Analysis of the 2006-07 Budget Bill Legislative Analyst's Office February 2006

California State University (6610)

The Governor’s budget proposes $239 million to fund 18 projects in the California State University (CSU) capital outlay improvement program. This amount includes $5 million from the 2004 Higher Education Capital Outlay Bond Fund and $234 million from a proposed 2006 higher education general obligation bond fund. The proposal consists of eight projects totaling nearly $19 million for equipment to complete projects previously funded for construction, and ten projects totaling $226 million when completed.

CSU Five-Year Capital Outlay Plan. The CSU’s five-year state-funded capital outlay program would require an estimated $6.4 billion to complete various capital improvements at each of its 23 campuses. For the budget year, the program includes 30 capital outlay proposals at an estimated cost of $377 million. These projects have future costs of $622 million. The Governor’s budget would fund about two-thirds of the university’s 2006-07 projects in its plan.

Unsubstantiated Cost Increases

We recommend the Legislature reduce the cost of three projects for which the California State University has requested cost increases that exceed inflation without justification. (Reduce Item 6610-301-6048[2] by $2,752,000, Item 6610-301-6048[4] by$11,470,000, and Item 6610-302-6048[6] by$8,957,000.)

The CSU has increased the cost of three projects in the budget (all of which were previously approved by the Legislature) by an amount that greatly exceeds construction inflation. These projects are displayed in Figure 1 along with the budget request and the project cost previously recognized by the Legislature (adjusted for inflation).

We have two concerns with the proposed increases. First, much of the increase is for contingencies. This action increases the amount set aside for construction contingency beyond the normal amount of 5 percent of construction costs. (The contingency covers unforeseen changes during construction of the project and in most cases is sufficient for these purposes.) Providing contingency funds for other purposes should not be necessary. Second, CSU has increased the construction and design costs of two projects since the budget was last reviewed by the Legislature without explanation.

For these reasons, we do not believe the proposed increases have been justified. Therefore, we recommend the Legislature reduce the amounts for the projects in Figure 1 by a total of $23,179,000.

Infrastructure Project at Channel Islands

We recommend the Legislature delete $2.5 million for preliminary plans and working drawings for phases 1a and 1b infrastructure improvements at the Channel Islands campus because (1) the central plant portion of the project has not been justified, (2) the specific infrastructure improvements are not identified, and (3) the infrastructure renewal portion of the proposal can be funded in priority with other renewal projects under the state-funded California State University capital renewal program. (Delete $2,533,000 from Item 6610-301-6041[2].)

The budget includes $2.5 million to prepare preliminary plans and working drawings for a two-phased infrastructure project at the Channel Islands campus. The current estimated cost to complete the project is $44.7 million. The CSU indicates that the project will improve, update, and replace infrastructure systems. According to CSU, these changes would accommodate the demands of the campus at an enrollment of 15,000 full-time equivalent (FTE) students. Based on available information, current-year enrollment at Channel Islands is about 1,500 FTE and is projected to be 2,600 FTE in 2011-12. We have several concerns with this proposal.

Need for New Central Plant Not Justified. As an integral part of the infrastructure project, CSU indicates it will solicit-through a request for proposal process-the funding and construction by a third party of a central plant to provide hot and chilled water throughout the campus. The CSU would then enter into a long-term contract for the purchase of the hot and chilled water. The proposed infrastructure project includes installation of hot and chilled water distribution lines-facilities that would not be needed if a central plant is not constructed.

Based on existing facilities and projected enrollments (less than 3,000 FTE students in 2011-12), it is not clear why the state should fund a new central plant and associated water distribution lines. The CSU indicates that studies have been undertaken that evaluate the benefit of a central plant. The information submitted for the project budget, however, does not substantiate either the need for or the cost-benefit of constructing the central plant and associated hot and chilled water distribution lines throughout the campus. Consequently, at this time, we do not believe the case has been made to proceed with the construction of a central plant and the related distribution lines (either by the state or a third party).

Specific Improvements Not Identified. The CSU indicates that infrastructure systems-such as natural gas, water, sanitary sewer, storm drains, and electrical-will be renovated, updated, and extended. Other than a limited description of the electrical improvements, specific improvements to the infrastructure systems are not defined. The CSU also indicates it has (1) entered into discussions to identify and commit to a new source of electrical power and (2) begun to approach its contractual limit for wastewater treatment. The status of these discussions and the impact on current infrastructure is uncertain. Consequently, based on the information submitted with this request, the Legislature cannot determine what improvements would be (or should be) made with the expenditure of nearly $50 million to complete the proposed project.

Infrastructure Renewal Can Be Funded Through Systemwide Capital Renewal Program. The budget bill includes $50 million in CSU’s support budget (Item 6610-001-6048) for renewal of capital assets systemwide. This amount is in addition to the $25 million CSU received for this purpose in the current year. The CSU should, on a systemwide priority basis, use this funding source to renew the campus infrastructure to meet current- and near-term utility demands.

San Marcos: Social and Behavioral Sciences

We recommend the Legislature delete $1.1 million for development of preliminary plans for a 68,000 assignable square foot social and behavioral sciences building because it is not justified by enrollment projections. The future cost to complete construction of the proposed building is $53.9 million. (Delete $1,078,000 from Item 6610-302-6048[3].)

The budget proposes $1.1 million for a 68,000 assignable square foot (asf) Social and Behavioral Sciences building providing classrooms, teaching laboratories, and 125 faculty offices. The CSU estimates future state costs to complete the project will be $53.9 million. The building would provide classrooms and teaching laboratories to accommodate an additional 644 FTE students on campus. We recommend the Legislature delete funding for the project because the campus currently has capacity to address its projected enrollment.

Campus Has Existing Excess Space. The CSU indicates that when the new Academic II building (currently under construction) is available in 2006-07, the San Marcos campus will have a sufficient amount of instructional space to accommodate a 50 percent increase in enrollment. Based on 2005-06 campus capacity and enrollment data, the campus could accommodate projected enrollment in 2011 and still have space to handle a 20 percent increase in FTE students.

Campus Unused in Summer. Furthermore, the San Marcos campus did not enroll any students in summer 2004 (the latest information available). If the San Marcos campus fully utilized its instructional facilities year-round, the campus could annually provide a full year of academic instruction to an additional 1,500 to 2,000 FTE students within existing space. Expanding summer enrollments to this level cannot occur in the short term, but in view of the amount of space available and the demands for capital outlays throughout the state, we believe it is essential for the San Marcos campus (as well as other campuses) to increase summer enrollments at a more rapid pace. For all the reasons noted above, we recommend deletion of this project.

San Luis Obispo: Center for Science

We recommend the Legislature delete $1.9 million for preparation of preliminary plans for an 86,000 assignable square foot science building because (1) it will add a small amount of instructional space at a very high cost, (2) the alternative of renovating the existing science building has not been adequately evaluated, and (3) the proposal includes project elements unrelated to the proposed science center. Estimated future state cost to complete the project is $100.3 million. (Delete $1,866,000 from Item 6610-301-6048 [6].)

The budget proposes $1.9 million (bond funds) for preparation of preliminary plans for an 86,300 asf Center for Science building. This facility would replace the existing 73,000 asf science building (constructed in 1962), which would be demolished. An estimated $100.3 million of state bond funds will be required to complete construction of the project. In addition, the university proposes to provide $17.8 million of nonstate funds to construct a 15,900 asf addition to the proposed building for faculty research. The CSU’s project schedule calls for starting preliminary plans in July 2007 (2007-08) and completing the plans in November 2007. Construction would start sometime after July 2008. Based on this schedule, the request for preliminary plans is premature and for this reason alone, we recommend the Legislature not provide funds at this time. Notwithstanding the project schedule, we have other concerns with the proposal, as discussed below.

Small Amount of Additional Instructional Capacity. The net effect of demolishing the existing science building and constructing the proposed Center for Science would be to provide instructional capacity for an additional 66 FTE students and 11 faculty offices (see Figure 2).

Renovation Is an Alternative. Given the large cost of this new building, it is especially important that CSU first thoroughly evaluate renovation of the existing building. The campus indicates it assessed both renovating the existing science building and constructing an addition to it, but concluded that this “….would result in a project with significantly higher costs….” The CSU however, has not provided any information-such as engineering studies, cost estimates or other data-that might support this conclusion. In view of the high cost and the limited addition of instructional space, we believe CSU should first undertake a more thorough evaluation of renovating existing space.

Proposal Includes Elements Not Directly Related to Science Center. The CSU has included expansion of the central plant and extension of heating and chilled water with the request for a new science center. The CSU indicates that this work will support the center and provide capacity to serve other buildings, but it has not provided information on the costs or justification for these aspects of the proposal. Furthermore, it is not clear why expansion of the central plant would be necessary to serve the science center. The current science building is a 73,300 square foot building, which-compared to the proposed 86,300 square foot building-is an increase of only 13,000 square feet. The heating and cooling load for this small amount of additional space can certainly be met in a less costly manner. If CSU believes expansion of the central plant and extension of the water systems is needed for other reasons, it should develop a separate justification and project proposal for legislative consideration.

Monterey Bay: Equipment Infrastructure Improvements

We recommend the Legislature delete $257,000 requested for equipment because the equipment either should not be funded by the state or should be purchased through the support budget. (Delete $257,000 under Item 6610-301-6048[5].)

The Legislature approved $18.5 million in the 2004-05 Budget Act for design and construction of infrastructure improvements at the Monterey Bay campus. The project included improvements to the electrical and natural gas distribution systems, correction of path-of-travel access deficiencies throughout the campus, and removal of several deteriorating buildings. The project also created some playing fields, after demolition of some buildings. The CSU’s project schedule indicates the project will be complete in May 2007, nearly one year ahead of schedule.

Equipment That Should Not Be Purchased With State Funds. The equipment request includes several items that should not be funded by the state. These include items such as grandstands and benches ($97,000), scoreboards ($12,000), and pitching machines ($13,000). These items are not needed for the instructional program and are generally funded using nonstate funds.

Equipment That Should Be Purchased Through the Support Budget and Not With Bonds. The requested equipment includes many items that should not be funded with general obligation bonds. This includes items such as baseball bats and racks, bases and plates, baseballs, softballs, soccer balls, and volleyballs. These are short-term expendable items and should be purchased through the support budget.

Budget Amount Exceeds Request. Finally, the equipment list submitted by CSU totals $242,000 or $15,000 less than the amount in the Governor’s budget.

Based on the issues discussed above, we recommend the Legislature delete the $257,000 requested for equipment.