Issues to Watch in 2015: Higher Education

As University of California (UC) students and their families enjoyed the holidays together, many of them were likely fretting over the prospect that their tuition may increase for the upcoming 2015-16 school year. Under a plan adopted by the UC Board of Regents last month, UC tuition for California residents could increase by up to 5 percent annually for the next five years. That means that tuition could rise to nearly $13,500 by 2019-20, after adjusting for projected inflation, a significant increase from the current level of $12,192 (see chart).

 

UC’s new plan runs counter to a separate plan set forth by the Governor in 2013 to give the UC and the California State University (CSU) annual state funding increases for four consecutive years in exchange for freezing tuition for California residents through 2016-17 at 2011-12 levels. This year’s budget agreement, signed in June, continued that plan and included modest funding increases of about $140 million each for CSU and UC in 2014-15. In early 2014, the Governor proposed 4 percent state funding increases for both CSU and UC in 2015-16 and 2016-17, the third and fourth years in the plan. However, UC President Janet Napolitano insists that it is not enough and that tuition will have to go up unless the state provides additional funds. CSU has also signaled it needs additional state funding by recently reducing enrollment targets for 2015-16 and raising the possibility of reducing freshman admissions this coming fall unless additional funds are provided.

For both CSU and UC, two sources of revenue — state funding and tuition — make up the vast majority of their core funding, which are dollars that support activities related to their primary education functions. As detailed in our report earlier this year, From State to Student, state disinvestment in higher education in recent decades has resulted in steep tuition increases at both institutions and has shifted a larger share of higher education costs from the state to students and families. Since 1990-91, tuition and fees have more than tripled at CSU and more than quadrupled at UC, after adjusting for inflation. Direct General Fund spending on a per student basis at both CSU and UC has generally been on the decline during this period and, in recent years, has been at or near the lowest point in more than three decades, after adjusting for inflation.

When state funding for CSU and UC gets cut or does not keep up with increasing enrollment, as California’s population grows and its economy changes, these institutions have very few options available to them. One is to raise tuition rates. Another is to reduce enrollment growth, as UC and CSU have each proposed to do in 2015-16, unless they receive additional state funding.

This is an issue that we, and surely many students and families, will be watching closely as we approach the release of the Governor’s proposed 2015-16 budget in January. Stay tuned for more CBP analysis on this topic.

— Phaelen Parker

Statement From Chris Hoene on the New LAO Forecast: “California Must Continue to Reinvest”

Yesterday, Chris Hoene, executive director of the California Budget Project, released the following statement in response to the new long-term fiscal forecast from the Legislative Analyst’s Office (LAO):

“The new budget forecast from the Legislative Analyst’s Office is encouraging on some key fronts, with the economy continuing to recover and the state regaining its financial footing. California’s public K-12 schools and its community colleges are expected to see additional dollars, both in the current budget year and looking ahead to 2015-16.

“We also see in this forecast that state policymakers have the opportunity to significantly rebuild support for other vital public services, while continuing to save for a rainy day and pay down state debts. Especially in light of a recovery that has failed to reach so many individuals and families, California must continue to reinvest in child care and preschool, the CSU and UC systems, support for low-income seniors and people with disabilities, and the other foundations of a strong economy and healthy communities.”

Missing the Mark on Transparency: State Board Set to Approve Spending Rules for New Education Funding Formula

After several meetings and much debate over the past year, the State Board of Education (SBE) is expected to finalize rules tomorrow that will govern school district spending in California for years to come. When Governor Brown and the Legislature created California’s new education funding formula, the Local Control Funding Formula (LCFF), in July of 2013 they deferred to the SBE key decisions regarding accountability — specifically, how to ensure that school districts spend LCFF dollars to provide additional services for disadvantaged students. Earlier this year, the SBE adopted emergency regulations for how schools could spend LCFF dollars in 2013-14. These temporary rules inspired a spirited debate that led to tomorrow’s expected adoption by the SBE of permanent LCFF spending regulations. At the core of this debate has been how to strike the balance between ensuring that LCFF dollars are used to support the disadvantaged students for whom they are intended and providing school districts more authority over how to spend those dollars. The proposed permanent regulations the SBE is likely to adopt tomorrow both gives school districts greater latitude over how to spend LCFF dollars and requires them to show less about how they spend those dollars than many advocates for disadvantaged students had wanted.

The law establishing the LCFF required the SBE to adopt regulations that govern the spending of dollars intended to support disadvantaged students as well as a template for a Local Control and Accountability Plan (LCAP), which school districts must use to show compliance with LCFF spending rules. During the past several months, the SBE has held hearings on the proposed spending regulations and the LCAP template. In response to extensive public comment and testimony, the Board made several improvements to the regulations, such as requiring a higher level of student participation in the development of LCAPs. However, although advocates for disadvantaged students had called for greater transparency, the SBE is expected to adopt regulations tomorrow that will make it difficult for education stakeholders to know whether school districts meet the requirement to use LCFF dollars generated by disadvantaged students to increase or improve services for these students.

As we blogged about in advance of the first meeting where the SBE took action on LCFF’s spending rules, we believe the regulations should have abided by two important principles: establishing a baseline and ensuring transparency. For stakeholders to understand the extent to which LCFF dollars are used to support disadvantaged students, the regulations should require school districts to clearly report a baseline spending level. While the regulations the SBE is expected to adopt tomorrow do require school districts to use prior-year spending on disadvantaged students as a starting point for estimating the level of support going forward, they do not require transparent reporting of this baseline level of spending. Unfortunately, the SBE rejected requests for this basic level of transparency in its response to comments that had been submitted by several advocates for disadvantaged students. As a result, local stakeholder engagement will be critical to ensure that the LCFF dollars generated by disadvantaged students are used to support them. For example, parent advisory committees could use the requirement that school districts respond in writing to their requests for information — during the process of adopting or updating LCAPs — in order to get information on the local use of LCFF dollars.

The next stage of LCFF rulemaking requires the SBE to adopt evaluation rubrics to assess school district and schoolsite performance based on standards established by the SBE. The Legislature required the SBE to adopt evaluation rubrics by October 1, 2015, and the Board has already established a process for receiving feedback. Hopefully, the decisions made in developing the evaluation rubrics will provide education stakeholders the information they need to know whether the LCFF is fulfilling the promise to improve education for the disadvantaged students who need those improvements the most.

— Jonathan Kaplan

Read Our Blog Series on Proposition 2

A little over a month ago, the California Budget Project published our analysis of Proposition 2, a measure that will appear on the November 4, 2014 statewide ballot and would make changes to how California sets aside revenue both to build up reserves and pay down state liabilities.

In recent weeks, we’ve published a blog series aimed at highlighting some of the key components of Proposition 2 and our take on them. With Election Day just around the corner, we’re bringing links to this full series together into a single post, in an effort to help our readers understand what Proposition 2 would do and its potential impact in the coming years.

Topics covered by our blog series have included the following:

Proposition 2’s substantial revisions to the state’s current budget reserve: CBP Director of Research Scott Graves looks at the changes that Proposition 2 would make to California’s existing reserve — the Budget Stabilization Account, or BSA — and some of the trade-offs that would likely result.

Proposition 2’s requirement that a portion of state revenues be set aside for paying down budgetary debt:  Executive Director Chris Hoene examines a critical — but often overlooked — provision of Proposition 2: that a share of state revenues would be set aside each year for the next 15 years to pay down budgetary debt. This post discusses why this requirement is important and what it could mean for state finances in the near and long terms.

The total amount of revenues expected to be set aside each year under Proposition 2: Scott Graves discusses how much the state would potentially set aside each year — both to pay down state liabilities and add to the budget reserve — and points out that the annual amount would not necessarily be higher under Proposition 2 than under current policy.

What Proposition 2 would likely mean for state funding for K-12 schools and community colleges: Senior Policy Analyst Jonathan Kaplan discusses the new state reserve that Proposition 2 proposes to create for K-14 education. This post explains that the impact of this new reserve on state education funding would be negligible, although local districts’ reserves could be affected.

For our full analysis of Proposition 2 — which touches on the above issues along with other facets of the ballot measure — read our recent brief. And be sure to check out our website and this blog for further commentary on Proposition 2 as well as Proposition 47, another key measure on the November ballot.

— Steven Bliss

Proposition 2’s New Reserve for K-14 Education Is Unlikely to Have Impact, Though Local School Districts’ Reserves May Be Affected

This is the fourth in a series of blog posts highlighting key components of the CBP’s analysis of Proposition 2, which will appear on the November 4, 2014 statewide ballot.

As we have blogged about recently, setting aside funds in good economic times to help meet the challenges that arise during economic downturns is a sound budgeting practice — and one California voters supported when they approved Proposition 58 in 2004. Proposition 2, a constitutional amendment placed on the November 4, 2014 ballot by the Legislature, would rewrite the rules governing deposits into and withdrawals from the state’s existing Budget Stabilization Account (BSA) — and, as we explained last week, would require the state to pay down “budgetary debt” for the next 15 years.

Proposition 2 also would create a new state-level budget reserve for schools and community colleges called the Public School System Stabilization Account (PSSSA). However, our recent analysis explains that because deposits into the PSSSA would only happen under limited circumstances, they would be unlikely to occur until at least 2020-21, and in most years thereafter. Without deposits into the PSSSA, this new reserve would not have dollars to provide to schools and community colleges during an economic downturn. As a result, Proposition 2’s impact on state funding for K-14 education would likely be negligible.

While deposits into a new state-level reserve for schools and community colleges would be unlikely for many years under Proposition 2, much attention has focused on a provision of a new state law — Senate Bill 858  — that would take effect if voters approve the ballot measure. The provision in SB 858 could limit the amount that K-12 school districts are allowed to keep in their local school district budget reserves. However, this cap would only take effect in a year after a transfer is made to the new PSSSA, which means school districts would not likely be required to limit their local budget reserves until at least 2021-22. SB 858, which would not apply to community colleges, could place a limit on most local school district reserves between 3 percent and 10 percent of a district’s annual spending. Unlike the provisions contained in Proposition 2 itself, which would be placed into the state Constitution, the Legislature could revise or repeal this cap on local school district reserves with a simple majority vote. Moreover, county offices of education could exempt school districts from the cap on local budget reserves for up to two consecutive years.

The focus on local K-12 district budget reserves as part of the debate around Proposition 2 is understandable. Schools suffered significant cuts in state support as revenues plummeted during and in the aftermath of the Great Recession. Some school districts were able to buffer these cuts with dollars they had saved in their local budgets. Despite the likelihood that the cap on local budget reserves would not take effect until at least 2021-22, some school districts may spend down their local reserves to bring them closer to the cap in the new law. To the extent this occurred, local districts would have fewer dollars available for economic uncertainties, such as tough budget years.

As is often the case, voters may find it difficult to sort through all of the issues raised by a ballot measure as complex as Proposition 2. But one thing is clear: Voters should not expect Proposition 2 to solve the problem that drops in state revenue mean for K-14 education funding.

— Jonathan Kaplan