CSU Budget Office

Presentations and Communications

Response to the LAO's Analysis of the Budget Bill
CSU Support Budget Crosscutting Issues





California's public higher education systems and the SAC have considerable discretion on the details of allocating financial aid to students. We expect that they will make financial aid shifts like the ones described above in order to take advantage of the new federal tax credits. These financial aid shifts imply major potential General Fund savings.

The Legislature should be involved in how these shifts are made and how any savings are reallocated--whether to increase financial aid for students who are too poor to receive the federal tax credits (due to lack of tax liability), to fund other higher education needs, or to address other state needs outside of higher education. Accordingly, we recommend that the SAC, CCC, CSU, and UC each report prior to budget hearings on the financial aid implications of the federal tax credits. These reports should include:

  • Adequate data for the Legislature to understand how each system's grants will interact with the federal credits.
  • Estimated potential savings, by funding source, from maximizing receipt of federal credits.
  • Each system's specific plan for reallocating financial aid in order to maximize Californians' receipt of the credits.

The Analyst reviews key features of the Hope Scholarship and Lifetime Learning Tax Credits that were included in the Taxpayer Relief Act of 1997 (TRA97). Observing that the tax credits apply to tuition and related fees net of grant assistance, and that state-provided assistance is primarily in the form of grant aid, the Analyst proposes that CSU, along with the University of California, California Community Colleges, and the Student Aid Commission, consider alternate student aid scenarios to "take advantage of the new federal tax credits." Proposals suggested by the Analyst were adjusting the amount of state assistance that otherwise would be provided to students by the amount of any expected federal credit or changing the state's assistance from a grant to a loan.

The Analyst also discusses perceived problems and opportunities created by the federal tax credits in The 1998-99 Budget: Perspectives and Issues. In that discussion the Analyst observes that:

  • The credits result in a much higher federal subsidy per student in other states than in California-particularly, for community college students;
  • The Hope Scholarship credit will unintentionally shift enrollment away from our community colleges to the universities, at potentially great cost to the state and at cross-purposes to the state's higher education master plan; and

Due to interactions between the credits and recent state fee reductions, the state is unintentionally sending monies intended for students back to the federal government.


CSU will provide data to the Legislature to understand how grants will interact with the federal tax credits. CSU maintains that the current awarding criteria for both the State University Grant (SUG) program and for Educational Opportunity Program (EOP) Grants effectively target these limited resources to students with the most limited means of affording a postsecondary education. The majority of these grant recipients (or their parents) would not be eligible to claim either a Hope Scholarship or Lifetime Learning Tax Credit even if the grant funds were not available. The tax credits are "nonrefundable" meaning that if the taxpayer has no tax liability he or she cannot claim a credit.

Over 61 percent of the financial aid received by CSU students during 1996/97 was in the form of loans and the level of borrowing on behalf of CSU students has increased at an alarming rate over the past few years. CSU has been advocating that Congress and the Legislature address the growing imbalance between grants and loans in order to avoid creating a generation of college students with heavily mortgaged futures.


The Taxpayers' Relief Act of 1997 (TRA97) was not intended, promoted, or enacted as a student financial aid program. TRA97 was enacted in response to national concerns about college affordability. Congress enacted TRA97 to provide tax relief to middle-income families for college expenses and incentives for taxpayers to plan and save in order to meet colleges expenses.

TRA97 provides that the amount of tuition and fees for which a credit can be claimed is reduced by the amount of grants and scholarships the student receives. The Analyst's report indicates that since grants generally will reduce the amount of federal credit that qualifying taxpayers otherwise would receive, state spending for student grants will lead to "a dollar-for-dollar reduction in federal aid in California." This statement is incorrect. The majority of students currently receiving state supported grant aid at CSU are from families with no federal tax liability, hence there is no loss or reduction of the tax credit as a result of the grant. Additionally, the single largest grant program for California students is the Federal Pell Grant program. Although many students receiving Pell Grants are from families with no federal tax liability, there are substantial numbers of students whose Federal Pell Grants would offset CSU fees. Federal Pell Grants are distributed in accordance with formulas determined by Congress and institutions have no discretion in "reallocating" those grant funds. The receipt of state grant funds in addition to a Federal Pell Grant would, in most cases, have no bearing on reducing any potential federal tax credit.

State University Grants and Educational Opportunity Program grants at CSU are targeted to assist students with the least ability to pay educational expenses. The SUG award schedule is constructed on a sliding scale that provides a full grant to offset the State University Fee only to those students with expected family contributions (EFCs) of $800 or less. The grant amount declines in increments of 20 percent of the Fee as the EFC increases in increments of $800. Students with EFCs over $4,000 are not eligible for a State University Grant. Over 62 percent of 1996-97 SUG recipients had EFCs of $800 or less. The median parental income of dependent students with EFCs under $801 receiving State University Grants during 1996/97 was $12,347. At the median family size of four, that family would have no federal tax liability. The median parental income of all dependent students receiving State University Grants during 1996/97 was $18,056. At the median family size of four, that family would have a federal tax liability of approximately $173 assuming that the entire income was taxable and that they were able to claim only the standard deduction with no other credits.

CSU does not estimate that there will be any potential savings for student aid funding sources as a result of the federal tax credits. The tax credits will accrue to the taxpayer (student or parent). They may possibly be used to pay for subsequent educational expenses or reduce the amount that might otherwise be borrowed to financial educational expenses. The tax credits will not have any direct impact on the student's eligibility for financial aid programs. CSU does not plan any change in awarding criteria for its grant programs as a result of the tax credit provisions. In large part, the population served by CSU grant programs is a distinctly different from the population that will benefit from the federal tax credit provisions.

The Analyst's report, Taking Advantage of New Federal Higher Education Tax Credits, is correct in the observation that taxpayers in other states may be able to claim higher tax credits since tuition and fees at public institutions in other states are typically higher than those in California. For those students who are eligible for the Hope Scholarship tax credit, the differential in fees paid net of the credit will be significantly reduced between community colleges and CSU.

The report expresses concern that the reduced differential will result in a shift in enrollments to CSU at a higher average expense to the state and undermining the community colleges' role in baccalaureate instruction. We have no data on the numbers of students who meet CSU admission requirements as first-time freshmen but enroll at a community college. It would be difficult to predict the extent to which those students might alter their enrollment plans, paying an additional $1,146 (plus) in fees one year in order to get a tax credit in the following year that is $893 more that they would have been able to claim at a community college. The majority of the students who would qualify for the tax credit come from middle to upper-middle income families that have sufficient resources to pay CSU fees. The majority of students from middle to upper-middle income families would be receiving student loans if they receive financial aid. Presumably, financial reasons would not have been the primary determinant of their enrollment at a community college. For many, a decision to enroll at a CSU campus would involve additional expenses beyond a higher fee level, i.e., room and board costs to live away from home or additional transportation costs. This could add to the potential educational indebtedness of the student.






The analysis indicates that the Governor's request for a $39.6 million augmentation, ostensibly for enrollment growth, is necessary because (1) the students in question are being served and (2) the funds needed to serve them are demonstrably within CSU's base budget. Accordingly, we recommend that the Legislature direct CSU to use productivity savings and unreported revenues to continue to meet the enrollment growth that it has already accommodated beyond compact assumptions.

The Legislature then would have the $39.6 million available to meet General Fund priorities in other parts of the state budget or reinvest in CSU for other activities. If the Legislature wants to keep these funds within CSU, we suggest the following two spending options:

$17.1 million for an Extra-Teaching Incentive Fund

$22.5 million for needed facilities maintenance

The Analyst says CSU can accommodate on a continuing basis the 8,400 FTES it has worked hard to enroll in fulfilling its commitment to the state and policymakers not to deny access to qualified students. The Analyst suggests CSU has $40 million in cumulative productivity improvements available to fund enrollment over budgeted levels as well as unbudgeted fee revenue that can be used to fund enrollment.


CSU rejects the Analyst's assumption that CSU has resources to continue serving students without permanent, ongoing budget support. Although the Analyst suggests that these dollars be redirected to other important areas of CSU's budget, especially deferred maintenance, CSU cannot sustain unbudgeted enrollment into the future without receiving permanent funds for our "caseload" growth like any other state-supported program.

The Analyst is in error in stating that funding for enrollment is already in CSU base. Even with the funding compact guarantees implemented in the 1995/96 fiscal year, resources available to CSU are limited. There are several structural budget gaps the system is still seeking resources to address.

CSU Structural Budget Gaps previously identified and acknowledged during state budget discussions:

Deferred Maintenance


Faculty Compensation

Libraries/Instructional Equipment/New Space

The basic funding deficiencies in areas such as faculty compensation, plant maintenance, technology, libraries, instructional equipment and new building space total nearly $900 million. Recognizing the serious problems resulting from these gaps, last year the Legislature supported CSU's request for additional funding of $18 million to help finance technology infrastructure upgrades and in 1996/97 the Legislature supported the Analyst's recommendation for $21 million over three years to halt growth in CSU deferred maintenance backlog. Unfortunately, both actions were vetoed in Final Budget.

It is these gaps and other unfunded budget needs that CSU has been asked to help address through annual productivity improvements. Even with planned improvements of $10 million per year, CSU structural budget deficits remain an area of significant, critical need.

Access has always been a high priority of the state Master Plan for Higher Education. CSU has made access a high priority in developing spending plans under the compact. The budget plan proposed by the Board of Trustees for 1998/99 only focuses on mandatory costs, enrollment and compensation as its priority concerns. After funding these priorities ($161 million), there is very little funding available ($13 million) for other CSU budget needs.

CSU has worked hard to accommodate Master Plan access that exceeds funded enrollment levels by using one-time funds to support the one-time over-enrollment. One-time savings have been reported to the Legislature in CSU's annual report on unexpended balances. One-time funds used for excess enrollment include end-of year savings as well as resources redirected from areas already in budget deficiency such as libraries and position vacancies used to hire temporary faculty to meet the demand for courses. These one-time funds cannot be used to fund student access on a continuing basis and are not "new" revenue that can be used to increase the CSU budget base. With increased state funding for enrollment, CSU could hire permanent, tenure-track faculty to meet the demand for access now and into the future.

Given its structural gaps, the one-time nature of year-end savings, and the need for a permanent faculty base to sustain enrollments, there simply are not enough funds in the CSU base budget to enroll 10,320 full-time equivalent students on an ongoing basis. Using the marginal cost basis for enrollment growth developed by CSU, the Analyst, the Department of Finance and the University of California at the request and with the approval of the Legislature during the 1996/97 budget process, CSU requires $39.6 million in General Fund support for three percent enrollment growth above the compact. CSU has included fee revenue, on the margin, associated with the 10,320 students in our expenditure plan. Student fee revenue is used in the expenditure plan to offset the total marginal cost of instruction of $6,389 per student, including the use of one-third of the fee revenue for the CSU State University Grant (SUG) program to assist eligible students who need financial assistance.


CSU has done an excellent job of dealing with the issue of access during a period of significant state economic decline and measured recovery. The state's economy will depend heavily on the number of college graduates it produces, and a college education is a dividing line between those citizens who generally will do well economically and those who will not. During good state economic conditions, now is the time to invest, not retract, from the state's commitment to fund enrollments in order to satisfy current and future enrollment demand.

A fundamental flaw with the Analyst's analysis of higher education financing in general and CSU financing specifically is the reliance on budget theory and funding processes that have not been used by the state for the past seven years. The Administration and Legislature have recognized the need to implement revenue-based budgeting as a pragmatic means to best allocate limited state resources for higher education caseloads and to achieve the highest degree of institutional accountability. Under revenue-based funding, the only state support CSU has received recognizes one percent annual average enrollment growth. If the state wants to maintain a level of enrollment at the university that exceeds the one percent compact requirement, and continue to provide access to higher education, then it must provide General Fund support for the costs associated with this enrollment.

Flaws with the Analyst's Comments:

All of the students are NOT already there.

CSU exceeded 1996/97 funded enrollment by 7,000 FTES and is projected to exceed 1997/98 funded enrollment by as much as 8,000 FTES. This is not permanently funded enrollment; it is enrollment CSU has served on a shoestring by using one-time funding, temporary faculty and redirected resources. If permanent state resources are not provided students will not have access to the courses and other services they need to complete their degrees. Without the money to support them, CSU expects these students to disappear, just as they did when the state reduced permanent funding for enrollment in the early 1990s.

Campus estimates for 1998/99 indicate CSU could exceed projected 1997/98 enrollment by 4,400 FTES. Even if CSU's 1998/99 budget request is fully funded, the university will be targeted roughly 2,500 FTES below campus projections.

The money is NOT already there.

Under expenditure-based budgeting previously used by the state, CSU would have received funding in 1997/98 to acknowledge enrollment growth over 2% and would have received increased state support in 1998/99 for all excess enrollment. The state would also have provided funding in 1998/99 for all enrollment projected to exceed that level. CSU would have received a one-time funding augmentation in 1997/98 for 3,240 FTES, a permanent base budget increase in 1998/99 for 8,400 FTES, and supplemental budget appropriations in the 1998/99 budget plan for 4,400 FTES.

CSU General Fund Enrollment Funding
Based on Marginal Cost
(Dollars in Millions)









Expenditure-Based Approach        
Funded Enrollment 258,000 $1,273.5 258,000 $1,273.5
Two Percent Threshold 5,160 0.0
Enrollment over Two Percent* 3,240 4.0
Next Year Base Increase 8,400 42.9
Next Year Enrollment Growth 4,400 22.5
Total Enrollment Funding $1,277.5 270,800 $1,338.9
Total Enrollment Funding Increase $ +$4.0 +12,800 $ +65.4

* Because funding for enrollment over two percent was typically negotiated, in expectation of full funding in the subsequent year, it is shown at 25¢ on the dollar for illustrative purposes.

CSU 1998/99 Funding Request
Funding in Compact for 1% Growth 2,580 13.2
Additional Enrollment Growth 7,740 39.6
Total 1998/99 Funding +10,320 $ +52.8

Under the revenue-driven budget process currently used by the state, CSU is not requesting any current year supplement in 1997/98 for enrollment over funded targets, will accommodate 2,580 FTES growth in 1998/99 from compact revenue, and has requested additional state support above the compact for 7,740 FTES. Under the current process, CSU funding for enrollment is 2,500 FTES less than it would have been previously (12,800 FTES funded under expenditure-based budgeting compared to 10,320 FTES requested under revenue-based budgeting). CSU accepts this disparity as another measure of accountability under the new revenue-based state budget process.

Productivity Improvements. The Analyst points to the $40 million cumulative productivity requirement of the compact as a cash savings that can be distributed among the CSU campuses. As has been previously noted, productivity improvements were designed under the compact to help reduce growth in CSU budget gaps. If the state were still using traditional budget processes for CSU, these gaps would be funded. If the state were able to meet its traditional funding commitment in CSU budget gap areas, then perhaps productivity could be used as a means to address other gaps requiring state support.

Most importantly, productivity would not occur if the campus achieving productivity improvements did not retain the direct benefit of such efforts. Consequently, it would be illogical to assume productivity improvements at San Luis Obispo could be used to fund excess enrollments at San Diego or San Francisco. Given that option, there would be no incentive for any productivity improvements at any campus. In fact, such an implied redirection from where improvements occur seeks to penalize those local offices, departments, schools and colleges that have made unprecedented efforts to meet and exceed savings goals. The reality of revenue-driven financing adopted by the Governor and the Legislature over the past seven years and the basic premise for productivity under the compact argues that productivity improvements cannot be used systemwide for permanent enrollment-related costs.

CSU One-TIme Carryforward. The authority for CSU carryforward was provided by the Legislature with the intent to encourage change and productivity in the day-to-day operations of campuses to promote greater cost efficiencies and help meet fiscal need. The Analyst has referenced a CSU report on carryforward that shows roughly six percent of funding available from CSU carryforward was specifically used to improve student access. The majority of CSU carryforward funds were used to fund Northridge earthquake recovery, make technology and telecommunications upgrades, provide start-up funding for San Marcos and Monterey Bay, address deferred maintenance and special repairs, replace instructional equipment, purchase library volumes and fund programs and projects that would help CSU achieve its annual productivity commitment under compact financing. Most importantly, carryforward dollars have a one-use only restriction. Once spent they are no longer available to the system. As previously explained to the Analyst, it would be impossible to fund permanent enrollment costs with CSU carryforward.

CSU budget does not underestimate fee revenues

The state budget for CSU has always been premised on the funded level of enrollment. This means that for budget purposes under the compact, CSU budgets only the change in General Fund and State University Fee resources. The Analyst is in error when it states CSU revenue estimates are underestimated. Based on the principle of financing included in the higher education compact, CSU revenue estimates have been and are consistent with funded levels of enrollment.

There are many factors that influence what budgeted revenue estimates will ultimately become when actual revenue is collected. CSU acknowledges that when enrollment over budgeted targets occurs revenue for that excess enrollment is not reflected in current year budget data. However, in requesting state funding for the three percent enrollment over the compact target for the budget year, the revenue estimate for that enrollment has been subtracted from the General Fund request in accordance with the marginal cost enrollment funding methodology approved by the Legislature in 1996/97. Consequently, CSU has only requested enrollment funding at the marginal rate of $5,111 per full-time equivalent student. Total marginal cost equals $6,389 for fiscal year 1998/99. Two-thirds of the difference, funded from student fee revenue, is used for enrollment growth costs. The remaining one-third of student fee revenue is used to increase CSU financial aid for all students with need.

The Analyst fails to mention that the compact is based on using other fee-related "unbudgeted" revenue as a source for funding previously state-supported budget need. Funding for moving expenses, space rental, expendable items to be used in new buildings, CSU ancillary support programs such as the Joint Doctoral and Desert Studies program, off-campus centers, public safety and a long list of other university costs that were once provided by the state must now be funded with other revenue available to the campus. The state budget does not show these revenue increases; nor does it show the related increase in costs that they fund. CSU budgets since implementation of the compact have recognized this basic tenet of the state's new revenue-driven budget process for higher education, and the Governor and Legislature has incorporated this principle in every budget enacted under the compact.






The Analyst recommends that the Legislature delete the Governor's requested $5.2 million augmentation of California State University's support item for higher costs of operating the Ventura off-campus center at the now-vacated Camarillo State Hospital site pending a completed environmental impact report and more thorough consideration of alternatives.


CSU disagrees with the Analyst's recommendation to delete funding to complete conveyance of the Camarillo State Hospital (CSH) site.


In 1996 the Governor created a special Task Force to study the reuse of CSH. After months of evaluation, the Task Force overwhelmingly recommended that the best possible reuse of the hospital was as a campus of the California State University. Subsequent to the Task Force Report, the Legislature voted to authorize the transfer of the vacant CSH to CSU in Chapter 914, Statutes of 1997 (SB 623, O'Connell).

CSU has been actively studying the feasibility of the reuse of CSH as a University since July of 1996. This process is well underway with the basic financial analysis and the campus master plan to be completed in Spring 1998.

The Governor's Budget transfers $3.4 million currently used for warm shutdown to CSU plant maintenance for the facility and supplies $1.8 million based on the CSU funding standard for new space, a total of $5.2 million. These funds will be used to support total facility maintenance costs at the CSH site, which is considerably larger than the current off-campus Ventura facility.





We recommend the Legislature redirect to the Student Aid Commission $3.3 million requested by the California State University to prepare more teachers. These monies then could be used to fund scholarships - redeemable at any accredited teacher preparation program in the state - to students whose financial needs impede them from pursuing the multiple subject teaching credential.

The Analyst argues that CSU share of newly credentialed teachers is declining and that the CSU proposal for use of the $3.3 million will not assure an increased supply of teachers and would only "rearrange demand."


CSU rejects the Analyst's assertion that redirection of $3.3 million to the Student Aid Commission will double the number of students that would be served under the CSU proposal. Redirecting this money to individual scholarships does nothing to build permanent capacity for greater production of fully qualified teachers. To meet that need, the state needs to build capacity and infrastructure within more affordable public teacher preparation programs.


As the major preparer of teachers in California, CSU views teacher education central to its mission. As such, CSU has been an active partner in several efforts to recruit, prepare and support fully qualified teachers in order to serve the growing enrollment at our public schools. CSU believes that a comprehensive strategy that includes recruitment efforts such as the Center on Teacher Careers established by SB 824 (Greene-1997), improvements in our campus programs as well as the expectations set for earning a credential (Ryan Act), alternatives such as the Pre-internship program established through AB 351 (Scott-1997) and programs such as the Beginning Teacher Support and Assessment (BTSA) program are all critical for success. At the same time, CSU needs to increase its permanent capacity to serve new students who we hope to recruit into teaching in order to address the growing demand. Our investment in the current budget through our Economic Improvement Initiative (EII) and the $3.3 million proposed in the 1998/99 fiscal year are pieces of this puzzle -- and important if CSU is going to continue responding to the state's needs.

Data Are Incorrect

CSU prepares individuals for credentialing through various programs yet the California Commission on Teacher Credentialing (CCTC) actually grants the credential once the student has successfully completed their program.

The numbers cited by the Analyst in the section titled Background are incorrect. The Analyst quotes numbers from the CCTC's internal workload report. These numbers represent credentials processed by the CCTC during a particular time period, not program completion and credentials issued by CCTC. For example, it has been reported that credential issuances attributable to CSU campuses dropped by over 2,000 between 1995/96 and 1996/97. The processing of credential issuances attributable to CSU dropped during that period, not because CSU preparation lagged, but rather because the data processing priority in 1996/97 at CCTC was to address the surge of requests for emergency permits. CCTC acknowledges that it will not have good data about 1996/97 credential issuances attributable to individual colleges and universities until some time in March 1998, and it intends to prepare a final 1996/97 data file in September 1998.

In addition, credential issuance statistics have included not only counts of new teachers in K-12 schools, but also counts of current teachers completing courses and requirements for credential. While it is valuable to have complete counts of credential issuances, it is especially important to have accurate information about the numbers of new teaching professionals in California.

CCTC has acknowledged the interpretational difficulties flowing from release of internal CCTC processing data. CCTC has agreed to work with CSU to determine accurate historical credential counts and "market share" figures in the next few months.

It is such a high priority for CSU to have more useful credential issuance data that we have agreed to provide technical support, as necessary. CCTC and CSU hope to have historical credential issuance data for the last several years through 1996/97 available in April 1998. As soon as these data are available, CCTC and CSU will forward them to the Analyst.

CSU's proposal better ensures an increase in the supply of teachers.

The Analyst's assertion that CSU's proposal to increase enrollment in CSU teacher education programs by 600 full-time equivalent students would only rearrange demand is inaccurate. There are significant numbers of teacher candidates who would not have the option of attending the more expensive independent college programs (where tuition can range from $1,000 for a 3-unit course to $20,000 for a complete credential program). Since redirection of the $3.3 million to fund partial scholarships would not sufficiently offset these tuition costs at independent colleges, it would be unlikely that more students would pursue a credential. Increasing access to CSU, with its affordable fee structure, will enable many more teachers to become fully credentialed.

Redirecting CSU funds is not a Market-Driven Alternative

Redirecting $3.3. million from CSU to individual scholarships does nothing to build permanent capacity for greater production of fully qualified teachers. The current demand for qualified teachers is not a one-time phenomenon. While class-size reduction dramatizes the shortage, the profession is also facing a massive wave of teacher retirements coupled with rapid enrollment growth. It is estimated that the state will need between 250,000 and 300,000 new teachers in the next ten years. To meet that need, the state must build capacity and infrastructure within public teacher preparation programs, add more tenure-track faculty positions and implement both new and restructured alternate routes to full and intern teaching credential status.






Achieving a Better Balance for Infrastructure Finance. Recommend that the Legislature dedicate a portion of annual General Fund revenues to a special account to provide a "pay-as-you-go" funding source for capital outlay. Further recommend that in 1998/99 the Legislature substitute General Fund appropriations for the new lease-payment bonds proposed in the budget for specific capital outlay projects.


We concur with the Analyst's recommendation that the Legislature should consider increasing the use of General Fund revenues as a viable alternate source for capital outlay. Prior to the advent of general obligation and lease payment bond programs, the CSU capital outlay program was almost entirely funded from the Capital Outlay Fund for Public Higher Education (COPHE) from 1968 through 1984. From 1960 to 1967/68, the State Construction Fund (also a general obligation bond) was used for program funding. In fact over the history of capital outlay funding for CSU, the COPHE fund has contributed the largest amount of funding, second only to the Public Building Construction Fund lease payment fund source.

We also agree with the Analyst's comment that the state will probably always rely to some extent on bond financing for capital outlay. However, we suggest that other viable financing options are available and that all sources should be made available to help in solving the long-term funding requirements for capital outlay.

As viable alternatives to the sources identified by the Analyst, we recommend that the Legislature give consideration to public/private financing, operating budget debt service, and user fees to help agencies meet their capital outlay needs.





Priorities and Criteria for Funding Higher Education Capital Outlay. Recommend the Legislature adopt specified criteria and priorities as the basis for capital outlay funding decisions for higher education. Recommend the Legislature appropriate funds on a project-by-project basis and not allocate available funds to the three segment on the basis of an arbitrary allocation or formula. In addition, to avoid starting projects that cannot be completed, the Legislature should consider their full cost and the availability of funds at the time the first commitments are made to fund projects.


We disagree with the Analyst's recommendation to eliminate the current practice of sharing general obligation bond resources for capital outlay among the higher education segments on roughly a one-third split. Application of this method began with the 1992/93 general obligation bond program and we believe it to be a rationale approach to help the segments meet their individual backlog needs. When the general obligation bond program was reinstituted in 1986, the split among the three segments for the first three bond measures was roughly forty percent each for the CSU and UC and twenty percent for the CCC. The influence of local bond fund matching for CCC districts was the primary reason. It is interesting to note that the Analyst is recommending a return to the practice of local bond fund matching.

Although we agree that it is the purview of the Legislature to establish the appropriate funding level for each of the segments, we strongly urge that the one-third split be continued as a method to help the segments in their long­range capital planning efforts. In addition, we request that the Legislature consider augmenting the general obligation bond program with other financing options in future capital outlay budgets to assist the segments in eliminating the capital outlay funding shortfall referenced in recent California Postsecondary Education Commission (CPEC) reports.

We also disagree with the recommendation of the Analyst that the Legislature use a uniform priority list for capital outlay funding decisions for each of the three segments of higher education. While the priority categories defined by the Analyst somewhat follow the CSU's own categories and criteria, we believe that the governing boards of the individual segments are the appropriate priority setting authority.

We also believe that the needs of the three segments are sufficiently different so that individual projects should not be compared on an intersegmental basis. We believe that attempts to create a "common yardstick" will have a detrimental impact on the ability of the segments to address their specific needs. For example, the need for administrative space (the Analyst's priority 6) at a given campus may be as critical for one segment as an enrollment growth (the Analyst's priority 4) project at a campus in another segment.

While the priority categories generally follow those of CSU, as mentioned above, the recommended placement of CSU's projects does not follow the trustees' priority. The reason is the additional category added by the Analyst, titled "Operationally Essential Facilities," places two CSU health & safety projects and three CSU utility deficiencies projects in the same prioritization. If this Analyst recommended priority 5 category were eliminated and the CSU could place their projects in the remaining categories, we would feel much more comfortable with this effort.

Also, the qualification criteria suggested by the Analyst for priority categories 1 and 3 would tend to reward those campuses that do not properly maintain their facilities. We feel judgment for placing projects in these two categories is best left to the systems to evaluate and prioritize. We agree with the seismic definition for category 1.

In addition, we support the long standing use of the "target year" enrollment for planning capital outlay projects; we do not think that changing to 95 percent of occupancy year need for enrollment is appropriate.. Enrollment projections have been underestimated over the past 30 years with the exception of the 1991-95 time period. Good long range capital outlay planning efforts are not well served by artificially reducing the historic target year parameter. While we could agree that it might be appropriate as a fund rationing mechanism, it does not seem to be a reasonable planning recommendation.

We support the Analyst's recommendation "…that the Legislature budget higher education capital outlay so that an available fund source is identified to complete projects before approving the initial phase of any project." The CSU capital outlay budgeting restructuring plan addresses this specific issue. Over the past two years, working with the Department of Finance and the Legislative Analyst, we have begun a budget strategy that will ultimately lump sum fund all capital outlay projects so that approved projects will be started and completed within the same fund source.

In summary, we disagree that the current one-third split of general obligation bond funds among the segments of higher education should be discontinued. We also disagree that approval of capital outlay projects for the three segments by the Legislature should be based on a "common yardstick" priority list as recommended by the Analyst. We do agree, however, in concept with the proposal that all projects considered by the Legislature have an available fund source identified to complete the projects before they are approved.





The University of California (UC) and California State University (CSU) Should Use the Department of General Services' (DGS) System for Seismic Risk Evaluation. Recommend that prior to funding any further seismic retrofit projects, the Legislature direct UC and CSU to evaluate all projects for seismic retrofit using the DGS' seismic risk evaluation method.


We do not object to the recommendation of the Analyst that a methodology be established to assess the life­safety risk posed by all state buildings. We also believe that by endorsing the DGS system the Analyst has attempted to establish a "uniform procedure and risk assessment system" to understanding the potential life-safety risk of state buildings.

However, we take exception to the Analyst's comment that CSU only defines its buildings from highest to lowest risk and does not identify the level of risk. To our knowledge CSU is the only agency that establishes a separate priority life­safety seismic ranking for each of its surveyed buildings. This differs from the DGS approach which generally groups a number of buildings within a given category level of risk. We believe CSU approach eliminates confusion as to which individual building poses the greater seismic risk.

The basis for establishing the CSU priority ranking is through the use of a life­safety index for all the buildings in the system. This index was created by the CSU Seismic Review Board in order to assess the life-safety risk to an individual who may occupy any building. Our current building list is ranked on that basis. CSU has consistently followed this list in seeking funds to undertake seismic retrofit projects within the system.

The CSU life-safety index is the coefficient of the particular building's location and its structural integrity. The location determines the potential for ground motion generated by a particular site with a probability factor included in the assessment. The DGS system seemingly applies a uniform magnitude­seven event as a basis for establishing risk­level characteristics for all buildings. The CSU life­safety index is, on the other hand, more sensitive to individual building locations and thus, we believe, is more accurate in determining the level of risk for occupants of a given building. It should be noted that DGS considered using the CSU method, but due to their extensive inventory of buildings across their many sites, they needed a simpler system that could be applied more easily.

To demonstrate the seeming compatibility of the two systems, our Seismic Review Board ranked our current list using the DGS methodology. This list will be transmitted separately. Even with the differences in the criteria used in both systems, the results of applying the DGS system to the CSU list draws very similar results. We do not have an issue with showing a parallel comparison of priority ranking applied to the list. However, we believe that the CSU life­safety index priority ranking is superior, and that its application to the CSU list produces results more consistent with the intent of the Analyst's desire to address life­safety seismic risks at their highest level.






Reevaluate Seismic Retrofit Projects. Recommend that the Legislature delete $7.7 million for two projects related to seismic retrofitting of CSU buildings because (a) the seismic risk of these buildings needs to be reevaluated using the Department of General Services' assessment method and (b) the project scopes need to be reevaluated to limit the work to seismic improvements only. (Delete Item 6610-302-0574 [1] for $3,743,000 and Item 6610-302-0574 [8] for $3,923,000.)


We oppose the Analyst's recommendation to delete the CSU Fullerton Seismic Upgrade - Langsdorf Hall and the California Maritime Academy Seismic Upgrade - Campuswide as these two projects meet DGS's criteria for funding, and as the scope of work is limited to the structural strengthening.

It has been confirmed that the project rating for Fullerton's Seismic Upgrade-Langsdorf Hall is a VI on the DGS scale. A transposition error occurred incorrectly identifying it as a IV level project and was so shared with the Analyst in an informal conversation. The California Maritime Academy project is also confirmed as a DGS level VI project. A list of CSU seismic projects including the DGS rating scale is being transmitted separately.

The initial studies for both projects were examined and both consist primarily of structural strengthening corrections. Also included is related architectural, mechanical, and electrical work directly impacted by the project to insure code compliance and building function. The Maritime Academy project also includes soil stabilization to minimize the potential for soil liquefaction.

Based on this reevaluation and confirmation of the projects' scope, these projects are consistent with the Analyst's priority ranking for funding. Therefore, we recommend that the Legislature include the $7.7 million to complete the construction of the retrofit for these two projects.





Withhold recommendation on $14.2 million for minor capital outlay and $200,000 for statewide seismic studies until the CSU reevaluates these proposals in accordance with the statewide priorities and criteria.


While we oppose the Analyst's priority ranking system, we have reviewed the campus projects and listed them in rank order. As expected the vast majority of the CSU's projects fall into Priority No. 4. - Undergraduate Academic Improvements. We have included the Seismic Studies in Priority No. 1 - Critical Fire, Life Safety and Seismic Deficiencies as the seismic studies are essential to evaluate the life­safety concerns for campus buildings.

Historically, CSU has used the following descriptive categories for the minor capital outlay program:

Category 1: Projects to correct life-threatening security/code deficiencies, to meet contractual obligations, or to reduce CSU legal liability.

Category 2: Projects to meet retroactive code requirements that are not a part of a statewide program or to correct other health and safety deficiencies.

Category 3: Projects to maintain academic programs by ensuring continuation of current services or by reducing program deficiencies.

Category 4: Projects to enhance academic programs that will result in incorporating new or additional courses in campus curricula.

Category 5: Projects to accomplish general improvements, including utility/site development and improvements to noninstructional support facilities.

These categories have been used to fund a balanced program which addresses life safety, disabled accessibility, academic improvements, utilities infrastructure, support facilities and other projects. This fund source is critical to meet the instructional needs of the campuses.





Delete San Jose Business Building Project. Recommend the Legislature delete the proposed $5.1 million to renovate the Business Building at the San Jose campus because the project does not meet the proposed statewide priority criteria for building renovation and the CSU has not substantiated the need to extensively renovate the building. (Delete Item 6601-302-0574 [20] for $5,135,000.)


This building was funded for construction on 1965 (Ch. 757/65, Item 353) and equipment provided in 1970. The design of the building occurred more than 33 years ago. By confirming and correcting our completion date, this project meets the priority criteria proposed by the Analyst.

There are five areas of capital renewal in this project. They are seismic strengthening, mechanical systems improvements, access improvements, electrical system improvements, and architectural and operating systems improvements. The deficiencies of each of these and the cost of upgrading and replacing these systems are described below.

Seismic Strengthening: The building was originally designed with discontinuities in the major seismic-resisting shear walls. Although the cost of the remedy is small, the strengthening is paramount to the integrity of the building.

State Cost: $196,000 plus fees and contingency $233,000

Mechanical Systems Improvements: The cooling capacity of this 33 year old facility is insufficient for current use. This problem will be exacerbated with the proposed program improvements unless the corrections are made. The mechanical design for air handling does not provide adequate temperature control or air delivery to building spaces. The existing air supply is an inefficient double duct constant volume system controlled by aging, high-maintenance pneumatic controls. The system does not adequately cool the classrooms. The condition was made worse by the increased use and heat load of electronics, multimedia presentations and computers. The dysfunctional building adversely affects the student and faculty use of one of the most heavily scheduled classroom buildings on campus.

The heat load will further rise with the remodel requirements for more computers and more multimedia presentation equipment. This heat load will be partially mitigated by the replacement of the ceiling lights with room sensor controls. The remedy requires major modification of the duct system and the addition of variable air volume boxes, use of electronic controls, installation of return air fans, and an increase in the cooling capacity of the air handlers by the installation of larger cooling coils. Existing supply air fans motors will be replaced with new larger units to increase air flow.

In addition, plumbing improvements are included for the restrooms in the upper floors. These restrooms lack floor drains or have drains installed in the wrong locations, which cause significant damage when overflow conditions occur.

The state costs for these changes are only 42 percent of the total mechanical systems cost.

State Cost: $898,000 plus fees and contingency $1,066,000

Access Improvements: As a result of the building modifications, existing law requires significant access improvements be included in the project. While the campus has completed some access improvements since the construction of the building, this project will address restrooms, door thresholds, public phones, stair handrails, drinking fountains and elevators. These items need to be brought into compliance with state and federal regulations. Additional appropriate signage, tactile warnings for the visually impaired, and assisted listening devises for those with difficulty hearing will be provided to comply with current requirements. The elevator repairs are both access related and failure related. These costs are placed in the Operating Systems Improvements. All eight restrooms are being remodeled to meet access requirements.

State Cost: $91,000 plus fees and contingency $108,000

Electrical Systems Improvements: The existing building electrical service is just sufficient for current demand and not adequate for the new loads imposed by the increase use of computers in teaching, and the added load of the new higher capacity HVAC system. Replacement of these major portions of the electrical systems have been avoided by the installation of modern efficient lighting. The resulting reduction in the lighting load offsets the added demand for power and reduces the heat gain problems discussed in the mechanical section. The electrical panels and pathways do not have capacity to meet the needs of the remodeled room configurations and lighting circuits. As a result, additional conduit throughout the building is required. Motor control centers, additional distribution panels and subpanels are also required. The state share of the total electrical costs of the project is 43 percent.

State Cost: $1,722,000 plus fees and contingency $2,045,000

Architectural and Operating System Improvements: The elevator is constantly failing and does not meet accessibility requirements. The hardscape of the site is uneven pavement and the trees and shrubs need major work to allow effective access to building. The floor finishes, ceiling tile and other areas require asbestos abatement. The bridge between the office tower and the classroom building is exposed to the weather, as are the stairwells. Pigeons are constantly fouling the stairs and bridge floor creating a hazardous condition (as well as requiring significant ongoing maintenance). The bridge and the stairwells will be enclosed to mitigate the hazard. While the donor funds will pay for the majority of these costs, the state will benefit from the improvement by reducing a maintenance problem, and improved accessibility.

State Cost: $1,416,000 plus fees and contingency $1,683,000

The total cost of the project is $15,605,000. Donors are funding the program area changes and a fair part of the mechanical and electrical system changes. The donor funds allow for an increase in interactive computer labs, renovation and reconfiguration of classrooms, providing a student lounge and gathering space. The donor costs are $9,421,000 for PWC and in the future will fund an additional $1,049,000 for equipment for project total of $10,470,000. This is 67 percent of the total project costs.

Based on the need to modernize the building for the academic program, address the necessary capital renewal areas efficiently using one construction project, and effectively utilize available funds, we recommend approval of this project.





We recommend that the Legislature delete the proposed $11.3 million for renovation of the vacated Camarillo State Hospital for the California State University (CSU) Northridge, Ventura Off-Campus Center because more information is needed to determine the long-term cost implications of this proposal. We further recommend the Legislature adopt supplemental report language directing CSU to complete studies necessary to evaluate all options for locating the off-campus center. (Delete Item 6610-301-0660 [1], a reduction of $11,303,000.)


CSU respectfully DISAGREES with the Legislative Analyst's recommendations. CSU has followed a thorough due diligence process in the evaluation of the adaptive reuse of Camarillo State Hospital (CSH) as the Ventura Off-Campus Center, and ultimately, CSU Channel Islands (CSUCI). CSU agrees to furnish copies of the studies as they are completed.


Prior to the closure of CSH, the Governor created a special Task Force to study the reuse of the hospital site. After months of evaluation, the Task Force overwhelmingly recommended that the best possible reuse of CSH was as a campus of the California State University.

In conjunction with the Governor's Task Force Study, CSU was also asked to study the feasibility of the reuse of CSH as a university. This began in July 1996. This process is well underway with the basic financial analysis and the campus master plan to be completed in Spring 1998, using $1 million appropriated by the Legislature in 1997/98.

Subsequent to the Task Force Report, the Legislature voted to authorize the transfer of the vacant CSH to CSU in Chapter 914, Statutes of 1997 (SB 623, O'Connell). A total of $607,000 was provided with this transfer to expedite the planning process.

Ventura County is the largest county in the state without a four­year university. Ventura County participation rates in higher education are substantially lower than the state average. Demographic trends in Ventura County show that there is a significant population of students in the K-12 pipeline. These students have no other alternative for a university education in Ventura County. The current Ventura Off­Campus Center location is limited by available space; their lease expires in June 1999.

Maintaining CSH in its current warm shut down condition will cost the state a minimum of $3.4 million annually. Despite the best efforts of the existing staff, the $3.4 million is insufficient to maintain CSH without further deterioration. General knowledge that CSH is closed has increased the need for security to avoid damage due to vandalism and theft.

The Department of General Services (DGS) has a complex contractual obligation for the operation of a cogeneration plant. This is predicated on a minimum consumption of steam for the heating of CSH. The adaptive reuse of CSH as a university specifically excludes accepting any transfer of liability for this transaction, except for consumption of electricity and steam. CSU has met with DGS's Office of Energy Assessments (OEA) to discuss the management and responsibility of the contractual obligations related to the cogeneration plant. OEA has agreed that they will continue to maintain all obligations under the terms of those contracts.

The following CSU comments are to specific issues raised by the Analyst:

Cost Benefit Analyses and Feasibility Studies Not Completed. The Legislature has appropriated $1.6 million to the CSU to complete certain specific studies and analyses of the Camarillo site. The Legislature also should have this information before it makes a decision on moving the Ventura center.


The studies referenced by the Analyst will soon be completed, and furnished to the Legislature, Governor and CSU Board of Trustees. Preliminary information indicates that these studies support the reuse of CSH as a university campus. Supplemental report language is unnecessary, as CSU is already in compliance with the intent of this language.

Comparative Analysis of Camarillo and 260-Acre Site. The Legislature should have a cost-benefit analysis. It should identify when it would be cost-effective to relocate the center to either site. The analysis also should consider the cost of maintaining facilities that are not being used (such as the significant cost of maintaining the unused buildings and infrastructure at the Camarillo site) until such future time when enrollment growth may permit their effective utilization.


CSU, early on, completed a cost comparison between the development of the orchard site versus CSH. The estimated cost to develop the orchard site to a capacity of 2,000 FTES exceeds $60 million, whereas the cost to develop a 2,400 FTES capacity at CSH is $11.3 million. It should be understood that the orchard site would have none of the amenities already available at CSH. A comparison was also made between the development of CSH to 3,300 FTES and our experience at San Marcos to develop 3,000 FTES. Attachment "A" shows that the development of CSH saves the state approximately $100 million and six years. Future expansion at the orchard site would necessitate all new construction including utilities, whereas, future expansion at the CSH could be undertaken using existing facilities.

The existing off-campus center is at capacity in its current leased facility; it must either relocate to another site, restrict enrollment, or lease additional space until a new site becomes available. The off-campus center pays approximately $550,000 annually for this leased space.

The Analyst's comments on the maintenance of the unused facilities are not valid. The obligation to maintain facilities at CSH is an ongoing obligation to the "state," regardless of who occupies it. The $3.4 million cost for a warm shut down will be an ongoing cost and is insufficient to adequately maintain the facility in its current condition. This amount is not sufficient to avoid the cumulative effects of deferred maintenance. Failure to occupy CSH will only result in the further degradation of the infrastructure and improvements.

Any contractual liability related to the cogeneration plant rests with OEA. The impact of those contractual obligations were also a consideration in the Governor's Task Force recommendation.

CSU can demonstrate that the cost per FTES for capital improvements at CSH is approximately one­third the cost of space at a new or existing campus. The first phase of development of 100,000 gsf is accompanied by a complement of facilities that are invaluable to a campus and include an equipped corporation yard, gym, large meeting rooms, maturely landscaped grounds, roads, and a well maintained and operating utility infrastructure. None of the above items exist at the orchard site.

The Analyst fails to recognize CSU's plan to utilize surplus space for a variety of uses, including leasing space to the private sector, locating a K-8 magnet school and the Ventura County Fire Department Corporation Yard on site, and developing the undeveloped or underdeveloped portions of the site.

Environmental Impact Report Not Completed.

Included in the work funded in 1997-98 was preparation and processing of an environmental impact report (EIR). The Legislature should especially be aware of any issues revealed through the EIR process that may affect the costs to develop this site or may limit its development before it commits to the Camarillo site.


The EIR is being prepared in a program format which addresses the full build­out of the proposed CSUCI campus at approximately 15,000 FTES. The draft EIR will be published by May 1, 1998, and mailed out for comment. Copies of the draft EIR will be provided to the Legislature, Governor and appropriate staff. The EIR is scheduled for Trustee approval at its July 1998 board meeting. Any major environmental issues will be addressed before transfer to CSU; however, the campus master plan is being completed in a manner to ensure minimal environmental impact. The relocation of the off­campus center would only require, at most, a negative declaration.

Cost for Underutilized Infrastructure. There is substantial infrastructure in place at the Camarillo site and it has been well-maintained, but this appearance of "cost­free" facilities may be deceiving. The reason is that there is far more in the way of buildings and utilities existing at this site than the CSU can use in the foreseeable future, yet the state will have to bear the substantial expense of operating and maintaining the excess space. The Camarillo site is proposed to open as an off­campus center in January 1999 with an FTE enrollment of 690 and 1.6 million gsf. Even at its planned enrollment of 3,000 FTE in 2004-05, the CSU will have to maintain more than 1.3 million gsf of buildings excess to the center's needs.


By way of clarification, the campus core contains approximately 1.2 million gsf. The balance of 400,000 gsf is located in the residential and school areas east of the campus core.

CSU will initially occupy 100,000 gsf of renovated space, plus an additional 75,000 gsf in the "as is" condition. This space includes a gym, large meeting rooms in the chapel, and the corporation yard.

CSU has proposed, as part of its management of the unused space, to enter into partnerships with other entities in order to lease portions of the campus for both public and private uses. The Pleasant Valley School District Board has passed a resolution approving the location of a K-8 magnet school at CSH which will occupy approximately 50,000 gsf. Leases are being negotiated with the Ventura County Fire Department and a software developer for an additional 70,000 gsf. Finally, the California Conservation Corps occupies some 50,000 gsf and in return provides grounds maintenance staff.

Contract Commitments for Cogeneration Plant. A cogeneration plant has been constructed at the site by a private company. It generates steam (which it sells to the hospital) and electricity (which it sells to electricity utilities in southern California).The state is contractually committed to purchase steam from this plant. When operated as a 1.6 million gsf state hospital, this was not a disadvantage. When operated as a 100,000 gsf off-campus center, this purchase requirement may be a substantial burden.


Key to this discussion is the fact that the "state" (i.e., OEA) has a pre-existing long­term contractual obligation with respect to operating a facility at the CSH site. The state would have this obligation regardless of CSU's acceptance of the site. CSU accepts the responsibility for the purchase and use of the required minimum steam flow, plus the purchase of electricity on an as­needed basis. The state, on the other hand, has a vested interest in having CSU occupy CSH in FY 98/99 to avoid a possible breach of contract in the range of $40 million.

Use of Lease-Payment Bond Proceeds Is Highly Improper.


CSU and the Department of Finance disagree with the Analyst and support the use of lease-payment bonds for the development of Phase 1.