DOCUMENT RESUME

ED 292 509 JC 880 144

AUTHOR Wellman, Jane V.TITLE Developments in Community College Finance. A Staff

Report to the California Postsecondary EducationCommission.

INSTITUTION California State Postsecondary Education Commission,Sacramento.

PUB DATE Dec 87NOTE 21p.; Report presented to the Administration and

Liaison Committee of the California PostsecondaryEducation Commission, December 14, 1987.

PUB TYPE Reports - Descriptive (141)

EDRS PRICE MF01/PC01 Plus Postage.DESCRIPTORS Administrative Problems; *College Administration;

Community Colleges; *Educational Finance; EducationalHistory; *Financial Problems; Financial Support;Governance; Policy Formation; *Program Budgeting;Resource Allocation; *State Aid; *Statewide Planning;Two Year Colleges

IDENTIFIERS *California

ABSTRACTA review is provided of the major fiscal, historic,

and management issues influencing the debate about community collegefinance and governance in California. The report begins with a briefdiscussion of the major points of difference between the fundingmechanisms for the community colleges and for the state's two publicuniversity systems. These differences include the community colleges'place in the budget process, their lack of statewide faculty salaryscales, their block budget allocations, their lack of stateexpenditure controls, their Board of Governor's lack of budgetaryflexibility, and their governance structure. An overview of thedifferent systems of finance under which the California communitycolleges have operated since 1975 is followed by a summary of themajor defects of the current funding system (e.g., enrollment-drivenbudgets, lack of enrollment planning or management, limited localdecision making, lack of state accountability and control, emphasison legislative liaison, and disagreement over state priorities).After summarizing the key elements of current proposals to fund thecolleges on a program budget basis, the report concludes with are-iteration of the California Postsecondary Education Commission'spolicy on college finance. The executive summary of the recent reporton community college finance by the Task Force on Assembly Bill 3409is appended. (UCM)

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DEVELOPMENTSIN COMMUNITYCOLLEGE FINANCE

A Staff Report to the CaliforniaPostsecondary Education Commission

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California's current law for financing its CommunityColleges is due to expire in 1989, by which time theLegislature and the Governor must agree on a new systemof finance for them. The California PostsecondaryEducation Commission has historically played an activerole in advising the Legislature and Governor onmatters of Community College finance, and that role isexpected to continue next year.

In anticipation of those discussions, Jane V. Wellmanof the Commission staff wrote this report as backgroundinformation for the Commission. She begins the reportwith a brief discussion of the major points ofdifference between the funding mechanism for theCommunity Colleges and that of Calibm.nies two publicuniversity systems. On pages 3-7, she then reviews thedifferent systems of finance under Which the CommunityColleges have operated since 1975, and she summarizesthe major perceived defects of the current fundingsystem as well as the key elements of current proposalsto fund them on a program budget basis. She concludesthe report on pages 7-8 witi a reiteration of theCommission's existing policy principles for CommunityCollege finance that are expected to guide staff indiscussions throughout the next year. Two appendicesreproduce those existing policy principles and theexecutive mummery of the recent report on CommunityCollege finance of the Task Force on AB 3409.

Ms. Wellman presented the report to the Administrationand Liaiscriammittee of the Commission at its December14, 1987 meeting. Additional copies of the report maybe obtained from the publications Office of theCommission at (916) 322-8031. Questions about thereport may be directed to Ms. Wellman at (916) 322-8017.

COMMISSION REPORT 87-46PUBLISHED DECEMBER 1987

THIS is one in a series of staff reports on important issues affecting California post-secondary education. These reports are brought to the California PostsecondaryEducation Commission for discussion rather than for action, and they represent theinterpretation of the staff rather than the formal position of the Commission as ex-pressed in its adopted resolutions and reports containing policy recommendations.

Like other publications of the Commission, this report is not copyrighted. It may bereproduced in the public interest, but proper attribution to Report 87-46 of the Cali-fornia PJatsecondary Education Commission is requested.

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Contents

The Nature of Community College Financein California 1

Evolution of Community College Finance 3

Perceived Problems with the Existing Finance System 5

Next Steps: Program-Based Funding 6

The Commission's Current Policy Positionon Community College Finance 7

Appendix A: Executive Summary, Task Forceon AB 3409 Report 9

Appendix B: Commission Principles for CommunityCollege Finance 15

Developments in Community College Finance

THE Commission has historically played an activerole in matters related to the funding and manage-ment of California's Community College system.That role is necessitated by several factors:

1. The unique place of the Community Colleges inCalifornia's system of postsecondary education asthe point of access for the overwhelming majorityof the State's students;

2. The instability of Community College finance fol-lowing the end of local fiscal control for Communi-ty College districts with the passage of Proposi-tion 13 in 1978; and

3. The active role of the State Legislature in the fi-nancing of Community Colleges, evidenced by thefact that that system alone in the three public seg-ments is funded by a mechanism that is writteninto law.

Because of its credibility in these matters, coupledwith the contentious nature of debate about Commu-nity College issues, the Commission and its staffhave also been asked on many occasions to coordi-nate discussions about important policy matters andit seeks to be a neutral voice in negotiations on long-term solutions to some of the systems' perennialfunding problems.

To help the Commission anticipate future develop-ments in Community College finance, this paper re-views briefly some of the major fiscal, historic, andmanagement issues that influence the debate aboutCommunity College finance and governance. It isorganized into five sections: (1) the nature of Com-munity College finance in California; (2) evolutionof Community College finance; (3) perceived prob-lems with the existing funding system; (4) next stepsin Community College funding, and (5) the Commis-sion's current position on Community College fi-nance.

The nature of Community Collegefinance in California

The California Community Colleges have a very dif-ferent place in the State budget process than theState's two public universities. The reasols for thedifferences are a function both of the history of theCommunity Colleges evolving as they have fromthe locally managed and funded public school system

and their size, serving over 1.1 million students at106 campuses managed by 70 different districts. Theessential differences, briefly, are six (1) their placein the budget process; (2) their lack of statewide fac-ulty salary scales: (3) their block budget allocations;(4) their lack of State expenditure controls; (5) theirBoard of Governor's lack of budgetary flexibility;and (6) their related governance structure

1. Place in the budget process

The budgets of California's two public universitysystems are treated as "state operations" for Statebudgeting purposes, whereas that of the CommunityColleges is classified as a "'local assistance" item, asis the public school system. Although the distinctionbetween the two is in some ways a budget artifactfrom the pre-Proposition 13 environment, the differ-ences are important technically as well as symboli-cally. As "state operations," the two universities re-ceive State funding in four major categories:

1. "Base" funding, adjusted by workload, fo. agreed-upon levels of support;

2. Salary adjustments;

3. Non-salary inflationary adjustments (known as"price increases"); and

4. New program funding.

With very few exceptions, the budget formulas usedto generate the "base" are not memorialized in stat-

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ute or regulation but remain flexible negotiation in-struments between the universities and the Depart-ment of Finance.

In contrast, as a "local assistance" item, the Commu-nity Colleges' funding level is set by law, and theirprograms are funded according to formulas that areput in statute. The Governor's Budget each yearproposes funding for whatever the law requires, ad-justed for current population, along with a cost-of-living adjustment (COLA) that is indexed to a mea-sure of inflation that is also put in law. The Gover-nor may propose flailing for a local assistance itemthat is greater than what is required by law, or, al-ternatively, may ask the Legislature to amend thestatute in order to give less, but because the fundingis set in statute, changes to the level require changesin the law. For that reason, the Community Col-leges must each year sponsor legislation on finance,even if only for minor technical changes. Anotherby- product of the local assistance budget character-istics of the Community Colleges is that the: budgetnegotiations focus, of necessity, heavily cra the Leg-islature, and the relationships that are built up be-tween the universities and the Department of Fi-nance tend not to exist for the Community Colleges.In a state such as California, with a strong executivebudget process, this fact can be very important overtime.

2. Lack of statewide faculty salary scales

California's two public universities have statewidefaculty salary scales, so faculty on all campuses arepaid on the same basis. Their salary scales are setby the Governor and the Legislature, based on amethodology that compares California faculty sala-ries to a set of agreed-upon institutions throughoutthe country. The Postsecondary Education Commis-sion is responsible under the law for maintainingthe faculty salary methodology and informing theGovernor and the Legislature of the amount ofmoney needed to keep the salaries at parity with thecomparison institutions. Although the faculty in theState University bargain collectively, the State Uni-versity and its faculty are prohibited by the salaryscale from agreeing at the oargainirtg table to in-crease oalaries beyond the parity figure.

The Community Colleges, conversely, have no state-wide salary scale; faculty salaries are set by local

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governing boards in consultation with facultythrough the collective bargaining process; and notechnical limit exists on salary increases that areagreed to by both parties in bargaining.

3. Block-budget State allocations

The operation of California's two universities arefunded on a "program budget" basis, whereby majorcategories of expenditure are agreed upon that re-flect the major activities of the campuses The majorcategories are: instruction, research, libraries, pub-lic service, student services, libraries, maintenance,administration, and auxiliary enterprises. For eachcategory, workload measures that are considered tobe fair measures of resource requirements are nego-tiated and agreed to by the Department of Financeand the Legislative Analyst.

In contrast, the Community Colleges are not fundedprogrammatically, in that their allocations are nottied to activities such as instruction or administra-tion, or to personnel or non-personnel costs. With theexception of non-credit education and their majorcategorical programs such as Extended OpportunityPrograms and Services, local allocations from theState are made on what is known as a "block-budget"basis a lump sum of resources not tied to any ex-penditure areas. The workload measure for this allo-cation is entirely enrollment-driven, measured by adevice known as "average daily attendance," or ADA.Because their budget is not funded programmatical-ly, comparing funding levels among the districts hashistorically been difficult.

4. Lack of State expenditure controls

Although faculty salary scales are perhaps the mostimportant form of State expenditure control overCalifornia's two public universities, the universitiesare also subjected to more detailed expenditure con-trol by the Department of Finance than are the Com-munity Colleges. Barring exceptional circumstancesand even then only with the permiv'on of the De-partment of Finance, they may not reallocate fundsto one program category that were budgeted to an-other category. Since no State budget categories orstatewide salary scales exist for the Community Col-leges, no expenditure control is possible by the State

5. Budgetary inflexibility of the governing board

The central administrations of California's two pub-lic universities make the allocations of State re-sources among their campuses, since the State allo-cates these resources on a lump-sum basis by pro-gram area to them. These campus allocations aremade according to student-faculty ratio and otherprogram workload measures. In this internal alloca-tion process, central administrators have some lim-ited ability to reallocate resources when necessary tocampuses in fiscal difficulty. In the Community Col-leges, however, the Board of Governors has no abili-ty to reallocate resources among the districts butrather passes on the resources strictly according toformula.

6. Governance

The system of finance has important implicat ons forthe governance of any system; indeed, a discussion offinance can as well be couched as a discussion of gov-ernance The controls by the State of expendituresand salaries in the two university systems have pow-erful implications for what decisions can be made atthe local campus level. In addition to a significantrole for the State in controlling expenditures, thetwo university systems are governed by statewideboards that have more management control of theirindividual campuses than does the Board of Gover-nors of the Community Colleges. That managementcontrol extends from the appointment of campuspresidents and chancellors to setting statewide per-sonnel policies for faculty and non-academic person-nel and statewide regulations on admissions andcurriculum. In addition, systemwide administratorsplay a central role in the development and negotia-tion of budget priorities with the Department of Fi-nance and the Legislature.

In the Community Colleges, conversely, the man-agement of local districts is the responsibility of lo-cally elected boards of trustees. The presence of 70individually elected boards, in addition to the state-wide Board of Governors (all of whom are appointedby the Governor), introduces a physical and politicalcomplexity into Community College governancethat is unparalleled in the two university systems.The Community Colleges' size alone makes state-wide line management of district affairs a practicalimpossibility.

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Evolution of Comm inity College finance

Over the past 15 years, three central themes havedominated the discussions of funding and reflectdilemmas that continue to the present day -- (1) theseparation of Community Colleges from the systemof public school finance and governance, without ev-er completely moving the Community Colleges intothe arena of State budgeting; (2) controls on courseclassification and on funding for adult non-crediteducation; and (3) the debate over the fundamentalmission of the Community Colleges and which func-tions of their mission deserve :till State funding.During this decade and a half, the Community Col-leges have operated under at least eight differentsystems of Community College finance, not counting"trailer bill" and other "technical" legislative changesin finance bills. According to a review of CommunityCollege finance by the Chancellor's Office for theBoard of Governors at its October 1987 meeting,these eight include the following:

1947-1973: State foundation program

Until 1973, State funding was set at a fixed rate ofsupport, tied to average daily attendance (ADA), at alevel identical for all districts. The support amountwas known as the "foundation level," and districtswere free to increase funding from local propertytaxes in excess of the State level if they so chose(This crncept of "foundation level" was identical tothe central finance mechanism then used for theschools.)

1973-1975: Revenue limits

The Serrano-Priest decision, which did not extend toCommunity Colleges, caused the State to change theway it financed the public schools in order to mini-mize inequities in funding between local districts.The Legislature's 1972 Joint Committee on the Mas-ter Plan urged that this Serrano principle be extend-ed to Community Colleges in order to extend Califor-nia's commitment to lifelong equality of opportunityfor access to poststcondary education. Accordingly,in Senate Bill 6 of 1973, the Legislature adopted forthe Community Colleges a "revenue limit" modelsimilar to the one put into place for the schools. Thisrevenue limit model set a different limit for each dis-trict, fixed the local property-tax contribution, andprovided additional State resources as necessary to

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equalize funding between districts. Senate Bill 6also supported unlimited access to Community Col-leges by funding all growth in enrollments, withoutdistinction to type or purpose of instruction.

1975-1976: Growth caps

The 1975 budget first put into place a 5 percent capon new enrollments in the Community Colleges, al-though the entitlement for students to attend underopen access was not changed. Growth above 5 per-cent was therefore allowed to occur, but this growthwas not funded.

1976 -1978: Tax rate control

Assembly Bill 1641 of 1976, sponsored by the StateDepartment of Finance, provided tax rate control tolimit each district's ability to increase property taxlevies and to limit the State's funding liability forADA growth. Because of the extraordinarily rapidrise in assessed valuation of property during thisperiod, these growth and cost controls were not par-ticularly hard felt at the local level, and revenuescontinued to be available to fund the core programand growth. Indeed, the assessed valuation growthwas so west that several districts lowered tax ratesduring this time.

1978-1979: Proposition 13 "bailout

When Proposition 13 was passed, the State chose toreplace lost local property tax revenues with Statefunds which were then in surplus. Senate Bill 154 of1978 was the Proposition 13 "bailout" legislation,and it shifted decision-making responsibility aboutthe distribution of local tax revenues to the State,where the revenues became a general source of reve-nue for the State budget. Local districts thus lost de-cision-making authority over local property taxes.SB 154 reduced tne Community Colleges' budget by7 percent overall and provided funding as a "blockgrant" unrelated to enrollments.

1979-1981: Marginal growth rate.equalization, and fixed appropriation

The year after Proposition 13, the Legislature pass-

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ed Assembly Bill 8 as a "permanent" solution to thenew revenue situation. Under AB 8, the Legislaturebegan to all'cate cost-of-living adjustments differen-tially throughout the State budget and gradually eq-ualize funding between local entities for the schools,public assistance and Community Colleges. For boththe. schools and Community Colleges, cost contain-ment on enrollment 4 - h was put into place with"marginal" rather than "full-cost" funding for ADAgrowth. The Legislature also fixed the appropriationfor Community Colleges and did not fund enrollmentgrowth beyond the budgeted amount. In 1980-81,enrollments grew 32,1100 beyond the budgetedamount, resulting in a $50 million budget deficit.

1981-1983. Non-credit rateand district ADA growth caps

By 1981, the Pre-Proposition 13 budget surplus wascompletely gone, and the Legislature had to makebase budget reductions throughout State and localgovernment. After considering the imposition ofCommunity College student fees, program cuts, andthe use of local district reserves, the Legislaturechose budget cuts by providing no inflation orgrowth funding and by eliminating $30 million fromapportionments to eliminate State support for "avo-cational, recreational, and personal development"courses. A new Community College finance bill wasalso required in 1981. The resulting legislation (As-sembly Bill 1369) was a companion bill to the 1983Budget Act, and it carried forward many of the con-cepts of Assembly Bill 8.

In 1983, the Legislature and the Governor were con-cerned about non-credit funding in the CommunityColleges. Debate was increasing about the missionof the colleges and whether non-credit (particularly"community service") courses were appropriate tothat mission. There was also concern about the dis-parity between the amount of money available forsuch classes in the Community Colleges relative tothe schools. AB 1369 created a new rate of supportfor non-credit courses, and required the CommunityColleges' Chancellor's Office to put into place a state-wide course classification system for credit and non-credit courses. The legislation also set ADA growthcaps at the district, rather than the statewide level.

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1983-1987: Senate Bill 351

Senate Bill 851 of 1983 was intended to carry for-ward a mechanism for Community College financethrough 1987. The mechanism continued the con-cepts of equalization and provided equalizationfunding at 10 percent of the cost-of-living adjust-ment in order to move the lowest revenue districts towithin 91 percent of the statewide average. It alsocontinued Assembly Bill 1369's two-thirds marginalrate for growth, its district growth cap, and its dis-tinction between credit and non-credit funding. Inaddition, it provided a new mechanism intended tostabilize budgeting to provide a buffer against short-term budget cuts associated with enrollment cuts.

The 1983 budget year also witnessed the controversybetween the Governor and Legislature over the im-position of Community College ",..1s. The Governorvetoed $100 million from the Co..:munity Colleges'budgets when the Legislature failed to establish a$50 per-semester fee. A compromise between allparties was reached in the middle of the budget year,but the districts received funds too late to re-toremany of the program cuts made for the fall andspring semesters. Statewide credit enrollmentswent down by 11 percent.

In 1984 and again in 1985, the Legislature and Gov-ernor took steps to protect district budgets againstfurther budget losses associated with reduced enroll-ments. By the end of 1984, Community Collegecredit enrollments had plummeted from a high in1981 from 1,205,585 to 981,845. Although enroll-ments since that time have stabilized and startedagain to grow, the growth caps in current law do notallow the enrollments to be funded to previous lev-els.

Senate Bill 851 was to sunset in 1987, but the Legis-lature and Governor extended its expiration date un-til the 1988-89 budget cycle to allow time for deci-sions about alternative financing systems to be putinto place. Thus Community College finance is ex-pected to be "reformed" once again next year.

Perceived problems withthe existing finance system

Perceptions vary widely both within and outside the

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Community College system about the major prob-lems with the current mechanism for CommunityCollege finance. At one end of the continuum is thebelief that the finance system is fine, but that thelevels of support are inadequate. At the other end isthe belief that the finance system is itself to blamefor inadequate funding and enrollment losses, andthat a changed system will generate more money forthe colleges.

At the State level, the Legislative Analyst has ar-gued that the current mechanism is fundamentallysound, but has called for a change in the equaliza-tion, cost-of-living adjustment, and growth mecha-nisms. The Department of Finance has pointed outthat Senate Bill 851 has been fully funded, and it isoa record as opposing a change in the system of fi-nance solely for the purpose of putting more moneyinto the system. The Postsecondary Education Com-mission and the Board of Governors have recentlybeen joined by the Commission for the Review of theMaster Plan in calling for a move from the aDa-driv-en funding system to a program-based system anal-ogous to that used for the two university systems,and the Commission for the Review of the MasterPlan has taken the argument one step further bycalling for a strengthened role for the Board of Gov-ernors in the budget development and negotiationprocess.

Whatever the specific solution, there are severalgenerally recognized problems with the system ofCommunity College finance that any new system offinance should attempt to resolve. These problems --

many of which result from the nature of the Com-munity Colleges themselves -- include the followingsix:

1. Enrollment-driven budgets

Community College budgets are exclusively enroll-ment driven and do not recognize that many costssuch as maintenance of the physical plant and size ofthe core administiation are only marginally relatedto enrollments.

2. Lack of enrollment planning or management

The open-access policy for Community Colleges doesnot allow for enrollment planning and managementto occur at the State or local level in a way analogousto the public university segments. There has never

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been a systematic reconciliation of the open-accesspolicy with the decision to limit appropriations tocertain enrollment levels, and thus there is no sys-tematic enrollment planning or management proc-ess in the Community Colleges. Because enroll-ments are not managed, they are extremely vulner-able to short-term economic and budgetary influ-ences. The problem of enrollment instability is exac-erbated by budgetary instability, and the fact thatthe rules of Community College resource allocationhave been so tinkered with in Sacramento over theput 15 years.

3. Limited local decision making

The size of the Community College system, as wellas its system of governance, means that programand staffing decisions have to be made at a locallevel; yet the capacity of locally elected boards oftrustees to manage local districts has been seriouslyeroded in the past ten years by the instability of thebudget process.

4. Lack of State accountability and control

At the same time that local control has been serious-ly eroded, statewide accountability in a climate ofdisagreement about Community College goals andpriorities has also been weak. Because there is noexpenditure control for the main apportionments,districts are free to spend their resources as they seefit. While there is a general agreement that theState cannot run the Community Colleges from Sac-ramento, there is not agreement about how to ensurereasonable accountability for State resources. Sus-picion about local decision priorities has grown inthe past several years, as several districts have gonebankrupt and needed to a3k the State for loans tokeep their operations afloat.

5. Emphasis on legislative liaison

Because the Community Colleges are funded in stat-ute, most attempts to influence State policy by in-dividuals within the system are exerted on the Leg-islature. Equal attention has not been given to im-proving the system's negotiation capacity with theDepartment of Finance and the Governor in theannual budget process.

6. Disagreement over State priorities

Fundamental disagreement remains about what as-pects of the system shotild be State priorities -- andtherefore given full State support -- and which are lo-cal options to be managed and funded at the locallevel. For eLamp:e, no agreement exists about wheth-er or not equalization of fundins for the districtsshould be a State priority or, if so, how it should beachieved.

Next steps: program-based funding

There is a good chance that Commenity College fi-nance will dominate much of the Legislature andGovernor's discussions relative to Community Col-lege reform in the next year. In anticipation of thislikelihood, the Legislature in 1986 requested theCommunity Colleges' Chancellor's_ Office to form atask force to develop recommendations on "a newstate support allocation mechanism, which is sensi-tive to and measures the full costs associated withthe delivery of community college programs and ser-vices."

The Task Force on AB 3409 included these members:

Del Anderson, Vice Preside: L.Skyline College

Gregg T. Atkins, Coordinator of Library ServicesCollege of San Mateo

Michael Brailoff, InstructorCollege of Marin

David Brown, Member, Board of TrusteesLos Rios Community College District

Judy Day, Budget AnalystState Department of Finance

Jerome Evans, ConsultantCommission for the Review of the Master Planfor Higher Education

Joe Freitas, Acting Vice Chancellor,Fiscal AffairsCalifornia Community Colleges

Karen Grosz, InstructorSanta Monica College

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Hilary Hsu, ChancellorSan Francisco Community College District

Ed Keith, InstructorCitrus College

Patrick McCallum, Executive DirectorFaculty Association for the CaliforniaCommunity Colleges

Robert Miyashuru, Budget AnalystOffice of the Legislative Analyst

Joseph Newmeyer, Vice Chancellor,Finance and FacilitiesNorth Orange Community College District

Jose Robledo, DirectorStudent Financial ServicesEast Los Angeles Community College

F. Arnold SchulerDeputy State Controller

Larry Toy, InstructorChabot College

Tom Van Gronigen, ChancellorYosemite Community College District

Jane Wellman (Chair) PostsecondaryEducational AdministratorCalifornia Postsecondary Education Commission

In its report to the Chancellor and the Board of Gov-ernors this past July (an executiv6 summary ofwhich is reproduced in Appendix A), the task forcerecommended that community College finance befunded on a program budget basis, based on the fol-lowing set of principles:

The funding system should reflect the postsec-ondary nature of the colleges;

The system should be congruent with the systemof governance;

The mechanisir should be sensitive to actualcosts;

The mechanism should promote stability overtime;

It should promote equity among the colleges;

There should be an avoidance of undue data col-lection; and

Student fees should be kept as low as possible.

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The task force derived its proposed workload mea-sures and objective standards for funding the Com-munity Colleges on a program budget basis in mostinstances from the funding levels now in place forthe State University. As an example, for then in-structional budget, the task force suggested reducingaverage class size from the current 30:1 to 25:1 -- thelower-division ratio of the State University -- and in-creasing the number of full-time faculty. All of thecost estimeas put forward by the task force are ten-tative, and refinements of them are continuing, butthe task force estimated that the statewide costs forthose changes if implemented in one year would be$214 million.

The task force recommended that the funding mech-anism be used for allocation purposes only and wasin general opposed to expenditure control by theState. It also made clear that a change to a newsystem of allocating resources would be an immenseadministrative and technical task and should not bedone unless accompanied by new resources to fundprogram improvement. Even without progress onprogram improvements, the costs to the State toimplement a program budget which would havethe effect of funding all districts at the statewide av-erage for all categories of activity -- is estimated tobe close to $100 million.

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The Department of Finance, the Academic Senate,and the American Federation of Teachers all submit-ted minority reports to the task force report. Some ofthe objections they raised were technical in nature,relating to the implementation of the approach, andare being worked out it consmtation between allparties as more work is done on La' allocation model.However, other objections -- particularly those raisedby the Department of Finance -- are fundamental tothe entire concept of a program budget and fundingstandards. These objections, coupled with the prob-lems of finding new resources, make full imple-mentation of program budgeting in the near futureproblematic.

The Commission's current policy positionon Community College finance

In 1983, the Commission adopted its Principles forCommunity College Finance to have in place a broad

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set of policy guidelines that could aid Commissionstaff in their work on the subject of Community Col-lege funding. (Appendix B lists the entire set ofprinciples.) These principles have several majorpremises-

Funding should support the mission of the Com-munity Colleges;

Funding should be sufficiently stable to supportlong-range planning at the statewide level as wellas local program decision making;

Local decision making should be supported withdiscretionary revenue at the local level;

State apportionments should promote equity

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among the districts; and

The financing mechanism should recognize dif-ferences in costs for different essential Communi-ty College operations.

These principles have effectively guided staff, on be-half of the Commission, as they have been involvedover the years in discussion of Community Collegefinance. They continue to be one of the most compre-hensive statements of principles for Community Col-lege finance yet put in place, and the staff expects touse them as its framework for discussions with otherinterested parties about ways to make improve-ments in State financing of Community Colleges.

Appendix A

Executive Summary, Task Force on AB 3409 Report

NOTE: This Executive Summary is reproduced from pages i-vii of A Program-Based FundingModel for the California Community Colleges: A Report to the Chancellor submitted by theTask Force on Community College Financing, June 1987. (Copies of the repor are availablefrom the Community College Chancellor's Office.)

AB 3409 directed the Chancellor's Office to convenea broad-based, short-term task force on communitycollege financing reform. The legislation chargedthe Task Force with de_ veloping specific recommen-dations on:

a new state support allocation mechanism that issensitive to and measures the full costs associatedwith the delivery of community college programs.and services:

revenue adjustment components of the mecha-rism, which would provide for adjustments on anincremental basis for increases or decreases inworkload, for equalization, for inflation, and forother legally authorized purposes;

specific funding methodology, which would differ-entiate among the major categories for operatingcommunity colleges, including, but not limited to,instruction, academic support, student services,institutional support, and plant operations andmaintenance;

specific workload measures applicable for eachcategory and subcategory.

Task force on Community College financing

To address the charges of AB 3409, the Task Forcemet regularly from January to June 1987. It review-ed deficiencies in the current system, examinedprinciples of community college funding, and devel-oped a "program-based" funding model for financingCalifornia's community colleges. As displayed byFigure 1, this model establishes five major programcategories: instruction, instructional services andlibraries, student servicss, maintenance and opera-

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tions, and institutional support. It defines workloadmeasures foe each of these program categories andspecifies appropriate funding standards for deter-mining how much money should be allocated to eachprogram category to fund a given level of workload.Based on these workload measures and fundingstandards, as well as information on unit costs, themodel can be used to determine the allocations foreach community college district in each of the fiveprogram categories. For reference, Figure 1 showsthe statewide status in each category in 1984-85compared to the proposed standards.

This approach to community college financing is con-sistent with the centralization of finance at the statetuvel that has occurred since Proposition 13 and withthe diverse postsecondary character of the com-munity colleges. The model incorporates many ofthe features now used to finance the California StateUniversity (CSI) system and the University of Cal-ifornia (IC). It not only will permit better compar-isons with these two systems, but also will furtherthe integration of the community colleges with theremainder of the state's public higher education sys-ttan.

.he Task Force concluded that this program-basedfunding model would be functionally superior to thecurrent system only if it w e part of a broad-basedeffort to reform the financing of the community col-leges. Adopting the model simply ti redistributeexisting resources would be counterproductive andwould greatly exacerbate the fiscal dislocations thatthe colleges have been experiencing in recent years.The program-based funding model includes a set ofstandards that the Task Force recommends as long-run targets for community college funding, and out-lines a plan that would move the colleges towardsthose targets as resources become available. Imple-

9

FIGURE 1: Support Categories, Workload Measures, and Standards

Sumas Categories Workload Measure Proposed Standard(s) Current Status

Instruction Full-Time Student:Faculty Ratio of 25:1 Student:Faculty Ratio of 30:1

(Activity Codes Equivalent

Students (FTES)

Faculty Mix: 75% Contract,

25% Hourly

Faculty Mix: 62% Contract.

30% Hourly, 7% Overload

1% Classified

80.9% of Pposed Standards

Instructional Services

and Libraries

(Activity Code 6100)

FTES ALA/ACRL Standards for

Libraries with CSU Admin.

and Contract Serv. Standards

72.6% of Proposed Standards

Standards for Media Centers

and learning Centers to be

determined

Student Services Headcount Standard to be Determined Not Applicable

(Activity Codes Enrollment

62004400)

Maintenance and Gross Square Modified CSU Standards Not Applicable

Operations Footage and

!Activity Codes 6500 Acreage

Institutional Support FTES Modified CU) Standards 88% of Standards

(Activity Codes 6000,

60004700)

menting program-based funding would require addi-tional resources for administration and data collec-tion at both the district and state level. If program-based funding is to be a step towards adequate andequitable funding of the community colleges, theTask Force believes these costs to be justified. If, onthe other hand, there is no commitment on the partof the Legislature and the Governor to increasedfunding for the community colleges, the disadvan-tages of changing to a program - based funding modelwould outweigh the advantages.

Costs of implementation

To understand better the impact of program-basedfunding on community colleges, the Task Force sim-ulated the consequences of adopting program-basedfunding using data for 1984-85 (the most recent year

10

for which complete data were available). The simu-lations estimated the overall costs of adopting differ-ent standards, examined the expenditure patternsthat would result from applying these standards ineach of the five program categories (for example,how many districts would gain or lose), examinedthe implications of applying program-based fundingunder fiscally neutral conditions, and calculated thecosts of various hold harmless provisions.

Fully funding the standards proposed in this reportfor instruction, libraries, and institutional serviceswould have cost $283 million in 1984-85. If stan-dards had been appropriately defined for all programcategories, however, the cost would have been high-er. If improved standards for student services, in-structional services, maintenance and operations,and instructional costs other than teaching were toincrease costs by the same average percentage as theother standards, an additional $130 million would

l4

.,.

have been needed, for a total of $413 million. Thiswould have been an additional $600 per FITS. TheTask Force recommends that this increase be accom-plished in stages. For example, in instruction, re-ducing the ratio of full-time equivalent students(AYES) to full-time equivalent faculty (FIEF) wouldhave cost about $22 million in 1984-85 for each unitreduction (for example, reducing the ratio from 30:1to 29:1). Increasing the percentage of full-time con-tract faculty and reducing the percentage of part-time hourly faculty would have cost about $5.6 mil-lion per one percent change (for example, raising thepercentage of contract faculty from a statewideaverage of 62 percent to 63 percent).

The costs of ho:d harmless that is, ensuring thatno district's expenditures would be less than in1984-85 depend on the proportion of the standardthat is funded. If districts were all funded at the1984-85 average, the costs of hold harmless would beapproximately $108 million. As the average fund-ing level increases, the number of districts needingto be held harmless decreases, until at the full stan-dard, little or no hold harmless cost remains.

Next steps

Although the Task Force has made substantial prog-ress in developing a system of program-based fund-ing, there are a number of tasks that must be accom-plished before implementation would be feasible.First, appropriate standards must be developed forother instructional services and for student services,and the standards proposed for the other programcategories and the procedures for handling smallsizes of colleges and districts must be refined. Sec-ond, projections of the impact of the program-basedfunding must be redone using more recent data and,where appropriate, using three-year averages. Sim-ulations and projections for each college and districtmust also be made. Third, procedures for handlingnon-credit IT= need more attention, and standardsfor non-credit activity need to be developed for eachprogram ,lategory. Finally, before bill implementa-tion the State must develop mechanisms to deal withcapital outlay, with districts with unique operations(such as television facilities), and with requirementsfor remedial classes and other instruction and ser-vices for students with special needs.

15

Summary of recorimendatio -'s

Program categories

!) The program-based funding system initiallydeveloped for the California Community Col-leges should have five major program categor-ies: instruction, instructional services andlibraries, student services, institutional sup-port, and maintenance and operations. Sub-categories should be established for instruc-tion (credit and non-credit) and for instruc-tional services (libraries and other instruc-tional services). (Page 9)

Workload measures

2) The workload measure for the instruction, in-structional services and libraries, and institu-tional support categories should be the num-ber of full-time equivalent students (FTES) en-rolled at the time of the first census, with full-time equivalent student defined as 15 studentcontact hours per week (the normal full-timeload) for 35 weeks (the number of weeks of in-struction per year), which is equivalent to 525student contact hours. (Page 11)

3) The workload measure for student servicesshould be the unduplicated headcount enroll-ment. (Page 13)

4) The workload measures fo: maintenance andoperations should be gross square footage (ofdistrict-owned and leased space) and develop-ed and undeveloped acreage. (Page 13)

Funding standards

5) Explicit funding standards should be part ofthe program-based funding system developedfor the community colleges. Where appropri-ate, these standards should reflect practicesestablished for CSU to serve similar lower divi-sion students; when CSu practices are not zom-parable, standards should be developed thataccurately reflect the mission and circum-stances of the community colleges. (Page 14)

6) The program-based funding system should in-itially have the following standards for in-struction:

11

a ratio of FTES to FTF7' of 25:1 for credit in-struction

i. 75 percent FTEF for credit instruction willbe contract faculty

the statewide average for non - faculty in-structional expenditures, with an alterna-tiv4 standard to be developed by the timeof full implementation. (Page 14)

7) The r ,ogram-based funding system should in-itially have the following standards for in-struct' )nal services and libraries:

f9r libraries, minimum standards as es-tablished by the Association of Collegeand Research Libraries Division (a divi-sion of the American Library Association)for two-year programs as adjusted and en-hanced by Csu library standards for ad-ministrative and contract services.

for other instructional services, the state-wide average expenditure per FTES in theyear prior to implementation of program-based funding, with an alternative stan-dard to be developed by the time of full im-plementation. (Page 15)

8) The program-based funding system should in-itially have the following standard for studentservices:

the statewide average expenditure perstudent enrolled for student services inthe year prior to implementation of pro-gram-based funding, with an alternativestandard to be developed by the time offull implementation. (Page 16)

9) The program-based funding system should in-itially have the following standard for main-tenance and operations:

CSu standards modified to reflect commu-nity college situations. (page 16)

10) The program-based funding system shouldinitially have the following standard for in-stitutional support:

CSu standards modified to reflect commu-nity college situations. (page 17)

11) Adjustments for necessary small size shouldbe included for each program category.(Page 18)

12) Any additional state influence over local ex-penditures should be limited to 1) offering afiscal incentive to increase the use of con-tract faculty for credit instruction up to 75percent of total credit faculty FTEF: and, 2)requiring justification for expenditure pat-terns that are at odds with ranges of spend-ing that reflect typical practice in collegesand districts of similar size and demographiccomposition. (Page 19)

Program improvement

13) Negotiations should take place annually todetermine the percentage of the standards tobe funded and the sum of money to be usedfor program improvement through program-based funding. (Page 21)

14) Program improvement funds should be allo-cated using the "leveling up" approach,which targets new resources to districts thatare farthest from the full standard. (Page22)

Cost of living adjustments

15) Two statutory COLAs should be established,one for employee compensation (based on theCalifornia Personal Income Index) and onefor non-personnel costs (based on the ImplicitPrice Deflator for State and Local Govern-ment Purchases of Goods and Services).(Page 23)

Equalization

16) Equalization should be measured by compar-ing the percentages of the full standardreached by districts. Districts are equalizedif they are at the same percentage of thestandard. Equalization should be achievedsimultaneously with program improvement.(Page 23)

Hold harmless

17) Districts operating at or above the negotiat-ed standards adopted for program-basedfunding should be guaranteed expendituresat least equal to those of the year prior to theimplementation of program-based funding.Subsequently, they should operate under therules of growth and decline established forthe funding system. Districts at or above thenegotiated standards would receive funds forgrowth and would receive COLAs based onthe amount of the standard funded, butwould not receive any funds for program im-provement. (Page 23)

Growth and decline

18) GrG Nth in ETES should be funded at the fullpercentage of standard approved by the leg-islature in the year that growth occurs.Funding for decline in enrollment shouldalso diminish at the full percentage of stan-dard, but the impact should be spread overthree years. Provision should be made forthe chancellor's office to negotiate with theDepartment of Finance alternative proce-dures for growth and decline to reflect spe-cial circumstances. (Page 24)

19) Allowable growth for a district should de-pend on the change in the adult population,the local unemployment rate, and the num-ber of high school graduates in the district.Provision should be made for a district to ne-gotiate with the Chancellor's Office for a dif-ferent allowable growth rate to reflect un-usual circumstances. (Page 25)

l7

20) The present system of funding should contin-ue for 1987-88 unless additional funding ismade available. If additional funding ismade available, it should be used for pro-gram improvement. Implementation of pro-gram-based funding should begin in 1988-89,and full implementation should begin in1989-90, with ongoing monitoring and evalu-ation for making further refinements. (Page25)

21) Subsequent refinements of program-basedfunding should continue to assess the accura-cy of available data, use three-year movingaverages where this would provide a moreaccurate picture. (Page 27)

22) Additional staff should be provided for theChancellor's Office to implement and admin-ister program-based funding. (Page 28)

23) Alternatives for handling credit and non-credit activity should be more closely exam-ined as program-based funding is developed.The desirability of distinctions in areas otherthan instruction should be considered. (Page31)

24) The Task Force on Community College Fi-nancing should continue to meet to addressissues related to standards for instructionother than teaching, for instructional ser-vices other than libraries, and for studentservices; to examine the impact of program-based funding using more recent data, in-cluding district by district simulations; to de-termine permissible ranges of expenditurepatterns by category; and to develop proce-dures for handling non-credit instruction.(Page 37)

13/14

Appendix B

Commission Principles for Community College Finance

NOTE: These principles are reproduced from pages 31-33 of Principles for Community Col-lege Finance (Commission Report 83-14), adopted by the Commission on March 21, 1983.

Financing for the California Community Collegesshould:

Promote statewide goals of access to postsecond-ary education, quality of college instruction andsupport services, and efficient use of college re-sources;

Maintain the comprehensive mission of the Com-munity Colleges and reflect statewide and localpriorities for funding;

Recognize the shared State and local responsibili-ty for governance of the Community Colleges;

Promote local decision making in the manage-ment of college resources;

Provide adequate levels of support from a varietyof revenue sources; and

Provide finance mechanisms that: (1) are stableover time and predictable in their allocation of re-sources; (2) relate levels of support to the costs ofcollege operations; and (3) are equitable amongdistricts.

Sources of support

Support for Community College education shouldcontinue to come from a variety of sources, includingfederal, State and local tax revenues, student fees,and contributions from business and labor.

The State should maintain responsibility for pro-viding adequate funding of the Community Col-leges.

Property tax revenues should continue to support

l8

general apportionments.

Additional local revenue sources, such as localsales or income taxes, should be authorized forsupport of local education needs which are not be-ing met by State funding.

Contract agreements with business and laborshould support Community College instruction inhighly specific training programs designed to helpparticular firms.

Student fee support for State-funded programsshould be kept as low as possible. Increases instudent fees should be indexed to the prior three-year average of increases in State funding for thecolleges, with annual caps of plus or minus 10 per-cent. Increases in student fees should be accom-panied by increases in State financial aid to theCommunity Colleges.

Levels of support

Levels of support for systemwide general apportion-ments and categorical programs should be:

Determined each year by the Legislature andGovernor in the budget process;

Adequate to fund the costs of inflation as well asplanned workload and program changes; and

Sufficient to provide an adequate level of districtresources for cash flow, contingency, capital out-lay, .maintenance, and other required future obli-gations.

15

Relation. to costs

Financing mechanisms should relate support for col-lege operations to expected costs, yet not restrict ex-penditure patterns, by providing:

Differential funding based on a limited number ofmajor instruction and support activity categoriesthat most accurately reflect differences in thecosts of Community College operations;

Workload measures for each cost category that:(1) best relate to changes in the costs of providingthe activity; (2) provide incentives consistent withstated goals and objectives for college operations;and (3) avoid undue collection and verificationcosts;

Support rates that reflect demonstrated differ-ences in costs; and

Funding for workload change at an incrementalor marginal rate that accurately reflects the vari-able, rather than the fixed, costs of such changesand provides adequate support for districts exper-iencing substantial growth

Stability

Finpncing mechanisms should provide stability inthe support of college operations by providing:

Five-year legislative authorization for the basicsupport mechanisms;

16

Phase-in of equity adjustments to district baserevenues if significant budget disruptions arefaced by local districts;

Use of a base year funding level with adjustmentsfor inflation and workload to determine budgetyear allocations;

An established range in which actual workloadmay fall below budgeted levels without changes indistrict revenue; and

Increased district flexibility to maintain supportlevels in constant dollars in the event that reve-nues are insufficient to fund necessary inflationand workload.

Equity

Financing mechanisms should promote equityamont, istricts by providing:

Equitable levels of support based on differentialfunding;

Elimination of differences in districts; revenuesthat are the result of demonstrated past inequitiesin district wealth, tax support, or funding mecha-nisms; and

Support mechanisms that are designed to be gen-erally applicable to all districts.

CALIFORNIA POSTSECONDARY EDUCATION COMMISSIONThird Floor 1020 Twelfth Street Sacramento, California 95814-3985

The Commission is durged by the Legislature andGovernor to "assure the of utilization ofpublic postesocindary education resources, therebyeliminating waste and unnecessary duplication, andto promote diversity, innovation. and resporsive-mess to student_ and societal needs."

To this end, the Commission conducts independentreviews of matters affecting the 2,600 institu-tions of postsecondary education in Cali fornia,including Comainity Colleges, four-year colleges,mei versi t i es, and professional and occupat maischools.

As an advisory planning and coordinating body, theCommission does not administer or govern anyinstitutinns, nor does it approve, authorize, oraccredit any of them Instead, it cooperates withOther state agencies and non-governmental groupsthat perform these functions, while operating &-an independent board with its own staff and itstam specific duties of evaluation, coordination,and planning.

Operation of the Commission

TheiCkesdasion holds regular meetings throughoutthe year at which it debates and takes action onstaff studies and takes positions on proposedlegislation affecting education beyond the highschool in California. By law, the Commission'smeetings are open to the public. Requests toaddress the Commission may be trade by writing the*Emission in advance or by submitting a requestprior to the start of a meeting.

The Commission's day-to-day work is carried out byits staff in Sacramento, under the guidance of itsexecutive director, William H. Pickens, who isappointed by the Concussion.

The Commission publi- A' and distributes without

charge some 40 to 50 ports each year on majorissues confronting alifornia postsecondaryeducation. Recent reports are listed on the beckCOMM%

Further information about the Commission, itsmeetings, its staff, and its publications may beobtained from the Commission offices at 1020Twelfth Street, Third Floor, Sacramento, CA98514; telephone (916) 445-7933.

4

Functierm of the Cemeteries%

The California Postsecondary Education Commissionis a citizen board established in 1974 by theLegislature and Governor to coordinate the effortsof California's colleges and unii.ersities and toprovide independent, ricn -partisan policy analysisand recommendations to the Governor andLegislature.

Members of the Cormission

The Commission consists of 15 members. Nine repre-sent the general public, with three each appointedfor six-year terms by the Governor, the SenateRules Committee, and the Speaker of the Assembly.The other six represent the major segments ofpostsecondary education in California.

As of January 1988, tine Comissicners representing

the general public are:

Him Ardelson, Lcs AngelesC. Thrones Dean, Long Beach, ChairpersonHenry Der, San FranciscoSeymour M. Farber, M.D., San FranciscoLowell J. Paige, El MaceroCruz Reynoso, Los Angeles, Vice ChairpersonSharon N. Skcg, Palo AltoThanes E. Stang, Ice AngelesStephen P. Teale, M.D., Modesto

Representatives of the segments are:

Yoci Wade, San Francisco; representing the Regentsof the University of California

Claudia H. Hampton, Los Angeles: representing theTrustees of the California Stare University

Borgny Baird, Long Beach: representing the Boardof Governors of the California Community Colleges

Harry Wugalter, Thousand Oaks: representing theChairman of the Colnci 1 for Private Postse.,AndaryEducational Institutions

Angie Papadakis, Palos Verdes; representing theCalifornia State Board of Fdlcation

James B. Jamieson, San Luis representingCalifornia's indepenlent colleges ani universities

2()

BEST COPY AVAILABLE

DEVELOPMENTS IN COMMUNITY COLLEGE FINANCA Staff Report to the California Postsecondary Education CommissionCalifornia Postsecondary Education Commission Report 87-46

One of a series of reports published by the Commis-sion as part of its planning and coordinatingresponsibilities. Additional copies may be obtainedwithout charge from the Publications Office.California Postsecondary Education Commission, ThirdFloor, 1020 Twelfth Street, Sacramento, California95814 -3985.

Recent reports of the Commission include:

87-33 Information Manual: A Guide to the Commis-sion, Its Policies, Procedures, and Members (Sep-tember 1987)

87-35 Appropriations in the 1987-88 State Budgetfor the Public Segments of Higher Education: AStaff Report to the California PostsecondaryEducation Commission (September 1987)

87-36 Supplemental Report on Academic Salaries.1986 -07: A Report to the Governor and Legislaturein Response to Senate Concurrent Resolution No. 51(1965) and Subsequent Postsecondary Salary Legisla-tion (September 1987)

87-37 Improving Student Performance Reporting,Review and Epilogue: The Final Report of the Com-mission's Pro3ect on Transforming Student AcademicPerformance Data into Useful Information (September1987)

87-38 California College-Going Rates, 1986 Update:The Tenth in a Series of Reports on New FreshmenEnrollment at California's Colleges and Universitiesby Recent Graduates of California High Schools(September 1987)

87-39 The Infrastructure Needs of California PublicHigher Education Through the Year 2000: A Presenta-tion by William H. Pickens to the Joint LegislativeBudget Committee, October 14, 1987 (October 1987)

87-40 Final Approval of San Diego StateUniversity's Proposal to Construct a North CountyCenter: A Report to the Governor and LegislatureSuppleT:enting the Commission's February 1987Conditional Approval of the Center (November 1987)

87-41 Strengthening Transfer and ArticulationPolicies and Practices in California's Colleges andUniversities: Progress Since 1985 and Suggestionsfor the Future (November 1987)

21

87-42 Faculty Development from a State Perspective:A Staff Report to the California PostsecondaryEducation Commission in Response to SupplementaryLanguage in the 1986 Budget Act (November 1987)

67-43 Evaluation of the California Student Opiss)r-tunity and Access Program (Cal-SOAP): A Report tothe Legislature and Governor in Response to SenateBill 800 (Chapter 1199, Stjtutes of 1983) (December1987)

87-44 The State's Role in Promoting Quality inPrivate Postseccadary Education: A Staff Prospectusfor the Commission's Review of the Private post-secondary Education Act of 1977, as Amended (Decem-ber 1987)

87-45 Comments and Recommendations on TheConsortium of the California State University: --XIWpia:17:7VResponse to Supplemental EiTguage in thi1987 Budget Act Regarding the Closure of theConsortium (December 1987)

87-46 Developments in Community College Finance: AStaff Report to the California PostsecondaryEducation Commission (December 1987)

87-47 Proposed Construction of the Permanent Off-Campus Center of California State University,Hayward, in Concord: A Report to the Governor andLegislature in Response to a Request for CapitalFunds from the California State University for aPermanent Off-Campus Center in Contra Costa County(December 1987)

87-48 Articulating Career Education Programs fromHigh School through Community College to theBaccaluareate Degree: A Report to the Governor,Legislature, and Educational Community in Responseto Assembly Bill 3639 (Chapter 1138, Statutes of1986) (December 1987)

87-49 Education Offered via Telecommunications:Trends, Issues, and State-Level Problems in Instruc-tional Technology for Colleges and Universities(December 1987)

87-50 California Postsecordary Education CommissionNews, Number 3 (The third issue of the Commission'speriodic newsletter) (December 1987)

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Junior CollegesMAY i 2 1988

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