LAO Analysis - Mar. 1, 2010
From: Skinner, Erik <eskinner@CCCCO.EDU>
Sent: Mon Mar 01 2010
Subject: Budget Update--LAO Analysis
On Thursday, February 25th, the Legislative Analyst’s Office (LAO) released its analysis of the education proposals contained in the 2010-11 Governor’s Budget. The LAO report can be accessed at: Higher education sections: http://www.lao.ca.gov/analysis/2010/highered/highered_anl10.pdf K-12 and Proposition 98 sections: http://www.lao.ca.gov/analysis/2010/education/ed_anl10.pdf. This annual report is significant in that it provides a starting point for legislative deliberations on the state budget for 2010-11. In its publication, the LAO makes both budget and policy recommendations to the Legislature, as well as providing updated fiscal forecasts. Below are highlights from LAO’s recent report:
The LAO’s comprehensive analysis of the state’s Proposition 98 funding obligation underscores the volatile nature of the formula’s calculation given current circumstances. The report describes various scenarios under which the state may be obligated to provide $5.4 billion or more in additional funding above levels currently proposed by the Governor ($2.2 billion in 2009-10 and $3.2 billion 2010-11).
The LAO does not make a specific recommendation on what Proposition 98 funding level the state should plan on, but they do recommend that the Legislature consider suspending Proposition 98 in order to remove the uncertainty regarding the required funding level. Suspension of the Proposition 98 constitutional funding requirement is allowed with a two-thirds majority vote of the Legislature, but is always a politically difficult action. LAO presents other options including making cuts to other areas of the budget in order to allow increased funding for education or raising taxes to fund the higher minimum guarantee. LAO points out that if the Legislature goes the route of raising taxes, it would be necessary to raise taxes by $6 billion, with all the increased funding going to K-12 schools and community colleges, because the additional revenues raised would have the effect of further increasing the Proposition 98 minimum guarantee. While LAO presents these options for funding Proposition 98 at the higher levels, it is clear from the nuances of the report, as well as from oral briefings by LAO representatives, that they view these options as inadvisable given impacts on other sectors of the budget and/or the state economy.
The uncertainty regarding the Proposition 98 funding guarantee makes it more difficult than usual to anticipate what levels of funding will be provided to the community colleges in 2010-11. While we will continue to advocate for the highest levels of funding possible, it is important that community college districts keep in mind the threats that continue to be present in the state budget process—a sluggish economy, a persistent structural imbalance, low cash reserves, and very optimistic assumptions regarding increased federal funding. Given these continuing threats, I encourage districts to continue to see the Governor’s proposed funding level as a best case scenario when doing budget planning. While we will continue to fight for the higher levels of funding our system needs and deserves, downside risks in the state budget warrant a cautious approach.
LAO’s recommendations related to the community colleges include the following:
- Raise community college student fees to $40 per credit unit. LAO recommends raising student fees by over 53 percent in order to generate $150 million in additional revenues. LAO recommends dedicating these additional revenues to support community college enrollment funding and to eliminate a negative cost-of-living adjustment (COLA) proposed by the Governor.
- Provide Enrollment Growth Funding. LAO’s analysis clearly describes the tremendous enrollment demand currently being experienced by the community colleges. To respond to this need, LAO recommends directing $126 million generated from a proposed student fee increase to fund the 2.2 percent enrollment funding proposed in the 2010-11 Governor’s Budget. Doing so would generate an equal amount of budget savings to the state.
- Reject Negative COLA. LAO recommends rejecting the Governor’s proposal to implement a negative 0.38 percent COLA. LAO would use $23 million in revenues generated by a proposed student fee increase to fund this recommendation.
- Reject cuts to EOPS and Part-Time Faculty Compensation. LAO recommends rejection of the Governor’s proposal to cut these programs by $10 million each.
- Reject $20 million augmentation to SB 70 CTE. LAO recommends rejection of this proposal by the Governor and instead suggests the Legislature provide $48 million in support (rather than $68 million as proposed by the Governor).
- Increase Flexibility. The LAO makes numerous recommendations to provide community colleges with additional flexibility to aid them in weathering budget cuts. These proposals include:
o Suspend the Full-Time Faculty Obligation. This proposal was also made by the Governor.
o Suspend or modify the 50 percent Law. LAO includes a lengthy analysis that is highly critical of this requirement.
o Suspend limitations on contracting out for non-instructional activities. LAO recommends adoption of this proposal originally made by the Governor. (The Governor proposed this change as part of his 2010-11 Governor’s Budget, released in January, although it was not publicized at that time.)
o Add more programs to the CCC categorical flexibility item. LAO recommends addition EOPS, Basic Skills, Fund for Student Success, and Financial Aid Administration to those programs currently included in the CCC categorical flexibility item. The Governor had already proposed adding the first three programs; LAO would also add Financial Aid Administration to the list.
As noted above, LAO’s report helps to set the stage for upcoming budget hearings and deliberations. Their numerous recommendations, including the fee proposal, are sure to seed significant debate both within and outside the community college system. For me, the main takeaway is the encouraging development that LAO has recognized the unprecedented enrollment demand we face due to high unemployment, students being displaced from UC and CSU, and record numbers of high school graduates. If the Legislature remains focused on how colleges are stepping up to meet these core needs it will benefit the community colleges in the budget process—whether that is securing augmentations or fending off cuts.
Hearings on the California Community College budget will begin later this month. Chancellor Scott will address the Assembly Budget Subcommittee on Education on March 17 and the Senate Budget Subcommittee on Education on March 18.
More updates will following as warranted.
Vice Chancellor for Fiscal Policy
California Community Colleges,
1102 Q Street
Sacramento, CA 95811-6549
direct line: 916-323-7007