The 2023-24 Budget: California Community Colleges

2023-24 BUDGET The 2023-24 Budget: California Community Colleges GABRIEL PETEK | LEGISLATIVE ANALYST | FEBRUARY 2023 SUMMARY Brief Covers the California Community Colleges (CCC). This brief analyzes the Governor’s budget proposals relating to enrollment, apportionments, and facilities maintenance. It also describes funding protections for district apportionments under the Student Centered Funding Formula (SCFF) and identifies a potential funding shortfall in the Governor’s budget. Opportunities Exist to Repurpose Enrollment Funds for Other Proposition 98 Priorities. Consistent with nationwide trends, community colleges in California experienced significant enrollment declines during the pandemic. In response, recent state budgets have provided districts with funding to grow their enrollment. Based on preliminary data, districts will not end up earning some of this enrollment growth funding. We recommend the Legislature sweep any unearned growth funds for other Proposition 98 purposes and use updated enrollment data this spring to help decide how much growth funding to provide in the budget year. In addition, given the substantial funding still available to districts for student outreach, we recommend the Legislature reject the Governor’s proposal to provide an additional $200 million one time for this purpose by reducing funding in the current-year budget for facility maintenance. We recommend the Legislature effectively retain those funds for facility maintenance projects, as most of those funds already have been distributed to districts and committed to projects that would reduce their maintenance backlogs. State Likely Has Limited Capacity to Fund an Even Higher Cost-of-Living Adjustment (COLA). The largest community college proposal in the Governor’s budget is $653 million ongoing Proposition 98 General Fund for an 8.13 percent COLA for apportionments (general purpose funding). Based upon new data, the estimated COLA rate is even higher (8.40 percent). In 2023-24, districts are facing considerable pressure to increase employees’ salaries given high inflation, while also facing other core operating cost increases. Despite these challenges, we are concerned with the state’s ability to support a higher COLA rate given its budget condition. We recommend the Legislature treat the 8.13 percent COLA rate as an upper bound for 2023-24 and consider providing a lower rate depending on updated estimates of the Proposition 98 minimum guarantee in May. Confusion Over “Stability Funding” Is Resulting in Significant Cost Differences. SCFF, which was adopted by the Legislature in 2018-19 as a new way of allocating apportionment funds to districts, includes a number of funding protections. One of those protections, known as stability funding, is intended to provide a cushion to local budgets resulting from enrollment and other declines. As currently written, the statutory provision describing stability funding is confusing and difficult to understand. This lack of clarity has resulted in the administration and Chancellor’s Office interpreting the provision differently and having different associated cost estimates. Whereas the Governor’s budget includes no stability funding for 2023-24, the Chancellor’s Office believes the associated cost would be $134 million. Given both the administration’s and Chancellor’s Office’s interpretations are problematic, we recommend the Legislature modify statute and adopt an alternative way to calculate stability funding. Our alternative serves the state’s long-standing policy objective of protecting districts from sudden funding declines while avoiding the problematic funding outcomes that arise under the other two interpretations. Given timing issues, the Legislature has a couple of options it could consider regarding stability funding in the budget year. www.lao.ca.gov 1 2023-24 BUDGET INTRODUCTION This brief analyzes the Governor’s major maintenance, respectively. This brief is part of budget proposals for CCC. We begin by our series of higher education budget analyses. describing the Governor’s overall budget plan The 2023-24 Budget: Higher Education Overview for CCC. The remaining four sections of the was our first brief in this series, with subsequent brief focus on enrollment, apportionments, briefs delving more deeply into each of the SCFF funding protections, and facilities segments’ budgets. OVERVIEW Total CCC Funding Is $17.5 Billion Under able to support a substantial increase in ongoing Governor’s Budget. As Figure 1 shows, community college spending. The main reason this $12.6 billion (72 percent) of CCC support in is possible is because the state provided nearly 2023-24 would come from Proposition 98 funds. $700 million one-time CCC funding in 2022-23 that Proposition 98 funds consist of state General counted toward the minimum guarantee. All of this Fund and certain local property tax revenue that one-time funding becomes freed up in 2023-24 cover community colleges’ main operations. for other purposes. Under the Governor’s budget, An additional $963 million non-Proposition 98 these funds are repurposed primarily for community General Fund would cover certain other costs, college apportionments. including debt service on state general obligation Governor’s Largest Proposal Is Providing a bonds for CCC facilities, a portion of CCC faculty COLA to Apportionments. Unlike the past several retirement costs, and operations at the Chancellor’s years when the Governor had many Proposition 98 Office. In recent years, the state also has provided ongoing and one-time spending proposals for non-Proposition 98 General Fund for certain the colleges, the Governor’s budget this year student housing projects. contains relatively few proposals. As Figure 2 on Beyond State Funds, Community Colleges page 4 shows, the largest ongoing Proposition 98 Receive Support From Various Other Sources. proposal is $653 million for an 8.13 percent COLA Much of CCC’s remaining funding comes from for apportionments. In addition, the Governor’s student fees, including enrollment fees, and various budget provides an 8.13 percent COLA for select local sources (such as revenue from facility rentals categorical programs, at a total cost of $92 million, and community service programs). The Governor and $29 million for 0.5 percent systemwide proposes no increase to enrollment fees for enrollment growth. The Governor’s largest 2023-24, which since summer 2012 have been one-time CCC spending proposal is for student $46 per unit (or $1,380 for a full-time student taking enrollment and retention strategies. The Governor’s 30 semester units per year). During the initial years budget includes a reduction for previously of the pandemic, community colleges also received authorized spending on facilities maintenance. a significant amount of federal relief funds, as The administration indicates that this reduction is discussed in the box on page 4. intended to cover the cost of its enrollment and Last Year’s CCC Budget Cushion Allows retention proposal, which it sees as a higher priority for More Growth in Ongoing Spending This for the colleges in the budget year. The Governor’s Year. Proposition 98 support for CCC increases budget also provides CCC with $14 million in by $209 million (1.7 percent) over the revised one-time reappropriated Proposition 98 funds 2022-23 level. Despite the growth rate being lower for forestry workforce development grants, as than 2 percent, the Governor’s budget still is discussed in the box on page 5. 2 LEGISLATIVE ANALYST’S OFFICE 2023-24 BUDGET Figure 1 California Community Colleges Rely Heavily on Proposition 98 Funding (Dollars in Millions, Except Funding Per Student) Change From 2022-23 2021-22 2022-23 2023-24 Revised Revised Proposed Amount Percent Proposition 98 General Fund $8,790 $8,713 $8,758 $45 0.5% Local property tax 3,512 3,648 3,811 164 4.5 Subtotals ($12,301) ($12,360) ($12,569) ($209) (1.7%) Other State Other General Fund $653 $1,166a $963a -$203 -17.4% Lottery 302 264 264 —b -0.1 Special funds 81 95 95 — — Subtotals ($1,036) ($1,525) ($1,322) (-$203) (-13.3%) Other Local Enrollment fees $409 $409 $411 $1 0.3% Other local revenuec 2,821 2,845 2,867 22 0.8 Subtotals ($3,230) ($3,255) ($3,278) ($23) (0.7%) Federal Federal stimulus fundsd $2,648 — — — — Other federal funds 365 $365 $365 — — Subtotals ($3,014) ($365) ($365) (—) (—) Totals $19,581 $17,506 $17,535 $29 0.2% FTE studentse 1,107,128 1,106,951 1,106,451 -500 —f Proposition 98 funding per FTE studente $11,111 $11,166 $11,360 $194 1.7% a Includes $564 million in 2022-23 and $363 million in 2023-24 for student housing grants. b Difference of less than $500,000. 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. d Consists of federal relief funds provided directly to colleges as well as allocated through state budget decisions. e Reflects budgeted rather than actual FTE students. Actual FTE students are notably lower each year of the period, but certain budget provisions are insulating districts from associated funding declines. f Reflects the net change (-0.05 percent) after accounting for the proposed 0.5 percent systemwide enrollment growth together with all other enrollment adjustments. FTE = full-time equivalent. Funds Ten Continuing Capital Governor Intends to Present a Categorical Projects. The Governor proposes to provide Program Flexibility Proposal in Spring. The $144 million in state general obligation bond Governor’s Budget Summary signals a desire to funding to continue ten previously authorized provide community colleges with more spending community college projects. Each project is funded and reporting flexibility for certain categorical for the construction phase. About $90 million programs. The administration indicates that more of bond funds would come from Proposition 51 details, including which categorical programs would (2016), with the remaining bond funds coming be included in such a flexibility proposal, will be from Proposition 55 (2004). A list of these provided in the spring. projects and their associated costs is available on our EdBudget website. www.lao.ca.gov 3 2023-24 BUDGET Federal Relief Funds Community Colleges Received Considerable Federal Relief Funding. Community colleges received a total of $4.7 billion over three rounds of federal relief funding in response to COVID-19. (Our Federal Relief Funding for Higher Education table provides more detail on California Community Colleges relief funds.) Collectively, colleges are required to spend at least $2 billion of their relief funds for direct student aid. The rest can be used for institutional operations. Colleges have used institutional funds for a variety of purposes, including to undertake screening and other COVID-19 mitigation efforts, cover higher technology costs related to remote operations, acquire laptops for students, and backfill lost revenue from parking and other auxiliary college programs. Deadline for Colleges to Spend Federal Relief Funds Is Approaching. Initially, colleges had to spend their federal relief funds by May 2022. In March 2022, the federal government granted an extension, giving all colleges until June 30, 2023 to spend their remaining funds. Systemwide data on community college expenditures is not readily available and, as of this writing, the federal reporting portal only shows individual college expenditures through November 30, 2022. A review of a subset of colleges, however, indicates that many colleges have spent all or nearly all of their institutional and student aid funds. In some cases, however, colleges have purposely spread out their spending so that they still have institutional and student aid funds available in the first half of 2023. Figure 2 Governor Has a Few Proposition 98 Community College Spending Proposals (In Millions) Ongoing Spending COLA for apportionments (8.13 percent) $653 COLA for select categorical programs (8.13 percent)a 92 Enrollment growth (0.5 percent) 29 FCMAT new professional development program —b Subtotal ($774) One-Time Initiatives Student enrollment and retention strategies $200 Forestry/fire protection workforce training 14c FCMAT new professional development program —b Facilities maintenance and instructional equipment -$213d Subtotal ($1) Total Changes $775 a Applies to the Adult Education Program, apprenticeship programs, CalWORKs student services, campus child care support, Disabled Students Programs and Services, Extended Opportunity Programs and Services, and the mandates block grant. b Consists of $200,000 in ongoing funds and $75,000 in one-time funds. c Uses reappropriated Proposition 98 funds (previously appropriated funds for other purposes that were not spent). d Reduces funding provided in the 2022-23 budget agreement for this purpose from a total of $841 million to $628 million. COLA = cost-of-living adjustment and FCMAT = Fiscal Crisis and Management Assistance Team. 4 LEGISLATIVE ANALYST’S OFFICE 2023-24 BUDGET Forestry Workforce Governor Proposes to Shift Fund Source for Workforce Development Grants. In response to a projected state budget deficit, the Governor proposes many budget solutions. One of these solutions is to shift some costs from the non-Proposition 98 side of the budget to the Proposition 98 side. Specifically, the Governor proposes to reduce non-Proposition 98 General Fund support for existing workforce training grants administrated by the California Department of Forestry and Fire Protection (CalFire) by $15 million, replacing it with nearly the same amount of reappropriated Proposition 98 General Fund support ($14 million). Under the Proposition 98-funded program, the California Community Colleges Chancellor’s Office would enter an interagency agreement with CalFire to administer the grant program. Grants would be limited to community colleges. By comparison, a broader group of training providers (including local workforce agencies, nonprofits organizations, and community colleges) may participate in the existing CalFire program. Fund Shift Is Worth Considering Given General Fund Condition. The proposed fund shift would help address the state’s non-Proposition 98 budget deficit. Moreover, community colleges already have an important role in helping develop the forestry workforce. Currently, 8 community colleges offer associate degree or certificate programs in forestry, and 55 colleges offer them in fire technology or wildland fire technology. Together, these community colleges have granted about 100 forestry associate degrees and certificates, as well as about 2,500 fire and wildland fire technology associate degrees and certificates annually in recent years. Community colleges also have received a portion of the past grant funding from this CalFire workforce development program ($2.3 million of $18 million appropriated in 2021-22). Providing community colleges with additional workforce training grants would take advantage of colleges’ existing expertise and experience in the forestry area. Though limiting grants to community colleges would exclude other workforce providers, we think the fund shift remains reasonable given the other factors described above. In The 2023-24 Budget: Crafting Climate, Resources, and Environmental Budget Solutions we discuss this proposal, along with other proposed budget solutions in the natural resources area. ENROLLMENT In this section, we provide background on admission to students, there is no guarantee community college enrollment trends, describe the of access to a particular class.) Many factors Governor’s proposals to fund enrollment growth as affect the number of students who attend well as additional student outreach, assess those community colleges, including changes in the proposals, and offer associated recommendations. state’s population, particularly among young adults; local economic conditions, particularly Background the local job market; the availability of certain Several Factors Influence CCC classes; and the perceived value of the education Enrollment. Under the state’s Master Plan for to potential students. Higher Education and state law, community Prior to the Pandemic, CCC Enrollment colleges operate as open access institutions. Had Plateaued. Following the Great That is, all persons 18 years or older may attend Recession, as the economy and state funding a community college. (While CCC does not deny began recovering (2012-13 through 2015-16), www.lao.ca.gov 5 2023-24 BUDGET systemwide CCC enrollment grew. As Figure 3 districts increased enrollment among nontraditional shows, CCC enrollment flattened thereafter. students, including dually enrolled high school The plateau in CCC enrollment during this period students and incarcerated students. was commonly attributed to the long economic Several Factors Likely Contributing to expansion, strong labor market, and unemployment Enrollment Drops. Enrollment drops nationally remaining at or near record lows. and in California have been attributed to various CCC Enrollment Has Dropped Notably Since factors. Over the past couple of years, rising Start of Pandemic. As Figure 3 also shows, wages, including in low-skill jobs, and an improved between 2018-19 (the last full year before the start job market appear to be major causes of reduced of the pandemic) and 2021-22, full-time equivalent (FTE) students Figure 3 at CCC declined by more than After Having Plateaued, CCC Enrollment 200,000 (19 percent). The drop in CCC enrollment has been consistent Has Declined the Past Few Years with nationwide community college Full-Time Equivalent Students (In Millions) enrollment trends over this period. While CCC enrollment declines 1.2 have affected virtually every student 1.0 demographic group, most districts 0.8 report the largest enrollment declines among African American, 0.6 male, lower-income, and older adult 0.4 students. These group-specific 0.2 impacts also are consistent with nationwide trends. 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Enrollment Declines Have Affected Nearly Every District. Figure 4 shows most community college districts experienced Figure 4 enrollment declines between The Vast Majority of Districts 2018-19 and 2021-22. Thirty-two districts (nearly half of all districts) Lost Enrollment During the Pandemic experienced declines between Estimated Change From 2018-19 to 2021-22 11 percent and 20 percent, with another 30 districts experiencing Change in FTE Students declines of more than 20 percent. 0 to 5% Several of the districts with especially heavy enrollment -1 to -10% loss had been experiencing -11 to -20% enrollment declines prior to the pandemic due to factors such as -21 to -30% declining population in the region -31 to -40% or well-publicized accreditation -41 to -50% problems. The districts that grew or had relatively small enrollment 5 10 15 20 25 30 35 declines during this period were Number of Community College Districts a mix of urban, suburban, and FTE = full-time equivalent. rural districts. Several of these 6 LEGISLATIVE ANALYST’S OFFICE 2023-24 BUDGET community college enrollment demand. In response pre-pandemic enrollment level. Provisional budget to a fall 2021 Chancellor’s Office survey of former language would allow the Chancellor’s Office to and prospective students, many respondents cited allocate ultimately unused growth funding to backfill “the need to work full time” to support themselves any shortfalls in CCC apportionment funding, and their families as a key reason why they were such as ones resulting from lower-than-estimated choosing not to attend CCC. For these individuals, enrollment fee revenue or local property tax enrolling in a community college and taking on revenue. The Chancellor’s Office could make any the associated opportunity cost might have such redirection after underlying apportionment become a lower priority than entering or reentering data had been finalized, which would occur the job market. after the close of the fiscal year. This is the same Colleges Have Been Trying a Number of provisional language the state has adopted Strategies to Attract Students. Using federal in recent years. After addressing any apportionment relief funds, as well as state funds provided in shortfalls, remaining unused funding may be 2021-22 and 2022-23, colleges have been trying redirected to any other Proposition 98 purpose. various strategies to attract students. All colleges Governor Proposes Another Round of have been offering students special forms of One-Time Funding to Boost Outreach to financial assistance. For example, all colleges Students. The Governor proposes $200 million provided emergency grants to financially eligible one-time Proposition 98 General Fund for student students that could be used for any living expense. enrollment and retention strategies. This is on top Some colleges are offering gas cards or book of the $120 million one time provided in 2021-22 and meal vouchers to students who enroll. Many and $150 million one time provided in 2022-23 colleges are loaning laptops to students. Many specifically for this purpose. The proposed colleges have expanded advertising through social provisions for the new round of funding are the media and other means, including in languages same as the provisions adopted for the earlier other than English. Additionally, many colleges have rounds of funding. Like the last two rounds of increased outreach to local high schools, and many funding, the purpose of these proposed funds is colleges have created phone banks to contact for colleges to reach out to former students who individuals who recently dropped out of college or recently dropped out and engage with prospective had completed a CCC application recently but did or current students who might be hesitant to enroll not register for classes. In addition, a number of or reenroll at the colleges. Provisional language colleges have begun to offer more flexible courses, gives the Chancellor’s Office discretion on the with shorter terms and more opportunities to enroll allocation methodology for the funds but would throughout the year (rather than only during typical require that colleges experiencing the largest semester start dates). enrollment declines be prioritized. The provisional language also permits the Chancellor’s Office to Proposals set aside and use up to 10 percent of the funds for Governor’s Budget Funds Enrollment statewide enrollment and retention efforts. Growth. The Governor’s budget includes Assessment $29 million ongoing Proposition 98 General Fund for 0.5 percent systemwide enrollment Likely That Most 2021-22 Growth Funding growth (equating to about 5,500 additional Will Not Be Earned by Districts. As of June 2022 FTE students) in 2023-24. The state also provided reporting by the Chancellor’s Office, only about funding for 0.5 percent systemwide enrollment $1 million of $24 million in 2021-22 enrollment growth in 2022-23 and 2021-22. Consistent growth funding had been earned by districts. with regular enrollment growth allocations, each That same report also identified no apportionment district in 2023-24 would be eligible to grow up funding shortfalls. The Chancellor’s Office plans to 0.5 percent. To be eligible for these growth to release final 2021-22 enrollment and funding funds, however, a district must first recover to its data by the end of February 2023. Any 2021-22 www.lao.ca.gov 7 2023-24 BUDGET growth funds not earned by districts or needed allows districts to spend these second-round for a funding shortfall would become available for funds through the budget year. In addition, districts other Proposition 98 purposes, including other have four more years (though 2026-27) to spend a community college purposes or Proposition 98 total of $650 million in state COVID-19 block grant budget solutions. funds, which statute also allows colleges to use for Better Information Is Coming on 2022-23 enrollment and retention-related purposes. (The Enrollment Situation. As of this writing, Chancellor’s Office must report to the Legislature forecasting 2022-23 community college enrollment by March 2024 on initial district spending and is difficult given that the Chancellor’s Office is still outcomes using COVID-19 block grant funds.) processing fall 2022 district enrollment submissions Mixed Results on Student Outreach Funding and the spring 2023 term is just beginning. to Date. Some districts might see enrollment (Based on preliminary data, systemwide fall 2022 increases in 2022-23, though the link to 2021-22 enrollment could be flat or up somewhat compared student outreach funds still is not well documented. to fall 2021, though a number of districts continue to Moreover, many districts expect to continue report enrollment declines.) By the time of the May experiencing enrollment declines in 2022-23 Revision, the Chancellor’s Office will have provided despite the first-round of student outreach funds. the Legislature with initial 2022-23 enrollment data. Districts may not be able to counter the underlying This data will show which districts are reporting economic factors they face to a notable degree. enrollment declines and the magnitude of those Over time, CCC enrollment has shown a close declines. It also will show whether any districts correlation with the job market, with a strong job are on track to earn any of the 2022-23 enrollment market depressing CCC enrollment demand. growth funds. Apportionment data for 2022-23, Spending on advertising, phone calls, and other however, will not be finalized until February 2024, forms of outreach might not be sufficient to such that the Legislature might not want to take overcome these more fundamental drivers of CCC any associated budget action until next year. enrollment. However, to the extent districts consider At that time, if the entire 2022-23 enrollment growth these outreach and related activities effective amount ends up not being earned by districts in increasing enrollment, they can supplement or needed for any apportionment shortfalls, the their remaining student outreach funds with Legislature could redirect available funds for other apportionment funding. Proposition 98 purposes, including potential Recommendations Proposition 98 budget solutions. Sweep 2021-22 Growth Funds. Once 2021-22 Best Indicator for 2023-24 Enrollment Likely enrollment and funding data are finalized, we Will Be Updated Data on Current Year. If some recommend the Legislature redirect any unearned districts are on track to grow in the current year, enrollment growth funds for other Proposition 98 it could mean they might continue to grow in the priorities. Based upon preliminary data, $23 million budget year. By providing funding for enrollment would be available for other priorities. growth in 2023-24, the state could encourage and reward districts for expanding access to students. Use Forthcoming Data to Decide Enrollment Growth Funding for 2023-24. We recommend the Substantial Amount of Round-Two Student Legislature also use updated enrollment data, as Outreach Funding Remains Available. The well as updated data on available Proposition 98 state is not collecting CCC systemwide data on funds, to make its decision on CCC enrollment student outreach expenditures. However, based growth for 2023-24. If the updated enrollment data on our discussions with numerous administrators, indicate some districts are growing in 2022-23, districts will have funds still available from 2022-23 the Legislature could view growth funding in allocations for outreach and retention. Districts 2023-24 as warranted. Were data to show that generally are wrapping up spending of 2021-22 no districts are growing, the Legislature still funds for this purpose and just beginning to spend might consider providing some level of growth 2022-23 funds. Existing provisional language 8 LEGISLATIVE ANALYST’S OFFICE 2023-24 BUDGET funding given that enrollment potentially could a substantial amount of other funding that can start to rebound next year. Moreover, the risk of be used for student outreach, a strong case has overbudgeting in this area is low, as any unearned not been made that additional funding is needed funds ultimately become available for other at this time. The Legislature could repurpose the Proposition 98 purposes. associated $200 million in one-time funding for Reject Proposal for More Enrollment other high one-time Proposition 98 priorities or and Retention Funding. We recommend the Proposition 98 budget solutions. (In the following Legislature reject the Governor’s student outreach sections, we identify some possible Proposition 98 proposal. Given substantial round-two student uses that the Legislature could consider.) outreach funding remains available, along with APPORTIONMENTS In this section, we provide background on Staffing Levels Have Declined, Particularly community college apportionments, describe Among Part-Time Faculty. From fall 2019 to the Governor’s proposal to provide a COLA for fall 2021, the total number of CCC employees apportionments, assess the proposal, and provide (headcount) declined by 8 percent, from 93,000 to a recommendation. 85,000. Part-time faculty—which historically have made up nearly half of CCC employees— Background experienced the largest decline (12 percent). Most CCC Proposition 98 Funding Is Provided This decline was due to districts offering fewer Through Apportionments. All community course sections as a result of lower enrollment. college districts (except the statewide online (When districts reduce course sections, they Calbright College) receive apportionment funding. typically reduce their use of part-time faculty, Apportionment funding is unrestricted, with who are hired as temporary employees, colleges able to use the funding for their core compared to full-time faculty, who are hired as operating costs. Although the state is not statutorily permanent employees.) Other CCC staff (such as required to provide a COLA for apportionments (as it is for school districts), the state has a Figure 5 long-standing practice of providing one when Proposition 98 funds are available. The COLA rate Bulk of District Spending is based on a price index published by the federal Is for Compensation government that reflects changes in the cost of Stylized Community College District Budget goods and services purchased by state and local governments across the country. Compensation Is Largest District Operating Cost. Figure 5 shows a stylized community Other Compensation Other college district budget. The largest component of a district’s budget is spent on salaries. Together, all Retirees Health compensation and compensation-related costs— Benefits Active Employees including salaries, retirement, health care benefits, Salaries workers compensation, and unemployment insurance—typically account for 80 percent to Pensions 85 percent of a district’s budget. The remainder of a district’s budget is for various other core operating costs, including utilities, insurance, software licenses, equipment, and supplies. www.lao.ca.gov 9 2023-24 BUDGET classified staff) declined by 5 percent between Districts’ Other Core Operating Costs Also 2019 and 2021, likely due to a combination of Are Likely to Increase. Districts’ pension costs are districts eliminating positions due to workload expected to increase, albeit modestly compared reductions and an inability to fill vacancies. with recent years. Based on current assumptions, District administrators indicate that vacancies have the district contribution rate to the California increased over the past couple of years as a result State Teachers’ Retirement System (CalSTRS) of a tighter labor market. Across the state, most stays constant at 19.1 percent in 2023-24, while districts have experienced staffing reductions, the district contribution rate to the California thereby generating associated savings. Public Employees’ Retirement System (CalPERS) Systemwide Reserves Continue to Increase. increases from 25.4 percent to 27 percent. (About District unrestricted reserves have increased half of CCC employees participate in CalSTRS, with each year of the pandemic. Whereas unrestricted the other half participating in CalPERS.) Community reserves totaled $1.8 billion (22 percent of college pension costs are expected to increase expenditures) in 2018-19, they have grown to an by about $73 million in 2023-24. (Unlike in some estimated $2.7 billion (32 percent of expenditures) recent years, the Governor does not have proposals in 2021-22. This is nearly double the Government addressing unfunded retirement liabilities or Finance Officers Association’s and Chancellor’s providing district pension relief.) Similar to the other Office’s recommendation that unrestricted reserves education segments, community college districts comprise a minimum of 16.7 percent (two months) generally also expect to see higher costs in 2023-24 of expenditures. The increase in reserves is the for health care premiums, insurance, equipment, result of several factors, including savings from supplies, and utilities. using fewer part-time faculty and staff vacancies. State Likely Has Limited Capacity to Fund a Also, colleges’ receipt of federal relief funds and Higher COLA. Since the Governor’s budget was other COVID-19-related funds during this time released, the state has received updated data used reduced pressure on local and state funds to cover to calculate the COLA rate. Based upon the new technology and certain other costs. data, the estimated COLA rate is somewhat higher (8.40 percent). The COLA rate will be finalized in Proposal late April when the federal government releases Governor Proposes Apportionment the last round of data used in the calculation. COLA. The Governor’s budget includes Though the final rate likely will be even higher $653 million to cover an 8.13 percent COLA for than the 8.13 percent COLA rate proposed in apportionments. This is the same COLA rate the January, we are concerned with the state’s ability Governor proposes for the K-12 Local Control to sustain a higher rate. As we discuss in more Funding Formula. detail in The 2023-24 Budget: Proposition 98 Overview and K-12 Spending Plan, we estimate Assessment the Proposition 98 minimum guarantee for 2023-24 Districts Likely to Feel Salary Pressure in could be lower than the January budget level due to 2023-24. Over the past year, both inflation and expected downward adjustments in General Fund wage growth (across the nation and in California) revenues. If this were to be the case, the revised have been at their highest levels in several decades. minimum guarantee might be unable support even Elevated inflation and broad-based wage growth the COLA rate proposed in January, making a are expected to continue in 2023-24. Community higher May COLA rate further out of reach. Growth college districts, in turn, are likely to feel pressure to in the minimum guarantee also might be unable provide their employees with salary increases. We to support the full statutory COLA rates over the estimate every 1 percent increase in CCC’s salary subsequent few years. pool would cost approximately $70 million. 10 LEGISLATIVE ANALYST’S OFFICE 2023-24 BUDGET Per-Student Funding Is Much Higher Today Recommendation Than Before the Pandemic. We believe most Consider 8.13 Percent Apportionment COLA community college districts likely could manage Rate an Upper Bound. By the May Revision, a smaller apportionment COLA without notable the Legislature will have updated information on fiscal difficulty. Not only are staffing levels down, a number of key factors, including General Fund along with accompanying staffing costs, but revenues, the Proposition 98 minimum guarantee, budgeted per-student Proposition 98 funding is and the statutory COLA rate. Based on these at an all-time high. In 2018-19 (the year before updated data, the Legislature will be able to the pandemic), community college per-student finalize its apportionment COLA decision. Given funding also was at an all-time high. Under the the downside risks over the coming months, the Governor’s budget, per-student funding would be Legislature could treat the 8.13 percent COLA rate approximately $700, or nearly 7 percent higher than as an upper bound in 2023-24. Were the estimate of that pre-pandemic level after adjusting for inflation. the 2023-24 minimum guarantee to be significantly Moreover, actual funding per student is significantly lower at the May Revision, however, the Legislature above budgeted funding per student. Though may wish to consider a lower rate than 8.13 percent. enrollment has dropped since 2018-19, funding has For planning purposes, each 0.5 percentage not been adjusted accordingly. Rather, a series of point reduction in the COLA rate would reduce hold-harmless provisions has insulated community apportionment costs by approximately $40 million. colleges from the fiscal impact of enrollment (In addition to the risk of General Fund revenue and declines. We estimate current actual funding per the minimum guarantee being revised downward, student is approximately $3,000 (30 percent) the amount available for an apportionment COLA higher than pre-pandemic levels after adjusting could depend on the issue discussed below—a for inflation. potential shortfall in the Governor’s budget relating to the apportionment formula.) SCFF FUNDING PROTECTIONS In this section, we first provide background their educational goals. In 2018-19, the state on the CCC apportionment formula and certain moved away from that funding model. In creating funding protections, including a protection known SCFF, the state placed less emphasis on seat as “stability funding.” We then describe how the time and more emphasis on students achieving administration and Chancellor’s Office currently positive outcomes. The new funding formula also are interpreting the stability funding provision and recognized the additional cost that colleges have identify resulting differences in the estimated cost in serving students who face higher barriers to to fund CCC apportionments in 2023-24. Next, we success (due to income level or other factors). provide an assessment of the situation and offer Another related objective was to provide a strong associated recommendations. incentive for colleges to enroll low-income students and ensure they obtain financial aid to support their Apportionment Formula educational costs. State Adopted New Apportionment Funding Apportionment Formula Has Three Main Formula in 2018-19. For many decades, the Components. The components are: (1) a base state allocated general purpose funding to allocation linked to enrollment, (2) a supplemental community colleges based almost entirely on their allocation linked to low-income student counts, enrollment. Districts generally received an equal and (3) a student success allocation linked to per-student funding rate. Student funding rates specified student outcomes. For each of the were not adjusted according to the type of student three components, the state set funding rates. served or whether students ultimately completed In any year in which the state provides a COLA, www.lao.ca.gov 11 2023-24 BUDGET each of these funding rates increases accordingly, Student Success Allocation. The formula such that the total resulting SCFF-generated also provides additional funding for each student apportionment amount effectively has COLA achieving specified outcomes, including obtaining changes embedded within it. The supplemental and various degrees and certificates, completing student success components of the formula do not transfer-level math and English within the student’s apply to incarcerated students, dually enrolled first year, and obtaining a regional living wage high school students, or students in noncredit within a year of completing community college. programs. Apportionments for those students (For example, a district generates about $2,700 in remain based entirely on enrollment. (“Basic aid” 2022-23 for each of its students receiving an or “fully community-supported” districts receive associate degree for transfer. The formula revenue from local property taxes and enrollment counts only the highest award earned by a fees that exceed what they generate under SCFF, student.) Districts receive higher funding rates such that the SCFF calculation does not affect their for the outcomes of students who receive a Pell apportionment funding.) We next describe each of Grant or need-based fee waiver, with somewhat the three main components of the apportionment greater funding rates for the outcomes of Pell formula in more detail. Grant recipients. The student success component Base Allocation. As with the prior apportionment of the formula is based on a three-year rolling formula, the base allocation of SCFF gives a average of student outcomes. The rolling average district certain amounts for each of its colleges and is based on outcomes data from the prior year and state-approved centers, in recognition of the fixed two preceding years. As with the base allocation, costs entailed in running an institution. On top of that the objective of using a three-year rolling average allotment, a district receives funding for each FTE for this component of SCFF is to smooth associated student it enrolls ($4,840 in 2022-23 for the regular annual funding adjustments. credit rate). Most FTE student counts (approximately Funding Protections 85 percent) are based on a three-year rolling Statute Has Several Funding Protections average. The rolling average is based on a district’s for Districts. These protections allow districts FTE count that year and the prior two years. to earn more in apportionment funding than they (For example, the 2018-19 calculation was based would otherwise earn through the formula’s regular on a district’s FTE count for 2018-19, 2017-18, calculations and funding rates. The next three and 2016-17.) Using a rolling average is intended paragraphs describe these special protections. to smooth annual adjustments to a district’s apportionment funding. By comparison, remaining “Emergency Conditions Allowance” Protects student counts (approximately 15 percent) are based Districts From Unexpected Enrollment on an FTE count that year. (For example, the 2018-19 Declines Due to Natural Disasters and Other calculation was based on 2018-19 FTE counts.) This Extraordinary Situations. While statute specifies counting method applies to incarcerated students, the years of data that are to be used to calculate dually enrolled high school students, and students in each component of SCFF, state regulations provide noncredit programs. the Chancellor’s Office with authority to use alternative years of enrollment data in extraordinary Supplemental Allocation. SCFF provides an cases. This funding protection is commonly known additional amount (about $1,145 in 2022-23) for as the emergency conditions allowance. The every student who receives a Pell Grant, receives Chancellor’s Office typically invokes this authority a need-based fee waiver, or is undocumented in response to a single district experiencing an and qualifies for resident tuition. Student counts unexpected enrollment decline resulting from a are “duplicated,” such that districts receive twice disaster or other emergency (for example, due to a as much supplemental funding (about $2,290 in wildfire affecting the ability of a college to remain 2022-23) for a student who is included in two of open). From 2019-20 through 2022-23, however, these categories (for example, receiving both a Pell the Chancellor’s Office applied the protection to Grant and a need-based fee waiver). The allocation all districts. Specifically, it allowed all districts to is based on student counts from the prior year. 12 LEGISLATIVE ANALYST’S OFFICE 2023-24 BUDGET use pre-pandemic enrollment data to calculate districts whose amount generated by the SCFF how much they generate from SCFF. Under this formula declines in a given year compared to the protection, districts could use pre-pandemic data previous year’s SCFF-calculated amount is eligible for all their student enrollment counts—regular for stability. We discuss these differences more credit counts as well as counts for incarcerated later in this section. students, dually enrolled high school districts, and Statute Permits Districts to Receive noncredit students. Whichever Method Yields the Highest Pandemic-Related Emergency Conditions Apportionment Amount. Each year, the Allowance Set to End. In late spring 2022, the Chancellor’s Office calculates the amount each Chancellor’s Office notified districts that 2022-23 district generates through (1) the SCFF calculation will be the final year of the pandemic-related (using the emergency conditions allowance’s emergency conditions allowance. For their credit alternative enrollment years, if a district has that student counts in 2023-24, districts will use protection), (2) hold harmless, and (3) stability. pre-pandemic data for two years of the three-year Assuming enough funding is available for rolling average calculation, along with 2023-24 data apportionments, each district receives the highest for the third year of the calculation. For incarcerated of those three amounts. students, dually enrolled high school students, Stability Funding and noncredit students, districts will use 2023-24 data. Four districts will be able to continue claiming Under Old Apportionment Formula, Stability emergency conditions allowances in 2023-24 Protection Was Based on Enrollment. Statute for other extraordinary situations, such as from has long provided districts with protection from enrollment losses resulting from wildfires. sudden enrollment declines. Prior to adoption of SCFF, the stability protection was linked Statute Provides “Hold Harmless” Funding directly to declining enrollment. State law allowed Protection. The apportionment funding formula declining-enrollment districts to retain enrollment also includes a provision for those districts that funding for vacant slots in the year they became would have received more funding under the vacant in order to cushion district budgets from former apportionment formula. The intent of the immediate funding losses. Districts lost enrollment hold harmless protection is to provide time for funds, however, for slots that remained vacant those districts to ramp down their budgets to the for a second year. Stability protection effectively new SCFF-calculated funding level or find ways allowed declining-enrollment districts to have their to increase the amount they generate through apportionment funding rachet down on a one-year SCFF (such as by enrolling more financially lagged basis, thereby giving districts time to adjust needy students or improving student outcomes). their budgets. Through 2024-25, districts funded according to the hold harmless provision receive whatever they SCFF Statute Modified Stability Provision. generated in 2017-18 under the old formula, plus Instead of providing stability based on enrollment as any subsequent apportionment COLA provided by under the old formula, current law provides stability the state. protection based on districts’ total apportionment Stability Funding Provides Another Form funding. As stated in 2019-20 budget trailer of Protection for Districts. As administered by legislation, “Commencing with the 2020-21 fiscal the Chancellor’s Office, this protection allows a year, decreases in a community college district’s district to receive in a given year the greater of the total revenue computed [using SCFF’s calculations] amount generated by the SCFF formula in that year shall result in the associated reduction beginning or the prior year adjusted for any apportionment in the year following the initial year of decreases.” COLA funded by the state. Given ambiguity in the In the next year, 2020-21 budget trailer legislation associated statutory provision, the Department added the phrase, “[as] adjusted for changes in the of Finance (DOF) has a different way of viewing cost-of-living adjustment.” stability funding. Under the DOF approach, only www.lao.ca.gov 13 2023-24 BUDGET Administration Interprets Stability Provision of the emergency conditions allowance results One Way… The administration applies the stability in 2023-24 SCFF amounts being lower for most provision only to districts whose funding generated districts than their 2022-23 SCFF funding levels by the SCFF calculation declines in a given year adjusted by COLA. compared to the previous year. In such a case, the Actual Cost Differences Will Depend on administration provides those districts with their Various Factors in Current and Budget Year. prior-year SCFF amount plus any COLA provided DOF built its most recent apportionment model by the state in the current year. For example, a in late fall 2022. The model relies on numerous district that generated $100 million under the SCFF assumptions about how much each district will calculation in 2021-22 but only $90 million under generate under SCFF in 2022-23 and 2023-24. the SCFF calculations in 2022-23 would receive The Chancellor’s Office will release preliminary $105 million in 2022-23 assuming a 5 percent COLA estimates of enrollment, supplemental, and student that year. success allocations in late February 2023. Based …With the Chancellor’s Office Interpreting on those estimates, along with the COLA rate the the Stability Provision Differently. In contrast, the state ends up providing and what districts end up Chancellor’s Office considers any district eligible generating under the SCFF calculation in 2023-24, for stability funding even if it does not decline from the actual cost to fund apportionments in the year to year. For example, a district that generates budget year could be higher or lower. $100 million under the SCFF calculation in 2021-22 Assessment and $102 million under the SCFF calculation in 2022-23 would be eligible to receive $105 million Stability Provision Is Unclear. As currently in 2022-23 assuming a 5 percent COLA that year. written, statute describing the stability provision Under the Governor’s interpretation, that same and when it is applied to districts is confusing and district would receive $102 million in 2022-23 difficult to understand. Statute does not clearly (that is, no stability funding) because the amount identify declines relative to a specified baseline year it generated under the SCFF calculations did or explain how to apply a COLA. not decline compared to its 2021-22 amount. Figure 6 Different Interpretations Lead to Different Cost Estimates. Districts Fare Differently Under Two Interpretations As Figure 6 shows, no districts Method by Which District Is Funded, 2023-24ª receive stability funding under DOF’s interpretation, with many Number of Community College Districts districts (40) funded based on the 45 SCFF calculation. By comparison, Administration under the interpretation of the 40 Chancellor's Office 35 Chancellor’s Office, 42 districts 30 receive stability funding and 25 only 2 are funded based on the 20 SCFF calculation. From a cost 15 perspective, DOF accordingly 10 budgets nothing for the stability 5 provision, whereas the Chancellor’s Office estimates the stability SCFF-Generated Hold Harmless Stability Fundingb provision costs $145 million in a Reflects January 2023 estimates. Excludes basic aid districts, which have local funds in excess of their 2023-24. Under the Chancellor’s SCFF-generated amounts. Office approach, costs are so b The Governor's budget assumes no district receives stability funding in 2023-24. much higher because the expiration SCFF = Student Centered Funding Formula. 14 LEGISLATIVE ANALYST’S OFFICE 2023-24 BUDGET Using Administration’s Interpretation Would Recommend Legislature Make Stability Create Irrational Funding Outcomes. Though Funding Provision Consistent With statute is not wholly clear, the administration’s Long-Standing State Policy. Specifically, we interpretation of the stability provision appears to recommend the Legislature clarify that the intent be closer to the letter of law. Statute references of stability funding is to help cushion districts “decreases” in funding levels. The administration’s from losses in funding due to unexpected events. interpretation also is closer to how stability was Furthermore, we recommend the Legislature applied under the old apportionment formula. specify that the calculation of stability funding be Yet, if the administration’s interpretation were based on the higher of districts’ SCFF-generated followed as state policy, some districts would amount that year or the previous year. Under get more than others for unjustified reasons. our recommendation, only districts that would For example, a district whose amount generated otherwise experience a decline in their SCFF by SCFF declined by even $1 in a given year funding would receive stability funding. Their compared to the prior year would receive the stability allotment would equal the difference prior-year amount plus any COLA that is provided. between their lower SCFF amount that year Another district whose amount generated by SCFF (accounting for any COLA provided that year) increased by as little as $1 would only receive the and the higher amount they received through current-year amount. As a result, districts with SCFF the previous year (accounting for any COLA nearly identical levels generated under the SCFF provided the previous year). For example, if a calculation could receive considerably different declining-enrollment district generated $100 million apportionment funding amounts. from SCFF in a given year, then generated Chancellor’s Office’s Interpretation Lacks $99 million from SCFF the next year, it would Policy Justification. Though the Chancellor’s receive apportionment funding of $100 million (the Office’s interpretation does not result in the higher of the two years). In this example, the cost same irrational outcomes as the administration’s of the stability provision is $1 million (the difference interpretation, it does provide more funding to in funding between the two years). This approach a district than may be justified. If long-standing avoids the irrational outcomes that emerge under state policy serves as a guide, stability was the administration’s method while also avoiding created to help cushion districts in the event their giving districts with declining enrollment or other enrollment or other components of SCFF resulted SCFF factors funding above their prior-year in less funding in a given year. Under the way the allocations, as happens under the Chancellor’s Chancellor’s Office administers stability, even Office’s method. Our recommendation avoids those districts whose SCFF-calculated funding increases outcomes but still serves the core policy objective over the prior year receive stability funding. of providing a budget cushion for affected districts. Consider Options for 2023-24. The Legislature Recommendations could adopt our recommended new definition Recommend Legislature Clarify Statutory of stability and have it take effect beginning in Provision. Differing interpretations of the 2023-24. Districts, however, already are preparing stability funding provision is creating problems their 2023-24 budgets assuming they receive both for districts in understanding how much stability as interpreted by the Chancellor’s apportionment funding they will receive and for Office. Were the Legislature to decide to fund the Legislature in knowing how much funding to stability in the budget year consistent with the budget for apportionment costs. We recommend Chancellor’s Office’s interpretation, the estimated the Legislature modify statute to clarify the intent of apportionment cost would be $134 million more stability funding and how it is to be calculated. than the Governor’s January proposal. (Under the Chancellor’s Office’s interpretation, stability funding costs are $145 million higher, but hold harmless costs are $11 million lower than the www.lao.ca.gov 15 2023-24 BUDGET administration’s estimates.) Unless it could find May Revision, the Legislature will have better new funds in the state budget, the Legislature estimates on 2022-23 enrollment and funding would need to repurpose existing Proposition 98 levels under the SCFF calculation. This data will funds to address this shortfall (such as by assist the Legislature in refining its estimate of the reducing the apportionment COLA rate for all shortfall and deciding how to treat stability in the districts in the budget year). By the time of the budget year. FACILITIES MAINTENANCE In this section, we first provide background The Foundation for California Community Colleges on CCC facilities, maintenance backlog, and (the Foundation) operates and maintains FUSION the maintenance categorical program. We then on behalf of districts. The Foundation employs describe the Governor’s proposals to reduce assessors to complete a facility condition funding for the CCC maintenance categorical assessment of buildings at districts’ campuses on program and add trailer bill language allowing a three- to four-year cycle. These assessments, community colleges to use their maintenance together with other facility information entered into categorical funds on campus child care facilities. FUSION, provide data on CCC facilities and help Next, we assess those proposals and offer districts with their local planning efforts. associated recommendations. State Has a Categorical Program for Maintenance and Repairs. Known as “Physical Background Plant and Instructional Support,” this program Districts Have Many Facilities and Associated allows districts to use funds for facilities Infrastructure. Collectively, the state’s maintenance and repairs, the replacement of 72 community college districts have 6,000 buildings instruction-related equipment (such as desks) with 87 million square feet of associated academic and library materials, hazardous substances space. In addition to academic facilities, districts abatement, and water conservation projects, have a notable amount of campus infrastructure among other related purposes. Community college such as central plants and utility distribution regulations prohibit districts from using categorical systems. Districts also have self-supporting program funds for parking garages, student facilities such as parking structures and student centers, and certain other self-supporting facilities. unions. These latter types of facilities typically Within these statutory parameters, districts have generate their own fee revenue, which covers flexibility on how to use their categorical funds, associated capital and operating costs. Depending but historically they have used about 75 percent on how a district uses them, certain types of district for deferred maintenance and related facilities buildings such as an auditorium may be considered projects, with the remaining 25 percent being used academic, nonacademic, or dual purpose. for instructional equipment and library materials. An auditorium may be considered academic, To use this categorical funding for maintenance for example, if CCC students use the facility as and repairs, districts must adopt and submit to part of their instructional program (such as a the CCC Chancellor’s Office through FUSION a list performing arts department). It may be considered of maintenance projects, with estimated costs, nonacademic and self-supporting if used entirely that the district would like to undertake over the for community purposes. next five years. In addition to these categorical CCC Maintains Inventory of Facility funds, CCC districts fund maintenance from their Conditions. Community college districts jointly apportionments and other district operating funds developed a set of web-based project planning (for less expensive projects) and from state and and management tools called FUSION (Facilities local bond funds (for more expensive projects). Utilization, Space Inventory Options Net) in 2002. 16 LEGISLATIVE ANALYST’S OFFICE 2023-24 BUDGET State Has Provided Substantial Funding Proposal for Categorical Program Over Past Reduces 2022-23 Budget Allocation for Several Years. Historically, the Physical Plant Physical Plant and Instructional Support and Instructional Support categorical Program by $213 Million. Funding for the program program has received appropriations when would decrease from $841 million to $628 million. one-time Proposition 98 funding is available and The administration indicates that the resulting no appropriations in tight budget years. Since savings would be used to fund the Governor’s 2015-16, the Legislature has provided a total of enrollment and retention strategies proposal $1.8 billion for the program. As Figure 7 shows, the (discussed in the “Enrollment” section of this brief). largest appropriation came from the 2022-23 budget, Adds Child Care Facilities as Allowable Use which provided $841 million. Districts have until of Maintenance Categorical Program Funds. June 2027 to spend these funds. Based on reporting Proposed trailer bill language gives campuses by districts in late fall 2022, districts plan to spend the option to use Physical Plant and Instructional about 75 percent ($630 million) of their 2022-23 Support funds for “child care facility repair and funds on various deferred maintenance and related maintenance.” Current law is silent on this issue. facilities projects, with the remaining funds spent on Both DOF and the CCC Chancellor’s Office assert instructional equipment and library materials. that nothing in statute or community college With Recent Funding, Maintenance Backlog regulations currently precludes districts from Expected to Shrink Significantly. Entering using categorical programs funds for this purpose. 2021-22, the Chancellor’s Office reported a No prohibition exists either for child care centers systemwide deferred maintenance backlog of about that also are used for academic purposes (as part $1.6 billion. The Chancellor’s Office has not provided of a laboratory whereby CCC child development an update on the size of the backlog based on the students observe and interact with children, for last two years of funding (plus local spending on example) or for child care purposes only. (As of this projects). We estimate, however, that the backlog writing, the Chancellor’s Office has not confirmed has been reduced to roughly $700 million. the number of child care centers of either type but indicates most currently serve a dual purpose.) By specifying Figure 7 child care centers in statute, DOF State Funding for CCC Facilities Maintenance Program has indicated it intends to signal Has Been Substantial the Past Couple of Years the administration’s support for One-Time Proposition 98 General Fund (In Millions)ª community college districts using state funds for this type of facility. Assessment $900 800 Reducing Deferred 700 Maintenance Funding Would 600 Disrupt District Plans and Increase Backlog. As of 500 January 2023, the Chancellor’s 400 Office indicates it has disbursed 300 $504 million of the $841 million in 200 2022-23 funds. The Chancellor’s 100 Office is scheduled to disburse the 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 remaining $337 million to districts by June 2023. As discussed above, ª Reflects the year the budget appropriated the funds, not necessarily the year the funds were scored for Proposition 98 purposes. districts have already identified CCC = California Community Colleges. and planned how they intend to www.lao.ca.gov 17 2023-24 BUDGET spend their 2022-23 funds. In some cases, districts benefits they provide to the college. The state, indicate they have collected bids on projects. alternatively, might want to share facility costs with Though all categorical program funds likely would the campus centers, thereby still providing them not be spent in 2022-23, they would be spent with an advantage, but a smaller advantage, over over the coming years. By reducing funding for other child care centers in the state. this purpose, the deferred maintenance backlog Recommendation will be larger than otherwise. Addressing deferred maintenance is important because it can help Reject Proposal to Reduce Funding for avoid more expensive facility projects, including Facilities Maintenance. For the reasons stated emergency repairs, in the long run. above, we recommend the Legislature reject the Governor’s proposal to reduce funding for Unclear Rationale for Allowing Districts the Physical Plant and Instructional Support to Fund Nonacademic Facilities. Under the program by $213 million Proposition 98 General Governor’s trailer bill proposal, community colleges Fund. (Proposition 98 funds must be spent could use state funds for maintenance projects on a Proposition 98 purpose, such that they at all campus child care centers, even those that are not available to help the state address a do not operate academic programs on behalf of non-Proposition 98 budget shortfall.) As discussed the college. Such a policy conflicts with standard in the “Enrollment” section of this brief, we also higher education facility policy. Typically, the state recommend the Legislature reject the Governor’s does not subsidize nonacademic, self-supporting proposal effectively to redirect these facilities funds programs. The fees these programs charge are to a student outreach initiative. intended to cover their operations and facilities maintenance costs. Modify Proposed Language to Fund Only Certain Child Care Facilities. We recommend Dual-Purpose Centers Raise a Few Key the Legislature modify the Governor’s proposal Issues. Those child care centers that do operate by clarifying in statute that districts may use academic programs on behalf of the college still categorical program funds for child care centers collect fees from the clients using those centers. that also serve an academic purpose. Moving For other child care centers located throughout forward, though, the Legislature may want to the state, these fees would be expected to cover establish a cost-sharing expectation for these the operations and maintenance of their facilities. dual-purpose centers, in which fees cover at least Classifying campus child care centers as academic a portion of facilities costs. Lastly, we recommend facilities and using state CCC funds for their prohibiting districts from using such funds for maintenance thus would provide them with special nonacademic, self-supporting child care centers. treatment over other child care centers in the state. The state makes this key distinction for other higher The state, however, might want to provide this education facility programs. advantage to campus centers given the academic 18 LEGISLATIVE ANALYST’S OFFICE 2023-24 BUDGET www.lao.ca.gov 19 2023-24 BUDGET LAO PUBLICATIONS This report was prepared by Paul Steenhausen, 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. 20 LEGISLATIVE ANALYST’S OFFICE