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Thursday, August 25, 2011

LAO Report on Infrastructure Includes Higher Ed and UC

UCLA's Westwood Campus under construction in 1927
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The Legislative Analyst's Office (LAO) has issued a report on state spending on infrastructure. Most infrastructure spending goes for programs other than higher ed such as K-12 and transportation. However, the higher ed segment of the report is reproduced below. Some portions of the text are in bold indicating they are of special interest. Note: There are some charts in the original that are not reproduced below. Go to the link at the bottom of this item to see the whole report including the charts.

Higher Education

California's public higher education system enrolls over 2 million students annually in three segments: the University of California (UC), California State University (CSU), and California Community Colleges (CCC). The three segments have approximately 150 million square feet of facility space, which include instructional space, faculty and administrative offices, and research space as well as dormitories, performance halls, athletic and recreational facilities, and other student support space. The specific mix of facilities differs by segment due to the distinct missions assigned to each. For example, UC has significant space dedicated to research because of its role as California's research university.

Funding Trends

From 2000–01 through 2009–10, we estimate the three segments spent about $41 billion on infrastructure. Support for higher education infrastructure comes from state and non–state sources. The state has traditionally provided infrastructure funding to support the segments' core academic missions. For CSU and CCC, this is mostly limited to instructional and administrative space, while the state supports those functions as well as research space at UC. The Legislature has direct control over state–funded projects because each is funded through an appropriation in the annual budget act. Through this process, the state spent $10.1 billion on higher education infrastructure in the last ten years. …The spending varied by segment, with UC receiving the most support.

State Support Almost Entirely From Bonds. Almost all of the spending from state sources was provided from bonds—with 80 percent coming from general obligation bonds and an additional 19 percent from lease–revenue bonds. Bond spending on infrastructure has more than doubled higher education debt–service costs over the last ten years, from about $516 million in 2000–01 to an estimated $1.1 billion in 2010–11. Most of the general obligation bond spending was from bonds approved by voters in 1998, 2002, 2004, and 2006. In general, the state provides less funding to higher education projects when the balance of general obligation bonds is exhausted. In the case of UC and CSU, the state typically offsets some of this reduction by funding some projects with lease–revenue bonds. Community colleges, in contrast, have not pursued lease–revenue bonds in recent years because repayment counts toward their Proposition 98 funding allotment (and therefore comes at the expense of other CCC programs).

Local Bonds Provide Significant Amount of Community College Funding. Few community college projects are funded exclusively with state funds. Local community college districts typically contribute part of the cost for state–funded projects and pay for many projects without state support. For example, districts may choose to build instructional and administrative space without applying for state funds. Additionally, districts must pay for non–academic space (such as parking garages) with local funds because such projects are not eligible for state funding. The primary source of this local financing is voter–approved bonds. Prior to 2000, local bond measures for educational facilities required two–thirds voter approval. Passage of Proposition 39 in 2000 lowered the threshold for approval to 55 percent. Since that time, voters have approved 86 percent of local community college bond measures and at least one bond measure in 65 of the state's 72 community college districts. In total, these bond measures authorized $22.8 billion for community college infrastructure. (Because these bonds are administered locally, we do not have complete data on how much of this bond authority was spent over the last decade. While some districts quickly spend bond proceeds, others plan for each bond measure to support the district's capital outlay program for 10 to 15 years.) Based upon available information, we estimate that CCC districts spent about $12.6 billion in local funds on infrastructure from 2000–01 to 2009–10—more than three–times the amount spent from state funds on CCC infrastructure.

Non–State Funds Provide Significant Amount of University Funding. The universities rely on non–state funds to support certain types of non–academic infrastructure that the state does not typically support. Non–state sources include fees for residence halls, parking fees for parking garages, and medical center revenues for medical center space. Students also periodically vote to increase student fees in order to pay debt–service costs for the construction of student support space such as student unions and recreational facilities. Overhead fees from research grants and gifts are also used to fully finance projects or augment state–funded projects. Over the last decade, UC spent about $13 billion and CSU about $4.5 billion of non–state funds on infrastructure.

Spending Outcomes

Segments Have More Space… Each segment has more space than a decade ago—UC's academic and research space increased by approximately 25 percent, CSU's academic and administrative space by 15 percent, and CCC's academic and office space by 19 percent. As projects funded in the last few years are completed and put into operation, the segments will have more new space.

...But Is That Space Sufficient? …The growth in space over the last decade has closely matched or outpaced enrollment growth. Each segment, however, indicates that its campuses are still operating above capacity and that the new space has not been able to accommodate new demands and address pre–existing space deficiencies. Even though minimal enrollment growth is expected in the next few years, the universities' five–year plans include projects to increase capacity for meeting "existing enrollment needs." Measuring whether the segments' amount of existing space is sufficient and appropriate is difficult. The segments measure capacity using space and utilization standards, which together determine the amount of academic space needed to meet programmatic demands. There is no consensus on the appropriateness and reliability of the standards for determining actual capacity. For example, CSU and CCC continue to use space standards that are over 30 years old, while UC uses more generous space standards developed in 1990, but never formally approved by the Legislature. Additionally, large amounts of space classified as nonstandard or "other space" are excluded from the capacity calculations. There are also some questions regarding the utilization standards, such as facility use during off–peak periods including evenings, weekends, and the summer term.

Investments in Existing Infrastructure Have Improved Some Facilities. Infrastructure spending on existing facilities has resulted in fewer seismically unsafe buildings at each segment as well as some updated facilities. For example, UC has retrofitted 74 percent of the space it identified as needing seismic upgrades since 1979. Renewal and replacement needs, however, are still significant. For example, CSU identifies 39 buildings requiring seismic retrofitting. Additionally, UC reports that over 50 percent of its state–funded facilities are more than 35 years old and CCC reports that 47 percent of its inventory is over 40 years old. As a result, the segments' facilities renewal needs are likely to increase as the systems in these buildings reach of the end of their useful life.

Identified "Needs" Continue to Grow. Despite the state's investment and the improvements described above, the segments' self–identified infrastructure needs are greater than ever. The segments' five–year plans identify state infrastructure spending exceeding $24 billion—in other words, the segment's five–year plans identify state spending that is more than double the amount spent over the last ten years. It is important to note, however, that the segments' plans include new initiatives to expand enrollment or create new programs and that many of the projects identified do not appear to be vital to the existing operation of the colleges and universities.

Issues for Legislative Consideration

Given other pressures on the state budget, the state likely will not have the resources to sustain the level of higher education infrastructure spending undertaken in the last decade, let alone the greater demand forecasted by the segments' five–year plans. In response to this challenge, the Legislature could consider other alternatives for addressing higher education's increasing infrastructure demand. Possible alternatives include reducing the demand for higher education facilities and targeting available resources to the greatest priorities.

Prioritize Spending to Most Critical Areas. The segments have identified infrastructure needs covering many purposes—including accommodating enrollment growth and initiating new programs. Given the state's limited resources, the Legislature could consider a more targeted funding approach that focuses on existing core academic facilities. Such an approach would be more cost–effective, stretching the state's spending further while encouraging the segments to use space more efficiently. Main elements of a prioritized spending approach could include:

  • Focus on Renovation and Maintenance of Existing Facilities. The state could focus on ensuring that existing facilities are adequately maintained and fully utilized prior to constructing new facilities. As renovation needs alone will likely exceed the state's total resources for higher education infrastructure, the Legislature could consider significantly reducing—or eliminating—allocations for new space. Renovation projects typically cost less than new construction projects, and usually do not require additional ongoing resources for maintenance and operation.
  • Reconsider Types of Space That Are State Supportable. The Legislature could also consider reducing the scope of space that the state supports. For example, state funding could focus exclusively on core instructional space—classrooms and limited faculty and administrative space. The Legislature could also require UC to take a greater responsibility for the funding of research space through the indirect cost reimbursements for facility expenses that are usually included in each research grant. The Legislature may also wish to reconsider state support of facilities for professional schools—such as business and law schools—which have a greater ability to raise outside funds. For example, the law school at UC Berkeley recently financed a $90 million addition entirely through donor gifts and student fees.
  • Reconsider Level of State Support for Community College Infrastructure. As described above, the vote requirement for local bond measures was reduced to 55 percent and voters have already approved more than $22 billion in local bond measures for CCC infrastructure. In light of this improved funding capability by local districts, the state might want to reconsider the level of the state's responsibility to provide infrastructure funding for community colleges.
  • Consider Policy Changes to Free Up Space for Critical Programs. The Legislature could also prioritize its programmatic support for higher education to create space for state priority programs. This could mean limiting support for professional schools or new initiatives in order to focus on undergraduate and graduate education. Or the Legislature could consider narrowing the core missions of the community colleges to exclude many physical education and other personal enrichment courses.

Segments Could Adopt Strategies to Reduce Infrastructure Demand. Adopting the above policies would represent a departure from current practices and encourage the segments to reconsider how they plan for and manage space. In our view, there are a number of reasons higher education's infrastructure demand could decrease. For example:

  • Enrollment Pressure Expected to Ease. Demographic forecasts show a decline in the college–age population through the next decade. This should reduce enrollment driven pressure to expand higher education facilities. In addition, due to budget constraints, enrollment levels at CSU and CCC are well below peak levels from a few years ago. As a result, campuses have unused capacity to accommodate additional students as enrollment returns to previous levels.
  • Utilization of Existing Facilities Could Improve. Each segment has unused capacity that could accommodate additional students. Virtually all campuses could accommodate more students during the summer term. …During the summer each segment enrolls less than 30 percent of the students enrolled during the traditional academic terms. In addition, some campuses could make fuller use of their existing space and accommodate more students during the traditional academic year by scheduling more early morning, evening, and weekend classes.
  • Distance Education Could Reduce Demand for New Space. Distance education—education delivered mainly over the internet or television—also could reduce infrastructure demand. By educating online those students who would have otherwise attended class in person, the segments could reduce the need to build new infrastructure.
  • New Initiatives Could Be Curtailed. The segments could also limit new off–campus centers, schools, and programs. There are often alternatives that could meet the goals of the new programs more efficiently or at a lower cost, such as increasing enrollment in existing programs or using distance–education technology to allow programs to share resources across campuses. Alternatively, the Legislature could require the institutions that establish a new program to eliminate, consolidate, or reconfigure existing programs in order to create space for the new priority program.

Complete report with charts at http://lao.ca.gov/reports/2011/stadm/infrastructure/infrastructure_082511.aspx



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