, consistent with inflation . A 3 percent increase would translate into a full-time, resident undergraduate student at CSU and UC paying about $175 and $350 more per year, respectively . Financially needy students would not pay the increase, as financial aid covers full www.lao.ca.gov 1 analysis full gutter 2020-21 BUDGET tuition . The state also provides partial tuition coverage for middle-income students who do not otherwise qualify for need-based aid . Recommend the Legislature Set Its Budget Priorities for the Universities. We crafted illustrative budget plans so the Legislature could see how much spending can be accommodated with and without a tuition increase . Under the illustrative CSU and UC plans, the state would budget for basic cost pressures, including rising health care and pension costs . The plans would then assume 3 percent salary increases for faculty and staff . After covering these costs, the “no tuition increase” plan at CSU would leave $12 million for other legislative priorities (such as enrollment growth and programmatic expansions) . At UC, the no tuition increase plan ends up spending more than the amount proposed by the Governor . By comparison, the “tuition increase” plan would leave $42 million available at CSU and $50 million available at UC for funding other legislative priorities . (Another way to increase budget capacity is to consider using CSU and UC reserves for certain one-time priorities, such as deferred maintenance or seismic safety studies .) Multiple Factors to Consider in Deciding Whether to Grow Enrollment at CSU and UC. The challenge for the Legislature is that the factors do not all point in the same direction . On the one hand, some factors suggest more enrollment is not warranted . The number of public high school graduates in the state is projected to decrease by 0 .5 percent in 2019-20 . In addition, CSU currently is not on track to meet its 2019-20 enrollment target . Moreover, recent studies show that both CSU and UC are drawing from beyond their traditional freshman eligibility pools . On the other hand, some factors suggest growth is merited . Most notably, both CSU and UC are rejecting many eligible applicants at high-demand, impacted campuses . More enrollment growth could help more eligible applicants attend their campus of choice . Crosscutting Issues Better Understanding Root Problems Is Critical Before Increasing Spending. Some of the Governor’s higher education proposals seem to have laudable goals, but the associated spending proposals are not well justified . For the initiatives involving work-based learning, extended education, and faculty fellowships, the Governor has not clearly identified the root problems or explained how his proposals would remedy those problems . The Governor is also missing opportunities, such as with extended education and the California Apprenticeship Initiative, to learn from recent expansion efforts—knowing little more today than a year or two ago about what is working . Without a better understanding of root issues, the Legislature could end up using money ineffectively . Important for Legislature to Weigh Its One-Time Priorities. Each public higher education segment faces several billions of dollars in existing unfunded liabilities related to pensions, retiree health care, maintenance backlogs, and seismic renovation backlogs . Providing one-time funding to address these existing liabilities provides clear, known benefits—helping to reduce future costs and risks while improving fiscal health . In contrast, funding many small, new, one-time initiatives—such as the Governor’s CCC proposal for work-based learning and the UC animal shelter outreach initiative—does little to advance progress toward addressing existing liabilities . Given these trade-offs, the Legislature will likely want to weigh its one-time options carefully and select the options that have the highest returns . 2 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET INTRODUCTION In this report, we analyze the Governor’s analyses, we will cover the California Student Aid major higher education proposals . This report Commission and Hastings College of the Law as has sections covering the California Community well as a few crosscutting education proposals, Colleges (CCC), California State University (CSU), including the Fresno K-16 educational pathways University of California (UC), and extended initiative . For tables providing additional higher education . The final section of this report provides education budget detail, see the “EdBudget” a summary of our recommendations . In The section of our website . For background on the 2020-21 Budget: Medical Education Analysis, we state’s higher education system (including its analyze the Governor’s proposals to expand the students, staffing, campuses, funding, outcomes, UC Riverside School of Medicine and the UC San and facilities), see California’s Education System: Francisco Fresno branch campus . In forthcoming A 2019 Guide . CALIFORNIA COMMUNITY COLLEGES In this part of the report, we provide an overview fees, and health services fees), and various local of the CCC budget, then analyze most of the sources, including community service programs Governor’s CCC budget proposals . Specifically, and “excess” local property tax revenue . (The we analyze his proposals for apportionments, box on page 4 provides more information on the apprenticeship programs, work-based learning, community college districts that receive some of food pantries, faculty diversity, part-time faculty their funding from excess property tax revenue .) office hours, zero-textbook-cost degrees, and Governor’s Budget Contains More Than a facilities . In subsequent online posts, we plan to Dozen CCC Proposition 98 Spending Proposals. analyze the Governor’s crosscutting proposals As Figure 2 (see page 5) shows, the Governor has on (1) instructional materials for dual enrollment many CCC spending proposals . The Governor’s students and (2) immigrant legal services for new ongoing spending proposals total $296 million, students and staff . whereas his one-time initiatives total $93 million . (Of the new one-time spending, $62 .6 million is scored OVERVIEW to 2020-21, $28 .6 million is scored to 2019-20, and $1 .5 million is scored to 2018-19 .) Not reflected in Total CCC Budget Reaches $15.7 Billion the figure is a proposal to consolidate some funding Under Governor’s Budget. Almost $10 billion currently provided for system support . The box on of the CCC budget comes from Proposition 98 page 6 explains this proposal . funds (Figure 1, see next page) . In addition, the Proposition 98 Funding Per Community state provides CCC with non-Proposition 98 College Student Is at an All-Time High. General Fund for certain purposes . Most notably, Inflation-adjusted per-student funding at the non-Proposition 98 funds cover debt service on community colleges reached a new all-time high state general obligation bonds for CCC facilities, in 2019-20—marking the fifth consecutive year a portion of CCC teacher retirement costs, and of new all-time highs (Figure 3, see page 5) . Chancellor’s Office operations . Altogether, state In 2020-21, this trend is expected to continue . Proposition 98 and non-Proposition 98 funding Proposition 98 funding per full-time equivalent (FTE) comprises about two-thirds of CCC funding . student is projected to be $8,761 in 2020-21, an The remaining one-third of CCC funding comes increase of $328 (3 .9 percent) from 2019-20 . In primarily from student enrollment fees, other inflation-adjusted terms, per-student funding in student fees (such as nonresident tuition, parking 2020-21 is projected to be nearly $2,000 higher www.lao.ca.gov 3 analysis full gutter 2020-21 BUDGET Figure 1 California Community Colleges Rely Heavily on Proposition 98 Funding (Dollars in Millions, Except Funding Per Student) Change From 2019-20 2018-19 2019-20 2020-21 Revised Revised Proposed Amount Percent Proposition 98 General Fund $6,117 $6,223 $6,372 $149 2.4% Local property tax 3,077 3,254 3,435 181 5.6 Subtotals ($9,195) ($9,477) ($9,807) ($330) (3.5%) Other State Other General Funda $893 $645 $703 $58 9.0% Lottery 245 246 246 —b -0.2 Special funds 83 99 95 -5 -4.7 Subtotals ($1,221) ($991) ($1,044) ($53) (5.4%) Other Local Enrollment fees $464 $464 $466 $2 0.5% Other local revenuec 4,003 4,026 4,047 21 0.5 Subtotals ($4,467) ($4,489) ($4,513) ($23) (0.5%) Federal $288 $288 $288 — 0.0% Totals $15,171 $15,245 $15,651 $406 2.7% Full-Time Equivalent (FTE) Students 1,123,315 1,123,753 1,119,421 -4,332 -0.4%d Proposition 98 Funding Per FTE Student $8,185 $8,433 $8,761 $328 3.9% Total Funding Per FTE Student $13,505 $13,566 $13,982 $415 3.1% a Includes $405 million in additional retirement payments authorized in the 2019-20 budget package ($315 million in 2018-19 and $89 million in 2019-20). b Projected to decline by $379,000. 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. Administration assumes local debt-service payments remain flat throughout the period. d Reflects the net of the Governor’s proposed 0.5 percent systemwide enrollment growth together with all other enrollment adjustments. Excess Tax Districts System Could Soon Have Eighth “Excess Tax” Community College District. Each year, the state excludes some property tax revenue from calculations of the Proposition 98 minimum guarantee . Specifically, some community college districts (CCD) receive local property tax revenue in excess of their total allotment under the Seven Community College Districts state’s community college funding formula . Have “Excess” Tax Revenue The state does not provide General Fund apportionments to these college districts, but Administration’s Estimates for 2020‑21 (In Millions) it allows the districts to retain their excess “Excess” Tax Amount property tax revenue . Currently, the state has South Orange CCD $115 seven college districts with excess property tax San Mateo CCD 72 revenue (up from three colleges in 2010-11) . West Valley-Mission CCD 69 The figure lists these districts, along with the MiraCosta CCD 54 amount of property tax revenue each receives San Jose-Evergreen CCD 44 on top of its state formula allotment . Based on Marin CCD 37 our property tax projections, we expect Sierra Napa CCD 3 CCD (in Rocklin) to become an excess tax Total $394 district over the next year or two . CCD = Community College District. 4 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET than in 1988-89 (the year voters Figure 2 approved Proposition 98) . Governor Has Many Proposition 98 No Proposed Change to CCC Spending Proposals Enrollment Fee . State law (In Millions) currently sets the CCC enrollment fee at $46 per unit (or $1,380 Proposal Amount for a full-time student taking New Ongoing Spending 30 semester units per year) . The COLA for apportionments (2.29 percent) $167 Governor proposes no increase in Enrollment growth (0.5 percent) 32 the fee, which has remained flat Apprenticeship instructional hours 28 since summer 2012 . The state COLA for select categorical programsa 22 California Apprenticeship Initiative 15 waives the enrollment fee for about Food pantries 11 half of students, accounting for Immigrant legal services 10 two-thirds of credit units taken at Dreamer resource liaisons 6 the community colleges . Statewide, Instructional materials for dual enrollment students 5 student enrollment fees account for Total $296 about 5 percent of core funding, One-Time Initiatives with the state General Fund Apprenticeship instruction hours (2019-20) $20 and local property tax revenue Work-based learning initiative 20 accounting for the rest . Deferred maintenance 17b Faculty diversity fellowships 15 Part-time faculty office hours 10 APPORTIONMENTS Zero-Textbook-Cost Degrees 10 In this section, we provide Total $93 a background on community college Applies to the Adult Education Program, apprenticeship programs, CalWORKs student services, campus child care support, Disabled Students Programs and Services, Extended Opportunity apportionment funding, describe Programs and Services, and mandates block grant. b the Governor’s proposals to Of this amount, $8.1 million is scored to 2020-21, $7.6 million is scored to 2019-20, and $1.5 million is scored to 2018-19. increase college apportionments COLA = cost-of-living adjustment. for inflation and enrollment growth, assess those proposals, and offer Figure 3 associated recommendations . Proposition 98 Funding Per Student at All-Time High Background 2020‑21 Dollars State Adopted New $10,000 Apportionment Funding Formula 9,000 in 2018-19. For many years, 8,000 the state has allocated general Adjusted 7,000 purpose funding to community colleges using an apportionment 6,000 formula . Prior to 2018-19, the 5,000 Unadjusted state based apportionment funding 4,000 for credit instruction almost entirely 3,000 on enrollment . In 2018-19, the 2,000 state changed the credit-based apportionment formula to include 1,000 three main components—a base allocation linked to enrollment, a 1988-89 1992-93 1996-97 2000-01 2004-05 2008-09 2012-13 2016-17 2020-21 supplemental allocation linked to low-income student counts, and www.lao.ca.gov 5 analysis full gutter 2020-21 BUDGET a student success allocation linked to specified (about $4,000 in 2019-20) . Calculating a district’s student outcomes . We describe these components FTE student count involves several somewhat in more detail in the next three paragraphs . For complicated steps, but basically the count is each of the three components, the state set new based on a three-year rolling average . The rolling per-student funding rates . The rates are to receive average takes into account a district’s current-year a cost-of-living adjustment (COLA) each year . FTE count and counts for the prior two years . As The new formula—formally known as the Student discussed later, enrollment growth for the budget Centered Funding Formula—does not apply to year is funded separately . incarcerated students or high school students in Supplemental Allocation. The Student Centered credit programs . It also does not apply to students Funding Formula provides an additional amount in noncredit programs . Apportionments for these (about $950 in 2019-20) for every student who students remain based entirely on enrollment . receives a Pell Grant, receives a need-based Base Allocation. As with the prior fee waiver, or is undocumented and qualifies for apportionment formula, the base allocation of resident tuition . Student counts are “duplicated,” the Student Centered Funding Formula gives a such that districts receive twice as much district certain amounts for each of its colleges and supplemental funding (about $1,900 in 2019-20) for state-approved centers . On top of that allotment, it a student who is included in two of these categories gives a district funding for each credit FTE student (for example, receiving both a Pell Grant and a CCC System Support Governor Proposes Consolidated Approach to Systemwide Activities. For many years, the state has funded certain support services that are intended to benefit all colleges across the CCC system . These services currently include systemwide technology infrastructure, college program improvement expertise, administration of certain workforce and student support programs, and a unified financial aid marketing campaign . As the figure below shows, the Governor proposes to redirect a total of $125 million (ongoing Proposition 98 funds) from eight of these existing CCC programs into a consolidated System Support Program, with no net change in associated funding . Proposed trailer bill language would require the CCC Board of Governors to approve an expenditure plan for the $125 million by September 30 of each fiscal year and report expenditures to the Department of Finance and Legislature by September 30 of the following year . New Approach Intended to Foster Greater Governor Proposes Creating Consolidated Coherence and Coordination. The proposal is intended to improve the Chancellor’s Office’s System Support Program ability to coordinate activities across several Funds Proposed for Redirection (In Millions) categorical programs and respond to changing Community College Program Amount systemwide needs more quickly and effectively . Telecommunications and technology services $41.9 We think the proposed consolidation has the Institutional effectiveness initiative 27.5 potential to achieve these objectives . Whereas Online education initiative 20.0 the current approach attaches separate pots Student Equity and Achievement Program 16.6 of money to narrow sets of activities, the Strong Workforce Program 12.4 proposed approach gives the Chancellor’s Financial aid administration 5.3 Office greater flexibility to pool funding to meet NextUp foster youth program 0.8 strategic systemwide goals . We have no major Transfer education and articulation 0.7 concerns with this proposal and recommend Total $125.2 the Legislature adopt it . 6 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET need-based fee waiver) . The allocation is based on a district generates about $3,100 in 2019-20 for student counts from the prior year . An oversight each Pell Grant recipient and about $2,800 for committee recently made a recommendation to each need-based fee waiver recipient receiving add a new factor to the supplemental allocation, as an associate degree for transfer .) Beginning in described in the box below . 2019-20, the student success component of the Student Success Allocation. The formula formula is based on a three-year rolling average of also provides additional funding for each student student outcomes data and only the highest award achieving specified outcomes, including obtaining earned by a student is considered . (In 2018-19, various degrees and certificates, completing the formula was based on only one year of student transfer-level math and English within the student’s outcome data and all degrees and certificates first year, and obtaining a regional living wage earned by a student were considered .) within a year of completing community college . Statute Weights the Three Components of (For example, a district generates about $2,200 in the Formula. Of total apportionment funding, 2019-20 for each of its students receiving an the base allocation accounts for 70 percent, the associate degree for transfer .) Districts receive supplemental allocation accounts for 20 percent, higher funding rates for the outcomes of students and the student success allocation accounts who receive a Pell Grant or need-based fee for 10 percent . (The 2019-20 budget package waiver, with somewhat greater rates for the rescinded a previously scheduled increase in the outcomes of Pell Grant recipients . (For example, student success share of the formula . The original Oversight Committee Recommendation Committee Charged With Studying Possible Modifications to Funding Formula. The statute that created the Student Centered Funding Formula also established a 12-member oversight committee, with the Assembly, Senate, and Governor each responsible for choosing four members . The committee is tasked with reviewing and evaluating initial implementation of the new formula . It also is tasked with exploring certain changes to the formula over the next few years . By January 1, 2020, the committee was required to make recommendations to the Legislature and Governor on three possible changes to the supplemental allocation component of the formula . Specifically, the committee was to make recommendations whether this component of the formula should consider first-generation college status, incoming students’ level of academic proficiency, and regional cost of living . By June 30, 2021, the committee is to make another set of recommendations, including whether to add noncredit instruction to the base and supplement allocation components of the formula . The committee is scheduled to sunset on January 1, 2022 . Committee Recommends Adding First-Generation College Status to Formula. In December 2019, the committee issued its first required report . The committee recommends that counts of first-generation college students be added to the supplemental allocation beginning in 2021-22 . The committee recommended defining “first generation” as a student whose parents do not hold a bachelor’s degree . (Currently, community colleges define first generation as a student whose parents do not hold an associate degree or higher .) The oversight committee recommended using an unduplicated count of first-generation and low-income students . (This means a student who is both a first-generation college goer and low income would be counted as one for purposes of generating supplemental funding .) Oversight committee members ultimately rejected or could not agree on the issues of adding academic proficiency and taking into account regional cost of living when identifying low-income students . www.lao.ca.gov 7 analysis full gutter 2020-21 BUDGET 2018-19 legislation had scheduled to increase the Chancellor’s Office distributes the funding among student success share of the formula from 10 to college districts using a certain allocation formula . 20 percent by 2020-21, with a corresponding The allocation formula takes into account three reduction to the share based on enrollment .) factors at each district: (1) its share of the state’s New Formula Insulates Districts From adult population without a college degree, (2) its Funding Losses During Transition. The new share of unemployed adults, and (3) its share of formula includes “hold harmless” provisions households with income below the federal poverty for community college districts that would line . The Chancellor’s Office compares these have received more funding under the former measures of need with the district’s current share apportionment formula than the new formula . of community college enrollment, then allocates Through 2021-22, these community college funds to reduce gaps between the two . In an effort districts are to receive their total apportionment to balance need, demand, capacity, and equity, in 2017-18 adjusted for COLA each year of the model also considers current enrollment and the period . Beginning in 2022-23, districts are recent enrollment growth patterns . The formula to receive no less than the per-student rate is designed to direct a larger share of enrollment they generated in 2017-18 under the former growth to high-need districts . apportionment formula multiplied by their current Enrollment Trends FTE student count . In 2019-20, 32 districts are being held harmless, and the state is providing Systemwide CCC Enrollment Has Plateaued. about $150 million in total hold harmless funding Systemwide community college enrollment dropped (meaning funding above what the districts would during the Great Recession as the state reduced generate based upon the Student Centered funding for the colleges . As state funding recovered Funding Formula) . during the early years of the economic expansion Chancellor’s Office Is Reporting a Very Small (2012-13 through 2015-16), systemwide enrollment Shortfall in 2018-19 Apportionment Funding. increased . As the period of economic expansion Throughout 2018-19, the Chancellor’s Office has lingered and unemployment has remained at or estimated a large shortfall (more than $100 million near record lows, systemwide CCC enrollment has as of June 2019) in apportionment funding . This plateaued (Figure 4) . Systemwide enrollment has shortfall was thought to have occurred due to a remained flat the past few years even with strong combination of higher-than-expected costs of growth in state funding . the new formula and lower-than-assumed local Enrollment Trends Around the State Are property tax revenue . Based on updated enrollment Mixed. Enrollment trends vary by region (Figure 5) . and revenue data for 2018-19, the Chancellor’s A few areas of the state (notably the Central Valley Office now estimates a nearly negligible shortfall for and Inland Empire) are experiencing growth . In that year (less than $4 million systemwide) . several other areas of the state (including the Bay State Allocates Enrollment Growth Area and Los Angeles/Orange County region), CCC Separately. Enrollment growth funding is provided enrollment has declined over the past three years . on top of the funding derived from all the other These regional differences likely are the result of components of the apportionment formula . Statute several factors, including underlying demographics, does not specify how the state is to go about economic conditions, and changes in the determining how much growth funding to provide . apportionment formula . Historically, the state considers several factors, Proposals including changes in the adult population, the unemployment rate, the prior-year enrollment trend, Governor Funds COLA and Enrollment and the condition of the General Fund . Growth. The Governor’s budget includes Chancellor’s Office Uses Statutory Formula $167 million to cover a 2 .29 percent COLA for to Allocate Enrollment Growth Funding. When apportionments . In addition, the budget includes the state provides enrollment growth funding, the $32 million for 0 .5 percent enrollment growth 8 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET Figure 4 Over the Past Few Years, Systemwide CCC Enrollment Has Been Flat Full‑Time Equivalent Students 1,350,000 1,300,000 1,250,000 1,200,000 1,150,000 1,100,000 1,050,000 1,000,000 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 (equating to about 7,800 Figure 5 additional FTE students) . Governor Does Not Propose Recent CCC Enrollment Trends Vary by Region Any Changes to Student Changes in Full‑Time Equivalent Students Between 2016‑17 Centered Funding Formula and 2018‑19 for Budget Year. Largely given that certain key changes were 8% made to formula last year, the Central Governor’s budget does not Valley 6 Inland propose any further changes Empire to the formula in 2020-21 . The 4 Governor’s Budget Summary does North/ express support for the oversight Far Northa 2 committee’s recommendation to add first-generation college status to the funding formula, but acknowledges that the Chancellor’s Office will need -2 South Central Bay L.A./ time (at least one year) to begin Coastb Area Orange San Diego/ collecting the associated data . -4 County Imperial a Includes districts in the Sacramento region to the Oregon stateline. b Includes Santa Barbara, San Luis Obispo, and districts in neighboring areas. www.lao.ca.gov 9 analysis full gutter 2020-21 BUDGET Assessment rising pension and health care costs while also addressing pressure to increase employee salaries . Bulk of COLA Augmentation Needed to Cover Withhold Enrollment Growth Decision Higher Pension Costs. Augmenting apportionment Until Current-Year Data Is Available. By the funding can help community colleges cover time of the May Revision, the Chancellor’s employee salary increases, higher health care Office also will have provided the Legislature premiums, and higher pension rates, among other with final 2018-19 enrollment data and initial cost increases . Under the Governor’s budget, we 2019-20 enrollment data . At that time, the estimate that districts’ pension costs are likely Legislature will have better information to assess to increase by about $120 million in 2020-21— the extent to which colleges will use their absorbing more than two-thirds of the proposed budgeted 2019-20 enrollment growth funding . This apportionment augmentation . Under the Governor’s information, in turn, will help the Legislature assess budget, districts would have less than $50 million whether the Governor’s proposed 0 .5 percent remaining to cover increases in other compensation enrollment growth expectation for the CCC system and operating expenses . in 2020-21 is reasonable . Proposed Enrollment Growth Is in Line With Recent Growth Trends. The Governor’s proposed APPRENTICESHIP INSTRUCTIONAL growth rate of 0 .5 percent reflects about the same level of growth that districts have been able to use HOURS in the past couple of years . In 2017-18, districts In this section, we provide background on used $33 million in budgeted growth funding apprenticeships, describe the Governor’s proposals (a growth rate of 0 .6 percent) . The most recent to increase funding for apprenticeship instructional estimates provided by the Chancellor’s Office for hours, assess those proposals, and offer an 2018-19 suggest that districts are using about associated recommendation . $25 million in budgeted growth funding (a growth rate of 0 .4 percent) . The Governor’s proposed Background $32 million for the budget year falls within this range . As noted below, better information will State Has 93,000 Apprentices in Various become available over the next few months that will Trades. About 70 percent of apprentices in the provide clearer insight into budget-year demand for state are in the construction trades—training to enrollment growth . be carpenters, plumbers, electricians, or one of many other types of construction workers . The next Recommendations largest number of apprentices are in public safety, including firefighting . Apprenticeships in these Withhold COLA Decision Until Better Data sectors are commonly referred to as “traditional Is Available This Spring. As with school funding, apprenticeships .” (The state has recently made the COLA for CCC apportionments is based on the efforts to develop apprenticeships in other industry price index for state and local governments . The sectors, as we discuss in the next section of this COLA rate will be locked down in late April when report .) the state receives updated data from the federal Apprenticeships Combine On-the-Job Bureau of Economic Analysis . By early May, the Training With Classroom Instruction. Legislature also will have better information on state Apprenticeship programs consist of two key revenues, which, in turn, will affect the amount components: (1) on-the-job training completed available for new CCC Proposition 98 spending . under the supervision of skilled workers and If additional revenues are available in May, the (2) classroom learning, known as related and Legislature may wish to provide an even greater supplemental instruction (RSI) . Apprentices increase than the Governor proposes to community commonly complete on-the-job training and RSI college apportionments . A larger increase would concurrently, though RSI begins first in some help all community college districts address programs . While program lengths vary, traditional 10 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET apprenticeships typically take three to five years finalized, the most recent estimates from the to complete . Apprentices are employed during Chancellor’s Office suggest that the amount of RSI the program and receive wage increases as their hours provided was 7 percent lower than projected training progresses . Upon completing the program, in that year, which would leave about $4 million apprentices attain journeyman (skilled worker) unused . The state provided no further increase in status in their trade . funded RSI hours in the 2019-20 Budget Act . State Reimburses Sponsors for Instruction Proposals Through CCC Categorical Program. Traditional apprenticeships are sponsored by employers and Governor Proposes Retroactive One-Time labor unions . These sponsors are largely responsible Increase in Funded Instructional Hours for developing the program, recruiting apprentices, for 2019-20. Since budget enactment, the and providing on-the-job training . It is also common administration has revised its estimates of 2019-20 for sponsors to directly provide RSI, taught by their RSI hours based on updated data from the employees at stand-alone training centers . Sponsors Chancellor’s Office . The revised level is 32 percent typically cover the majority of the costs of instructing higher than the budgeted level . Under these and training apprentices, often maintaining a training estimates, RSI funding would fall short of covering trust fund to support those costs . However, the all certified hours by $20 million . The Governor’s state has a longstanding CCC categorical program budget would provide this amount one time to that reimburses sponsors for a portion of their cover the estimated 2019-20 shortfall . instructional costs . Sponsors are reimbursed at the Governor Provides Ongoing Augmentation hourly rate set for certain CCC noncredit instruction for Projected Increase in Instructional Hours in (currently $6 .45) . Sponsors must partner with a 2020-21. Compared with the revised current-year school or community college district to qualify for level, the administration projects RSI hours will these funds . To receive reimbursement, the sponsor increase by 8 percent in the budget year . The submits a record of RSI hours to the partnering Governor’s budget provides $28 million ongoing in district, which in turn submits those hours to the 2020-21 to fund these projected hours . The hourly Chancellor’s Office . The Chancellor’s Office provides rate would be $6 .59, reflecting the 2 .29 percent RSI funds to the district, which takes a small COLA applied to many Proposition 98 programs . portion of the funds off the top and then passes the remaining funds back to the sponsor . Assessment If Instructional Hours Exceed Projections, Administration’s Projections Depart Notably Full Reimbursement Is Not Guaranteed. Each From Recent Trends. Based on the most recent year, the Chancellor’s Office allocates RSI funds to estimates available, RSI hours increased at an districts based on projected instructional hours in average annual rate of 13 percent from 2013-14 to their affiliated apprenticeship programs . In some 2018-19 . As Figure 6 (see next page) shows, the years, the amount of funding the state budgets estimates underlying the Governor’s current- and for RSI falls short of covering all hours . When this budget-year proposals depart from this trend . occurs, the Chancellor’s Office pro-rates funding Specifically, the administration’s estimate for downward . From 2013-14 through 2017-18, actual 2019-20 is 41 percent higher than the revised RSI hours exceeded initial projections, leading to 2018-19 level . Given the magnitude of this pro-rata reductions . In 2018-19, the state provided increase, we believe the estimates warrant further $36 million one time to backfill the shortfalls across review as updated data becomes available . The that five-year period . Chancellor’s Office indicates it will finalize its State Increased Funded Hours Most Recently 2018-19 RSI numbers in the next few weeks and in 2018-19. That year, the state provided an may subsequently update its 2019-20 estimates . ongoing augmentation of $23 million largely to Prospective Changes Are More Likely to align funding with projected growth in RSI hours . Affect Behavior Than Retroactive Changes. Although 2018-19 RSI hours have not yet been If sponsors know the state has funded more www.lao.ca.gov 11 analysis full gutter 2020-21 BUDGET instructional hours, they might decide to increase compounding the fiscal effect of any potential the number of apprentices they train moving underlying data issues . In considering the forward . Compared with prospective funding Governor’s proposals, we further encourage the changes, retroactive adjustments (such as the one Legislature to prioritize the ongoing augmentation the Governor proposes for 2019-20) are less likely for 2020-21 over the retroactive adjustment for to have the effect of changing sponsors’ behavior . 2019-20, as the latter is less likely to impact the By the time sponsors were to receive any additional amount of apprenticeship instruction provided . 2019-20 funds, they will have already decided how much apprenticeship instruction to provide in that CALIFORNIA APPRENTICESHIP year based on the funding level enacted last June . INITIATIVE Recommendations In this section, we provide background on the Withhold Action Pending Updated Data California Apprenticeship Initiative (CAI), describe on Instructional Hours. We recommend the the Governor’s proposal to double the amount of Legislature withhold taking action on this proposal funding going to CAI, assess that proposal, and until it has received updated data on prior- and offer an associated recommendation . current-year RSI hours . To this end, the Legislature Background could direct the Chancellor’s Office to share updated data during a spring hearing . Reviewing State Funds Initiative to Create New the more recent data is particularly important Apprenticeship Programs in Nontraditional given the administration’s projection for 2019-20 Sectors. In 2015-16, the state created CAI departs so notably from recent trends . Moreover, to support new apprenticeship programs in the administration builds its budget-year proposal high-growth industry sectors—such as health off the higher, projected 2019-20 level, thereby care, information technology, and clean energy— that have not traditionally used Figure 6 the apprenticeship model . The Governor Projects Sizable Increase state has provided $15 million In Apprenticeship Instruction Hours annually—a total of $75 million to Related and Supplemental Instruction Hoursa (In Millions) date—for CAI . CAI Funds Are Awarded to 16 Districts Through Competitive Grant Process. Community 14 college districts and K-12 agencies (including school districts and 12 county offices of education) are Hours Funded in 10 2019-20 Budget Act eligible for CAI grants . In the most recent grant round, the 8 Chancellor’s Office awarded 84 percent of grant funds to 6 community colleges, with the remainder awarded to K-12 4 agencies . Applications are scored based on the demonstrated need 2 for the proposed program and how the program would respond to that 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 need, among other components . a Figure shows actual hours for 2013-14 through 2017-18, estimated hours for To be eligible for funding, 2018-19, and the administration’s projected hours for 2019-20 and 2020-21. applicants must receive a minimum 12 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET score of 75 (out of 100) on their application and these apprentices, 266 have completed their demonstrate a commitment from one or more program to date . While most CAI grants have employers to hire participating apprentices . focused on new apprenticeship programs, a few CAI Grants Are Intended to Support grant rounds have supported preapprenticeships, Apprenticeship Start-Up Costs. In the as the box below describes . most recent grant round, grants ranged from Initial Grantees Participated in Evaluation $100,000 to $500,000 each and were spread of Early Outcomes. The Chancellor’s Office across a three-year period . Grant funding is designated $1 million from the initial 2015-16 intended to cover program start-up costs . These CAI allocation toward technical assistance costs include curriculum development and outreach and evaluation . As part of these activities, the to employer partners . Grantees are also allowed to Chancellor’s Office partnered with the Foundation use the funds for various ongoing needs, including for California Community Colleges and Social instructor salaries, support staff, and tools and Policy Research Associates on an evaluation of supplies . As CAI funds are only available for a CAI’s implementation and early outcomes through limited term, grantees are expected to find other February 2018 . As of that date, the first two rounds fund sources to cover ongoing program costs once of apprenticeship grantees had established 17 new the grant expires . To this end, applicants for CAI apprenticeship programs, with the largest number grants are required to describe how they plan to of programs in manufacturing, health care, and ensure the long-term financial sustainability of their transportation and logistics . As the grant period proposed programs . had only recently ended for the first round of Grantees Are Expected to Meet Certain grantees, little information was available at the time Program Standards and Enroll Apprentices. of the evaluation on whether these programs could CAI grantees are required to have newly created cover ongoing costs moving forward . apprenticeship programs approved by the Division Proposal of Apprenticeship Standards (DAS), the entity within the California Department of Industrial Relations Governor Proposes to Double Ongoing that oversees state-approved apprenticeship Funding for CAI. Under the proposal, CAI would programs . In addition, they are required to enroll receive a $15 million ongoing augmentation at least one apprentice for every $20,000 in grant in 2020-21, bringing total ongoing funding to funds awarded . The Chancellor’s Office reports $30 million . The Governor proposes no other that CAI-funded programs have enrolled 1,252 changes to CAI . apprentices from 2017-18 through 2019-20 . Of Preapprenticeship Programs Some California Apprenticeship Initiative (CAI) Grants Have Focused on Preapprenticeships. Preapprenticeships are training programs designed to prepare participants to enter an apprenticeship program . Preapprenticeships typically last several months and include both classroom instruction and hands-on training . Under Chapter 704 of 2018 (AB 235, O’Donnell), preapprenticeships—like apprenticeships—are reviewed and approved by the Division of Apprenticeship Standards . The Chancellor’s Office has designated several rounds of CAI grants for new preapprenticeship programs targeting underrepresented populations, with the goal of expanding diversity in the apprenticeship applicant pool . CAI has funded preapprenticeship programs in various sectors, with the largest number in the construction trades . Based on the most recently available data, the programs had enrolled a total of 3,248 preapprentices, of which 1,139 had completed . www.lao.ca.gov 13 analysis full gutter 2020-21 BUDGET Assessment sustained to date . Having better information on initial CAI outcomes could inform future budget Insufficient Data to Assess Demand for decisions for the program . If the findings were to Additional CAI Funding. In most of the recent show that most apprenticeship programs ended rounds of CAI grants, the total amount of funding due to insufficient funding once their CAI grant requested by applicants has exceeded the total expired, the Legislature might consider changes amount of funding available . A notable share of the next year, including potentially refining the grant requested funds, however, has been associated requirements . Alternatively, if the findings were to with ineligible applicants . For example, of the show that many grant recipients have identified 33 applications for the most recent grant round, ongoing fund sources, then the Legislature might 12 applications did not attain the minimum score consider expanding the program . Were this to be to receive funding, and 2 were not scored because the case, we encourage the Legislature to ensure they did not meet application requirements . As that any proposed augmentation is based on strong of this writing, neither the administration nor the evidence of unmet demand for CAI grants . Chancellor’s Office has provided data on the amount of unmet demand for grants among eligible WORK-BASED LEARNING applicants . Thus, it remains an open question whether there is enough demand from grantees to In this section, we provide background warrant an ongoing augmentation for CAI . on existing CCC initiatives that incorporate Key Questions Remain About Financial work-based learning, describe the Governor’s Sustainability of CAI-Funded Programs. While proposal to create a one-time work-based learning CAI is intended to create lasting programs that initiative, assess that proposal, and offer an will serve apprentices in years to come, the associated recommendation . state does not yet have data on how many CAI grantees have continued their programs beyond Background the grant period . As grantees are receiving up to Work-Based Learning Covers a Broad $20,000 per apprentice and commonly use the Range of Career Readiness Activities. Defined funds for ongoing expenses, key questions remain broadly, work-based learning refers to activities about how programs will cover their costs moving that promote career exploration and preparation . forward . The Foundation for California Community Schools choose what specific work-based learning Colleges indicates it is currently partnering with opportunities to provide their students . Common Social Policy Research Associates on a follow-up opportunities include guest classroom speakers, study on this topic . The study will examine which job shadowing, internships, and apprenticeships . programs from the first three rounds of grants Work-based learning opportunities can be continued after their grants expired, with a focus on incorporated into high school and college curricula their ongoing funding sources, partnerships, and across disciplines . Several existing CCC initiatives effective practices . This study is expected to be include work-based learning components, as we completed this summer . describe below . Recommendations Work-Based Learning Is Key Component of Strong Workforce Program. In 2014, the Reject CAI Augmentation at This Time. We Board of Governors convened the Task Force on believe it would be premature to expand CAI Workforce, Job Creation, and a Strong Economy before learning whether the new apprenticeship to recommend improvements in career technical programs created to date can be sustained after education (CTE) . The first of the task force’s grant funding ends . Later this year, the follow-up 25 recommendations was to “broaden and enhance study described above or other evaluation activities career exploration and planning, work-based supported by the Chancellor’s Office could learning opportunities, and other supports for provide critical information about the programs students .” In 2016-17, the state created the Strong 14 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET Workforce Program based on the task force’s also adopted several services and technology recommendations . Under the Strong Workforce platforms intended to facilitate career exploration, Program, colleges are required to coordinate their enable paid work experiences, and assess CTE activities within seven regional consortia . students’ employability skills . The Chancellor’s The state provides $248 million ongoing for this Office provided $200,000 in Strong Workforce program . Program funding for this pilot . Participating Guided Pathways Initiative Also Includes colleges, districts, and regional consortia also Work-Based Learning. In 2017-18, the state contributed a total of $325,000 . created the Guided Pathways initiative . This Proposal initiative provided CCC with $150 million one time to integrate existing student support programs, Governor Proposes $20 Million One Time for build internal capacity for program planning and New Work-Based Learning Initiative. The funds implementation, and develop structured academic would support competitive grants to colleges course sequences for entering students . State to “expand the use of work-based learning law defines Guided Pathways programs to include instructional approaches that align with the Guided “group projects, internships, and other applied Pathways framework .” The proposal is based on learning experiences to enhance instruction the one that the Board of Governors submitted and student success .” The majority of Guided to the state for 2019-20 . This year, the Governor Pathways funds are being allocated to colleges indicates the proposal aligns with his goal to in stages across five years, ending in 2021-22 . expand apprenticeships . Based on conversations The funds are designated for one-time purposes, with the Chancellor’s Office, the initiative could help such as faculty and staff release time, professional fund additional apprenticeships, internships, clinical development, and information system upgrades practicums, and applied learning experiences related to pathways implementation . For 2019-20, within the classroom . (It would not cover career the Board of Governors requested that the state exploration activities, such as guest speakers .) provide $20 million one time to expand work-based The Chancellor’s Office has indicated it would learning within the Guided Pathways framework . provide grants of up to $1 million to 20 colleges, The Governor did not include that request in his including at least 2 colleges in each of the 7 Strong proposed budget last year, nor was it included in Workforce regions . The funds would be available the enacted budget . through June 30, 2025 . CCC System Recently Completed Assessment Work-Based Learning Pilot. In 2017, the Chancellor’s Office partnered with the Foundation State Lacks Baseline Data on Work-Based for California Community Colleges to launch an Learning. Although CCC’s recent pilot helped 18-month pilot to expand access to work-based identify opportunities for expanding work-based learning opportunities . Six community colleges, learning, several key questions remain about one community college district, and two Strong the work-based learning that colleges currently Workforce regional consortia participated in the provide . Notably, systemwide data on the number pilot . Through a series of workshops and other of CCC students currently engaging in internships activities, participants identified several systemwide and other work-based learning experiences is opportunities for enhancing and expanding not available . The state also does not have data work-based learning . The identified opportunities on the comparative effectiveness of existing included establishing a common understanding of work-based learning experiences . In addition, data work-based learning among stakeholders (including is not available on how much more work-based colleges, employers, and students), aligning learning students would like, what specific kinds work-based learning with colleges’ broader student of experiences they would like, the barriers they support efforts, and breaking down silos between currently face to obtaining such experiences, and general education and CTE . Participating colleges the cost of providing more work-based learning www.lao.ca.gov 15 analysis full gutter 2020-21 BUDGET opportunities . Without this information, it is difficult needs assessment and compile key baseline data . to quantify the need for additional state funding . It then could provide systemwide guidance on how With Several Programs Already Focused to support the expansion of work-based learning on Work-Based Learning, Another Is Not activities using existing programs and resources . Warranted. Work-based learning is explicitly part of the Strong Workforce Program and Guided FOOD PANTRIES Pathways initiative . As discussed in the previous In this section, we provide background on food two sections of this report, the state also supports insecurity among CCC students, describe the apprenticeships—one form of work-based Governor’s proposal to provide ongoing funding for learning—through both a categorical program that campus food pantries, assess that proposal, and reimburses sponsors for instructional hours and offer an associated recommendation . a competitive grant program that provides seed funding for new apprenticeships . Moreover, the Background state is taking steps to increase coordination and cohesion across CCC initiatives, as discussed Substantial Share of CCC Students Report in the box on page 6 . Creating a new one-time Food Insecurity. Food insecurity typically refers initiative specific to work-based learning could have to having limited or uncertain access to adequate the opposite effect—further fragmenting CTE and food . The United States Department of Agriculture student support efforts . (USDA) developed a set of questions to measure One-Time Funds Are Not a Good Fit for the incidence of food insecurity . In 2016 and Supporting the Proposed Activities. Based on 2018, the CCC system partnered with the Hope conversations with the Chancellor’s Office, the Center for College, Community, and Justice to proposed grants would likely support a range administer surveys based on USDA’s questions of expenses, including work-based learning to students at 57 community colleges (about half coordinators, stipends for industry practitioners of colleges) . These surveys found that 50 percent to provide work-based learning opportunities, of respondents had faced food insecurity within curriculum development, and student screening the past 30 days . (Because the survey had a and preparation . These are primarily ongoing 5 percent response rate, respondents may not activities that would require continued funding . be representative of the overall CCC student Without a plan to cover the costs moving forward, population .) these activities are at risk of ramping up, then California Operates Food Assistance Program ending when the grant period ends . Such an for Low-Income People. The CalFresh program, approach creates cost pressure for the state to administered by the California Department of Social sustain the activities in future years . Services (DSS), is California’s version of the federal Supplemental Nutrition Assistance Program (SNAP) . Recommendations This program provides eligible households with funds on a monthly basis to purchase food . The Reject Governor’s Proposal. Given all our amount of the benefit depends on a household’s concerns discussed above, we recommend the size . For example, the maximum monthly benefit Legislature reject the proposed work-based is $194 for an individual and increases to $646 learning initiative and redirect the funds to other for a household of four . To qualify for CalFresh, a one-time Proposition 98 priorities . (For example, household’s income cannot exceed 200 percent later in the report, we encourage the Legislature of the federal poverty level, among other to consider providing more one-time funding requirements . In 2019-20, the CalFresh monthly to address existing CCC liabilities, including its income cap for an individual is $2,082 and for a maintenance backlog .) If the Chancellor’s Office household of four is $4,292 . determines that work-based learning opportunities are insufficient, it could use funds from the Some Students Are Eligible for Food Benefits proposed System Support Program to undertake a Through CalFresh. While college students 16 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET enrolled half-time or more are generally ineligible administrators, CCC food pantries typically do not for CalFresh, federal law makes several exceptions have dedicated full-time staff . More commonly, to this rule . For example, college students may food pantries are administered by part-time staff or be eligible for CalFresh if they are working at least full-time staff who have other responsibilities . 20 hours per week, enrolled in certain programs DSS Is Required to Report on Student designed to increase employability, have children, CalFresh Eligibility and Participation. have a disability, or receive other forms of public Chapter 33 of 2018 (AB 1809, Committee on assistance . Despite their eligibility, a recent Budget) required DSS to consult with county social study from the Government Accountability Office services agencies, the higher education segments, estimated 57 percent of college students eligible for and other stakeholders to improve coordination and SNAP nationally are not receiving benefits . expand access to CalFresh for college students . To Date, State Has Provided One-Time Chapter 53 of 2019 (SB 77, Committee on Budget Funds to Address Student Food Insecurity. In and Fiscal Review) subsequently required DSS 2017-18, the Legislature created the Hunger Free to submit a report containing an estimate of the Campus initiative at UC, CSU, and CCC . Over number of students at each public higher education the past three years, the state has provided a segment who are eligible for CalFresh and receiving total of $16 .4 million in one-time Proposition 98 CalFresh benefits . The report also was to contain funds for this initiative at CCC ($2 .5 million in the recommendations for ways to increase CalFresh 2017-18 budget package, $10 million in 2018-19, participation among eligible students . DSS and $3 .9 million in 2019-20) . The Chancellor’s indicates this report is in progress . It was due to Office allocated these funds to colleges based on the Department of Finance and the Legislature by their FTE student count . Participating colleges are November 1, 2019 . required to (1) designate an employee to ensure Proposal students have the information needed to enroll in CalFresh and (2) provide an on-campus food pantry Governor Proposes $11.4 Million Ongoing to or food distributions . Support Campus Food Pantries. These funds Nearly All CCC Campuses Now Have Food would provide $100,000 to each of 114 community Pantries. Under the Hunger Free Campus initiative, colleges to support on-campus food pantries or the Chancellor’s Office was required to report on distributions . Colleges would have discretion to community colleges’ activities to address food spend the funds on staffing, food, or other needs . insecurity . As of 2018-19, 109 colleges (out of Assessment 114 colleges with a physical campus) reported having an on-campus food pantry or food Proposal Expands on Legislature’s Recent distributions, and 73 colleges reported providing Budget Actions. Over the past three years, the CalFresh information to students . Colleges are Legislature has taken actions to provide one-time supporting these efforts by pooling Hunger Free funding for the Hunger Free Campus initiative Campus funding together with other public funds at CCC . The Governor’s proposal to create an and private donations . CCC is in the midst of ongoing food pantry program aligns with the conducting a follow-up survey on the number of Legislature’s demonstrated priorities . Relative to students being served by on-campus food pantries the one-time funds provided to date, the proposed and the number receiving CalFresh enrollment ongoing funds would provide greater stability in assistance . services . Because operating a food pantry entails Most Food Pantries Rely Heavily on ongoing costs, colleges have difficulty maintaining Donations and Part-Time Staff. Most food consistent levels of service using one-time pantries receive donated or low-cost food from allocations that fluctuate from year to year . community partners, including food banks At Proposed Funding Level, Allocation Method (organizations that store donations for distribution Is Reasonable. All food pantries incur some basic to pantries) . Based on conversations with operational costs to remain open . Most notably, www.lao.ca.gov 17 analysis full gutter 2020-21 BUDGET food pantries need staff to obtain food supplies In particular, we think the Hunger Free Campus from community partners, manage inventory, and initiative has two components that should be assist students who visit the pantries . We believe retained moving forward . First, we recommend the Governor’s proposal to allocate $100,000 to directing the funds toward not only food pantries each college would help all colleges cover these but also CalFresh enrollment assistance, as the fixed costs, promoting greater consistency in latter program is intended to provide larger, more food pantry services across the CCC system . If sustained benefits for students . Second, we additional funds beyond the proposed $11 .4 million recommend requiring the CCC system to report were to become available, we think considering an annually on the unduplicated number of students allocation method tied more closely to student need who use college food pantries and receive CalFresh would be warranted . Whereas minimum staffing enrollment assistance . The Legislature also could costs are fixed, the cost of providing food likely consider requiring DSS to report annually on is higher for colleges serving larger numbers of the number of college students applying for and low-income or food-insecure students . receiving CalFresh benefits . Given the Legislature Proposal Misses Opportunity to Link Food would be creating an ongoing program, we Pantries With Broader Benefits. While the recommend making these changes through trailer Governor’s proposal would have colleges provide legislation . food to students, it would not require colleges to help students access CalFresh benefits . Assistance FACULTY DIVERSITY with CalFresh enrollment, however, has been an In this section, we provide background on important component of the state’s previous efforts community college faculty and the CCC Equal to address student food insecurity . To date, the Employment Opportunity (EEO) program, describe state has paired making food pantries available the Governor’s proposal to create a faculty diversity with providing CalFresh enrollment assistance . By fellowship pilot, assess the proposal, and make an pairing the two strategies, food pantries not only associated recommendation . help students who do not qualify for CalFresh, they are entryways for qualifying students to apply Background for longer-term food benefits . Helping students access benefits already available through the social Community College Districts Employ a Total services system, in turn, can reduce the demand of More Than 60,000 Faculty. Typically, community for colleges to provide food directly . college faculty must have a master’s degree to Proposal Does Not Provide for Continued teach . Requirements, however, are different for Oversight. Unlike the Hunger Free Campus certain career technical education and noncredit initiative and other related state initiatives, the programs . In these areas, faculty may meet CCC Governor’s proposal does not include any reporting teaching requirements by having an associate or requirements . Without key information about bachelor’s degree with a certain number of years students’ use of food pantries and participation in of professional experience . Community college CalFresh, the Legislature cannot assess whether districts are responsible for recruiting and hiring the new program is having its intended effect . their faculty . About one-third of faculty are full time and two-thirds are part time . In addition to faculty, Recommendation districts employ a total of about 30,000 other staff, including administrators and clerical staff . Modify Governor’s Proposal by Building State Funds an EEO Program for CCC. Upon Past Efforts. Over the past three years, Decades ago, the state established a program to colleges have been implementing the Hunger help the community colleges promote inclusionary Free Campus initiative, which has many promising practices in hiring faculty and other district staff . program components . If the Legislature chooses In 2016-17, the state augmented funding for to spend $11 .4 million ongoing for food pantries, the program—bringing ongoing funding up to we recommend it build off these earlier efforts . 18 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET $2 .8 million—the level at which it has remained . Office and other CCC representatives (such as From this appropriation, the Chancellor’s Office from the Academic Senate) would form a selection provides a base allocation of about $40,000 to committee and solicit applications for fellowships . each district on the condition that it meets certain Eligible applicants could include current graduate criteria . These criteria include (1) developing a plan students or individuals who recently received their for promoting equal employment opportunities master’s degree . Each year for a total of three years, and updating the plan every three years and the selection committee would award between 30 (2) adopting EEO best practices identified by the and 40 fellowships for a one-year placement at a Chancellor’s Office . These best practices include local community college . The selection committee providing campuswide cultural awareness training also would be responsible for identifying faculty and offering mentoring programs to newly hired mentors at the participating colleges . faculty and other employees . Fellows Would Engage in Various Activities. Districts Use EEO Funding to Support Once chosen, fellows would be assigned to teach Recruitment and Hiring Practices. Districts in the classroom, with faculty mentors observing typically use their EEO funds for outreach, and providing feedback . Outside of class, fellows recruitment, and training . For example, districts would hold student office hours and participate in commonly provide members of hiring committees campuswide and systemwide activities (such as (such as department chairs) with anti-bias attending student success conferences) to learn training . Budget provisional language linked with more about the CCC system and its mission . the state’s EEO appropriation for the colleges Provisional language requires the funds to be requires the Chancellor’s Office to report certain used to support compensation for the fellows EEO information to the Legislature annually and faculty mentors as well as professional through December 2021 . Specifically, the annual development activities for the fellows . According to report must include (1) data on the racial/ethnic the Chancellor’s Office, each fellow would receive and gender composition of district faculty and a $15,000 stipend . At the end of the fellowship, (2) information on the efforts of the Chancellor’s fellows would be encouraged to apply for a full-time Office to support districts in implementing EEO CCC position, should one become available in their practices . discipline . Based on our conversations with the Statute Authorizes Districts to Create Faculty Chancellor’s Office, some of the proposed funding Internship Programs. These programs allow could be used by districts to cover initial hiring districts to employ graduate students as part-time costs (such as covering travel/relocation costs of faculty . Pursuant to statute, interns may be within new hires) . one year of receiving their master’s degree . These Assessment programs also may be open to individuals who hold a master’s degree but lack teaching experience . Mismatch Exists Between CCC Faculty and Under the program, interns may receive mentoring Students of Certain Races/Ethnicities. Figure 7 by full-time faculty from the district . (see next page) shows the percentage of CCC full-time faculty by race/ethnicity in comparison Proposal to the CCC student body . As the figure shows, Governor Proposes $15 Million One Time Latino faculty are significantly underrepresented to Create Faculty Diversity Fellowship Pilot. compared with the proportion of Latino students According to the Chancellor’s Office, the purpose enrolled at CCC . White faculty, meanwhile, are of the pilot is to promote a more diverse faculty overrepresented compared with the proportion of workforce at the community colleges . Specifically, white CCC students . Asian-American faculty are the proposal seeks to have full-time faculty more somewhat underrepresented . Finally, the proportion closely mirror the race/ethnicity of community college of African-American faculty aligns very closely students . The pilot would be administered by the to the proportion of African-American students Chancellor’s Office . Members of the Chancellor’s enrolled at CCC . Though the figure shows only www.lao.ca.gov 19 analysis full gutter 2020-21 BUDGET full-time faculty, the racial/ethnic demographics of Proposal Lacks Key Details and Basic part-time faculty are very similar . Reporting Requirements. Most importantly, the Proposal Fails to Identify Root Causes of proposal has neither a rationale for why $15 million Problem. Given the current mismatches, we was chosen for the program, nor a budget for believe the Governor’s budget has identified an how the funds would be spent . Without this basic important issue . Our primary concern with the information, the Legislature cannot properly review proposal, though, is that it lacks an explanation the funding request or have assurance that funds of the core problems and an explicit link to how would be spent effectively . The proposal also the proposed program would address those lacks any evaluation or reporting requirements problems in a systemic way . For example, is the and is silent on how programs would be sustained root problem that districts consistently fail to draw financially at the end of the three-year pilot period . from a sufficiently diverse faculty applicant pool? Recommendation Alternatively, is the root cause that otherwise qualified individuals from certain backgrounds do Withhold Recommendation Pending not feel welcome on campus? If so, how would Receipt of Key Information. We recommend a fellowship program address those underlying the Legislature request the administration and problems at districts? Moreover, the proposal lacks Chancellor’s Office during spring budget hearings any insight into why a faculty/student mismatch to provide further analysis and information about exists between certain historically underserved the proposal . At a minimum, we recommend they groups (such as Latinos) but not others (such answer the following key questions: as African-Americans) . Without understanding • Why faculty from certain historically the reasons behind these differences, assessing disadvantaged racial/ethnic groups remain what impact a fellowship potentially could make is underrepresented at the community colleges difficult . despite progress among other groups . • How the administration’s Figure 7 proposal would address the root causes for why Among Racial/Ethnic Groups, Some Mismatches Latino faculty remain Exist Between CCC Students and Faculty underrepresented . Fall 2018 • How the proposed funding African American level was chosen and why it is CCC Students 5 .6% 5 .9% CCC Full-Time Faculty justified . • How funds would be Asian allocated across the 14 .1% 10 .5% three-year period and how the funds would be spent . Latino • How the pilot’s 46 .3% 16 .7% effectiveness would be evaluated and when results White 25 .5% 59 .5% would be reported . • Were the pilot to show Other/Unknowna promising results, how it 8 .5% 7 .3% would be sustained and scaled by CCC when one-time state funding a Includes American Indians, Alaskan Natives, individuals self-identifying as multi-ethnic, and those not reporting their race/ethnicity. expired . 20 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET • How the pilot would interact with colleges’ faculty to do so . Office hours at the remaining ongoing EEO efforts over the next three years approximately 50 percent of districts are voluntary and how their relative effectiveness would be for part-time faculty, and those that opt to hold compared . office hours are compensated (subject to available funding at the district) . The number of office hours If the Legislature does not receive satisfying for which faculty are compensated per course and answers to the above questions by this spring, it the amount they are paid per hour varies widely could invite the administration to return in a later among districts . year with a more complete proposal . Decades Ago, Legislature Created a Program to Support Part-Time Faculty Office Hours. In PART-TIME FACULTY OFFICE the late 1990s, the Legislature created a program HOURS designed to provide a fiscal incentive for districts to encourage more part-time faculty to offer In this section, we provide background on faculty more office hours . Under the Part-Time Faculty office hours, describe the Governor’s proposal Office Hours program, districts that pay part-time to provide $10 million one time for the Part-Time faculty for office hours can apply for state funding Faculty Office Hours program, assess the proposal, on a reimbursement basis . Pursuant to statute, and make associated recommendations . the reimbursement may cover up to 50 percent of a district’s costs . Districts must submit their Background reimbursement claims to the Chancellor’s Office Districts Require Full-Time Faculty to Hold by June each year . According to the Chancellor’s Office Hours. Instruction at the community colleges Office, typically about half of districts submit claims . is provided by nearly 20,000 full-time (tenured/ The amount available for reimbursement each year tenure-track) faculty and more than 40,000 part-time depends on the level of funding appropriated in the (adjunct) faculty . District collective bargaining annual state budget act . agreements typically require full-time faculty to hold State Funding for the Categorical Program a certain number of weekly office hours as part of Has Varied in Recent Years. Figure 8 shows the their regular responsibilities . Full-time faculty are annual amount of funding appropriated for the compensated for providing these office hours . The purpose of office Figure 8 hours is to provide academic assistance and other forms of 2018-19 Budget Provided Sizable One-Time guidance to students . Increase for Part-Time Faculty Office Hours Program District Policies on Part-Time (In Millions) Faculty Office Hours Vary. $45 One Time Whereas holding office hours is a 40 Ongoing standard requirement for full-time 35 faculty, office-hour policies for part-time faculty vary by district . 30 Based on data collected in fall 25 2019 by the California Federation 20 of Teachers, about 20 percent 15 of districts neither require nor 10 compensate part-time faculty 5 for holding office hours . Another roughly 30 percent of districts 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 require part-time faculty to hold a minimum number of office hours per week and compensate www.lao.ca.gov 21 analysis full gutter 2020-21 BUDGET program over the past six years . Typically, the state very likely will not change districts’ policies on has provided ongoing funding for the program given compensating part-time faculty for office hours . its ongoing nature . The one exception over the past Recommendations six years was in 2018-19 . That year, the Legislature approved a $30 million one-time augmentation— Legislature Could Take Better Budget more than tripling funding for the program that Approach. Rather than adopting the Governor’s year . In 2019-20, the state returned to providing approach of using one-time funding for an ongoing $12 million for the program (the same ongoing level purpose, we recommend the Legislature take the state had provided the previous two years) . a better approach that links the nature of the Significant Amount of One-Time Funding funding with the nature of the proposed activities . Remains From 2018-19. In most years, the To this end, the Legislature could identify ongoing state funding for the program and the total cost funds elsewhere in the Proposition 98 package of claims has resulted in the Chancellor’s Office and redirect them toward part-time faculty office reimbursing districts for about 35 percent (rather hours . If the Legislature took this approach, it could than 50 percent) of their costs . A notable exception consider setting the total ongoing funding level for was in 2018-19 . In that year, the Chancellor’s Office the program in 2020-21 at $20 million—consistent was able to provide 50 percent reimbursement to with the amount of funding districts used in districts that submitted claims . Even then, only 2018-19 and $8 million above the program’s base $20 million of the $42 million appropriation was funding level . It could revisit that level periodically claimed and allocated . As a result, the remaining thereafter . If the Legislature decides Proposition 98 $22 million is available for reimbursement in funding is insufficient this year to cover an ongoing 2019-20 and, if not all used in 2019-20, in the augmentation to the Part-Time Faculty Office Hours budget year . program, it could reject the Governor’s proposal . Under either of these approaches, the Legislature Proposal would free up one-time funding for other one-time Governor Proposes $10 Million One-Time Proposition 98 activities . (Elsewhere in this Augmentation. When combined with $12 million in report, we encourage the Legislature to designate base funds, total funding for the Part-Time Faculty more one-time funding for paying down existing Office Hours program would reach $22 million in unfunded CCC liabilities .) 2020-21 . Legislature Could Minimize Adverse Consequences of Governor’s Approach. Though Assessment we strongly encourage the Legislature to take a Supporting Part-Time Faculty Office Hours better budget approach, the Legislature at least Is Consistent With Legislative Priorities. The could minimize the adverse consequences of the Legislature has had a longstanding interest in Governor’s budget approach by spreading out encouraging districts to compensate part-time the one-time funding over a multiyear period . For faculty for office hours . Office hours provide example, the Legislature could allocate $2 million students an opportunity to receive one-on-one annually for five years . Though cost pressures assistance . During office hours, students may still would exist in year six to maintain the larger discuss difficult course material with faculty, ask for program, making a $2 million ongoing program academic or career guidance, or even inquire about adjustment at that time might be more manageable support services . than making a $10 million adjustment . One-Time Funding Is Not a Good Fit for Regular Reporting on Program Would the Program. Unlike certain types of operating Improve Legislative Oversight. Regardless of expenses—such as developing a new program— which budget approach the Legislature chooses faculty office hours are an annual, ongoing activity . this year, we recommend it adopt provisional While a one-time augmentation supports districts budget language requiring the Chancellor’s Office to and students for a particular year, such funds report on the program by October 1 of each year . 22 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET We recommend the report include (1) the number materials in MERLOT . Most notably, Chapter 575 of of districts submitting reimbursement claims in the 2012 (SB 1028, Committee on Budget and Fiscal prior fiscal year, (2) the number of total part-time Review) provided $5 million one time to produce faculty office hours and the average office hours OER for 50 high-enrollment, lower-division courses per part-time faculty at each district submitting common across CCC, CSU, and UC . The box on a claim, (3) the total cost for office hours and the page 24 describes recent California initiatives to per-hour cost reported by each district, and (4) the promote OER use . amount paid out to districts from the program . We A Few Years Ago, the State Funded a believe an annual report containing this information Zero-Textbook-Cost Initiative. In an effort would help the Legislature better monitor the extent to take the next step and go beyond OER for to which the program is meeting its objectives . individual courses, the state provided $5 million The information also would be key in helping the one time in 2016-17 to create entire degrees Legislature adjust state funding for the program relying solely on free instructional materials . over time . Specifically, the $5 million was for a competitive grant program aimed at helping community ZERO-TEXTBOOK-COST DEGREES colleges develop zero-textbook-cost associate degrees and certificates . Budget trailer legislation In this section, we analyze the Governor’s required grantees to prioritize the development proposal to fund development of more of such degrees and certificates using existing zero-textbook-cost degrees at CCC . We begin OER materials before creating new content . The by providing background on open educational Chancellor’s Office was permitted to provide resources (OER) and zero-textbook-cost degrees, colleges with grants of up to $200,000 for each then describe the Governor’s proposal, offer degree or certificate developed . It could allocate our assessment, and make an associated up to 10 percent of the total appropriation for recommendation . program administration and technical assistance . (Two college districts—West Hills and Santa Background Clarita—were selected to be the joint program OER Are Intended to Reduce the Cost of administrator .) Grantees were to “strive to Instructional Materials. OER are instructional implement degrees” by fall 2018 . materials that educators and others can freely use The First Zero-Textbook-Cost Degree and repurpose . OER come in many forms—ranging Initiative Had a Reporting Requirement. The from course readings, videos, and tests, to full trailer bill language required the Chancellor’s textbooks . The use of free content in place of Office to report to the Legislature and Department textbooks and other instructional materials sold by of Finance by June 30, 2019 on (1) the number publishers has several benefits, including reducing of degrees developed by each grantee, students’ costs to earn a degree and increasing (2) the number of students who completed a access to materials . zero-textbook-cost degree or certificate program, Many Organizations Provide Access (3) the estimated annual savings to students, to OER. Numerous institutions, state higher and (4) recommendations to improve or expand education systems, consortia of institutions, zero-textbook-cost degrees . As of this writing, and nonprofit organizations provide online OER the Chancellor’s Office had not yet submitted this repositories and search tools . For example, the report . Multimedia Educational Resources for Learning Academic Senate Is in the Process and Online Teaching (MERLOT) project, which of Rolling Out More OER to Support CSU administers, includes more than 7,800 OER More Zero-Textbook-Cost Degrees. The textbooks contributed by authors from across 2018-19 budget provided $6 million one time for the globe . Special state initiatives supported the the CCC Academic Senate to lead an additional development of some of the textbooks and other OER effort . Thus far, the Academic Senate has www.lao.ca.gov 23 analysis full gutter 2020-21 BUDGET funded two new rounds of OER development, Proposal with additional rounds planned over the next Governor Proposes $10 Million One Time three years . The Academic Senate’s focus for for CCC to Create More Zero-Textbook-Cost every round of funding is to prioritize OER that is Degrees. The proposed trailer bill language needed to complete a new zero-textbook-cost associated with the appropriation is similar degree for students, with an emphasis on associate to language the state adopted for the degrees for transfer . During the first grant round, 2016-17 initiative . The Chancellor’s Office may colleges created new OER content for courses in award grants of up to $200,000 for each degree or 18 disciplines . For the second round, new OER certificate developed . In addition, the Chancellor’s content has been planned for courses in about Office may use up to 10 percent of the total 20 disciplines . After completing its review of newly appropriation to contract with a district for program created OER content, the Academic Senate plans administration and technical assistance . The intent to make them available systemwide and provide is for grantees to begin offering the new round corresponding professional development to faculty of zero-textbook-cost degrees by the 2022-23 on integrating the OER into their teaching . academic year . The Chancellor’s Office must report to the Legislature and Department of Finance by California Has Supported Several OER Initiatives California Open Educational Resources (OER) Council. Chapter 621 of 2012 (SB 1052, Steinberg) established the council to develop or acquire high-quality, affordable, digital open source textbooks . The council included three faculty members each from UC, CSU, and CCC . California Open Online Library for Education (COOL4Ed). Chapter 622 of 2012 (SB 1053, Steinberg) established the California Digital Open Source Library (now known as COOL4Ed) to house the materials identified by the California OER Council and make them available over the internet for students, faculty, and staff to easily find, use, and modify . Funds for Council, Library, and OER Acquisition. Chapter 575 of 2012 (SB 1028, Committee on Budget and Fiscal Review) appropriated $5 million one time to CSU to support the council, library, and OER acquisition process . The main aim of the initiative was to provide competitive grants to CCC, CSU, and UC faculty to develop OER for 50 high-enrollment, lower-division courses common across the three segments . OER Adoption Incentive Grant Program. Chapter 633 of 2015 (AB 798, Bonilla) provided $3 million one time for an incentive grant program to expand the use of OER at CCC and CSU . The program provided grants of up to $50,000 for campuses to provide training and technology services to faculty interested in adopting OER . The program was administered by the California OER Council . CCC Zero-Textbook-Cost Degrees Grant Program. The 2016-17 budget provided CCC with $5 million one time to create full degrees and certificates that students can earn entirely through the use of OER and other free instructional materials . CCC Academic Senate’s OER Initiative. The 2018-19 budget package provided $6 million one time for CCC to develop and expand the use of OER . Funding, which was awarded to the CCC Academic Senate, is to be used for several purposes, including (1) identifying courses that currently lack OER, with a focus on courses that are part of associate degrees for transfer; (2) providing grants to faculty to create OER; and (3) raising awareness among and providing technical assistance to faculty throughout the CCC system about adopting OER for their courses . 24 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET June 30, 2023 on the results of the initiative and ensure that any future zero-textbook-cost initiatives make recommendations for further expansion or are coordinated with and not duplicative of the improvement . Academic Senate’s existing OER initiative . Assessment Recommendation Governor’s Focus on Textbook Affordability Withhold Recommendation Pending Receipt at CCC Is Laudable. We think the Governor’s of Additional Information. Until the Chancellor’s proposal has several positive aspects . It focuses Office submits the required report on the first on an important issue facing students—college zero-textbook-cost degree initiative, we withhold affordability . Based on a recent survey of CCC, recommendation on the Governor’s proposal . We CSU, and UC students conducted by the recommend the Legislature give the Chancellor’s California Student Aid Commission, students Office until early April to submit the required report attending college full time spend an average of and provide all the information detailed above . about $800 annually on textbooks and other Based on that information, the Legislature can course materials . The Governor’s proposal to decide whether additional funding is warranted promote greater use of OER would help reduce and, if so, how best to structure another round the overall cost of attendance for students . The of grant funding . If the report and key information Governor’s proposal also focuses additional OER are not forthcoming by April, we recommend the efforts at the community colleges, where a large Legislature request that the administration work number of students (including many low-income with the Chancellor’s Office and Academic Senate students) enroll . Moreover, focusing OER efforts at over the coming year to compile the key information lower-division courses means that those courses and revise the budget proposal accordingly for also could benefit CSU and UC faculty and future submission . Any new proposal submitted in students . 2021-22 or thereafter should be based on lessons Providing Another Round of Funding Is learned from earlier grants and incorporate insights Premature Without Key Information. Though and recommendations made by the Chancellor’s the Governor’s proposal has positive aspects, we Office and Academic Senate . Were such work to believe funding the proposal is premature . To date, be undertaken later this year, the Legislature will the Chancellor’s Office is more than seven months be in a much better position next year to evaluate late in giving the Legislature key information about the need for additional funding and identify the the results of the 2016-17 initiative . The Legislature opportunities for improvement . therefore lacks basic information, such as how many zero-textbook-cost degrees and certificates FACILITIES were developed, how much it cost to develop them, In this section, we first provide background on what challenges were encountered in developing CCC facilities . We then describe the Governor’s them, how many students completed or are on proposals to (1) authorize 24 new CCC capital track to complete a zero-textbook-cost degree, outlay projects and (2) provide one-time funding and how much savings to students was generated . for deferred maintenance . Next, we assess those Before contemplating funding for another initiative proposals and offer associated recommendations . that, as proposed, is nearly identical in structure to the first one, we encourage the Legislature to wait Background for the report it required on the first initiative and glean any lessons learned from it . State Funds CCC Capital Outlay Projects Governor’s Proposal Does Not Ensure Through General Obligation Bonds. Voters Existing OER Efforts Will Be Coordinated. The approved the most recent education facilities bond, Governor’s proposal is silent on how the proposed Proposition 51, in November 2016 . Proposition 51 initiative would build on current OER efforts by the authorizes the state to sell $2 billion in general Academic Senate . We encourage the Legislature to obligation bonds for community college capital www.lao.ca.gov 25 analysis full gutter 2020-21 BUDGET outlay projects . The funds may be used for an Figure 9 array of facility needs, including constructing new State Has Approved $1.2 Billion in buildings, modernizing existing buildings, and Proposition 51 CCC Projects purchasing equipment . As Figure 9 shows, the state has approved 60 Proposition 51-funded (Dollars in Millions) community college projects to date . The total state Year New Projects Total State Costa cost for all phases of these projects is estimated 2017-18 15 $409 to be $1 .2 billion . As discussed in the box below, a 2018-19 6 145 March 2020 ballot measure (Proposition 13) would 2019-20 39 690 provide additional state bond funding for community Totals 60 $1,244 college facilities, if approved by voters . In addition a Estimate for all project phases (preliminary plans, working drawings, to receiving state funds, community college districts and construction) as of 2019‑20 Budget Act. sell local general obligation bonds to raise money for facilities . Districts commonly contribute local State Selects Projects for Funding Through funds to state-supported projects, with many Budget Process. After ranking the capital outlay projects having a local match of about 50 percent . projects submitted by districts, the Chancellor’s Chancellor’s Office Ranks Capital Outlay Office submits selected project proposals to Projects for State Funding. To receive state bond the administration and Legislature . The projects funding, community college districts must submit are reviewed as part of the annual state budget project proposals to the Chancellor’s Office . The process . In 2017-18 and 2018-19, the state funded Chancellor’s Office ranks all submitted projects a subset of the projects recommended by the using prioritization criteria adopted by the Board of Chancellor’s Office . In 2019-20, the Governor’s Governors . Projects to address life safety, including budget initially proposed to fund 12 of the 39 new seismic risks and potential infrastructure failure, projects recommended by the Chancellor’s Office, receive highest priority . After funds are designated for but the state ultimately funded all 39 projects in the these projects, the Chancellor’s Office allocates the enacted budget . remaining funds between modernization projects to Projects Typically Receive Funding for renovate existing space and growth projects to add Three Phases. These phases are (1) preliminary new space . Within each category, the Chancellor’s plans, (2) working drawings, and (3) construction . Office ranks projects according to several criteria . (The construction phase may include the For example, modernization projects receive points purchase of equipment for the facility .) For most primarily based on the age of the building, while Proposition 51 community college projects, the state growth projects receive points based on enrollment has funded preliminary plans in the first year, working growth, existing capacity, and proposed space drawings in the first or second year, and construction increases . Projects in both categories also receive in the second or third year . If projects do not enter points for the size of their local match . a given phase in the year it is funded, then the Proposition 13: Education Facilities Bond Voters Will Consider New Education Facilities Bond in March 2020. Chapter 530 of 2019 (AB 48, O’Donnell) placed a new education facilities bond, Proposition 13, on the March 2020 ballot . If voters were to approve this measure, it would authorize the state to sell a total of $15 billion in general obligation bonds for school, community college, and university facilities . Of this amount, $2 billion would be for community college capital outlay projects . The measure would also raise the limit on the total amount of local bond borrowing that a community college district may issue from 2 .5 percent of its assessed property value to 4 percent . 26 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET state typically reappropriates the unused funds the cover the cost of developing preliminary plans and following year . working drawings for these projects . Total costs for CCC System Has Sizable Maintenance all phases of the projects, including construction, Needs. In addition to undertaking modernization are estimated to be $671 million, with the state and growth projects, community colleges also covering $382 million of the cost and districts perform facilities maintenance . The Foundation for contributing $288 million in local match . Of the California Community Colleges, with assistance 24 projects, 1 involves life safety issues, 17 are from the San Joaquin Delta Community College modernization projects, and 6 are growth projects . District, operates an online facilities management The Governor’s budget includes all but one of the system . Each community college district pays projects proposed by the Chancellor’s Office in the annual fees to support the system . The Foundation fall . The administration believes the one remaining employs assessors to complete a facility condition project, which would replace the fire alarm assessment for each district on a three- to system at Yuba College, can be addressed using four-year cycle . Based on these assessments maintenance funds . and other information entered into the system, Governor Is Waiting to Propose Funding for the Chancellor’s Office has prepared a five-year Continuing Projects Until Spring. This year, the maintenance plan that includes $1 .1 billion in administration is departing from its earlier practice projects to be completed over this period, with of proposing funding for continuing projects in $378 million planned for 2020-21 . the Governor’s budget . Instead, districts that State Provides Some Funding for want to be considered for construction funds in Maintenance Through Categorical Program. 2020-21 must submit completed preliminary plans While districts may fund maintenance using by April 1, 2020 . After reviewing the preliminary apportionments, other general purpose funding, plans for each project, the administration will and local bond funding, the state sometimes decide whether to provide construction funds provides one-time Proposition 98 funds for CCC in 2020-21 or wait until the following year . This maintenance through a categorical program . Since new approach is intended to reduce the need for 2015-16, the state has provided $444 million reappropriations in future years . (The Governor’s in one-time funds for this categorical program . 2020-21 budget reappropriates $122 million The Chancellor’s Office allocates funding for in 2019-20 funds for the working drawings this program based on districts’ FTE student or construction phases of ten projects not on counts . Districts may use program funds for schedule to enter those phases in the current year .) various purposes, including facilities maintenance, Governor Proposes $17 Million One Time for abatement of hazardous substances, water Maintenance Program. Consistent with the past conservation projects, and the replacement of several state budgets, the Governor proposes instructional equipment and library materials . To one-time Proposition 98 funding for the CCC use the funds for maintenance, districts must maintenance categorical program . The Governor spend at least as much on maintenance as they proposes no changes to the program . Under his spent in 1995-96, plus what they receive from the proposal, allowable uses of funding, the method program . (Historically, budget bill language also of allocating funds among districts, and the required districts to provide a one-to-one match for maintenance of effort requirement would remain any state funds used for maintenance, but no local unchanged . (From an accounting perspective, the match has been required since 2013-14 .) $17 million consists of $1 .5 million in previously unspent 2018-19 Proposition 98 funds, $8 .1 million Proposals in unspent 2019-20 funds, and $7 .6 million in Governor Proposes Funding 24 New Capital 2020-21 funds .) Outlay Projects for 2020-21. As Figure 10 (see next page) shows, the Governor’s budget includes $28 million (Proposition 51 funds) in 2020-21 to www.lao.ca.gov 27 analysis full gutter 2020-21 BUDGET Assessment facility modernization and growth projects . If the Legislature were to approve all 24 projects Governor’s Proposal Keeps Proposition 51 proposed by the Governor for 2020-21, the state Spending on Five-Year Track. Over the past few will have committed an estimated $1 .6 billion of the years, the Legislature has taken budget actions to $2 billion in Proposition 51 funds for community increase the number of community college capital college facilities . This would put the state on track outlay projects approved, thereby accelerating to commit virtually all Proposition 51 funds across a Proposition 51 spending . This year, the Governor’s five-year period (2017-18 through 2021-22) . approach aligns more closely with legislative New Capital Outlay Projects Were Chosen priorities . The Governor’s budget includes twice Using Reasonable Selection Process. The as many new projects as it did last year . Moreover, Governor’s set of proposed projects largely reflect last year the Governor only proposed projects with recommendations from the Chancellor’s Office, a life safety component, but this year the Governor which used a systematic process to review district proposes a broader range of projects, including Figure 10 Governor Proposes 24 New Proposition 51 CCC Projects (In Thousands) All Years 2020‑21 College Project State Cost State Cost Total Costa Los Angeles Trade-Technical Design and media arts building replacement $2,410 $35,317 $69,741 El Camino Music building replacement 1,969 27,175 54,696 Los Angeles Valley Academic building 2 replacement 1,637 23,852 47,131 Compton Physical education complex replacement 1,548 23,326 46,037 Orange Coast Chemistry building replacement 1,400 20,556 40,547 Sierra Gymnasium renovation and expansion 2,409 27,865 37,183 Riverside Life science/physical science building renovation 1,623 27,356 35,201 Los Angeles Pierce Industrial technology building replacement 1,182 16,737 33,090 Mission New performing arts building 1,024 14,089 30,686 Cypress Fine arts building renovation 1,512 18,133 29,801 Cuyamaca Instructional building replacement, phase 1 1,005 14,513 28,555 Siskiyous Theater arts building renovation 1,633 21,985 27,482 East Los Angeles Facilities maintenance and operations building 829 12,170 23,336 replacement Grossmont Liberal arts/business/computer science buildings 941 11,257 22,049 renovation Antelope Valley Gymnasium renovation 870 12,560 20,631 Long Beach (Pacific Coast Construction trades building replacement II 1,268 16,238 20,298 Campus) Santa Rosa Tauzer Gym renovation 887 10,249 20,131 Chabot Maintenance and operations building replacement 674 8,846 17,529 Folsom Lake (Rancho Center expansion, phase 2 389 8,979 17,384 Cordova Center) Crafton Hills Performing arts center renovation 600 7,361 14,415 West Los Angeles Plant facilities/shop replacement 445 5,788 11,505 Barstow Hydronic loop and water infrastructure replacement 741 9,920 9,920 Santa Rosa (Public Safety Center expansion 398 4,975 7,427 Training Center) Napa Valley Industrial technology building renovation 245 3,024 5,916 Totals $27,639 $382,271 $670,691 a Community college districts issue local general obligation bonds to pay for a share of project costs. 28 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET proposals . We think this review process resulted Governor’s Maintenance Proposal Addresses in a reasonable set of proposed projects . For Key Existing Liabilities. Providing one-time 2020-21, the majority of proposed projects involve funds for the maintenance categorical program modernization, reflecting the large number of older would help the CCC system address its sizable buildings across the CCC system . For the smaller maintenance backlog . This approach is fiscally number of growth projects, the Chancellor’s Office prudent, as taking care of maintenance issues now used a consistent method to assess campuses’ can lessen the need for more expensive projects existing capacity and enrollment projections . (such as emergency repairs, major renovations, and Regarding cost, the 24 proposed projects vary building replacements) in the long run . somewhat, but all projects were subject to Recommendation systemwide cost guidelines based on the type of space involved (such as classrooms, laboratories, Adopt Governor’s Capital Outlay Proposals. or offices) . Finally, the local match across the Because the Governor’s proposals for new capital Governor’s proposed projects is 43 percent of the outlay projects align with legislative priorities and total cost, with all but one project providing a local were selected using a reasonable, consistent, match of at least 20 percent . (The administration systemwide review process, we recommend did not require a local match from that project, adopting them . We also recommend the Legislature which would replace the water infrastructure consider construction funding for continuing system at Barstow College, because the district projects in the spring, as more information demonstrated low bonding capacity .) becomes available on project schedules . Governor Takes Prudent, Incremental Give Maintenance Program High Priority for Approach to Funding Continuing Projects. One-Time Proposition 98 Funds. We recommend In 2019-20, the state funded the construction the Legislature adopt the Governor’s proposal to phase of all projects that had previously received provide one-time funds for the CCC maintenance funds for preliminary plans and working drawings, program . Relative to the Governor’s other one-time regardless of their progress to date . For 2020-21, CCC proposals, this proposal better addresses the Governor instead proposes to wait until existing liabilities, avoids start-up costs, and a project completes preliminary plans before is less likely to create future cost pressures . providing construction funds . We think this Providing more funding for CCC maintenance can approach will allow the state to better align the even reduce costs down the road by avoiding timing of construction funds with project schedules, more expensive facility projects . Given all these thus reducing the need for reappropriations . The benefits, the Legislature may wish to provide more approach is not expected to lead to project delays, for CCC maintenance by redirecting one-time as projects that have not completed preliminary funds from some of the Governor’s other one-time plans by April 1 are unlikely to complete working Proposition 98 proposals . (We discuss other drawings in time to begin construction in the next one-time proposals earlier in this report .) fiscal year . Working drawings commonly take 12 to 18 months to complete . CALIFORNIA STATE UNIVERSITY In this part of the report, we provide an overview this report, we analyze the Governor’s proposal to of CSU’s budget, then analyze most of the create more online degree and certificate programs Governor’s CSU proposals . Specifically, we cover (a proposal involving both CSU and UC) . In The (1) operational costs increases, (2) enrollment growth, 2020-21 Budget: Analysis of Governor’s Criminal (3) options to fund cost increases, and (4) facility Justice Proposals, we analyze the Governor’s proposals . In the “Extended Education” section of proposal for the California Department of Corrections www.lao.ca.gov 29 analysis full gutter 2020-21 BUDGET and Rehabilitation to partner with CSU to provide Figure 11 up to 350 inmates with in-person upper-division CSU Relies on Four Major Fund Sources instruction . $11.5 Billion Total Funding, 2019‑20 OVERVIEW In this section, we provide an overview of the Noncore Core Funds Governor’s proposed budget for CSU . Funds Federal CSU Is Receiving $11.5 Billion From All Funds Sources in 2019-20. CSU receives its funding from four major sources (Figure 11) . About two-thirds Other State Funds ($8 billion) comes from “core funds .” Core funds General Fund consist primarily of state General Fund and student tuition and fees, but a very small share comes from other state sources (most notably, lottery funds) . Student Tuition Other and Fee Revenue The remaining one-third ($3 .5 billion) comes from State Funds sources considered noncore in that they tend not to be used to support CSU’s core academic mission . Noncore funds consist of federal funds (typically received for federal financial aid and research grants) and other funds (which include revenue to remain flat and revenue from other state funds from various campus enterprises such as parking estimated to decline slightly . The Governor’s budget facilities and student dormitories) . contains three ongoing augmentations for CSU . Ongoing Core Funding Would Increase in The largest increase is a $199 million unrestricted the Budget Year by $253 Million (3.3 Percent). base augmentation . The Governor’s budget also Figure 12 looks at ongoing core funding for CSU, provides $31 million more for retiree health care removing noncore and one-time funding . As the and $23 million more for pensions . (In addition to figure shows, all of the Governor’s proposed these proposals, the Governor proposes to extend year-to-year increase would come from the General the sunset date on the CSU summer financial aid Fund, with revenue from tuition and fees assumed Figure 12 Ongoing Core Funding for CSU Increases Under the Governor’s Budget (Dollars in Millions Except Funding Per Student) Change From 2019-20 2018-19 2019-20 2020-21 Revised Revised Proposed Amount Percent State General Funda $3,931 $4,351b $4,604b $253 5.8% Tuition and Feesc 3,278 3,262 3,262 — — Other State Funds 70 65 64 -1 -0.9% Totals $7,278 $7,677 $7,929 $253 3.3% FTE Studentsd 408,322 412,392 412,392e — — Core Ongoing Funding Per Student $17,824 $18,608 $19,228 $620 3.3% a Includes funding for pensions and retiree health benefits. b In addition, $7 million ongoing General Fund is provided to the Department of Social Services for provision of legal services to undocumented students and immigrants at CSU campuses. c Includes funds that CSU uses to provide tuition discounts and waivers to certain students. In 2020-21, CSU plans to provide $701 million in such aid. d One FTE represents 30 credit units for an undergraduate and 24 credit units for a graduate student. Includes resident and nonresident students. e The Governor’s budget display does not assume any enrollment growth in the budget year. FTE = full-time equivalent. 30 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET program from December 31, 2021 to June 30, Chancellor’s Office represents the Trustees during 2023 . The state created this program in 2019-20— these negotiations and the resulting agreements providing $6 million annually until the sunset date .) must be ratified by the Trustees before going On a per-student basis, core ongoing funding in into effect . The Trustees have delegated to the 2020-21 would increase by $620 (3 .3 percent)— Chancellor and campus presidents the authority reaching $19,228 . to set salary levels for nonrepresented employees . Governor Proposes $6 Million for a One-Time The Trustees are expected to manage the cost Initiative. The Governor has a single one-time of collective bargaining agreements and salary initiative proposed for CSU—$6 million for more increases for nonrepresented employees within extended education programs . CSU’s overall budget . CSU Is Directly Responsible for a Share of Its OPERATING COSTS CalPERS Costs. The California Public Employees’ Retirement System (CalPERS) administers pension In this section, we provide background on CSU benefits for CSU and most other state employees . employee compensation and other operating Employer contributions to CalPERS are set by the costs, describe the Governor’s operating proposals CalPERS board . Historically, the state directly funded for CSU, assess those proposals, and make all of CSU’s employer costs in the annual budget . associated recommendations . Several years ago, the state modified its approach to covering CSU pension costs . Under the new Background approach, CSU is to take into account pension costs Compensation Is the Largest Component of when it makes new staffing and salary decisions . CSU’s Core Budget. Like other state agencies, Any new pension costs incurred beyond the salaries and benefits make up a significant 2013-14 payroll level are CSU’s direct responsibility . share of CSU’s core budget (about 75 percent) . CalPERS Also Administers CSU’s Health Compensation almost always represents CSU’s Plans. Every year, CalPERS negotiates with health largest cost pressure each year . care providers to establish the premiums for the Most CSU Employees Are Represented plans offered to state employees, including CSU by a Union. Currently, CSU has more than employees . Like other state employers, CSU’s 50,000 permanent employees across 23 campuses contribution amount to employee health benefits and the Chancellor’s Office . About 90 percent of is determined by identifying the four health plans these employees (primarily consisting of faculty and with the highest enrollment of state employees and support staff) are represented, while the remaining calculating a weighted average of the premiums 10 percent of employees (primarily consisting of for these plans . Statute sets a default contribution managers and supervisors) are nonrepresented . level whereby CSU pays 100 percent of the average Throughout the year, CSU also employs more than premium cost for employees and 90 percent of the 15,000 student assistants and other temporary average additional premium costs for dependents staff . These groups are not part of a bargaining unit . (known as the “100/90” formula) . Though the 100/90 formula is a default, statute permits CSU Board of Trustees, Not the Legislature, to collectively bargain a different formula for Approves CSU Collective Bargaining employees . (In practice, the 100/90 formula applies Agreements. The California Department of Human to nearly all CSU employees .) Each year when the Resources typically represents the Governor average premium cost increases, CSU must cover in labor negotiations between the state and its the associated cost for its active employees . The employees . The resulting bargaining agreements state directly covers the associated cost for retired must be ratified by the Legislature before going into CSU employees . effect, and the state directly funds the associated cost of the agreements . In the case of CSU, Some CSU Workers Are Affected by the state law gives the Board of Trustees authority to State’s Minimum Wage Law. Like other employers negotiate collective bargaining agreements . The in the state, CSU is subject to California’s minimum www.lao.ca.gov 31 analysis full gutter 2020-21 BUDGET wage law . According to the Chancellor’s Office, augmentation to specific CSU cost increases only student assistants and other temporary staff (such as compensation increases) . Instead, earn the minimum wage at CSU . All other CSU the Governor’s Budget Summary includes an employees (represented and nonrepresented) expectation that CSU will use these funds to currently earn more than the minimum wage . support operating costs, expand enrollment, and Chapter 4 of 2016 (SB 3, Leno) increases the improve student outcomes . statewide minimum wage over a period of several Governor Provides $54 Million Ongoing years, reaching $15 per hour by January 2022 . Increase for Pension and Retiree Health Care Likely Pressure to Increase Salaries in 2020-21. Costs. The Governor’s budget provides CSU Virtually all CSU bargaining contracts expire at the $23 million to cover higher CalPERS employer end of 2019-20 . The Chancellor’s Office is in the pension contribution rates for 2020-21 . This beginning stages of negotiating new contracts . amount is based on CSU’s 2013-14 payroll level, For 2020-21, the Board of Trustees is requesting a per current policy . In addition, the budget provides $140 million base General Fund augmentation for $31 million to cover higher health benefit costs salary increases . This represents a 3 percent increase for CSU retirees . This adjustment is due to an for all permanent CSU employees . anticipated increase in the number of retirees in the CSU Has Identified Four Other Operating budget year as well as higher premium costs . Cost Pressures Totaling $47 Million Ongoing. In Assessment addition to new salary costs in 2020-21, CSU has identified three other ongoing compensation-related Governor’s Budget Approach Leads to cost increases: Vague and Potentially Conflicting Expectations. Although the Governor lists several general • $12 million for pension costs above CSU’s expectations of CSU in his budget summary, 2013-14 pensionable payroll level . his budget does not link the largest proposed • $26 million resulting from a 4 .5 percent augmentation ($199 million) for CSU to clear, increase in CalPERS-negotiated employer specific state spending priorities . Under this health care premium costs . budgetary approach, the Legislature does not know • $5 million resulting from an increase in the how CSU will spend its increase in state funding, state minimum wage from $12 to $13 per whether CSU’s budget priorities are aligned with hour beginning in January 2020 . legislative interests, or whether the proposed augmentation is too little or too much to meet In addition to these operational costs, CSU is desired objectives . scheduled to open about 200,000 square feet of new facility space in 2020-21 . Based on past Recommendations analysis, CSU estimates the cost to fund the regular operation of these facilities (such as utilities, Recommend Budgetary Approach That general upkeep, and basic repairs) is $19 .49 per Designates Funding for Specific Purposes. square foot . Based on this amount, CSU estimates We recommend the Legislature take a different that it will incur $4 million in costs associated with approach from the Governor and use a more this new space in the budget year . standard, transparent budgetary approach . Specifically, we recommend the Legislature decide Proposals two fundamental issues: (1) which specific cost increases to support in the budget year and (2) how Governor Proposes $199 Million General to cover those costs . In the rest of this section, Purpose Base Augmentation. This amount is we suggest how the Legislature could determine equivalent to a 4 .6 percent increase to CSU’s which cost increases to support in 2020-21 . ongoing General Fund support and a 3 .3 percent Because enrollment is a particularly complex cost increase to CSU’s entire ongoing core budget . pressure, we discuss that issue in more detail in the Unlike last year, the Governor does not tie this next section . Then, in the subsequent section, we 32 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET discuss potential funding sources for supporting areas of the country .) A third factor to consider any desired cost increases . is how CSU employee contracts compare with Start With Basic Cost Increases. In setting its contracts for other state employees . As discussed CSU spending priorities, we believe first priority in the box below, recent contracts generally have should be given to those cost increases related to been more favorable to CSU groups . maintaining existing services . CSU has identified Consider Whether to Approve Any a total of $47 million in higher costs for its share Programmatic Enhancements. Lastly, the of pensions, health care premiums for active Legislature may want to consider augmentations that employees, statutory minimum wage increases, would expand the level or scope of CSU services . and operation of new facilities coming online in These cost pressures include enrollment growth and the budget year . (As noted above, the Governor’s expanding student support services . In recent years, budget provides specific augmentations for CSU’s the Legislature, for example, has funded student remaining pension costs and retiree health care food and housing initiatives at CSU as well as a CSU benefits .) We find that CSU’s estimates of these initiative focused on improving graduation rates . cost pressures are reasonable . If the Legislature would like to provide funding for Determine Salary Increases. After covering these types of purposes, we encourage it to develop basic cost increases, the Legislature could clear objectives and determine the appropriate decide whether to support salary increases . The funding level to meet each objective . Legislature likely will want to consider several factors when determining salary levels . For ENROLLMENT example, the Legislature may wish to ensure In this section, we provide background on that employees’ salaries keep pace with inflation key CSU enrollment issues and trends . Next, we in the budget year . Projections of inflation for provide an update on CSU’s progress in meeting 2020-21 range from 2 percent to 3 percent, its 2019-20 enrollment target . We then describe resulting in costs between $93 million and the Governor’s proposal for CSU enrollment in $140 million . Another factor to consider is the 2020-21 . We conclude by highlighting factors for competitiveness of current CSU compensation the Legislature to consider when deciding on an levels . CSU salaries for both tenured/tenure-track enrollment level for CSU in the budget year . faculty and lecturers are on average higher than the average for other public master’s universities in the country . (The cost of living for certain CSU faculty, however, is higher than faculty living in many other State Employee Contracts CSU’s Recent Bargaining Agreements Generally Have Been More Generous Than Other State Agreements. Over the last three years, the state has negotiated collective bargaining agreements with all 21 of its employee bargaining units . Though the agreements vary across bargaining units and comparisons are complicated, represented CSU employees generally have received better terms than their state employee counterparts . While both CSU and other represented state workers have been receiving an average of roughly 3 percent salary increases, many state agreements have begun requiring employees to pay a larger share of their retiree health care and pension costs . As a result, much of the negotiated salary increases for other state workers is going to help them bear a larger share of their benefits costs . CSU’s bargaining agreements generally have not included such requirements, with its represented employees thereby receiving somewhat more favorable contract terms . www.lao.ca.gov 33 analysis full gutter 2020-21 BUDGET Background CSU Has Implemented New Redirection Policy for Students Denied Admission Due Resident Undergraduates Comprise the Vast to Impaction. In recent years, many applicants Majority of Students at CSU. In 2018-19, resident who met CSU’s minimum systemwide eligibility undergraduate students made up 85 percent of requirements have been denied admission to all the overall CSU enrollment . Resident graduate students CSU campuses to which they applied . Beginning (including those in teacher preparation programs) in fall 2019, CSU implemented a new policy that consisted of 9 percent of total enrollment . automatically redirects these eligible-but-denied Nonresident students made up the remaining applicants to nonimpacted campuses . (For the 6 percent of enrollment . past several years, CSU has had a more limited Longstanding State Policies Determine policy that redirects only CCC applicants with an Which Students Are Eligible to Attend CSU. associate degree for transfer degree .) Under the state’s 1960 Master Plan for Higher State Budget Typically Sets an Enrollment Education, CCC students who complete their Growth Target. In most years, the state provides lower-division work with a minimum 2 .0 grade CSU funding in the annual budget act to support point average (GPA) are eligible to attend CSU a specified level of enrollment growth . Typically, as upper-division undergraduate students . The budget provisional language identifies the number Master Plan limits freshman admission to CSU of FTE students that CSU is expected to grow to the top one-third of high school graduates . To that year . In most years, the state sets one draw from the top 33 percent, CSU has historically overall enrollment target—not specifying separate structured its admission policies to require high targets for resident undergraduate and resident school students to (1) complete a specified set of graduate students . The 2019-20 budget, however, college-preparatory coursework and (2) attain a provided funding and set a target only for resident certain mix of high school GPA and standardized undergraduate enrollment growth . aptitude test scores (historically SAT or ACT State Funds Growth According to Per-Student scores) . Through periodic eligibility studies, CSU Formula. The total amount of funding the state is able to determine if it is drawing its freshman provides each year is based on the number of admits from its Master Plan eligibility pool . If additional students CSU is to enroll multiplied by CSU is drawing from a smaller or larger pool, the a per-student funding rate . The per-student rate state traditionally has expected CSU to adjust its is derived using a “marginal cost” formula . The admission requirements accordingly . In contrast formula takes into account the additional faculty, to undergraduate eligibility policies, the state does support services, and other resources that are not have a policy that guarantees a certain share of required to serve each additional student . The California students access to graduate education . formula combines the cost of undergraduate and The state also does not have a policy guiding graduate education—resulting in a single rate nonresident enrollment levels at CSU . that applies to all resident students . The marginal CSU Has Higher Admission Standards for per-student cost is shared by the state General Impacted Campuses and Programs. While CSU Fund and student tuition revenue . In 2020-21, has minimum systemwide eligibility requirements CSU’s marginal cost rate is $13,290 per FTE for transfer and freshman applicants, some student, with a state share of $8,770 . “impacted” campuses and programs (those Undergraduate Enrollment Has Trended with more student demand than available slots) Upward for the Past Decade. Figure 13 shows adopt stricter undergraduate admissions criteria . that resident undergraduate enrollment levels at Currently, six campuses are fully impacted—having CSU have increased every year but one since higher admissions criteria for all their programs . 2010-11 . Growth has averaged 2 percent per year Most campuses have at least one impacted since that time . The one exception was in 2018-19, undergraduate program, often nursing . when enrollment dropped slightly . 34 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET Resident Graduate Enrollment Is Lower Than a total of $85 million for CSU to increase enrollment Decade Ago. In contrast to resident undergraduate by 10,000 resident undergraduate FTE students students, between 2010-11 and 2018-19, resident (2 .9 percent) . graduate enrollment declined by an average of CSU Is Not on Track to Meet Its 2019-20 1 .4 percent per year . As a percent of total enrollment, Enrollment Target. Based on CSU projections, resident graduate enrollment has been declining campuses are on track to add 4,900 FTE over the past decade—dropping from 12 percent of resident undergraduate students (1 .4 percent) in total enrollment in 2010-11 to 9 percent in 2018-19 . 2019-20 compared with 2018-19 enrollment levels . Since 2013-14, resident graduate enrollment has This is less than half of the enrollment growth target consistently ranged between about 36,000 and that the state set for CSU . The Chancellor’s Office 37,000 FTE students each year . believes, however, that final 2019-20 enrollment Nonresident Enrollment Has Been Increasing. may increase somewhat over current estimates due Between 2010-11 and 2018-19, nonresident to campuses admitting more transfer students in enrollment has increased by an average of nearly spring 2020 . 7 percent per year . As a percent of total enrollment, Chancellor’s Office Believes It Can Meet nonresident enrollment has increased somewhat Target Given More Time. The Chancellor’s Office over the past decade—going from 4 percent states that part of the reason for not being on track of total enrollment in 2010-11 to 6 percent in to meet the target stems from the state adding 2018-19 . enrollment growth funding so late in the annual budget process last year . In particular, knowledge Update on 2019-20 Enrollment of the $23 million in additional funds came after CSU Received Significant Enrollment Growth campuses had made fall 2019 admission decisions . Funding in 2019-20. The Governor’s budget for If CSU is not able to reach its enrollment target in 2019-20 proposed $62 million for CSU to grow 2019-20, the Chancellor’s Office expects it to do so by about 7,300 resident undergraduate FTE by fall 2020 (meaning in 2020-21) . students (2 .1 percent) compared to 2018-19 . The Legislature Could Request Chancellor’s Office final June budget package provided an additional to Provide Update During Spring Hearings. We $23 million for enrollment growth—resulting in a encourage the Legislature to ask the Chancellor’s Figure 13 After Dropping During the Last Recession, CSU Enrollment Has Been in a Growth Pattern Full‑Time Equivalent Resident Undergraduate Students 370,000 350,000 330,000 310,000 290,000 270,000 250,000 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 www.lao.ca.gov 35 analysis full gutter 2020-21 BUDGET Office to provide updated 2019-20 enrollment data pool . The third factor suggests that some level of during spring hearings and discuss how it intends enrollment growth may be justified . to meet its 2019-20 enrollment target . To the Demographic Projections Show Decline extent CSU believes it will not attain the target until in High School Graduates for Fall 2020. The sometime in 2020-21, the Legislature could take Department of Finance projects that the number this information into consideration when deciding of public high school graduates in the state is upon an enrollment target (and any associated expected to decrease by 0 .5 percent in 2019-20 . enrollment growth funding) for the budget year . This means that, all other factors staying the same, enrollment demand for freshman slots in fall 2020 Proposal would decrease accordingly . Governor Has No Specific CSU Enrollment CSU Is Drawing From Notably Beyond Its Proposal for Budget Year. Unlike last year, the Historic Eligibility Pool. The state’s most recent Governor’s budget does not include a proposed eligibility study found that CSU has been drawing funding allocation for enrollment growth at CSU, from beyond its Master Plan pool . Specifically, CSU and budget backup does not show any assumed in 2014-15 was drawing from the top 41 percent of enrollment increases at CSU . The Governor’s Budget high school graduates rather than the top one-third . Summary, however, states that the administration Updated information from the California Department expects CSU to “support additional enrollment at the of Education shows that an even larger share of most impacted campuses and programs .” high school graduates (about 47 percent) have been completing college-preparatory coursework Assessment (known as “A through G” courses) required for CSU Setting Enrollment Expectation for CSU Is admission . This data suggests that CSU likely is Key Aspect of Annual Budget Process. One of drawing from an even larger pool of high school the state’s primary higher education responsibilities graduates today . Despite these trends, CSU has is to provide students access . Deciding on not changed its freshman eligibility requirements in enrollment targets is thus a key task for the state over a decade . Whether additional CSU enrollment each year . The Governor effectively devolves this growth is warranted depends at least in part on the key state decision to CSU . Under this approach, Legislature’s views regarding CSU drawing from this the Legislature would not know how many students larger pool of graduates . CSU intended to serve in 2020-21 nor have any Many Eligible Applicants Are Not Getting Into assurance that CSU would act in ways consistent Their Campus of Choice. Consistently over the past with legislative priorities . We encourage the several years, CSU has reported that many freshman Legislature to take a more transparent, standard and transfer applicants met CSU’s minimum budgetary approach and set a 2020-21 enrollment systemwide eligibility requirements but were not expectation for CSU . accepted at any CSU campus to which they applied . Consider Multiple Factors When Setting According to a recent report by the Chancellor’s Enrollment Target for CSU. In addition to Office, nearly 20,000 qualified applicants were monitoring CSU’s progress in meeting its redirected to a nonimpacted campus in fall 2019 as 2019-20 enrollment target, the Legislature has part of its new policy . Of these redirected applicants, at least three other key factors to consider 892 (4 .5 percent) enrolled at a campus to which their when deciding upon a CSU enrollment target application was redirected . (Students could choose for 2020-21, as discussed next . The first factor from a list of 10 campuses that were accepting suggests that enrollment growth may not be redirected applications .) Supporting more enrollment needed in the budget year . The second factor growth at high-demand campuses thus could enable suggests that enrollment increases or decreases CSU to accommodate more applicants at their could be warranted depending on one’s views campus of choice . At CSU, the highest-demand about CSU drawing from beyond its eligibility campuses include San Luis Obispo, San Diego, and Long Beach . 36 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET COVERING COST INCREASES low state reserve levels), the state has tended to make tuition decisions based entirely on its fiscal After setting its CSU spending priorities, the condition—raising tuition in bad fiscal times and Legislature faces choices in how to cover the keeping tuition flat (or even lowering it) in good associated cost . In this section, we provide fiscal times . As a result, student groups have borne background on funding sources the state and different shares of cost depending on the state’s CSU have used in previous years, describe fiscal fortunes during the years they attend college . the Governor’s and CSU’s proposals for Those cohorts entering college during recessions covering spending priorities in 2020-21, assess have tended to bear a greater share of CSU’s costs those proposals, and lay out two illustrative whereas those entering college during recoveries 2020-21 budget plans for CSU . have tended to bear a smaller share . Many Resident Undergraduate Students Do Background Not Pay Tuition. For full-time resident undergraduate State General Fund Augmentations students, CSU currently charges $5,742 per year . Sometimes Cover CSU Cost Increases. In many More than 60 percent of resident undergraduate years, the primary way CSU has covered cost students, however, receive financial aid to fully cover increases is with General Fund augmentations from this charge . In California, financial aid programs the state . Historically, the state has provided CSU tend to benefit students from low-income families as larger augmentations when growth in General Fund well as many students from middle-income families . revenue is strong and smaller augmentations during The box below describes the various financial aid economic slowdowns . The state has tended to cut programs available to CSU students . funding for CSU during economic recessions when CSU Generates Some Tuition and Fee General Fund revenue declines . Revenue From Nonresident Students. CSU Has Also Sometimes Used Student Nonresident students attending CSU pay the base Tuition Revenue to Cover Cost Increases. tuition amount charged to resident students as Historically, the state has not had a policy for what well as a supplemental tuition charge . Nonresident share of cost the state and students should bear, undergraduate students attending full time but implicitly it has shared costs with students currently pay an $11,880 supplemental charge . (and their families) through a tuition charge, which For 2019-20, we estimate that CSU is generating is set by the Board of Trustees . In the absence of about $400 million in revenue from the tuition and a share-of-cost policy (together with historically supplemental charge that nonresident students pay . Financial Aid for CSU Students Several Programs Help CSU Undergraduates Cover College Costs. At 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 . Some students who qualify for a Cal Grant also receive a federal Pell Grant to cover a portion of their living costs (up to $6,195 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 generally provides full 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 addition to these needs-based programs, the state funds a tuition-assistance program for higher-income students . The Middle Class Scholarship program provides partial tuition coverage for students with a household income of up to $177,000 . The maximum award covers between 10 and 40 percent of tuition, depending on income level . www.lao.ca.gov 37 analysis full gutter 2020-21 BUDGET CSU Has Operating Reserves to Cover Some fall 2020 . The Chancellor’s Office states that Costs. As we describe in our recent report, The this proposed rate increase was chosen to 2020-21 Budget: Analyzing UC and CSU Cost align with the anticipated rate of inflation in the Pressures, CSU maintains core reserves both to upcoming year . Such an increase would generate cover planned future costs as well as to respond about $50 million in additional net revenue, with to future risks and uncertainties (such as a natural an additional $25 million redirected to CSU’s disaster or General Fund budget cuts resulting from financial aid program . The Board of Trustees an economic downturn) . At the end of 2018-19, could have an initial discussion on the issue at CSU held a total of $1 .7 billion in core reserves . its March 2020 meeting and vote on the tuition Of this amount, CSU reports that $1 .2 million proposal at its May 2020 meeting . is designated for future costs such as capital Assessment projects and launching new academic programs . The remaining $500 million is saved for future Legislature Faces Several Considerations. unforeseen costs . Though the state tasks the Board of Trustees with the responsibility to determine tuition levels, Proposals in practice this decision is closely connected Governor’s Budget Assumes the State to the level of General Fund support that the Shoulders Proposed Cost Increases in 2020-21. state provides . Given this close connection, the The Governor’s budget reflects an increase in Legislature likely will want to weigh in on CSU General Fund support for CSU, with no increase tuition levels in 2020-21 . To that end, we offer three in revenue from student tuition . By assuming that main questions for legislative consideration . resident systemwide tuition levels remain flat, Is the Existing Share of Cost Between the the Governor effectively is proposing to cover all State and Students Reasonable? In 2019-20, we budget-year cost increases with state support . estimate student tuition revenue comprises about Unlike with UC, to date the Governor has not 20 percent of core funding at CSU . By increasing declared his outright opposition to a CSU tuition General Fund support in the budget year with no increase . Like with UC, however, the Governor corresponding increases from tuition, the Governor retains previous budget provisional language implicitly is suggesting that the share of costs that would give the director of the Department of contributed by tuition-paying students is too high . Finance the discretion to reduce General Fund Were the Legislature interested in maintaining the support if CSU adopted a tuition increase for the existing share of cost, it could grow General Fund upcoming academic year . The language ties the and student tuition at equal rates . potential General Fund reduction to the additional How Would Tuition Increases Affect Cal Grant and Middle Class Scholarship costs Affordability? California has established an associated with the tuition increase, thereby making extensive financial aid system for college students . CSU’s action fiscally neutral to the state . Were CSU to increase tuition in 2020-21 and the CSU Has Proposal on the Table for a Tuition Legislature to fund corresponding higher Cal Grant Increase in 2020-21. The Chancellor’s Office costs, students receiving a Cal Grant would be has indicated that the funding included in the unaffected by the tuition increase . Moreover, Governor’s budget is insufficient to address CSU indicates that its institutional aid program its budget priorities . CSU thus is considering would continue to cover full tuition for many other a tuition increase should the state not provide middle- and low-income students who do not additional General Fund support beyond the qualify for a Cal Grant . On the other hand, a tuition amount proposed in the Governor’s budget . Under increase would result in certain higher-income the proposal drafted by the Chancellor’s Office, students who do not qualify for full tuition coverage tuition for resident undergraduates, resident paying more . Every 1 percent increase in tuition graduate students, and nonresident students would result in the annual charge for full-time, alike would increase by 3 percent beginning in resident undergraduate students increasing by $57 . 38 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET The increase would be somewhat higher for General Fund support for CSU, adopting different resident graduate and nonresident students, whose tuition plans, and approving different spending current tuition levels are somewhat higher than packages . resident undergraduate students . Tuition-Increase Plan Creates Capacity to How Would Revenues From a Tuition Increase Fund More Legislative Priorities. As the figure Be Used? When the state covers all CSU cost shows, both plans would fund CSU’s basic increases from the General Fund, it leaves less cost pressures, including rising health care and state funding available for other legislative priorities pension costs . Both plans also would provide a within higher education and across other areas of 3 percent increase to CSU’s salary pool for faculty the state budget . Increasing tuition, by contrast, and staff . (A 3 percent increase roughly aligns creates more budget capacity . In 2020-21, we with projected inflation in 2020-21 .) Under the estimate a 3 percent increase in CSU tuition tuition-increase plan, the state would spend an provides the state with $30 million in additional additional $20 million to cover higher Cal Grant budget capacity . (The tuition increase would costs . After funding these cost increases, the first generate a net increase of $50 million for CSU . scenario would leave $12 million for other legislative This amount would be partly offset by $20 million priorities (such as enrollment growth and expansion in higher state Cal Grant costs associated with of programmatic initiatives) . Under the second covering the higher tuition charge for financially scenario, the Legislature would have $42 million needy CSU students .) The Legislature could use remaining for other legislative priorities . the $30 million in additional budget capacity in various ways . Below, we provide an example of FACILITIES what the Legislature could attain if the $30 million supplemented General Fund support, thereby In this section, we provide background on CSU increasing CSU’s overall resources . (The Legislature capital outlay, describe CSU’s and the Governor’s could further increase budget capacity by 2020-21 capital outlay proposals, assess those strategically designating CSU reserves for certain proposals, and make associated recommendations . other CSU spending priorities .) Illustration of Two Budget Plans Figure 14 Two Illustrative Budget Plans for CSU in 2020‑21 Two Illustrative Budget (In Millions) Plans Are Based on Different Revenue Assumptions. Figure 14 No Tuition Increase CSU’s Tuition Proposala shows two illustrative budget Funding Available $199 $249 plans for CSU in 2020-21 . The Spending figure shows potential spending Basic Cost Increases priorities, coupled with possible Employee health care $26 $26 funding options . Regarding Pensions 12 12 funding, both illustrative plans Minimum wage 5 5 assume the Legislature approves New facility operations 4 4 Subtotal, basic costs ($47) ($47) the Governor’s $199 million base Salary increases (3 percent) $140 $140 augmentation . The second plan Higher Cal Grant costs — 20 then adds $50 million from CSU’s Total Spending $187 $207 tuition proposal . It is important to note that these plans are solely Remaining Fundingb $12 $42 illustrative . The Legislature has a CSU is considering a proposal to increase tuition by 3 percent. b numerous other options, including Reflects amount of funding remaining for other legislative priorities. Could include priorities such as enrollment growth, the Graduation Initiative, or programs addressing student hunger and homelessness. approving a different level of www.lao.ca.gov 39 analysis full gutter 2020-21 BUDGET Background legislative hearings, and (3) adjusting CSU’s main budget appropriation to account for changes in Since 2014-15, CSU Has Been Authorized to debt service costs . Issue Its Own Bonds. Prior to 2014-15, the state CSU Has Identified Large Backlog of Deferred sold bonds to support CSU’s academic facilities Maintenance. In 2017-18, CSU contracted with and paid the associated debt service . Beginning a third party to visit and assess the condition of in 2014-15, the state altered this approach by its academic buildings and related infrastructure . authorizing CSU to begin issuing its own university Based primarily on that comprehensive bonds for academic facilities . In a related action, assessment, CSU identified $4 .5 billion in building the 2014-15 budget package shifted $302 million systems and components that have reached the in ongoing base funding into CSU’s main support end of their useful life and need to be replaced . appropriation . The amount equated to what the Since 2015-16, the state has provided a total of state was paying for CSU debt service at the time . $334 million in one-time funding to help address Moving forward, CSU is expected to pay off all CSU’s maintenance backlog . Despite these recent debt—both for outstanding state bonds and any augmentations, neither the state nor CSU has a new university bonds—from its main General Fund long-term plan to address this backlog . To better appropriation . The new process limits the university guide state and CSU funding decisions, the to spending a maximum of 12 percent of its main Legislature directed CSU in the 2019-20 budget to General Fund appropriation on debt service and develop a multiyear plan to address the backlog . pay-as-you-go academic facility projects . By CSU was required to submit its plan to the combining capital outlay and support into one CSU Legislature by January 2020 . As of this writing, the budget item, the state intended to incentivize CSU Legislature has not received the plan . to weigh the trade-offs of increasing its operating Seismic Renovation Projects Likely Entail costs (such as compensation and enrollment) with Significant Costs for CSU Too. Seismic funding new capital projects . renovation projects focus on upgrading building Administration and Legislature Review CSU’s support structures and mitigating life-safety Project Proposals. Under the process now in risks from earthquakes . The Chancellor’s Office place, CSU must notify the Legislature and receive has stated that campuses likely have a costly approval from the administration on the projects it backlog of seismic renovation projects . To date, intends to pursue with its General Fund support . though, CSU has not completed a comprehensive State law establishes the following project approval assessment of its buildings’ seismic risks nor time line: estimated the cost to correct deficiencies . As part • In December, CSU submits written of the 2019-20 budget, the Legislature directed documentation (commonly referred to as CSU to undertake these assessments and develop “capital outlay budget change proposals”) for a plan to address identified seismic risks . CSU was review by the Legislature and administration . required to submit this plan to the Legislature by • In February, the administration submits a list January 2020 . As of this writing, the Legislature has of projects it preliminarily approves to the not received the plan . Legislature . Voters Will Consider New Education Facilities • No sooner than April, the administration Bond in March 2020. Chapter 530 of 2019 submits a final list of approved projects to the (AB 48, O’Donnell) placed a new education facilities Legislature . bond, Proposition 13, on the March 2020 ballot . If voters were to approve this measure, it would Under this process, the Legislature can influence authorize the state to sell $2 billion in general which projects are undertaken by (1) signaling its obligation bonds for CSU capital outlay projects . broad infrastructure priorities to the administration Chapter 530 prioritizes funding for projects that and CSU, (2) conveying concerns with specific address life-safety issues, seismic deficiencies, CSU project proposals during February and March and deferred maintenance . Unlike the current 40 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET review and approval approach for projects funded project shown consists of various infrastructure by CSU bonds, projects funded with state general improvements throughout the CSU system . obligation bonds would need to receive explicit The remaining 20 projects are campus-specific legislative approval (rather than only an opportunity proposals . Many CSU projects would address for legislative review) as part of the annual budget seismic deficiencies and deferred maintenance process . To be eligible for state bond funding, CSU throughout the system . Three of the projects entail campuses would need to develop five-year plans constructing new instructional buildings . to expand affordable housing options for their CSU Has Identified Existing Bond Capacity It students . Can Use for Some Proposed Projects. CSU’s list of proposed projects totals $2 .4 billion in 2020-21 Proposals state costs . The cost of these projects reaches CSU Proposes 21 Projects for 2020-21. $2 .7 billion when all phases of the projects and Figure 15 lists these proposed projects . The first campus contributions (such as campus reserves Figure 15 Governor Preliminarily Approves 8 of CSU’s 21 Project Proposals for 2020‑21 (In Thousands) All Years 2020‑21 Campus Projecta State Cost State Cost Total Costb Projects With Preliminary Approval by Governor Systemwide Infrastructure improvements $26,623c $26,623 $28,623 San Francisco Science building replacement 138,718 150,028 150,028 Long Beach Peterson Hall 1 building replacement 124,996 124,996 139,996 Fresno Central plant replacement, Phases 2 and 3 98,163 98,163 98,163 Chico Utilities infrastructure replacement 78,619 78,619 84,643 San Luis Obispo Kennedy Library renovation 36,146 65,146 71,261 Pomona Classroom/lab building renovation 47,978 48,978 51,783 East Bay Library renovation 17,757 17,757 19,730 Subtotals ($569,000) ($610,310) ($644,227) Other Projects Proposed by CSU Systemwide Infrastructure improvements $930,089c $930,089 $990,586 San Diego Life Science North building replacement 94,096 94,096 144,096 Stanislaus New Classroom II building 116,587 116,587 116,587 Northridge Sierra Hall renovation 110,026 110,026 113,028 Sacramento Engineering building replacement 84,217 84,217 100,464 Los Angeles Classroom building replacement 93,500 93,500 93,500 Fullerton Science laboratory replacement 77,000 77,000 84,500 Stanislaus Acacia Court building replacement 72,572 72,572 75,824 Dominguez Hills Natural Sciences and Mathematics building renovation 68,449 71,449 71,449 Bakersfield New Energy and Engineering Innovation building 63,569 63,569 70,632 Humboldt Science building replacement, Phase 1 61,048 61,048 66,003 San Marcos New classroom/lab/office building 55,586 55,586 57,536 Sonoma Ives Hall renovation 40,813 40,813 40,813 San Jose Land acquisition 8,000 8,000 8,267 Subtotals ($1,875,552) ($1,878,552) ($2,033,285) Totals $2,444,552 $2,488,862 $2,677,512 a In most cases, project includes preliminary plans, working drawings, construction, and equipment. b Campuses often contribute nonstate funding (such as reserves and philanthropic support) to their facility projects. c CSU requested a total of $956.7 million for infrastructure improvements. The Governor has preliminarily approved $26.6 million. www.lao.ca.gov 41 analysis full gutter 2020-21 BUDGET or philanthropic support) are included . CSU general obligation bond funds rather than CSU believes it can accommodate $569 million in new bonds . As part of a spring letter, the Department of 2020-21 project costs within its existing budget Finance also may propose to use general obligation through freed-up bond capacity . This is because bonds to fund additional projects on CSU’s CSU’s annual debt service payments have been 2020-21 list . If so, our office will analyze those considerably lower than the amount shifted into its additional projects at that time . base in 2014-15 . The reduction in cost stems both Recommendations from certain past debts being retired and other debts being refinanced a few years ago, with the Recommend Legislature Direct the benefit of lower associated annual costs . Through Chancellor’s Office to Provide an Update on this additional bond capacity, CSU believes it can Overdue Plans. As of this writing, CSU is more accommodate approximately $40 million in new than a month late on submitting its maintenance annual debt service costs (corresponding to the and seismic safety reports . Given the Legislature’s $569 million in new project costs) . interest in addressing CSU’s deferred maintenance Administration Has Provided Preliminary backlog and life-safety projects, we recommend the Approval for Eight CSU Projects Using CSU Legislature ask the Chancellor’s Office to provide Bonds. In early February 2020, the Department an update during spring hearings on the status of of Finance submitted a letter to the Legislature these reports . Based on the reports, the Legislature providing preliminary approval for seven of also could begin discussing with CSU its project CSU’s highest-priority campus projects as well priorities for the next several years . as a portion of funding for proposed systemwide If Proposition 13 Passes, Recommend infrastructure improvements . The state cost for Developing a Plan for Prioritizing Funds. these projects totals $569 million, the amount Were Proposition 13 to pass, the Legislature CSU believes it can fund from within its existing will face a key decision regarding whether to bond capacity . The top part of Figure 15 lists these use Proposition 13 funds in lieu of CSU bonds projects . The administration did not approve the or in addition to CSU bonds . We recommend remaining 13 projects that CSU proposed . the Legislature begin considering the financing approach it would like to use were the measure to Assessment pass . We also recommend the Legislature begin No Notable Concerns With Administration’s thinking about what kinds of projects it would like Proposed List of Projects. The projects included to prioritize over the next few years . Given the in the Department of Finance’s February letter stated intent of the measure is to prioritize critical include three seismic projects (at the East Bay, life-safety and deferred maintenance projects, Long Beach, and Pomona campuses), a building together with CSU’s considerable maintenance and renovation (at the San Luis Obispo campus), seismic renovation backlogs, the Legislature could a replacement building (at the San Francisco give funding priority to these types of projects . campus), and two large campus-wide infrastructure Request CSU Report on Campuses’ projects (at the Chico and Fresno campuses) . We Affordable Housing Plans During Spring have reviewed these projects and do not have any Hearings. Lastly, were Proposition 13 to pass, notable concerns with them . the Legislature likely would want to know what is Legislature Could See More Proposals in entailed in CSU campuses completing the required Spring if Voters Approve State Education Bond. five-year affordable student housing plans . To this If voters approve the education bond measure on end, we recommend the Legislature direct CSU in the March 2020 ballot, the administration indicates spring hearings to report on campuses’ progress that it may propose funding some or all of the toward developing these plans . aforementioned seven campus projects using state 42 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET UNIVERSITY OF CALIFORNIA In this part of the report, we provide an and fee revenue is a result of enrollment growth overview of UC’s budget, then analyze many of already planned for 2020-21 . Under the Governor’s the Governor’s UC budget proposals . Specifically, budget, ongoing core funding per student would be we cover (1) UC operational cost increases, $32,929 in 2020-21, a 1 .9 percent increase over (2) enrollment growth, (3) options to fund cost the current year . increases, (4) the animal shelter outreach initiative, Governor Designates General Fund (5) the base increase for UC’s Agriculture and Increases for Several Purposes. Figure 18 (see Natural Resources division, and (6) UC facility next page) shows all the ongoing and one-time proposals . We analyze the UC extended education proposals for UC in the Governor’s budget . proposal in the next part of this report . Additionally, The largest proposal is a 5 percent unrestricted we analyze a proposal relating to emergency base increase for UC . The remaining ongoing preparedness research at UC San Diego in our augmentations are for specific programs and policy recent report The 2020-21 Budget: Governor’s priorities of the Governor . The largest one-time Wildfire-Related Proposals . Lastly, we analyze initiative is $50 million for a new grant program a proposal relating to a new UC Subject Matter benefiting animal shelters . This program would Project in a forthcoming brief that covers the be administered by a center at UC Davis . (The Governor’s computer science proposals . Governor also proposes to extend the sunset date on the UC summer financial aid program from OVERVIEW December 31, 2021 to June 30, 2023 . The state created this program last year—providing $4 million UC Is Receiving an Estimated $39.7 Billion annually until the sunset date .) in 2019-20. UC relies on many fund sources to support its instruction, research, medical centers, and other functions . Historically, UC has relied on core funds—comprised of state General Fund, student tuition and fees, and other funds (such as a Figure 16 portion of grant overhead)—to support instruction, UC's Budget Is Supported by state-sponsored research, and outreach programs . Many Fund Sources As Figure 16 shows, core funds comprise around $39.7 Billion, 2019‑20 one-quarter of total UC funding . Almost all core funding is ongoing, with the state typically Other Core Funds dedicating only a small part to one-time initiatives (when the budget condition is strong) . The State Private General remainder of UC funding comes primarily from its Fund five medical centers, sales and services (including Federal Student Tuition housing, bookstores, and extended education), and and Other the federal government (primarily for research and student financial aid) . Sales and Services Governor Proposes $283 Million (3.1 Percent) Increase in Ongoing Core Funding. As Figure 17 Medical Centers (see next page) shows, most of the increase in ongoing core support would come from the General Fund, with a smaller portion coming from student Other Funds tuition and fee revenue . The increase in tuition www.lao.ca.gov 43 analysis full gutter 2020-21 BUDGET OPERATING COSTS Background In this section, we provide background on UC Compensation Is the Largest Component of operations, describe the Governor’s and UC’s UC’s Core Budget. In 2019-20, UC is spending operating proposals, analyze those proposals, and 67 percent of its core budget on salaries and make associated recommendations . benefits . The remaining share of UC’s core budget is spent on equipment and utilities (18 percent) and student financial Figure 17 aid (15 percent) . State Covers Bulk of Ongoing Core Funding Increase for UC Cost to Maintain Existing (Dollars in Millions Except Funding Per Student) Services Expected to Rise. As Change From 2019‑20 2018‑19 2019‑20 2020‑21 we noted in our recent report, Actual Revised Proposed Amount Percent The 2020-21 Budget: Analyzing UC and CSU Cost Pressures, UC Funding General Fund $3,475 $3,724 $3,942 $218 5.8% faces inflationary cost increases Tuition and fees 4,902 5,067 5,137 70 1.4 to maintain its existing level of Lottery 46 42 42 —a -0.2 services in 2020-21 . Typically, the Other core funds 361 348 344 -4 -1.2 largest single cost increase in a Totals $8,785 $9,182 $9,465 $283 3.1% given year is salary increases for FTE Students faculty and staff . The university Resident 225,620 229,455 231,697 2,242 1.0% also regularly has cost increases Nonresident 53,525 54,660 55,731 1,071 2.0 in its pension and health benefit Totals 279,145 284,115 287,428 3,313 1.2% programs . In addition to employee Funding Per Student $31,469 $32,316 $32,929 $613 1.9% compensation, UC must cover any a Less than $500,000. cost increases related to other FTE = full-time equivalent. operating expenses and equipment (OE&E), such as utilities, insurance, and contract costs . Its debt Figure 18 service costs for its facilities also Governor Proposes Ongoing and can increase . (We discuss debt One-Time Increases for UC service costs in greater detail in the General Fund Increases in 2020‑21 (In Millions) “Facilities” section .) Ongoing Spending Pressure Also Mounting to General Fund base increase (5 percent) $169.2 Expand Operations. In addition UC Riverside medical school 25.0 to the cost pressures associated UCSF Fresno center 15.0 with maintaining existing services, Agriculture and Natural Resources base increase (5 percent) 3.6 UC and the state face pressures UC San Diego Center for Public Preparedness 3.0 to expand and enhance the level Graduate medical educationa 1.6 of services . For example, both Immigrant legal services 0.3 the state and UC have sought Total $217.8 to increase funding for a variety One-Time Initiatives of student services aimed at UC Davis animal shelter grant program $50.0 addressing food insecurity, Extended education 4.0 homelessness, and mental health . Subject Matter Project in computer science 1.3 In recent years, UC also has Graduate medical educationa 0.7 requested augmentations to fund Total $56.0 a certain academic quality and Backfills reductions in Proposition 56 (tobacco tax) funds. support initiatives . These initiatives UCSF = University of California, San Francisco. have included efforts to hire more 44 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET faculty, diversify its workforce, expand student core budget . The administration does not tie the advising, and develop more online courses . augmentation to specific operating costs, giving UC Has Considerable Control Over Many of UC flexibility to determine which cost pressures to These Cost Pressures. Relative to many other address in 2020-21 . The administration indicates, state agencies, the UC Board of Regents (UC’s however, that it would like UC to maintain governing board), the Office of the President affordability, enroll more students in 2020-21 and (UCOP, UC’s central office), and UC campuses have 2021-22 above levels already funded by the state, significant control over many of their key costs . reduce student time to graduation, and narrow Regarding payroll, the Board of Regents determines student achievement gaps . salary increases and campuses set staffing Assessment levels . At UC, around two-thirds of core-funded employees—including all tenure/tenure-track Governor’s Budget Approach This Year Is a faculty and most staff—are not represented by Step Backwards. We have two main concerns a union . Generally, the Board of Regents gives with the Governor’s approach to adjusting UC’s UCOP flexibility to determine salary increases for budget this year . First, by augmenting UC’s budget these employees . For represented employees without specifying how the funds are to be used, (consisting of lecturers, librarians, custodial staff, the Legislature has no confidence that campuses and other employee groups), UCOP negotiates will use the funds consistent with legislative with unions, and the Board of Regents ratifies priorities . Second, by not tying the augmentation the resulting agreements . The Board of Regents to estimated cost increases at UC, the Legislature also oversees the university’s employee benefit lacks clarity on whether the augmentation is too programs—determining both benefit levels and much or too little to accomplish desired objectives . funding policies . Other operating costs, such as For 2019-20, the Newsom Administration took debt service and equipment costs, tend to rise a different approach by tying augmentations to based upon board actions, campus decisions, and specific operational and programmatic objectives . other external factors (such as inflation) . We believe that approach reflects a substantially Board of Regents Adopted Initial 2020-21 better way to budget—providing the Legislature a Budget Plan a Few Months Ago. In November much more useful starting point to weigh its own 2019, the Board of Regents adopted its initial priorities against those of the Governor . 2020-21 budget plan . The plan requested a total Recommendations of $570 million for operational cost increases, enrollment growth, programmatic enhancements, Determine Which UC Cost Increases to and programmatic expansions . The plan assumed Approve in 2020-21. We recommend the the state would increase UC’s ongoing General Legislature reject the Governor’s proposed base Fund by $447 million . This requested augmentation increase and take a more standard, transparent consisted of $264 million for a 7 .1 percent general budget approach . Specifically, we recommend purpose base increase and $183 million for specific the Legislature decide two key issues: (1) which programmatic purposes (including student success cost increases to support in 2020-21 and (2) how initiatives, K-12 outreach programs, and student to fund these costs (from the state General Fund, mental health services) . student tuition, and/or other sources) . In the remainder of this section, we describe how the Proposal Legislature could determine which cost increases to Governor Proposes General Purpose Base support in 2020-21 . In the next section, we cover Increase. The Governor proposes providing related enrollment issues in more detail, then in the $169 million (ongoing General Fund) to UC . The following section we discuss options for how to amount is equivalent to a 5 percent increase fund any desired increases . to UC’s ongoing General Fund support and a Start With Basic Cost Increases. The 1 .8 percent increase to UC’s entire ongoing Legislature could start by covering projected www.lao.ca.gov 45 analysis full gutter 2020-21 BUDGET increases in the cost of UC’s pension and of maintaining UC’s existing services, the health care programs, debt service, and OE&E Legislature might want to consider augmentations (Figure 19) . We believe these cost increases for enrollment growth as well as enhancing or represent the minimum required to maintain UC’s expanding existing programs or establishing new existing service levels (absent policy changes that programs . If the Legislature would like to support could yield savings) . While projections in each of additional augmentations for these purposes, we these areas are subject to some uncertainty, we encourage it to set clear objectives and develop believe UC’s estimate of $125 million is reasonable . specific plans and cost estimates for achieving Next, Determine Salary Increases. After those objectives . To this end, the Legislature could covering basic cost increases, the Legislature could adopt provisional language in the annual budget act consider whether to support salary increases . specifying enrollment expectations as well as how The Legislature likely will want to consider several UC is to use any new programmatic funding . This factors when assessing salary levels . One factor approach would promote clarity and transparency to keep in mind is inflation . The Legislature might while ensuring UC allocates the funds according to seek to adjust salaries by providing a COLA in identified legislative priorities . 2020-21 . Projections of inflation for 2020-21 range from 2 percent to 3 percent, with a resulting cost ENROLLMENT range of $87 million to $131 million . Another In this section, we analyze several key enrollment factor to consider is the competitiveness of UC issues at UC . We first provide background compensation levels . UC faculty salaries are on on the state’s freshman eligibility policies and average notably higher than the average for other UC’s enrollment trends . Next, we describe the public research universities throughout the country . Governor’s expectation that UC grow resident Moreover, studies have found that UC generally has undergraduate enrollment beyond already been successful in recruiting top faculty candidates funded levels in 2020-21 and 2021-22, offer and retaining faculty over time . our assessment of that expectation, and make Lastly, Consider Any Desired Programmatic associated recommendations . We discuss the Enhancements. After addressing the costs Governor’s proposals related to medical school enrollment in another report . Figure 19 Background Legislature Could Rank Its UC 2020-21 Budget Priorities UC Students Can Be Categorized Into Three UC Cost Estimates (In Millions) Groups. First, the university enrolls undergraduate students who come from households in California (resident students) . Second, the university First Priority—Basic Cost Increases enrolls undergraduate students who come Operating expenses and equipment $44 from another state or country (nonresident Pensions 41 Employee heath benefits 18 students) . Nonresident undergraduate students Debt service 15 generally may not gain in-state residency status . Retiree health benefits 8 Third, the university enrolls graduate students Total $125 seeking master’s degrees, doctorates, or other postbaccalaurate degrees . While residency Second Priority—Salary Increases Cost of every 1 percent increase $44 classifications exist for graduate students, out-of-state graduate students who are U .S . Third Priority—Programmatic Increases citizens tend to gain California residency after Examples: Enrollment growth one year of study . International graduate students Academic support generally are not eligible to gain residency status . Student mental health services 46 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET State Policy Drives Resident Undergraduate released in April 2019, estimated the cost to Enrollment. Longstanding state policy sets replace foregone nonresident tuition revenue and eligibility guidelines regarding which students enroll more resident students would increase from are eligible to attend as freshman and transfer an initial $8 million in 2020-21 to $455 million students . Regarding freshman admission, UC is by 2029-30 . The Legislature has not enacted expected to draw from the top 12 .5 percent of any intent language stating whether it intends to California high school graduates . Historically, UC implement this plan . has set its freshman admission criteria to align with Campuses Have Considerable Flexibility this eligibility pool . Specifically, UC traditionally has to Set Graduate Enrollment. In contrast to required completion of a set of college preparatory undergraduate enrollment, the state does not work, certain grades in those courses, and certain have a policy that guarantees a certain share of scores on standardized tests . In past years, UC California students access to graduate education . typically adjusted its admission criteria in response When planning for graduate enrollment, UC to freshman eligibility studies, with UC tightening traditionally has considered the state’s workforce its criteria if found to be drawing from a pool larger needs (such as for teachers, engineers, physicians, than 12 .5 percent of high school graduates and and lawyers) . In addition, campuses have tended to loosening its criteria if drawing from a smaller grow graduate enrollment along with undergraduate pool . State policy does not set eligibility pools enrollment . This is because campuses rely on for transfer students . Instead, community college graduate students to serve as teaching assistants students are eligible to attend UC if they complete in undergraduate courses and research assistants their lower-division coursework with a minimum 2 .4 to new faculty hired to address the growth in grade point average . undergraduate enrollment . Recently Developed Board Policy Limits Eligible Resident Undergraduate Students Growth in Nonresident Undergraduates. Have Access to UC System, Not First-Choice Historically, the state has granted campuses Campus. For resident freshman and transfer flexibility to set their nonresident undergraduate applicants, eligibility generally guarantees enrollment levels . In the 2016-17 budget, the admission to the UC system but not to a particular Legislature for the first time directed the university campus . When applicants are not admitted to their to develop a policy to limit growth in nonresident campus of choice, UC refers them to less selective undergraduate enrollment . UC’s policy, which was campuses . Currently, Merced serves as the referral adopted by the Board of Regents in May 2017, sets campus for freshman applicants, whereas both a specific limit at each campus . The limits range Riverside and Merced serve as referral campuses from 18 percent of nonresidents as a share of total for transfer applicants . The university does not offer enrollment at UC’s least selective campuses to automatic redirection to nonresident undergraduate nearly 25 percent at UC’s most selective campuses . and graduate applicants . Once campuses reach their limit, they can only Enrollment Growth Can Increase Costs in grow nonresident enrollment at the same rate as Several Ways. The state typically funds enrollment they grow resident enrollment . growth using a “marginal cost formula” that Legislature Is Exploring Possibility of estimates the cost of adding one more resident Reducing Nonresident Undergraduate student . The formula accounts for the cost of hiring Enrollment. After UC developed its policy to limit more faculty and teaching assistants, purchasing growth in nonresident enrollment, the Legislature more instructional equipment, and augmenting expressed further interest in potentially reducing student services, among others . The marginal the level of nonresident enrollment . In the cost per student is covered partly by state General 2018-19 budget, the Legislature directed UC to Fund and partly by student tuition revenue . Adding develop a multiyear plan to reach a nonresident students also increases state financial aid costs share of 10 percent of entering freshmen at because a sizable portion of new UC resident each campus by 2029-30 . The plan, which UC students qualify for Cal Grants . Furthermore, www.lao.ca.gov 47 analysis full gutter 2020-21 BUDGET adding students and faculty can increase pressure Enrollment Trends on the state and UC to construct new classrooms, UC Resident Undergraduate Enrollment Is teaching laboratories, faculty offices, and other on the Rise. From 2009-10 to 2015-16, resident academic spaces . These construction projects undergraduate enrollment at UC hovered between increase debt service costs, and the new facilities 170,000 and 175,000 FTE students (Figure 20) . ultimately increase the amount of funding needed Beginning in 2016-17, UC’s enrollment trend for operations and maintenance . changed notably . In each of the past three years, State Recently Has Prioritized Growth in UC has exceeded its state enrollment targets . In Undergraduate Enrollment. For many years, the 2019-20, resident undergraduate enrollment is at state provided enrollment growth funding along with an all-time high of 192,400 FTE students, reflecting one overall enrollment target for resident students . growth of 17,000 students (10 percent) over the Under this approach, UC had discretion regarding level in 2009-10 . how many additional resident undergraduates Nonresident Undergraduate Enrollment versus resident graduate students to enroll . In Growing Faster Than Resident Enrollment. recent years, the state has specified different In 2009-10, UC enrolled 8,500 nonresident expectations for undergraduate and graduate undergraduate students systemwide, comprising enrollment and tended to fund growth only in 5 percent of total undergraduate enrollment undergraduate enrollment . (Figure 21) . In 2019-20, the number of nonresident State Recently Has Aligned Its Budget students was more than four times higher— Decisions With UC’s Admissions Cycle. reaching 38,200 students and comprising almost Traditionally, the state has set UC enrollment 20 percent of total undergraduate enrollment . targets for the academic year starting a few Much of this growth has been concentrated at the months after budget enactment . For example, the Berkeley, Los Angeles, and San Diego campuses . 2007-08 budget set an enrollment target for the The Legislature was responding to this trend when 2007-08 academic year . This traditional approach it directed UC to adopt a policy limiting growth in does not align well with the timing of UC admission nonresident enrollment . decisions . UC makes most admission decisions Graduate Enrollment Is Growing More Slowly for the coming academic year in early spring, prior Than Undergraduate Enrollment. In 2019-20, to enactment of the state budget in June . This UC is enrolling 54,800 FTE graduate students—an means the state budget is enacted too late to increase of 5,900 students (10 percent) over the influence UC’s admission decisions that year . To 2009-10 level . For comparison, total undergraduate have more influence on UC’s admission decisions, enrollment grew by 26 percent over the same the Legislature has tended in recent budgets to period . Among graduate students, international establish targets for the following academic year . In students have accounted for the bulk of growth . the 2015-16 budget, for example, the state set UC The number of incoming international graduate enrollment targets for the 2016-17 academic year . students more than doubled between fall 2009 State Has Already Set Target for 2020-21. and fall 2017, before starting to decline slightly . Using a variant of this approach, the state last By comparison, the share of incoming graduate year set an expectation for UC to grow resident students coming from other states grew at a much enrollment by 4,860 resident undergraduate slower rate between fall 2009 and fall 2019 (up students over 2019-20 and 2020-21 . The state 13 .7 percent), and the share of resident graduate provided $49 .9 million to cover the associated cost, students declined (8 .4 percent) . based on the marginal cost formula . According to UC, campuses are on track to grow enrollment Proposals by 3,250 students in 2019-20 and will grow the Governor Expresses Interest in Increasing remaining 1,610 students in 2020-21 . Undergraduate Enrollment but Sets No Target. The Governor’s 2020-21 budget does not set a 48 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET Figure 20 Figure 21 Resident Undergraduate Enrollment at Nonresident Enrollment at UC Has UC Has Risen Notably the Past Few Years Grown Notably Over the Past Decade Resident Undergraduate Full‑Time Equivalent Students Nonresident Share of Undergraduate Enrollment 200,000 20% 195,000 16 190,000 12 185,000 8 180,000 175,000 4 170,000 2009-10 2011-12 2013-14 2015-16 2017-18 2019-20 2009-10 2011-12 2013-14 2015-16 2017-18 2019-20 specific, explicit UC enrollment expectation for as limiting nonresident enrollment) . We discuss either 2020-21 or 2021-22 . The Governor’s Budget these key factors below . Summary, however, states that the administration High School Graduates Projected to expects UC to increase resident undergraduate Increase Slightly. One way to gauge UC resident enrollment above previously budgeted levels for undergraduate enrollment demand is to consider 2020-21 and 2021-22 . changes in the number of high school graduates . UC Plans to Grow Nonresident and Graduate Increases in high school graduates result in a Enrollment. Beyond the 1,610 additional resident greater number of students meeting UC eligibility undergraduate students that it already plans to requirements . Examining the number of high enroll in 2020-21, UC reports intentions to grow school graduates can also help gauge enrollment nonresident and graduate enrollment . Currently, UC demand for community college transfer students, is planning to increase nonresident enrollment by as many high school students work their way 700 students (1 .9 percent) and graduate enrollment through the community college transfer process . by 570 students (1 .8 percent) in 2020-21 . UC has According to the Department of Finance’s most not expressed any explicit enrollment plans for recent projections, California public high schools 2021-22 . will graduate 441,640 students in 2020-21—a 1 .4 percent increase over the level in 2019-20 . Assessment UC will draw from this pool of students for its fall Lack of Enrollment Target Is Problematic. The 2021 entering undergraduate cohort . Governor’s enrollment approach this year provides UC Is Drawing From Beyond Its Traditional neither clarity regarding how many students UC is Eligibility Pool. According to the state’s most to serve nor accountability for meeting enrollment recent eligibility study, UC drew from 13 .9 percent expectations . This approach generates confusion of high school graduates in 2015-16 . More recent for both the state and the UC and could lead to studies undertaken by UC also conclude that UC contending objectives . likely is drawing from beyond its traditional eligibility Setting an Enrollment Expectation Entails pool of the top 12 .5 percent of high school Considering Many Factors. These factors include graduates . Regarding transfer students, UC reports demographic trends (such as the change in the that it is continuing to offer all eligible transfer number of high school graduates in the state), students systemwide admission . student demand (such as interest in applying to Many Students Are Not Getting Into Campus certain UC campuses), and policy priorities (such of Choice. The UC Academic Senate reports that 12,500 students (15 percent of applicants www.lao.ca.gov 49 analysis full gutter 2020-21 BUDGET meeting UC systemwide admission policies) Recommendations were referred to Merced in 2018-19 . Of these Recommend Setting Enrollment Expectation students, 168 (1 .3 percent) enrolled at the Merced for 2021-22. We think the state’s practice of campus . (The Academic Senate report does not setting UC enrollment expectations for the following cite the comparable number of redirected transfer academic year has merit . Because of the timing of students .) Recent funding for enrollment growth UC’s admission decisions, the state has already has had an inconsistent effect on the size of UC’s lost most of its ability to influence UC’s 2020-21 freshman referral pool . For the incoming class of admission decisions . By setting an expectation 2016—in which the state set a growth target of for 2021-22, the state could still influence UC’s 5,000 additional students—UC’s referral pool fell upcoming admission decisions . In setting a specific to 8,330 students, a 36 percent decline in the pool enrollment expectation (including the possibility of over the previous year . As evident from the number holding enrollment flat), we suggest the Legislature in 2018-19, referrals have started to rise again consider all the factors we discussed in the despite continued funding for enrollment growth . assessment section . The increase in the pool likely is due in part to Enrollment Growth Typically Warrants rising enrollment demand at UC’s most selective Additional Funding. In 2020-21, UC estimates campuses . the marginal cost per student to be $19,636 . Of More Undergraduate Enrollment Could this amount, $11,248 would be the state share Increase Pressure for More Graduate of cost, and the remainder would be covered Enrollment . If the state funded undergraduate by tuition and fees . Using this calculation and enrollment growth, UC would likely experience applying an inflationary adjustment, we estimate pressure to fund more graduate student assistants that a 1 percent increase in resident undergraduate to support the additional undergraduate courses enrollment in 2021-22 would cost the state and faculty . Though there are around six $23 million . If thinking about supporting enrollment undergraduate students for every one graduate growth at UC, the Legislature also would want to student at UC, many graduate students (particularly consider the effect on Cal Grant costs . We estimate professional students) do not work as teaching that a 1 percent increase in resident undergraduate and research assistants . In 2018-19, the university enrollment increases Cal Grant costs by about employed about 5,300 core-funded FTE graduate $10 million . student assistants, equating to around 42 Cost of Enrollment Growth Would Change undergraduate students for each graduate student Under Certain Conditions. The marginal cost assistant . formula is derived from numerous assumptions Setting Nonresident Enrollment Targets about the cost of educating students and how to Entails Various Considerations. In reviewing split that cost between state General Fund and UC’s proposal to increase nonresident enrollment student tuition revenue . Changing any of these in 2020-21, the Legislature has various factors underlying assumptions can impact the cost to to consider . First, enrolling fewer nonresident the state . For example, if UC were to increase students would provide less net funding to UC the tuition charge, the state cost of enrollment for its operating costs . Second, UC may be able growth would decrease . In recent years, the state to expand resident enrollment even if nonresident also has considered two changes to the marginal enrollment increases . UC has successfully met cost formula that would make it more reflective of resident enrollment targets the past several years, current university practices while further reducing even as campuses have grown nonresident state costs . We discuss these two changes in the enrollment . Third, despite having still met its nearby box . resident enrollment targets of late, expanding nonresident enrollment might crowd out resident enrollment on specific, high demand campuses (if physical space is not forthcoming) . 50 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET COVERING COST INCREASES have depended upon the state’s budget condition . As Figure 22 (see next page) shows, when state In this section, we provide background on how revenue has grown, tuition levels have been held the state and UC have funded cost increases flat . When state revenue has slowed or dropped, in previous years, describe the Governor’s and tuition levels increased, sometimes steeply . UC’s 2020-21 funding proposals, analyze those This approach to setting tuition levels—based proposals, and make associated recommendations . largely on the timing of economic recessions and expansions—has made college planning Background for students and their families more challenging . UC Typically Uses State General Fund Exacerbating these challenges for students, past Augmentations to Cover Many Cost Increases. tuition increases have occurred during periods In many years, the primary way the university has when household incomes in California were covered core cost increases is by receiving General stagnating or declining . Fund augmentations from the state . Historically, Many Students Receive Financial Aid That the state has provided larger General Fund Covers Tuition. Importantly, not all students augmentations during economic expansions when attending UC pay tuition . The state’s Cal Grant the state budget condition is relatively strong . It has program covers tuition for financially needy resident provided smaller state General Fund augmentations students . (Students are considered to have during economic slowdowns, and it has cut General “financial need” when their tuition and living costs Fund support during economic recessions when exceed the amount their parents can contribute, the state budget is contracting . as determined by federal formulas .) At UC, about UC Also Uses Student Tuition Revenue to half of all undergraduate resident students are Cover Cost Increases. The state lacks an explicit identified as financially needy and receive enough policy guiding UC tuition decisions . Historically, aid to cover tuition costs . The state’s Middle Class tuition decisions, as with General Fund decisions, Scholarship program helps middle-income students Marginal Cost Formula Increasing the Student-Faculty Ratio Would Reduce Overall Costs. Currently, the marginal cost formula assumes UC campuses hire 1 faculty member for every 18 .7 additional full-time equivalent students . This ratio is no longer reflective of UC’s actual student-faculty ratio . For the last ten years, the ratio has exceeded 21 . Updating the assumed student-faculty ratio reduces both the estimated total marginal cost and the state portion of the cost . In the 2019-20 budget, the state took this approach for the first time, using UC’s current student-faculty ratio (21 .7) to calculate costs . Were the state to continue this practice in 2020-21, the state’s share of the marginal cost would decrease from $11,248 to $9,958 . Tailoring Formula to Undergraduates Would Also Reduce Costs. The current marginal cost formula generates a single per-student funding rate that blends the cost of undergraduate and graduate education . Using this rate for funding only undergraduate enrollment growth (as the Legislature has done the past few years) very likely overstates the cost . This is because undergraduate education tends to be less costly than graduate education . In a biennial report that UC submits to the Legislature on instructional costs, UC estimates campuses spend on average around 2 .5 times more on graduate education compared to undergraduate education . Were the state interested in adopting differential funding rates for undergraduate and graduate students, it likely would want to work with the university, the administration, and legislative staff over the coming months to develop the two rates . www.lao.ca.gov 51 analysis full gutter 2020-21 BUDGET Figure 22 Historically, UC Tuition Has Increased When State Revenue Has Fallen Percent Change From Prior Year 40% Systemwide Tuition and Fee Charges 30 20 10 -10 State General Fund Revenue -20 1989-90 1994-95 1999-00 2004-05 2009-10 2014-15 2019-20 with up to 40 percent of their tuition costs . Another toward supporting their operating costs . In recent 5 percent of undergraduate resident students years, UC has increasingly relied on nonresident benefit from this program . As a result of these aid students to cover a portion of campuses’ operating programs, students from higher-income families are costs . Campuses have been increasing both their the most affected by tuition increases at UC . (The nonresident enrollment levels and their nonresident box below contains information about UC’s financial supplemental tuition charge . (This supplemental aid model .) charge is on top of the resident student charge .) Revenue From Nonresident Students Also Operational Savings and Nonstate Funds Are Helps Cover Cost Increases. The total amount Covering Some Cost Increases Too. In recent nonresident students pay in tuition charges years, UC has undertaken several strategies to exceeds their instructional cost . As a result, achieve operational savings and increase nonstate campuses can redirect the excess tuition revenue funding . UC has initiated some of these efforts, University Student Aid Program UC Has a Longstanding Student Aid Program. Under its aid policy, UC expects all resident undergraduate students to cover a portion of their college costs by saving, working part time, and/or borrowing . This amount is known as a student’s “self-help” expectation . After applying a family’s expected contribution and a student’s self-help expectation to the total cost of attendance (tuition and living costs), UC covers all remaining financial need through a combination of sources . Most notably, the UC aid program combines federal grants (including the Pell Grant), state grants (including the Cal Grant), and UC grants to meet remaining need . UC has a policy of redirecting one-third of revenue derived from tuition increases to help fund its aid program . (Nonresident undergraduate students at UC generally are ineligible for state and university financial aid .) 52 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET whereas the state has directed UC to implement 2024-25) . UC has not yet indicated when the Board others . The strategies have included improving of Regents will vote on these options . procurement practices, soliciting private donations, • Inflation-Based Option. The first option ties and increasing investment earnings by shifting cash tuition increases each year to the Consumer reserves into higher-return investment pools . In its Price Index, effectively keeping costs flat in annual budget request, UC projects the amount of real dollars for tuition-paying students . In operational savings and nonstate funds that will be 2020-21, UC estimates the inflation-based available to help cover its operating costs . option would provide an additional $63 million . UC Can Use Operating Reserves to • Cohort-Based Option. The second option Cover Some Costs. As we noted in our recent increases tuition each year but only for the publication, The 2020-21 Budget: Analyzing incoming cohort of first-time students . During UC and CSU Cost Pressures, UC reports that the remainder of their time at UC, tuition for campuses had core fund balances of $1 billion at students in that cohort remains flat . Under this the end of the 2017-18 fiscal year . Of this amount, option, tuition for the fall 2020 cohort would UC reports that $826 million was designated for increase at the rate of the Consumer Price future costs, such as capital spending or start-up Index plus an additional 2 percentage points . funds for newly hired faculty . The remaining UC estimates this approach would provide an $323 million was not committed for future costs . additional $37 .5 million in 2020-21 . The university has not provided reserve estimates for 2018-19 and 2019-20 . UC Is Also Projecting Revenue Growth From Nonresident Students. UC has not yet Proposals finalized its decisions about nonresident students Governor Opposes Increasing Tuition for in 2020-21 . In November 2019, the Board of Resident Students. The Governor’s budget Regents considered a particular plan that would assumes (1) the state covers all UC operating cost enroll more nonresident students, resulting in an increases in 2020-21 and (2) UC does not raise increase in net revenue to UC of $13 million . At tuition . The Governor opposes increasing tuition, that time, the board did not adopt increases in publicly stating that an increase is unwarranted and nonresident supplemental tuition . The board’s two counter to his affordability goals . The proposed potential tuition plans, however, would increase the budget bill retains provisional language from nonresident supplemental charge at the same rate previous budgets granting the administration the as the resident tuition charge . authority to reduce UC’s General Fund support UC Anticipates New Savings and Increases if UC increases the resident tuition charge . The From Other Fund Sources. The university language limits the amount the administration can assumes it will receive $63 million in additional reduce to the associated Cal Grant and Middle ongoing resources from further procurement-related Class Scholarship costs resulting from a tuition savings, private donations, and investment returns . increase, effectively making any tuition increase Assessment fiscally neutral to the state . UC Is Considering Two Tuition Options. In Legislature Faces Many Tuition November 2019, the Board of Regents approved Considerations. Though the state tasks the Board a budget plan requesting more funding than of Regents with the responsibility to determine provided under the Governor’s budget . Both to tuition levels, in practice this decision is closely help fund its budget priorities and give students connected to the level of General Fund support that more predictability in their tuition charges, the the state provides . Given this close connection, the board in January 2020 discussed two possible Legislature likely will want to weigh in on UC tuition tuition plans . The plans would be intended to guide levels in 2020-21 . In particular, it likely will want tuition decisions over the next four years (through to determine whether to increase tuition and how www.lao.ca.gov 53 analysis full gutter 2020-21 BUDGET to increase tuition . As Figure 23 Figure 23 shows, the Legislature faces Key Considerations Regarding Student Tuition Increase several related considerations, which we discuss in greater detail Whether to Increase Student Tuition below . • Is the existing share of cost students pay reasonable? Is Existing Share of Cost • How would tuition increases affect student affordability? Reasonable? In 2019-20, we • Is there capacity in the budget for other legislative priorities? estimate student tuition revenue How to Increase Student Tuition comprises 13 percent of core • Which option provides students and their families greater predictability? funding at UC . By holding tuition • Which option is better connected to UC cost increases? flat and covering costs with the state General Fund, the Governor in additional budget capacity . (The tuition increase implicitly is suggesting that the share of costs generates $35 million, of which $12 million would contributed by tuition-paying students is too high . be used for UC aid and $10 million for higher Were the Legislature interested in maintaining the Cal Grant costs .) Similarly, achieving operational existing share of cost, it would grow General Fund savings, increasing nonstate funding, and and student tuition at equal rates . strategically using reserves helps increase budget How Would Increases Affect Affordability? capacity to fund additional priorities . While tuition increases obviously increase college Of Two Options, Which Provides Greater costs for students who pay tuition, tuition increases Predictability? Developing a long-term tuition have the counterintuitive effect of improving college policy helps ensure predictability both for affordability for students with financial need . This Californians as they plan for college and for is because financial aid programs generally cover students once they enroll in college . In our view, any tuition increases for financially needy students both tuition options under consideration by the and, at UC, more tuition revenue results in more Board of Regents improve predictability . The first aid for living costs . The increase in UC aid results option of tying tuition increases for all students in a corresponding reduction in the amount of to the Consumer Price Index has the benefit of working and borrowing students must undertake to providing students a relatively predictable schedule cover living costs . According to a UCOP analysis, of charges over time . Under this approach, tuition were the state to continue holding tuition flat, effectively remains flat in real dollars while the the average amount of funding students would student attends college . The cohort approach need to contribute from working and borrowing offers even greater certainty to students once they (known as the self-help expectation) would are enrolled . Under the cohort-based approach, increase from around $10,000 in 2019-20 to over students face higher costs their first year compared $13,000 in 2024-25 . By contrast, UC estimates to the inflation-based approach, but tuition remains this expectation would be around $1,000 less in flat for them thereafter . In their subsequent years of 2024-25 under either of its two multiyear tuition college, these students see their costs decline in options . real dollars . Is There Budget Capacity for Other Of Two Options, Which Is More Connected Legislative Priorities? When the state covers all to UC Cost Increases? Tuition increases ideally UC cost increases from the General Fund, it leaves would be linked to cost increases each year . less state funding available for other legislative Arguably, neither tuition option under consideration priorities within higher education and across other by the Board of Regents connects well to UC cost areas of the state budget . Increasing tuition, by increases . This is because UC costs often increase contrast, creates more capacity to fund some of at different rates than the Consumer Price Index . these other priorities . In 2020-21, we estimate In a year where UC spending rises faster than every 1 percent increase in undergraduate tuition inflation (perhaps due to rising pension costs or and fees provides the state on net with $13 million legislative decisions to enhance service levels), 54 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET the state would be responsible for covering a tuition levels in 2020-21 . Once the Legislature disproportionate share of costs . Alternatively, in a determines the desired level of costs to support year where costs rise below inflation (perhaps due and other available funds, we recommend it cover to certain efficiencies realized by the university), any remaining cost increase using ongoing General students would bear a disproportionate share . Fund . Were the Legislature interested in more closely Illustration of Two Budget Plans. Figure 24 connecting annual tuition decisions to UC cost shows two illustrative UC budget plans for changes, it could consider adopting a “share of 2020-21 . Both plans assume the Legislature funds cost” policy, a longstanding recommendation of $256 million in ongoing cost increases at UC, our office . In the box on page 56, we discuss this consisting of 3 percent salary increases, as well policy in more detail . as UC’s estimated cost increases for employee Some Other Considerations Exist for benefits, OE&E, and debt service . After considering Nonresident Tuition. Given that nonresident operational savings and funds from nonresident students pay more than their education costs, enrollment growth, the first option results in the state likely faces different considerations General Fund spending of $180 million . Under for them than affordability or predictability . In the first option, General Fund spending exceeds recent years, the primary motivation behind the $169 million provided in Governor’s budget . increasing nonresident tuition has been to offset Under the second option, UC would implement UC’s operational costs . Significantly increasing the first year of its inflation-based tuition increase . nonresident tuition, however, could eventually The second approach frees up $52 million General lead to revenue reductions as a result of less Fund relative to the Governor’s budget for other demand . While nonresident freshman enrollment legislative priorities . These options are solely has steadily grown, UC’s nonresident tuition illustrative . The Legislature has numerous other charges are relatively high . In 2018 (the most recent options, including approving a different set of cost year of data available), we estimate that average increases and adopting different plans for resident undergraduate nonresident charges at UC are and nonresident tuition . 47 percent higher than nonresident charges across the nation’s Figure 24 other public research-intensive Two Illustrative Budget Plans for UC in 2020-21 universities . (In Millions) Recommendations No Tuition Tuition Increase Increase Develop Plan to Share Cost Increases. To determine the Cost Increases level of state General Fund to Salary increases (3 percent) $131 $131 Employee benefits 66 66 provide for UC cost increases Other operating expenses 44 44 in 2020-21, we recommend the Debt service 15 15 Legislature first account for UC’s Subtotals ($256) ($256) projected $63 million available from Higher Cal Grant costs — $28 operational savings and nonstate Totals $256 $284 fund sources . We recommend the Nonstate Funds Legislature then recognize any Operational savings $63 $63 revenue increases resulting from Systemwide tuition increase — 63 nonresident enrollment growth Nonresident tuition increase — 29 and tuition increases . Next, we Nonresident enrollment growth 13 13 recommend the Legislature set its Totals $76 $167 expectations regarding resident General Fund Spending $180 $117 www.lao.ca.gov 55 analysis full gutter 2020-21 BUDGET Share of Cost Policy Our office has long recommended the Legislature adopt a “share of cost” policy to guide tuition decisions . Under such an approach, the state would first determine the share of education costs to be paid by the state and California students . After attaining the desired shares, the state would maintain them by increasing state funding and student tuition at the same rate each year . Because the policy would determine annual tuition increases based on total cost increases provided to UC each year, a share of cost policy would be much more connected to UC costs than the tuition options currently under consideration by the Board of Regents . Though students would not know exactly how much their tuition would increase in any given year, students might have greater confidence that the tuition they pay is tied to actual UC cost increases and spending decisions approved by the state . AGRICULTURE AND NATURAL these three campuses, the ANR division operates nine off-campus centers, known as “research RESOURCES and extension centers,” located across the state . In this section, we analyze the Governor’s These UC-owned sites contain laboratory space proposed General Fund base increase to UC’s for research on specialized resource management Agriculture and Natural Resources (ANR) division . issues . The centers also host outreach and training We first provide background on ANR, then describe programs for farmers and industry in the state . the Governor’s proposal, assess the proposal, and Beyond these UC-owned sites, the university make corresponding recommendations . also houses staff at local sites known as “local cooperative extension offices” across the state . Background Division Employs Research Experts Division Focuses on Research and Outreach. Throughout State. ANR employs about UC’s ANR division is a federal, state, and local 300 research experts who specialize in topics partnership focused on research and outreach ranging from forestry to livestock management . relating primarily to agriculture and natural resource About half of these experts (known as specialists) management . Just as campuses and UCOP are are based on one of UC’s three agricultural thought of as distinct parts of the university system, campuses or nine research and extension centers . so too is the division of ANR . The division’s central The other half of these experts (known as advisors) administration is located at UCOP’s offices in are community-based, located at ANR county Oakland . A Vice President oversees the division, and community sites . The general role of these which consists of 30 administrative and support community experts is to conduct specialized staff . Below, we provide further information on the research important to a region and serve as a division’s other locations, programs, and budget . resource to local communities . Division Offers Programs on Campuses, at Division Oversees Local Outreach Programs. Off-Campus Centers, and Via Local Offices. As ANR also serves as the state’s coordinator Figure 25 shows, ANR’s footprint extends across for Cooperative Extension, a national network the state . Some ANR programs and employees are promoting community outreach programs . The housed at the UC Berkeley, Davis, and Riverside outreach focuses on topics such as gardening, campuses . Each of these campuses have colleges youth development, and nutrition . In California, focused on agriculture and natural resources, these programs are overseen by around 350 ANR and their deans (as well as the dean of the UC coordinators (known as community educators) . Davis School of Veterinary Medicine) oversee Some of ANR’s community-based research experts campus-based ANR programs . In addition to also devote a portion of their time to supporting 56 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET Figure 25 UC’s Agriculture and Natural Resources Programs Have Notable Footprint Intermountain University of California Campus Research and Extension Center Local Cooperative Extension Office Sierra Foothill Hopland UC Davis UC Berkeley Kearney West Side Lindcove Hansen UC Riverside South Coast Desert www.lao.ca.gov 57 analysis full gutter 2020-21 BUDGET these outreach programs . Several of the programs this approach, UCOP retained responsibility for rely heavily on local volunteers . determining the portion of campus fee revenue Division Supports Campus Faculty Research. to allocate to ANR . In the 2017-18 budget, ANR also supports research at the Berkeley, Davis, responding to concerns from the California State and Riverside campuses in a program known as the Auditor over UCOP’s budget transparency, the state Agricultural Experiment Station program . (Under the directed UC to eliminate the campus fee approach . program, these three UC campuses are designated In its place, the state created a new line item in the as experiment stations .) This research is conducted annual state budget for UCOP . This line item did by tenure/tenure-track faculty and funded by state not break down the amounts going specifically for and federal research grants . Generally, faculty UCOP versus ANR . In 2018-19, the state instituted participating in this program spend a portion of even greater transparency by adding a budget their time on ANR research projects, with the provision specifying the amounts for UCOP and remainder of their time (and compensation) devoted ANR separately . ANR’s level of state funding has to regular instruction and research activities on their not been adjusted since 2017-18 . respective campuses . The division estimates that Despite Flat Funding, Division Has Been over 600 campus faculty dedicate at least part of Funding Cost Increases. Like campuses, ANR their time to these ANR research projects . faces cost pressures each year . These pressures Program Is Supported by Multiple Fund include employee salary increases, employee Sources. ANR’s budget is as complex as its benefit cost increases, and OE&E . According to organizational structure . In 2019-20, the division ANR staff, though the division’s state funding has estimates its budget to be $223 million . Of this remained flat in recent years, the division has amount, about one-third ($73 million) comes continued to support cost increases by reducing directly from state General Fund, another spending in certain programs and drawing down approximately one-third ($66 million) comes reserves . In a July 2019 item to the Board of from competitive research grants (often federally Regents, UC reported using $3 .2 million in UCOP supported), and the remaining one-third comes reserves to cover ANR cost increases . from various other sources (such as formula-based Proposal federal funds and local county funds) . According to ANR staff, the estimated funding amount includes Governor Proposes General Purpose some funds—such as local county funds—that help Increase. Similar to his approach for providing a support program costs but are not administered 5 percent base increase to UC’s core academic directly by ANR . It also includes federal funding for program, the Governor proposes providing ANR the Agricultural Experiment Station program but a general purpose base increase of $3 .6 million excludes additional state General Fund ($86 million) (5 percent) . The division would have flexibility to provided for that program . According to ANR staff, set its budget priorities, but provisional language these latter state funds are separate in that they are requires that the proposed increase not supplant allocated directly to campuses by UCOP . ANR’s other fund sources . State Now Line-Item Budgets ANR. The ANR Indicates the Augmentation Likely Would approach to budgeting for ANR has changed Support Compensation and Other Operational over the years . Prior to 2012, the Board of Cost Increases. As we sought information Regents allocated a portion of state General Fund about what ANR would do with the proposed support directly to UCOP, which in turn allocated augmentation, ANR staff developed a budget a portion to ANR . In 2012, the university moved plan (Figure 26) . ANR’s planned cost increases— to supporting UCOP and ANR through campus totaling $3 .9 million—exceed the amount of funding fees . Under this approach, all state General Fund proposed by the Governor by about $300,000 . support was allocated directly to campuses and The university has not further elaborated as to campuses paid a fee to UCOP based on their how it would adjust its budget plan it fit within the enrollment, staffing levels, and budget . Under proposed augmentation . 58 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET Assessment Figure 26 State Lacks Established Process to ANR Spending Increases Are for Compensation Determine Funding for ANR. When the state and Other Operating Expenses made the decision to directly appropriate funds 2020-21 Budget Plan (In Millions) to ANR in the annual budget act, it effectively Cost Increases Amount assumed responsibility for setting ANR’s state funding level . Because this arrangement is still Academic employee salaries (4 percent) $2.0 relatively new, the state lacks a well-developed Employee benefits 1.1 Staff salaries (3.1 percent) 0.6 process for assessing ANR’s cost pressures, Operating expenses and equipment 0.3 determining which ANR programs it would like Total $3.9 to expand or reduce, and calculating associated ANR = Agriculture and Natural Resources. budget adjustments . Equally of concern, the state has no established method for annually assessing how well and how cost-effectively ANR is fulfilling were considered prior to requesting funds . Using its mission . this standard budget approach would provide the Legislature more information on ANR’s annual cost Proposal Shares Same Flaws as Governor’s increases and allow policymakers to better tie Other Base Increase Proposals. Though we funding decisions to specific budget priorities . appreciate the challenges in budgeting for ANR given the lack of an established review process, ANIMAL SHELTERS we are concerned with the Governor’s approach of providing an augmentation for unspecified In this section, we provide background on animal purposes . Providing a 5 percent augmentation shelters in California, describe the Governor’s that is disconnected from projected cost increases proposal to fund an animal shelter outreach or programmatic priorities is arbitrary, lacks initiative, analyze the proposal, and offer issues for transparency, and weakens accountability . legislative consideration . Recommendations Background Focus on Maintaining Existing Services. Local Governments Are Responsible for As with other CSU and UC augmentations, Operating Shelters. Generally, local governments we recommend the Legislature tie any ANR in California administer animal control services . augmentation to specific cost increases . The These services include housing animals that are Legislature could first determine how much funding stray or abandoned by their owners . Some cities it would like to provide for employee benefits and and counties run their own shelters, while others OE&E . Next, it could make a determination on contract for services . In addition to public shelters, salary increases for ANR researchers and staff . nonprofit shelters and rescue groups also house Direct ANR to Submit Formal Budget stray animals or develop networks of foster homes . Proposals Beginning Next Year. Moving forward, According to experts at UC Davis, there are over we recommend the Legislature direct ANR to 300 public and private animal shelters in California . undertake the same process as other state Public Shelters Rely on Local Government agencies in requesting augmentations . Under the Funds and Fees. Public animal shelters receive standard budget review process, state agencies direct funding from their local government . submit formal funding requests (known as “budget In addition, many shelters receive certain fee change proposals”) to the Department of Finance . revenues, such as from dog licensing fees and These proposals (1) identify the amount of funding adoption fees . Furthermore, shelters can receive requested; (2) explain how the funds would be private donations to help fund their operations . used; and (3) provide justification for the proposal, No comprehensive data exist on animal shelter including an evaluation of alternative options that budgets . Limited data, however, suggest that www.lao.ca.gov 59 analysis full gutter 2020-21 BUDGET most funding for animal services comes from local The state eventually suspended this mandate (along governments . For example, the City of Los Angeles with numerous other mandates) in 2009-10 . reports spending $27 million on animal services in Number of Animals Euthanized Appears to Be 2019-20 . Of this amount, 98 percent was funded Declining. Each year, the California Department of from the city’s general funds and the remainder was Public Health surveys local shelters on their intake from private donations and other sources . of animals and whether the animals are placed into Shelters Euthanize Some Animals. It is homes or euthanized . While the data appear to be estimated that hundreds of thousands of dogs somewhat inconsistent across the years (likely due and cats enter California shelters each year . As to inconsistent shelter participation in the survey), shelters generally do not have capacity to house the overall number of animals that are euthanized all of these animals permanently, shelters must appears to be declining (Figure 27) . The decline in find long-term solutions . Animals that are deemed recent years could be due to many factors, such healthy and behaviorally compatible are made as the economic recovery, improved community available for adoption . Animals with diseases outreach among animal shelters, and other or posing behavioral risks may be treated by improved shelter practices . in-house veterinary staff, depending on the shelter’s UC Davis Operates Research Center on resources . Shelters can euthanize animals that are Animal Shelters. Located at the UC Davis School terminally ill or cannot otherwise be rehabilitated . of Veterinary Medicine, the Koret Shelter Medicine Furthermore, shelters may euthanize healthy Program conducts research and outreach on animals to free up capacity for incoming animals animal shelter medicine and management issues . when space is limited . The program consists of one director, five FTE State Established Policy to Promote Animal veterinarian faculty, and 4 FTE staff . According to Adoption. Chapter 752 of 1998 (SB 1785, Hayden) program staff, the Koret program does not receive changed state policy regarding shelter care for core UC funding for its operations . Instead, the animals . Most notably, Chapter 752 declared, “It program funds its operations from a mix of sources, is the policy of the state that no adoptable animal including private donations, grants, fees from should be euthanized if it can be adopted into a consulting services provided to animal shelters, and suitable home .” Furthermore, the law lengthened endowment income (Figure 28) . In 2019-20, the the minimum amount of time (generally from three program reports receiving $1 .3 million . to six days) that shelters must care for animals Proposal before euthanizing them . Mandate Stemming From Policy Has Been Governor Proposes $50 Million One-Time Suspended. After enacting Chapter 752, the General Fund for Animal Shelter Outreach Commission on State Mandates ultimately Initiative. The funding would be allocated directly determined that the state was responsible to the UC Davis Koret program, which would have for added costs to local shelters . Though the five years to spend the funds . Proposed trailer commission reasoned that shelters could recover bill language directs that the funds be used to costs from fee revenue when animals are adopted, support statewide outreach activities, individualized it concluded that shelters could not recover costs consulting with shelters, and a competitive grant when animals are ultimately euthanized after the program . It does not specify the amounts to be initial holding period . The commission created a used for each of these activities . reimbursement methodology based primarily on Proposal Contains Various Intent Provisions. the cost of caring for animals that were euthanized . The trailer bill language states intent that the Rather than providing more state funding for program prioritize funds for shelters that are located shelters with increased animal adoptions, this in communities with underserved populations methodology resulted in the state providing more and offer “the greatest likely return on one-time funding to shelters that euthanized more animals . investment .” Furthermore, the program would be authorized to give “additional consideration 60 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET to working with communities that do any of the its potential benefits are unclear . Given the initiative following: (1) seek to maximize the number of is new and does not have specified milestones, the animals whose lives can be saved; (2) demonstrate state has less certainty it will achieve its goal to partnerships between public, private, corporate, reduce the number of animals that are euthanized . and/or nonprofit entities; and (3) emphasize Given these trade-offs, the Legislature will likely volunteer engagement and community outreach want to weigh its one-time options carefully and components for purposes of increasing the select the options that have the highest returns . sustainability of the program’s investments .” The language directs Figure 27 the program to ensure that funding The Number of Animals Being Euthanized Is Declining is spread throughout the state . The Number of Animals Euthanized in California language prohibits the funds being used for UC administrative costs . 350,000 Under the proposal, UC would be 300,000 required to report on the program Cats 250,000 by March 31, 2022, and every two years thereafter until March 31, 200,000 2028 . 150,000 Dogs Issues for Consideration 100,000 Important for Legislature to 50,000 Weigh Proposal Against Other One-Time Priorities. As our 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 office has noted in numerous publications, the state and UC face several billions of dollars in existing unfunded liabilities . These liabilities Figure 28 include unfunded pension liabilities, UC Davis Koret Program unfunded retiree health liabilities, Receives Funding From Several Sources sizeable facility maintenance 2019‑20 backlogs, and large backlogs of Other upgrades for seismically deficient buildings . Providing one-time funding to address these existing Endowment Income liabilities provides generally clear, known benefits—helping to reduce future costs and risks Grants while improving the state’s overall budget condition . In contrast, Consulting Revenues $1.3 Million the return to the state from funding many small, new one-time programmatic enhancements— such as animal shelter outreach— does little to advance progress toward addressing existing Private Donations liabilities . Moreover, the concept of the animal shelter outreach initiative appears well intended, but www.lao.ca.gov 61 analysis full gutter 2020-21 BUDGET Animal Shelter Augmentation Is Substantial • Statewide and shelter-specific information but No Expenditure Plan Exists. Were this proposal on animal intake, live release rates, and ultimately to be deemed a high legislative priority, euthanized rates . we think some improvements are in order . Assuming • The Koret program’s annual budget, including the Koret program spends the proposed $50 million funding, spending, and fund balances . evenly over five years, the $10 million available each year would increase the program’s annual funding FACILITIES almost eight-fold . Despite this surge in funding, the Governor does not require the program to submit an In this section, we analyze UC’s proposed expenditure plan prior to release of the funding . The capital outlay projects for 2020-21 . We first Legislature likely will want to better understand how provide background on facility projects and the program plans to increase its operations prior to bond financing at UC . Next, we describe UC’s appropriating the funds . 18 project proposals . We then offer our assessment Proposal Could Create Pressure for Ongoing of those proposals, along with our associated Funding in Future Years. We also encourage recommendations . the Legislature to consider the potential ongoing cost pressures that could result from adopting the Background proposal . To the extent that the Koret program and Campuses Fund Three Kinds of Facility local animal shelters use their funding under the Projects. Depending upon various factors, initiative to increase their operations (such as by campuses may seek to construct new facilities, hiring additional staffing to facilitate more animal renovate existing facilities, or conduct major adoptions), they very likely would face challenges maintenance on existing facilities . New construction sustaining these activities after the five-year projects tend to be driven by a campus’s long-range grant period ends . Given the augmentation is so development plan to expand its enrollment or significant, identifying sufficient additional private service levels . Renovation projects tend to occur philanthropy, grants, or other nonstate funds to when many structural components of a facility sustain operations on an ongoing basis could be (such as its plumbing and electrical systems) have particularly difficult . become outdated . Renovation projects sometimes More Information Would Be Essential for are associated with seismic issues and the desire Evaluating the Initiative. Given the significant of a campus to improve a facility’s seismic-safety flexibility that the Koret program might have to rating . Compared to full renovation projects, major allocate the proposed funds, program oversight maintenance tends to involve replacement or fixing and reporting will be essential for the Legislature to of only one or a few structural components of a evaluate the initiative’s outcomes in future years . As building (such as replacing a heating and cooling proposed, trailer bill language would require UC to system) . Major maintenance projects typically are report biennially on “grants made, pending grants, intended to extend the useful life of such systems . program accomplishments, and the future direction When campuses defer maintenance projects, they of the program .” Were the Legislature interested develop backlogs that must be addressed in future in pursuing this proposal, it likely would want years . more specific, additional information, including the UC Is Assessing Seismic and Maintenance following: Backlogs. In past years, UC staff have cited • How grant recipients spent their funds, that campuses have backlogs relating to seismic including whether the funds supplemented or renovation and maintenance projects totaling supplanted existing funds . billions of dollars . The university, however, has • What outreach activities the Koret program not cited specific estimates of the size of these provided and whether shelters implemented backlogs, primarily given concerns that campuses recommended best practices as a result . are not consistently or comprehensively reporting their facility conditions . To obtain better information, 62 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET UC is in the midst of conducting two standardized Figure 29 systemwide assessments, described below . UC Rates Buildings Based on One Set of Assessments Focuses on the Seismic Risk Seismic Safety of Buildings. Campuses are Ratings Based on UC’s Seismic Safety Policy contracting with third-party consultants to assess the condition of their facilities’ structural components . Implied Risk Implied Structural Based on these assessments, consultants are Level to Life Damage rating each facility a level between one and seven, I Negligible 0-10% with seven representing the highest risk during an II Insignificant 0-15 earthquake (Figure 29) . The state did not earmark III Slight 5-20 funding for these facility assessments . According to IV Small 10-30 V Serious 20-50 UC, UCOP and campuses are sharing the cost of VI Severe 40-100 conducting them, with funds coming from within their VII Dangerous 100 existing budgets . Another Set of Assessments Focuses on for its proposed projects . Each year, UC must Maintenance Issues. Known as the Integrated notify the Legislature in September of the projects Capital Asset Management Program (ICAMP), it intends to undertake . The Department of the university is working with a team of in-house Finance has until April 1 to select which projects experts to assess the condition of campus to approve . Though the university is not required buildings . The university’s goal is to develop a to receive project approval from the Legislature, comprehensive assessment of each campus’s the Legislature can nonetheless influence which maintenance backlog . The university is funding projects are undertaken by (1) signaling its the program with university bonds that the state infrastructure priorities to the administration and approved in 2017 . According to UCOP, ICAMP UC, (2) conveying its concerns with specific project results will be available toward the end of the proposals prior to April 1, and (3) adjusting UC’s 2020 calendar year . General Fund appropriation to reflect changes in UC Is Developing a Long-Term Plan to debt service costs . Address Seismic and Maintenance Backlogs. To State Bond Debt Service Is Scheduled to better guide state and UC funding decisions, the Increase in 2020-21. As part of the financing Legislature directed UC in the 2019-20 budget to changes the state made in 2013-14, it developed develop a long-term plan to address its seismic and a new arrangement with the university to pay maintenance issues . In addition to providing the existing debt associated with previously issued state with estimates of the size of its seismic and state general obligation bonds for UC projects . maintenance backlogs, UC’s plan must include a Under the new arrangement, the state transferred multiyear strategy to address the backlogs . UC must funds used to pay the associated debt service submit its plan to the Legislature by January 2021 . ($200 million) into UC’s main budget appropriation . University Bonds Now Used to Finance UC Moving forward, UC is expected to use the funds Projects. In 2013-14, the state changed how to pay general obligation bond debt service on it financed and reviewed UC projects . Under behalf of the state . As UC retires this debt over the new financing approach, UC (rather than time, funds will be freed up to finance additional the state) sells bonds, and UC uses its General UC projects . As Figure 30 (see next page) shows, Fund support to pay the associated debt service general obligation bond debt service is projected on the bonds . The new process limits UC to to increase by $50 million in 2020-21, then spending a maximum of 15 percent of its main decrease by $43 million in 2021-22 . The increase General Fund appropriation on debt service and in 2020-21 is due to how the State Treasurer chose pay-as-you-go academic facility projects . Before to schedule certain payments . Given the one-time selling a bond, UC must receive state approval nature of the increase, UC staff suggest that the www.lao.ca.gov 63 analysis full gutter 2020-21 BUDGET information and project proposals, Figure 30 bringing its request for 2020-21 UC Debt Service Costs Expected to Rise in 2020-21 up to 18 projects . As Figure 31 (In Millions) shows, the state cost of these projects in 2020-21 would be General obligation bonds $500 $545 million . UC would finance UC bonds the $545 million using General Fund-supported university bonds . 400 The remaining costs would be covered by other fund sources 300 (such as campus reserves) or UC bonds supported from other fund sources . In mid-February, 200 the administration submitted a letter to the Legislature providing 100 preliminary approval for all 18 projects . All but Four of the Projects 2018-19 2019-20 2020-21 2021-22 Entail Seismic Renovations. Of the 18 projects, 14 are seismic renovations—together totaling $321 million in 2020-21 . Twelve university plans to accommodate the higher cost of the seismic renovations would within its existing budget . be on buildings that currently have a Level VI rating Voters Are Considering New General (the “severe risk” category) and 2 would be on Obligation Bond on March Ballot. As noted in buildings that currently have a Level V rating (the previous sections of this report, Chapter 530 placed “serious risk” category) . Nine of the 14 projects a new education facilities bond, Proposition 13, on are at the Berkeley and Davis campuses . All 14 of the March 2020 ballot . Among other provisions, the the projects aim to upgrade the facilities to at least measure would authorize up to $2 billion in general a Level IV rating (the “small risk” category), the obligations bonds for UC facilities (with some of the minimally-acceptable level under UC policy . $2 billion potentially used for projects at Hastings UC Proposes Separate Package of “Planning College of the Law) . Under Chapter 530, the UC Activities.” UC proposes $80 million for facility Board of Regents would be required to prioritize planning activities . Of the total, $50 million would UC projects that address life-safety issues, be to plan for various potential projects . In late seismic deficiencies, and deferred maintenance . January 2020—several months after submitting the To qualify for funding, Chapter 530 would require original proposal (which had virtually no detail)— UC campuses to develop five-year plans to expand UC submitted a list of seven potential projects affordable housing options for their students . (Figure 32, see page 66) . UC intends to fund any remaining cost for most of these projects with Proposals Proposition 13 funds, were voters to approve Governor Preliminarily Approves 18 UC the bond next month . The remaining $30 million Projects for 2020-21. In September 2019, UC that UC is requesting would be to conduct more submitted six project proposals to the state for in-depth seismic analyses across the UC system . review . (In one of these proposals, UC signaled UC Proposes Three Other Projects. The three it intended to fund numerous renovation projects remaining projects are for: but had not yet finalized the project list .) On January 13 of this year, UC submitted additional 64 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET • A New Medical School Building system . It has not yet identified the specific ($94 Million). UC’s sole new construction projects to be funded . request in 2020-21 would be for a new • Centennial Bridge Relocation ($15 Million). medical school building at the Riverside UC also is proposing to relocate a road campus . The new building is associated with overpass at the Berkeley campus . a broader proposal to expand the existing Annual Debt Service Costs Would Increase medical school’s operations and enrollment . by $44 Million. When UC undertakes a project, it We discuss this proposal in greater detail in typically does not issue bonds until the construction another report . phase is about halfway completed . UC covers the • Deferred Maintenance ($35 Million). Similar costs prior to issuing bonds through low-interest to the previous three fiscal years, UC is interim borrowing, which is repaid from the bonds . proposing to use university bonds to fund Because of this practice, UC does not anticipate deferred maintenance projects across the issuing bonds and paying debt service until 2022-23 . Once UC issues bonds, it projects total Figure 31 Governor Preliminarily Approves 18 UC Facility Projects for 2020-21 (In Thousands) All Years 2020-21b Campus Projecta State Cost State Cost Total Cost Seismic Renovations San Diego Meyer Hall and York Hallc $52,158 $52,158 $54,408 Berkeley Stephens Hall 46,870 46,870 46,870 Berkeley Wellman Hall 43,793 43,793 43,793 Davis Social Sciences and Humanities Building 33,400 33,400 33,400 Los Angeles Public Affairs Building 25,000 25,000 28,800 Davis Voorhies Hall 24,200 24,200 24,200 Davis Young Hall 23,800 23,800 23,800 Berkeley Durant Hall 20,010 20,010 20,010 Santa Barbara Music Building Unit 1 15,000 15,000 15,000 Davis Jungerman Hall 12,200 12,200 12,200 Other Sacramento Learning Complexd 11,400 11,400 18,400 Davis Mann Laboratory 5,670 5,670 5,800 Berkeley Moffitt Library 5,327 5,327 5,327 Irvine Social Science Lecture Hall 2,261 2,261 3,577 Subtotals ($321,089) ($321,089) ($335,585) Construction Riverside New School of Medicine Building $93,600 $100,000 $100,000 Maintenance Systemwide Deferred maintenance $35,000 $35,000 $35,000 Other Systemwide Various planning activities $80,000 $80,000 $80,000 Berkeley Centennial Bridge relocation 15,181 15,181 27,681 Totals $544,870 $551,270 $578,266 a For most projects, includes all project phases. b Funded by university bonds. The total annual debt service for all projects shown is estimated to be $44 million. c UC proposes funding the working drawings phase of this project as part of its $80 million request for various planning activities. d UC recently purchased a new building to house its education and outreach programs in Sacramento, replacing its old seismically deficient (Level V) building. The project would renovate the interior of the new building. www.lao.ca.gov 65 analysis full gutter 2020-21 BUDGET drawings, and construction—in Figure 32 2020-21 . While approving all UC Identified Seven Projects to Receive Planning Funds in 2020‑21 project phases in one year might (In Millions) allow campuses to complete Campus Project Funds some projects faster, it limits the Legislature’s ability to weigh in on Santa Cruz Thimann Laboratories replacement building $12.5 a project’s final scope and costs . Davis Renovation of five buildings 12.0 Under the proposed approach, Santa Babara New physics building 8.0 Berkeley Evans Hall replacement building 6.0 campuses would finalize the San Diego Mayer Hall and York Hall seismic renovation 4.5 scope, cost, and schedule of each Santa Barbara Chemistry building seismic renovation 4.0 project without oversight and Berkeley Hesse-O’Brien replacement building 3.0 approval from the state . Having no Total $50.0 subsequent review from the state is particularly of concern because debt service costs to eventually rise to $44 million the law granting UC its new capital in 2025-26 . UC would pay debt service costs over authority exempted UC from provisions that prohibit about 30 years, with payments across all years state agencies from significantly changing the totaling $1 .1 billion ($545 million in principal and scope and cost of a project . $533 million in interest) . Though the projects would Future Legislative Review Is Important Given not increase costs in 2020-21, UC debt service Key Scoping Decisions Have Yet to Be Made. costs are nonetheless increasing in the budget year For most of the seismic renovation proposals, as it begins financing projects the state approved in campuses have not yet decided whether to renovate previous years . their buildings to a Level III or Level IV rating . In discussions with our office, UC staff noted that Assessment deciding whether to upgrade to a Level III and Approach to Selecting Projects Is Significantly Level IV rating requires complex analysis, weighing Better Than in Previous Years. Over the years, the benefits of further reducing risks with the added our office has raised concerns about UC’s cost and possible project disruptions to building approach to selecting facility projects . Historically, services . Given the potentially significant implications UCOP has deferred significant facility planning for the scope, cost, and schedule of projects, we responsibilities to campuses . The approach has believe it is important for the Legislature to review often resulted in projects tailored to local campus the project proposals once campuses complete the priorities without clear focus on broader statewide planning phases . For many of the proposed projects, goals . Furthermore, the university does not have a campuses plan to complete the planning phases at formal process to prioritize seismic and life-safety the end 2020-21 and commence with bidding for projects over programmatic expansions . This year, construction contracts in 2021-22 . This time line the university has responded to both concerns by suggests that the state could postpone approving taking a more systemwide approach to reviewing construction of these projects to next year without projects and giving critical seismic renovation delay in project completion . projects top priority . In our view, this more Package of “Planning” Proposals Has consistent, systemwide approach better positions Several Problems. We have four concerns with the state and UC to address the most urgent facility the $50 million package of planning proposals, as projects and reduces the state’s exposure to future described below . life-safety risks . • Funding for Future Project Phases Might Approving All Project Phases in One Year Not Be Forthcoming. UC currently is linking Is Poor Budget Practice. As it has done in future support of these projects to the past years, UC requests that the state approve passage of Proposition 13 . Were voters to all project phases—preliminary plans, working 66 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET reject the measure next month, it is unclear Budget Committee of the projects it wishes to whether UC would be able to proceed with undertake after the state approves the bond the projects . funding . In our view, obtaining a list of project • Project Proposals Lack Essential Details. For proposals prior to approval would allow the all but one of the projects, the university has Legislature to conduct regular review of the not provided a complete, standard proposal, proposals to ensure greater transparency, including the estimated cost of future phases oversight, and accountability over use of the and justification for the project’s scope . requested funds . • Proposed Planning Costs Are High. The Recommendations amounts requested for planning are relatively high for several projects, with two projects Modify Renovation Projects by Approving requesting $12 .5 million and $12 million, Planning Phases Only. To allow the Legislature respectively, for their planning phases . The the ability to further assess the scope of the planning costs of these projects are about 14 proposed seismic renovation projects, we double the costliest planning phases UC recommend the state approve only the preliminary submitted last year . Because these proposals plans and working drawings phases at this time . are not complete, the Legislature lacks Under this more deliberative approach, campuses adequate information to know whether the would return next year to the Legislature with relatively high costs are justified . more analysis on the costs and benefits of renovating facilities to a Level III or Level IV rating • One Project Looks to Be a Low Priority. One before commencing with construction . This more of the proposed projects would construct a incremental approach is consistent with the way the new building . Given UC has provided little detail state funds facility projects across many other state about the new construction project and why it agencies . is warranted, coupled with the notable backlog of remaining Level VI seismic renovation Reject Proposed Planning Funds. Given our projects, the Legislature likely will want to treat concerns with the $80 million for various planning this particular project as lower priority . activities, we recommend the state reject the proposal in its entirety . Regarding the $50 million for Using Bond Financing for Initial Seismic seven potential projects, we recommend UC take Assessments Is Poor Budget Practice. While time to develop completed proposals and submit the university indicates that it needs to undertake them for review as part of the 2020-21 budget . further seismic assessments, we question the Regarding the $30 million for seismic analyses, we use of bonds to fund the studies . Consistent with recommend the university fund these studies from standard bond practices, we believe bond funding its existing budget (for example, using its reserves) . is most appropriate to undertake facility projects Withhold Recommendation on Deferred that have a useful life spanning decades . One-time Maintenance. We withhold our assessment and studies tend not to be good candidates for recommendation of UC’s deferred maintenance long-term borrowing . (We raised this same point in request until the university submits a list of regard to UC’s use of bond funds to support ICAMP proposed projects to the Legislature . in 2017-18 .) Furthermore, as we noted in our recent If Proposition 13 Passes, Recommend publication The 2020-21 Budget: Cost Pressures Developing a Plan for Prioritizing Funds. at UC and CSU, UC campuses have hundreds of Were Proposition 13 to pass in March 2020, the millions of dollars in discretionary reserves . These Legislature will face a key decision regarding reserves would be a better fund source for these whether to use Proposition 13 funds in lieu of UC studies than bonds . bonds or in addition to UC bonds . Depending on UC Lacks List of Proposed Maintenance when UC campuses can meet certain specified Projects. Under UC’s deferred maintenance conditions (including completing the required proposal, UC would notify the Joint Legislative affordable housing plans), the Legislature could www.lao.ca.gov 67 analysis full gutter 2020-21 BUDGET face this decision as early as this year . We project backlogs, the Legislature could give funding recommend the Legislature begin considering priority to these types of projects . the financing approach it would like to use were Request UC to Report on Affordable Housing the measure to pass . We also recommend the Plans During Spring Hearings. Lastly, were Legislature begin thinking about what kinds Proposition 13 to pass, the Legislature likely of projects it would like to prioritize over the would want to know what is entailed in campuses next few years . Given Chapter 530 has intent completing the required five-year affordable housing language to prioritize critical life safety and plans . To this end, we recommend the Legislature deferred maintenance projects, together with UC’s direct UC in spring hearings to report on campuses’ considerable seismic renovation and maintenance progress toward developing these plans . EXTENDED EDUCATION In this part of the report, we provide background cost for their employees .) Because extended on extended education, describe the Governor’s education divisions must earn enough money proposal to fund CSU and UC extended education to cover their operating costs, they tend to be programs, assess the proposal, and offer an entrepreneurial . Extension staff develop and offer associated recommendation . courses and programs largely based on market research gauging student demand . Background Program Reserves Support Research and Extended Education Operates Outside of Development. To fund market research and Campuses’ Regular Academic Programs. In curriculum development for new programs, California, both CSU and UC run extended education extended education divisions set aside funds in programs that provide instruction and education reserves . In 2018-19, CSU extended education services to adult learners and nontraditional students . programs received $395 million in operating funds Students who enroll in extended education programs and ended the fiscal year with total reserves of typically do not have to meet the same academic $222 million . In the same year, UC extended standards as students seeking admission to CSU’s education programs received $278 million . and UC’s regular academic programs . Extended Information on UC extended education reserves is education programs generally are offered on a not publicly available . first-come, first-served basis . Extended Education Programs Generally Campuses Have Flexibility in Developing Offer Three Main Types of Instruction. First, Their Extended Education Programs. The CSU campuses offer a variety of stand-alone classes Chancellor’s Office and UCOP give CSU and UC and seminars covering topics ranging from conflict campuses, respectively, significant flexibility to resolution to music appreciation . Extension develop and operate their extended education divisions have considerable latitude to develop the programs . Virtually all CSU and UC campuses curriculum for these classes . Second, extended choose to run these programs . education offers programs that confer professional Extended Education Is Self-Supported. Unlike certificates and awards in areas such as digital regular academic programs, extended education marketing and paralegal studies . Extension programs generally do not receive state funding . divisions often collaborate with industry partners Instead, they are self-supporting, receiving their in developing the curriculum for these types of support from course fees . (Students generally do classes . Third, programs offer courses that confer not receive financial aid for these types of courses, academic credit, typically applying to a bachelor’s but, in some cases, employers contract directly or master’s degree . To develop a degree-applicable with extended education programs to cover the course, extended education divisions must 68 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET undergo the same Academic Senate approval on online programs . The Governor proposes process as regular degree programs . This process provisional language requiring student fee revenue includes ensuring course content is sufficiently from the new programs to be no greater than the comprehensive and rigorous . All three types of programs’ instructional costs . Furthermore, the instruction may be delivered online or face-to-face language states an intent that students’ costs in on- or off-campus facilities . do not “exceed a reasonable proportion of the CSU Offers Bachelor Degrees Through students’ wage or salary increase anticipated within Extended Education. Currently, 15 CSU the first ten years of expected employment” after campuses offer a total of 49 bachelor’s degree completing a degree or certificate program . This programs through extended education . These language is similar to that adopted last year for the degrees are designed for individuals who started UC extended education initiative . college but never completed . CSU’s extended Proposal Requires Reporting on Use of education bachelor’s degree programs focus on Funds. To receive the proposed funds, CSU upper-division instruction, with the expectation that and UC would be required to provide a budget students complete lower-division coursework at a and implementation plan to the Legislature and community college or elsewhere before enrolling . Department of Finance . The plan needs to identify Twenty-nine of the 49 programs are partially or fully the new degree and certificate programs that the online . In 2018-19, a total of about 6,800 students universities would develop and describe how these earned a bachelor’s degree through CSU extended programs eventually would become self-supporting . education . In contrast to CSU, none of UC’s Provisional language also requires CSU and UC extended education programs confer bachelor’s to submit an implementation report by June degrees . 2021 and every two years thereafter . This report State Recently Funded Expansion of UC must include (1) a description of current reentry Extended Education. In the 2019-20 budget, programs; (2) recommendations to increase access the state provided $15 million (one-time General to and enhance the success of these programs; Fund) to UC extended education . According to the (3) information on how each extended education administration, the overall intent of the funding was program meets regional labor market needs and to (1) develop more extended education bachelor’s student demand; and (4) enrollment, completion degree programs for students with some college rates, and other program information . but no degree, (2) expand existing extended Assessment education programs culminating in workforce certificates, and (3) provide outreach to prospective Proposal Raises Similar Concerns as Previous students . The administration intends for the new Proposal. When the Governor proposed funding programs to eventually become self-supporting for extended education last year, we raised several from student fee revenue . Provisional language in concerns . Little further information or justification the budget conditioned the release of the funds has been forthcoming since that time, such that we on UC submitting a budget and implementation continue to have the same concerns . We discuss plan to the Legislature and Department of Finance . these concerns below . The funds are available for UC to spend through Core Problem Has Not Been Clarified. The 2023-24 . administration indicates it is concerned about the number of adults in California with some college Proposal but no degree or certificate . While data suggest Goveronr Proposes a Total of $10 Million that millions of Californians have some college but One Time for CSU and UC Extended Education. no degree, the administration has not provided According to the administration, the one-time data on the share of these adults (1) who desire to funding to CSU ($6 million) and UC ($4 million) obtain a degree or certificate, (2) who are unaware would be for developing or expanding degree of their educational options, (3) who are unable completion or certificate programs, with a focus to access existing reentry options, and (4) the www.lao.ca.gov 69 analysis full gutter 2020-21 BUDGET reasons (such as cost, family obligations, or work extended education reserves at the end of hours) that they are unable to access existing 2018-19, $55 million was designated for new programs . Furthermore, the administration appears program development—nine times the amount of to be no closer to answering these questions General Fund the Governor proposes providing to despite the state already providing $15 million CSU . If the administration is convinced that CSU for expanding extended education in 2019-20 . and UC extended education programs are not Without these critical pieces of information at offering critical, high-demand degree or certificate hand, the Legislature lacks adequate information programs, it could discuss with the segments why to pinpoint specific problems and develop effective that may be the case and identify options for using corresponding strategies . existing reserves—rather than state funds—for A Plethora of Reentry Programs Already program development and marketing . Exist. Though the root issues have not yet been Premature to Provide Additional State Funds clarified, we know that former students who for Extended Education. Finally, we are concerned started but did not complete college have many with providing more funding for extended education options for returning to school . Individuals could so soon after appropriating $15 million in the apply for readmission to their original school . 2019-20 budget . To date, UC has not submitted a Depending on how much time has elapsed since plan to the Legislature for how it desires to spend the student last attended and the student’s its 2019-20 appropriation . UCOP just issued a academic standing at the time of withdrawal, a request for proposals to campuses in January college can decide whether to permit reenrollment . 2020 to develop plans for the funds, with the goal Another potential option for students is to transfer of announcing awardees in April 2020 . Without to another institution . For example, a student understanding how UC is allocating its initial who completed two years of coursework at a appropriation, the Legislature has little information community college before withdrawing could apply how the additional, proposed 2020-21 funds would as an upper-division transfer student to CSU or be spent and whether additional degree completion UC . Another option is to apply to a new school or certificate programs are needed . or program, including, for example, one of CSU’s Recommendation regular online bachelor’s degree programs or extended education bachelor’s degree completion Recommend the Legislature Reject Both CSU programs . Some private nonprofit schools—such and UC Proposals. For the reasons discussed as Western Governor’s University and Brandman earlier, we recommend the Legislature reject the University—also offer online bachelor’s degree Governor’s extended education proposals . Were programs specifically geared toward working adults the Legislature interested in pursuing the idea of and other nontraditional students . Beyond all these improving existing college reentry options, it could options, the state is in the midst of creating new direct the administration to gather more data on online programs leading to workforce certificates the topic . We think a good starting place would through the new online community college, be to address the data gaps we identified in our Calbright . Furthermore, some existing extended assessment . For example, the administration could education programs already are online, and some provide data on the share of adults with some of these lead to certificates . college but no degree who are unable to access Why State Funding Is Needed for Extended existing reentry options and the reasons why they Education Remains Unclear. As self-supporting are unable to access those options . Depending enterprises, extended education programs have a on what the data show, the Legislature likely strong financial incentive to identify new courses would want to consider tailored policy responses . and programs that have student demand and Were the main obstacle to be financial means, for labor market need . They then use existing funding example, the Legislature might want to consider (often reserves) to support planning, development, student financial aid options rather than creating and rollout . For example, of CSU’s $222 million more online extended education programs . 70 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET SUMMARY OF RECOMMENDATIONS CALIFORNIA COMMUNITY COLLEGES Governor’s Proposal LAO Recommendations/Issues to Consider Proposes $167 million (ongoing Proposition 98 Withhold Action. Wait until May and make decision based funds) to cover a 2.29 percent cost-of-living upon final COLA rate, updated state revenues, and available adjustment (COLA) for apportionments. Proposition 98 funding. If additional funding is available, consider providing a greater augmentation to apportionments. Proposes $32 million (ongoing Proposition 98 Withhold Action. Wait until spring when updated data on prior- and funds) to support 0.5 percent enrollment current-year enrollment become available. growth (7,779 full-time equivalent students). Proposes to redirect $125 million (ongoing Adopt Proposal. Consolidated program could help increase Proposition 98 funds) from eight existing coordination of systemwide activities and improve the ability of the programs into consolidated System Support CCC system to respond nimbly to changing needs. Program. Proposes $28 million (ongoing Proposition 98 Withhold Action. Wait to take action until updated data on funds) to support more apprenticeship apprenticeship instruction hours in 2018-19 and 2019-20 become instructional hours in 2020-21, plus available. Prioritize ongoing augmentation over one-time $20 million (one-time Proposition 98 funds) retroactive increase. for retroactive increase in 2019-20. Proposes $15 million (ongoing Proposition 98 Reject Proposal at This Time. In future years, better information on funds) for California Apprenticeship Initiative. whether newly created apprenticeship programs can be sustained could inform budget decisions. Proposes $20 million (one-time Proposition 98 Reject Proposal. CCC could support expansion of work-based funds) for new work-based learning initiative. learning opportunities within existing programs and resources. Proposes $11 million (ongoing Proposition 98 Modify Proposal. Building on earlier Hunger Free Campus initiative, funds) to support campus food pantries. require CCC to provide CalFresh enrollment assistance and report on student participation in funded activities. Proposes $15 million (one-time Proposition 98 Withhold Recommendation. Wait until additional information funds) for faculty diversity fellowship pilot is available about the proposal. If Legislature does not receive program. requested information by spring (including an analysis of the root problem the proposal is seeking to address and details on proposed spending for the program), consider asking the administration to return in a later year with a more complete proposal. Proposes $10 million (one-time Proposition 98 Modify Proposal. Recommend providing $8 million ongoing funds) for part-time faculty office hours. augmentation in place of proposed one-time funds. If ongoing funds are not available in the budget year, consider either rejecting proposal or spreading out proposed one-time funding over multiple years. Recommend requiring Chancellor’s Office to report annually on program participation to better gauge impact of funding on district behavior. Proposes $10 million (one-time Proposition 98 Withhold Recommendation. Wait until Chancellor’s Office funds) for zero-textbook-cost degrees submits overdue report on outcomes of 2016-17 initiative and the initiative. administration provides additional details on proposal. If report and additional information is not forthcoming by early April, request administration revise proposal for future submission. (Continued) www.lao.ca.gov 71 analysis full gutter 2020-21 BUDGET Governor’s Proposal LAO Recommendations/Issues to Consider Proposes $28 million (one-time Proposition 51 Adopt Proposal. Proposed projects were selected using a bond funds) for the preliminary plans and reasonable, consistent, systemwide review process. Approving working drawings of 24 new capital outlay proposed projects would keep Legislature on five-year track to projects. spend Proposition 51 funds. Proposes $17 million (one-time Proposition 98 Approve or Augment Proposal. Give maintenance program high funds) for maintenance program. priority for one-time funds. Program addresses existing liabilities, does not create future cost pressures, and (unlike many other one- time initiatives) does not entail new start-up costs. CALIFORNIA STATE UNIVERSITY Governor’s Proposal LAO Recommendations/Issues to Consider Proposes $169 million (ongoing General Fund) Reject Budgetary Approach. Rather than providing a general to provide a 4.6 percent base increase. purpose base increase, tie funding increases to estimated compensation and operational cost increases and desired programmatic enhancements. No proposed adjustment on 2019-20 enrollment Request Update at Spring Hearings. Request Chancellor’s Office (though CSU reports it is not on track to meet report at spring hearings on how and when CSU intends to meet its 2019-20 enrollment target). 2019-20 enrollment target. Does not provide enrollment growth funding or Reject Budgetary Approach. Set an enrollment target for 2020-21. set enrollment target for 2020-21. Consider multiple factors when setting enrollment target, including annual change in high school graduates, the eligibility pool from which CSU is drawing, and share of students denied admission to every CSU campus to which they applied. Proposes to cover all budget-year cost Consider Options to Increase Budget Capacity. Consider sharing increases with state support, with no increase cost increases between state funds and student tuition. Could also in revenue from student tuition. build budget capacity by designating CSU reserves for certain one- time purposes (such as deferred maintenance). Preliminarily approves eight facility projects Adopt Proposal but Request Overdue Report. Approve proposed (totaling $569 million in state costs, to be projects but direct Chancellor’s Office to provide an update financed by CSU bonds in future years). on overdue report on long-term plans for addressing deferred maintenance backlog and seismic renovation backlog. Expresses intent to begin submitting spring Develop Plan. If Proposition 13 passes, develop a plan for projects to be funded with Proposition 13 prioritizing projects and request CSU to report at spring hearings bond funds, should the measure be approved on campuses’ progress toward developing affordable student by voters in March 2020. housing plans. (Continued) 72 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET UNIVERSITY OF CALIFORNIA Governor’s Proposal LAO Recommendations/Issues to Consider Proposes $169 million (ongoing General Fund) Reject Budgetary Approach. Rather than providing a general to provide a 5 percent base increase. purpose base increase, tie funding increases to estimated compensation and operational cost increases and desired programmatic enhancements. Proposes UC grow resident undergraduate Reject Budgetary Approach. Set enrollment target for 2021-22 enrollment above already budgeted levels for academic year. To set target, consider changes in the number of 2020-21 and 2021-22, but does not provide high school graduates (which is projected to grow for that year), enrollment growth funding or set enrollment the state’s longstanding eligibility policies (which UC is currently target. exceeding), and the share of eligible applicants who are referred to Merced (which has been growing). Fund any growth using the marginal cost formula but consider certain changes to the formula. Does not support UC’s plans to establish a Review UC Options and Develop Plan to Share Costs. Consider multiyear tuition policy and increase resident sharing cost increases between state funds and student tuition. tuition in 2020-21. Increasing tuition in the budget year would increase the state’s budget capacity without reducing affordability for financially needy students. UC’s tuition options would establish more predictable tuition increases, but the policies might not align well with UC cost increases. Also account for any resources resulting from tuition increases, operational savings, and nonstate funds into budget decisions. Could build even greater budget capacity by designating UC reserves for certain one-time purposes (such as seismic safety studies). Proposes $50 million (one-time General Fund) Weigh Against Other Priorities and Consider Modifications. to the UC Davis Koret Shelter Medicine To the extent the Legislature wishes to fund this initiative over Program for outreach and grants to animal other one-time priorities, direct the administration to provide an shelters. expenditure plan prior to appropriating funds, improve proposed reporting language, and consider potential ongoing costs pressures that could result from approving the one-time funding. Proposes $3.6 million (ongoing General Fund) Reject Budgetary Approach. Rather than providing a general to provide UC’s Agriculture and Natural purpose base increase, tie funding increases to estimated Resources (ANR) division a 5 percent base compensation and operational cost increases. In future years, augmentation. direct ANR to submit formal budget change proposals. Preliminarily approves 18 facility projects Modify Proposal. For 15 projects, authorize only the initial planning (totaling $545 million in state costs, to be phases. Reject certain other planning proposals, as UC has not financed by UC bonds in future years). submitted full documentation for these projects, and reserves might be a more appropriate source to cover associated costs. Withhold approval on deferred maintenance proposals until receiving and reviewing list of projects. (We discuss the new medical education building proposal in another report.) Does not have a plan for how new state general Develop Proposition 13 Plan. If the measure passes and obligation bond funds would interact with UC Proposition 13 funds are available for appropriation in 2020-21, bond funds if voters approve Proposition 13 in consider using these bonds (rather than UC bonds) to fund March 2020. proposed 2020-21 projects. Also direct UC at spring hearings to report on campuses’ progress toward developing the required affordable student housing plans. (Continued) www.lao.ca.gov 73 analysis full gutter 2020-21 BUDGET EXTENDED EDUCATION Governor’s Proposal LAO Recommendations/Issues to Consider Proposes $6 million (one-time General Fund) Reject Proposal. The administration has not clarified the core for CSU to develop extended education problem it is trying to address, a variety of reentry options already degree completion and certificate programs. exist, and it is unclear why state funding is needed given that extended education programs are self-supporting and maintain reserves to develop new programs. Proposes $4 million (one-time General Fund) Reject Proposal. The same concerns stated above apply to this for UC to develop extended education degree proposal. Furthermore, providing funding to UC in 2020-21 is completion and certificate programs. premature. The state provided $15 million to UC for the same purpose in last year’s budget and has little information as to how those funds will be spent. 74 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET www.lao.ca.gov 75 analysis full gutter 2020-21 BUDGET HIGHER EDUCATION UNIT Lisa Qing California Community Colleges: 916-319-8306 Lisa.Qing@lao.ca.gov Apprenticeships, Work-Based Learning, Food Pantries, and Facilities Paul Steenhausen California Community Colleges: 916-319-8303 Paul.Steenhausen@lao.ca.gov Apportionments, Faculty Issues, and Zero-Textbook-Cost Degrees California State University Extended Education Jason Constantouros University of California 916-319-8322 Jason.Constantouros@lao.ca.gov LAO PUBLICATIONS This report was reviewed by Jennifer Kuhn Pacella and Anthony Simbol. 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. 76 LEGISLATIVE ANALYST’S OFFICE