2006/07 Support Budget DOCUMENTATION. Accessible Affordable Quality

Transcription

1 2006/07 Support Budget DOCUMENTATION Accessible Affordable Quality

2 Table of Contents 2006/07 Support Budget 2006/07 CSU Budget Development Message /07 Budget Plan Summary /07 Support Budget Proposal 11 Mandatory Costs 11 Compensation 19 Enrollment/Student Fees/Financial Aid 23 Long-Term Budget Need 47 Budgetary Challenges 53 Center for California Studies and Special Funds 67 Price Increases 77 Budget Cycle Calendar /07 Support Budget 1

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4 CAMPUS MAP Campuses in Chronological Order Date Established 1 San José State University California State University, Chico San Diego State University San Francisco State University California Polytechnic State University, San Luis Obispo California State University, Fresno Humboldt State University California State Polytechnic University, Pomona California State University, Los Angeles California State University, Sacramento California State University, Long Beach California State University, Fullerton California State University, East Bay California State University, Stanislaus California State University, Northridge Sonoma State University California State University, 1960 San Bernardino 18 California State University, 1960 Dominguez Hills 19 California State University, Bakersfield California State University, San Marcos California State University, 1994 Monterey Bay 22 California Maritime Academy (1929) California State University, 1996 Channel Islands 2006/07 Support Budget 3

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6 2006/07 CSU Budget Development Message California s economic growth is dependent on the ability of higher education to produce an educated and technologically prepared workforce to compete in the global market. Investing in higher education guarantees every Californian an opportunity for a bright future and a pathway to success in their lifelong endeavors.after years of significant budget reductions to the California State University (CSU), the state found a way to increase funding to the university through the Compact for Higher Education designed as the first step to re-invest in the quality of education the university provides its students. The results are reflected in the overwhelming number of CSU graduates entering the fields of engineering, computer science, business, agriculture, nursing, and education. Recovery efforts from more than $500 million in budget reductions to the CSU and dramatic increases in student fees have not been easy. However, during these difficult fiscal times, the CSU made the quality of instruction delivered in the classroom its top priority. In addition, the university maintained its support for programs that enhance the success of students in their path to graduation, protected campus outreach funding, and increased funding for financial aid to a greater number of students with need. Budget reductions did force adjustments in course curriculum; however, campuses made every effort to ensure students were getting the course offerings they needed. The CSU also avoided layoffs through attrition and budget savings by not filling vacated positions. It s clear the university managed its budget reductions in the best interest of its students and employees. It s just as clear the CSU would have been unable to continue those budget efficiencies without a significant impact on student access, the quality of instruction students expect, and the employees who collectively contribute to the education of CSU students. Funding provided in the 2006/07 budget represents the second year of the Compact. Resources identified for 2006/07 are a continuing investment to meet mandatory costs, enhance student access, provide financial aid and base compensation funding, and restore core funding for technology, libraries, and deferred maintenance. The second year of funding under the Compact will restore student access to its highest level, with the CSU serving more than 435,000 students in the 2006/07 academic year. Student fees are consistent with the CSU Board of Trustees fee policy that calls for increases that are moderate, predictable, and affordable. The financial aid set-aside will fund the fee increases for current students with need and provide an additional 5,000 State University Grants to newly eligible students. The CSU is significantly behind its national comparison institutions in the salaries paid to employees. The compensation funding provided in the budget begins to address this salary lag that ranges from 3 percent to 49 percent among employee groups. Funding is also included for university technology, libraries, and deferred maintenance. 2006/07 Support Budget 5

7 The 2006/07 budget anticipates revenue increases from the state General Fund ($128.4 million) and student fee revenue ($107.0 million) for a total budget augmentation of $235.4 million. Support from this budget augmentation will increase total CSU state General Fund appropriations to $2.7 billion and fee revenue to $1.3 billion. Reimbursements of $202 million bring total Support Budget appropriation to $4.2 billion. The $235.4 million budget augmentation would support the following increases to the CSU budget: $33.6 million to fund mandatory costs for health benefits, new space, energy, and the full year cost of the 2005/06 service-based salary increase. $65.1 million to fund an enrollment increase of 2.5 percent 8,306 Full-time Equivalent Students (FTES) to provide access to more than 10,000 new students. $94 million to fund a 3 percent ($77.4 million) base salary increase and 0.64 percent ($16.6 million) to fund the first-year cost of employee salary lags. $10 million to fund the CSU s long-term need for technology ($5 million), libraries ($2.5 million), and deferred maintenance ($2.5 million). The 2006/07 Support Budget Documentation provides details for each of these budget requests. This document also outlines nearly $200 million in additional CSU budget challenges, representing ongoing and first-year costs that cannot be funded from the Compact revenue increase calculated for the 2006/07 academic year.with the continued support of the CSU Board of Trustees, CSU constituency groups, the governor, and the legislature, the university will uphold its dedication to maintain prominence as the nation s strongest public system for baccalaureate and master s degree education. $32.7 million for financial aid to support 115,532 State University Grants, representing an increase of 5,086 new grant awards. Patrick J. Lenz, Assistant Vice Chancellor of Budget Development Rodney M. Rideau, Director of the Budget /07 Support Budget

8 2006/07 Budget Plan Summary Three-Year Budget Summary 2004/ /06 Final 2006/07 Actuals Budget (Adjusted 1 ) Request General Fund Appropriations 2,475,792,000 2,592,630,000 2,721,093,000 Revenue 1,098,122,000 1,205,292,000 1,312,278,000 Reimbursements 175,624, ,049, ,049,000 Total CSU Appropriations 3,749,538,000 3,999,971,000 4,235,420,000 Three-Year Budget Summary by Program 2004/ /06 Final 2006/07 Actuals Budget (Adjusted 1 ) Request Instruction 1,573,636,000 1,675,270,000 1,675,270,000 Research 3,181,000 3,394,000 3,394,000 Public Service 10,985,000 10,849,000 10,849,000 Academic Support 440,741, ,219, ,219,000 Student Services 345,127, ,693, ,693,000 Institutional Support 507,106, ,965, ,965,000 Operation and Maintenance of Plant 463,585, ,481, ,481,000 Scholarships & Fellowships 229,553, ,898, ,898,000 Reimbursed Activities 175,624, ,049, ,049,000 Provisions for Allocation 0 36,153, ,602,000 Gross Expenditures 3,749,538,000 3,999,971,000 4,235,420,000 1 The 2005/06 GF Final Budget was $2,615,120,000 before adjustments. The adjusted GF Appropriations include a post-final budget employer-paid retirement reduction of -$22,490, /07 Support Budget 7

9 2006/07 Budget Plan Summary SOURCES OF FUNDS CSU 2005/06 Base Budget General Fund Support 2005/06 Final Budget General Fund $2,615,120,000 Less: 2005/06 post-final budget employer-paid retirement adjustment (22,490,000) 2005/06 Adjusted Final Budget General Fund 2,592,630,000 Less: Lease Bond Payments (61,668,000) Deferred Maintenance Bond Payments (4,187,000) CSU 2005/06 Base Budget General Fund Support 2,526,775,000 Partnership Agreement General Fund $128,463,000 3% Increase for General Operations 75,803,000 State Marginal Cost for 2.5% Enrollment Growth (8,306 $6,340 per FTES 52,660,000 Partnership Agreement Fee Revenue $106,986,000 Revenue from Enrollment Growth 27,482,000 Revenue from 8% Undergrad/10% Graduate Increase in State University Fee Rates 79,504,000 TOTAL SOURCES OF FUNDS $235,449, /07 Support Budget

10 2006/07 Support Budget Request USES OF FUNDS Mandatory Costs $33,629,000 Health Benefits Rate Increase 18,709,000 Full-Year (Service Step Increase) Compensation Costs 4,056,000 New Space 6,548,000 Energy Cost Increase 4,316,000 Enrollment Growth - 8,306 FTES (2.5%) $65,127,000 Financial Aid $32,739,000 State University Grants (33% Set-Aside from Marginal Cost Enrollment Growth Revenue) 6,238,000 State University Grants (33% Set-Aside from Undergrad/Postbacc and Grad SUF Increases) 26,501,000 Compensation $93,954,000 Compensation - 3% effective July 1, ,403,000 Compensation Funding to Reduce Salary Gaps 16,551,000 Long-Term Budget Need $10,000,000 Technology Network Equipment and Operations 5,000,000 Libraries 2,500,000 Deferred Maintenance 2,500,000 TOTAL USES OF FUNDS 235,449, /07 Support Budget 9

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12 2006/07 Support Budget Proposal Mandatory Costs HEALTH CARE PREMIUM INCREASE, $18,709,000 The California Public Employees Retirement System (CalPERS) administers CSU employee health care benefits. CalPERS offers a selection of health maintenance organization (HMO) and preferred provider organization (PPO) plans to its enrollees. Health care premiums are shared between the CSU and employees, with the CSU funding a significant portion of the premium costs.the 2006/07 CSU budget plan includes $18.7 million to fund the base increase in employer-paid health care costs resulting from January 2006 premium increases. Health care cost increases are determined by the number of CSU employee participants and the difference between the old and new employer-paid contribution rates. The following chart indicates the Government Code (employer-paid) health care contribution increases from 2002 through The 2006 percentage increase, while considerable, represents the smallest overall employer contribution change in several years. The total increase in CSU health care costs due to contribution changes during this five-year period is approximately $110 million. The CSU is governed by Government Code Section that defines how employer-paid health care contribution rates are calculated. Rates are based on the weighted average cost of the four largest health benefit plans. Either through policy or collective bargaining unit agreement, the CSU covers health Government Code CSU Annualized Calendar Year Health Care Contribution % Change Health Care Contribution $ Change (Contract Period) (Employer-Paid) (Budget Estimates) % $8,700, % $37,100, % $25,980, % $19,500, % $18,709,000 5-Year Increase in CSU Health Care Costs: $109,989, /07 Support Budget 11

13 GOVERNMENT CODE HEALTH CARE MONTHLY EMPLOYER CONTRIBUTION RATES Eligible Dependents Five-Year Increase % $ amount Employee Only $216 $288 $331 $362 $ % $178 Employee + 1 dependent $411 $537 $621 $679 $ % $327 Employee + 2 or more $525 $665 $780 $858 $ % $408 care costs for represented and non-represented employees up to an amount equivalent to the established Government Code rates, with the exception of Unit 6 (Skilled Crafts), which bargained CSU employer health contribution rates slightly above Government Code rates.the next chart shows the Government Code health care monthly employer contribution rates over the past five years and the total increase in rates since CalPERS offers CSU employees the choice of three health maintenance organizations (Blue Shield of California, Kaiser Permanente, and Western Health Advantage), two preferred provider organizations (PERSCare and PERS Choice), and one association plan (PORAC) for peace officers only. Changes in employee health care monthly deductions in 2006 are mostly minimal, depending on the health plan and the number of eligible dependents insured under the health plan. The 2006 health care contributions for employees will increase $0 to $4 per month for employees enrolled in the Blue Shield HMO plan, $0 to $16 per month for employees enrolled in the Kaiser Permanente HMO plan, $3 to $15 per month for employees enrolled in PERS Choice, and $28 to $81 per month for employees enrolled in PERSCare. The PORAC employee monthly deductions will decrease. The overall 2006 HMO employee health care monthly deductions range from $0 to $70 per month, whereas the PPO employee health care monthly deductions range from $7 to $109 for PERS Choice and $280 to $819 for PERSCare, depending on the number of eligible dependents insured under the health plan. In 2005/06, the permanent base costs of the January 2005 employer health care premium increases were funded ($19.5 million). In the prior two years, increases in CSU health benefit costs were not funded due to state budget shortfalls. Over that two-year period (2003/ /05), the CSU absorbed $64.1 million in employer-paid health premium increases.the lack of funding for employerpaid health care increases compounded the impact of the budget reductions that the CSU experienced during those years. Also, while the 2006/07 budget request funds permanent base costs related to January 2006 employer health care premium increases, the CSU will absorb related one-time health care costs from premium increases during the six-month period (January-June 2006) in fiscal year 2005/06 that exceed $9 million /07 Support Budget

14 FULL-YEAR SERVICE SALARY INCREASES, $4,056,000 Service-based Salary Increases (SSIs) are implemented on an eligible employee s anniversary date. Therefore, costs incurred in the first year of SSI implementation are less than full-year costs. In 2006/07, $4 million is required to cover the remaining full-year costs of Service Salary Increases that took effect in 2005/06 on employee anniversary dates. Of the $4 million full-year costs requirement, most ($3.9 million) results from SSIs were included in the CSU Employee Union (CSUEU) 2005/06 compensation bargaining agreement. 2006/07 Support Budget 13

15 NEW SPACE, $6,548,000 The CSU is scheduled to open an estimated 777,678 square feet of new space in 2006/07. Funding of regular maintenance for this new space will be provided at the rate of $8.42 per square foot. This equates to $6.5 million in permanent base budget support for regular maintenance. Regular maintenance includes the cost for utilities, building maintenance, custodial, landscape, and administrative support. The CSU is also reviewing maintenance cost for 85,800 square feet of new health services space scheduled to open in June 2006 at San Diego State University. As reported in previous Support Budget documents, the CSU has been reviewing industry standards that would increase the current rate of funding for new space. A final methodology has not been established. The CSU will use the current rate of $8.42 per square foot for regular maintenance of new space in 2006/07. Although CSU efforts to maintain its funded regular maintenance budget have been successful, the CSU s deferred maintenance need continues to grow because the cost of critical repairs in older buildings exceeds the average funding provided for regular maintenance. Consequently, delays in the scheduled repair of building space five years old or less offset some of the gains that are made as critical repairs occur in older buildings. Current analysis of data under review indicates the $8.42 per square foot cost standard the CSU recognizes in 2006/07 for ongoing maintenance (regular maintenance and scheduled repair) should be more appropriately budgeted at $10.13 per square foot to recognize the added cost of scheduled repairs. Campuses currently use productivity and efficient management of available resources to satisfy a portion of this unfunded need, but they most often have to delay scheduled repairs, which increases the deferred maintenance backlog. Although the CSU will continue to review its regular maintenance budget to achieve a better approximation of regular maintenance need, there is general consensus that the $8.42 per square foot rate will restore an adequate funding base for opening and operating a new building and for mitigating growth in the CSU s deferred maintenance backlog /07 Support Budget

16 THE CALIFORNIA STATE UNIVERSITY 2006/07 CUSTODIAL AND FARM SPACE SUMMARY Campus Facility # Facility Name Completion Square Amount Date (M-Y) $8.42/ft Channel Islands 007 Plant Operations/Gym Jul-03 11,177 $94, Science Building Aug-04 2,000 $17, Manzanita Hall Jan-00 4,635 $39,000 17,812 $150,000 Chico 039 Yolo Hall Dec-02 3,626 $31, Yuba II Oct-98 2,297 $19, Warrens Reception Center Jul-00 3,359 $28, FMS Administration Bldg Nov $2, Student Services Center Nov ,865 $1,009, ,331 $1,089,000 East Bay 060 Facilties Management Jun $4,000 Modular 021 Business and Tech Center Jun-06 67,872 $571,000 68,352 $575,000 Humboldt 088 Building 88 Sep-03 3,906 $33,000 (Graphics Facility) 104 South Campus Restrooms Feb $6, Temporary Buildings Mar-04 1,968 $17,000 (BSS Project) 161 Mill Street House Jun-06 3,817 $32, Mai Kai Jun-06 34,776 $293,000 45,139 $381,000 Los Angeles 027A Science Replacement Oct ,421 $896,000 Wing A Maritime Academy 012 Seamanship Facility Jan-96 3,682 $31,000 Monterey Bay 037 Facilities Service and Sep-02 4,489 $38,000 Operations 035 Shipping and Receiving Sep-02 1,580 $13, PE Facility Jan-04 3,682 $31, A Field House Feb-04 5,700 $48,000 15,451 $130,000 Northridge 021 Parking and Public Safety Dec-06 25,917 $218,000 Building Pomona 003A Modular Surge Space May-06 1,920 $16,000 (Sci Reno Project) 003B Modular Surge Space May-06 1,920 $16,000 (Sci Reno Project) 003C Modular Surge Space May-06 1,920 $16,000 (Sci Reno Project) 2006/07 Support Budget 15

17 THE CALIFORNIA STATE UNIVERSITY 2006/07 CUSTODIAL AND FARM SPACE SUMMARY (Continued) Campus Facility # Facility Name Completion Square Amount Date (M-Y) $8.42/ft Pomona (cont.) 003D Modular Surge Space May-06 1,440 $12,000 (Sci Reno Project) 003E Modular Surge Space May-06 1,440 $12,000 (Sci Reno Project) 003F Modular Surge Space May $4,000 (Sci Reno Project) 013A Wind Tunnel Control Room May $4, C Horse Barn Jun-05 6,278 $53, A Facilities Planning & Sep-04 1,440 $12,000 Management Annex 109 Public Safety Facility Sep-06 15,298 $129, EH&S Hazardous Materials Jun $8,000 Transfer Facility 33,554 $282,000 San Francisco 021 Marine Support Aug-05 2,625 $22, Blacksmith Shop Aug-05 3,250 $27, Arc Welding Aug $2, Administration Aug-05 7,440 $63, Rockfish Aug-05 2,480 $21, Dispensary Aug-05 1,364 $11, Storage Shed Aug $5, Physiology Aug-05 4,712 $40, Storage Shed Aug-05 5,766 $49, A Computer Office Aug $3, Utility Aug $2, Warehouse Aug-05 8,120 $68,000 37,227 $313,000 San José 134 Dr. Martin Luther King, Jr. Library Aug-03 75,385 $635,000 San Luis Obispo 74F Live Scan Modular Jan $5, Engineering IV Jan ,631 $881, PE Facility Aug-05 3,682 $31, ,854 $917,000 Stanislaus 35 Science II Building Dec ,553 $931,000 Total 777,678 $6,548,000 Under Review San Diego 031 Counseling Disabled & Jan-06 85,800 $722,000 Student Health Services Total Projected New Space Facility Requirement Total 863,478 $7,270, /07 Support Budget

18 ENERGY COST INCREASES, $4,316,000 Energy costs associated with electricity, natural gas, and water/sewer are increasing. The current estimate of utilities increases are identified below: Electricity (8.5%) $5,100,000 Natural Gas (12%) 2,700,000 Water/Sewer (8%) 700,000 Total Energy Cost Increase $8,500,000 The 2006/07 budget plan currently includes approximately $4 million to assist with increases in electricity, natural gas, and water/sewer rate occurring at campuses, which would cover roughly half of projected need. This projection is likely to change as the full impact of hurricanes Katrina and Rita on the nation s fuel supplies is known. There are CSU systemwide energy efficiency and conservation efforts geared toward reaching two major goals by 2010: reducing total energy consumption by 15 percent and increasing the CSU s self-generation capacity to 50 megawatts. To meet these goals, the CSU is holding designers and engineers to a standard that will exceed the current California energy efficiency code by 15 percent, and campuses are replacing inefficient equipment whenever possible. Although these efforts are underway, utility costs continue to rise in the short-term due not only to rate increases but also the increase of energy use intensity (EUI) with students, faculty, and staff demand for technology and electronic equipment. 2006/07 Support Budget 17

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20 Compensation 2006/07 COMPENSATION INCREASE, $77,403,000 It is essential that the CSU fund compensation that supports recruitment and retention of highly qualified and motivated faculty, staff, and management. The CSU 2006/07 Support Budget plan includes a 3 percent ($77.4 million) compensation increase for faculty and staff (non-faculty). The actual distribution of the compensation increase would be determined by individual collective bargaining agreements negotiated with represented employees and chancellor approval for non-represented employees. The following table shows the faculty and staff compensation components from which the CSU 2006/07 cost of a 1 percent salary increase and total 3 percent increase in compensation funding are derived: The 2005/06 compensation base is comprised of salaries, retirement, and social security (OASDI and Medicare) budgeted by campuses.the 2005/06 compensation base has been adjusted for changes in employer-paid retirement rates (-$22.5 million) that the California State Department of Finance processes after the start of the fiscal year. ESTIMATED 2006/07 COST OF 1 PERCENT SALARY INCREASE 2006/ / / /06 Cost of 1 Percent Final Budget Retirement Adjustment Adjusted Base Salary Increase Faculty Salaries $1,094,766,000 $0 $1,094,766,000 $10,948,000 Retirement 186,351,000 (11,823,000) 174,528,000 1,745,000 Social Security 83,750, ,750, ,000 Total $1,364,867,000 ($11,823,000) $1,353,044,000 $13,530,000 Staff Salaries $1,001,388,000 $0 $1,001,388,000 $10,014,000 Retirement $163,975,000 ($10,666,000) $153,309,000 $1,533,000 Social Security $72,393,000 $0 $72,393,000 $724,000 Total $1,237,756,000 ($10,666,000) $1,227,090,000 $12,271,000 Cost of 1 Percent $2,602,623,000 ($22,489,000) $2,580,134,000 $25,801,000 Cost of 3 Percent Salary Increase: $25,801,000 X 3 = $77,403, /07 Support Budget 19

21 2006/07 SALARY LAG FUNDING, $16,551,000 The CSU funded a total 3.5 percent compensation increase for 2005/06 that included a 0.5 percent increase to reduce faculty and staff salary lags. Beginning with 2006/07, the CSU is developing a fiveyear strategic budget plan to address faculty and staff salary lags. The 2006/07 budget plan includes a.64 percent supplemental compensation increase ($16.5 million) to reduce faculty and staff salary lags. The five-year salary lag funding plan is described in the Budgetary Challenges section. CPEC FACULTY SALARY LAG AND CSU COMPENSATION FUNDING The California Postsecondary Education Commission (CPEC) annually issues a report on faculty salaries at California public universities to the Department of Finance and the Office of the Legislative Analyst. In fiscal year 2005/06, the CPEC-projected faculty salary lag is 16.8 percent. After adjusting for 2005/06 compensation increases, the unfunded faculty salary lag is 13.3 percent. The table below provides information on the CSU s faculty salary lag history from 1996/97 through 2005/06: Fiscal CPEC Projected CSU Compensation CSU Compensation Projected Unfunded Year Faculty Salary Lag Increase Increase Faculty Salary Lag (Final Budget) (Per Labor Agreement) 1996/97 9.6% 4.0% 4.0% 5.6% 1997/ % 4.0% 4.0% 6.8% 1998/ % 5.7% 5.7% 5.5% 1999/ % 6.0% 6.0% 5.1% 2000/01 8.9% 6.0% 6.0% 2.9% 2001/02 7.9% 2.0% 3.18% 4.7% 2002/ % 1.5% 2.97% 7.6% 2003/ % 0.0% 0.8% 10.8% 2004/ % 0.0% 0.0% 12.7% 2005/ % 3.5% 3.5% 13.3% /07 Support Budget

22 Following are historical compensation settlements for non-faculty employees over the past 10 years: COMPENSATION INCREASES FOR NON-FACULTY (FINAL BUDGET) 1996/97 4.0% 1997/98 4.0% 1998/99 5.0% 1999/00 4.0% 2000/01 6.0% 2001/02 2.0% 2002/ % 2003/04 0.0% 2004/05 0.0% 2005/06 3.5% As a result of this funding history, salary lags for the various CSU employee groups range from 3 percent to 49 percent. 2005/06 EMPLOYER-PAID RETIREMENT ADJUSTMENT The California Public Employees Retirement System (CalPERS) defined benefit pension plan is funded by employer-paid contributions, employee contributions, and the plan s investment earnings. Employer-paid contribution rates adjust each year in order to meet defined pension benefit obligations.after several years of rising employer retirement rates, the 2005/06 employer-paid retirement rates declined slightly. The reductions resulted largely due to the CalPERS Board efforts to reduce volatility in employer contribution rates by adopting an Employer Rate Stabilization Policy effective for the 2005/06 fiscal year. The CSU 2005/06 employer-paid retirement adjustment is equivalent to -$22.5 million.the state Department of Finance processes state agency retirement adjustments during the fiscal year. The table on the next page provides CalPERS employerpaid retirement contribution rates and adjustments from 1997/98 through 2005/06: 2006/07 Support Budget 21

23 CalPERS Employer-Paid Retirement Rates* CSU Employer-Paid Miscellaneous Peace Officer/ Firefighter Retirement Adjustments Fiscal Year Tier 1 (General Fund only) 1997/ % % 1998/ % 9.591% -$60,861, / % 0.000% -$104,155, / % 2.729% -$26,297, / % 9.638% $84,244, / % % $68,074, / % % $155,112, / % % $44,418, / % % -$22,490,000 California Government Code Section requires the state to include in the annual budget the employer-paid retirement rates established by the actuary, and requires the legislature to adopt the rates and authorize the appropriation in the Budget Act. Also for reference regarding 2005/06 employer-paid retirement rates, see CSU Human Resources Administration coded memorandum HR/Benefits available from Web page: calstate.edu/hradm/pdf2005/tl-ben pdf. EMPLOYEE RETIREMENT CONTRIBUTIONS The miscellaneous tier 1 employee contribution rate has remained constant since July 1, Government Code Section (b)(1) provides that employee retirement contribution rates for state miscellaneous tier 1 members employed by the CSU who are in the federal system (Social Security) shall be 5 percent of compensation in excess of $513 per month. Most CSU employees (approximately 99.1 percent) with CalPERS retirement benefits fall within the CalPERS miscellaneous tier 1 category. Retirement benefit formulas were enhanced for employees in the state miscellaneous tier 1 category to 2 percent of final compensation at age 55 for those who retire on or after January 1, The remaining CSU employees with CalPERS retirement benefits have designated CalPERS Peace Officer/Firefighter category benefit levels.the employee contribution rate for this group is subject to Government Code Section 20687, which provides that employee retirement contribution rates shall be 8 percent of compensation in excess of $238 per month. Pursuant to a collective bargaining agreement for the represented employees, the CSU pays the full employee contribution. Retirement benefit formulas were enhanced for employees in the Peace Officer/ Firefighter category to 3 percent of final compensation at age 50 for those who retire on or after January 1, /07 Support Budget

24 Enrollment/Student Fees/Financial Aid 2006/07 MARGINAL COST OF INSTRUCTION Following is the 2006/07 marginal cost calculation (MCC) that is based on the current budget methodology that was negotiated in 1996 between the CSU, the University of California, the Department of Finance, and the Legislative Analyst s Office at the request of the legislature: 2006/07 MARGINAL COST OF INSTRUCTION CALCULATION METHODOLOGY Average Average 2005/06 Components Per Student Discount Per Student Faculty Salary $59,649 (Per Student 18.9:1) 3,156 3,156 Faculty Benefits 21,922 (Per Student 18.9:1) 1,160 1,160 Teaching Assistants Annual Salary 28,852 (48.37% of faculty) Instructional Equipment 42,471,747 Total FTE Students 332,223 Per Student Instructional Support 284,487,605 Total FTE Students 332,223 Per Student % 770 Academic Support 477,219,226 Total FTE Students 332,223 Per Student 1,436 15% 1,221 Student Services 364,501,152 Total FTE Students 332,223 Per Student 1,097 20% 878 Institutional Support 515,964,957 Total FTE Students 332,223 Per Student 1,553 35% 1,009 Total Marginal Cost $9,656 $8,592 Less: Fee Revenue (2,252) General Fund Support $6, /07 Support Budget 23

25 2006/07 MARGINAL COST PROGRAM DETAIL 2005/ /06 Marginal Program Gross Final Budget Retirement Adjustment Cost Factor Instruction $1,688,113,000 ($12,843,029) 1,675,269,971 Instructional Faculty 1,401,959,000 (11,176,634) 1,390,782,366 Instructional Support 286,154,000 (1,666,395) 284,487,605 Research 3,415,000 (20,870) 3,394,130 Public Service 10,894,000 (44,940) 10,849,060 Academic Support 480,096,000 (2,876,774) 477,219,226 Student Services 366,855,000 (2,353,848) 364,501,152 Institutional Support 518,612,000 (2,647,043) 515,964,957 Operation and Maintenance of Plant 476,184,000 (1,703,244) 474,480,756 Scholarships & Fellowships 253,898, ,898,000 Reimbursed Activities 202,049, ,049,000 Provisions for Allocation 36,153, ,153,000 Gross Expenditures $4,036,269,000 ($22,489,748) Less Health Services Expenditures in Trust (13,808,000) Reimbursements (202,049,000) Gross General Fund Appropriations $3,820,412,000 For each additional student that the CSU enrolls, the state provides funding at marginal cost to support instruction and student educational and institutional support services. The state s share of CSU marginal cost is determined by discounting the gross marginal cost per full-time equivalent student (FTES) by the percentage share of State University Fee revenue to the gross General Fund operating budget as appropriated in the Budget Act. The 2006/07 state s share of marginal cost based on current methodology is $6,340 per FTES, or a total of $52.7 million to support enrollment growth of 8,306 FTES /07 Support Budget

26 The negotiated marginal cost rate is a reflection of previous budget allocations to the institution and does not reflect a needs-based calculation of the marginal cost of instruction. This negotiated rate sustains enrollment growth at comparable levels of service received by students in the previous fiscal year. To calculate the marginal cost of enrollment growth, current-year CSU program area budgets for Instructional Support,Academic Support, Student Services, and Institutional Support are averaged against current enrollments and then discounted by negotiated deflators. The negotiated deflator percentages were designed to adjust for fixed-costs funding included in the average cost per student that typically is not affected by the annual change in CSU enrollment levels. However, the marginal cost calculation does not recognize increased fixed costs associated with increased enrollment thresholds. The marginal cost calculation also includes a component for instructional equipment that is based on the actual depreciation of equipment at campuses. The instructional equipment depreciation model uses the criteria established by the state for the CSU and the University of California. The cost of depreciation on CSU equipment is $42.5 million. The marginal cost component recognizes the portion of depreciated costs associated with equipment replacement necessitated by the annual increase in student enrollment. The marginal cost methodology is currently under review with the CSU, the University of California, the Department of Finance, and the Legislative Analyst s Office.The CSU proposal is discussed in a subsequent section. Faculty costs are based on a negotiated student/faculty ratio of 18.9 to 1. The average new hire rate for a CSU tenure/tenure-track faculty member in fall 2004 was $59,649. The faculty salary is intended to reflect the average cost of hiring a new faculty member. 2006/07 Support Budget 25

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28 ENROLLMENT GROWTH, $52.6 MILLION The 2006/07 budget plan includes enrollment growth of 2.5 percent or 8,306 full-time equivalent students (FTES). Based on this enrollment growth and the 2006/07 state marginal cost of $6,340 per FTES, the correlating General Fund increase is $52.6 million. The Higher Education Compact calls for 2.5 percent annual enrollment growth at the CSU through fiscal year 2010/11.The level of growth is consistent with enrollment targets projected on the basis of numerous factors including review of the Department of Finance Demographic Research Unit s enrollment projections, consultation with campus presidents, and reviews of K-12 enrollment patterns. From 2005 through 2013, the Department of Finance projected enrollment demand for the CSU to increase by more than 96,000 students, with fall term headcounts growing from a projected 409,641 students to a 2013 headcount of 506,077 students. The table at the bottom of the page illustrates funded versus actual FTES enrollment targets from 1996/97 through 2006/07: DEPARTMENT OF FINANCE FALL TERM ENROLLMENT PROJECTION Headcount 520, , , , , , ,000 ` FTES CSU ENROLLMENT FUNDED TARGETS VS. ACTUAL FTES 400, , , , , , ,000 50, / / / / / / / / / / /07 Target 255, , , , , , , , , , ,529 Actual 262, , , , , , , , , /07 Support Budget 27

29 Based on the current Governor/CSU Higher Education Compact, CSU-funded enrollment growth will increase 2.5 percent each year through 2010/11. The Compact serves as a floor from which the CSU can predictably plan enrollment growth. CSU ENROLLMENT GROWTH UNDER THE HIGHER EDUCATION COMPACT FTES 380, , , , , , , , / / / /11 Funded Target 332, , , , , , /07 Support Budget

30 MARGINAL COST CALCULATION REVIEW Supplemental Report Language of the 2005 Budget Act required: The Department of Finance (DOF) and the Legislature Analyst s Office (LAO) shall convene a working group including the University of California and the California State University (CSU) to (1) review the current process of determining the marginal cost of each additional full-time equivalent student and (2) examine possible modifications to that methodology for the budget. As a result of the above, the CSU submitted the following proposal to revise the funding methodology for higher education enrollment growth to the DOF and the LAO. CSU Higher Education Enrollment Funding Proposal Following 10 years of funding under the marginal cost methodology for higher education adopted by the governor and the legislature in 1995, the CSU finds changes in the state s enrollment funding process are needed for the following reasons: The salary rate identified in the marginal cost methodology for new hires (Assistant Professor, Step III) is (1) no longer applicable based on collective bargaining contracts negotiated with CSU faculty the CSU currently hires under a salary range, not step; (2) cannot be adjusted to reflect the cost of hiring new faculty because change in the CSU salary schedule is linked to change in CSU compensation; and (3) does not recognize the actual cost to hire new faculty. The Student to Faculty Ratio (SFR) used in the methodology does not reflect the optimal level of instructional support students require, but rather is a reflection of average SFR the CSU and the University of California (UC) had to impose to counter higher education funding reductions in the early 1990s. The graduate unit load under the methodology is set at 15 units for a full-time graduate student whereas the unit load associated with full-time graduate study is set at 12 units for the UC and generally all of the CSU public comparison institutions, as well as graduate schools nationally. Average cost discounting to determine the marginal cost of instruction for new students was arbitrarily set to achieve a pre-established funding threshold.these arbitrary discounts were premised on the assumption that average program costs identified in the methodology would reflect full-funding need identified by the universities for the current year. However, both the CSU and the UC have experienced substantial reductions in General Fund support between 2002/03 and 2005/06 that were only marginally offset by large increases in student fee rates. Further, critical shortfalls in funding areas essential to the instructional program (instructional equipment replacement and libraries, for example) have eroded average cost funding by amounts that duplicate discounting used to determine marginal funding support for enrollment growth. No cost component is currently authorized to fund the marginal increase in facilities maintenance and operations required as student enrollment increases. RECOMMENDED ACTIONS: The following actions are 2006/07 Support Budget 29

31 recommended to address deficiencies in California s marginal funding methodology for enrollment growth at the CSU and the UC: 1. Use Average Cost per Student to Fund Enrollment Growth Additional Cost to State Use average new hire faculty salary rate $14.4 Million Use 12 units to define full-time graduate student Eliminate current discounts for fixed costs Include funding component for plant maintenance 2. Base Student-to-Faculty Ratio on Historically Budgeted Standard Additional Cost to State to Lower SFR 3. Fund Graduate FTES at 12 Units $2.3 Million Methodology Current Proposed w/o SFR Change with SFR Change FTES Increase 8,306 8,491 8,491 Dollars per FTES $6,340 $7,895 $8,169 State Enrollment Funding $52,660,000 $67,036,000 $69,363,000 Additional Cost to State for Base Graduate Enrollment $24.2 Million Total Additional Cost to State $40.9 Million 15-Unit 12-Unit FTES Load Load Change 2003/04 FTES Conversion 30,217 37,771 7, /93 FTES Conversion 19,022 23,778 4,756 Unfunded FTES (7,554-4,756) 2, /04 Marginal Cost 150% $8,660 Base Enrollment Graduate Conversion Cost $24,231,000 Because the marginal cost methodology is being reviewed in consultation with the UC, the Legislative Analyst s Office and the Department of Finance, the CSU recognizes that negotiations may result in findings and recommendations to the legislature that differ from these recommended actions.the CSU welcomes this opportunity to discuss recognized deficiencies in the current marginal cost funding methodology and intends to work cooperatively with all parties to ensure a reasonable and effective funding model is developed to address the instructional needs of students attending the CSU and the UC. Additional State Cost $14,376,000 $16,703, /07 Support Budget

32 CSU ENROLLMENT FUNDING RECOMMENDATION Use the Average Cost Per Student for State Funding of Enrollment Growth Current Marginal Cost Methodology per FTES $6,340 CSU Proposed Methodology per FTES $7,895 Additional Cost to State $14.4 Million Due to the state budget reductions that resulted in the loss of more than $500 million in operating support from 2002/03 to 2004/05, as well as structural deficiencies that resulted from the budget shortfalls of the early 1990s, the average cost expenditures for the instructional program areas currently used to determine marginal cost funding at the CSU already reflect significant discounting in general operating costs as well as for fixed-cost components typically associated with marginal discounting (e.g., equipment, administrative services). Further, discounts currently used in the methodology are arbitrary and cannot be justified by any funding standard or established definition for what constitutes a fixed-cost for instructional programs. In addition, it can be argued that although fixed costs however defined would not grow proportionally with enrollment growth, there are enrollment thresholds that trigger increased expenditures for fixed costs. These thresholds are not recognized in the current marginal funding methodology. proposed revision in unit load for CSU graduate enrollments).these costs do increase proportionally with student enrollment growth, and if not recognized on a full-time equivalent basis for enrollment growth funding, these costs should otherwise be funded for each additional student enrolled. Removing current discounts for determining marginal cost funding would allow the CSU to address the exacerbation of structural deficiencies as enrollments grow. The CSU would also revise the teaching assistant cost component to reflect the actual costs of hiring and student-to-teaching-assistant ratios.the current methodology is based on a percentage of total faculty salary and benefits costs. Changing the graduate unit load for a full-time student to 12 units would be consistent with the way the state funds graduate enrollment at the University of California and would be consistent with the graduate unit load for full-time students at the majority of the CSU s public comparison institutions. The impact of the change would be to lower the average costs per student, while increasing the number of students that would require funding support. The CSU assumes the state will continue to recognize the actual cost of new hires adopted in the 2005/06 budget process for enrollment growth. Using the CSU salary schedule to identify new hire costs has proven to be inherently flawed, as explained in the section that follows. The current methodology also does not recognize additional costs for plant operations and maintenance associated with enrollment growth.the average cost per student budgeted in 2005/06 for plant operations and maintenance is $1,193 per full-time equivalent student (excluding debt-service costs and using the 2006/07 Support Budget 31

33 TABLE 1: CSU ENROLLMENT FUNDING RECOMMENDATION Use Average Cost Per Student to Fund Enrollment Growth and Use a 12-Unit Load to Define Graduate Full-Time Equivalent Students Additional Cost to State for 2006/07 Enrollment Growth $14.4 Million 2005/06 Average Components per Student Faculty Salary $59,649 (Per Student 18.9:1) 3,156 Faculty Benefits 21,919 (Per Student 18.9:1) 1,160 Teaching Assistants 10,133 (Per Student 44:1) 230 Instructional Equipment 42,471,747 Total FTE Students 339,609 Per Student 125 Instructional Support 284,487,605 Total FTE Students 339,609 Per Student 838 Academic Support 477,219,226 Total FTE Students 339,609 Per Student 1,405 Student Services 364,501,152 Total FTE Students 339,609 Per Student 1,073 Institutional Support 515,964,957 Total FTE Students 339,609 Per Student 1,519 Operation and Maintenance of Plant 405,016,756 Total FTE Students 339,609 Per Student 1,193 Total Marginal Cost $10,699 Less: Fee Revenue -2,804 General Fund Support $7,895 CSU RECOMMENDED CHANGES IN CURRENT MARGINAL COST METHODOLOGY Use the Average New Hire Faculty Salary Rate for the Previous Fall Term The average hiring cost for new faculty at the CSU since 2001, by rank, at the start of the fall term is presented below: AVERAGE NEW HIRE FACULTY SALARY RATE Fall 2001 Fall 2002 Fall 2003 Fall 2004 Professor $90,269 $91,868 $91,928 $94,775 Associate Professor $67,198 $71,125 $69,007 $72,798 Assistant Professor $51,921 $55,229 $55,653 $56,566 Average, All Ranks $56,240 $58,772 $58,186 $59,649 Source: Faculty Data Summary Report, January 2005, Human Resources By comparison, the annual cost of CSU average new hires significantly exceeds the Assistant Professor, Step III salary rate in the CSU Salary Schedule, which was $44,796 in fall 2001 and has been $45,696 from fall 2002 to the present. Even if the entire average compensation pool increase of 3.5 percent the CSU has budgeted for 2005/06 was applied to the current salary schedule rate for Assistant Professor, Step III, the marginal cost rate for new faculty hires under the current funding methodology would only be $47,295 more than $12,000 less than it actually costs the CSU to hire new faculty, on average. Since the start of the 1999/2000 fiscal year, the CSU eliminated step hires for new faculty and negotiated salary ranges by faculty rank as part of the faculty collective bargaining agreement. Currently, the range for hiring assistant professors at the CSU (since /07 Support Budget

34 2002/03) is $43,600 to $82,000 per academic year. Within this range, the average cost of new hires is as shown on the previous page. However, there was no mechanism to recognize this change formally in the marginal cost methodology. The CSU recognizes the state s interest in separating CSU collective bargaining from the state budget process.the CSU supports this separation and has consistently requested that authority granted under the Higher Education Employee-Employer Relations Act (HEERA) to engage in collective bargaining with its represented employee groups be recognized by the state as budget plans and decisions are developed each year. However, the issue of faculty salary costs for new hires has little to do with collective bargaining and everything to do with market-driven hiring costs in a competitive national faculty market, the cost of living in California s university communities, and resource availability under the state s revenue-driven funding process for higher education. Consequently, if the state s commitment to hire new faculty in accordance with tenure-track guidelines that have been established through policy and/or intent is to be achieved, the CSU recommends that the actual cost of new hires in the previous budget year be used to reflect the marginal cost need to fund enrollment growth. Marginal cost funding has to address the needs for both undergraduate and graduate instruction, and a funding rate tied to the Step III salary rate for assistant professors constrains the CSU s ability to respond to and manage effectively enrollment demand. Adjust Student-to-Faculty Ratio to Recognize Historical Funding for the Mode and Level of Instruction During the 27 years the CSU received mode and level funding for enrollment, which recognized faculty need weighted for the type of instruction provided (lecture, laboratory, etc.) by level of student served (lower division, upper division, graduate), the average student-to-faculty ratio (SFR) was 17.4 full-time equivalent students for each full-time instructional faculty member.when the marginal cost methodology currently used to fund enrollment growth was negotiated, the SFR funding component was developed based on the average of reported SFRs for the 10 years preceding fiscal year 1995/96. CSU STUDENT-TO-FACULTY RATIO AVERAGES 17.4 Average Budgeted SFR under Mode and Level Funding (1964/65 through 1990/91) 18.9 Average Reported SFR used for Marginal Cost Methodology (1985/86 through 1994/95) Source: CSU Statistical Abstract to July 2004, Table 160 The decision to ignore a standard level of faculty support tied to the mode of instruction and level of students served (as recognized in previous state funding formulas for enrollment) created a structural deficiency that impacted the CSU s ability to manage enrollment growth to meet the demands of California s workplace and student s educational goals. Demand for academic programs that require lower SFRs and that are critical to California s economy such as nursing, agriculture, education, engineering, and health professions either could not be met or had to be managed down to levels that could be supported at the higher SFR required by the marginal funding methodology. In fiscal year 2003/04, 14 of the 25 reported CSU academic course disciplines (approximately 60 percent of all course disciplines offered) had an SFR that was lower than the marginal cost SFR provided for enrollment growth. 2006/07 Support Budget 33

35 The CSU recommends that the state fund enrollment growth at a student-to-faculty ratio that reflects historical budgeted mode and level rates (17.4 to 1, on average). Funding enrollment at the lower SFR would increase the cost to the state by $2.3 million above the average cost funding proposal identified in Table 1 on page 34. CSU COURSE DISCIPLINE 2003/04 SFR Nursing 11.5 Library Science 13.8 Architecture/Environmental Design 13.9 Physical Education 14.9 Engineering 15.8 Industrial Education 15.8 Agriculture and Natural Resources 16.2 Education 16.6 Fine and Applied Arts 16.7 Health Professions 17.6 Physical Science 17.9 Foreign Languages 18.2 Computer Sciences 18.7 Biological Sciences 18.8 Marginal Cost Methodology SFR - CSU 18.9 TABLE 2: CSU ENROLLMENT FUNDING RECOMMENDATION Use Average Cost Per Student, 12-Unit Load to Define Graduate Full-Time Equivalent Students, and Historical Budget SFR for Mode and Level of Instruction Additional Cost to State for 2006/07 Enrollment Growth $16.7 Million 2005/06 Average Components per Student Faculty Salary $59,649 (Per Student 17.4:1) 3,428 Faculty Benefits 21,919 (Per Student 17.4:1) 1,260 Teaching Assistants 10,133 (Per Student 44:1) 230 Instructional Equipment 42,471,747 Total FTE Students 339,609 Per Student 125 Instructional Support 284,487,605 Total FTE Students 339,609 Per Student 838 Academic Support 477,219,226 Total FTE Students 339,609 Per Student 1,405 Student Services 364,501,152 Total FTE Students 339,609 Per Student 1,073 Institutional Support 515,964,957 Total FTE Students 339,609 Per Student 1,519 Operation and Maintenance of Plant 405,016,756 Total FTE Students 339,609 Per Student 1,193 Total Marginal Cost $11,071 Less: Fee Revenue -2,902 General Fund Support $8, /07 Support Budget