State budget update - May 22, 2014

May 22, 2014

Dear Colleagues,

The Assembly Budget Subcommittee on Education Finance just took its final actions, and largely conformed with the package adopted Tuesday by the Senate's subcommittee. Here is a chart showing the actions, relative to the governor's budget proposal and last year's budget. As usual, the number's are in 000's.

By going with the higher revenue (and thus Proposition 98) numbers projected by the Legislative Analyst's Office, the Legislature it setting up the bargaining table with the governor. While the governor's Department of Finance has accepted there may be more revenues than the May Revise states, they believe they derive from taxes paid on capital gains, and are therefore of a one-time nature.

The Assembly and Senate budget plans add $34 million more in one-time funds and $246 million more in ongoing funds for California's community colleges. Combined with the resources proposed in the May Revise, that would be a remarkable $865 million increase in resources for community colleges, although it's much more likely that the final budget deal will be closer to the $585 million proposed by the governor. Even that increase would be the largest since the 2005-06 fiscal year.

The committee also approved language similar to the Senate that would provide City College of San Francisco a three-year stability mechanism, which would avoid a $21.9 million cut to the college effective July 1. The League is committed to introducing legislation in January to restore the three-year stability mechanism to all community colleges, as the San Francisco situation (and that of others with declining enrollment) demonstrats the error made when stability was eliminated.

The committee further adopted language that would prohibit California's community colleges from using public funds to pay any dues, special assessments, or other charges to the Accrediting Commission for Community and Junior Colleges in an amount greater in 2014-15 than was paid in 2012-13. The committee talked about the "blank check" that the ACCJC is perceived to have related to legal and public affairs costs, as colleges lose their membership and thus accreditation should they fail to pay any such charges.

The language is meant to force a dialog between ACCJC and the Legislature, and we have informed the Legislature that the provision is problematic since colleges have already been invoiced amounts greater than 2012-13. The language was approved on a unanimous vote, showing the increasing bipartisan concern about the situation at City College of San Francisco, and the operations of ACCJC generally.

The STRS issue will be discussed today at noon at a joint Senate-Assembly committee hearing. The hearing can be viewed here. Here are what we believe the contribution rates for community colleges would be, as well as the cost over the period of increasing rates. Under the governor's plan, the fully phased-in increased rates would be continued until at least 2047.

Proposed STRS Contribution Rates
Employer Employee State
2013-14 8.25% 8% 3.1%
2014-15 9.5 9.2 3.45
2015-16 11.1 10.25 4.89
2016-17 12.7 10.25 6.33
2017-18 14.3 10.25 6.33
2018-19 15.9 10.25 6.33
2020-21 17.5 10.25 6.33
2021-22 19.1 10.25 6.33
Share of Solution $42B $20B $12B

The impact of these contribution increases would result in annual increased costs to community college districts as follows (assuming 2% COLA, 2% Growth):

Projected Increased STRS Contributions by CCDs
Year Increase
2014-15 $28,000,000
2015-16  66,419,136
2016-17  107,896,838
2017-18  152,617,531
2018-19  200,775,552
2020-21  252,575,644
2021-22  308,233,486

While a plan to address the outstanding STRS liability appears imminent, policy-makers are wrestling with four primary questions:

  1. What valuation funding target do you seek? (Governor seeks 100%, at CalSTRS 7.5% rate of projected return)
  2. What is the target year for reaching the target? (Governor seeks 2047)
  3. What is the start date for increased employer and employee contributions? (Governor seeks July 1)
  4. Should the state provide funding to school and community college districts for the increased contributions? (Governor does not, although both segments have significant new funding in budget, just not earmarked for STRS)

Both subcommittees added $34 million to repay mandate claims, and Assembly Budget Subcommittee chair Al Muratsuchi indicated that this was additional money that would help community colleges face the costs in the first year.

Thank you for your continued advocacy for community colleges!

Sincerely,

Scott Lay
President and Chief Executive Officer, The League
Orange Coast College '94
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