Redirecting Unspent Growth Funds

At its January 2006 meeting, the Board of Governors directed the Chancellor and staff to work through the consultation process to develop a plan for redirecting unspent 2005-06 growth funds, to the extent that they materialize, to meet key system priorities that were not addressed in the Governor’s proposed 2006-07 State Budget. The Chancellor’s Office staff convened a meeting of the “Budget Workgroup” to develop a plan and recommendations for the redirection of unspent growth dollars.According to the Chancellor’s Office, based on the first principal (P-1) apportionment FTES of 2005-06, about $68 million of unspent growth appropriations may be available for redirection. This projection, however, is subject to considerable revision, depending on actual enrollments for the upcoming winter, spring, and summer terms.

The recommendations by the Budget Workgroup are based on the assumption that the specific elements of the Governor’s Budget proposal are not reduced in the May Revision. The plan is also based on the assumption that the System Office will lead ongoing discussions regarding the details of allocating equalization funds for 2006-07. If the May Revision results in a downward revision of any specific element, the consultation process would be used to quickly revisit and, if needed, revise the redirection plan.

Recommendations

The first funds identified as available for redirection will be allocated to a �core� priority consisting of the following three items:

a. Fully fund part-time faculty office hours and health insurance, based on current law (estimated at $9 million).
b. Equitable funding of noncredit students ($30 million).
c. Rural access grants (estimated at $5 million).

To the extent that the available amount is less than what is needed for this core priority, amounts for a, b, and c would be reduced on a pro-rata basis. To the extent that additional funds are available, they would be redirected in the following priority order:

d. Restore prior-year cuts to Matriculation (up to $24 million).
e. Re-establish funding for professional development of faculty and staff (up to $5 million).
f. Increase full-time faculty positions.

It is expected that the Chancellor�s Office staff will present the above recommended plan to the Board of Governors at its March 2006 meeting for consideration.

Legislative Update

February 24, 2006, is the deadline for the introduction of new legislation for the 2006 legislative session. The following is a summary of bills affecting California community colleges that are in the works so far:

AB 1780 (Baca, D-Rialto)�Enrollment Fees
Existing law requires the governing board of each community college district to charge each student a fee of $26 per unit per semester. This bill would reduce the amount of this fee to $11 per unit per semester, effective with the fall term of the 2006-07 academic year.

AB 1943 (Nava, D-Santa Barbara)�Courses of Instruction
This bill would delete the provisions that require the Board of Governors to review and approve courses of instruction that are not offered as part of an educational program approved by the Board of Governors. The bill would instead require community college district governing boards to establish policies for and approve these courses of action.

AB 1968 (Leslie, R-Tahoe City)�Transportation Fees
With respect to transportation fees, existing law requires a governing board maintaining transportation services to adopt rules and regulations governing exemption of low-income students from these fees and authorizes the governing board to adopt rules and regulations that provide for the exemption of others. This bill would delete the provisions relating to the adoption of the rules and regulations governing the exemption of low-income students and other students from these fees. The bill would instead authorize the governing board of a community college district to adopt rules and regulations to exempt or partially exempt low-income students from this fee.

AB 1972 (Daucher, R-Brea)�Employment of Faculty
Existing law imposes limits on the duration of the employment contracts that a community college district governing board may offer to prospective faculty members, including a limit of one year on the first contract offered to a contract employee. This bill, notwithstanding the limits referenced above or any other provisions of law, would authorize the Board of Governors to designate, by resolution, critical areas of study in which there is a shortage of qualified instructors. The designation by the Board of Governors of these critical areas of study would be effective for three years, after which the Board of Governors would be authorized to extend the designation by up to three additional years.

The bill would authorize a local district governing board to meet and confer with the representative of the faculty members of that district as to which, if any, of the critical areas of study would be applicable to that district. If a critical area of study is applicable to a district, the district would be authorized to enter into full-time, nontenured contracts of up to three years in duration to employ faculty to teach in those critical areas of study. The bill would also require that, if the district wishes to extend the term of a contract beyond the three-year period, the governing board shall offer the faculty member a choice between accepting a tenure track position or remaining in the nontenure track position.

AB 2024 (Benoit, R-Palm Desert)�Personal Services Contracting
Existing law permits K-12 schools and community college districts to use personal services contracting, in order to achieve cost savings, for all services that are currently or customarily performed by classified school employees if specified conditions are satisfied. This bill would repeal those provisions.

Comment: Since the passage of SB 1419, several bills have been introduced by Republican authors (with the support of the Governor) to repeal this law. Those efforts have failed in the Democratically controlled committees. Twenty-seven Republicans have signed on as co-authors of AB 2024, but it will likely suffer the same fate as the previous attempts to repeal SB 1419.

SB 1264 (Alquist, D-Santa Clara)�Student Financial AidThis bill would change the annual deadlines for submission of completed financial aid applications for the various Cal Grant awards from March 2 to June 30.

SB 1290 (Ducheny, D-San Diego)�Community College Facilities
This bill would require that each offsite building acquired or constructed on or after January 1, 2007, for community college use shall meet the standards of one or more of the following: (a) the Field Act, (b) standards or offsite building acquired pursuant to Section 81149, or (c) the appropriate standards for commercial buildings constructed within an earthquake zone, as set forth in the California Building Standards Code.

Stay tuned more bills to follow after the February 24 deadline passes.

State Owes Community Colleges Almost $73 Million

State Controller Steve Westly recently released a report revealing that the state owes more than $2 billion to local government agencies for emergency, educational, and other state mandated local services. Going back to the 2002-03 fiscal year, the state owes California community colleges $72,854,080.

Westly recently proposed legislation that would repay public safety mandates within three-years (did we mention he is running for Governor?) and allow agencies to bond against the money they are owed so they can be paid immediately. If and when the state makes good on paying mandates, it would have to pay accrued interest that would reach into the hundreds of millions of dollars.

Westly was quoted as stating, �Our first responders could use the $500 million they are owed for fire trucks, bullet proof vests and bioterrorism training. If we want our schools and emergency departments to deliver at 100%, then we need to fund them at 100%.�

Community College Mandates

The 2002-03 Budget Act directed that all unexpended general fund appropriation balances related to reimbursable state mandated local agency programs be reverted to the General Fund. This action resulted in approximately $40 million in additional deficiencies for local agency mandated cost programs.

The 2002-03 Budget Act disallowed the Controller to make any payment from the Budget to reimburse community colleges for the claimed costs of state mandated education programs. Any future reimbursements to community colleges are to be paid from an item in the community college budget. Additionally, pursuant to Government Code Section 17561.5, payment of accrued interest is required when payment is made more than 60 days after the filing deadline. As of June 30, 2005, the accrued interest due to local agencies, school districts, and community colleges is estimated to be $119 million. Interest will continue to accrue until the claims are fully paid.

The Controller�s report identified the following mandates that have not been funded for fiscal years 1995-96 through 2004-05:

 Collective Bargaining
 Health Fee Elimination
 Investment Reports
 Open Meetings
 Peace Officers Procedural Bill of Rights
 Absentee Ballots
 Law Enforcement College Jurisdiction Agreements
 Health Benefits for Survivors of Peace Officers and Firefighters
 Law Enforcement Sexual Harassment Training

Finally

The Governor�s proposed State Budget for 2006-07 includes $133 million to reimburse K-14 education for state mandated claims for 2004-05. The community college section of the Budget, Item 6870-295-0001, provides that the State Controller shall reimburse colleges for costs incurred for health fee, sex offenders disclosure requirements, and law enforcement jurisdiction agreements. In addition, this Budget Item specifies that community colleges shall also receive a proportionate share of the funding provided in Item 6110-295-0001 (the K-12 section of the Budget that contains the $133 million appropriation).

Unhappy With the 50% Law? How About a 65% Law?

Historically, community college management has held the view that the �Fifty Percent Law,� which requires each community college district to spend half of its �current expense of education� each fiscal year for the salaries of classroom instructors, is unnecessary for community colleges. This provision is a carryover from when community colleges were under the administrative control of the K-12 system (prior to 1964). The California community college system is the only higher education system that has such a requirement.

In recent years, attempts have been made by administrative groups to seek the repeal or modification of the �Fifty Percent Law.� As a system, the community colleges are meeting the underlying purposes of the 50% law. Average class size within the system is not increasing; in fact, class size has been holding steady or decreasing slightly. There has been no growth in the number of administrators. In fact, the number of administrators in the system continues to remain below the number employed in 1999. At the same time, there are now more than 1,200 fulltime faculty than there were just a decade ago. There are also more than 5,000 more classified nonmanagement staff.

In terms of compensation, during the past decade, the systemwide hourly rate for part-time faculty increased by 33%. All of these increases are considerably in excess of the cost-of-living adjustments (COLAs) that were funded by the state.

65% Proposal

Now there are proponents of a 65% solution. Everybody wants more money in the classroom, but most people do not support a tax increase to pay for it. Solutions are being considered that would distribute education dollars differently without raising taxes.

The basis of the �65% solution� is a proposal that would require K-12 school districts and community college districts in California to spend at least 65% of their budgets on classroom expenses. Proponents want to see all 50 states impose the requirement by 2008. At least 12 states are considering the idea, with Texas already having implemented it. California voters may see the idea on a ballot as early as 2008.

Proponents of the plan say it will make school agencies spend money more efficiently. They say it will also improve student achievement by funneling dollars�$14 billion nationally and $1.5 billion in California�away from administration and toward student learning.

K-12 districts nationwide spent an average of 61.3% of their budgets on classroom expenses in 2002-03, the last year for which figures were available from the National Center for Education Statistics. California K-12 schools spent 60.8%, and most community college districts spent within the 50.1% to 53% range. Only two states�New York and Maine�exceed the 65% mark.

Critics of the proposal point out that a one-size-fits-all solution doesn�t work, particularly for a state the size of California. Part of the problem is the plan�s definition of classroom expenses. The 65% figure includes teacher salaries and benefits, supplies, classroom aides, and sports and arts programs. But it doesn�t include key items such as transportation, food service, maintenance, librarians, and counselors.

A recent study by Standard and Poor�s found no significant relationship between the amount of funds spent in the classroom and student achievement. However, proponents point out that the states that scored highest on the 2003 National Assessment of Educational Progress spent a bigger percentage of funds on instruction, on average, than did lower-ranking states. The five lowest-scoring states (including California) spent the least on instruction.

The primary proponent of the 65% solution is a Republican political consultant who runs First Class Education, the nonprofit group dedicated to advancing the proposal. The group is also touting the possible �political benefits� of the 65% solution, including showing dissent within education unions and helping build Republican credibility on education issues�thereby creating a base of support for charter schools and vouchers, which education unions say detract from public school systems.

Stay tuned to see if your signature is going to be requested on the 65% initiative.

Ask Arnold . . .

Can Districts Freeze Step and Column Increases?

Q. Are there many districts that freeze step and column increases or defer the increases for a year?

A. We view freezing step and column as a loan, not a cut, and usually try to find another way to generate savings. Let me explain. When you freeze step and column, one of two things generally happens. Either you make up the step and column in a subsequent year, which means the freeze really only generates one-time dollars that will create a need to generate ongoing dollars in a future year. This option doesn’t really save the district much in the longer term.

Alternatively, districts that freeze step and column for a year and never make it up find that employees are one year behind for the rest of their careers and on into retirement. Their salaries are always behind where they would have been. For many employees, this means the future cost of the step and column freeze is a 3% to 5% reduction for the rest of their careers and the same reduction in their retirement base. This option is singularly unattractive to teachers and unions.

Nonetheless, there are districts that have done both of these options. But in every case of which we are aware, it is like a ticking time bomb. At every subsequent negotiation, the first priority is to get that step and column movement back. That discussion can prevent the parties from reaching agreement on any other issue.

So, except in extreme cases where there is no cash, no budget, and no other option, try to find another way to reduce expenses before freezing step and column increases.

Is There a Limitation on Classified Retirees� Earnings?

Q. Is there a limitation on classified retirees� earnings?

A. The California Public Employees� Retirement System (PERS) does not have a monetary limit on retired classified employee earnings. There is, however, a limit on the number of hours that can be worked in a fiscal year�960 hours.

Effective January 1, 2006, the Legislature changed the law that allows a state agency or public agency covered by PERS to employ a retired person without reinstatement (Chapter 328/2005). The change allows a retired person to be temporarily employed for 960 hours in any fiscal year without reinstatement. The Public Employees� Retirement Law defines fiscal year to mean any year commencing on July 1 and ending on June 30.

The change took effect January 1, 2006, midway through the fiscal year. The following provides the maximum hours a state agency or public agency may temporarily employ a retired person without reinstatement from retirement or loss or interruption of benefits:

January 1 through June 30, 2006–960 hours maximum
July 1, 2006, through June 30, 2007–960 hours maximum
Future Fiscal Years–960 hours maximum

Retirees also need to be aware of the earnings limitation on social security benefits. If a person is under full retirement age (FRA) when he/she starts receiving Social Security payments, $1 in benefits will be deducted for each $2 the person earns above the annual (calendar year) limit. For 2006, that limit is $12,480. The earliest age a person can receive Social Security retirement benefits remains 62, even though the FRA is rising.

In the year a person reaches his/her FRA, $1 in benefits will be deducted for each $3 he/she earns above a different limit, but only counting earnings before the month he/she reaches FRA. For 2006, the limit is $33,240.

Starting with the month a person reaches his/her FRA, he/she will receive benefits with no limit on his/her earnings.

Retirees must consider both PERS and Social Security requirements for benefits as they relate to hours worked and maximum earnings.