The 2023-24 Budget: Student Housing

2023-24 BUDGET The 2023-24 Budget: Student Housing GABRIEL PETEK | LEGISLATIVE ANALYST | MARCH 2023 SUMMARY Removing Student Housing Funds Would Add to Budget Solutions List. The Governor proposes delaying $250 million for the Higher Education Student Housing Grant program from 2023-24 to 2024-25 (leaving $500 million available for the program in 2023-24) and delaying the start date for the California Student Housing Revolving Loan Program from 2023-24 to 2024-25. For the loan program, instead of providing $900 million for two consecutive years, the Governor proposes providing $650 million in 2024-25 and $1.15 billion in 2025-26. Rather than delaying program funds, the Legislature could remove funding for these programs in response to the state’s projected budget deficits over the next few years. The housing project proposals are in early planning phases, no data is yet available on the impact of the first round of housing grants, the state’s role in subsidizing on-campus housing remains unclear, and other state programs might provide more effective avenues for improving college affordability and reducing student housing insecurity. Options Exist for Prioritizing Among Projects if One-Time Funding Is Available. Despite these considerations, were the Legislature to provide one-time funding for student housing, it could prioritize loans over grants and university projects over community college projects. The loan program is likely to be able to provide more new affordable beds over time than the grant program. Moreover, the benefit to campuses of zero-cost financing might be sufficient to make many on-campus housing projects financially viable. Regarding the types of projects to fund, universities have more experience developing, financing, and operating student housing programs than community colleges, such that university projects have a greater probability of being successfully implemented. Additionally, a greater share of university students live away from home, making on-campus housing more attractive for them than community college students. INTRODUCTION Brief Focuses on Student Housing. The state has four main sections. The first section provides recently created two housing programs to help background on campus housing facilities and college and university campuses build more recent state higher education housing initiatives. housing units. One program provides grants and The second section describes the Governor’s the other provides zero-interest loans to campuses proposals to delay certain student housing funds. primarily for the construction of new housing The last two sections assess those proposals and facilities. Campuses at the three public higher provide associated recommendations. This brief education segments—the California Community is part of our series of higher education budget Colleges (CCC), the California State University analyses. All of our 2023-24 budget reports can be (CSU), and the University of California (UC)—are accessed online. eligible to participate in these programs. This brief www.lao.ca.gov 1 2023-24 BUDGET BACKGROUND In this section, we describe the way campuses charges will be sufficient over time to support traditionally have funded student housing projects debt service, operations, and facility maintenance. and highlight the new student housing programs Second, the student housing charge needs to that the state recently created. be sufficiently low to attract students and ideally achieve 100 percent building occupancy. Some Campus Housing Programs housing projects find achieving financial viability Historically, Campus Housing Facilities difficult, as the housing charge needed to cover Have Been Self-Supporting. In contrast to associated costs could be higher than students and state-supported academic facilities, all three of the their families want to pay. In these cases, central higher education segments operate self-supporting offices can work with campuses to redesign their facilities. These types of facilities generate their housing projects to lower associated costs, and, own fee revenue, which is intended to cover the in turn, lower the housing charges. capital and operating costs of those facilities. Campus Housing Projects Typically Are Debt All three public higher education segments have Financed. Similar to large academic projects for self-supporting parking structures, certain athletic which the state uses debt-financing to spread venues, and student unions. In addition, both the costs over many years, campuses typically CSU and UC have longstanding student housing debt-finance their self-supporting projects, programs, with all of their campuses offering some including their student housing projects. At the level of student housing. By comparison, most universities, CSU and UC may sell university community colleges do not have student housing bonds. Community colleges may sell local programs. In 2022-23, 12 community colleges (of general obligation bonds or lease revenue bonds. the 115 that have physical locations) were providing Campuses across all three segments also may on-campus student housing. engage in public-private partnerships. Though Self-Supporting Campus Housing Projects public-private partnerships can be structured in Are Reviewed by Governing Boards. To get a various ways, in some cases, the private partner self-supported student housing project approved, is responsible for debt-financing the housing a CSU or UC campus develops a proposal and project. In all of these cases, debt service is retired submits it for board approval at the system over time using revenue raised from student level. That is, a CSU campus submits a new housing charges. student housing project proposal to the CSU Share of Students Living in On-Campus Chancellor’s Office for subsequent approval Housing Varies Notably Across Campuses. by the CSU Board of Trustees. A UC campus Systemwide, UC houses the greatest share submits its housing proposals to the UC Office of its students (more than one-third). Among of the President for approval by the UC Board of UC campuses, the share of students housed in Regents. By comparison, a community college fall 2022 ranged from 21 percent (at the Berkeley submits its proposal to its local governing board, campus) to 49 percent (at the Los Angeles with no approval required by the systemwide Board campus). At CSU, the number of on-campus of Governors. beds systemwide equated to 13 percent of all To Be Approved, Student Housing Projects students in fall 2022, with the share ranging from Must Be Financially Viable. Personnel at the 4 percent (at the Fresno campus) to 50 percent campus level as well as at the universities’ central (at the Sonoma campus). (The CSU Maritime offices review each project for several factors, campus—designed as a primarily residential, including its financial viability. Financial viability has on-site academic program—had enough beds for two key components. First, housing projects must virtually all of its students.) At CCC, the number of show that revenue generated from student housing on-campus beds systemwide in fall 2022 equated 2 LEGISLATIVE ANALYST’S OFFICE 2023-24 BUDGET to less than 0.5 percent of CCC headcount. Of the rapid rehousing programs in partnership with 12 colleges that have on-campus housing, beds community organizations. As of 2022-23, the as a share of headcount ranged from 0.7 percent state is providing a total of $29 million ongoing (at the Sierra campus) to 17 percent (at the Feather ($19 million Proposition 98 General Fund and River campus). Compared to UC students, students $10 million non-Proposition 98 General Fund) for at CSU and CCC are much more likely to live at these programs. These programs provide students home with families or in off-campus housing. who are homeless or at risk of homelessness with various services, including case management, Recent State Initiatives emergency housing, and emergency grants. State Recently Expanded Financial Aid for Beyond rapid rehousing programs, all three public Students’ Living Costs. For many decades, the segments also have received ongoing state funds state’s primary strategy for promoting college in recent years to address students’ basic needs, affordability was to keep student tuition charges low including food and housing insecurity. Basic needs across the public higher education segments, while assistance provided on each campus varies but can also providing full tuition coverage for students include on-campus food pantries, meal vouchers, with financial need through the Cal Grant program. hotel vouchers for short-term housing needs, Over the past several years, the state has begun on-campus emergency housing, security deposit providing more financial aid coverage for nontuition assistance, rental subsidies, and a case manager costs, including housing, food, and transportation to help students secure long-term housing. costs. Specifically, for university students, the state In 2022-23, the segments are receiving a total of recently revamped the Middle Class Scholarship $80 million ongoing ($40 million Proposition 98 (MCS) program to be based on total cost of General Fund and $40 million non-Proposition 98 attendance. The state is providing $630 million General Fund) for student basic needs. ongoing non-Proposition 98 General Fund for the State Recently Created Student Housing revamped program in 2022-23. As a result of the Grant Program. In addition to these ongoing expansion, many more CSU and UC students are program expansions, the state provided a now receiving MCS awards to cover a portion substantial amount of one-time funding last year of their living costs. For community college for the Higher Education Student Housing Grant students, the state created the Student Success program. As part of the 2022-23 budget agreement, Completion Grant program in 2018-19 (building off a the state provided a total of $1.5 billion one-time predecessor program). This program covers $8,000 non-Proposition 98 General Fund for the first round of living costs annually for students with financial of student housing grants. As Figure 1 shows, need who are enrolled in 15 or more units per term and $2,596 annually for students taking between Figure 1 12 and 14 units per term. In 2022-23, the state State Makes First Round of is providing $413 million ongoing Proposition 98 General Fund for this program. In addition to Student Housing Grants these efforts, the state has increased nontuition General Fund (In Millions) Cal Grant awards for students with dependent children and for foster youth. Funds permitting, the Grantsa state has plans to further increase the size of MCS Planning Construction Total awards and further expand the Cal Grant program, CCC $18 $547 $565 including by pegging nontuition Cal Grant awards CSU — 498 498 UC — 389 389 for community college students to inflation. Totals $18 $1,434 $1,452b State Also Created Rapid Rehousing a For intersegmental projects, the administration attributed the planning and Basic Needs Programs. In 2019-20, grants to CCC. The administration split construction grants evenly between the two participating segments. the state provided all three segments with b Funded from appropriations in 2021-22 ($700 million) and 2022-23 ongoing General Fund augmentations to create ($752 million). www.lao.ca.gov 3 2023-24 BUDGET $565 million was provided for CCC projects, Universities Recently Submitted New $498 million for CSU projects, and $389 million Housing Proposals. Trailer legislation adopted last for UC projects. As Figure 2 shows, the funding year included intent to appropriate an additional supported 25 student housing construction $750 million for a second round of student projects across the three segments—11 CCC housing grants in 2023-24. Figure 3 shows the projects, 8 CSU projects, 5 UC projects, and remaining allotments for each segment under 1 intersegmental CCC/CSU project. The program the program’s statutory allocation rules. The also funded 75 community college planning grants segments were to submit project proposals for the (listed in this EdBudget table). 2023-24 round of student housing grants to the Legislature and administration by February 1, 2023. CSU and UC submitted their proposals by the statutory Figure 2 deadline. As Figure 3 shows, State Provides 25 First-Round Construction Grants CSU submitted three project 2022-23 Grants (Dollars in Millions) proposals totaling $149 million in requested state funding—slightly Funding Beds less than its remaining grant Campus State Nonstate Affordable Standard funds. UC submitted six project proposals totaling $499 million California Community Colleges Sierra $80 — 354 — in state funding—far in excess of Compton 80 — 250 — its remaining grant funds. (Rather Ventura 63 — 320 — than reflecting housing demand, Canyons 62 — 100 — the number and size of CSU’s Bakersfield 60 — 154 — Cosumnes River 44 — 145 — and UC’s project proposals this Lake Tahoe 39 — 100 — year likely reflect their strategic Fresno City 34 — 360 — planning decisions.) At the time Siskiyous 33 — 252 — of this writing, CCC had yet to Napa Valley 31 $97 124 404 Santa Rosa 15 63 70 282 submit their project proposals. Subtotals ($542) ($160) (2,229) (686) The CCC Chancellor’s Office is California State University likely to submit those proposals San Francisco $116 $63 750 — to the Legislature by the end of San Marcos 91 49 390 210 March 2023. Fullerton 89 48 390 210 Long Beach 53 29 403 — New Project Proposals Vary in Dominguez Hills 49 26 238 127 a Few Ways. As Figure 4 shows, Northridge 38 20 200 — many of the new university project Fresno 31 17 175 — Humboldt 27 15 138 — proposals would use nonstate funds Subtotals ($494) ($266) (2,684) (547) to expand their scope or further University of California reduce their housing charges. San Diego $100 $236 1,100 208 Among CSU projects, nonstate Berkeley 100 212 310 803 contributions range from 35 percent Santa Cruz 89 — 320 — of total project costs (at the Irvine 65 1 300 — Los Angeles 35 29 358 — Stanislaus campus) to 73 percent Subtotals ($389) ($477) (2,388) (1,011) (at the San Jose campus). Among Intersegmental UC projects, two projects have no Imperial Valley CCD/ $9 $5 78 — nonstate contributions whereas CSU San Diego one project commits an 84 percent Totals $1,434 $908 7,379 2,244 nonstate contribution (at the CCD = Community College District. Riverside campus). The three CSU 4 LEGISLATIVE ANALYST’S OFFICE 2023-24 BUDGET projects would add 877 affordable beds, along with 535 standard-rent beds. The six UC projects Figure 3 (including the two proposed intersegmental Universities Submit New Round of projects) would add 3,738 affordable beds, along with 1,869 standard-rent beds. Project Proposals State Also Recently Created California General Fund (Dollars in Millions) Student Housing Revolving Loan Program. Project Proposals Trailer legislation adopted last year also Remaining Number of Requested included intent to provide $1.8 billion one-time Allotmenta Proposals State Funding non-Proposition 98 General Fund over two years CCC $545 —b —b ($900 million each in 2023-24 and 2024-25) for a CSU 157 3 $149 new housing revolving loan program. The California UC 48 6 499 School Finance Authority is to administer the Totals $750 9 $649 program for community colleges, and California a Chapter 572 of 2022 (AB 190, Committee on Budget) sets forth allotments by segment. The Department of Finance implements those Educational Facilities Authority is to administer it for statutory provisions by first subtracting planning grant funds, then CSU and UC campuses. Under the program, these distributing remaining funds 50 percent to CCC, 30 percent to CSU, and 20 percent to UC. The Governor proposes to delay $250 million of administering entities will give loans to campuses for the statutory 2023-24 allotment to 2024-25. new housing projects. Though the loans are interest b As of the time of this writing, CCC project proposals had not yet been submitted to the state. free, campuses are required to repay the principal, which they would do using student housing charges. As loan repayments replenish the revolving loan fund, new loans would be made for additional housing projects. Figure 4 Universities Submitted Nine New Student Housing Construction Project Proposals 2023-24 Project Proposals, Listed in Priority Order by Category (Dollars in Millions) Funding Beds State Funds Nonstate Funds Campus Requested Committed Affordable Standard California State University Sacramento $41 $26 285 — San Jose 89 245 517 490 Stanislaus 19 10 75 45 Subtotals ($149) ($281) (877) (535) University of California San Diego $150 $533 1,474 970 Merced (Undergraduate) 98 — 496 — Davis 92 1 400 — Merced (Graduate) 59 — 236 — Subtotals ($398) ($534) (2,606) (970) Intersegmental UC Riverside and Riverside CCD $51 $261 654 899 UC Merced and Merced CCD 50 50 478 — Subtotals ($101) ($311) (1,132) (899) Totals $649 $1,125 4,615 2,404 CCD = Community College District. www.lao.ca.gov 5 2023-24 BUDGET GOVERNOR’S PROPOSALS Governor Proposes to Delay Some Student much, if any, grant funding they receive in 2023-24. Housing Grant Funding. In response to a (Under statute, of total grant funding, 50 percent is projected state budget deficit, the Governor for CCC, 30 percent is for CSU, and 20 percent is proposes various budget solutions to achieve for UC.) near-term General Fund savings. One set of budget Governor Also Proposes to Delay Revolving solutions involves delaying certain funding to Loan Funds. The Governor also proposes later years. Within higher education, one of the to delay the launch of the California Student Governor’s largest proposed funding delays is to Housing Revolving Loan Program by one year— move $250 million in student housing grant funds pushing back the start from 2023-24 to 2024-25. from 2023-24 to 2024-25. Delaying this amount Additionally, rather than providing program funds of would leave $500 million (of the originally intended $900 million the first year and another $900 million $750 million) available for new housing projects the following year, the Governor proposes providing in 2023-24. The specific impact of the delay on $650 million the first year (2024-25) and $1.15 billion each of the segments would depend upon how the next year (2025-26). ASSESSMENT Proposed Housing Projects Are in Early intended to reduce housing charges from what Phases. Most of the CSU and UC housing projects they otherwise would have been for those students submitted for possible 2023-24 funding are in early eventually offered one of the newly constructed planning phases. Though the CCC housing projects housing units. Data is not yet available on the had not yet been submitted at the time of this impact of reduced housing charges on college writing, we suspect they too are in early planning affordability and student housing insecurity. Data phases. Even the projects the state funded as part also is not yet available on how state housing grant of the first round generally remain in early planning funds are affecting the overall housing supply on phases. Moreover, if all future project phases go and off campus. Delaying additional housing funds smoothly, most projects still take one or two years would provide time for the state to assess the of planning and design work before entering the impact of the first round of grant funding. construction phase. Some projects take longer to Need for State Subsidy Remains Unclear. reach the construction phase, as environmental Prior to the state creating the Higher Education issues, litigation, and the need to redesign, among Student Housing Grant program, nearly all campus other issues that are not fully within campuses’ housing projects were self-supporting. Moreover, control, can arise during project development. even without state support, construction of student Construction, in turn, can last a couple of years. housing generally outpaced enrollment growth over Given these timing issues, delaying or removing the past several years. Furthermore, campuses funding for the segments’ housing project interested in expanding their housing capacity have proposals would have no near-term impact on ways to reduce project costs without state support. students. (Delaying project funding, however, likely The most common way campuses contain their would contribute to construction cost escalation, student housing costs are by redesigning facilities. as construction costs tend to increase over time.) For example, a project originally designed to Results of First-Round Grants Are Not Yet contain more expensive apartments with individual Available. No housing units receiving Higher kitchens and bathrooms might be redesigned to Education Student Housing Grant funds have be a more traditional residential hall with common yet been completed. The program, however, is bathrooms and no kitchens. 6 LEGISLATIVE ANALYST’S OFFICE 2023-24 BUDGET Other Programs Might Be More Effective programs might be a more targeted approach Way of Promoting College Affordability and to helping those students who need immediate Housing Security. Whereas the first-round Higher housing assistance. Compared to the one-time Education Student Housing Grant program is funding for the student housing grants, these expected to provide affordable housing to fewer kinds of programs rely on ongoing funds. The than 7,400 students, the state has hundreds of state, however, already has notably augmented thousands of low-income students enrolled across ongoing funding for these programs in recent years. the segments. Using the state’s ongoing financial For example, the MCS program—just one of several aid programs to assist with nontuition costs ongoing financial aid programs expanded in recent potentially could benefit many more students much years—is benefitting an estimated 217,000 more more quickly than the housing grant program. students in 2022-23 compared to 2021-22. Moreover, using the segments’ rapid rehousing RECOMMENDATIONS Could Expand Budget Solutions List by have large and growing backlogs of academic Removing Student Housing Funds. Given all facility projects. The latest estimates show these considerations, together with the state’s systemwide capital renewal backlogs (also known budget condition, the Legislature could expand its as deferred maintenance) of roughly $700 million budget solutions list by removing all $750 million at CCC, $6.5 billion at CSU, and $7.3 billion at UC. in scheduled Higher Education Student Housing Unlike self-supporting facilities, academic facilities Grants funds. Relative to the Governor’s budget, traditionally have relied primarily on state funding this option provides an additional $500 million and do not have ready access to alternate means in General Fund savings in 2023-24, while also of funding. After the Legislature has ensured providing an additional $250 million in savings the segments’ existing academic facilities are in 2024-25. As projects are in early phases and kept in good condition, it could consider facility campuses have options for building student expansions—either of academic or nonacademic housing without state support, removing these space, as it deems warranted. grant funds could be one of the relatively less Could Prioritize Revolving Loans Over disruptive ways to achieve state budget solutions. Grants. Were the Legislature to desire to provide These same basic points also can made with one-time funds for student housing, the revolving the California Student Housing Revolving Loan loan program likely yields greater benefits. Under Program. Rather than delaying funding, the the loan program, campuses generally cover a Legislature could remove the $1.8 billion proposed much higher share of total project costs compared for this program over 2024-25 and 2025-26. to the grant program. That is, under the grant Together, the two housing programs could generate program, the state is funding a relatively high share as much as $2.6 billion in additional General Fund of costs (100 percent of costs for some projects), savings over the 2023-24 through 2025-26 period. whereas campuses would be covering 100 percent Could Prioritize Academic Facilities When of costs for all housing projects under the loan One-Time Funds Are Available. If the state program (except for the financing costs, which were to have one-time funds available, it could would be free of charge). Moreover, the benefit of prioritize renovating existing academic facilities. zero-cost financing might be sufficient to make Many of the segments’ academic facilities are many on-campus housing projects financially decades old. Some of these facilities have building viable. CSU and UC already have expressed components that have reached the end of their interest in participating in the program, and we useful life. Because funding has not kept pace with understand at least some community colleges are emerging capital renewal needs, the segments interested. Particularly as interest rates rise within www.lao.ca.gov 7 2023-24 BUDGET the bond market, more campuses likely would university projects have a greater probability of turn to the revolving loan program as an attractive being successfully implemented. In addition, more financing option. Furthermore, as campuses CSU and especially UC students live away from repay their loans, the state would be able to use home compared to CCC students, likely making the replenished account to issue new loans, likely on-campus housing a more attractive option for allowing the state to support more affordable university students. Were the Legislature to provide beds over time. The revolving loan program grant funds in 2023-24, it could proceed with a has the added benefit of being somewhat more subset of the highest-payoff university projects flexible than the grant program, without a set split submitted. The Legislature could prioritize among among the three segments. With this flexibility, the university project proposals consistent with the administering entities might be able to direct the statutory prioritization criteria, which include unmet financing benefit to those housing projects that are housing demand and the state cost per bed, most likely to yield the greatest benefits regardless among other factors. Based upon these criteria, of segment. the university projects with the greatest payoffs are Could Prioritize University Projects those at CSU Sacramento ($41 million), CSU San Over Community College Projects. Were Jose ($89 million), and UC San Diego ($150 million). the Legislature to desire to provide one-time Together, these projects are requesting a total grant funds for housing projects in 2023-24, it of $280 million in state grant funding (less than could consider prioritizing university projects. the $500 million available under the Governor’s The university project proposals were submitted budget). (Approving the UC San Diego project, on time. CSU and UC have much more experience however, would put UC above its statutory program developing, financing, and operating student funding cap.) housing programs than CCC. For these reasons, LAO PUBLICATIONS This report was prepared by Jennifer Pacella, with contributions from Ian Klein, Lisa Qing, and Paul Steenhausen, and reviewed by 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. 8 LEGISLATIVE ANALYST’S OFFICE