University of California(6440) |
The General Fund increase is proposed to be spent for salary ($96.9 million), cost ($11.8 million), and enrollment ($10.5 million) increases and additional costs for lease-payment bonds ($5.8 million), as shown in Figure 8 (see page 20). The budget estimates that UC's full-time-equivalent (FTE) enrollment will be roughly 153,000 in 1997-98. This is 1,500, or 1 percent more than the amount of FTE budgeted for 1996-97. The budget does not anticipate a general fee increase for undergraduate or graduate students, but does continue a series of gradual fee increases for professional-school and nonresident students.
| Figure 8 | |
| Proposed General Fund Changes
University of California 1997-98 | |
| (Dollars in Thousands) | |
| 1996-97 General Fund Budget | $2,060,332 |
| Changes Within Compact | |
| Merit, 5% faculty, and 2% staff salary increases | $81,700 |
| Full year of 1996-97 salary increase | 15,200 |
| Price increases | 11,800 |
| Enrollment growth | 10,500 |
| Maintenance of new space | 3,500 |
| Building maintenance | 7,500 |
| Academic technology | 4,000 |
| Other | -18,808 |
| Subtotal | ($115,392) |
| Changes Above Compact | |
| Lease-payment debt costs | $5,800 |
| Health/dental for annuitants | 1,399 |
| Student outreach program | 1,000 |
| Industry-university cooperative research | 5,000 |
| Supercomputer center | 2,000 |
| Various one-time technical adjustments | -4,971 |
| Subtotal | ($100,228) |
| General Fund Increase | $125,620 |
| Proposed Sources | |
| Governor's 4 percent "compact" | $78,392 |
| Buy-out of 11 percent fee increase | 37,000 |
| Additional General Fund | 10,228 |
| Totals | $125,620 |
| 1997-98 General Fund Budget | $2,185,952 |
| Percent Increase | 6.1% |
The budget requests $4 million from the General Fund for UC's instructional technology initiative. The UC Regents' budget proposal for 1997-98 indicates that campuses would use the funds to improve:
Support to Students. The initiative would provide, for example, electronic mail, web resources, new or expanded on-line course enrollment, and help desks for students.
The Regents' budget initially proposed to fund its instructional technology initiative with a combination of student fees, General Fund support, and in-kind contributions from industry. The $4 million included in the Governor's budget request "buys-out" a $40 per student fee proposed by the Regents to help fund the program in 1997-98. The budget does not (1) include any additional General Fund support for the program or (2) identify any in-kind contributions from industry.
The Regents' budget also indicates that in future years, UC will charge students an annual fee of $200 when it fully implements its instructional technology initiative. It does not indicate how much UC will request from the General Fund or how much industry will contribute in future years.
Beyond broadly describing its proposal, UC has not provided any detail on how it intends to implement or completely fund its initiative. The Governor's budget summary states ". . . the Department of Information Technology (DOIT) will be meeting with UC, CSU, and the California Community Colleges to determine how best to improve California's higher education technology infrastructure." When we asked for detail, UC indicated that campuses were developing their individual plans for instructional technology, but that they were not yet complete. The university also indicated that it had not provided the campuses with any specific directions on how campuses should or might implement instructional technology programs.
Absent detail on how UC plans to proceed in the budget year, we have no basis on which to evaluate its proposal. Furthermore, to the extent its instructional technology initiative could represent a multiyear commitment requiring future General Fund and student support, UC should provide the Legislature with a multiyear expenditure and funding plan. Without this information, the university's request for funding is premature. Accordingly, we recommend the Legislature reduce UC's budget by $4 million.
The Governor's budget requests $5 million from the General Fund for an industry-university cooperative research program. The university indicates that the funds would support research with industry to develop promising products and processes to the benefit of the state's economy. The 1996-97 Budget Act appropriated $5 million for the program, which the Legislature had added during the budget process. In approving this amount, the Governor stated that he viewed the augmentation as one-time funding to begin the project, and that future expenditures for the project should be funded within the higher education compact. This budget proposal, however, would continue state funding for the program.
UC's Proposal for 1996-97. The university indicates that the $5 million General Fund appropriation in the 1996-97 Budget Act will be used with $3 million in university funds, and at least $10 million in industry funds to:
As of October 1996, UC had awarded $8.4 million of the $12 million in biotechnology grants to fund 30 research projects. Of this amount, $3.3 million came from state and UC funds, and $5.1 million came from industry funds. The university plans to award another $3 million in grants for additional biotechnology research in the current year. The remaining $600,000 in state, UC, and industry funds will be used for administrative costs. No grant awards have been made from the $5.5 million reserved for a second research field.
UC's Plans for 1997-98 and Beyond. The university plans to spend funds provided in 1997-98 for additional biotechnology research and research in other unspecified fields. The university would also evaluate the effect of the research on the state's economy. The university seeks to eventually expand the program to $40 million per year, consisting of an annual $15 million General Fund appropriation, $5 million in UC funds, and $20 million in industry funds.
Our analysis of UC's proposal indicates that additional funding for the industry-university cooperative research program is not needed, because (1) industry is already able to obtain research assistance in today's marketplace, (2) the state already spends $252 million for research tax credits, and (3) UC can market its research to industry with its existing $360 million research budget.
Capital Markets for Research Do Not Require UC Intervention. The university states: "The first round of grants in the biotechnology grant program was met with enthusiasm by industry. Companies seeking research partnerships were willing to invest close to $10 million in cash--not in-kind contributions--to fund specific research projects that will advance work in their fields." This is not surprising. Participating businesses, after all, received $18 million in research for an industry investment of $10 million. This means that industry would pay just 56 cents of every $1 of research it obtains.
The university also states: "when other partners, like the State and the University via the [UC research] program, are available to share the risk--businesses are willing and eager to invest in earlier stage, more fundamental technologies, which have greater potential for high economic payoffs and industry-wide impacts." In essence, UC is saying that industry does not choose its research investments wisely.
The university does not provide any evidence, however, that capital markets do not appropriately weigh the risks and rewards from new ventures, or that industries cannot avail themselves of capital for promising research. Furthermore, UC does not explain why it is better-suited than industry to determine how businesses should allocate their research funds, or why it should provide specific research with a 44 percent subsidy. To the extent that businesses can obtain better information from UC scientists and engineers on some projects than they can obtain elsewhere, they are free to seek and to pay for such advice now. Such a business-like relationship between industry and universities, in fact, is common.
The State Already Provides an Income Tax Credit for Industry Research and Development. Chapter 954, Statutes of 1996 (SB 38, Lockyer), increased the personal income and bank and corporation tax credit for qualified research above specified amounts, from 8 percent to 11 percent, and for basic research from 12 percent to 24 percent. In addition, that act specifies that university and research hospitals qualify as institutions of basic research for purposes of the tax credit. Federal law provides a similar research tax credit. This means that up to 24 percent of the cost of basic research purchased by business from UC can be deducted from both the company's federal and state tax liability. Statewide, the Franchise Tax Board estimates that the research tax credit will reduce General Fund revenues by a total of $252 million in 1997-98.
The research credit subsidizes industry research, regardless of whether it chooses UC to assist it. The UC's proposed industry-university cooperative research proposal would, on the other hand, subsidize industry only if it contracts with UC. To the extent that the Legislature seeks to subsidize the research of industry, the tax subsidy provides business greater flexibility, on a dollar for dollar basis, than the restricted subsidy proposed by UC.
UC Can Market Its Research Within Its Existing Budget. The university states "This program represents an opportunity for the State to play a pivotal role in stimulating high technology research efforts for the future of the California economy." The university already is able to play a significant role in advanced research with its existing annual research budget from the General Fund and university sources of over $360 million. By requesting additional state funds for the cooperative program, UC assumes that all research funded with its existing $360 million research budget is a higher priority than the cooperative program. If the program is as important to the state's economy as the system suggests, UC could easily fund it by reducing support for lower-priority research projects.
In sum, UC's request for an additional $5 million for an industry-university cooperative research program is not justified. Industry can readily obtain funding for research in existing capital markets that is bolstered by federal and state research tax credits. Furthermore, the university has the ability to market the research it conducts within its proposed research budget of $360 million. Accordingly, we recommend deletion of the $5 million requested in UC's budget for industry-university cooperative research.
The Governor's budget shows that revenue to UC from fees paid by resident undergraduate, graduate, and professional students totaled $583 million in 1995-96. The budget estimates that revenue from these fees will be $618 million in the current year, and $630 million in 1997-98. The budget-year figure is $46.6 million, or 8 percent, more than actual fee revenue in 1995-96. These increases are due to two factors--increased enrollments and increased fees for selected professional schools.
The amount set aside from fees for financial aid is declining, however. The Governor's budget shows that UC spent $220.8 million for student financial aid in 1995-96. The budget shows that UC will spend $213.2 million in the current year, and $216.5 million in 1997-98. The budget proposal represents a decrease of $4.3 million, or 1.9 percent, in financial aid since 1995-96.
Financial Aid Not Keeping Pace With Past Practices. The Legislature has taken a number of actions in previous years to ensure that financial aid is available to needy students. First, when fees were raised substantially in the early 1990s, the Legislature required the universities to set aside at least one-third of additional student fee revenues for financial aid. This set-aside of fee revenues for financial aid also is part of the Governor's "compact" with higher education. Second, the Legislature has increased funding for the state's Cal-Grant program. Specifically, the Legislature added $10 million to the Cal-Grant program in the 1996-97 Budget Act to increase the number of students eligible for state financial aid.
Judging from UC's budget, however, it has not directed increased student fees to financial aid. Based on past practices, we expect financial aid to students would increase as the level of student fee revenues increases. Instead, the budget figures show a $4.3 million decline. Our review indicates that, based on past practices, UC spending on financial aid should be $19.8 million higher than proposed in the 1997-98 budget.
Shift Funds to the Cal Grant Program. The Legislature has two distinct options for making these fee revenues available for financial aid: (1) redirect $19.8 million in UC funds to increase financial aid for UC students or (2) shift the funds to the state Cal-Grant program (administered by the Student Aid Commission) to increase the number of students eligible for financial aid at the higher education institution of their choice. We recommend shifting the funds to the Cal-Grant program for the following reasons:
In sum, to offset UC's apparent redirection of financial aid monies and to allow students greater discretion in choosing colleges, we recommend that the Legislature reduce UC's General Fund budget by $19.8 million and shift the funds to the Student Aid Commission's Cal-Grant program.
The report states "In the fall 1995, an adequate number of open course sections and classroom seats (800 sections with 17,000 seats) were available to students." For freshmen entering in the fall of 1989, 43 percent obtained their degrees within 12 quarters of study. This compares with 38 percent for the freshmen class of 1988, and 36 percent for the entering class of 1985.
The UC's 1997 faculty workload report was due to the Legislature by February 1, 1997. We will comment on it, as appropriate, during budget hearings.
California State University(6610) |
| Figure 9 | |
| California State University
Increased General Fund Base Budget: Sources and Uses of Funds | |
| (In Millions) | |
| Proposed Increases: | |
| Salary and benefit increases | $57.8 |
| Enrollment increase (2,500 FTE) | 14.4 |
| Lease-purchase bond cost increase | 9.5 |
| Technology | 8.5 |
| Facility maintenance increase | 8.5 |
| "Economic Improvement Initiative" | 5.0 |
| Inflation (non-salary goods/services) | 3.5 |
| Added operation cost at new campuses | 3.5 |
| Added cost at center in Stockton | 1.7 |
| Additional student outreach | 1.0 |
| Total | $113.4 |
| Sources of Funds: | |
| Four percent "compact" increase | $68.7 |
| "Buy-out" of student fee increase | 30.4 |
| Additional increase | 14.3 |
| Total | $113.4 |
The system's 1996-97 funded enrollment level is 255,500 full-time-equivalent (FTE) students. The budget provides funds for a 2,500 FTE increase (1 percent) in 1997-98. No general student fee increase is proposed.
Virtually all data in the Governor's annual budgets are displayed in the following three-year series: (1) actual data for the fiscal year just completed, (2) estimated data for the current year, and (3) projected data for the budget year. This format gives the Legislature and other interested parties a quick sense of recent trends and also permits useful comparisons with past Governor's budgets.
For CSU enrollment data, however, the annual budget omits the budget year. This omission makes it unnecessarily difficult for the Legislature to "track" year-to-year developments in CSU's budgeted enrollment levels or even to know with clarity what the budget proposes for enrollments. For example, a careful comparison of the enrollment display in the 1996-97 Governor's Budget with the enrollment display in the Governor's 1997-98 Budget indicates that the 2,000 FTE enrollment increase funded in the 1996-97 Budget Act may have gone entirely to postbaccalaureate and graduate student "slots." It is impossible to tell what really happened, however, because the 1996-97 budget document did not include proposed enrollment figures data for the 1996-97 fiscal year.
Given the central importance of enrollments to CSU's mission and budget, the Legislature should have "at its fingertips" basic enrollment data that are complete and unambiguous. Accordingly we recommend that CSU provide the fiscal committees, prior to budget hearings, with a written reconciliation of budgeted enrollment levels for the three fiscal years ending with the budget year.
We further recommend the Legislature adopt the following supplemental report language to provide that future budgets include projected enrollment data for the budget year:
It is the intent of the Legislature that annual Governor's budgets include budgeted enrollment levels for the prior, current, and budget years, by lower division, upper division, postbaccalaureate and graduate levels, and by headcount and full-time-equivalent.
The CSU's teacher preparation programs are the source of nearly 60 percent of new public school teachers in California. (Indeed, the oldest campuses in what is now the CSU were established more than a century ago as "normal schools" for the purpose of preparing school teachers.) The Class Size Reduction program created by the Governor and the Legislature in the 1996-97 Budget Act has dramatically increased the need for trained teachers throughout the state. In the current year, an estimated 18,000 new K-3 classes have been added statewide under the program. The Governor's budget proposes further expansion in 1997-98. Already, some school districts are having difficulty finding enough qualified teachers to implement class size reduction.
As Figure 10 shows, the recent trend in the number of teaching credentials awarded by CSU campuses is downward. (Figure 10 excludes advanced credentials in specialties such as administration or bilingual education.) This is not the right direction given the urgent need for more trained teachers and CSU's central role in providing them.
| Figure 10 | ||
| California State University
Teacher Credentials Awarded 1992-93 to 1994-95a | ||
| 1992-93 | 1993-94 | 1994-95 |
| 7,877 | 7,159 | 6,979 |
| a Most recent data available. | ||
One disturbing explanation for the downward trend, which we have heard in conversations with campus educators and administrators, involves budgetary pressures at the campus level. Generally, the CSU Chancellor's Office allocates to each campus a lump sum budget, granting campuses broad discretion over specific program expenditures. This discretion means that campuses, facing constant cost pressures, have an incentive either to scale back, or retard the growth of, programs with high per-student costs in order to pay for other programs.
Such high-cost programs include the teacher preparation programs, which employ relatively high faculty-to-student ratios. Thus, incentives exist for campuses to restrain the size of teacher preparation programs, incentives that work at cross-purposes with current state needs. In view of the above, we recommend that the CSU report to the fiscal committees prior to budget hearings on the steps it will take to reverse the downward trend in teaching credentials awarded by CSU campuses.
In addition to concerns over the quantity of teachers graduated by CSU, many concerns have been raised about the quality of CSU's teacher preparation programs. In a study released last year, for example, CSU's Institute for Education Reform found that: ". . . the level of disenchantment with schools of education both within and outside the CSU system is high among professionals working in California's school system." The institute made a set of recommendations for fundamental improvement of the programs.
Examples of the institute's recommendations include:
As part of its report to the fiscal committees on increasing the number of teachers prepared, the CSU also should report on the status of its actions on the institute's recommendations and any other steps it has taken to improve the quality of its teacher credential programs.
The budget adds $5 million from the General Fund for an "economic improvement initiative." The Governor's budget summary describes the initiative as CSU ". . . working directly with third-grade teachers and students on new instructional methods and working through charter schools to develop programs that will specifically benefit students who traditionally have not been fully prepared to enter college . . . "
At the time this analysis was prepared, CSU could not provide any additional detail regarding this $5 million proposal. The CSU staff indicated that an extensive round of internal discussions was still needed in order to adequately define the request. The initiative proposed in the budget has laudable objectives. Without adequate specifics, however, the Legislature has no assurance that the $5 million would be well spent. We therefore recommend its deletion.
The budget includes $13.5 million from the General Fund for "academic technology." These funds would be used for various information technology purposes including hardware, software, user training, and support. These expenditures are a relatively small part of an ambitious information technology initiative that CSU calls the "integrated technology strategy" (ITS). Under ITS, all CSU campuses would be "wired" and otherwise outfitted to provide all faculty and students "universal 24-hour access" to Internet and other information technology services.
According to CSU, the ITS infrastructure alone could cost up to $450 million. The budget, however, makes no provision for these infrastructure improvements on which the ITS depends. Instead, the Governor's budget summary states that the Department of Information Technology will be meeting with the higher education segments in the coming months ". . . to determine how best to improve California's higher education technology infrastructure."
In isolation from the outcome of these discussions and from a well-defined programmatic and funding plan for ITS, CSU's $13.5 million request for "academic technology" (slated to grow to $35 million a year under CSU plans) is premature. As a result, until CSU presents the full costs and benefits of its long-term technology plan to the Legislature, we recommend that the fiscal committees delete the funds, for a General Fund savings of $13.5 million.
The budget proposes a $1.7 million General Fund augmentation ". . . to assist in the conversion of the former Stockton Developmental Center to the CSU, Stanislaus Regional Center for Education and Human Services . . ." Chapter 193, Statutes of 1996 (SB 1770, Johnston), authorizes the Department of General Services (DGS) to dispose of the 102-acre site of the Stockton Developmental Center, which the Department of Developmental Services (DDS) vacated due to declining client populations statewide.
Currently, CSU and DGS are negotiating the details of a transfer of the site to CSU. In the interim, DDS is maintaining the center in a "warm shutdown" mode, which provides security for the site and maintains the buildings and grounds. The 1996-97 Budget Act provides $1.7 million to the DDS for this purpose.
Currently, CSU Stanislaus operates a center in Stockton on the campus of San Joaquin Delta Community College. The center offers various bachelor's and master's degree programs and teaching credential programs. The CSU plans to begin moving these programs to the Stockton Developmental Center site in the fall of 1997, and to complete the move by January 1998. The CSU plan describes the re-named center as a "cooperative" of four CSU campuses (Stanislaus, Chico, Fresno and Sacramento), San Joaquin Delta Community College, and the University of the Pacific. The plan includes the following key features:
CSU Not Committing Enough of Its Own Funds to the New Center. As mentioned above, the budget proposes a $1.7 million operational supplement for the center for five fiscal years beginning in 1997-98. This amount equals what the DDS is spending in the current year for a "warm shutdown" of their vacated Stockton facilities. The CSU has not provided a programmatic basis for the $1.7 million request. Instead, CSU staff justify the request on the basis that there is no net cost to the General Fund since the DDS would continue to spend $1.7 million annually for "warm shutdown" if the site were not transferred to CSU.
This is no basis for justifying the budget request. If the site were not transferred to CSU, it would be sold or otherwise disposed of in a reasonable time period as authorized by Chapter 193. Assuming the site is transferred to CSU, the university will soon cease to incur "warm shutdown" costs of its own. CSU plans to move its Stockton center programs to the new site during the first half of the budget year and to lease out unused building space at the same time.
Our review also indicates the CSU has ample operational funds to operate the center without the supplemental appropriation. First, projected lease revenues ($1.9 million in the budget year and growing amounts thereafter) will be available to subsidize the center. Second, CSU underestimates the amount of state support and student fees that is available to meet center expenses. The 1997-98 Governor's Budget (adjusted for our various recommended reductions) would provide about $9,750 per FTE. From these systemwide funds, CSU plans to use only $3,625 per FTE for the Stockton Center in 1997-98. By the fifth year of operation, CSU proposes to use only $4,700 per FTE.
If CSU would allocate to its Stockton programs the average level of support it receives from the General Fund per FTE, the programs would have an additional $2.1 million in the budget year (when 350 FTE students will be on-site). By the fifth year of operation, when 650 FTE are there, the center's programs would have more than $3 million of additional funds. In our view, CSU should at least allocate average per student resources from its existing budget before needing additional General Fund appropriations. Therefore, with the available projected lease revenues and additional state and student fee support that will be available, the request for $1.7 million of supplemental General Fund for five fiscal years is not justified.
The only valid justification we see for a supplemental appropriation is the need for CSU to cover "warm shutdown" needs during the interim period (about six months) before it can move its programs and students to the new location. We therefore recommend that the Legislature (1) reduce the request by half ($850,000) for 1997-98 and (2) stipulate that these funds are provided on a one-time basis for "warm shutdown" needs.
Our analysis indicates that CSU is overbudgeted in the instances described below.
Missing Adjustment for Productivity Improvements. Under the Governor's four-year "compact" with UC and CSU, the university systems each committed to achieving annual productivity improvements of at least $10 million. For 1997-98, the Governor's budget includes a $10 million General Fund reduction for expected productivity improvements at UC. The budget does not include a similar adjustment for CSU.
There is no indication that CSU is having difficulty generating these internal savings. Referring to the $10 million target, CSU's most recent productivity improvement report to the Legislature (December 1996) states: "We are proud to say that the CSU has met this challenge--and then some." Therefore, to recognize these savings, we recommend that the Legislature make this technical adjustment to the CSU budget for a $10 million General Fund savings.
Missing Adjustments for Increased CSU Revenues. Each year, the budget act shows estimated CSU revenues (from student fees and other miscellaneous fees) as an offset to the main General Fund appropriation for CSU (Item 6610-001-0001). Thus, for a given level of total expenditures, any increase in fee revenue results in a lower General Fund appropriation. The 1997-98 Governor's Budget estimates that CSU revenues for 1996-97 will be $20 million higher than the $583 million assumed in the 1996-97 Budget Act. The Governor's budget estimates that 1997-98 revenues will exceed the 1996-97 Budget Act level by $26 million.
Of the $20 million and $26 million in additional revenues in the current and budget years, $12 million and $18 million, respectively, are available to offset CSU's need for General Fund monies. (The balance of $8 million in each year is from increased health-fee revenues that are dedicated to increased student health care expenditures.) The budget, however, does not include any General Fund adjustments to account for these additional revenues. We therefore recommend that the Legislature take the following actions for a total General Fund savings of $30 million:
California Community Colleges(6870) |
The proposed CCC budget is $3.5 billion. This is an increase of $193 million, or 5.8 percent, above estimated current-year expenditures. Of the proposed $3.5 billion total, $1.8 billion is from the General Fund, $1.4 billion is from local property tax revenues, and $300 million is primarily from student fees and state lottery funds.
The above amounts reflect only what is subject to legislative action through the annual budget process, and understate the full dimension of CCC spending. When local miscellaneous revenues, state debt service on general obligation bonds, and state payments to the State Teachers' Retirement System (for community college instructors) are counted, the Department of Finance (DOF) estimates that total spending related to the CCC will exceed $4.4 billion in 1997-98.
The 1997-98 spending level for community colleges depends, in part, on the level of the Proposition 98 spending determined by the Legislature and, in part, on how the Legislature chooses to divide those resources between K-12 and CCC programs. The Legislature has generally set Proposition 98 funding levels at the minimum amount required under the State Constitution. The level of the minimum funding guarantee depends on a variety of factors, including estimated General Fund revenue growth in 1997-98. As we discuss in the K-12 priorities section (see Section E of this Analysis), our estimate of General Fund tax revenue growth--and therefore our estimate of the Proposition 98 minimum funding guarantee--exceeds the budget's estimate.
To assist the Legislature with its deliberations on CCC funding priorities, we developed an alternative proposal to the administration's spending plan. In our alternative plan for 1997-98, we recommend the Legislature redirect about $21 million from CCC to K-12 programs. Our alternative assumes that the division of Proposition 98 resources between K-12 and CCC programs should be driven by program needs and not by rigid formula. While the Governor's budget allocates resources between the two segments in exactly the same proportion as 1996-97 (89.8 percent to K-12 and 10.2 percent to CCC), our approach is based on the premise that the relative needs of K-12 and CCC will vary one year to the next. Based on our reviews of the K-12 and CCC budgets, we conclude that, at the margin, relative program needs are currently greater in K-12 education.
Figure 11 compares the Governor's proposal and our proposal for Proposition 98 spending for the CCC in 1997-98. Our recommendations are based on the following order of priorities:
We discuss our recommendations in more detail below.
As Figure 11, shows, we agree with the Governor's spending proposals in most program areas. We discuss our few areas of disagreement below.
| Figure 11 | |||
| California Community Colleges
Governor and LAO Proposals 1997-98 Proposition 98 Funds | |||
| (In Thousands) | |||
| Governor's Budget | LAO
Recommendations |
Difference | |
| Fund Continuing Program Costs | |||
| Base apportionments | $2,809,231 | $2,809,231 | -- |
| Apportionments COLA | 80,247 | 80,247 | -- |
| Categorical programs base | 164,178 | 164,178 | -- |
| Categorical COLA | 4,690 | 4,690 | -- |
| Facilities maintenance/repairs | 39,000 | 39,000 | -- |
| Lease-payment bond cost (base) | 35,880 | 35,880 | -- |
| Lease-payment bond cost increase | 21,443 | 21,443 | -- |
| Telecommunications/technology | 9,300 | 9,300 | -- |
| Other programs | 66,344 | 66,344 | -- |
| Program Improvement | |||
| Special services for students on welfare | 53,209 | 53,209 a | -- |
| Fund for student success | 11,418 | 11,418 | -- |
| Equalization | -- | 8,000 | $8,000 |
| Program Expansion | |||
| Enrollment growth (statutory) | 33,992 | 33,992 | -- |
| Additional enrollment growth | 33,008 | 5,338 | -27,670 |
| Categorical program growth | 3,915 | 2,300 | -1,615 |
| Telecommunications/technology | 4,700 | 4,700 | -- |
| Totals | $3,370,555 | $3,349,270 | -$21,285 |
| a LAO recommends this amount be "set aside" for consideration in omnibus welfare reform legislation. | |||
Enrollment Growth Exceeds Underlying Growth in College-Age Population. Current state law calls for the annual percentage increase in funding for CCC enrollment growth to at least equal the percentage increase in the state's adult population, as calculated by the DOF. The law states that additional factors may be considered to justify a higher percentage increase. (This statutory formula sets a statewide average. The CCC's distribution formula provides above average growth amounts for fast-growing community college districts.)
The DOF projects the state's adult population (age 18 and older) to increase by 1.21 percent from the current to the budget year. The budget proposes $34 million to fund this enrollment increase. The budget, however, proposes an additional $33 million for more enrollment growth. In total, the budget proposes $67 million for an enrollment increase of 2.38 percent--over 21,000 full-time-equivalent students (FTE).
The proposed percentage increase of 2.38 percent does not correspond to any index of underlying population growth or any other objective measures of growth. It is simply the percentage that results by having a total augmentation of $67 million. The dollar amount represents the administration's judgment (1) of how much is available for growth after addressing its other priorities and (2) that the CCC can attract at least this much enrollment growth.
According to DOF and CCC staff, most community college districts can generate the necessary FTE growth to earn their share of a $67 million growth allocation. This may be true, particularly if districts spend from existing funds to advertise for new students, as some districts have done in the current year. In our view, however, asking whether colleges can attract more new students than would be justified by underlying population growth is asking the wrong policy question. We think the following is the more appropriate policy question: Given multiple competing needs throughout K-14 education, what are the best ways the Legislature can invest limited state funds? In this instance, specifically, are we better off investing up to $33 million in an effort to fuel extraordinary growth in the number of adults taking college courses, or are we better off investing at least some of those funds to meet high priority educational needs in K-12 education?
Viewed in the above context, we believe the Governor is allocating too much to CCC enrollment growth. We suggest that projected growth in the state's population between the ages of 18 and 24--the age "cohort" that accounts for the largest share of community college FTE--is an appropriate index for determining the aggregate amount of CCC enrollment growth funds. We project that growth of this cohort will be 1.4 percent from the current to the budget year, slightly higher than the increase of the adult population as a whole. On this basis, we recommend that the Legislature appropriate a total of $39.3 million for apportionment enrollment growth, a reduction of $27.7 million from the Governor's proposal. We recommend a conforming reduction in growth funds for categorical programs of $1.6 million.
Our recommendations result in total funding for enrollment growth (including the categorical programs) of $41.6 million. This exceeds the statutory minimum indicated by the 1.21 percent change in adult population by $7.6 million. It also would fund a substantially higher rate of enrollment growth than the 1 percent change proposed in the budget for the University of California and the California State University.
Inter-District Funding Disparities Should Be Addressed. We recommend the Legislature allocate $8 million to fund inter-district equalization. Community college districts did not receive the same equalization funding that was provided to K-12 districts in the 1980s. Consequently, significant funding disparities still exist between community college districts. The $8 million amount that we recommend is based on CCC regulations that call for equalization funding to equal 10 percent of the apportionment COLA amount. It also builds on the $14 million for equalization added by the Legislature in the 1996-97 Budget Act.
Net Savings Should Be Invested in K-12. Our recommendations for equalization funding and reduced enrollment growth funding, if adopted by the Legislature, would result in net savings of $21.3 million of Proposition 98 funds. In our review of Proposition 98 funding and K-12 priorities, we estimate--based on our projection of higher General Fund revenues and our recommendation for a Proposition 98 reserve--that the Legislature will have $63 million more to spend on K-12 programs than the Governor proposes for 1997-98.
Under the Governor's approach of a fixed "split" between K-12 and CCC, the colleges would receive $6.4 million of that amount. We recommend spending the entire $63 million on K-12 needs. In addition, we recommend redirecting the net savings of $21.3 million from our CCC recommendations to more pressing K-12 needs. Thus, our recommendations call for the investment of $27.7 million more on K-12 needs (and $27.7 million less on the CCC) than would occur under a fixed split that assumes that the state's relative needs for educating children and for educating adults never change. Our recommendation still leaves the CCC with ample resources. Instead of 10.2 percent of K-14 allocations, our recommendation would leave the CCC with 10.1 percent.
As part of the Governor's welfare reform proposal, the budget adds $53.2 million of Proposition 98 funds to the CCC in 1997-98 to substantially augment various special services for welfare recipients attending the colleges. In addition, in order to accommodate demand expected from these students for child care services, the budget proposes $6 million from one-time Proposition 98 monies for loans to campus-based child care providers to expand their facilities. Figure 12 displays how the $53.2 million of ongoing funds would be allocated among different purposes.
| Figure 12 | |
| California Community Colleges
Welfare-Related Spending Proposal 1997-98 Proposition 98 Funds | |
| (In Millions) | |
| Work-Study | $32.5 |
| Child care subsidy | 10.2 |
| Campus staff to coordinate services | 5.3 |
| Campus staff for job development/placement | 5.3 |
| Totals | $53.2a |
| a Total does not add due to rounding. | |
Background. According to the Chancellor's Office, about 125,000 current CCC students are welfare recipients, or about one in every 11 CCC students. (This "headcount" translates into roughly 85,000 FTE students when course loads are accounted for.) Of the 125,000 students, about 20,000 have been referred to the colleges through the Greater Avenues for Independence (GAIN) program. The remainder are attending on their own initiative.
The Chancellor's Office estimates that about 3,400 welfare-recipient students currently are involved in work-study programs. Typically, these students work in on-campus jobs. Almost all of these jobs are subsidized, with federal funds providing 75 percent of the wage and the employer (in most cases the college) providing the 25 percent match. The Student Aid Commission also funds 154 jobs at three college campuses.
Most colleges have child care services available on or near campus, although many colleges report waiting lists for the services. Various child care subsidies are available for welfare recipients under current law.
Governor's Proposal. As Figure 12 shows, the largest portion of the $53.2 million of ongoing Proposition 98 funds is the $32.5 million proposed for work-study. According to the CCC, this amount would be sufficient to pay minimum wage to 5,000 welfare-recipient students at 32 hours per week for a 44-week academic year. (Similar to the current work-study program at the CCC, the state would pay 75 percent of the wage and employers would pay 25 percent.) In fact, the $32.5 million would fund work-study stipends for more than 5,000 students. This is because some of the students' course time (which is not paid) could be applicable to the 32-hour "work participation" requirement of the Governor's reform proposal. At the time of this analysis, CCC staff were unable to estimate how many additional students might receive stipends due to this effect.
The proposal would provide $10.2 million for child care subsidies, helping an estimated 2,000 FTE students. Finally, the proposal funds on-campus staff, as follows:
Proposal Should Be Considered As Part of Overall Welfare Reform Legislation. It is clear that the above CCC budget proposal is inextricably tied to the state's overall strategy on welfare reform and should be considered by the Legislature in concert with omnibus welfare reform legislation. Accordingly, we recommend that the fiscal committees "set aside" up to the $53.2 million of Proposition 98 funds for the Legislature to consider as part of the omnibus legislation. Some issues the Legislature may want to consider regarding the CCC proposal include:
One-time Proposition 98 monies are available for K-14 programs because current-year General Fund revenues are higher than the level assumed in the 1996-97 Budget Act. Of these funds the Governor proposes to allocate $59.4 million to the CCC. This amount consists of $6 million for on-campus child care facilities (as described above in our discussion of CCC welfare-related proposals) and a $53.4 million block grant to the 71 CCC districts. The proposed block grant would be available for any combination of one-time expenditures for instructional equipment, library materials, technology, or facility maintenance/repairs. The block grant would be distributed on an FTE-basis. The above spending proposals are to be included in legislation separate from the budget bill, because they involve spending to meet Proposition 98 minimum funding levels for the current and prior fiscal years.
We withhold recommendation on the $6 million proposed for child care facilities, because the appropriate disposition of these funds will depend on the Legislature's overall welfare reform strategy. Our review of the $53.4 million block grant proposal indicates that it will give districts appropriate discretion to meet high priority needs that have not been fully addressed in past funding. We therefore recommend approval of the block grant proposal.
Student Aid Commission(7980) |
The budget requests $295 million from the General Fund for the commission. This is $30.3 million, or 11 percent, more than estimated expenditures in the current year. Figure 13 shows the major changes proposed for the commission's budget in 1997-98.
| Figure 13 | |
| Major General Fund Changes
In Student Aid Commission Budget | |
| (Dollars in Thousands) | |
| 1996-97 General Fund Budget | $264,757 |
| 1997-98 cost of 1996-97 Cal Grant increase | 15,786 |
| Increase maximum Cal Grant award | 10,000 |
| One-time federal audit payment | 4,965 |
| Cal Grants for digital animation | 1,200 |
| Grant program compliance reviews | 311 |
| Staff for Student Expenses and Resources Survey | 225 |
| Other adjustments | -2,191 |
| Proposed 1997-98 General Fund Budget | $295,053 |
| General Fund increase | 30,296 |
| Percent increase | 11% |
| Increase excluding one-time audit payment | 25,331 |
| Percent increase excluding one-time audit payment | 9.6% |
Of the $295 million requested from the General Fund, $283 million, or 96 percent, is for student financial aid awards, primarily in the Cal Grant program. The balance of $11.8 million is for SAC administrative costs.
In our analysis of the University of California's (UC's) budget, we recommend transferring $19.8 million to the SAC's Cal Grant program because (1) UC has shifted financial aid resources to other university programs while student fee revenues have risen and (2) shifting funds to the Cal Grant program will give students greater flexibility when choosing which college to attend. This recommendation, if adopted, will provide $19.8 million each year for financial aid in the Cal Grant program.
Budget Proposal. The budget includes $10 million to increase the maximum award for Cal Grant recipients who choose to attend private colleges or universities. This action would address one statutory goal of the Cal Grant program--to provide the same level of public aid to recipients who attend private institutions as the state provides students attending UC and California State University. As Figure 15 (see page 47) shows, the commission estimates that the proposed maximum award for students attending private colleges nearly meets this goal. We think this is a reasonable approach and we recommend approval of the $10 million.
Increasing the Number of Cal Grant Awards. In recent years, the Legislature also has addressed another statutory goal of the Cal Grant program
as well--to provide first-time awards to one-fourth of high school graduates. As Figure 15 shows, the SAC estimates that 47,826 first-time awards
will be available in 1997-98, which achieves almost two-thirds of this goal.
To increase this percentage, we recommend that the SAC use the
$19.8 million transferred from the UC to provide more Cal Grant awards.
| Figure 14 | ||
| Description of Cal Grant Programs
1997-98 | ||
| Cal Grant A | Cal Grant B | Cal Grant C |
| strong>Purpose | ||
| Choice--based on financial need and academic performance | Access--based primarily on financial need, preference for initial attendance at community college | Vocational--based on financial need |
| Eligibility (1997-98) | ||
| Income ceiling: $57,200 for dependent student with five family members | Income ceiling: $32,249 for dependent student with five or more family members | Income ceiling: Same as Cal Grant A |
| Asset ceiling: $42,000 | Asset ceiling: $42,000 | Asset ceiling: $42,000 |
| Freshman grade point
average (GPA) cutoff:
3.16 (1996-97) Sophomores and Juniors: 3.27 (1996-97) |
Applicants ranked based on family income, family size, GPA, family education background, and marital status of parents | Applicants ranked based on work experience, educational performance, and recommendations |
| Plan to enroll at least two years at UC, CSU, or nonpublic institution | Plan to enroll at least one year at a college | Plan to enroll at least four months at community college, independent college, or vocational school |
| Average Family Income of New Recipients (1996-97) | ||
| $29,793 | $11,541 | $24,207 |
| Maximum Award (1997-98) | ||
| Tuition and fees:
Nonpublic: $9,105 UC: $3,799 CSU: $1,584 |
Tuition and fees:
No award in the first year, then same as Cal Grant A |
Tuition and fees:
Nonpublic: $2,360 UC: $2,360 CSU: $1,584 |
| Other costs: None | Other costs: Up to $1,410 | Other costs: Up to $530 |
| Number of New Awards Annually | ||
| 19,026 | 15,578 | 2,089 |
| Proposed Budget 1997-98 (In Millions) | ||
| $195.2 | $85.8 | $3.7 |
| Number of Current Recipients | ||
| 53,846 | 41,222 | 3,264 |
| Figure 15 | |||
| Cal Grants
Statutory Goals Compared to Actual Awards 1977-78, 1987-88, 1997-98 | |||
| 1977-78 | 1987-88 | 1997-98
Proposed | |
| Goal: Number of awards | |||
| 25 percent of high school graduates | 66,156 | 59,354 | 72,713 |
| Actual number of new awards | 23,062 | 28,220 | 47,826 |
| Percent of goal | 35% | 48% | 66% |
| Goal: Cover UC and CSU feesa (for financially needy students) | |||
| UC | |||
| Weighted average tuition and fees | $706 | $1,492 | $4,130 |
| Maximum award | 662 | 1,070 | 4,130 |
| Percent of goal | 94% | 72% | 100% |
| CSU | |||
| Weighted average tuition and fees | $195 | $754 | $1,925 |
| Maximum award | 190 | 328 | 1,925 |
| Percent of goal | 97% | 43% | 100% |
| Goal: Support private institution recipients at level of public institution funding | |||
| Specified costs and fees at public institutions | -- b | -- b | $9,383 |
| Maximum award (SAC estimate) | $2,700 | $4,370 | 9,105 |
| Percent of goal | -- b | -- b | 97% |
| a Cal Grant A and B. | |||
| b Not available. | |||
When the number of first-time Cal Grant awards is increased, the cost to the General Fund increases each year for four years. This is because freshmen maintain their annual grant awards for four years, and new first-year recipients are added to the Cal Grant roles each year. If the SAC allocated the full $19.8 million in 1997-98 to increase the number of awards, the annual cost of the change could exceed $73 million by 2001-02.
There is, however, another way the Legislature could augment the Cal Grant program and increase the number of grants with no increase in the annual cost of these awards. To do this, the SAC would adjust the number of new grants so that the additional grants will cost an average of $19.8 million on an ongoing basis. We recommend that the $19.8 million be allocated using this approach. The SAC indicates that this alternative method of budgeting increases is feasible. The commission estimates that the $19.8 million will create approximately 3,300 new Cal Grant awards.
The traditional way of expanding the Cal Grant program commits the state to future budget increases beyond those proposed in the budget year. This places an added burden on future General Fund resources, thereby reducing the Legislature's future fiscal flexibility. Our recommended method of increasing the Cal Grant funding ensures that the cost will not exceed the $19.8 million available, even in future years.
We recommend that the Legislature add the following budget language to Item 7980-101-0001 to provide for additional Cal Grant awards at an average annual cost of $19.8 million each year.
Of the amount appropriated in this item, a total of $19.8 million is available for additional Cal Grant awards. The Student Aid Commission shall increase the number of awards such that the average annual cost of the added grants shall equal $19.8 million. Notwithstanding Section 2.00 (a) of this act, any unexpended funds appropriated pursuant to this provision on June 30, 1998 shall be available to the commission for expenditure for Cal Grant awards in subsequent years.
The budget requests an additional $1.2 million for the creation of a Cal Grant award for up to 500 students each year that are enrolled in digital-animation programs. The $1.2 million would consist of $1 million for Cal Grants, and $200,000 for the SAC to administer the new digital-animation grant program. The proposal would make the funds available for grants only if prospective employers match the Cal Grant funds.
Cal Grants Should Provide Students With Maximum Flexibility. The Cal Grant program is intended to provide financially needy students with greater opportunities to attend colleges, universities, and vocational- training schools. These educational opportunities allow students to attain the benefits of higher education, and to contribute more to the economy and their communities. Students choose among various career paths based on their interests and the income they can earn in a particular career.
The budget proposes to restrict 1.2 percent of first-time Cal Grant awards to students studying digital animation. By limiting $1 million in proposed Cal Grants to students pursuing careers only in digital animation, the budget unnecessarily restricts the ability of students to choose among career paths, even when other paths might be more satisfying or economically rewarding to them than digital animation.
Maintaining the freedom of Cal Grant recipients to choose their educational paths does not limit prospective employers in the digital-animation field from offering to match a Cal Grant award for students pursuing studies in digital animation--indeed, they have many opportunities to do so. Over 30,000 students each year receive a Cal Grant for the first time. The state should encourage all prospective employers to contribute to the educational opportunities of prospective employees, whether by matching Cal Grant awards or by directly providing grants of their own. The state should not make grants contingent on students receiving matching funds from only one sector of the economy.
To maintain the freedom of Cal Grant recipients to choose their educational and career paths, we recommend that the Legislature eliminate provision number 7 of Item 7980-101-0001, which would restrict the use of $1 million in Cal Grant funds to students studying digital animation. We also encourage the commission to assist all businesses, including the motion picture industry, in providing financial aid to Cal Grant recipients.
The budget also includes $200,000 for the SAC's cost to create and administer a restricted digital-animation grant program. These added administrative costs are not necessary under our recommendation to allow students unrestricted use of these grant awards as is already done under the current Cal Grant program. We therefore recommend that the $200,000 in budget bill Item 7980-001-0001 be shifted to Item 7980-101-0001 for additional Cal Grant awards.