LAO Critique of Governor's Higher Ed Budget Proposals

The Legislative Analysts’ Office (LAO) has a new report out critiquing the governor’s higher ed budget proposals.  It comments on his online higher ed proposals but relative to all the attention paid to that topic at the most recent Regents meeting, it appears that the LAO doesn’t see them as the solution to budget problems for higher ed)  Much of the report involves recommendations that the legislature base future funding increments on meeting performance targets.  Because most of the report deals with all three segments of higher ed, the target discussion largely is focused on concerns involving CSU and community colleges such as time to degree, etc.  On retirement funding, LAO repeats its assertion that the state isn’t responsible for the UC pension, but then seems to acknowledge that if the state doesn’t pay, the cost will come out of tuition or some university programs.  It seems to suggest funding UC’s pension at the same rate as other state public pensions.  Excerpts and a link to the full report are below:

...Governor’s Overall Approach Unlikely to Improve System

Justification for More Funding and Less Legislative Involvement Unclear. Although we believe the Governor’s budget plan has drawn attention to some notable problems, we have serious concerns with several of his specific budget proposals. Most notably, by providing the segments with large unallocated increases only vaguely connected to undefined performance expectations, the Governor cedes substantial state responsibilities to the segments and takes key higher education decisions out of the Legislature’s control. We recommend the Legislature reject the Governor’s proposals relating to unallocated base increases, combining the universities’ capital and support budgets, allowing the universities to restructure their debt, and eliminating enrollment targets. Instead, we recommend the Legislature allocate any new funding first to meet the state’s highest existing priorities, including debt service, employee pension costs, and paying down community college deferrals. If more funding is provided than needed to meet these existing funding obligations, we recommend the Legislature link the additional funding with explicit enrollment and performance expectations.

Extended Tuition Freeze Likely Would Have Negative Long-and Near-Term Consequences. We also have serious concerns with the Governor’s extended tuition freeze proposal, as it very likely would result in steep tuition increases during the next economic downturn and reduced accountability in the near term. Moreover, tuition levels and students’ share of cost currently are low. After accounting for state and institutional financial aid, the average share of cost paid by California students is about 30 percent at UC and CSU and 6 percent at CCC.

Some Good Ideas but Associated Proposals Need Reworking

Some Problems Likely Addressed by Redistributing Rather Than Increasing Funding. In some cases, we think the Governor’s basic ideas are worthwhile but likely could be implemented within existing resources. For example, increasing the availability of required courses while reducing the amount of excess course-taking could be done within existing resources. Likewise, the segments could leverage an existing repository of online courses developed by faculty and enable students to more easily access those courses largely, if not entirely, within existing resources.

Higher Education Funding Models Up for Redesign. We also think revisiting the ways the state allocates funding to the segments is worthwhile, but we again have concerns with the Governor’s specific proposals. The Governor’s approach for the universities appears to fund neither student access nor success whereas his approach for the community colleges focuses only on one poor measure of student success. We envision a better funding model that balances the state’s dual goals of access and success. Under a redesigned system, instead of basing funding entirely on enrollment or on vague performance expectations, the Legislature would establish clear expectations in areas such as program completions, degrees earned, research activity, and cost reductions…

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(LAO is) concerned with the absence of a proposal relating to UC retirement costs…

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Weak Rationale for Proposed Changes to Capital Outlay Budget Process. The administration

indicates the motivation for combining the universities’ capital and support budgets is to provide the universities with more flexibility, given limited state funding. The administration, however, has not identified specific problems associated with the current process used to budget the segments’ capital projects, nor identified any specific benefits the state might obtain from the proposal. As a result, both the problems the proposal is intended to address and the benefits that the proposal offers are difficult to ascertain.

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Recommend Rejecting (Debt) Restructuring Proposal. Given that restructuring debt would cost more money in the long term and constrain future budget choices, we recommend the Legislature reject the Governor’s debt restructuring proposal for the universities. If the Legislature is concerned that the universities would lose the short-term savings associated with the debt restructuring, it could consider other strategies for the universities to increase revenue or reduce costs.

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(Pension) Payment Obligation. The state is not legally obligated to provide funding for the university’s retirement costs. Nevertheless, current retirement costs are largely unavoidable obligations for the university. Not addressing them means the university would incur significantly greater costs in the future...

Recommend Designating $67 Million for UC Retirement. For these reasons, we recommend the

Legislature specify $67 million of UC’s proposed 2013-14 base budget increase for pension costs...

In addition, consistent with the approach taken by the state in 2012-13, we recommend the Legislature include language in the budget reiterating that the state is not obligated to provide any additional funding for this purpose moving forward. Such language is intended to reinforce that the state is not liable for these costs.

Future Considerations for Universities’ Retirement Costs. The Legislature recently enacted pension-related legislation that could significantly reduce long-term retirement costs for nearly all public employers. In the future, the Legislature may want to consider the universities’ retirement costs in light of this legislation. This consideration would be useful since UC was specifically exempt from the legislation... In the future, the Legislature could consider providing the universities with funding for retirement costs comparable with costs incurred by other public employers...

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Online Education Can Promote Access, Efficiency, and Student Learning. Online education has been found to have numerous benefits, including making coursework more accessible to students who otherwise might not be able to enroll due to restrictive personal or professional obligations and allowing campuses to serve more students without a commensurate need for additional physical infrastructure...

Need for New Funding to Create More Courses Is Questionable. We do not see a justification, however, for earmarking $10 million each for UC and CSU and up to $16.9 million at CCC for the development of additional online courses...

Full report at http://lao.ca.gov/analysis/2013/highered/higher-education-021213.pdf