Tradition!

The Legislative Analyst’s Office (LAO) has issued a report on UC and CSU funding. LAO is usually viewed as a neutral agency. But it is a component of the legislature. So it tends to favor approaches that add to legislative control as opposed to, say, gubernatorial control. This report is no exception.

LAO seems to want to return to what it terms the “traditional” approach to funding, but with bells and whistles added to monitor legislative goals. The traditional approach seems to be one focused on undergraduate enrollment. But in fact the tradition – such as it is – has been to forget about tradition and cut the budget during state budget crises, in the knowledge that UC and CSU can raise tuition. Indeed, as the chart above indicates, these traditional deviations from tradition dominate tuition decisions.

The LAO is uncomfortable with the habit of the governor of just proposing dollar increases not linked to enrollment and then extracting some promises from the university to do this or that, e.g., to spend $10 million on online education.

It might be noted that since LAO chose to lump UC and CSU together, it might have discussed a sore point namely the fact that CSU, as a part of CalPERS, gets its pension costs taken care of by the state whereas the state likes to stand aloof from the UC pension and its costs.

You can read the report at http://lao.ca.gov/reports/2014/education/higher-ed-budgetary-practices/budgetary-practices-021114.pdf

In any case, there is much nostalgia for tradition, albeit with some uncertainty as to what that is. Sounds familiar!
[youtube http://www.youtube.com/watch?v=gRdfX7ut8gw?feature=player_detailpage]

Issue Heating Up

We noted in yesterday’s posting (in the update portion) on the Regents public comment session that there were spokespeople complaining about anti-Israel activities on UC campuses including course credit on one campus, pushes for divestment, etc. Earlier postings noted statements by the UC prez and several chancellors (including Block) opposing an academic boycott of Israel by several academic societies. Today, the LA Times reports:

A group of lawmakers has formed the California Legislative Jewish Caucus to weigh in on issues of priority to members, including immigration, civil rights and Israel, according to its chairman, state Sen. Marty Block (D-San Diego)… So far, the new caucus has nine full members, including Senate President Pro Tem Darrell Steinberg (D-Sacramento)…

Among the issues the group will address: In the last two years, some University of California student organizations and governments have approved resolutions urging the U.C. Board of Regents to divest from companies linked to the Israeli military. Block said there was also concern about incidents of anti-Semitism on California university campuses and cases in which professors have taught anti-Israel lessons…

Full story at http://www.latimes.com/local/political/la-me-pc-lawmakers-form-new-california-legislative-jewish-caucus-20140122,0,7883863.story

We have also noted on this blog the progress being made in getting the state to assume responsibility for the UC pension. [Indeed, the UCLA Faculty Assn. made the first break-through with the Legislative Analyst’s Office on that issue.] The Regents also noted the progress so far and also the need for UC to be treated the same as CSU regarding pension funding. (CSU is part of CalPERS for which the state assumes liability.) Thus, calls for political use of pension and other UC funds (including continued calls on the Regents to divest from fossil fuels) could end up being costly for UC by undermining that progress. At present, UC gets about the same funding as CSU, but UC has to make pension contributions out of its state funding while CSU does not. As time goes on, and pension contributions have to be ramped up, this difference – if it persists – will be a source of an ongoing budgetary squeeze of UC and upward pressure on tuition.

Thus far, no one seems to have noted the interconnection between these various issues. So you read it here first.

Is there a Changing State Attitude Regarding the UC Pension? Reading Between the Lines

As blog readers will know, UC has had difficulties in getting the state to recognize that its pension liabilities were ultimately those of the state, just as CalPERS and CalSTRS liabilities are liabilities of the state. Thanks to the two-decade hiatus of contributions, the state seemed to forget about UC’s pension. However, there is beginning to be recognition that although you can say the pension is a liability of the Regents, in the end the Regents have no sources other than the state and tuition to deal with it.

We noted recently that in his budget document describing his proposal for 2014-15, the governor listed the UC pension and retiree health obligations along with those of other state plans. The Legislative Analyst’s Office (LAO), which at one time was adamant about the liability not belonging to the state, has not been repeating that position of late. Indeed, the LAO has just released its summary of the governor’s budget plan. It notes that the governor is trying to move to what can be seen as a block grant approach to UC (and CSU) funding, rather than one based on enrollments or particular programs. LAO complains that such an approach reduces control by the legislature. In citing examples of an alternative approach, the LAO says [page 30]:

For example, the state could allocate new funding for specific purposes such as a COLA, maintenance projects, or pension obligations.

You have to read between the lines to take this as a shift in attitude towards the UC pension. But LAO could have picked other examples.

The LAO document is at: http://lao.ca.gov/reports/2014/budget/overview/budget-overview-2014.pdf

Budget Leaks Turn into a Flood of Biblical Proportions

We noted in prior posts that there were some leaks of the governor’s proposed budget for 2014-15, which was supposed to be unveiled on Friday. The leaks turned into a flood of Biblical proportions when first the Sacramento Bee published some summary information about the budget yesterday, said to come from the actual budget that the Bee had obtained somehow. Then what appeared to be the budget “summary” – actually a document of 271 pages – appeared online. And then it was announced that the official unveiling would be today at 9 AM instead of tomorrow, confirming that what was online was the real thing.

At the moment, the unofficial/official budget is at:

http://www.aroundthecapitol.com/docs/CAbudget2014.pdf

Presumably, the official documentation will soon be on the Dept. of Finance website. The governor and his finance director generally are the presenters at the media event in which the budget is unveiled. (An advance leak/flood of this type and then a resulting hurried-up media event occurred once under Schwarzenegger.)

First, let’s start – based on what’s currently posted – with the UC news. Two versions of general fund payments to UC appear in the summary document. My guess is that the version with somewhat higher payments to UC included the debt service deal made with the state. (UC has a better credit rating than the state and can borrow at lower interest rates. UC assumed state debt for some past facility obligations and the refinancing saves the state some money.) Version 1 (page 35) shows a 5.7% increase over the current fiscal year; version 2 (page 37) shows a 5.5% increase. There is a lot of language about higher ed needing to be more efficient and innovative – a previous gubernatorial theme. The budget proposes a $50 million innovation fund for all three segments of higher ed to be controlled by a committee involving all three segments plus the Dept. of Finance. Alert #1: Some folks might get nervous about that type of curriculum intervention.

Alert #2: As prior leaks have indicated, there is a lot in the budget document about paying down debt. At one point, there is a chart (page 4) which includes the UC pension and retiree health care unfunded liabilities as part of state debt. This is a BIG DEAL since the Legislative Analyst keeps insisting that the UC retirement unfunded liability is not something for which the state should be considered liable. If the governor and the Dept. of Finance now say that it is a state liability in an official document, that assertion should close the issue. (It won’t, of course, but progress has been made.)

As for the budget itself, it continues the general miasma of state accounting. Yours truly will await the governor’s media conference. But for the moment, let’s focus on the reserve in the General Fund. At the end of last year (June 30, 2013), the state controller put the reserve on a cash basis at MINUS $2.5 billion. The governor, on an accrual basis, put it at PLUS $872 million and now says it was actually PLUS $2.5 billion. No reconciliation between cash and accrual is provided. There is no doubt that with Proposition 30 and the improvement in the state economy, the budget situation has improved. But absent a reconciliation, the suspicion has to be that for cosmetic reasons, the governor wanted a final positive number in the reserve at the end of 2012-13 in his version of the budget – and he got one.

There is much focus in the new budget proposal on creation of a rainy day fund. Of course, the reserve is a rainy day fund (when it is positive) but both Brown and – before him – Schwarzenegger have liked the idea of carving out a kind of additional reserve and labeling that one the rainy day fund. That’s fine, but a reserve is a reserve is a reserve.

If we use the governor’s accrual version of a reserve, he expects to end this year with $4.2 billion in the reserve (June 30, 2014). A year later (June 30, 2015), he proposes in his budget that the reserve plus rainy day fund will total $1.9 billion + $1.6 billion = $3.5 billion. (Page 14) Note that $3.5 billion is less than $4.2 billion, so if the total reserve (including the rainy day fund) is declining, expenditures have to be exceeding revenues, something that ordinary folks would call a deficit. I doubt the word “deficit” will be uttered by either the governor or the finance director. And the governor would say he is paying down past debts that have accumulated to the tune of $11.8 billion in the proposed budget, both to Wall Street (the Schwarzenegger Economic Recovery Bonds) and internally, e.g., debt to K-14 under Prop 98. (Page 9) There is, however, ordinary debt service and discretionary debt service. The Economic Recovery Bonds have to be paid off unless the state were to default. Some of the other internal debts are more “adjustable.”

Stay tuned for more after the media conference.

And finally note that the mishaps in getting out the budget – where a few modest leaks earlier in the week have now become an online sea – may be a bit of online education for the governor. An interesting ride in the last 24 hours, thanks to the governor, in any case:

[youtube http://www.youtube.com/watch?v=i5tIHtbctFQ?feature=player_detailpage]

Wait and See

We posted earlier about general plans for the state budget by the legislative Democrats which promise “more” for higher ed and UC than the Legislative Analyst’s projections seemed to imply. It is unclear if there is more than what the governor will propose in early January.

Below are two slides from a presentation by the legislative Democrats. But wait and see is probably the best advice at this moment. Note that the projections all assume uninterrupted economic expansion which is hard to guarantee.

You can find the full set of slides at http://asmdc.org/issues/budget-blueprint/images/2014-15-blueprint-for-a-responsible-budget-v7cw.pdf

We Got a Mention

Maybe not so fast

An earlier post on this blog described the recent Legislative Analyst’s Office (LAO) report that projected that, with a combination of continued economic growth and Prop 30 revenues while they are in effect, California’s “structural” deficit had ended. We also noted that included in the LAO projections was what me termed an ungenerous assumption about spending on UC. We have also been posting excerpts from Regents meetings in which the governor and Speaker Pérez have also made ungenerous remarks. [Pérez, however, is now in the race for state controller and indicated that a transition to a new speaker should take place before his assembly term ends.] The LAO projected ongoing budget surpluses for years to come which has legislative Democrats planning spending increases. The TV news clip below gives you the flavor. And UC is mentioned – by Pérez – as a place to spend added monies.

Brown, however, has pictured himself at Regents meetings and elsewhere as the budgetary gatekeeper. It used to be said that the function of the chair of the Federal Reserve was to take away the punchbowl just as the party got going. Brown sees himself in such a role. So don’t plan on spending the extra funding just yet.

It might be noted that the trough of the Great Recession occurred in 2009 and we are coming on to 2014. The added years projected by the LAO assume an uninterrupted expansion continues. There are no guarantees and no forecaster would presume to be able to tell what might occur in, say, 2016 with regard to economic fluctuations. As many have noted, the state’s revenue stream is highly dependent on the personal income tax and on higher-end taxpayers, making it volatile and sensitive to the general business cycle and financial market ups and downs..

LAO Puts Higher Ed in the Freezer

The Legislative Analyst’s Office (LAO) released its budget outlook for the coming year and the next few years. Good cheer generally, except for higher ed. Revenue is up more than projected. (Recall the governor insisted on “conservative” forecasts last June.) Spending is up, too, but the net points to a rising state reserve. Indeed, the LAO simulated a mild recession and thinks we could pull through without another calamity.

However, when in comes to spending on higher ed, UC is frozen at $2.8 billion indefinitely. No adjustments for inflation and enrollment growth (which LAO doesn’t think will happen based on demographics). The LAO mentions the possibility about the state taking some interest in the UC pension, but only mentions it. It doesn’t recommend it. LAO does note that its freeze doesn’t accord with the governor’s multiyear plan for UC and CSU. We reproduce the higher ed portion of the LA report below. The full report is at:
http://lao.ca.gov/reports/2013/bud/fiscal-outlook/fiscal-outlook-112013.pdf

Higher Education

In addition to community colleges (which are part of the Proposition 98 forecast), the state’s higher education system includes CSU, UC, and California Student Aid Commission (CSAC). The CSU educates about 430,000 undergraduate and master’s students at 23 campuses. The UC is a comprehensive research university educating about 240,000 undergraduate, master’s, and doctoral students at ten campuses. Both universities receive support for their core instructional programs primarily from a combination of state funds and student tuition revenue. The CSAC is responsible for administering state financial aid programs—most notably, the Cal Grant program—with support from the state General Fund, federal Temporary Assistance for Needy Families (TANF) funds, and the Student Loan Operating Fund (SLOF).

Assumptions

Forecast Sensitive to Underlying Assumptions. Unlike many other areas of the state budget that are constrained by constitutional or federal requirements, the Legislature has significant discretion over university and financial aid expenditures. At the same time, the universities have greater control over their total operating budget than most state agencies because they have the ability to raise additional revenue by increasing student tuition. These factors mean that expenditures on the universities and financial aid are very sensitive to future legislative actions and the systems’ future decisions on tuition levels.

Assumes No COLA or Enrollment Changes for Universities. Our forecast assumes the state does not provide COLAs for the universities, consistent with state law regarding no automatic COLAs for most state programs. In addition, we assume no enrollment changes at either CSU or UC. Changes in enrollment at CSU and UC typically are driven by changes in the college–age population and the universities’ eligibility policies. Our demographic projections show declines in the traditional college–age population in each year of the forecast period, with the number of 18–24 year olds 7 percent lower in 2020 compared to 2014. Regarding the universities’ eligibility targets, the state’s Master Plan for Higher Education calls for CSU and UC to draw from the top 33 percent and 12.5 percent of high school graduates in the state, respectively. Though the state no longer conducts eligibility studies, recent research from the Public Policy Institute of California (PPIC) suggests that both universities are drawing from beyond their Master Plan eligibility pools. Both CSU and UC, however, report unmet enrollment demand. CSU reports more than 20,000 eligible students annually being denied admission in recent years, while UC reports an increase in the number of eligible students being denied admission to their preferred campus. The apparent conflict between the PPIC study and university admissions reports may result from different ways of measuring the eligible pool of students. Though a more refined study examining CSU and UC’s current eligibility, admission, and enrollment trends would offer the Legislature better guidance in making enrollment decisions, the totality of available data suggest CSU and UC enrollment pressures will be low over the forecast period.
Assumes No Participation or Award Changes for Cal Grants. Our forecast also assumes no changes in Cal Grant participation rates. Cal Grant participation historically has been driven primarily by the number of high school graduates in the state, though the number of students completing federal financial aid applications and the condition of the economy also can influence Cal Grant participation. The number of high school graduates is expected to decline somewhat over the forecast period. The number of aid applications, which has grown significantly in recent years, also appears to be leveling off. Though we assume flat Cal Grant participation over the period, significant improvement in the economy—especially in employment—could somewhat reduce future demand for financial aid. Our forecast also assumes no changes in Cal Grant award amounts. Cal Grant award amounts would increase automatically only if tuition at UC and CSU increased during the forecast period.
Assumes Continued General Fund Offsets. In recent years, the state has used two funding sources—TANF and SLOF—to offset some General Fund Cal Grant costs. Our forecast assumes the state continues to use $542 million in TANF funding annually throughout the forecast period for Cal Grants. We also assume the state continues to rely on SLOF contributions for the next two years. The SLOF, which is funded by proceeds from California’s federal student loan program, helped to support Cal Grant costs in some years prior to the loan program’s 2010 transfer to Educational Credit Management Corporation (ECMC)—a national loan servicing organization. As part of the transfer, ECMC agreed to continue sharing a portion of its proceeds for a few years. ECMC set a goal of $500 million in total contributions for Cal Grants, has paid $345 million since 2010, and has signaled its intention to make two additional contributions. Accordingly, our forecast includes $77 million SLOF support in each 2014–15 and 2015–16, followed by a General Fund backfill of this amount in 2016–17.

Forecast

State Spending on Universities Projected to Be Flat Over Entire Forecast Period. Specifically, we project that state spending for CSU and UC will be $2.2 billion and $2.8 billion, respectively, each year from 2013–14 through 2019–20. (Consistent with current state policy, our forecast assumes that spending on debt service for state–supportable capital outlay projects at UC is paid from UC’s support budget, while CSU’s state–supportable debt–service costs are paid separately by the state and included in our statewide debt–service projections.)
State Spending on Cal Grants Also Flat. Following steady increases that have more than doubled Cal Grant expenditures since 2007–08, we expect costs to remain relatively level at $1.7 billion over the forecast period. This forecast reflects our baseline assumptions regarding enrollment and tuition, as well as cost increases and savings resulting from prior–year policy actions. The California Dream Act of 2010—Chapter 604, Statutes of 2010 (AB 131, Cedillo)—makes some nonresident students eligible to receive state financial aid beginning in 2013–14. Dream Act costs will increase as current recipients renew their awards and additional cohorts of high school graduates and community college transfer students qualify for new awards. We anticipate these costs will level off at about $85 million beginning in 2016–17. These cost increases are largely offset by savings resulting from two policy changes enacted in recent years: (1) reductions in Cal Grant maximum award amounts at private colleges and universities and (2) the phase out of loan assumption programs for teachers and nurses.
New Scholarship Program Drives Budget Growth. The 2013–14 budget package created the Middle Class Scholarship Program, a new financial aid program for certain CSU and UC students. Under the new program, students with family incomes up to $150,000 will qualify for scholarships that cover up to 40 percent of their tuition (when combined with all other public financial aid). The program is to be phased in over four years, beginning in 2014–15. Budget legislation provides $107 million for the program in 2014–15, $152 million in 2015–16, and $228 million in 2016–17, with funding for the program capped at $305 million beginning in 2017–18.

Other Budgeting Approaches

Governor’s Multiyear Funding Plan for the Universities Would Increase Costs Significantly. Though our forecast shows no increases in state spending on the universities over the coming six years, the Governor already has indicated an interest in augmenting the universities’ budgets. As part of his 2013–14 budget plan, the Governor proposed providing CSU and UC with an unallocated base increase of 5 percent in 2013–14 ($125 million for each segment) and 5 percent in 2014–15 ($142 million for each)—followed by 4 percent increases in 2015–16 ($120 million each) and 2016–17 ($124 million each). (The proposed increases are the same for each university because the Governor bases them both on UC’s budget.) The final budget package included only the base increase for 2013–14 without any commitment by the state for out–year funding. Nevertheless, our understanding is that the administration intends to maintain the multiyear plan in 2014–15. If the Legislature were to adopt the Governor’s plan, state expenditures on both universities combined would increase by $284 million above 2013–14 levels in 2014–15, growing to $772 million annually by 2016–17.
Legislature Could Take Alternative Approach and Consider Funding Universities’ Main Cost Drivers. During last year’s budget deliberations, we expressed various concerns with the Governor’s multiyear funding plan—such as the rationales for providing the specific base increases proposed for CSU and UC and for treating the two university systems identically. The Legislature could take a different, more traditional approach to building the universities’ budgets that focuses on major cost drivers, including deferred costs and inflationary pressures. One particularly notable deferred cost is UC’s unfunded liability in its pension plan. If the Legislature were to provide the full amount requested by UC to fund these liabilities, state costs for UC would increase by over $230 million annually.
Addressing Inflationary Pressures on University Budgets. One main cost driver for the universities is inflation. In 2014–15, inflation is estimated at 2.2 percent. (Throughout the remainder of the forecast period, inflation is projected to hover around 2.5 percent.) In the past, we have recommended that inflationary cost increases be shared by the state and students (in the form of tuition increases). This provides an incentive for students to hold universities accountable for cost increases. Augmenting state funding for the universities by 2.2 percent in 2014–15 would cost a total of $111 million whereas increasing student tuition at the universities by 2.2 percent would generate a total of $96 million in additional tuition revenue. (Higher tuition would indirectly increase Cal Grant awards for CSU and UC students. Of the $96 million, $26 million would come in the form of larger Cal Grant awards.) The universities could use this COLA–related funding to cover a number of cost increases, such as those related to health care premiums, utilities, and faculty and staff salaries. In addition, UC could use its funding to cover increased debt–service costs.
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Unfortunately, the LAO wants to leave us frozen in the cold, where really bad things can happen:
[youtube http://www.youtube.com/watch?v=C0XPFWPsSvs?feature=player_detailpage]

The Leg Analyst Summarizes the Higher Ed Budget

At around this time of year, the Legislative Analyst’s Office releases a summary about the budget in preparation for next year’s budget proposal that will come from the governor in early January. Below is an excerpt just for higher ed. A link to the full document follows the excerpt.
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UC, CSU, and Hastings

Provides $2.8 Billion in General Fund Support for UC. The budget provides UC with $2.8 billion in General Fund support—an increase of $467 million from 2012–13. Of this increase, $200 million reflects a shift of funds used for paying general obligation bond debt service from a separate budget item to UC’s support item (with no corresponding increase in state costs or total UC support and capital funding). The remainder consists of various augmentations, including a $125 million increase linked with a prior–year budget agreement that the university hold tuition levels flat in 2012–13, a $125 million (5 percent) base augmentation for 2013–14, a $9 million increase for lease–revenue debt service, and a $6 million increase for retiree health benefits. In addition to state support, UC expects to receive roughly $2.5 billion in student tuition payments. (The Cal Grant Program will pay about $760 million of this amount on behalf of students.)

Provides $2.6 Billion in General Fund Support for CSU. For CSU, the budget provides $2.6 billion in General Fund support—an increase of $304 million from 2012–13. This increase consists of various augmentations, including $125 million for holding tuition flat in 2012–13, a $125 million (6 percent) base augmentation for 2013–14, an $18 million increase for lease–revenue debt service, and a $34 million increase in health care costs for retired annuitants. In addition to its General Fund support, CSU expects to receive about $1.9 billion in student tuition payments. (The Cal Grant Program will pay about $430 million of this amount on behalf of students.)

Provides $8.4 Million in General Fund Support for Hastings College of the Law. The budget provides Hastings with $8.4 million in General Fund support—an increase of $511,000 (6.5 percent) from 2012–13. Of this amount, $56,000 is intended to cover increased retiree health care costs. Hastings has discretion in deciding how to use the remaining funding. In addition to state support, Hastings expects to receive $34 million in 2013–14 from student tuition payments.

Provides Base Augmentations. As discussed above, the budget provides base increases of $125 million each for UC and CSU. (The administration derived the dollar increase based on UC’s budget, with the amount representing a 5 percent increase for UC and a 6 percent increase for CSU.) Though the increases are largely unallocated, $15 million of UC’s augmentation is for the new UC Riverside School of Medicine, which will begin serving students in 2013–14. (The Governor proposed to set aside $10 million of each university’s base increase for improving the availability of courses through technology. Though the Governor ultimately vetoed this provision, the universities indicate they will honor the administration’s intent for these funds, as detailed in the box below.)

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UC and CSU Technology Initiatives

Both the University of California (UC) and California State University (CSU) will use a portion of their base funding increase to improve course availability through technology, as described below.

UC to Develop New Innovative Learning Technology Initiative. The goal of the initiative is to help undergraduates enroll in the courses they need to satisfy degree requirements and graduate in a timely manner. The UC plans to spread $10 million across the following components.

Course Development ($4.6 Million to $5.6 Million). The UC plans to develop 150 online and hybrid courses over the next three years. These courses will be credit–bearing and meet general education or major requirements. The university will select the courses using a competitive process run through the Academic Senate.
Technological and Instructional Support ($1 Million to $2 Million). The UC plans to make technological support available to faculty developing the hybrid and online courses. The UC also plans to fund teaching assistants to help students taking courses remotely.
Cross–Campus Registration and Course Catalog Database ($3 Million). The UC plans to develop a new data “hub” to support cross–campus registration. The UC also plans to develop a searchable database of the new courses.
Evaluation ($0.4 Million). The UC plans to collect data from students and faculty to determine the effectiveness of the new courses.

CSU to Focus on Reducing Bottlenecks and Improving Student Success. The CSU Chancellor’s Office plans to distribute $17.2 million among its campuses to promote five objectives. (In addition to $10 million for technology–specific activities, CSU plans to spend $7.2 million specifically for the student success programs described below.) The amount allocated to each objective will depend on the proposals the Chancellor’s Office receives from campuses. The five objectives are:

Increasing Enrollment in Successful Online Courses. Beginning fall 2013, CSU will expand enrollment in about two dozen existing, fully online courses. The courses, nominated by campuses and selected by the Chancellor’s Office, are in high–demand subjects and have shown better completion rates and student learning outcomes. Students throughout the system will be able to enroll in these courses and receive credit at their home campuses. The Chancellor’s Office will support the development of processes that streamline registration and transfer of course credits for students.
Replicating Successful Courses and Teaching Methods. Through a review process, the Chancellor’s Office selected several courses that showed improved student outcomes following changes in teaching methods and technology. The university plans to hold six associated summer institutes that will bring faculty who have successfully redesigned courses together with faculty from other campuses who are interested in adopting new approaches. Participating faculty (and their campus departments) must indicate that they intend to transform an existing course from face–to–face to online, hybrid, or technology–enhanced and offer the revised course in 2013–14.
Advancing Course Redesign. Campuses will compete for funds to redesign 22 existing courses that are high–demand and have high failure rates systemwide. Redesigned courses will be piloted beginning in spring 2014. Successful approaches will be expanded and disseminated in future faculty institutes.
Implementing Student Success Programs. The goal of this component is to improve overall student success and graduation rates and reduce disparities in these rates between underrepresented students and other students. Campuses will compete for grants to implement various student success strategies such as developing or expanding summer bridge programs, freshman seminars and learning communities, writing–intensive courses, and undergraduate research opportunities.
Using Technology to Improve Student Advising. Campuses will compete for funds to implement automated degree audits, e–advising, and other planning tools for students.

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Requires Annual Report on Specified Performance Measures. The budget package establishes a new requirement for UC and CSU to report annually, beginning on March 1, 2014, on a number of performance outcomes. Among other metrics, the universities are required to report on graduation rates, spending per degree, and the number of transfer and low–income students enrolled. See Figure 8 for a full list of specified performance measures.

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Figure 8

Performance Metrics for UC and CSU

Metric	Definition
CCC transfers	(1) Number of CCC transfers enrolled.(2) CCC transfers as a percent of undergraduate population.
Low–income students	(1) Number of Pell Grant recipients enrolled.(2) Pell Grant recipients as a percent of total student population.
Graduation ratesa	(1) Four– and six–year graduation rates for freshmen entrants.(2) Two– and three–year graduation rates for CCC transfers. Both of these measures also calculated separately for low–income students.
Degree completions	Number of degrees awarded annually in total and for: (1) Freshman entrants. (2) Transfers. (3) Graduate students. (4) Low–income students.
First–year students on track to degree	Percentage of first–year undergraduates earning enough credits to graduate within four years.
Spending per degree	(1) Total core funding divided by total degrees.(2) Core funding for undergraduate education divided by total undergraduate degrees.
Units per degree	Average course units earned at graduation for: (1) Freshman entrants.(2) Transfers.
Degree completions in STEM fields	Number of STEM degrees awarded annually to:(1) Undergraduate students.(2) Graduate students.(3) Low–income students.
a Six– and three–year graduation rates apply only for CSU. STEM = Science, Technology, Engineering, and Mathematics. ================================

Requires Biennial Reports on Cost of Education. In addition to annual performance reports, the budget requires biennial reports from UC and CSU, beginning in 2014, on the costs of education. The reports are to identify the costs of undergraduate education, graduate academic education, professional education, and research. For all four areas, costs are to be disaggregated by (1) Science, Technology, Engineering, and Mathematics (STEM) disciplines; (2) health sciences; and (3) all other disciplines. The first two reports, in 2014 and 2016, may reflect systemwide costs. Two subsequent reports must include campus–by–campus costs. The reporting requirement sunsets on January 1, 2021, following the fourth report.

Sets No Enrollment Expectations. The budget act typically specifies the number of FTE students the state expects the universities to enroll. For 2013–14, the Legislature adopted budget language stating its intent that the universities serve no fewer students in 2013–14 than in 2012–13. Accordingly, the language included enrollment targets of 211,499 FTE students for UC and 342,000 FTE students for CSU. The Governor, however, vetoed these provisions. In his veto message, the Governor stated that institutional performance, rather than enrollment, should drive university funding.

Expects No Tuition Increases. The administration expressed its intent that the universities not raise student tuition levels in 2013–14 and both UC and CSU have indicated they do not plan to increase tuition for resident students. Tuition rates for California resident undergraduates attending UC and CSU in 2013–14 are expected to remain at $12,192 and $5,476, respectively, for the third consecutive year. (The community colleges also plan to hold student fees flat in 2013–14—at $46 per unit.)

Again Eliminates Earmarks. The Governor vetoed virtually all provisions in the 2012–13 Budget Act that designated funding for specific purposes and did not include these spending requirements in his 2013–14 budget proposal. The Legislature restored a number of these provisions—most notably a $25 million earmark for student outreach programs—and stated its expectation that the universities continue supporting other programs—such as UC’s Subject Matter Projects for K–12 teachers—that previously were specified in budget act provisions. The Governor again vetoed the earmarking, citing a desire to give the universities greater flexibility (with the exception of funding for the Riverside Medical School) to manage their resources.

Changes CSU Retirement Funding Model. Traditionally, the state has adjusted CSU’s budget to account for changes in its contributions to the California Public Employees’ Retirement System (CalPERS). Under the traditional model, CSU’s CalPERS contributions have been determined by multiplying its current payroll costs by its employer contribution rate. Starting in 2013–14, adjustments to CSU’s budget are to be based permanently on the university’s 2013–14 payroll costs. Because 2013–14 payroll costs are permanently locked in as a base moving forward, CSU will have to fund retirement costs on any payroll above that level from its base budget appropriation. As a result, CSU will have a greater incentive to take into account retirement costs when it makes its initial hiring decisions.

Contains Intent Language Regarding UC Retirement Costs. The budget plan does not designate any funding for UC employer retirement costs, though the university expects these costs to increase by $67 million in 2013–14. Budget trailer bill language states, however, that the absence of such an earmark does not imply legislative support for UC employees paying more toward retirement. In addition, trailer legislation requires UC to apply any reductions in annual debt–service costs achieved as part of a debt restructuring (as discussed further below) towards its pension costs, including its unfunded pension liabilities.

Authorizes New Capital Outlay Process for UC. As noted earlier, the budget plan shifts funds for existing debt service on UC capital outlay projects from a separate budget item to the university’s main support appropriation. It does this as part of a new capital outlay process. Under the new process, UC may pledge its General Fund support appropriation (excluding the amounts necessary to repay existing debt service) to issue its own debt for capital projects involving academic facilities. In addition, the new process allows UC to restructure some of the state’s outstanding debt on UC projects. The new process limits the university to spending at most 15 percent of its pledgeable General Fund on (1) debt service on new bonds for academic facilities, (2) pay–as–you–go academic–facility projects, and (3) existing state lease–revenue debt. In order to use the new authority, the university is required to submit certain information about its capital plans to the Legislature and DOF for review and approval.

Funds a Few Capital Outlay Projects. The budget plan authorizes UC to construct a $45.1 million classroom and academic office building at the Merced campus using the new capital outlay authority discussed above. In addition, the budget provides UC with (1) $5 million from resources bond funds to replace a pier and wharf located at the Scripps Institution of Oceanography at the San Diego campus and (2) $4.2 million in general obligation bond funding for the equipment phase of a science and engineering building located at the Merced campus. For CSU, the budget authorizes (1) $76.5 million in lease–revenue bond funding to replace academic and classroom space found to be seismically unsafe at the Pomona campus, (2) $5.9 million from general obligation bond funds for the equipment phases of five previously approved capital outlay projects, and (3) $1.8 million from general obligation bond funds to upgrade the structural systems of the Dore Theatre at CSU Bakersfield to correct seismic deficiencies. (The budget also appropriates $1.3 million in general obligation bond funding for the planning phases of a building renovation project at Solano Community College.)

Financial Aid

Provides $1 Billion in General Fund Support for Cal Grants. The spending plan provides a total of $1.7 billion for Cal Grants, including $1 billion in General Fund support, $542 million in federal TANF funds, and $98 million from the Student Loan Operating Fund. This is an $82 million (5 percent) overall spending increase for Cal Grants from 2012–13. Though General Fund spending increases by $331 million from 2012–13 to 2013–14, a large part of this increase offsets a reduction in federal funding. Though virtually all state support for financial aid currently is for the Cal Grant program, the budget package creates a new state–supported financial aid program to be implemented beginning in 2014–15. In addition, the budget makes two changes to California Student Aid Commission (CSAC) operations. The components of the budget package are discussed below.

Creates New Financial Aid Program. The budget package creates the Middle Class Scholarship Program, a new financial aid program for certain UC and CSU students. The program is designed for undergraduate students who do not have at least 40 percent of their tuition covered by Cal Grants and other public financial aid programs. Specifically, students with family incomes up to $100,000 qualify to have 40 percent of their tuition covered (when combined with all other public financial aid). The percent of tuition covered declines for students with family income between $100,000 and $150,000, such that a student with a family income of $150,000 qualifies to have 10 percent of tuition covered. The program is to be phased in over four years, beginning in 2014–15, with awards in 2014–15 set at 35 percent of full award levels, then 50 percent, 75 percent, and 100 percent of full award levels the following three years, respectively. Budget legislation provides $107 million for the program in 2014–15, $152 million in 2015–16, and $228 million in 2016–17, with funding for the program capped at $305 million beginning in 2017–18. If the appropriation is insufficient to provide full awards to all eligible applicants, CSAC is to reduce award amounts proportionately. In addition, the budget package authorizes the Director of Finance to reduce the appropriation by about one–third if the May Revision projects a budget deficit for the next fiscal year. (The budget also provides CSAC with $250,000 for two permanent positions, one limited–term position, and associated implementation costs, as well as $500,000 in ongoing funding for the California Student Opportunity and Access Program to conduct outreach.)

Transfers Support Services to CSAC. For about 15 years, several of CSAC’s administrative support services have been provided by the agency administering the federal guaranteed student loan program in California—initially EdFund, and more recently ECMC (previously the Education Credit Management Corporation). These services include printing, warehouse, mailroom, courier, and information technology (IT) services. The agreement with ECMC is to terminate June 30. The budget provides $610,000 and seven positions to transfer these services back to CSAC, effective July 1.

Creates Reimbursement Mechanism for CSAC to Provide Technical Assistance to Other States. Since enactment of the California Dream Act—Chapter 604, Statutes of 2011 (AB 131, Cedillo)—CSAC has developed an online application that mirrors the Free Application for Federal Student Aid (FAFSA) for students who are unable to use the FAFSA due to their immigration status. Several other states have enacted legislation similar to the California Dream Act and are working to implement expanded aid eligibility. At least one state (Minnesota) has requested technical assistance from CSAC for its initial Dream Act implementation. The budget package creates a mechanism for CSAC to provide assistance to other states and recover the costs of doing so by charging fees for services.

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For the full document, go to http://www.lao.ca.gov/reports/2013/bud/spending-plan/spending-plan-073013.pdf

And still more on the pension cabalistas…

From Salon.com: [excerpt] 10-23-13

Less than a year ago, the Wall Street Journal alerted its national readership to what was happening in the tiny state of Rhode Island. In a story headlined “Small State Gets Big Pension Push,” the paper noted that the state’s “rollback of public-employee retirement benefits has turned (it) into a national battleground over pensions.” With the help of billionaire former Enron trader John Arnold and his partnership with the Pew Charitable Trusts, conservative ideologues and Wall Street profiteers who engineered Rhode Island’s big pension cuts were looking to export those “reforms” to other states. Now, after two huge revelations in the last few days, we know more about what that means in practice — we know the kind of corruption and damage the “reforms” mean for taxpayers and retirees, and we know what kind of new muscle is behind the effort to bring that corruption and destruction to other states…

The full article is at http://www.salon.com/2013/10/23/wall_streets_favorite_democrat_wants_your_pension/

As we continue to point out on this blog, the forces behind the newly-filed anti-pension/anti-retiree health care initiative that covers UC consist of more than a handful of California mayors who are the public front for the effort. There is a Regents meeting coming up in November. Will there be discussion of this matter? Anyone telling UC president Napolitano she has a “problem”? Will there be some charts and graphs introduced by the president explaining what the initiative, applied to UC, will mean to the university budget? The impact on CURRENT employees and the campuses will be dramatic. The governor has been attending Regents meetings. Anyone talking to him? If he starts doing the math on what this means for UC, CalPERS, and CalSTRS, he might be in for a shock. Anyone at the Dept. of Finance telling him? Is the Legislative Analyst talking to the legislature?

State Budget Update

The chart title from the latest state controller’s cash report is fine. But the bars may be confusing. The first bar on the left tells you that revenue fell short of the budget forecast in July by $306.4 million. July is the first month of the fiscal year. The middle bar, although labeled August, actually is the July-August combination. And the September bar is the result for the first quarter of the fiscal year, July+August+September. It tells you that that despite an initial lag in revenues, the first quarter came in more or less as forecast.

There is a bit more to be said, however. The governor insisted on using a “conservative” forecast of revenue, although the legislature and Legislative Analyst thought a more optimistic forecast was warranted. So far, the governor seems to be correct.