Analysis of the 2008-09 Budget Bill: Education

California Community Colleges (6870)

California Community Colleges (CCC) provide instruction to about 1.6 million students (fall headcount enrollment) at 109 colleges operated by 72 locally governed districts throughout the state. The state’s Master Plan for Higher Education and existing statute charge the community colleges with carrying out a number of educational missions. The system offers academic and occupational programs at the lower division (freshman and sophomore) level, as well as recreational courses and precollegiate basic skills instruction. In addition, pursuant to state law, many colleges have established programs intended to promote regional economic development.

CCC Budget Overview

Slight Funding Increases Proposed. As shown in Figure 1, the Governor's proposal would increase total Proposition 98 funding (General Fund and local property taxes) for CCC by $55 million, or 0.9 percent, over the revised current–year proposal. (The current–year amount reflects a proposed one–time, midyear reduction of $40 million, as discussed below.) This increase is the net effect of two factors: an $89 million (2.2 percent) decline in Proposition 98 General Fund and a $145 million (7 percent) increase in projected funding from local property taxes. Counting all fund sources—including student fee revenue and federal and local funds—community colleges would receive $9.1 billion in 2008‑09.

CCC’s Share of Proposition Funding. As shown in Figure 1, the Governor's budget includes $6.2 billion in Proposition 98 funding for CCC in 2008‑09. This is over two–thirds of total community college funding. Overall, Proposition 98 provides funding of approximately $56 billion in support of K–12 education and CCC, as well as a small amount of funding for several other state agencies. As proposed by the Governor, CCC would receive 11.2 percent of total Proposition 98 funding. The CCC’s share in the current year is 10.9 percent.

Major Budget Changes

Figure 2 details the changes proposed for community college Proposition 98 spending in the current and budget years. The administration proposes a one–time reduction of $40 million to apportionment funding in the current year. (Apportionments are available to districts for general purposes such as faculty salaries, equipment, and supplies.) The Governor proposes to restore this cut to CCC’s base in the budget year.

The Governor begins his proposal for 2008‑09 by estimating “workload” cost increases based on statutory and customary formulas. As shown in Figure 2, these workload factors include a 4.9 percent cost–of–living adjustment (COLA) and 3 percent enrollment growth for apportionments (as well as a COLA and/or enrollment growth for a handful of categorical programs that have customarily received such augmentations). As a budget–balancing measure, the Governor then reduces the General Fund share of the workload calculation for apportionments and each categorical program by 10.9 percent. As a result, the budget proposal ultimately includes no COLA for apportionments, funds enrollment growth for apportionments at a level $112 million less than the workload amount of $172 million, and reduces categorical funding by a total of $80 million from the workload level. Overall, the Governor's budget–year proposal for community colleges is $484 million less than his 2008‑09 workload calculation.

Under the proposed 2008‑09 budget, community colleges would receive a slight Proposition 98 increase of $55 million, or 0.9 percent, from the revised current–year level. This is due largely to higher apportionment funding (resulting from a restoration of the current–year cut and a $60 augmentation for enrollment growth) which more than offsets the proposed reductions to categorical programs.

Proposition 98 Spending by Major Program

Figure 3 shows Proposition 98 expenditures for community college programs. As shown in the figure, general purpose (apportionment) funding totals $5.5 billion in 2008‑09, an increase of $98 million, or 1.8 percent, from the revised current–year level. Apportionment funding in the budget year accounts for 88 percent of CCC’s total Proposition 98 expenditures.

Categorical programs also are shown in Figure 3. The Governor's budget would reduce total funding for categorical programs by about 7 percent from the revised current–year level. Cuts to programs would range from 3.7 percent to 10.9 percent. (The reduction to financial aid/outreach is higher for technical reasons.) The exact percentage reduction depends on whether the administration first builds in a COLA (and/or growth for enrollment) in the workload estimate prior to cutting the program by 10.9 percent. (We discuss the Governor's proposed reductions in more detail earlier in the “Proposition 98 Priorities” section of this chapter.)

Student Fees

Effective January 2007, student fees on credit courses decreased from $26 to $20 per unit. (There continues to be no fee charged for noncredit courses.) The Governor proposes no change to the student fee level in the budget year. Under the Governor's budget, student fee revenue would account for 4.6 percent of Proposition 98 funding for community colleges. (We discuss student fees in more detail later in this chapter.)

Overview of CCC Alternative Budget

Our alternative budget for the community colleges generally adheres to the principles and priorities that guide our recommendations for other education agencies. These include:  

• Accommodating anticipated enrollment growth.
• Maintaining base funding for the state’s highest–priority programs by concentrating reductions in lower–priority programs.
• Creating fiscal and program flexibility for districts to meet local needs.
• Increasing students’ share of cost in an affordable manner.
• Funding ongoing costs of mandated local programs.

Main Features of Alternative Budget for Proposition 98 Support of CCC. As Figure 4 shows, our recommended Proposition 98 funding level for the community colleges is $6.2 billion, which is similar to the Governor's. At the same time, our alternative budget provides sufficient funding for 1.7 percent enrollment growth in 2008‑09, compared with the Governor's proposal for 1 percent growth. We provide more total resources to the community colleges to meet this anticipated growth rate by augmenting student fee revenue, which would supplement Proposition 98 support. (As we note later in this chapter, our recommended fee increases would have no effect on financially needy students, and would be fully offset for many middle–income students.)

Rather than making across–the–board reductions (which affect high legislative priorities such as financial aid outreach and nursing), we recommend targeted cuts to a selected program. Our alternative approach also increases flexibility for districts to meet local needs by consolidating similar categorical programs into block grants.

As noted previously in the “Proposition 98 Priorities” section earlier in this chapter, Proposition 98 has unfunded ongoing obligations of about $25 million annually for state–mandated community college programs. In order to help reduce the state’s education credit card debt, our alternative budget augments base funding for mandate costs by $25 million.

Consistent with our overall approach to Proposition 98 spending, our alternative budget does not provide a COLA to the community colleges in 2008‑09. As we discuss in the “COLA” section earlier in this chapter, we recommend an alternative COLA index to the one proposed by the administration.

Non–Proposition 98 CCC Issues. Finally, considering current workload and staffing levels at the Chancellor’s Office, we recommend a smaller funding reduction than the Governor's plan. Our proposed reduction reflects modest workload savings resulting from our proposed consolidation of several categorical programs.  

Enrollment Levels and Funding

The state’s community college system is the nation’s largest system of higher education and accounts for about 22 percent of all community college students in the country. Three out of four public postsecondary students in the state are enrolled in CCC.

Recent Trends

What Influences Enrollment at CCC? The state’s Master Plan and existing statute require the community colleges to serve as “open enrollment” institutions. As such, community colleges do not deny admission to college. (Instead, students simply register for classes that have available space, usually on a first–come, first–served basis.) Many factors affect the number of students that attend a community college. Changes in the state’s population, particularly among college–age residents, can be a major factor affecting enrollment levels. Fluctuations in the percentage of the population that enrolls in college (participation rates) affect enrollment at CCC as well, but these are much more difficult to project. Factors such as state educational policies—relating to fees and financial aid, for example—and personal choices of potential students help determine participation rates. Factors such as the availability of specific classes, local economic conditions, and the perceived value of the education to potential students also affect participation rates.

Enrollment Rebounding, but Still Below Earlier Levels. As shown in Figure 5, headcount enrollment—the number of individual part–time and full–time students attending a community college—is higher (by about 190,000 students, or 13 percent) than a decade ago. Yet, growth has been uneven, fluctuating on a year–to–year basis. Enrollment peaked in fall 2002, but subsequently declined by about 8 percent (140,000 students) in fall 2004. (As we discussed in our 2006–07 Analysis of the Budget Bill [page E–250], several factors may have contributed to this decline, including students opting for employment as a result of an improving state economy.) Enrollment between fall 2004 and fall 2005 was essentially flat, then increased by 35,000 students (or about 2 percent) in fall 2006. Headcount figures for fall 2007 will not be available until the spring, but a census survey suggests that CCC enrollment may have grown further relative to fall 2006.

Enrollment Growth Overfunded Between 2003–04 and 2005–06. Typically, the annual CCC budget includes an augmentation to accommodate estimated enrollment growth. In some years, funding has been insufficient to cover actual growth. For example, enrollment significantly exceeded budget projections in 2001–02, due in part to individuals returning to attend college at the time of a tight job market. After the peak of 2002, however, enrollment fell below budgeted levels. Figure 6 compares budgeted and actual enrollment between 2003–04 and 2005–06. As the figure shows, budgeted enrollment funding grew faster than actual enrollment (measured as full–time equivalent [FTE] students) during each of the three fiscal years. For example, the community colleges were funded for enrollment growth of almost 4 percent in 2004–05, but actual enrollment increased by less than 1.5 percent. In 2005–06, the community colleges were funded for enrollment growth of slightly more than 1.1 percent, but FTE enrollment levels actually declined by 1.8 percent.

2007–08 Budget Act Adjusts CCC Base to Account for Overfunding. As a result of these enrollment trends, CCC accumulated a growing amount of unused enrollment funding. (See the following box for an explanation of how these so–called “enrollment restoration” funds are handled at the district and state level.) In order to bring funding into line with the lower enrollment levels, the 2007–08 Budget Act permanently rebenched the CCC system’s base funding by $80 million. This is the amount of funding associated with approximately 20,000 unfilled slots that became vacant before 2006–07. The base budget was allowed to retain another $55 million in funding for an estimated 12,000 enrollment slots that became newly vacant in 2006–07.

At the same time, the 2007–08 Budget Act included an augmentation of $108 million to fund new enrollment growth of 2 percent in 2007–08, or about 22,000 FTE students. When these new growth funds are combined with the unused slots from 2006–07, the 2007–08 budget provides CCC with a total of 3 percent growth to accommodate an additional 34,000 FTE students.

2008‑09 Enrollment Growth Funding

The Governor's budget proposes an augmentation of $60 million to fund 1 percent enrollment growth at the California Community Colleges (CCC). This level of enrollment growth falls short of the statutory growth guideline of 1.5 percent, as well as our own 2008‑09 growth forecast of 1.7 percent. We recommend the Legislature fund 1.7 percent enrollment growth, which would more accurately reflect the level of enrollment CCC is likely to experience in the budget year.

Governor Proposes Funding for 1 Percent Enrollment Growth. Chapter 631, Statutes of 2006 (SB 361, Scott), requires CCC’s annual budget

request to include funding for enrollment growth at least as large as the average growth rate of two state population groups (19– to 24–year olds and 25– to 65–year olds), as determined by the Department of Finance (DOF). (While the Chancellor is required to request at least this amount, there is no statutory requirement for the state to fund this or any other CCC growth level.)

The 2008‑09 budget requests $60 million for enrollment growth to fund about 12,000 additional FTE students—a 1 percent increase over current–year levels. (See the following box for an explanation of the Governor's workload estimates for enrollment growth.) With this augmentation, the Governor's budget would support a total of about 1.2 million FTE students in 2008‑09.

Recommend 1.7 Percent Enrollment Growth Funding. We believe the growth rate proposed by the Governor is insufficient to meet projected enrollment demand. This is because we project that demographically driven enrollment in the community colleges (which accounts for growth rates in the underlying population and assumes constant participation rates) will increase by about 1.7 percent in the budget year.

For 2008‑09, we thus recommend the state provide additional funding to accommodate CCC enrollment growth of 1.7 percent. The Master Plan calls on CCC to be open to all adults who can benefit from instruction, and we believe that this would more accurately reflect the level of enrollment CCC is likely to experience in the budget year. This growth rate would require $37 million more than the Governor's budget proposal ($97 million more than the current–year base) to accommodate roughly 8,000 additional

FTE students. In the following section, we offer a way to fund such an increase that minimizes cost pressures on the General Fund.

Student Fees

The Governor's budget proposes no changes to fee levels for community college students. As we discuss earlier in the “LAO Alternative Budget” section of this chapter, we recommend the Legislature restore CCC fees to their 2006 level.

Fee Decisions Affect College Funding, Student Choices, and Outcomes

Fee Revenue Can Supplement Proposition 98 Apportionment Funds. Community college apportionment funding—which supports general operating costs—comes from three major sources. Two of these—local property taxes and the state General Fund—together constitute CCC’s Proposition 98 funding. In addition, student fees collected by local districts are a smaller, but still significant, source of apportionment funding.

CCC Fees Are Low by National Standards. Over the past decade, community college fee levels for credit courses have fluctuated between $11 and $26 per unit. (There continues to be no charge for noncredit courses.) Figure 7 shows the changes in fees during this period, both in actual dollars and 1997–98 dollars. The state currently has no official policy for setting CCC fees. Often, fees have been increased during fiscally challenging periods, and reduced when budget situations improved. Despite this fluctuation, CCC fees have consistently been the lowest in the country. Most recently, fees were reduced from $26 to $20 per unit in January 2007. As a result, a full–time student taking 30 units per academic year pays $600. This is about one–half that of New Mexico ($1,140), which has the next lowest fees among public two–year colleges. Figure 8 shows that the national average for public two–year colleges ($2,360) is almost four times the amount charged by CCC.

In 2007–08, the CCC system receives an average of about $5,700 to educate each full–time student. A student paying full fees covers about 10 percent of that cost. This is considerably lower than the University of California (UC) and the California State University (CSU), where undergraduate student fees cover about one–third and one–quarter, respectively, of educational costs.

Financially Needy Students Do Not Pay Fees. Fees interact with financial aid programs to determine overall affordability. For low– to middle–income CCC students, affordability is preserved thought the Board of Governors’ (BOG) fee waiver program. This program is designed to ensure that community college fees will not pose a financial barrier to any California resident. It accomplishes this by waiving the educational fees for all residents who demonstrate financial need. Currently, about 30 percent of CCC students receive fee waivers (accounting for over 40 percent of all units taken). Generally, a community college student living at home, with a younger sibling and married parents, could qualify for a fee waiver with annual family income up to roughly $65,000. By definition, therefore, no needy students (who are residents of the state) are required to pay fees, and thus are unaffected by fee increases.

Many Non–Needy Students Receive Tax Breaks to Offset Fee Costs. As we discussed in our 2005–06 Analysis of the Budget Bill (page E–194), many of the students who do not qualify for BOG waivers are still eligible for financial assistance that covers all or a portion of their fees. For example, students (or their parents) with family incomes of up to $94,000 in 2007 are eligible for a federal tax credit equal to their entire fee payment (up to $1,100 per year) for their first two years of college. (This assumes that the family had a federal tax liability at least equal to the fee payment, which would usually be the case.) Therefore, while students pay their fees up front, they are fully reimbursed for this cost as a federal income tax offset. In other words, for those students or families with federal tax liabilities, the federal government in effect pays for the entire cost of their fees—including any fee increase.

Other Considerations. We believe that there are distinct benefits from having non–needy college students pay some share of their educational costs. When students make a financial investment in their own education, they are more inclined to demand high quality services from the college. In addition, students tend to be more deliberate in their selection of courses and programs when they have a financial stake. Finally, fees help students to make choices that consider the relative costs of different postsecondary options open to them—for example, choosing between a community college and state university for completing their lower division coursework.

Recommend Restoration of 2006 Fee Level

We recommend that the Legislature restore community college student fees to their fall 2006 level of $26 per unit. This change would increase California Community Colleges’ revenue by about $80 million, without increasing costs for financially needy students, whose fees are entirely waived. In addition, middle–income students would continue to qualify for a full refund of fees in the form of a federal tax credit (provided they have sufficient tax liability). The revenue generated by

restoring this fee level would help fund anticipated workload increases at community colleges.

A Fee Increase Would Augment CCC’s Total Funding Level. The Governor's proposed 2008‑09 budget would provide the community colleges with about $5.8 billion in apportionment funding (Proposition 98 funds and fee revenues). As discussed earlier in the “LAO Alternative Budget” section of this chapter, this amount of funding is below the amount required to fund our alternative budget for the community colleges. In order to help the CCC system meet these additional costs, while keeping a community college education affordable, we recommend the Legislature raise the per–unit student fee from $20 to $26. This would generate roughly $80 million in new resources to the community colleges on top of support provided by the General Fund and local property taxes.

Student Share of Cost Would Still Be Modest. While we believe that a $6 per unit increase is reasonable when compared with the total cost of education and with fees in other states, there is a separate question of how large an increase students should be expected to absorb in a given year. Our recommendation would increase the current fee by 30 percent. As a percentage, this could appear to not meet the goal of “moderate” fee increases called for in the past expressions of legislative intent and in our own recommendation for a UC and CSU fee level.

Viewed in other ways, however, the proposed increase appears less dramatic. For the average full–time student, our recommendation would cost an additional $180 per year. Part–time students, who constitute the majority of community college students, would of course pay less than this. Compared with the total cost of attendance (including books, housing, transportation, and other costs), the proposed increase is much smaller. In addition, we believe any potential “sticker shock” effect can be mitigated by raising student awareness about the availability of financial assistance such as BOG fee waivers and the tuition tax credit program.

Community College Categorical Programs

The Governor's budget proposes across–the–board reductions to community college categorical programs. We believe that, rather than reducing funding for all programs, the Legislature should preserve base funding for programs that most directly support the system’s core mission of educating students. Accordingly, we recommend that the Legislature focus its efforts to address the state budget shortfall on a targeted reduction to the economic development program. In addition, we recommend consolidating several categorical programs into two block grants in order to allow districts greater flexibility in directing resources where they are most needed.

As noted earlier, community colleges use apportionment monies to meet basic operating costs such as employee compensation, utilities, and supplies. By contrast, they must spend categorical funds for specific purposes as prescribed by statute. Categorical programs support a wide range of supplemental activities—from services for disabled students to health insurance for part–time faculty.

Proposed Budget–Year Cuts to CCC Categorical Programs

As detailed in Figure 3 earlier in this chapter, the Governor's budget proposal would reduce funding for all 22 CCC categorical programs by a total of $52.5 million as compared with current–year levels (or $80 million as compared with the Governor's workload estimates for 2008‑09). The proposed cuts together amount to a 7 percent year–over–year reduction in Proposition 98 General Fund support for these programs. While the impact would vary from program to program, generally these cuts would result in lower funding rates and/or reductions in the number of recipients served.

Legislature Should Adopt Targeted Cuts Rather Than Across–the–Board Approach. In making reductions to all categorical programs, the administration states that it is attempting to “protect essential services by spreading reductions as evenly as possible so that no single program is singled out for severe reductions.” We think this approach mistakenly assumes that all programs are of equal importance to the state. We recommend instead that the Legislature seek to preserve funding for those programs and services that are most critical to the state, and achieve needed budget savings by eliminating or further reducing lower–priority programs. Below, we identify one such program.

Recommend Reducing Support for Economic Development Program

In order to preserve the California Community Colleges’ core priority of student services, we recommend the Legislature reduce funding for the economic development program by $11 million, returning program funding to its 2005–06 level. (Reduce Item 6870–101–0001 [16] by $11 million.)

The purpose of CCC’s economic development program is to provide job–related training and technical assistance to businesses and organizations. The program provides a variety of grants to community colleges to assist businesses in industries such as biotechnology, health care, and small business development.

Two years ago, base funding for the program was $35.8 million. In 2006–07, base funding was increased by $15 million to $46.8 million. This augmentation was provided to help various businesses enhance training of their existing workforces—not to educate additional students at the community colleges. The Governor's 2008‑09 budget would reduce funding for the economic development program by $5.1 million (10.9 percent), from $46.8 million to $41.7 million.

As we noted in our 2002–03 Analysis of the Budget Bill (page E–253), the economic development program is not directly related to CCC’s core mission of educating students. Instead, the program’s primary purpose is to provide services to business. In order to avoid reductions in core educational programs, we thus recommend additional reductions to the economic development program (beyond the Governor's proposed 2008‑09 level). Specifically, we recommend the program’s budget be reduced to $35.8 million, which is the same level of funding provided to the program in 2005–06. We note that businesses that benefit from this program could backfill this General Fund reduction with private funding.

Categorical Reform

Many Categorical Programs Are Inflexible and Inefficient. Categorical programs are designed to ensure that districts address specific priorities. Generally speaking, categorical programs address situations where circumstances might otherwise lead districts to underinvest in a particular service that the state views as critical to the educational process.

However, CCC’s categorical programs—like those of other state agencies—have several drawbacks, including:

• Inflexibility. The CCC’s categorical programs are highly prescriptive in terms of how funds are spent. Yet, California’s 109 community colleges have different student populations and local resources, and thus the needs of students can vary. By requiring districts to spend funds for a specific purpose (such as part–time faculty office hours), categoricals limit local flexibility to direct funding in ways that address student needs most effectively and efficiently.
• High Administrative Costs. Categorical funds are expensive for districts and the CCC Chancellor’s Office to administer. Districts must apply for, track, and monitor the appropriate use of categorical funds, and the Chancellor’s Office must oversee districts’ compliance with numerous statutory and regulatory requirements.
• Focus on Inputs, Not Results. Because of the focus on how categorical funds are spent, the state and districts often lose sight of the outcomes the programs are intended to achieve (such as student achievement).

Recommend Consolidating Categoricals Into Block Grants

We recommend the Legislature combine ten separate categorical programs into two block grants in order to increase local flexibility.

As we discuss earlier in the “K–12” section of this chapter, we believe that block grants are a better alternative to categorical programs. A move to block grants could have several advantages over the current system of categorical programs, namely:

• Increasing Fiscal and Program Flexibility. With block grants, districts would be permitted to decide for themselves the way and amount of money they allocate to targeted purposes. For example, districts would be free to create a new program model that best suits their students, such as combining previously separate pots of categorical funds to help underprepared students.
• Creating Administrative Savings. Block grants could generate savings to districts due to the elimination of numerous application, accounting, and monitoring requirements.
• Increasing Accountability. Eliminating categorical program requirements reduces the state’s emphasis on what kind of activities districts fund. To the extent that this is accompanied by a renewed emphasis on outcomes, it would allow districts to select for themselves the best strategies for achieving student–focused results, as well as permit the Legislature to evaluate the results of local efforts.

In order to help districts make the most efficient use of state support, we recommend that funding for several existing categorical programs be combined into two block grants—Student Success and Faculty Support. Figure 9 summarizes the elements of our two proposed block grants. As the figure shows, the component programs receive a total of $490.7 million in 2007–08. We recommend the same total funding (though provided in two block grants) for 2008‑09. Under our proposal, roughly two–thirds of CCC’s categorical funds would be included in these block grants.

Student Success Block Grants. Our proposed Student Success block grant includes six related programs. By combining funding for these programs into one block grant, community college districts would be able to allocate student service funding in a way that best meets the needs of their students. As detailed in Figure 9, under our alternative proposal, the block grant would total $430 million, which is higher than the proposed individual funding for the six categoricals totaling $407 million under the Governor's budget. (Our proposed funding level for the block grant in 2008‑09 is equal to the total amount provided to community colleges for the six programs in the current year.)

Faculty Support Block Grants. Our proposed Faculty Support block grant includes funding for four programs to improve faculty performance and to recruit and retain part–time faculty. As Figure 9 shows, we recommend providing $60.7 million for the block grant, which is the same amount the four programs received in 2007–08. Since these monies would be distributed as a block grant, districts would have flexibility to allocate faculty resources to meet local campus needs.

Other Issues

CCC Chancellor’s Office

The Governor proposes an unallocated reduction of $1 million (non–Proposition 98 General Fund) from the Chancellor’s Office’s workload budget. Given current staffing needs at the Chancellor’s Office, we instead recommend a smaller reduction of $200,000 to reflect workload savings resulting from our separate recommendation to implement categorical reform.

The purpose of the Chancellor’s office is to oversee the statewide CCC system. Key functions of the Chancellor’s office include:

• Administering statewide programs.
• Providing technical assistance to districts.
• Issuing annual reports on the fiscal condition and educational effectiveness of districts.

In 2007–08, the Chancellor’s office is budgeted $20.5 million (all fund sources) for about 150 FTE staff, including $9.9 million in General Fund (non–Proposition 98) support.

Governor Proposes Unallocated Reduction. The Governor's budget for the Chancellor’s Office begins with workload adjustments. These include $174,000 for technical adjustments (to cover employee compensation increases and other costs), and $200,000 for two new staff. One of these positions would be assigned to the nursing program at the Chancellor’s Office, and the other would help administer CCC’s career technical education program. The administration asserts that these staff are necessary given the significant expansions that these programs have experienced in the past few years.

As part of his budget–balancing reductions, the Governor then proposes a 10 percent unallocated reduction of $1 million to the Chancellor’s Office General Fund workload budget of $10.3 million. As a result of these workload and budget–balancing changes, the budget would provide $9.3 million General Fund to the Chancellor’s Office in 2008‑09, a net reduction of $660,000 (or 6.6 percent) compared with the current year.

Recommend Smaller Reduction. We believe that the Chancellor’s Office performs a critical oversight function of the community colleges with a limited number of staff. The Chancellor’s Office has been subject to various base reductions since 2002–03, and is currently operating with 30 percent fewer funded positions than in 2001–02. We are concerned that the proposed $1 million (10 percent) cut to the Chancellor’s Office workload budget would leave the office with insufficient resources to perform its responsibilities.

Instead, we recommend a smaller reduction of $200,000 from the 2008‑09 workload level. We believe that the Chancellor’s Office could maintain current service levels with this level of funding. This is because, as discussed earlier in this chapter, we propose to convert a number of categorical programs into block grants. As a result of such a consolidation, there would likely be a modest reduction in administrative costs associated with the administration of these categoricals.

CCC Capital Outlay

The budget proposes $894 million in bond funds for 99 CCC capital projects in the budget year. Most of this amount would be funded from two bond funds—Proposition 1D (authorized by voters in November 2006) and a proposed bond measure which would appear on the November 2008 ballot. The proposed projects would also be supported by approximately $505 million in local CCC district funds in the budget year. Of the 99 projects, 44 would require additional appropriations beyond 2008‑09 at an estimated cost to the state of $544 million.

The proposed funding would support new phases of 27 projects previously funded by the state and 72 new projects. All but eight of the new projects would be funded with the proposed 2008 bond. As shown in Figure 10, the 72 new projects cover a wide variety of purposes—new classrooms, teaching labs, and faculty offices; renovations and replacements; campus infrastructure; and seismic–related improvements.

Implementation of Proposition 1D

Proposition 1D, the Kindergarten–University Public Education Facilities Bond Act of 2006, was passed by voters in November 2006. The bond act authorized $1.5 billion for CCC to construct new buildings and related infrastructure, alter existing buildings, and purchase major equipment for use in these buildings. As Figure 11 shows, $860 million—or 60 percent—of these funds have been allocated as of the 2007–08 Budget Act.

In contrast to UC and CSU, the remaining balance in CCC’s allocation of Proposition 1D ($235 million) is sufficient to complete all previously approved projects and those proposed to be started with Proposition 1D funds in 2008‑09.

2008 Bond Proposal

The Governor's proposal for the 2008 education bond would provide CCC with $3.8 billion for capital projects over five years. This amounts to $750 million per year, which is equal to the annual funding Proposition 1D provided to CCC. Since previously authorized bonds will provide enough funding for CCC to finish current projects, the proposed 2008 bond would be used only for new projects in the budget year, at a cost of $453 million. The cost to complete these projects in subsequent years would be approximately $419 million. The CCC will select projects for the 2008 bond funds based upon CCC BOG’s criteria, the same criteria used to choose projects for Proposition 1D.

CCC Chancellor’s Office Oversight of Capital Outlay Projects

In June 2007 the Legislature expressed concerns that the CCC Chancellor’s Office was not sufficiently overseeing the implementation of state–funded capital outlay projects by local districts. Central to these concerns were three CCC requests to reduce the scope of authorized projects in order to remain within budget. The Legislature raised the following concerns with the three projects:

• Failure to Follow the Established Process. For each of the three projects, the established process of legislative notification prior to making the scope change was circumvented. In each case, the required notifications came after the fact—the colleges proceeded with the scope change and completed preliminary plans without notifying DOF or the Legislature. This undermined the Legislature’s authority and its ability to review and potentially propose an alternative course of action.
• Significant Reductions in Program Space Without Justification. In each project, the community college district reduced the program space from that originally authorized by the Legislature. In each case, the community college district did not provide any information on how the programmatic purpose of the project would be met after reducing the project scope.
• Schedule Delays Increased Costs and Contributed to Scope Reduction. Each project experienced significant delays. This increased costs beyond budgeted amounts. Rather than request additional funding, the only remaining option was a decrease in scope. The community colleges, however, did not provide any reasons for these delays.

In response to the Legislature’s concerns, the CCC Chancellor’s Office sent a letter to all 72 CCC districts that reiterated reporting requirements and procedures of the State Public Works Board and the Legislature for changes in project scope. The Chancellor’s Office is also implementing strategies to improve communication with DOF concerning changes in scope, cost, and project schedule. In view of these circumstances, we recommend the Legislature continue to exercise careful oversight of the implementation of state–funded capital outlay projects.