29 Days Late, The Legislature Approves A $105 Billion State Budget
On July 28, 2004, the State Assembly approved the State Budget and the State Senate followed on July 29, 2004, sending the Budget to the Governor for his signature. It is expected that the Governor will sign the Budget on July 31, 2004.Community College Budget
The following is a summary of the major community college budget items that are included in the State Budget as it was sent to the Governor for his consideration. Keep in mind that the Governor may �blue pencil� items in the Budget that were not included in his May Revision or items augmented by the Legislature.
The Budget provides a 7.4% increase in State General Funds. This will support an increase in community college enrollment of 40,297 full-time students. Funding per FTES will rise to $4,663, an increase of $168 over the prior-year level.
Major Increases in the Community College Budget by Category
� Cost-of-Living Adjustment (COLA): A 2.41% COLA is provided for general apportionments, matriculation, Extended Opportunities Programs and Services (EOPS), Disabled Services Programs and Services (DSPS), and basic skills.
� Enrollment Growth: 3% is provided for general enrollment growth. Matriculation, EOPS, DSPS, and basic skill receive 1.66% growth. An additional $27 million (0.65%) is provided to increase the 2004-05 growth caps of the 43 districts that had unfunded enrollment at the 2003-04 Second Principal Apportionment.
� Equalization: $80 million is provided to equalize credit rates among districts. Fifty-eight districts would move toward the 90th percentile. The Chancellor�s Office will develop a formula to allocate the funds to small, mid-size, and large districts. These funds shall not be used to implement program base funding provisions.
� Noncredit Funding: The Budget increases noncredit funding by $6 million. The Legislature added $2 million to the $4 million provided by the Governor. It is the intent of the Legislature that this $6 million be used to increase the noncredit rate.
� Scheduled Maintenance and Special Repairs: The Budget provides $49.9 million for scheduled maintenance and instructional equipment, a $27 million increase over last year. These funds would be allocated as a block grant. A district match is required�1: 1 state: local for scheduled maintenance and 3:1 state:local for instructional equipment.
� Categorical Programs: The Partnership for Excellence (PFE) program would be folded into each district�s base revenue, and would allow excess property tax districts to maintain their PFE allocations. The Governor�s proposal to cluster and consolidate other categorical programs was rejected by the Legislature.
� Student fees: The Budget increases student enrollment fees from $18 per credit unit to $26 per unit, effective fall 2004. The $50 dollar �differential fee� was rejected by the Legislature.
Trailer Bills
Changes in statute are necessary to implement various provisions of the Budget. These changes are contained in �trailer bills� to the Budget. The following trailer bills affect community colleges:
� SB 1096 (Local Government Finance): This bill, among other provisions, clarifies the allocation of local property taxes to cities, counties, K-12 schools and community colleges
� SB 1101 (Education Finance): This bill suspends the minimum funding obligation for the 2004-05 fiscal year (Proposition 98) and requires the amount of money to be applied by the state for the support of school districts and community college districts during the 2004-05 fiscal year to be reduced by $2,003,996 from the constitutional minimum guarantee (the �deal�)
� SB 1108 (Education Finance): This bill contains numerous provisions to implement the community college budget, such as the Partnership for Excellence program, equalization funding, scheduled maintenance, and instructional materials, $26 student enrollment fee, and provisions to require UC and CSU to establish a dual admissions program, commencing with the 2004-05 academic year, in which eligible freshman applicants would be offered the opportunity to enter into a dual admissions agreement with one of those institutions if the student attends a community college.
Finally, a detailed description of the community college budget will be provided after the Governor takes action.
CalSTRS Supports Federal Legislation to Revise Social Security Benefits for CalSTRS Members
At the federal level, the Subcommittee on Social Security of the Committee on Ways and Means is considering legislation (H.R. 4391, the Public Servant Retirement Protection Act) to establish a new method for calculating Social Security benefits. This measure would replace the Windfall Elimination Provision (WEP), which reduces Social Security benefits for workers who received pensions from non-Social Security employment.
CalSTRS members do not pay the Social Security payroll tax on their earnings from CalSTRS-covered service, and therefore are not entitled to Social Security benefits for such service. Nonetheless, many CalSTRS members are eligible for Social Security benefits either because they were employed in Social Security-covered positions for some period of time or are the spouses or widow(er)s of individuals who were employed in such positions.
The WEP, enacted in 1983, reduces Social Security benefits of public employees, such as teachers in California public schools, who meet both of the following conditions:
Worked for a government agency long enough to receive a pension from noncovered employment, i.e., employment not subject to Social Security taxes
Also worked other jobs (covered employment) for which they paid Social Security taxes long enough to qualify for Social Security retirement or disability benefits
Prior to the WEP, the Social Security benefit calculated for individuals who worked in noncovered employment was based on a level of earnings that was less than the total income actually earned over the individual�s entire career. Therefore, the individual received a relatively higher benefit than was intended by the Social Security benefit formula. When the WEP is applied, a modified formula is used to compute benefits, recognizing that for a portion of their working years these individuals did not pay the Social Security payroll tax on all the salary they earned. The WEP reduces the Social Security benefit from the covered employment unless the individual has 30 years of substantial Social Security covered earnings.
H.R. 4391 would repeal WEP and replace it with a calculation based on an individual�s entire work history as if all the individual�s earnings were subject to Social Security taxes, using the standard benefit formula, with the benefit multiplied by the percent of earnings subject to Social Security taxes. Similar to the current Social Security benefit formula, the earnings that are covered and the earnings that are not covered by Social Security would be adjusted for inflation.
According the CalSTRS staff, H.R. 4391 represents a new approach to addressing some of the inequities in the current system, yet recognizes the policy basis for reducing Social Security benefits to wage earners who also receive a government pension for employment not covered by Social Security. Thus, CalSTRS supports the approach taken by H.R. 4391 to address the inequities created by the WEP under current law. The proposal would result in a larger and more equitable Social Security benefits for most affected CalSTRS members. For some future workers, there could be a reduction in benefits, although for many it will be relatively modest compared to the increases in Social Security benefits to others.
CalSTRS staff submitted written testimony to the subcommittee indicating their active support for H.R. 4391. The Subcommittee held a hearing on the measure on July 20, 2004. It is anticipated that the full Ways and Means Committee and Congress will act on the measure prior to adjournment in October.
Conference Committee on the Master Plan for Education to Convene
After more than two years of legislative and public hearings, a legislative conference committee has been appointed to work out the differences among four bills that have been introduced to implement recommendations of the Master Plan Committee.
California�s new Master Plan for Education is intended to serve as a long-term planning guide. Implementation efforts will include implementing legislation, constitutional amendments, budget control language, resolutions, studies, and expanded partnerships. These activities will occur over the next several years.
The legislative conference committee�s six members are Senators Alpert (D-San Diego), Scott (D-Altadena), and McPherson (R-Santa Cruz) and Assembly Members Goldberg (D-Los Angeles), Liu (La Canada Flintridge), and Daucher (R-Brea). The conference committee has responsibility for finalizing a package of bills that the Legislature will be asked to vote on prior to August 31, 2004. The first hearing of the conference committee on Master Plan for Education bills is scheduled for Tuesday, August 3, 2004, at 1:30 p.m.
The conference committee has scheduled meeting throughout the entire month of August. The hearings will afford members of the public an opportunity to present testimony to the committee. Because the committee anticipates that many organizations and individuals will wish to testify, time limits will be imposed on witnesses. Committee members encourage those who will make presentations to focus on their highest priority issues in committee and to submit written testimony to provide greater detail or expand on their oral comments.
Although numerous pieces of legislation to implement the recommendations of the Master Plan Committee were introduced, only four bills will be considered by this conference committee:
� SB 6 (Alpert) Governance Omnibus Bill�This bill states the intent of the Legislature to enhance accountability for public education in California by clearly delineating the roles, responsibilities, and scope of authority of the many state and local entities involved in the public education system in a manner that supports the needs of students and schools and fosters a clear public understanding of the extent to which these entities successfully carry out their responsibilities. Community college governance and authority structures are not changed by this bill.
� SB 550 (Vasconcellos) Student Learning Omnibus Bill�This bill states the intent of the Legislature to support improving the academic success of students, and to ensure that every student is provided with essential opportunities for teaching and learning.
� AB 56 (Steinberg) School Readiness Omnibus Bill�Specifies legislative intent that California develop a cohesive strategy to ensure that children have access to quality preschool programs, including programs that employ qualified staff.
� AB 242 (Liu) Personnel Omnibus Bill�Specifies legislative intent that California increase the number of qualified teachers, especially from among racial, ethnic, and linguistic groups that are underrepresented in the teaching workforce, for our public schools and institutions of higher education, particularly in regions in which there are large numbers of teachers serving on emergency permits or where projected shortages of teachers are the greatest.
The conference committee must act on these bills soon, since this legislative session will end on August 31, 2004, and a new session starts in January 2005. It is not certain that the committee will approve all of the bills before it.
�Back to The Future��Community Colleges May Be Governed by the K-12 System
Remember, prior to 1967, the California Community College system came under the authority of the K-12 State Board of Education. In 1967, the Community College Board of Governors was created to govern the system, thus establishing distinct postsecondary education institutions separate from the K-12 system.
Earlier this month, a recommendation was included in a report by the California Performance Review (CPR) team that would fold the community colleges back into the K-12 system and place them under the control of the Governor�s Secretary for Education. The CPR was created by Governor Schwarzenegger in his effort to �blow up the boxes� of bureaucracy throughout state government. The recommendation regarding community college governance is just one of many in the 2,000 page report. Many of the recommendations included in the report are controversial.
Now that the CPR team has completed its work, the Governor has appointed a 21-member commission to provide a forum to receive public input on the recommendations contained in the CPR report. The commission will be conducting public hearings throughout the state. Once the commission completes its task, recommendations will be finalized and submitted to the State Legislature for its consideration. Current law does not permit the Legislature to amend the Administration�s reorganization proposal; therefore, the Legislature will vote the recommendations up or down.
Some speculate that the intent of this recommendation is to streamline the bureaucracy and improve coordination between high schools and community colleges�goals in line with the Governor�s desire to make government more efficient. However, it comes as no surprise that community college representatives are opposed to the recommendation. The Board of Governors and Chancellor�s Office would be eliminated, and that not would bode well for local community college districts.
CPR Executive Director Billy Hamilton acknowledges that the Review�s recommendations likely will face howls of protest. �If the idea is to find better ways to do government and not to follow business as usual, then all of the people who owe their livelihoods and interests to business as usual are going to yell like stuck pigs,� he said.
Pat Callan, president of the National Center for Public Policy and Higher Education, said lack of coordination between high school and college officials afflicts all of California�s higher education systems. However, Callan said, �it�s hard to see how the direct involvement of the Governor�s Office would help.� A more pressing problem is insufficient funds and a mismatch between the source of money�Sacramento�and lines of authority, which are scattered, he said.
Community college constituents are organizing around the state to communicate their opposition to the CPR recommendation. Stay tuned.
Proposed Changes in Regulations for Fiscal Monitoring
The Chancellor�s Office has prepared some proposed changes in Title 5 regulations that would clarify the authorities and obligations of various parties when a district is in fiscal distress. This is in response to litigation arising from the appointment of a special trustee to the Compton Community College District.
The Compton lawsuit questions the Chancellor�s authority to appoint a special trustee with the broad powers to act immediately to restore fiscal stability. In response, the Board of Governors enacted an emergency regulation on June 14, 2004, to provide for the appointment of the trustee, and the court upheld this emergency regulation. However, the emergency regulation is only valid for up to 120 days, so the Board of Governors is being requested to adopt permanent changes to the regulations at its September meeting.
In addition, AB 61 (Chapter 139/2004) was signed by the Governor and became law, as an urgency statute, on July 14. AB 61 specifies that the Board of Governors and Chancellor, specifically in the case of Compton Community College District, can suspend the authority of the district�s Board of Trustees to exercise any of its powers. In addition, the Chancellor can appoint a special trustee to manage the district and assume the powers of the district�s board. This law was enacted as an urgency statute because the fiscal integrity of the district, as described in AB 61, �is in imminent jeopardy.�
The proposed regulation changes include the following:
� Uses the term �special trustee� instead of �monitor� in the regulations to be consistent with statute
� Contains more specific provisions on the assignment of a special trustee by the Chancellor to a district, and provides that the Chancellor can also employ staff necessary to assist the special trustee
� Delineates the duties of the special trustee, to include:
Reviewing and monitoring plans, reports, and other financial material required from the district by the Chancellor
Requiring modifications to the fiscal and educational plans as he/she deems necessary
Determining district spending levels and priorities
Approving or disapproving actions of the district which affect the plans
Assuming management and control of the district, including the powers of the board
� Specifies that the Chancellor can renew the assignment of a special trustee to a district that needs intervention, if this determination is made within five years after the end of the previous assignment of a special trustee
� Ensures financial stability in the district, upon failure of the above procedures, providing that the Chancellor can seek an emergency apportionment for the district
Under current state law, K-12 school districts are not assigned a State Administrator�with similar powers and duties as the special trustee addressed here�until a state loan is required. We�ve all been hearing about the two school districts most recently assigned a State Administrator, along with very large state loans. The early intervention approach described in the proposed Title V regulations for community colleges will hopefully avoid the need for state loans for community colleges in the future.
Proposition 13 Assessment Practice Upheld
On July 21, 2004, the California Supreme Court denied a petition to review an appeals court ruling that upheld Orange County�s practice of levying property taxes under Proposition 13. At issue was whether the county had violated Proposition 13 by increasing property taxes more than the 2% limit in a given year to make up for years in which assessed values did not increase at the 2% limit. The state high court, by rejecting a petition to review the case, upheld Orange County�s assessment method, and thus prevented the refund of potentially more than $10 billion statewide from previously collected property taxes.
The high court voted 5 to 2 against accepting the case for review. The case before the Supreme Court was titled County of Orange vs. Bezaire; however, the original suit contesting the county�s assessment practice was brought by Robert Pool, and many refer to the legal challenge as the Pool case.
Proposition 13, adopted by voters as a constitutional amendment in 1978, prohibits increases in assessed value for property tax purposes of more than 2% a year, regardless of the actual increase in market values. This limit holds down property tax payments during times of rapidly escalating property values.
During the declining real estate market of the mid-1990s, many property owners sought reassessments of their property to reflect lower market values, thus lowering their property tax payments, and counties were not able to raise the assessed values of many homes by even 2%. When the real estate market took off, Orange County raised the assessed values of some homes by more than 2% in a single year to recapture increases it had been unable to establish in the down market.
In 2002, an Orange County Superior Court judge ruled that the county�s practice violated Proposition 13. However, in May of this year, the 4th District Court of Appeals reversed the Superior Court�s decision, concluding that the assessed value increases were legal as long as they did not cumulatively exceed the 2% annual increases allowed under Proposition 13. The State Supreme Court’s rejection of the petition to review the 4th DCA ruling closes the book on this case. But we just heard about another case from Marin County, now at the appellate court level, which raises the same issues as this case�so stay tuned.
Estimated Fourth Quarter Lottery Payment for 2003-04
After a surprisingly strong third quarter that saw Lottery revenues up markedly from the same quarter in 2002-03, total projected Lottery distributions have been revised upward. Based on current estimated Lottery revenues of $2.97 billion, coupled with significant unclaimed prizes and administrative cost savings, total distributions to education are projected to reach $131 per ADA. This is a $8 per ADA increase over the earlier projection of $123 per ADA.
With Lottery distributions for the first three quarters of approximately $100.75 per ADA unrestricted and $2.21 per ADA for Proposition 20, fourth quarter payments are estimated to be $13.25 per ADA in unrestricted funding and $14.79 per ADA for Proposition 20.
While the higher Lottery revenues and resulting increase in distributions to education are good news, at this point the Lottery Commission does not view this as the start of a trend. As a result, Lottery revenues and distributions for 2004-05 are projected to return to the previously estimated lower levels, with distributions likely to be in the range of $123 per ADA.
Governor�s Dual Enrollment Program Still in Place, Even Though He Restores Funding for UC and CSU Freshman Students
The final Budget deal agreed to this week by Governor Schwarzenegger and the legislative leadership includes a combined restoration of $52 million to the University of California (UC) and the California State University (CSU) for qualified freshmen students who were initially denied access. After months of pushing for the cost-cutting measure to redirect would-be UC and CSU freshman to community colleges, the Governor gave way to pressure to relent on the unpopular proposal.
Details of the compromise are still being worked out by UC and CSU. However, UC administration indicated that it will offer slots to students who were redirected. UC officials believe as many as 1,600 applicants�of the original 7,600 students who got letters recommending that they enroll at a community college�will enroll with the UC this fall or next spring. CSU officials, who held off on sending letters asking rejected applicants to enroll at community college instead, said they will notify as many as 7,500 students that they can now be admitted starting next spring.
Governor�s Dual Enrollment Program Still Intact
Even though the Governor and legislative leadership have worked out a deal to restore some funding to UC and CSU to increase freshman enrollments, language is included in a Budget trailer bill (SB 1108) that implements Governor Schwarzenegger�s Dual Admissions Program. Provisions of SB 1108 specify that, commencing with the 2004-05 academic year and each academic year thereafter, UC and CSU establish a dual admissions program for eligible freshman applicants. Under this program, on a voluntary basis, eligible freshman applicants may be offered the opportunity to enter into a dual admissions agreement with the institutions.
As an incentive, the student will be admitted to a four-year campus of his or her choice during a future academic year, provided that the student successfully completes lower-division transfer requirements at a campus of the California Community Colleges. Also, each student who enrolls at a community college pursuant to the dual admissions program in the 2004-05 academic year, shall have his or her enrollment fees waived for up to two academic years, irrespective of financial need, while that student is enrolled at that campus.
Finally, during budget discussions, community college advocates had expressed concerns about the incentive to waive student enrollment fees for the UC and CSU-eligible students, irrespective of financial need. The advocates pointed out that this incentive treats �native� community college students unfairly. This provision, nevertheless, remains in SB 1108 and it is not likely to be changed.
Q & A With Arnold Bray:
Does AB 2756 Apply to Community Colleges?
Q. I have heard that AB 2756, which recently became law, imposes additional requirements for school agencies in terms of fiscal accountability. Does this apply to community colleges?
A. In a word, �no.� AB 2756 (Chapter 52/2004) is urgency legislation that, in the wake of the significant state loans recently required for two K-12 school districts in fiscal crisis, provides for further controls on and accountability for school districts. The Education Code and Government Code sections affected by AB 2756 apply only to K-12 school districts.
There are, however, changes being proposed in the Title 5 regulations addressing the financial stability of community college districts. You�ll find more on this subject in �Proposed Changes in Regulations for Fiscal Monitoring� elsewhere in this issue.
Are Investment Reports Still Required?
Q. We contract with an outside firm to prepare the quarterly treasury reports required by Government Code Section 53646(b). However, the cost currently is not reimbursable. Are we still required to present this report to the board?
A. No, as a matter of state law, you are not required to continue to submit the investment reports to your board. Government Code Section 53646 (Chapter 783, Statutes of 1995) requires local agencies to submit quarterly investment reports to their applicable governing board. This requirement was subsequently found to be a state reimbursable mandate and there is a separate line item in the annual Budget Act to provide reimbursement. However, the Legislature did not appropriate any funds for this mandate in the 2003 Budget Act and the 2004 Budget Bill (as of this writing the budget has not been signed) similarly does not contain any appropriation for this activity for 2004-05. Pursuant to Government Code Section 17851, if state reimbursement is not provided in the Budget Act, the law is suspended for the year in question. Therefore, there is no state requirement to present the quarterly investment reports to the board.
However, it is important to note that if the mandate receives an appropriation in a future Budget Act, the activity will again be required as an operation of state law. All of this notwithstanding, we would recommend that you present the investment reports to the board as part of �best business practices.� Unfortunately, for 2004-05 there will be no state reimbursement for your efforts.
By the Way . . .
Higher Education Fees. The budget for 2004-05 increased student enrollment fees at all the segments of higher education. The largest percentage increase of student fees was felt by the community colleges�experiencing a 44% increase in student fees. The following is a summary of the higher education fee increases:
Community Colleges
$18 per credit unit to $26, an increase of $8 (44%)
Undergraduates
UC from $4,984 to $5,682, an increase of $698 (14%)
CSU from $2,046 to $2,332, an increase of $286 (14%)
Graduates
UC academic graduates from $5,219 to $6,263, an increase of $1,044 (20%)
CSU teacher credential graduates from $2,256 to $2,707, an increase of (20%)
