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Other Budget Issues

Last Updated: 3/15/2013
Budget Issue: TANF and SLOF adjustments for Cal Grant program.
Program: Cal Grants
Finding or Recommendation: Conform TANF funding amount for Cal Grants with decisions on CalWORKs. Increase SLOF support by $25 million over Governor’s proposal. In both cases, these funds directly offset General Fund expenditures for Cal Grants and have no programmatic effect.
Further Detail


Cal Grants Currently Supported by Three Funding Sources. In 2012-13, the state’s Cal Grant program is supported by $804 million in Temporary Assistance for Needy Families (TANF) funds, $706 million from the General Fund, and $85 million from Student Loan Operating Fund (SLOF). In previous years, Cal Grants were supported primarily from the General Fund and SLOF, with a small amount of direct federal support. This is the first year the state has replaced a portion of General Fund support for Cal Grants with TANF support.

Governor’s Proposal

The Governor proposes to increase federal TANF funding for Cal Grants from $804 million in 2012-13 to $943 million in 2013-14, with a corresponding reduction in TANF support (and increased General Fund support) for social services. He also proposes to adjust SLOF support from $85 million in the current year to $60 million in the budget year.


Fund Swaps Have No Programmatic Effect. The proposed shift in funding from the General Fund to federal and special funds has no programmatic effect on Cal Grants and does not reduce funding for other state programs. Each of the proposed fund shifts is described in more detail below.

TANF Funds Redirected From Social Service Programs. In 2012-13, TANF funds were shifted from the California Work Opportunity and Responsibility to Kids (CalWORKs) program to the Cal Grant program. The state, in turn, increased its share of CalWORKs support. These actions helped the state meet the CalWORKs maintenance-of-effort (MOE) requirement (whereby a certain level of state support must be maintained). In addition to helping meet MOE requirements, the fund shift provides other potential benefits such as helping the state meet other related federal requirements. These benefits are discussed in more detail in our report, The 2013-14 Budget: Analysis of the Health and Human Services Budget.

Growth in Cal Grant Participation Makes Room for Additional TANF Funding. The use of TANF funding for Cal Grants is limited by the number of grant recipients who meet certain eligibility requirements set by the state. To qualify, students must be unmarried, age 25 and under, and have annual parent and student income of no more than $50,000. The California Student Aid Commission (CSAC) estimates that about 56 percent of Cal Grant expenditures are for students meeting these eligibility requirements. Due to increased overall participation in Cal Grants, the number of participants eligible to be funded with TANF dollars also has grown. The Governor’s proposal would align TANF funding with expected participation of eligible students.

SLOF Support Related to Multiyear Agreement. Cal Grant support from the SLOF is provided as part of an agreement between the state, the federal Department of Education, and ECMC, a company providing federal student loan services in California. This agreement resulted from the transfer of the state’s federal guaranteed student loan program from EdFUND, a CSAC auxiliary, to ECMC. Under the agreement, SLOF funding level is not guaranteed from year to year. It is typically determined by ECMC in May of each year in consultation with the federal Department of Education, and the state budget is adjusted accordingly during the May Revision process.

Current Estimates Suggest Additional SLOF Will Be Available. In recent communications, ECMC noted that it expects to provide three more annual contributions toward Cal Grants totaling about $253 million. The Governor’s budget includes a conservative estimate of $60 million in SLOF support for the budget year. We think a better estimate is one-third of the remaining expected contribution, or about $85 million.

LAO Recommendation

We recommend conforming TANF funding for Cal Grants with decisions on CalWORKs. We also recommend the Legislature increase SLOF funding for Cal Grants by $25 million over the Governor’s proposed amount for the budget year and reduce General Fund support by the same amount.