League Update on the Governor's 2019-20 May Revision

Today, Governor Newsom presented a May Revision against a backdrop of increasing national risks and the inextricable linkage between fiscal resiliency and the state’s ability to promote affordability and economic opportunity. Building on the January Budget proposal, Governor Gavin Newsom identified three investment themes in the May Revision: an effective government, promoting affordability and opportunity, and supporting just and dignified treatment for all Californians.

The Governor maintains four notable expenditures for California Community Colleges in the 2019-20 May Revision:

1. A second year of free tuition to first-time full-time students and other local College Promise strategies,
2. Implementation of the Student Centered Funding Formula (SCFF) with adjustments to definition of transfer,
3. A buy-down of STRS rate increases, and
4. Increased award amounts and expansion of Cal Grant programs.

The May Revision includes a cost-of-living adjustment (COLA) of 3.26%, down from 3.46% in January, and new funding, of approximately $39 million, for deferred maintenance and instructional equipment. The May Revision fully funds Strong Workforce, allocating all but $1.4 million from ongoing funds. Note that funding for the current year (2018-19) is lower than January’s proposal.

Economic Context: While the state is on pace to build a Rainy-Day Fund at the constitutional cap two years earlier than anticipated, bringing the 2019-20 total to $16.5. billion, the May Revision proposal is designed to anticipate increasing costs to address natural disasters, a mild recession, inadequately funded pension obligations, and uncertainty about federally-funded programs.

Proposition 98 and Community Colleges: Governor Newsom aligns investments to his “cradle-to-career” framework. The Proposition 98 K-14 guarantee increased by $389.3 million for a total of $81.1 billion. For community colleges, the Governor’s 2019-20 May Revision increased by $340 million over the 2018-19 current year budget. Importantly, Governor Newsom honors the split of a 10.93% share of Proposition 98 for community colleges. Worth spotlighting is a new and problematic practice of funding programs, many of which only support K-12 education, prior to calculating the CCC share of Proposition 98. This practice further decreases funding dedicated to critical community college programs that enable Californians to reach their educational and career goals. Programs funded prior to the Proposition 98 split include: the Adult Education Block Grant and K-12 Strong Workforce programs ($515 million, $706 million, and $724 million in the prior, current, and budget years, respectively). The League will continue advocating for a more accurate accounting of funds.

The League, in collaboration with the Association of Chief Business Officials, the Association of California Community College Administrators, and the Chancellor’s Office, have crafted a technical joint analysis of the Governor’s May Revision. Its purpose is to provide factual information about the Governor’s May Revision as a common starting point for each organization’s further analyses and advocacy efforts. 

The Joint Analysis of the State Budget: Immediate Update on Governor’s Budget is available here.
 

Primary Proposal in the 2019-20 May Revision

Funding Formula – The Governor’s May Revision acknowledges the need to make technical adjustments to the new Student Centered Funding Formula (SCFF) to support an effective transition. As stated in the may Revision Joint Analysis, “under the Governor’s May Revision estimates, the revenues would be sufficient to cover 2018-19 Total Computational Revenue (TCR), which would mean the Chancellor’s Office would not administer a deficit.” While this is a relief for districts, it’s important to clarify that the Governor’s proposals reduce apportionments in 2018-19 mainly by reducing the transfer counts in the student success allocation ($49 million worth) rather than fully funding the SCFF as approved by the 2018 Budget Act.

While the Administration’s proposed adjustments remain relatively unchanged, they emphasize consideration of revisions to the SCFF as part of the 2020-21 budget process, once the work of the state Oversight Committee has concluded. For 2019-20, the Administration’s adjustments to the SCFF include: 

1. Mirroring 2018-19 funding rates plus COLA for 2019-20, thereby maintaining the 70/20/10 percentage distribution. 
2. Capping year-to-year growth in a district’s student success allocation to 10% beginning in 2019-20.
3. Adjustments to the definition of transfer outcomes for the student success allocation. Under the proposed definition, a student’s successful transfer would be attributed to the student’s district of residence. The League has identified this definition of transfer as problematic and counter to students’ right of college choice and free-flow.

Further, the Administration proposes to extend a “hold harmless” provision, specifying that districts will receive at least the 2017-18 TCR, adjusted by COLA, through 2021-22.

Pension Liabilities – The May Revision maintains the unique one-time $2.3 billion pay down of a share of unfunded liabilities within CalSTRS. The resources are allocated from the non-Proposition 98 General Fund and could reduce the district contribution rate by about four-tenths of a percentage point beginning in 2021-22.

College Promise and Free-Tuition – The Governor’s May Revision retains an allocation of $40 million for local College Promise programs, which includes resources to fund a second year of free tuition to first-time full-time students with incomes above the California College Promise Grant thresholds. The program continues to provide districts flexibility to cover students’ essential non-tuition costs and implement strategies to build a college-going culture.

Cal Grants and Financial Aid – Currently, the Cal Grant program distributes less than 10% of Cal Grant resources to California community college students, despite the fact that our students comprise two-thirds of the higher education population. Unfortunately, the Administration maintains this longstanding inequity and does not include a financial aid program to specifically support California’s community college students. The 2019-20 May Revision remains largely unchanged and proposes $121.6 million to increase or provide new access awards for students with dependent children attending a public higher education institution. The Cal Grant A access award is increased to $6,000 from $1,672, the Cal Grant B award is increased from $1,648 to $6,000, and the Cal Grant C award is increased from $1,094 to $4,000.
 

Advocacy & Call To Action

The League has identified an immediate need for advocacy to address several concerning proposals in the 2019-20 May Revision. Most concerning are:

1. The absence of an automatic backfill of the SCFF and local property taxes,
2. Exclusion of several shovel-ready and Board of Governors’ approved Capital Outlay projects, and
3. Practices that divert Proposition 98 funds from community colleges prior to the calculation of the statutory split.

Fully Fund the SCFF and Automatically Backfill Local Property Tax Shortfalls – California Community Colleges confront an inequitable fiscal burden when the State’s property tax estimates are higher than actualized revenues. Additionally, the deviation from the commitment to fully fund the SCFF has caused uncertainty and shortfalls in the current budget year just weeks from college graduations and the end of the academic year. Colleges are forced to absorb the shortfalls at the expense of student academic services and instruction. Funding protections recognize the 21st Century labor market necessitates at least some postsecondary education, and equalizes CCC with K-12 which already benefits from a mechanism to supplement shortfalls from property taxes or the SCFF. We implore state leaders to treat community colleges equally and automatically adjust the General Fund allocation to community colleges corresponding to any shortfalls in property taxes. 

Our advocacy request is to fully fund the SCFF and protect districts from a $49 million cut in the current fiscal year.

Bond and Capital Outlay – In 2016, California voters approved a facilities bond providing a $2 billion infrastructure investment in California’s community colleges. The 2019-20 May Revision only funds 12 of the 39 projects submitted by the Chancellor’s Office. State level decisions about the slow and inconsistent release of projects has resulted in confusion for districts, as projects are effectively being subjected to two competing standards. Our urgency is exacerbated by California Community Colleges’ unmet facilities need of $42 billion over the next 10 years and growing escalation cost of 2-3% per month. Failure to fund these capital projects is a missed opportunity to create jobs and to cultivate a skilled and educated workforce in communities throughout the state.

Affordability, Food & Housing Access – The state of California continues to value the success and dignity of students at the UC or CSU more than community college students. This is evidenced by a May Revision proposal of $6.5 million ongoing General Fund to support rapid rehousing of homeless students at CSU’s and $3.5 million ongoing General Fund for students in the UC system, yet no General Funds are provided for homeless community college students.

The Governor’s full budget summary is available here.

We look forward to working with Governor Newsom, Members of Legislature, legislative staff, and representatives from the Department of Finance in the weeks ahead to support a budget that strengthens California’s community colleges and the 2.2 million students it serves.

In the next week, Lizette Navarette, Vice President of the League,  will email budget advocacy resources with more details about key next steps. You can also follow budget updates on the League’s Advocacy Center or participate in our next monthly Government Relations Webinar on Tuesday, May 21, 2019 at 11:00 a.m. Register Here.