The 2022-23 Budget: California State University

2022-23 BUDGET The 2022-23 Budget: California State University Summary Brief Covers All of Governor’s Funding Proposals for the California State University (CSU). This brief analyzes the Governor’s proposals for CSU base support, enrollment, foster youth programs, facility maintenance, and climate-related initiatives. Legislature Could Tie Base Augmentation More Closely to Anticipated Cost Increases. The Governor proposes a $211 million (5 percent) unrestricted General Fund base increase for CSU in 2022-23. We recommend the Legislature replace this unrestricted base increase with an augmentation linked to specific cost increases. For illustration, at the Governor’s proposed funding level, the Legislature could cover CSU’s employee benefit cost increases, its previously negotiated salary increases, an approximately 3 percent increase in the salary pool for other employee groups, and certain other operating costs identified by CSU. Legislature Faces Two Key Enrollment Decisions. Because of an unexpected enrollment decline in 2021-22, CSU is projected to enroll fewer students in 2022-23 than it enrolled two years earlier. In light of the updated enrollment data, the Legislature may wish to reconsider providing CSU enrollment growth funding in 2022-23. Moving forward, we recommend the Legislature set a 2023-24 enrollment target for CSU and indicate its intent to provide associated enrollment growth funding (rather than having CSU accommodate the growth from within its base support as the Governor proposes for that year). Facility Maintenance Remains Underfunded at CSU. The Governor’s budget proposes $100 million one time for deferred maintenance and energy efficiency projects at CSU. CSU estimates an existing maintenance backlog of $5.8 billion, as well as an annual ongoing capital renewal need of $284 million to keep the backlog from growing. For comparison, CSU estimates spending an average of $182 million annually on maintenance. The Governor’s proposal is a prudent use of one-time funds, and we recommend the Legislature adopt at least the amount proposed. However, the Governor’s proposal still would not be addressing the ongoing problem of underfunding in this area. We encourage the Legislature to begin developing a long-term strategy for addressing CSU’s ongoing maintenance and renewal needs. Governor’s CSU Climate-Related Initiatives Lack Strong Rationale. The Governor proposes $81 million one time to construct the CSU Bakersfield Energy Innovation Center and $50 million one time to upgrade equipment and facilities at CSU’s four university farms. Although the Governor links these proposals to climate objectives, climate-related benefits appear to be a small component of both proposals. Moreover, neither proposal reflects the highest capital outlay priorities at CSU. The Legislature could consider redirecting these proposed funds to higher one-time spending priorities. GABRIEL PETEK | LEGISLATIVE ANALYST FEBRUARY 2022 www.lao.ca.gov 1 2022-23 BUDGET INTRODUCTION Brief Focuses on the California State around the Governor’s 2022-23 budget proposals University (CSU). CSU is one of California’s three for CSU. The first section of the brief provides an public higher education segments. Its 23 campuses overview of the Governor’s CSU budget package. provide undergraduate, teacher preparation, and The remaining sections of the brief focus on graduate education across a range of disciplines. base support, enrollment, foster youth programs, CSU generally offers degrees through the master’s facility maintenance, and climate-related capital level, while also providing doctorates primarily projects, respectively. in a few applied fields. This brief is organized OVERVIEW CSU Budget Is $12.4 Billion in 2021-22. Figure 1 As Figure 1 shows, CSU receives its funding CSU Receives Funding From a Few Key Sources from a few key sources. The Legislature focuses $12.4 Billion in 2021-22 its budget decisions around CSU’s “core funds,” which comprise about 70 percent ($8.8 billion) of CSU’s budget. Core funds at CSU primarily Noncore Funds consist of state General Fund and student tuition Other revenue, with a small portion coming from lottery funds. CSU primarily uses its core funds to support Federal Funds General Fund its academic mission of undergraduate and graduate education. Lottery Ongoing Core Funding Increases by Tuition and Fees Core Funds $467 Million (6 Percent) Under Governor’s Budget. As Figure 2 shows, nearly all of the increase comes from the General Fund. Ongoing General Fund Figure 2 would increase from $4.6 billion Nearly All of CSU’s Core Fund Increase in 2021-22 to $5.1 billion in 2022-23, reflecting an increase Comes From General Fund of $467 million (10 percent). Ongoing Core Funds (Dollars in Millions) The Governor’s budget assumes revenue from tuition and fees would Change From 2021-22 2020-21 2021-22 2022-23 remain flat. At this time, the CSU Actual Revised Proposed Amount Percent Board of Trustees has not adopted General Funda $4,026 $4,597 $5,064 $467 10.2% any plans to increase tuition Tuition and fees 3,277 3,163 3,163 — — charges in 2022-23. (Although Lottery 65 73 73 —b —b not reflected in the Governor’s Totals $7,368 $7,833 $8,300 $467 6.0% FTE studentsc 412,223 397,811 407,245 9,434 2.4% budget, the operating budget Funding per student $17,874 $19,691 $20,381 $690 3.5% adopted by the CSU Board of a Includes funding for pensions and retiree health benefits. Trustees assumes $43 million in b Amount is less than $500,000 or 0.05 percent. additional tuition revenue from c Reflects total resident and nonresident enrollment in undergraduate, postbaccalaureate, and graduate programs. enrollment growth.) FTE = full-time equivalent. 2 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET Governor Has Several CSU General Fund Figure 3 Priorities. As Figure 3 shows, the largest ongoing Governor Proposes New CSU Ongoing augmentation is a 5 percent unrestricted base increase. The Governor’s budget also provides and One-Time Spending ongoing augmentations for retiree health care General Fund Changes in 2022-23 Over Revised and pension cost increases, as well as enrollment 2021-22 (In Millions) growth. In addition, the Governor’s budget provides $234 million in one-time funding for specified Ongoing Changes Base augmentation (5 percent) $211 initiatives, including deferred maintenance and Retiree health benefit cost increase 82 energy efficiency projects, as well as certain Enrollment growth (9,434 FTE students) 81 climate-related initiatives. Pension cost increase 81 Governor Announces Multiyear Compact Foster youth programs 12 With CSU. In addition to his 2022-23 budget Other adjustments —a Subtotal ($467) proposals for CSU, the Governor has indicated his One-Time Initiatives intention to continue providing CSU with 5 percent Deferred maintenance and energy efficiency projects $100 base increases annually through 2026-27. He also Climate initiatives has indicated his interest in having CSU pursue CSU Bakersfield Energy Innovation Center $83 22 expectations spanning six priority areas— CSU university farms 50 increasing access for California students, improving Carryover funds 1 Subtotal ($234) student outcomes and equity, making CSU more Total $701 affordable for students, enhancing intersegmental a Less than $500,000. collaboration, improving workforce alignment, and FTE = full-time equivalent. expanding online education. The administration currently does not intend to codify these expectations. The Department of Finance indicates Governor’s multiyear compact with CSU, as well that the administration could consider proposing as his multiyear agreements with the University of smaller future base increases were CSU not to California (UC) and California Community Colleges make progress in meeting one or more of these (CCC), in our publication The 2022-23 Budget: expectations. We describe and assess the Overview of Governor’s Higher Education Budget Proposals. BASE SUPPORT In this section, we first provide background on spends its core funds on other annual costs, such CSU’s operating costs and how CSU generally as paying debt service on its systemwide bonds, covers its operating cost increases. Next, we supporting student financial aid programs, and describe the Governor’s proposed base increase covering other operating expenses and equipment for CSU, assess the Governor’s proposal, and make (OE&E). Each year, campuses typically face an associated recommendation. pressure to increase employee salaries at least at the pace of inflation, with certain other operating Background costs (such as health care, pension, and utility CSU Has Several Core Operating Costs. costs) also tending to rise over time. Though As with most state agencies, CSU spends operational spending grows in most years, CSU has the majority of its ongoing core funds (about pursued certain actions to contain this growth. For 75 percent in 2020-21) on employee compensation, example, CSU has pursued certain procurement including salaries, employee health benefits, and practices and energy efficiency projects with the pensions. Beyond employee compensation, CSU aim of slowing associated cost increases. www.lao.ca.gov 3 2022-23 BUDGET CSU Has Some Flexibility to Manage Its Assessment Operating Costs. In contrast to most state agencies, Base Increases Are Poor Approach to CSU has authority to negotiate collective bargaining Budgeting for Operating Costs. As we have said agreements with its unions, as well as to set salary in many previous publications, base increases levels for its nonrepresented employees. (About are a poor approach for two reasons. First, they 90 percent of CSU’s permanent employees are lack transparency. The Governor does not identify represented by a union.) CSU has somewhat less how CSU is to use its base increase. Moreover, control, however, over the cost of employee benefits. CSU itself does not adopt a corresponding This is because it participates in pension and health spending plan until after final budget enactment care programs administered by the California Public in June. Second, given the purpose of the Employees’ Retirement System, which makes funding is unspecified, the amount of proposed decisions that, in turn, affect CSU spending in these augmentations are arbitrary, lacking clear areas. CSU also faces certain limitations each justification based on documented cost increases. year related to non-personnel costs. For example, Some Compensation Costs Are Set to it generally must pay debt service on the bonds it Increase in 2022-23. Each year, CSU faces cost has issued. increases related to employee benefits. While the State Has Primarily Supported CSU Operations state covers the cost of certain retirement-related Through Unrestricted Base Increases. The state benefits for CSU employees, CSU covers the and CSU have two main means to cover CSU’s cost of other benefits, including employee operational cost increases: (1) state General Fund health, from its base funding. For 2022-23, CSU augmentations and (2) additional revenue from tuition estimates the cost of providing employee health increases. Since 2013-14, the state has provided benefits will increase by $14 million due to rising CSU with base General Fund increases in all years premiums. In addition, CSU faces costs due but one. (In 2020-21, the state reduced General Fund to salary increases. CSU recently negotiated a support for CSU to address a projected shortfall tentative agreement with its largest employee in revenues due to the pandemic. The funds were group, the California Faculty Association (CFA), restored the following year.) In most years, the which accounts for about half of its salary pool. base increases have appeared to be set arbitrarily, The tentative agreement links faculty salary without a direct link to CSU’s specific operating cost increases in 2022-23 to the base increase the state increases. In addition to these base increases, the provides CSU. If the state provides a base increase state has provided General Fund each year to cover between $200 million and $300 million, CFA would changes in certain CSU pension and retiree health receive a 3 percent general salary increase. Were costs. Over the same time period, CSU has increased the state to provide a base increase of $300 million tuition only once, raising systemwide charges by or higher, CFA would receive a 4 percent general 4.9 percent for undergraduate and teacher credential salary increase. At the Governor’s proposed base students and 6.5 percent for graduate students increase of $211 million, CSU anticipates that the in 2017-18. associated CFA salary provisions cost $86 million. (All cost estimates we cite for increases in the salary Proposal pool also include the cost of employer contributions Governor Proposes Unrestricted General for certain salary-driven benefits—namely pensions, Fund Base Increase. The Governor proposes social security, and Medicare.) a $211 million (5 percent) unrestricted General CSU Is Likely to Face Additional Cost Fund increase for CSU in 2022-23. (As part of his Pressures Related to Salary Increases. As of multiyear compact, the Governor proposes to provide this writing, most of CSU’s nonfaculty employees 5 percent base increases annually through 2026-27, either have open contracts for 2022-23 or are with future increases linked with CSU meeting certain non-represented. CSU estimates the cost of every expectations.) In addition to the 5 percent base 1 percent increase in its salary pool for these other increase, the Governor’s budget would provide a employees is approximately $23 million. When combined $162 million for CSU pension and retiree deciding how much funding to provide for salary health cost increases. 4 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET increases in 2022-23, the Legislature may wish Recommendation to consider findings from an upcoming study to Build Base Increase Around Identified evaluate CSU’s existing staff salary structure and Operating Cost Increases. We recommend consider alternative salary models. The state the Legislature decide the level of base increase funded this study in the 2021-22 Budget Act, and to provide CSU by considering the operating the CSU Chancellor’s Office is to report the findings cost increases it wants to support in 2022-23. to the Legislature and Department of Finance This could include employee health benefits by April 30, 2022. Additionally, the Legislature ($14 million), salary increases for employee groups may wish to consider the effects of inflation, with previously negotiated agreements ($86 million which is anticipated to be at its highest level in at the Governor’s proposed base funding level), several decades, likely generating pressure for increases in the salary pool for other employee larger-than-typical salary increases. groups (around $23 million for each 1 percent CSU Has Identified Three Other Operating increase), and various other operating costs Cost Pressures. These costs consist of a statutory identified by CSU ($40 million). For illustration, increase in the minimum wage (primarily affecting at the Governor’s proposed augmentation level CSU’s student workers), inflation on OE&E, and the ($211 million), the Legislature could cover benefit ongoing maintenance of new facilities. Campuses cost increases, the previously negotiated salary have somewhat limited flexibility to affect these increases, an approximately 3 percent increase in costs. In 2022-23, CSU estimates that costs in the salary pool for all other employee groups, and these areas will increase by a total of $40 million. certain other operating costs identified by CSU. ENROLLMENT In this section, we first provide background on budget is enacted in June, campuses have already the state’s approach to funding CSU enrollment, made the bulk of their admission decisions for the as well as review recent CSU enrollment trends. fall term and have little time to plan for additional Next, we describe the Governor’s proposed growth. Moreover, the state largely has lost its funding increases for enrollment in 2022-23 and ability to influence CSU admission decisions for that his proposed multiyear enrollment plan. We then year. Setting an outyear target allows the state to assess the Governor’s proposals and make send an early signal about enrollment expectations associated recommendations. before campuses begin planning and making admission decisions for the following year. Background Last Year’s Budget Set Resident State Typically Sets an Enrollment Target Undergraduate Enrollment Target for 2022-23. and Provides Associated Funding. In most years, In the midst of the pandemic, the Legislature the state sets a systemwide resident enrollment opted not to set enrollment growth targets in the growth target at CSU and provides an associated 2020-21 Budget Act. Such an approach gave General Fund augmentation. Augmentations CSU flexibility to manage funding reductions and have been determined using an agreed-upon uncertain enrollment demand that year. When per-student funding rate derived from the “marginal state revenues recovered the following year, cost” formula. This formula estimates the cost to the state resumed setting enrollment growth enroll each additional student and shares the cost targets. Specifically, the state set an expectation between anticipated tuition revenue and state in the 2021-22 Budget Act that CSU grow General Fund. Whereas the state historically has resident undergraduate enrollment in 2022-23 by set CSU enrollment targets for the budget year, 9,434 full-time equivalent (FTE) students, relative to two recent budgets have set a target for the year the number enrolled in 2021-22. following the budget year. By the time the state www.lao.ca.gov 5 2022-23 BUDGET Enrollment in 2021-22 Has Dropped Notably. compact, CSU would not receive additional funds As Figure 4 shows, CSU resident undergraduate for enrollment growth over the period, but instead it enrollment has generally increased over the past would need to accommodate the higher costs from decade, peaking at about 353,000 FTE students within its base increases. in 2020-21. In 2021-22, however, enrollment is Assessment declining. Though final 2021-22 enrollment data are not yet available, the Governor’s budget Recent Enrollment Decline Is Cause for reflects CSU’s initial estimates. Based on these Revisiting 2022-23 Expectation. As Figure 5 estimates, resident undergraduate enrollment shows, the notable enrollment decline in 2021-22 falls to about 340,000 FTE students in 2021-22— affects CSU’s 2022-23 enrollment level in an nearly 13,000 (3.6 percent) fewer students than important way. Even after adding the proposed in the previous year. CSU attributes this decline 9,434 FTE students, the projected resident to the effects of the pandemic, which led to fewer undergraduate enrollment level in 2022-23 applications from entering freshmen, as well as is 3,358 FTE students lower than the actual a smaller pipeline of transfer students due to enrollment level two years earlier in 2020-21. Under enrollment declines at CCC. the Governor’s budget, the state would in effect be providing more funding for CSU even though it Proposals would enroll fewer students. We think this likely runs Governor Proposes to Fund Resident counter to the Legislature’s intent to expand access Undergraduate Enrollment Growth in 2022-23. and fund greater enrollment. In accordance with the expectation set in the Legislature Could Still Influence 2023-24 2021-22 Budget Act, the Governor’s budget Enrollment. As CSU already is in the midst provides $81 million for CSU to grow resident of making admission decisions for 2022-23, undergraduate enrollment by 9,434 FTE resident the Legislature has limited ability at this point undergraduate students in 2022-23 over the to influence CSU’s 2022-23 enrollment level. 2021-22 level. The amount assumes that the General Fund share of the marginal cost per Figure 4 student is $8,586 (the estimated CSU Is Experiencing a 2021-22 rate—the rate available at Notable Enrollment Decline in 2021-22 the time of budget enactment). Resident Undergraduate Full-Time Equivalent Studentsa Governor Proposes 2023-24 Growth as Part of Multiyear Enrollment Plan. The Governor’s 370,000 compact includes a multiyear plan for CSU to grow resident 350,000 undergraduate enrollment by around 1 percent each year from 330,000 2023-24 through 2026-27. Though 310,000 proposed as part of the compact, the Governor does not specify 290,000 the 1 percent growth expectation for 2023-24 in the budget bill. 270,000 According to the administration, this annual growth would represent 250,000 more than 14,000 additional FTE 2012-13 13-14 14-15 15-16 16-17 17-18 18-19 19-20 20-21 21-22b students across the four-year a Includes state-supported summer enrollment. period. Under the Governor’s b Reflects estimates underlying Governor's budget. 6 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET The Legislature could, however, send an early signal Some Eligible Applicants Are Not Getting to campuses about its enrollment expectations Into Their Campus of Choice. Because some for 2023-24. In setting an enrollment target for CSU campuses and programs are “impacted” 2023-24, the Legislature could consider the trends (meaning they have more student demand than described below. available slots), some applicants meeting CSU’s minimum systemwide eligibility requirements are • High School Graduates. The Department not accepted at any campus to which they apply. of Finance projects the number of high Since fall 2019, CSU has been redirecting these school graduates in California to increase applicants to nonimpacted campuses. In fall 2020 by 0.6 percent in 2022-23. All else equal, an (the most recent data publicly available), CSU increase in high school graduates in 2022-23 redirected 14,848 eligible applicants, of whom only would increase CSU freshman enrollment 728 (5 percent) went on to enroll at a CSU campus. demand in 2023-24. Providing more enrollment funding to CSU could • Freshman Applications. CSU reports a potentially increase the number of students who large increase in freshman applications can enroll at their campus of choice. for the fall 2022 term (up 13 percent from Eligibility and Admission Policies Remain a the fall 2021 term), as of mid-January. Consideration. Historically, the state has expected Such an increase could signal a rebound CSU to draw its freshman admits from the top in freshman demand from a depressed one-third of the state’s high school graduates. pandemic enrollment level. Whether freshman As we have noted in previous analyses, CSU has applications will remain elevated for 2023-24 been found to be drawing from beyond these is uncertain. pools in recent years, and it likely continues to do • Community College Students. so. In past periods, the state has expected the CCC enrollment declined in 2020-21, and universities to tighten freshman admission policies a further drop is expected in 2021-22. Correspondingly, CSU reports a 9.6 percent Figure 5 decline in new transfer students in fall 2021, and an even steeper (14 percent) decline to 2022-23 Enrollment Is Projected to Be date in transfer applications for fall 2022. It is Down From Two Years Earlier uncertain whether transfer enrollment demand Resident Undergraduate Full-Time Equivalent Studentsa will recover by 2023-24. • Continuing Cohorts. In fall 2021, the 360,000 number of new resident undergraduates entering CSU was 6.8 percent lower than 350,000 in the previous fall. This smaller new cohort +9,434b will remain at CSU for the next few years, 340,000 potentially leading to fewer continuing students in 2023-24. 330,000 The collective impact of these demographic, 320,000 application, and cohort trends on CSU enrollment in 2023-24 is uncertain. Though we think notable 310,000 growth in CSU enrollment demand is unlikely, some growth is possible. That said, the pandemic 300,000 2020-21 2021-22 2022-23 continues to make enrollment projections Actual Estimated Projected unusually challenging. a Includes state-supported summer enrollment. b Reflects proposed enrollment growth target of 9,434 students in 2022-23 over the 2021-22 level. www.lao.ca.gov 7 2022-23 BUDGET when they were found to be drawing from beyond Recommend Setting Enrollment Target for these pools. When CSU tightens its admission 2023-24. We recommend the Legislature set a policies, it effectively redirects a portion of its target enrollment level for 2023-24 in the 2022-23 enrollment to CCC (which is likely to have capacity Budget Act. (As we discuss in The 2022-23 Budget: for additional students, given the enrollment Analysis of Major UC Proposals, specifying a decreases it has experienced during the pandemic). target total enrollment level provides greater clarity and accountability than setting only an incremental Recommendations growth target.) Given the concerns raised in the Legislature Could Reconsider 2022-23 previous section about unrestricted base increases, Funding. When the Legislature set the 2022-23 we recommend providing enrollment growth enrollment target last June, it likely did not funding to cover the associated cost rather than anticipate the notable enrollment decline in having CSU accommodate the cost from within its 2021-22. If CSU were to grow 9,434 additional base funding. We estimate that every 1 percent students in 2022-23 from the depressed growth in resident undergraduate enrollment in current-year level, it still would be serving about 2023-24 would add about 3,500 FTE students, 3,000 fewer students than it did in 2020-21. In light at a General Fund cost of around $35 million. of the updated enrollment data, the Legislature may We recommend scheduling any funds for growth in wish to reconsider providing CSU any enrollment 2023-24 to be appropriated in the 2023-24 budget, growth funding in 2022-23. as this approach allows the state more easily to align funding with updated enrollment estimates for that year. FOSTER YOUTH PROGRAMS In this section, we provide background on foster youth students face other disparities. CSU’s existing foster youth programs, describe Based on a 2018 CSU study, 63 percent of foster the Governor’s proposal to increase foster youth youth attending CSU reported experiencing food support at CSU, assess the proposal, and offer an insecurity, compared to 42 percent of all CSU associated recommendation. students. In addition, 25 percent of foster youth reported being homeless at least once in the past Background 12 months, compared to 11 percent of all students. Notable Disparities Exist for Foster Youth. Nearly All CSU Campuses Currently Have National data indicate foster youth enrolling in Foster Youth Programs. Of CSU’s 23 campuses, higher education are less likely to complete a 21 currently have a foster youth program, and bachelor’s degree than their peers. The available an additional campus is actively developing one. data indicate foster youth in California also tend (The remaining campus, Maritime, enrolls fewer to have lower graduation rates. Though CSU than 1,000 total students.) These foster youth does not track the graduation rates of its foster programs go by various names, including Guardian youth students, UC reports that foster youth who Scholars, Renaissance Scholars, and Promoting entered UC as freshmen in fall 2012 or fall 2013 Achievement Through Hope. The specific services had a six-year graduation rate of 68 percent, provided by these programs vary by campus but compared to 84 percent for their non-foster youth commonly include academic and career advising, peers. Similarly, foster youth who entered UC as financial assistance, workshops, and social events. transfer students from fall 2012 through fall 2015 (In addition, all CSU campuses are required under had a four-year graduation rate of 80 percent, state law to support current and former foster compared to 88 percent for their peers. In addition youth in several other ways, including by providing to academic differences, research shows that tuition waivers, priority registration for courses, 8 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET and priority for on-campus housing.) CSU indicates between $75,000 and $150,000 depending on its that about 1,300 current and former foster youth, program size, in addition to $4,250 per participant. out of an estimated 2,700 current and former foster The administration estimates the program would youth enrolled across the system, currently are serve a total of approximately 2,200 participants.) participating in campus foster youth programs. Campuses could use their funds for a broad range CSU’s Programs Rely Partly on External, of foster youth services, including outreach, service Partly on State Support. Comprehensive coordination, academic advising, career guidance, spending data on foster youth support services health and mental health service referrals, and across all CSU campuses is not available. However, financial assistance. (These are largely the same CSU reports that 12 campuses are spending a services that state law directs participating combined $3.4 million annually on their foster community colleges to provide under the NextUp youth programs. More than half of this funding foster youth program, reflecting the administration’s comes from external sources such as grants and intent to align foster youth support services across donations, with the remainder coming primarily segments. The Governor has a similar proposal for from the state (through base funding and certain UC.) The trailer bill language indicates that services student support programs). provided under the proposal are intended to supplement and not supplant existing foster youth Other Programs Also Provide Financial services provided by the campus, county, or state. Assistance to Foster Youth. The California The language also requires CSU to submit a report Student Aid Commission administers the Chafee on foster youth services and outcomes every two Educational and Training Vouchers Program, a years beginning March 31, 2024. federal program that provides grants of up to $5,000 annually to students who were in foster care Assessment between the ages of 16 and 18. The Governor’s Additional Support for Foster Youth Could budget includes $17 million (primarily in federal Be Warranted. Providing additional support funds) for the Chafee program in 2022-23 to provide targeted for foster youth could help address their awards to about 3,500 students across all higher academic disparities as well as their higher rates education segments. In addition, foster youth of food and housing insecurity. It also would align receive support through Cal Grants, the state’s with the Legislature’s broader interest in addressing main financial aid program. State law provides equity gaps at CSU. foster youth with expanded eligibility for Cal Grants, Proposed Program Structure and Reporting including by setting a higher age limit, a later Requirements Have Merit. Because the proposed application deadline, and a longer award duration. trailer bill language offers campuses flexibility to The Cal Grant program typically covers tuition for determine how the funds are used, campuses could financially needy students at CSU. The 2021-22 integrate the funds with their existing foster youth budget also increased the Cal Grant access award programs. Given that these programs currently rely (which is intended to cover nontuition expenses heavily on external funding, ongoing state funding such as food and housing) to $6,000 for current and could allow for greater stability in services from former foster youth, compared to $1,648 for most year to year, as well as greater capacity to expand other low-income students. services and potentially support more students. Proposal In addition, the proposed reporting requirement Governor Proposes Funding for Foster Youth would enable the Legislature to monitor program Support. The Governor proposes $12 million outcomes. Specifically, the recurring report would ongoing to CSU for this purpose. Under the provide information on the foster youth services proposed trailer bill language, the Chancellor’s provided by CSU campuses; detail on the use of the Office would develop a formula to allocate proposed state funds and any other funds for foster the funds to campuses offering foster youth youth services; and enrollment, retention, and programs. (The proposed funding level assumes completion rates for foster youth by campus. each campus would receive a base allocation of www.lao.ca.gov 9 2022-23 BUDGET Recommendation example, could consider using the $12 million to bolster core ongoing operations at CSU, as helping Consider Proposal Among Ongoing Spending CSU recruit and retain staff can promote overall Priorities. Given the proposal addresses a program quality. (In the “Base Increase” section documented problem, aligns well with existing of this brief, we highlight the salary pressures foster youth programs, and contains provisions CSU is facing, particularly in light of high inflation.) for legislative oversight, the Legislature has Another option would be to use the $12 million for clear reasons to adopt the Governor’s proposed other existing student support programs at CSU, augmentation. The Legislature, however, may wish including the Graduation Initiative, which is intended to weigh this proposal against its other ongoing to improve student outcomes and close equity gaps spending priorities for CSU. The Legislature, for across all student groups. FACILITY MAINTENANCE In this section, we provide background on CSU’s an updated estimate of its maintenance needs as maintenance backlog, describe the Governor’s part of the multiyear capital outlay plan it submitted proposal to fund deferred maintenance and energy to the Legislature in December 2021. Based on efficiency projects at CSU, assess the proposal, those updated estimates, CSU reports having a and offer associated recommendations. Throughout total ten-year capital renewal need of $2.8 billion, this section, we use “facility maintenance” broadly on top of an existing $5.8 billion maintenance to encompass activities needed to keep academic backlog. (This estimate of the backlog does not facilities and infrastructure in good condition. This reflect projects that have been funded but not yet includes capital renewal projects to replace aging completed.) As Figure 6 shows, CSU estimates it building components, such as roofs and heating would need to spend an average of $284 million and ventilation systems. annually over the next ten years to address its Background Figure 6 Campuses Have Maintenance Backlogs. CSU Reports Considerable Like most state agencies, CSU campuses are responsible for funding the maintenance and Maintenance and Capital Renewal operations of their buildings from their support Needs budgets. When campuses do not set aside enough (In Millions) funding from their support budgets to maintain their facilities, they begin accumulating backlogs. These Total Costs backlogs can build up over time, especially during Projected ten-year renewal need $2,842 Existing maintenance backloga 5,838 recessions when campuses sometimes defer Total $8,679 maintenance projects as a way to help them cope Average Annual Costb with state funding reductions. Capital renewal costs $284 CSU Has Developed Estimates of Its Facility Existing maintenance backlog 584 Maintenance Needs. To help guide future Total $868 state funding decisions, the Legislature in the Existing Annual Spendingc $182 Supplemental Report of the 2019-20 Budget Act Gap in Annual Spending $686 directed CSU to develop a long-term plan to a Does not reflect projects that have been funded but not yet completed. quantify and address its maintenance and capital b Reflects estimates of amounts CSU would need to spend each year for renewal backlog. In response, CSU submitted a ten years to prevent its backlog from growing while also eliminating the existing backlog. report quantifying its facility maintenance needs c Reflects average annual operating expenditures on major repairs and to the Legislature in January 2021. It also provided renovations from 2017-18 through 2019-20. 10 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET capital renewal needs and prevent its backlog projects identified by the campuses, with costs from growing, as well as an additional $584 million totaling $1 billion. Budget bill language would direct annually to eliminate its existing backlog. The the administration to report to the Legislature on the combined amount is $686 million more than the specific projects selected within 30 days after the best available estimate of CSU’s current annual funds are released to CSU. spending on these types of projects ($182 million). Assessment State Has Provided Funds to Address Backlogs. In the years since the Great Recession, Proposal Reflects a Prudent Use of One-Time the state has provided one-time funding to CSU Funding. Providing funds for deferred maintenance projects would address an existing need that is to help campuses address their maintenance growing. Addressing this need can help avoid more backlogs. Figure 7 shows the amount appropriated expensive facilities projects, including emergency by the state for deferred maintenance and related repairs, in the long run. Funding energy efficiency purposes each year from 2015-16 through 2021-22. projects also could be beneficial, as these projects Funding over the period totals $659 million, with are intended to reduce campuses’ utility costs about half of that amount provided in 2021-22. over time. Notably, the state allowed CSU to use its 2021-22 allocation to pay for either deferred maintenance One-Time Funding Does Not Address or energy efficiency projects. CSU reports that it Underlying Cause of Backlog. Deferred is spending about 80 percent of the allocation on maintenance backlogs tend to emerge when deferred maintenance projects (some of which also campuses do not consistently maintain their have an energy efficiency component), and the facilities and infrastructure on an ongoing basis. remaining 20 percent on projects strictly intended Based on its estimates, CSU would need to to improve energy efficiency. increase its ongoing spending on maintenance and capital renewal by more than $100 million just Proposal to keep the backlog from growing. (This reflects Governor Proposes Funding for Deferred the gap between CSU’s average annual capital Maintenance and Energy Efficiency Projects. renewal costs of $284 million and its existing The Governor proposes to provide $100 million annual spending of $182 million.) Although one-time one-time General Fund to CSU for these purposes. funding can help reduce the backlog in the short CSU indicates the distribution of funds between term, it does not address the underlying ongoing deferred maintenance and energy efficiency problem of underfunding in this area. projects likely would be similar to last year. CSU Recommendations indicates it would likely allocate the funds among the campuses based on factors such as the age Consider Governor’s Proposal as a Starting and square footage of their facilities, as well as their Point. To address CSU’s maintenance backlog, amount of deferred maintenance need. Campuses we recommend the Legislature provide at least would have discretion to choose specific projects. the $100 million proposed by the Governor. As it CSU has submitted to our office a list of potential deliberates on the Governor’s other one-time Figure 7 State Has Provided Funding to Address Deferred Maintenance at CSU One-Time Funds (In Millions) 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 General Fund $25 $35 — $35 $239a,b — $325c a The 2020-21 budget package allowed CSU to repurpose unspent 2019-20 deferred maintenance funds for other operational purposes. b Amount was provided for deferred maintenance or campus-based child care facilities. c Amount was provided for deferred maintenance or energy efficiency projects. www.lao.ca.gov 11 2022-23 BUDGET proposals and receives updated revenue Consider Developing Strategy to Address information in May, the Legislature could consider Ongoing Maintenance and Capital Renewal providing CSU with more one-time funding for this Needs. In addition to providing one-time funding purpose. (Though we focus on CSU in this budget for deferred maintenance, we encourage the brief, other state agencies also have deferred Legislature to begin developing a long-term maintenance backlogs. The Legislature could strategy around university maintenance and capital consider providing one-time funding to address renewal needs. Potential issues to consider include these backlogs too, particularly as the Governor timing, fund sources, ongoing versus one-time has not proposed funding to most other agencies funds, and reporting. Given the magnitude of the for this purpose in 2022-23.) ongoing maintenance and capital renewal needs at the universities, developing such a strategy would likely require significant planning beyond the 2022-23 budget cycle. CLIMATE-RELATED CAPITAL PROJECTS In this section, we provide background on capital Proposals outlay planning and financing at CSU, describe the Governor Proposes to Construct Energy Governor’s proposals to fund certain CSU capital Innovation Center at CSU Bakersfield. projects related to climate change, assess those The Governor’s budget provides $83 million proposals, and offer associated recommendations. one-time General Fund for the proposed building. (The Governor’s budget includes many The Governor’s Budget Summary indicates that climate-related proposals, spanning a wide this proposal supports climate change research. range of policy areas including the environment, In conversations with our office, the administration transportation, housing, workforce development, has further specified that the building would and education.) allow for research and development on carbon management and clean energy issues, in Background collaboration with the Kern County energy sector, CSU Has a Multiyear Capital Outlay Plan. among other potential collaborators. Under state law, CSU submits a capital outlay plan Governor Proposes Funding Equipment annually to the Legislature by November 30. The and Facilities at University Farms. Four CSU plan includes a list of projects proposed for each campuses (Chico, Fresno, Pomona, and San campus over the next five years, as well as the Luis Obispo) operate university farms to support associated costs. The most recent plan identifies instruction and research in their agriculture $16.4 billion in academic facility projects (and programs. The Governor’s budget provides $7 billion in self-supported projects) proposed for $50 million one-time General Fund for these 2022-23 through 2026-27. For 2022-23, the plan university farms to acquire equipment and identifies 23 priority academic facility projects construct or modernize their facilities. Provisional costing a total of $3.1 billion. CSU primarily finances language indicates the funds are “to support its academic facility projects through university program efforts to address climate-smart bonds, paying the associated debt service from agriculture and other climate-related issues.” its General Fund support appropriation. At times (including most recently in the 2021-22 Budget Act), the state has also provided one-time General Fund to support specific CSU capital outlay projects on a pay-as-you-go basis. 12 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET Assessment appear on CSU’s priority list, it ranks 11th out of the 23 projects. The ten projects ranked above it Climate-Related Research Space Is a Small include infrastructure improvements across the Element of Proposed CSU Bakersfield Building. 23 campuses, as well as four projects to address Although the building would include space for seismic deficiencies at specific campuses. We think research on climate-related issues, research is only it is reasonable to prioritize these projects over a small portion of the project proposal. Based on the Bakersfield project, given that they address project data from CSU, research space accounts issues relating to life safety and the continuation for only about 10 percent of the assignable of existing campus operations. If the Legislature space within the proposed building. As Figure 8 wishes to add space for engineering programs as shows, the largest component of the building is the Governor is proposing, CSU’s top ten priorities instructional space, primarily consisting of teaching also include two other such projects—at the labs for the engineering, physics, and computer San Marcos and Sacramento campuses. We think science programs. Other building components these latter two projects have stronger justification include a 240-seat auditorium, faculty offices, than the Bakersfield project, as the San Marcos and student study space. That is, the bulk of and Sacramento campuses utilize their existing the proposed funding would likely go to typical teaching lab and classroom space at notably higher academic facility costs, without a direct nexus to rates than the Bakersfield campus. Moreover, the climate innovation. In addition, 13 percent of the engineering program at the San Marcos campus is assignable space within the proposed building is impacted (meaning it cannot accommodate existing for the campus’s extended education programs—a enrollment demand). self-supported enterprise that typically would be expected to fund its own facility projects. Climate Benefits of University Farms Figure 8 Proposal Are Likely Minor. Similar to the CSU Small Portion of CSU Bakersfield Bakersfield proposal, the university farms proposal Building Is Focused on Research primarily would support capital improvements for certain academic programs—in this case, Allocation of 49,000 Assignable Square Feet agriculture programs at four CSU campuses. CSU has submitted a list of 14 projects that the four campuses would pursue with the proposed funds. The list includes some projects with Researcha climate-related objectives, such as replacing older farm vehicles with electric vehicles and upgrading irrigation systems to conserve water. However, the climate-related objectives are less clear for other Otherc proposed projects, such as adding space to a meat Instructionb lab, replacing a beekeeping lab, and modernizing horticulture facilities. On the whole, it is uncertain whether the climate benefits of the proposed Extended Education university farm projects would exceed the climate benefits of other capital projects that CSU routinely Auditorium/Foyer undertakes—including the energy efficiency projects discussed in the previous section. Other CSU Capital Outlay Priorities Outrank Governor’s Proposals. CSU’s 2022-23 capital a Consists of California Energy Research Center and other research space. b Consists of teaching labs, classrooms, student project space, and other instructional outlay priority list does not include any projects support space. at the university farms, suggesting other capital c Consists of administration space, faculty offices, and student tutoring and group study space. needs are likely of greater urgency systemwide. Although the CSU Bakersfield building does www.lao.ca.gov 13 2022-23 BUDGET Recommendations need to use the associated funds for excludable purposes.) This could include capital improvements Consider Proposals a Lower Spending at CSU, such as addressing its maintenance Priority. We do not see a strong rationale for backlog (described in the previous section) or prioritizing either the CSU Bakersfield Energy funding higher-priority academic facility projects. Innovation Center or the university farm equipment Alternately, it could include capital purposes and facility improvements. Based on our elsewhere in the budget that have a clearer focus assessment, neither proposal is likely to have major on climate change research and development, climate benefits, and neither reflects the highest such as the Governor’s proposed industrial capital outlay priorities at CSU. The Legislature decarbonization program at the California Energy could consider redirecting the proposed funds Commission. (We plan to provide our assessment to other capital purposes. (Because both of the of the proposed industrial decarbonization program Governor’s proposals are excludable from the state in an upcoming brief.) appropriations limit, the Legislature very likely would 14 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET www.lao.ca.gov 15 2022-23 BUDGET LAO PUBLICATIONS This report was prepared by Lisa Qing, and reviewed by Jennifer 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, California 95814. 16 LEGISLATIVE ANALYST’S OFFICE