California State University, Board of Trustees
Finance Committee Presentation

September 20-21, 2016

Presentation Video
Committee Report
BOT 09-16 Agenda
The following is an excerpt from the September 2016 Board of Trustees Finance Committee presentation on planning for the 2017-2018 support budget.

At this early stage, the state’s funding plan does not include sufficient resources to meet the CSU preliminary budget plan. As a result, additional resources above the governor’s funding commitment would be required. Three potential options exist: (1) increased state funding from the governor and legislature, (2) increased tuition revenue, and (3) campus budget reductions. The Chancellor’s Office will engage in continued consulting with students, faculty, staff, campus executives, the state, and other CSU stakeholders to explore alternatives for balancing budget priorities and necessary resources.

Proposed Incremental Expenditures:

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Under the preliminary plan, the CSU will continue to invest in people, programs, technologies, and strategies that have demonstrated success in improving graduation rates, shortening time-todegree, and eliminating achievement gaps. Each campus has developed multi-year plans to reach their Graduation Initiative 2025 goals that will require multi-year investments across the system in: tenure track faculty hiring, increased course taking opportunities, enhanced advising and education plans, academic and student support, and leveraging data for campus decision-making. Over the course of this first year of the Graduation Initiative 2025, campuses will plan to spend at least $75 million on their local priorities to improve student success and completion with particular focus on those efforts that improve 4-year graduation rates for first time freshmen and 2-year graduation rates for transfer students.
Over 830,000 undergraduate applications were submitted to CSU campuses for Fall 2016, an increase of over 40,000, or nearly five percent, over the prior year. In spite of this, state budget cuts during the recession continue to have repercussions that constrain the ability of the CSU to admit and enroll every new eligible applicant. Access to education and the preparation of the state’s future workforce depends on the state investing in the CSU.

The proposed expenditure plan to support enrollment represents a one percent increase in full-time equivalent students (FTES). This increase would allow for growth in the average unit load for continuing students in support of graduation rate goals, and a steady number of students admitted and served. The costs of accommodating additional enrollment are covered by additional tuition revenue from new students and state general fund. For planning purposes, a one percent increase in enrollment would cost approximately $40 million and would allow for growth of approximately 3,600 FTES.

This component has two parts. First, collective bargaining agreements and commitments to non-represented employee groups total an estimated $107 million for 2017-2018. Second, $33 million of collective bargaining agreement costs were covered by one-time funding in 2016- 2017. The preliminary plan for 2017-2018 converts the $33 million of one-time funding into recurring funding to cover these ongoing costs.
This item would conditionally commit $55 million for collective bargain units with open contracts in 2017-2018, pending final agreements with collective bargaining units. This amount includes a commitment for non-represented employee groups.
There are numerous examples on every CSU campus of academic and plant facilities that are in need of repair or replacement. The systemwide state-supported deferred maintenance backlog will be reduced to approximately $2.0 billion once funded projects are completed. The previous support from the state of one-time and recurring funds has enabled a reduction in the backlog from $2.6 billion to $2.0 billion. This is good progress, but, unfortunately, the backlog will grow by approximately $150 million per year as facilities continue to age and due to the partial funding of the support budget request in 2016-2017. Unlike 2013-2014 and 2014-2015, the CSU was not able to dedicate new permanent funding for annual debt service on longer-term bond-financed projects due to the 2016-2017 funding level. Instead, the university is utilizing $25 million from 2015-2016 and $35 million from 2016-2017 of one-time state funding to address the CSU’s most urgent facility maintenance and infrastructure needs.

Under estimated bond market conditions, dedicating $10 million of recurring funds in 2017-2018 would finance approximately $150 million of needed infrastructure projects. This would roughly keep pace with the aging infrastructure, but would not reduce the backlog. Also, the CSU continues to look to other ways to fund its infrastructure needs and we will keep the board informed on ways to do so.

Agenda item 1 of the September 20-21, 2016 joint meeting of the Committees on Finance and Campus Planning, Buildings and Grounds includes the draft priority list for the 2017-2018 Capital Outlay program. The list prioritizes critical infrastructure and utility renewal projects and facility renovation to support the academic program needs. The addition of $10 million in recurring funds would enable the CSU to fund limited capacity student growth to complement the plan to address deficiencies in existing facilities. The CSU continues to refine the planning and financing process in light of the increased capital financing authority granted in 2014.

The CSU would separately request $50 million from the state to further address the deferred maintenance backlog and $25 million of cap and trade funds to implement greenhouse gas and energy reduction projects.

Funds would be used to meet anticipated mandatory costs that the university must pay regardless of available state allocation. There is little to no discretion over these costs, which include recent increases to employee benefits, operations and maintenance of newly-constructed space, as well as new costs associated with state and federal wage laws. Without funding for mandatory cost increases, campuses would have to redirect resources from other program areas to meet obligations. Setting aside funding for mandatory costs helps preserve the integrity of CSU programs.

Total Incremental Expenditures | $346.0 million

Anticipated Revenue:

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The Governor’s Funding Plan for CSU

In January 2013, Governor Brown’s budget proposal included a four-year plan to provide funding stability to CSU and the University of California (UC). This multi-year plan called for state funding increases totaling $511 million to each university system and required no tuition increases between 2013-2014 and 2016-2017. Recognizing that both CSU and UC endured state funding reductions in equal dollar amounts during the recent fiscal crisis and that an ongoing investment in higher education is important to the vitality of the state’s economy, the governor’s administration has since added additional years and new permanent funding commitments. The cumulative, potential increase to CSU occurs in annual increments as follows (actual funding provided by the state noted in parenthesis):

• $125.1 million in 2013-2014 (provided by the state)
• $142.2 million in 2014-2015 (provided by the state)
• $119.5 million in 2015-2016 ($216.5 million provided by the state)
• $139.4 million in 2016-2017 ($154 million provided by the state)
• $157.2 million in 2017-2018
• $136.5 million in 2018-2019
• $142.0 million in 2019-2020
• Cumulative, potential increase in CSU funding = $961.9 million

Although the legislature never formally adopted this multi-year plan, it did approve the first and second year increases of $125.1 million and $142.2 million, and, with the governor’s agreement, went above and beyond in the third year to fully fund the CSU support budget request of $216.5 million, and provided $154 million in 2016-2017. If the increases through 2018-2019 remain at the actual and proposed levels, the new seven-year total would be $961.9 million. This is very close, but still short of the cuts totaling approximately one billion dollars from 2008-2009 through 2011-2012.

Total Anticipated Revenue | $177.2 million

Preliminary Support Budget Request | $168.8 million