The 2024-25 Budget: California Community Colleges

2024-25 BUDGET The 2024-25 Budget: California Community Colleges GABRIEL PETEK | LEGISLATIVE ANALYST | FEBRUARY 2024 SUMMARY Brief Covers the California Community Colleges (CCC) Budget. This brief analyzes the Governor’s budget proposals relating to CCC enrollment, apportionments, and nursing education. In addition, the brief provides a number of recommendations and options to help the Legislature address the large gap between current CCC spending and available Proposition 98 funding. Governor’s Budget Plan for CCC Has Notable Drawbacks. In responding to the drop in the Proposition 98 minimum guarantee for 2022-23, the Governor proposes a budget maneuver that effectively borrows from the future non-Proposition 98 side of the budget—setting problematic fiscal precedent and worsening the state’s out-year deficits. In addition, the Governor’s budget likely overestimates the amount of funding available to the colleges in 2023-24 and 2024-25. The Governor’s budget also proposes to increase ongoing spending in 2024-25 by providing a cost-of-living adjustment (COLA) to certain CCC programs, despite not being able to afford even existing CCC spending commitments. Furthermore, the Governor misses many opportunities to pull back funds remaining from prior budgets to achieve one-time budget solutions. Recommend Rejecting Budget Maneuver, Using Proposition 98 Reserves Instead. Given the significant drawbacks to the Governor’s CCC budget plan, we recommend the Legislature take a different approach. For 2022-23, instead of adopting the Governor’s problematic budget maneuver, we recommend the Legislature use Proposition 98 reserves to address the funding shortfall. This alternative is sound from a legal perspective, avoids setting a troubling fiscal precedent, does not worsen future budget deficits, and is in line with the underlying rationale for having a Proposition 98 Reserve account. Recommend Reverting Funds Remaining From Recent CCC Initiatives. Based on our February 2024 revenue estimates, an $800 million gap exists in 2023-24 between CCC spending and available Proposition 98 funding. We recommend the Legislature address the bulk of this gap by reverting certain unallocated and unspent CCC funds. We identify many unused funds from recent CCC initiatives that could be pulled back on a one-time basis. In many cases, the funds we identify are available because of insufficient take-up rate by colleges or students for newly created programs. The Legislature could consider our list a starting point, adding items, if needed. Recommend Identifying Ongoing Solutions Outside of Colleges’ Core Programs. Beyond one-time solutions, the Legislature might need to look for ongoing solutions to balance the CCC budget. Based on our February 2024 revenue estimates, approximately $700 million in ongoing CCC solutions would be required to align ongoing spending with the minimum guarantee in 2024-25. The $700 million assumes that the Legislature does not fund the Governor’s CCC COLA proposals. More or less savings might be needed depending on budget developments from now through June 2025. In deliberating over the coming months on how to achieve savings, we recommend the Legislature attempt to preserve funding in certain core areas, including CCC’s core instructional mission and aid for financially needy students. Outside of these core areas, we identify several ways the Legislature could achieve ongoing savings, including by reducing state support for certain athletic activities, enrichment activities, and aid for non-financially needy students. As with our list of one-time solutions, the Legislature could use our list of ongoing solutions as a starting point, potentially adding items, as needed. www.lao.ca.gov 1 2024-25 BUDGET INTRODUCTION CCC Has Broad Mission. The CCC system is to offer state-supported instruction that is primarily one of California’s three public higher education recreational in nature (such as golf and yoga classes). segments. The system consists of 115 colleges Brief Focuses on CCC Budget. This brief operated by 72 locally governed districts located analyzes the Governor’s budget proposals for CCC. throughout the state, plus one statewide online We begin by describing the Governor’s overall community college administered by the Board of budget plan for CCC and providing our high-level Governors. The colleges offer a breadth of academic assessment of that plan. The next four sections of programs, including lower-division transferable the brief focus on CCC enrollment, apportionments, coursework, career technical education, precollegiate a loophole related to summer enrollment, and nursing basic skills instruction, and citizenship classes. education, respectively. Within those sections, we The state also allows community colleges to offer identify a few opportunities for the Legislature to baccalaureate degrees in certain occupational achieve budget savings. The last section covers other fields as long as they do not duplicate the programs opportunities the Legislature has to achieve one-time offered by the University of California (UC) or the and ongoing budget savings. California State University (CSU). In addition to their core academic programs, colleges are authorized OVERVIEW In this section, we first cover major Proposition 98 revenue revisions in turn lead to significant proposals impacting community colleges. We then downward revisions in the administration’s estimates assess the Governor’s overall Proposition 98 of the Proposition 98 minimum guarantee from plan for the colleges and provide associated 2022-23 through 2024-25. As Figure 1 shows, the high-level recommendations. In the last section, minimum guarantee is down even further in 2023-24 we cover certain non-Proposition 98 proposals and 2024-25 under our February 2024 estimates. for the colleges. Figure 1 Proposition 98 Proposals State Is Facing Notable Downward Revisions to Proposition 98 Minimum Guarantee Is Revised Downward Proposition 98 Guarantee Over Budget Window. Proposition 98 (In Billions) (1988) established a constitutional funding formula that sets a minimum $111.6 annual funding level for schools and $109.1 community colleges. Commonly $107.4 $108.3 $106.6 $105.6 known as the “minimum guarantee,” this funding requirement is met $100.4 $98.3 $98.3 through a combination of state General Fund and local property tax revenue. Since the 2023-24 budget was enacted, the administration 2022-23 2023-24 2024-25 has revised its estimates of state General Fund revenues Enacted Budget (June) Governor's Budget (January) LAO (February) down substantially. These downward 2 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET We discuss these estimates in more detail in Governor Proposes Using Proposition 98 The 2024-25 Budget: Proposition 98 K-12 Reserves to Address Reduction in 2023-24 Education Analysis. Guarantee. Under the Governor’s budget, State Faces Unusually Large Drop in the minimum guarantee in 2023-24 is revised 2022-23 Proposition 98 Guarantee. Of the downward by $2.7 billion. The Governor’s budget downward revisions, $9.1 billion is attributable also accounts for higher baseline costs in several to 2022-23. This is the largest reduction to the programs (mostly involving K-12 schools). The main guarantee in a prior year since the passage of way the Governor proposes to address the lower Proposition 98 in 1988. Previous downward revisions guarantee and higher costs is by making a $3 billion to the prior-year guarantee have been no more than a discretionary withdrawal from the Proposition 98 few hundreds of millions of dollars. The administration Reserve. Of this amount, the Governor proposes attributes the unusually large adjustment primarily to using $236 million to cover ongoing community the late tax filing deadline for 2022 returns (November college apportionment costs. (We discuss rather than April 2023) and the lack of reliable revenue apportionment costs in more detail in the data prior to budget enactment in June 2023. “Apportionments” section of this brief.) Governor Proposes Large Budget Maneuver Governor Proposes Increasing CCC Relating to Reduction in 2022-23 Guarantee. Spending in 2024-25. Despite not having The Governor proposes to realign Proposition 98 sufficient Proposition 98 funds to cover existing spending with the revised estimate of the minimum Proposition 98 program costs, the Governor’s guarantee in 2022-23. The main way the Governor budget contains some Proposition 98 program addresses the reduction in the guarantee is by augmentations in 2024-25. As Figure 2 shows, the proposing to reclassify $8 billion in Proposition 98 largest CCC proposal is to provide apportionments General Fund payments already made to schools and with $69 million to cover a 0.76 percent COLA— community colleges. Of the $8 billion, $910 million the same COLA rate proposed for the K-12 Local would be attributed to community colleges. The Control Funding Formula (LCFF). The Governor $8 billion would be reclassified as non-Proposition 98 also proposes providing a 0.76 percent COLA to General Fund payments, removed from the state’s seven CCC categorical programs at a total cost books in 2022-23, and recognized back on the state’s of $9.3 million. The Governor proposes $30 million books in even increments spread across 2025-26 for 0.5 percent systemwide CCC enrollment growth through 2029-30. This maneuver would not reduce any previous funding provided to colleges or Figure 2 attempt to recoup any of this funding Governor’s Budget Proposes Some Proposition 98 in subsequent years—districts Spending Increases for CCC would retain the associated cash 2024-25 (In Millions) they originally received. Rather than colleges being affected, the impact Ongoing Spending of the maneuver would occur entirely COLA for apportionments (0.76 percent) $69 on the non-Proposition 98 side of Student Success Completion Grant (caseload adjustment) 50 Enrollment growth (0.5 percent) 30 the budget beginning in 2025-26. In COLA for select categorical programs (0.76 percent)a 9 effect, the state would be borrowing Subtotal ($158) from future non-Proposition 98 One-Time Initiatives funds to pay for 2022-23 school and Nursing education $60 college spending. Unlike a traditional Subtotal ($60) loan, however, the state would not Total Spending Increases $218 score this mechanism as borrowing, a Applies to the Adult Education Program, apprenticeship programs, CalWORKs student services, campus child care support, Disabled Students Programs and Services, Extended Opportunity make payments to an external Programs and Services, and the mandates block grant. creditor, or accrue any interest. COLA = cost-of-living adjustment. www.lao.ca.gov 3 2024-25 BUDGET In addition, the Governor’s budget contains budget more difficult too. Under the Governor’s $60 million one-time Proposition 98 General Fund plan, community colleges would enter 2025-26 to expand CCC nursing education. (Last year, the with a $486 million apportionment shortfall. The state adopted a five-year funding plan totaling Governor’s plan also leaves schools with a nearly $300 million to expand CCC nursing education, $2.2 billion LCFF shortfall entering 2025-26. These with the programmatic details of the initiative to be combined shortfalls mean the first $2.7 billion of subject to future legislation.) any new Proposition 98 funding in 2025-26 would Governor Accommodates Higher Proposed need to go first to backfilling funding gaps in Spending in 2024-25 Using More Reserves. existing programs. Entering 2025-26 with existing To cover his new proposed CCC spending in operating shortfalls means both existing programs 2024-25, the Governor proposes to make another are at greater risk of cuts and any new priorities are discretionary withdrawal from the Proposition 98 less likely to be addressed. Reserve. For schools and colleges combined, the Governor’s Plan Misses Opportunities to Governor proposes to withdraw $2.6 billion. Of this Achieve CCC Savings. The Governor’s plan relies amount, $486 million would be used for ongoing solely on his proposed budget maneuver and community college apportionment costs. Under drawing down Proposition 98 Reserves. Other the Governor’s plan, $3.9 billion in Proposition 98 than caseload and technical adjustments, the reserves would remain available entering 2025-26. Governor’s plan includes no components aimed at lowering CCC spending, despite the state’s Assessment revised budget outlook. In taking this approach, Proposed Budget Maneuver Worsens State’s the Governor misses opportunities to achieve Out-Year Deficits. We have major concerns with savings over the budget window. Moreover, the the Governor’s proposed budget maneuver for savings opportunities that could be achieved now addressing the drop in the 2022-23 guarantee. (like reverting unallocated funds from prior-year As we discuss in The 2024-25 Budget: Overview initiatives) would have little negative impact on of the Governor’s Budget, the state is projected to districts. By missing these opportunities now, the have multiyear budget deficits of roughly $30 billion Governor’s plan makes realigning CCC spending annually. The Governor’s proposed maneuver with available Proposition 98 funding even more contributes to these projected budget deficits over difficult moving forward. the outlook period and beyond (through 2029-30). Recommendations Carrying $8 billion in effectively greater internal debt would make balancing the state budget more Use Proposition 98 Reserves in Place of difficult in the coming years. Moreover, the impact Funding Maneuver to Address 2022-23 Drop would be felt fully on the non-Proposition 98 side in Guarantee. Under the Governor’s plan, the of the budget—potentially at the expense of health state would be using Proposition 98 reserves to care programs, social services, and other state increase CCC spending amid budget deficits. programs beyond education. The maneuver sets We recommend the Legislature take a more problematic fiscal precedent by borrowing from the prudent approach and use the reserves instead to future to pay for past operating costs. We describe address the large decline in the 2022-23 minimum these and other concerns in more detail in The guarantee. We think reserves provide the greatest 2024-25 Budget: The Governor’s Proposition 98 benefit for the state budget—and for colleges— Funding Maneuver. when the state is facing a large, unexpected Proposed CCC Operating Shortfall shortfall and would need to adopt disruptive Worsens CCC Budget Outlook. Whereas the alternatives if it did not withdraw reserves. Governor’s proposed funding maneuver makes The significant drop in the prior-year guarantee balancing the non-Proposition 98 side of the meets these conditions in 2022-23. In contrast budget more difficult beginning in 2025-26, his to the Governor’s proposed maneuver, using proposed Proposition 98 operating shortfalls reserves to address the 2022-23 shortfall would make balancing the Proposition 98 side of the work within an existing legal framework, avoid 4 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET setting a problematic fiscal precedent, and not pulling back unallocated or unearned funds have worsen future state budget deficits. It also would been exhausted, the state still might face a notable be consistent with the state’s original rationale for Proposition 98 CCC budget problem. Under our creating the Proposition 98 Reserve account. February estimates, hundreds of millions of dollars Identify More CCC Budget Solutions to in ongoing Proposition 98 CCC budget solutions Address 2023-24 Drop in Guarantee. Based would be needed. In this situation, we recommend on our February 2024 estimates of the 2023-24 the Legislature attempt to preserve funding for key minimum guarantee, the Legislature is facing an priorities such as CCC’s core instructional mission, approximately $800 million gap that year between student support services, and aid for financially available Proposition 98 CCC funding and existing needy students. Areas the Legislature might consider CCC spending. If the Legislature used Proposition 98 finding savings is by eliminating state support for reserves to address the 2022-23 situation, it would athletics and classes that are primarily enrichment have approximately $175 million in Proposition 98 in nature, as well as eliminating fee waivers for reserves remaining to support CCC program non-financially needy students. Reducing these types spending in 2023-24. Although the estimated CCC of programs would minimize the negative implications funding gap in 2023-24 is still subject to considerable for colleges’ core programs and low-income uncertainty, we recommend the Legislature begin students. The “Budget Solutions” section of this brief identifying additional potential Proposition 98 budget identifies a number of options that would result in solutions. Toward this end, we recommend the ongoing General Fund savings. Legislature revisit recent CCC initiatives to determine Non-Proposition 98 Proposals if any associated funding remains unallocated or unspent. As discussed in the “Budget Solutions” Total Funding for CCC in 2024-25 Is Up From section of this brief, we estimate the Legislature could Revised 2023-24 Level. Under the Governor’s budget, total funding for the colleges would reach achieve hundreds of millions of dollars in additional $18.4 billion in 2024-25, a 2.8 percent increase Proposition 98 budget solutions by identifying still available funds from recent CCC initiatives. over the revised 2023-24 level. As Figure 3 on the next page shows, non-Proposition 98 General Pulling back these funds could yield potentially Fund support would increase by just over 9 percent enough savings to address the entire CCC budget ($55 million) in 2024-25, largely due to an increase gap in 2023-24. in debt service payments on state general obligation Hold Core CCC Spending Flat in 2024-25. bonds for CCC facilities. As a starting point in building the CCC budget for 2024-25, we recommend not increasing ongoing Governor Proposes No Increase in CCC CCC spending. To this end, we recommend not Enrollment Fees. Beyond Proposition 98 funding and non-Proposition 98 General Fund, much of providing a COLA to apportionments (or any CCC CCC’s remaining funding comes from student fees program). Typically, when facing multiyear deficits, (including enrollment fees) and various local sources the state aims to contain, not increase, spending. (such as revenue from facility rentals and community Though we recommend not providing a COLA to service programs). The Governor proposes no CCC apportionments, we recommend the Legislature increase to enrollment fees for 2024-25. Since place a high initial priority on maintaining funding summer 2012, CCC enrollment fees have been held for the colleges’ core instructional costs. Districts flat at $46 per unit (or $1,380 for a full-time student cover their core instructional costs by relying on taking 30 semester units per year). Community certain components of their apportionment funding. college fees in California remain the lowest of any Typically, colleges have more difficulty responding to state and significantly below the national average. reductions in this apportionment funding compared In 2022-23, community college tuition averaged to their other program funding. approximately $5,100 nationally—more than triple Begin Considering Ways to Achieve Ongoing the CCC enrollment fee level. General Fund Savings. After all Proposition 98 reserves have been spent and all opportunities for www.lao.ca.gov 5 2024-25 BUDGET Figure 3 Total CCC Funding Increases Moderately Under Governor’s Budget (Dollars in Millions Except Funding Per Student) Change From 2023-24 2022-23 2023-24 2024-25 Revised Revised Proposed Amount Percent Proposition 98 General Funda $7,634 $8,425 $8,679 $255 3.0% Local property tax 3,860 4,036 4,210 175 4.3 Subtotals ($11,494) ($12,460) ($12,890) ($430) (3.4%) Other State Other General Fund $618 $606 $661 $55 9.1% Lottery 367 316 316 —b -0.1 Special funds 24 103 98 -4 -4.1 Subtotals ($1,009) ($1,025) ($1,075) ($50) (4.9%) Other Local Enrollment fees $407 $407 $409 $1 0.4% Other local revenuec 3,514 3,537 3,559 22 0.6 Subtotals ($3,921) ($3,944) ($3,968) ($24) (0.6%) Federal $441 $441 $441 — — Totals $16,865 $17,869 $18,373 $504 2.8% FTE studentsd 1,100,681 1,100,417 1,098,591 -$1,826 -0.2%e Proposition 98 funding per FTE studentf $10,442 $11,323 $11,733 $410 3.6 a Includes withdrawals from the Proposition 98 Reserve ($11,000 in 2022-23, $236 million in 2023-24, and $486 million in 2024-25). 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 Reflects budgeted FTE students. e Reflects the net change after accounting for the proposed 0.5 percent systemwide enrollment growth together with all other enrollment adjustments. f Reflects Proposition 98 funding, including reserve withdrawals, per budgeted FTE student. FTE = full-time equivalent. Governor’s Budget Funds One Continuing $61.5 million ongoing non-Proposition 98 General Academic Capital Project. The Governor Fund for debt financing. Under the arrangement, proposes to provide $29 million in state general most of the CCC projects (16) were to issue local obligation bond funding to continue one previously revenue bonds or wait for a state lease revenue authorized community college project—the bond or other state financing alternative to be College of the Siskiyous Theater and McCloud developed as part of the 2024-25 budget process. Hall renovation. The bond funds would come from Three intersegmental projects involving the Merced, Proposition 51 (2016). This project is funded for the Riverside, and Santa Cruz areas are being funded construction phase. In 2022-23, the state approved with UC revenue bonds. Since enactment of $1.6 million for preliminary plans and working the 2023-24 Budget Act, the administration has drawings. Construction is scheduled to start in determined that three of the CCC projects (in the January 2025 and be completed by June 2026. Napa, Santa Rosa, and Imperial Valley areas) are Governor Returns to Paying Cash for a Few not good candidates for a state lease revenue Student Housing Projects. In response to the bond program. The Governor’s budget proposes budget deficit the state faced last year, the 2023-24 to return to funding these three projects up front budget package converted 19 CCC student with cash—using $50.6 million of the ongoing housing projects from being funded up front with non-Proposition 98 General Fund appropriation cash to being debt financed. Specifically, the provided last year (generating $10.9 million in state rescinded a total of about $1 billion one-time 2023-24 savings). non-Proposition 98 General Fund, replacing it with 6 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET Additional Student Housing Financing The Governor intends to submit a corresponding Proposal Is Likely to Be Submitted in the May proposal at the May Revision. Given timing Revision. The Governor’s Budget Summary issues entailed in developing such a program, indicates that the administration is committed the administration believes no associated funding to using a state lease revenue bond approach would be needed in 2024-25. for financing the remaining 13 CCC projects. ENROLLMENT In this section, we provide background on CCC Enrollment Dropped Notably During community college enrollment trends, describe the Pandemic. As Figure 4 also shows, between the Governor’s proposal to fund enrollment 2018-19 (the last full year before the start of the growth, assess the proposal, and offer pandemic) and 2021-22, full-time equivalent associated recommendations. (FTE) students at CCC declined by more than 200,000 (19 percent). The drop in CCC enrollment Background was consistent with national community college Several Factors Influence CCC enrollment trends over this period. While CCC Enrollment. Under state law, community colleges enrollment declines over these years affected operate as open access institutions. That is, all virtually every student demographic group, most persons 18 years or older may attend a community districts reported the largest enrollment declines college. (While CCC does not deny admission among African American, male, lower-income, and to students, there is no guarantee of access to a older adult students. These group-specific impacts particular class.) Many factors affect the number of also were consistent with national trends. students who attend community colleges, including Enrollment Levels Are Increasing in Many changes in the state’s population, particularly Districts. After three years of enrollment drops, among young adults; local economic conditions, data from the Chancellor’s Office indicates that particularly the local job market; the availability of enrollment rose overall in 2022-23—increasing certain classes; and the perceived value of the education Figure 4 to potential students. Prior to the Pandemic, After Having Plateaued, CCC Enrollment Declined CCC Enrollment Had During the Pandemic Plateaued. Following the Great Resident Full-Time Equivalent Students (In Thousands) Recession, as the economy and state funding began recovering 1,200 (2012-13 through 2015-16), 1,000 systemwide CCC enrollment grew. As Figure 4 shows, CCC 800 enrollment flattened thereafter. 600 The plateau in CCC enrollment during this period was commonly 400 attributed to the long economic 200 expansion, strong labor market, and unemployment remaining at or 2012-13 2013-142014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-222022-23ª near record lows. a Reflects estimate from Chancellor's Office based on district data reported as of November 2023. www.lao.ca.gov 7 2024-25 BUDGET by an estimated 4 percent (in FTE terms) over outreach to local high schools, and many colleges 2021-22 levels. Figure 5 shows that while some have created phone banks to contact individuals districts were back at or above their pre-pandemic who recently dropped out of college or had enrollment levels in 2022-23, most community completed a CCC application recently but did colleges remained below those levels. Fall 2023 not register for classes. In addition, a number data will not be released by the Chancellor’s Office of colleges have begun to offer more flexible until late February 2024, but some data suggests courses, with shorter terms and more frequent continued growth in 2023-24. Based on information start dates (rather than only offering typical our office received in January 2024 directly from semester start dates). 20 districts (representing more than one-quarter State Has Certain Rules for Allocating of districts in the state), fall 2023 enrollment was Enrollment Growth Funds Across Districts. strong, with districts reporting growth over fall Statute does not specify how the state is to go 2022 levels of between 4 percent and 18 percent. about determining how much CCC growth funding This data suggests more districts are likely to to provide in any given year. Historically, the state return to their pre-pandemic levels over the next has considered several state-level factors, including couple of years. changes in the adult population, the unemployment Several Factors Likely Contributing to Recent rate, and prior-year enrollment trends. When the Enrollment Increases. District administrators state funds growth, it provides districts with a cite a number of reasons for the recent rebound in uniform rate for each major type of instruction. enrollment. Unemployment in the state has ticked (The weighted average rate is about $5,400 per up over the past year (increasing from 3.8 percent student in 2023-24.) The Chancellor’s Office uses a in September 2022 to 5.1 percent by December statutory formula to allocate that enrollment growth 2023), which likely has resulted in more individuals funding across districts. The allocation formula deciding to earn a CCC education. Many districts takes into account several local-level factors, also have indicated they have increased enrollment including local rates of educational attainment, among nontraditional students, including dually unemployment, poverty, and enrollment. Funding enrolled high school students and incarcerated for districts that are unable to reach their budgeted students. Additionally, colleges have increased growth targets is eventually redistributed to other districts who grow beyond those targets. Figure 5 Unused Growth Funds Most Districts Have Not Returned to May Be Used for Backfilling Pre-Pandemic Enrollment Levels Apportionment Shortfalls. Estimated Change in FTE Students, 2022-23 Compared to 2018-19 For many years, the annual budget act has contained provisional language allowing the CCC 6+% Chancellor’s Office to allocate 0% to 5% unused systemwide enrollment -1% to -10% growth funding to backfill any shortfalls in CCC apportionment -11% to -20% funding. Shortfalls can occur as -21% to -30% a result of colleges generating -31% to -40% lower-than-budgeted enrollment fee revenue or local property tax -41% to -50% revenue. The provisional budget 5 10 15 20 25 30 language allows the Chancellor’s Number of Community College Districts Office to redirect unearned FTE = full-time equivalent. growth funds in this way after 8 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET underlying apportionment data has been finalized, term is just beginning. By the time of the which occurs after the close of the fiscal year. May Revision, the Chancellor’s Office will have After addressing any apportionment shortfalls, provided the Legislature with preliminary enrollment remaining unused enrollment funding flows into data for 2023-24. This data will show which districts the Proposition 98 Reversion Account. Funds in are reporting enrollment increases and declines and this account may be redirected for any one-time the magnitude of those changes. It also will show Proposition 98 purpose. how many districts are on track to earn any of the 2023-24 enrollment growth funds. Apportionment Proposal data for 2023-24, however, will not be finalized until Governor’s Budget Funds Enrollment February 2025, such that the Legislature might Growth. The Governor’s budget includes not want to take any associated budget action $30 million ongoing Proposition 98 General Fund until next year. At that time, if some or all of the for 0.5 percent systemwide CCC enrollment growth 2023-24 enrollment growth funds end up not being in 2024-25. This equates to about 5,400 additional earned by districts or needed for an apportionment FTE students. The average base rate for each of shortfall, the Legislature could redirect available these students is $5,440. To be eligible for these funds for other Proposition 98 purposes, including growth funds, a district must first recover to its Proposition 98 budget solutions. pre-pandemic enrollment level. The Governor’s Several Factors Could Guide 2024-25 proposed enrollment growth rate of 0.5 percent Enrollment Growth Decision. If some districts is the same rate the state has adopted the past are on track to grow in 2023-24, it could mean three years. The Governor’s budget also continues they might continue to grow in 2024-25. Student the practice of including provisional language demand also might increase in 2024-25 if the state’s redirecting any unearned enrollment growth funds unemployment rate continues to tick upward, the first to backfilling apportionment shortfalls. job market weakens, or entry-level wage growth slows. These developments often are accompanied Assessment by an increase in the number of individuals seeking Likely That Some of 2022-23 Growth Funding reskilling or upskilling. By providing funding for Will Not Be Earned by Districts. Based on data enrollment growth in 2024-25, the state could reported by the Chancellor’s Office to our office encourage and reward districts for expanding in early February 2024, $19 million of $27 million access to students. Countering these growth in 2022-23 enrollment growth funding had been pressures, however, is demographic data indicating earned by districts. The Chancellor’s Office has declines in both the college-age population identified no apportionment funding shortfalls for (ages 18-24) and the broader working-age adult 2022-23. The Chancellor’s Office plans to release population (ages 25-64) in the state. final 2022-23 enrollment and funding data by the end of February 2024. Any 2022-23 growth Recommendations funds not earned by districts or not needed for an Sweep 2022-23 Growth Funds. Once 2022-23 apportionment shortfall would become available enrollment and funding data are finalized later this for other Proposition 98 purposes, including fiscal year, we recommend the Legislature use any Proposition 98 budget solutions. (The June 2023 unearned enrollment growth funds to help achieve budget swept the entire $24 million in enrollment Proposition 98 budget savings. Based upon growth funding from 2021-22, as none of it preliminary data, $8 million would be available as was earned.) savings. This action could be one of several ways Better Information Is Coming on 2023-24 the Legislature achieves Proposition 98 savings. Enrollment. As of this writing, estimating 2023-24 Given the notable downward revisions in the CCC enrollment remains difficult given that the Proposition 98 minimum guarantee over the budget Chancellor’s Office is still processing fall 2023 window, such savings would help the state balance district enrollment submissions and the spring 2024 the budget. www.lao.ca.gov 9 2024-25 BUDGET Consider Forthcoming Data, Together Ultimately, though, the Legislature will want to With State’s Budget Condition, to Decide on weigh the benefits of providing more access to Growth Funding for 2024-25. We recommend the individuals seeking a CCC education with the Legislature also use updated enrollment data, as need to find General Fund savings to address the well as updated data on available Proposition 98 state’s significant budget problem. Were updated funding, to make its decision on CCC enrollment revenue estimates at the May Revision to suggest growth for 2024-25. If the updated enrollment a more significant budget problem for the state, we data indicate districts are growing in 2023-24, the recommend the Legislature not provide any growth Legislature could view the Governor’s proposed funding for community colleges in 2024-25. growth funding in 2024-25 as warranted. APPORTIONMENTS In this section, we focus on community college with the largest being the California Federation apportionments. Community colleges use their of Teachers. The California School Employees apportionment funding to cover their core operating Association is the main union for classified staff. costs. Below, we first provide background on Each community college negotiates with the local community colleges’ core operating costs and branches of these unions. Through collective how colleges generally cover those costs. We then bargaining agreements, community college districts describe the Governor’s proposal to provide a and their employees make key compensation COLA for apportionments and select categorical decisions, including salary decisions. programs, assess the proposal, and provide an These agreements are ratified by local community associated recommendation. college district governing boards. The Legislature does not ratify these local agreements. Over the Cost Pressures past several years, salaries for community college Compensation Is Largest Community College Operating Cost. Colleges use the bulk Figure 6 of apportionment funding on employee compensation. Bulk of District Spending Is for Compensation As Figure 6 shows, all Stylized Community College District Budget compensation-related costs— including salaries, retirement benefits, health care benefits, workers’ compensation, and Otherª Other Compensation unemployment insurance— typically account for 80 percent to Retirees 85 percent of a district’s budget. Health Benefits The remainder of a district’s budget Active Employees Salaries is for various other core operating costs, including utilities, insurance, Pensions software licenses, equipment, and supplies. Salary Decisions Are Made Locally. Most community college employees are represented by labor a Includes operating expenses such as campus utility and technology costs. unions. Several unions represent faculty throughout the state, 10 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET faculty generally have increased. For tenure and higher costs in 2024-25 for health care premiums, tenure-track faculty, the average salary has been insurance, equipment, supplies, and utilities. Health growing slightly quicker than inflation, reaching care costs are the largest of these remaining cost $114,630 in 2022. pressures. Districts are likely to face even greater Districts Are Likely to Feel Some Salary pressure in this area than normal, as premiums Pressure in 2024-25. Between 2021-22 and in 2024 are increasing at historically high rates. 2022-23, both inflation and wage growth (across Cost drivers include new medical technologies, the nation and in California) were at their highest increases in prescription drug costs, and inflation. levels in several decades. Although inflation Districts generally cover premium increases for and wage growth among workers have slowed their respective health care plans, though those noticeably over the past year, both are likely to decisions are collectively bargained. In some cases, remain above historical averages for the next few employees are responsible for covering all or a years. As a result, community college districts are portion of the premium increases. likely to continue feeling pressure to provide their COLA Is Typically Subject to Collective employees with salary increases. This is particularly Bargaining at District Level. The state typically true in districts that report having challenges provides apportionment funding with a COLA recruiting faculty and other staff due to less to help districts cover operating cost increases. competitive salary levels. In most cases, districts, in turn, negotiate a Districts’ Pension Costs Also Are COLA rate with their bargaining units. In negotiating Rising. About half of CCC employees (namely a COLA rate with employee unions, districts faculty) participate in the California State Teachers’ typically take into account a number of factors, Retirement System (CalSTRS), with the other half including changes in the costs of housing and other (namely staff and administrators) participating in the expenses for employees, the competitiveness of California Public Employees’ Retirement System salaries relative to other districts, and the need for (CalPERS). Districts’ employer contribution rates the district to address non-salary cost pressures for these two systems are set by the respective (such as pension liabilities and cost increases to retirement boards, rather than at the local utilities and other operating expenses). A relatively community college district level (meaning all college small proportion of districts (likely less than districts are subject to the same contribution rates). 10 percent) automatically apply any state-funded Districts’ pension costs have been increasing over COLA rate to employees. time. In 2013-14, districts’ employer contribution Staffing Levels Have Declined, Particularly rate was 8.3 percent of payroll for CalSTRS and Among Part-Time Faculty, Over the Past Few 11.4 percent of payroll for CalPERS. Those rates Years. While districts are facing pressure to are up to 19.1 percent of payroll for CalSTRS and increase salaries and cover pension and health 26.7 percent of payroll for CalPERS in 2023-24. care rate increases, staffing levels systemwide are Based on current assumptions, districts’ CalSTRS down. From fall 2019 to fall 2022, the total number contribution rate is expected to stay constant at of CCC FTE employees declined by 2.5 percent, 19.1 percent in 2024-25, whereas the CalPERS falling from nearly 66,000 FTE employees in fall rate is projected to increase to 27.8 percent. 2019 to approximately 64,000 FTE employees (Community colleges are not included in the in fall 2022. Part-time faculty—which historically Governor’s CalPERS proposal involving changes have made up nearly half of all CCC employees— in how a previous state supplemental payment is experienced the largest decline (14 percent in both applied.) Accounting for both retirement systems, FTE and headcount terms). This decline was due to community college costs are expected to increase districts offering fewer course sections as a result by $76 million in 2024-25. of lower enrollment. When districts reduce course Colleges Face Various Other Cost Pressures. sections, they typically reduce their use of part-time Similar to other education segments, community faculty, who are hired as temporary employees, college districts generally also expect to see compared to full-time faculty, who are hired www.lao.ca.gov 11 2024-25 BUDGET as permanent employees. Most districts across the the COLA. These apportionment funding increases state have been affected by enrollment declines are much higher than the average COLA rate over and, in turn, have experienced staffing reductions. the past 30 years, which is just under 3 percent. While CCC compensation costs have increased Proposition 98 Funding Per Student Is Much over the past several years, they have been offset Higher Today Than Before the Pandemic. As a somewhat due to these reductions in staffing. result of these apportionments increases—as well Staffing Might Begin to Rebound. Though as funding increases for numerous categorical fall 2023 staffing data are not yet available, two programs in recent years—budgeted per-student factors discussed in the “Enrollment” section of Proposition 98 funding is at an all-time high. this brief could result in districts adding somewhat Since 2018-19, per-student funding has reached more employees in 2023-24 and 2024-25. Staffing new all-time highs nearly every year. Under could increase due to an enrollment rebound at the Governor’s Proposition 98 plan, budgeted community colleges and signs of a weaker labor CCC per-student funding in 2024-25 would be market in the state. approximately $1,500 (14 percent) higher than that pre-pandemic level (2018-19), after adjusting for Funding inflation. Moreover, actual funding per student is Community Colleges Rely Heavily on Funding significantly above budgeted funding per student. From Apportionments. All community college Though enrollment has dropped since 2018-19, districts (except the statewide online Calbright funding has not been adjusted accordingly. Rather, College) receive funding from apportionments. a series of hold-harmless provisions has largely The amount each district receives is based on the insulated community colleges from the fiscal state’s Student Centered Funding Formula (SCFF). impact of enrollment declines. We estimate actual SCFF takes into account many factors, including funding per student in 2022-23 is approximately the amount of credit and noncredit instruction each $3,100 (31 percent) higher than the 2018-19 level, district provides. In 2023-24, community college after adjusting for inflation. districts collectively received 70 percent of all their Systemwide Reserves Continue to Proposition 98 funding through apportionments. Increase. In addition to the state’s Proposition 98 The remainder of CCC Proposition 98 funding is Reserve, districts maintain their own local allocated to community colleges districts through reserves. Figure 7 shows that district unrestricted more than 40 categorical programs. reserves increased over the past several years. Apportionment Funding Has Increased Significantly Over Past Three Years. Although the Figure 7 state is not statutorily required to Community College Reserves provide a COLA for apportionments Have Grown Significantly Since the Pandemic (as it is for school districts’ LCFF), the state has a long-standing Unrestricted District Reserves as Percent of Annual Expenditures practice of providing a COLA 35% when Proposition 98 funds are available. Over the past three 30 years, community colleges have 25 received historically large COLAs— 20 with COLAs of 5.07 percent in 15 2021-22, 6.56 percent in 2022-23, 10 and 8.22 percent in 2023-24. 5 In 2022-23, districts received an additional 8.3 percent base 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23ª apportionment increase on top of ª Estimate from the Chancellor's Office as of January 2024. 12 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET Whereas unrestricted reserves totaled $1.8 billion The Governor’s budget also includes a 0.76 percent (22 percent of expenditures) in 2018-19, they COLA for seven CCC categorical programs, at a grew to an estimated $3.1 billion (33 percent of total cost of $9 million. The COLA rate is based on expenditures) in 2022-23. Both the Government a particular price index, as described in more detail Finance Officers Association and the Chancellor’s in the nearby box. The COLA rate will be revised in Office’s recommend that unrestricted reserves late April, as new data from the federal government comprise a minimum of 16.7 percent (two months) is released at that time. of expenditures. Assessment Funding Increases, Together With Budget Proposed COLA Worsens State’s Funding Savings, Contributed to Higher Reserve Levels. The increase in districts’ local reserves Shortfall for CCC. Under the Governor’s budget, is the result of at least three factors. One factor the state has insufficient Proposition 98 funds to cover even existing CCC costs, before applying is that the state notably increased community college funding during the pandemic years despite any COLA in 2024-25. Given Proposition 98 funding is insufficient to cover CCC costs, the enrollment drops. Given enrollment drops and large state augmentations (even beyond high COLA Governor proposes to draw down $486 million rates), districts purposefully have tended not to in Proposition 98 reserves. The Governor must spend all their state allotments the past few years. dedicate $78 million of his proposed Proposition 98 Reserve withdrawal for covering the added ongoing Additionally, federal relief funds provided during cost of the proposed COLA for CCC apportionments the pandemic reduced pressure on local and state and certain CCC categorical programs. Historically, funds that colleges would otherwise have needed the state has not used reserves to augment ongoing to cover technology and certain other operating spending. Rather, the state historically has used costs. Amid these federal and state funding reserves during times of recessions to mitigate increases, colleges also achieved savings from staff program reductions. reductions and vacancies. Proposal Recommendation Governor Proposes COLA for Reject Proposal, Revisit Available Funding Apportionments and Certain Categorical Next Year. As a first step in addressing the lowered Programs. The Governor’s budget includes estimates of the minimum guarantee, we recommend $69 million to cover a 0.76 percent COLA for the Legislature not provide a COLA to CCC apportionments. This is the same COLA rate apportionments or any CCC categorical programs, the Governor proposes for the K-12 LCFF. thereby containing ongoing spending in 2024-25. How the K-14 Cost-of-Living Adjustment (COLA) Is Calculated Lower Energy Costs May Be a Factor Behind Low COLA Rate. The state calculates a statutory COLA each year using a price index published by the federal government. This index reflects changes in the cost of goods and services purchased by state and local governments across the country. Costs for employee wages and benefits are the largest factor affecting the index, but other factors, including costs for fuel, utilities, supplies, equipment, and facilities, also affect the index. The 0.76 percent COLA rate in the Governor’s budget is below the historical average of about 3 percent. One key factor likely contributing to the low COLA rate in 2024-25 is the recent decline in energy prices. The COLA rate for the budget year is based on prices for the 12-month period ending in March 2024 compared to the previous 12-month period (April 2022 through March 2023). Energy prices peaked in summer 2022 and have since fallen. Given energy prices are among the most volatile of all the factors contributing to the index, they can have an outsized effect on the COLA rate. www.lao.ca.gov 13 2024-25 BUDGET This would result in savings of $78 million Colleges Likely Would Not Experience Proposition 98 General Fund relative to the Significant Financial Hardship Without a Governor’s budget. Under the Governor’s budget COLA. While a year without a COLA would proposal, one-time reserves are required to cover have implications for districts, it likely would be these higher ongoing costs. Such an approach manageable given the circumstances. The likely sets up the state for more difficult choices next leaner budget year comes after several years of year. Were the Legislature not to provide the COLA high apportionment funding increases, including in 2024-25, it would lessen the ongoing shortfall a large above-COLA base increase in 2022-23. for CCC programs and allow for better choices Districts generally also have relatively high local in 2025-26. This recommendation is consistent reserves that could be tapped to address cost with our office’s recommendations not to increase increases that are unavoidable in the near term funding and spending expectations for CSU and (such as higher health care premiums or software UC in 2024-25. If sufficient state revenues do not licenses and other technology). The impact of materialize over the coming months, all higher not providing a COLA in 2024-25 also might be education segments face the further prospect of mitigated by a weakening statewide labor market ongoing program cuts. and slowing wage growth, making it easier for districts to recruit and retain employees. SUMMER LOOPHOLE In this section, we first provide background daily attendance, most community college on SCFF, the rules for counting and reporting enrollment is based on the number of students enrollment, and a new CCC funding protection. enrolled in a course on the census date. The census We then describe how a CCC policy on reporting date is a point defined in CCC regulations as summer enrollment will increase apportionment one-fifth into a given academic term. costs over the next several years. Next, we Regulations Give Districts Flexibility provide an assessment of that policy and offer an on Reporting Summer Enrollment. SCFF associated recommendation. calculations rely on data that community college districts report. For some components of SCFF, Background including the low-income student counts and Enrollment Is the Largest Component of student success points, districts must report SCFF. SCFF is the main community college their data for each fiscal year beginning with funding formula. The formula consists of (1) a base summer term and extending through spring term. allocation linked to enrollment, (2) a supplemental (For example, data for the summer 2021 term allocation linked to low-income student counts, through spring 2022 term were used for these and (3) a student success allocation linked to components of the 2021-22 SCFF calculations.) specified student outcomes. For each of these For many years, CCC regulations have contained three components, the state sets funding rates. a loophole for summer enrollment. For SCFF About 70 percent of districts’ SCFF funding is from calculations, summer classes that have a census the base allocation linked to enrollment. date in one fiscal year and end in the following Enrollment Is Counted on the “Census Date.” fiscal year may be reported in either fiscal year. Community college districts typically operate four Under these regulations, districts are allowed to academic terms—the primary fall and spring terms, “double up” summer enrollment in a given fiscal along with shorter summer and winter intercessions year—for example, counting both summer 2021 and (often about half of the length of the primary terms). summer 2022 enrollment to their 2021-22 SCFF Unlike K-12 schools, which are funded on students’ enrollment calculations. 14 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET A New SCFF Hold Harmless Funding Policy in one year therefore can have large implications Goes Into Effect in 2025-26. SCFF has several on districts’ funding. Estimating the cost of the funding protections that allow districts to earn summer loophole, however, is difficult given final more in apportionment funding than they would 2023-24 enrollment and funding data, including otherwise earn through the formula’s regular summer 2024 data, are not yet available. Based calculations and funding rates. (As discussed in on our discussions with several districts and some the “Enrollment” section of this brief, many districts preliminary modeling, we estimate the loophole are benefiting from these provisions given their could result in roughly $100 million in additional enrollment is down notably from pre-pandemic costs annually from 2024-25 through 2026-27, for levels.) The 2022-23 budget modified one of these a total of about $300 million in costs. SCFF costs funding protections by setting a new hold harmless likely would continue to be a few millions of dollars funding level. Specifically, beginning in 2025-26, higher beyond 2026-27, until all districts reach districts are to receive no less total apportionment enrollment levels moving them off the hold harmless funding than they received in 2024-25. The intent of provision. The administration has not built these this policy is to provide a funding floor for districts costs into their SCFF calculations. The summer experiencing enrollment declines. In addition, loophole also will have distributional effects, as because the hold harmless amount will not grow by districts taking advantage of the summer loophole COLA each year, the intent is to eventually move all effectively generate more under the formula districts off the hold harmless provision and into the (without any workload justification) than other regular SCFF formula calculations (whereby districts districts. Given projected budget deficits and the have incentives to enroll low-income students and prospect of spending reductions, we think this is a have good outcomes for all students). particularly bad time to be raising SCFF costs and potentially redistributing available funds among Assessment districts to reward those that use a loophole. New Hold Harmless Policy Creates a Strong Summer Loophole Distorts Enrollment Incentive for Districts to Use Summer Loophole. Data. Beyond these issues, the summer loophole Districts use the summer loophole (counting two can obscure actual enrollment trends. A district summer terms toward one fiscal year) to boost could report an enrollment decrease between two district funding in a given year above what it years, for example, but that may be due solely would be otherwise. Over the next few years, to its decision to report two summers’ worth of using the summer loophole will become even enrollment in the prior year. The summer loophole more appealing to districts. This is because many thus makes enrollment tracking and legislative districts likely will be on hold harmless in 2025-26 oversight more difficult. due to recent enrollment declines. In order to maximize this funding, they have an incentive to Recommendation push as much enrollment as they can into 2023-24. Recommend Legislature Close Summer By doing so, they could boost their funding level in Loophole. We recommend the Legislature specify 2024-25 by taking advantage of a different funding in statute that the summer term is to be the first protection known as stability. (Some growing term counted in a fiscal year and summer-term districts could receive more funding using the enrollment is to be reported only once each fiscal summer loophole if instead they push summer year. We recommend including this new policy in enrollments into 2024-25.) June 2024 trailer legislation and making it apply Left Unchanged, Summer Loophole starting in summer 2024. The new policy would Could Add Hundreds of Millions of Dollars in mean that enrollment in the summer 2024 term SCFF Costs. Systemwide, summer enrollment would be counted only for 2024-25 (and enrollment averages 12 percent of total annual enrollment, in the summer 2025 term would be counted only though the share can be as high as 20 percent in for 2025-26). This approach would align summer some districts. Doubling up summer enrollment enrollment reporting with the reporting of the www.lao.ca.gov 15 2024-25 BUDGET other components of SCFF. (In addition, counting the cost of the formula substantially over the next summer term as the first term of the fiscal year is few years. Finally, our recommendation would make the same as CSU’s and UC’s policy.) It also would enrollment reporting more meaningful and allow for eliminate a loophole that would otherwise drive up improved legislative oversight. NURSING EDUCATION In this section, we first provide background on another 18 months to obtain an MSN. All three the state requirements to become a registered types of pre-licensure programs combine nurse (RN), nursing education programs, recent classroom instruction, “hands on” training in a trends in the nursing workforce, and funding simulation lab, and clinical placement in a hospital sources for CCC nursing programs. We then or other health facility. describe the Governor’s proposal to fund a new Community Colleges Are Key Providers of nursing education initiative, assess the proposal, Nursing Education. In 2022-23, 144 public and and provide an associated recommendation. private postsecondary institutions in California offered a total of 152 pre-licensure programs. State Nursing Figure 8 shows community colleges are a major Requirements and Programs educator of RNs, offering 77 of the state’s 92 RNs Must Be Licensed to Work in California. associate degree programs. A total of 13,982 California’s more than 300,000 RNs provide a students graduated from a pre-licensure program variety of health care services in various settings, in 2022-23—39 percent with an associate degree, including hospitals, medical offices and clinics, 55 percent with a bachelor’s degree, and 6 percent extended care facilities, and laboratories. All RNs with a master’s degree. in the state must have a license issued by the California Board of Registered Nursing. To obtain a Figure 8 license, students must graduate from an approved California Has Many Pre-Licensure nursing program, pass a national licensing Nursing Programs examination, and complete certain other steps 2022-23 (such as undergoing a criminal background check). Students Have Three Main Education Routes Programs Graduates to Becoming a Nurse. In California, three main Associate Degree in Nursing types of pre-licensure education programs are CCC 77 4,488 available to persons seeking to become an RN. County of Los Angeles program 1 73 The most common option is for students to enroll Private institutions 14 866 Subtotals (92) (5,427) in a four-year program at a university culminating in Bachelor’s of Science in Nursing a Bachelor’s of Science in Nursing (BSN) degree. CSU 17 1,804 The next most common route is for students to UC 2 94 enroll at a two-year program at a community Private institutions 28 5,851 college culminating in an Associate Degree in Subtotals (47) (7,749) Nursing (ADN). The third route is for students Master’s of Science in Nursinga to enroll in a university program culminating in CSU 1 42 UC 4 176 a Master’s of Science in Nursing (MSN) degree. Private institutions 8 588 Pre-licensure master’s programs accept individuals Subtotals (13) (806) who hold a bachelor’s degree in a non-nursing field. Totals 152 13,982 Generally, students in such a master’s program a Reflects programs enrolling students who do not yet have a registered nursing license. complete educational requirements for an RN license in about 18 months, then continue for 16 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET Community Colleges Have Developed BSN to ensure an adequate nursing workforce in the Partnerships With Universities. State law limits state through at least 2027. While the overall nursing community college RN programs to offering the workforce was sufficient to meet overall workforce ADN. In a number of cases, though, community demands, some hospital officials reported difficulty colleges have collaborated with universities, attracting nurses to work in particular regions of the particularly CSU campuses, to design pathways state (including the Central Valley and certain rural from the ADN to the BSN. For example, 13 Los areas). In addition, the UCSF report cautioned that Angeles-area community colleges have partnered reductions in the employment rates of older RNs with CSU Los Angeles to create an accelerated could affect the forecast. ADN-to-BSN program. In that program, CCC Nursing Shortage Re-Emerged as a Result students begin taking upper-division courses of the Pandemic. During the pandemic, many through the university while still enrolled in their older RNs left nursing and some younger RNs ADN program, enabling them to earn a BSN from quit their nursing jobs due to higher stress levels CSU Los Angeles within one year of graduating and family or other personal considerations. from one of the partnering community colleges. In addition, many pre-licensure nursing education programs experienced enrollment declines due to Nursing Workforce social distancing requirements, reduced access State Faced Nursing Shortage Throughout to clinical sites, and less student demand. These the 2000s. Beginning in the 1990s, health care factors resulted in a reduction of the supply employers indicated that the size of the nursing of RNs compared with previous projections workforce was insufficient to adequately staff and a mismatch between supply and demand. health care facilities—particularly hospitals, According to a February 2024 report by UCSF which are statutorily required to maintain (unpublished), there currently is an estimated minimum nurse-to-patient ratios. Despite statewide supply-demand gap of 17,000 FTE paying higher wages and encouraging—and in nurses. Hospitals and other health care employers some cases requiring—existing staff to work are using various means in response to the overtime, the state continued to experience a short-staffing, including paying nurses to work gap between supply of and demand for RNs more overtime and using more traveling nurses throughout the 2000s. (who live in other states and come to California to State Responded to Shortage by Expanding work for short periods of time). Capacity in Nursing Programs. The Legislature Statewide Shortage Is Projected to Close responded to this nursing shortage in a number Within Four Years. With the pandemic having of ways, most notably by providing targeted funding subsided, nursing schools in the state have to the state’s public higher education segments to reported returning to pre-pandemic levels of increase enrollment in their pre-licensure nursing enrollment. All three types of pre-licensure nursing programs. As a result of these and other factors programs anticipate further growth in the coming (including an increase in the number of private years. The number of new graduates from these colleges launching nursing programs), the number programs is anticipated to fill more of the expected of students annually graduating and obtaining an job openings. Given these developments, UCSF RN license more than doubled during the 2000s— forecasts that the supply-demand mismatch will from about 5,100 graduates in 2000-01 to gradually decline over the next few years, closing 10,600 graduates by 2010-11. entirely by 2028. UCSF cautions, however, that if Prior to Pandemic, Nursing Workforce Was newly graduated RNs and experienced nurses are in Good Shape Overall. According to a 2017 not retained in the workforce due to burnout or job forecast prepared by the University of California, dissatisfaction, the shortage could persist. Also, San Francisco (UCSF) for the Board of Registered the study cautions that even were supply numbers Nursing, the number of nursing graduates in the to match demand on a statewide basis, regional state (approximately 11,000 per year across the differences could persist. state’s pre-licensure programs) likely was sufficient www.lao.ca.gov 17 2024-25 BUDGET CCC Nursing Funding Student Equity and Achievement program and other student services programs to support their Main Source of CCC Nursing Funding nursing students. Is Apportionments. Just like other types of instruction, community college districts claim Some CCC Nursing Programs Also apportionment funding (through SCFF) for each Receive State-Funded “Song-Brown” Grants. FTE student enrolled in one of their nursing Originally established by Chapter 1175 of 1973 programs. Under SCFF, community college districts (SB 1224, Song), the Song-Brown program was receive additional funding if an enrolled student created to address shortages of primary care is low income and for each successful student physicians by increasing support for training outcome (including graduation). We estimate that programs. Since that initial legislation, the community college districts generated about Song-Brown program has expanded to support $100 million in SCFF funding for the 11,845 FTE nursing and certain other education and training nursing students enrolled in 2022-23 (about programs. Recently, the Legislature has provided $8,500 per actual FTE student). $50 million one-time non-Proposition 98 General Fund over three years ($20 million in 2022-23 State Also Funds a CCC Nursing Categorical and $15 million each in 2023-24 and 2024-25) Program. Since 2006-07, the state also has funded for grants specifically to pre-licensure nursing a CCC nursing categorical program designed programs in the state. Priority is given to programs to expand enrollment and provide supplemental in medically underserved areas that prepare student support (such as tutoring). Since 2009-10, students to serve in multi-cultural communities, the Legislature has provided $13.4 million annually low-income neighborhoods, and rural communities. in Proposition 98 General Fund. Funding is In March 2023, the Department of Health Care distributed through grants to virtually every ADN Access and Information (HCAI), which administers program in recognition of the relatively high cost this initiative, awarded a total of $17 million to to educate nurses. High costs are mainly due 34 nursing programs, including 17 community to smaller required student-to-faculty ratios in college ADN programs. HCAI intends to announced simulation labs and clinical settings as well as the the next round of grantees in March 2024. need for specialized equipment. Colleges Also Can Use Strong Workforce Governor’s Proposal Program and Other Categorical Program Funds Governor’s Budget Includes $60 Million for Nursing Education. In addition to providing for Nursing Education. The 2023-24 higher supplemental funds for nursing specifically, education trailer legislation, Chapter 50 of 2023 since 2016-17, the Legislature has provided (SB 117, Committee on Budget and Fiscal Review), ongoing funding for the CCC Strong Workforce included a five-year plan to provide additional Program (SWP). The associated $290 million in funding for CCC nursing programs. The legislation Proposition 98 General Fund support is intended appropriated a total of $300 million Proposition 98 to help career technical education programs (like General Fund over five years ($60 million annually nursing) cover their higher instructional costs. from 2024-25 through 2028-29) so as to “expand SWP funds also are intended to make programs nursing programs and bachelor of science in more aligned with industry demand and to facilitate nursing partnerships to grow, educate, and regional planning and coordination. The majority maintain the next generation of registered nurses of SWP funds go directly to colleges, with the through the community college system, subject remainder allocated to eight regional SWP to future legislation.” The Governor’s budget consortia. Based on our discussions with several provides $60 million for 2024-25. The Governor’s consortia and colleges, some SWP funding is being Budget Summary indicates that details on how used annually for nursing. Some SWP funds, for the funds would be used is “subject to future example, are helping to purchase lab equipment statutory changes.” or start new programs. In addition to SWP funds, colleges can use funding they receive from the 18 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET Assessment Staffing Attrition Appears to Be Key Threat to a Balanced Workforce in the State. Various Nursing Enrollment Is Back on Track. studies have identified dissatisfaction among After declining during the pandemic, nursing nurses. A 2022 survey of RNs by the Board of programs reported in fall 2023 that they have Registered Nursing found that 6 percent of RNs feel capacity and plans to increase enrollment slots, “completely burned out,” with another 31 percent as Figure 9 shows. Nursing programs also are reporting that they are “definitely burning out.” reporting strong demand from students again, The highest burnout rates are most common among with community college and many other nursing nurses under 45 years old. UCSF has warned that programs reporting far more applications than shortages could persist if RNs are not retained they can accommodate. CCC programs have an in the workforce. State funding for community incentive to enroll these students because they colleges, as proposed by the Governor, would not are funded based on enrollment and receive address this problem. UCSF recommends instead additional state funding for their nursing programs. that employers “redouble their efforts to retain Private programs, meanwhile, have an incentive to experienced RNs” and develop programs for newly fill enrollment slots with tuition-paying students. graduated RNs to promote successful transition Given these circumstances, it is unclear why into the workforce. A number of researchers and additional state funding is needed as proposed in policy groups suggest that health care employers the Governor’s budget. consider a number of evidence-based strategies SWP Designed to Address Regional toward that end, including providing more Challenges. To the extent regional supply workplace flexibility, providing services such as challenges persist, existing SWP funding is childcare, and developing peer support groups. well-suited to support nursing programs. Such employer initiatives could help not just with The underlying rationale for SWP is that some retaining existing staff but potentially attracting programs (just like nursing) have especially high back former RNs. costs due to equipment and low student-faculty ratios. In addition, the Legislature recognized when it created SWP that some industry sectors (like health Figure 9 care) might benefit from regional Nursing Education Programs in the State coordination and planning. The SWP structure allows for Indicate Plans to Grow providers and employers to identify Headcount Enrollment of New Students in Pre-Licensure Programs workforce needs and develop a regional strategy. Data provided 25,000 MSN by the Chancellor’s Office show BSN that all eight regional consortia 20,000 ADN have large annual surpluses of 15,000 SWP funding (particularly the Central Valley/Mother Lode, South 10,000 Central Coast, and Inland Empire/ Desert consortia). These funds 5,000 are available to use for nursing programs and other local and regional workforce priorities. 2022-23 2023-24a 2024-25a a Anticipated by programs based upon California Board of Registered Nursing survey. MSN = Master’s of Science in Nursing; BSN = Bachelor’s of Science in Nursing ; and ADN = Associate Degree in Nursing. www.lao.ca.gov 19 2024-25 BUDGET Recommendation the Legislature reject this proposal. To the extent individual regions continue to seek increases in Recommend Legislature Reject Proposal. their nursing supply pipeline in response to local Given that data suggests the current mismatch shortages, colleges already have funding from between supply and demand of RNs is temporary apportionments, SWP, and other state programs and that lack of state funding does not seem be a that can be used for this purpose. key reason underlying the shortage, we recommend BUDGET SOLUTIONS In this section, we discuss a number of legislative Under our recommended approach, Proposition 98 options for achieving additional CCC savings in light reserves likely could help address a small part of of the state’s budget situation and the significant the budget gap in 2023-24, but hundreds of millions downward revisions to the Proposition 98 of dollars likely still would be needed in other minimum guarantee. budget solutions. One-time solutions are a typical State Adopted Many One-Time CCC way for addressing reductions in the current-year Initiatives Over Past Three Years. From minimum guarantee, as these types of solutions 2021-22 through 2023-24, the Legislature tend to be the least disruptive. Figure 10 provides a approved a total of about $3 billion in one-time list of ways the Legislature could achieve one-time Proposition 98 General Fund support for more than savings. In many cases, the identified funds are 60 one-time CCC initiatives and projects. Some available because of insufficient take-up rate by of the largest appropriations were for facilities colleges or students for newly created programs. maintenance, student outreach, student basic In many cases, additional savings are likely to needs, and an initiative for faculty to create open emerge as spending data for 2023-24 is collected educational resources. and reported. The Legislature could consider our list a starting point, adding items, if needed, State Also Expanded Funding for Ongoing as more information becomes available in the CCC Programs. During the past several years, the coming months. state has appropriated ongoing funding both to create new CCC programs and to expand existing Recommend Achieving Ongoing General ones. For example, the state created a CCC student Fund Savings Outside of Core Programs. mental health program and doubled funding for Under our office’s February revenue estimates, the California Apprenticeship Initiative. In some approximately $700 million in ongoing CCC cases, the CCC augmentations provided by the solutions would be required to align ongoing state have been exceptionally large. For example, spending with the minimum guarantee in 2024-25. in 2022-23, the state increased annual funding (The $700 million assumes that the Governor’s CCC for the long-standing Part-Time Faculty Health COLA proposals, totaling $78 million, have been Insurance Program from $490,000 to $200.5 million withdrawn.) More or less savings might be needed (a 400-fold increase). depending on budget developments over the coming months. In thinking about budget solutions Recommend Reverting Unallocated and for 2024-25, we recommend the Legislature attempt Unspent Funds to Address CCC Budget Gap to preserve funding for key priorities, including in 2023-24. As we discuss in the “Overview” CCC’s core instructional mission, student support section of this brief, the CCC budget has an services, and aid for financially needy students. approximately $800 million gap between current Areas the Legislature might consider finding spending and available funding under our office’s savings include athletics, enrichment activities, and February revenue estimates. The budget gap could aid for non-financially needy students. Reducing end up being higher or lower depending upon these latter types of programs would minimize the revenue developments over the coming months. 20 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET Figure 10 Some Funds From Recent CCC Initiatives Remain Available for Budget Solution Proposition 98 General Fund One-Time Solutions (In Millions) Program Amount Implementation Update Strong Workforce $381a Amount shown reflects total unspent regional and district funds of $27.4 million from Program 2020-21, $105.7 million from 2021-22, and $248 million from 2022-23. Unspent funds from years prior to 2020-21 might still be available to sweep too. By March 2024, the Chancellor’s Office will have an update on regional and district spending from 2023-24 allocations. (In 2023-24, regions received $110.4 million and districts received $165.5 million.) Part-Time Faculty Health 177a Of the $200.5 million ongoing appropriated for this program in 2022-23, only $23.3 million Insurance program was claimed by districts for reimbursement. Program participation might be low again in 2023-24. The Legislature will have an update on how much was claimed for reimbursements in 2023-24 by June 2024. Health care pathways for 100 The 2022-23 budget provided $130 million for allocation over three years ($30 million in English learners 2022-23 and $50 million each in the following two years). The first round of awardees, which includes community colleges and adult schools, was announced in summer 2023 and the first $30 million was disbursed in December 2023. Student Success 100a In 2022-23, the state provided $413 million for these grants, which are available to Completion Grant financially needy students attending college full time. According to the Chancellor’s Office, colleges have not been able to fully award that amount because there were not enough eligible students. Additional savings might be realized in 2023-24 depending on the take-up rate. (The 2023-24 budget provided $363 million for the program.) Zero Textbook Cost 66 The 2021-22 budget provided $115 million one-time funding for this initiative. As of the initiative end of February 2024, the Chancellor’s Office expects to have allocated $48.6 million for grants and other program expenses. Part-time Faculty Office 51a Amount shown includes savings of $27 million from 2021-22 and $23.6 million from Hours program 2022-23 due to low participation by districts. Program might have additional savings in 2023-24. The Legislature will have an update on how much was claimed for reimbursements in 2023-24 by June 2024. (The 2023-24 budget provided $24 million for the program.) California Apprenticeship 43 Amount shown includes savings of $2.4 million from 2021-22 and $10.2 million from Initiative 2022-23, as well as $29.9 million in unallocated funds from 2023-24. Classified Employee 10a The 2022-23 budget provided $10 million ongoing for this new program. The Chancellor’s Summer Assistance Office reports low participation by employees in 2022-23. Systemwide, 128 classified program employees participated, generating a total of $473,000 in program costs. Program might have additional savings in 2023-24 if participation remains low. Enrollment growth 8 Amount shown reflects an estimate of unearned and unused enrollment growth funds in 2022-23. (The June 2023 budget reverted the entire $24 million in enrollment growth funding from 2021-22, as none of it was earned.) Calbright College —b At the end of 2022-23, Calbright had $43 million in remaining one-time startup funds. By early March 2024, Calbright will provide an update on year-to-date spending in 2023-24. COVID-19 block grant —b As of June 30, 2023, districts had spent or encumbered $127 million of the $650 million provided for this block grant. Colleges reported using these funds for discharging unpaid student fees, providing emergency student grants, purchasing technology for faculty and staff, and conducting student outreach activities, among other uses. The 2023-24 budget also permitted block grant funds to be used for facilities maintenance. By March 1, 2024, the Chancellor’s Office is required to provide the Legislature an update on spending by districts. Potentially, a large amount of savings could remain. Total $936a a Reflects the minimum amount of budget solution available based on data through January 2024. As more data become available over the coming months, the Legislature very likely could achieve additional savings from the 2023-24 appropriation. b A savings estimate will be available by early March 2024. www.lao.ca.gov 21 2024-25 BUDGET negative implications for colleges’ core programs Begin Identifying Solutions Now. and low-income students. Figure 11 provides a We recommend the Legislature use the next few list of ongoing savings options that focus on areas months to begin identifying the CCC solutions it outside of colleges’ core programs. As with our list would need to balance the budget. We believe of one-time solutions, the Legislature could use that now is the time to establish budget priorities, our list of ongoing solutions as a starting point, consider options, and assess trade-offs. Waiting potentially adding items, as needed. until May to begin this work, by contrast, would place the Legislature in a more difficult position and provide little time for careful deliberation. Figure 11 Additional Budget Solution Can Be Achieved by Revisiting Certain Ongoing CCC Programs Program Amount Description Apportionment funding for $100 Currently, districts can generate apportionment funding for college sports teams’ intercollegiate athletics practice and conditioning/work-out time. In 2022-23, 15,720 full-time equivalent students in sports practices were claimed for apportionment funding. The Legislature could eliminate this funding given sports practice time is out of CCC’s core instructional mission. Apportionment funding 100 Colleges offer to the community various physical education classes such as tennis, for physical education Pilates, and fitness training. While this type of instruction may have personal value to classes the participants, it is outside of CCC’s core instructional mission. Colleges could still offer this type of instruction to individuals on a fully fee-supported basis. College Promise program 91 Program primarily waives enrollment fees for students without financial need. The Legislature could eliminate these non-need-based grants while continuing to provide about $600 million annually for need-based fee waivers (through the similarly named California College Promise Grant, formerly the Board of Governors fee waiver). State funding for CCC 40 The Legislature could narrow the instructional program areas for which districts could noncredit fine arts and claim apportionments, eliminating funding in the areas listed. Doing so would align other enrichment activity state rules with current rules for the California Adult Education Program, which classes prohibits state funds from being used for enrichment activity classes. Colleges could still offer these types of classes to the community on a fee-supported basis (like adult schools currently do). Enrollment fees 35 The Legislature could increase the CCC enrollment fee for credit courses from $46 to $50 per unit. Total enrollment fees for a student attending full time and taking 30 units would increase from $1,380 to $1,500 per year. CCC fees would still be the lowest in the country and only non-financially needy students are required to pay enrollment fees. Fee level also would be well below what freshmen and sophomores at CSU and UC pay for comparable courses. CCC enrollment fees have been $46 per unit since summer 2012. Every dollar increase in enrollment fee revenue generates a like amount of Proposition 98 General Fund savings. Strong Workforce Program —a Based on available data through 2022-23, program has a large operating surplus. Total $366 a The Chancellor’s Office is in the midst of compiling 2023-24 data on the program. That data will allow for a better estimate of the ongoing operating surplus. 22 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET www.lao.ca.gov 23 2024-25 BUDGET LAO PUBLICATIONS This report was prepared by Paul Steenhausen and reviewed by Jennifer Pacella. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, California 95814. 24 LEGISLATIVE ANALYST’S OFFICE