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Setting the Context: The Recession, Unemployment, and Poverty in California

Thu, 21 Mar 2013 00:00:00 PDT

By Sarah Bohn, research fellow, Public Policy Institute of California Testimony to the California Senate Budget and Fiscal Review Subcommittee No. 3 on Health and Human Services - March 21, 2013 Hearing on CalWORKs and CalFresh
Our researchers regularly provide expert testimony to policymakers. When possible, we make it available on our website.

My name is Sarah Bohn. I am an economist at the Public Policy Institute of California. I�m going to provide some context for your decisionmaking, by looking at how California is faring in the wake of the recession. I�ll first give some snapshots of California�s labor market, then discuss how conditions vary for different types of workers and families�particularly those relevant to CalWORKs and CalFresh. Last, I will present some facts on the ultimate question of how families are doing in terms of income and poverty.

First, a snapshot of California�s labor market: Job growth and unemployment numbers give us the most timely information on how workers are faring and whether businesses are hiring�a sign of economic growth�so I�ll focus on those. California�s employment grew at about 1.6 percent over the past year. While this sounds like a very small number, it is in fact a higher rate of growth than our average over the last three decades. This high rate of growth helps make up ground from three previous years of job loss, which you see in the big dip in this chart. (Slide 2) California is adding jobs at a faster rate than the country as a whole, and faster than many nearby or large states. This growth is led primarily by service industries in (1) science and technology (2) health care and (3) leisure and hospitality. High job growth in these sectors is helping compensate for continued losses in the government and manufacturing sectors, and the slow return to job growth in the construction sector.

The unemployment rate in California is falling, as you well know. (Slide 3) California�s unemployment rate was 9.8 percent as of January 2013, the lowest we�ve seen in about four years. However, it is still quite high by historical standards: An estimated 1.8 million people in California are looking for work.

To understand the labor market in full relief, we also need to consider people who have left it or are underutilized in some way. (Slide 4) Since the onset of the recession, more and more people have stopped looking for work altogether or are marginally attached to the labor force. The unemployment rate would jump as much as 2 percentage points if we counted individuals who are available for work but not looking because they believe there are no jobs or none for which they qualify. When on top of that, we add people working part-time who would rather be working full-time, the rate of labor underutilization jumps another 6�7 percentage points. There has been little improvement in these underutilization measures yet, and this indicates the problem of "underemployment� may be persistent.

In addition, we need to think about the demographic characteristics of the people who are unemployed. In these next few charts, I will show you unemployment statistics pertaining to the U.S. overall. But the takeaways pertain to the California labor market, as well. Married women with children have unemployment rates that are lower than average, but unmarried women with children are more than twice as likely to be unemployed. (Slide 5) Furthermore, the subset of unmarried women with kids younger than age 3 have nearly triple the rate of unemployment of married women with children. And actually, over the past three years, the rate of unemployment for this group of women has been climbing.

Similarly striking differences persist across workers of various education levels. (Slide 6) The lower the level of educational achievement, the higher unemployment rate�before the recession, during, and since. The good news is that unemployment is declining in all four education groups shown here. However none has reached its pre-recession level.

Setting the Context: The Recession, Unemployment, and Poverty in California

Thu, 21 Mar 2013 00:00:00 PDT

Overall, California�s labor market is recovering at a reasonable pace, but opportunities for different workers vary widely. After considering these labor market realities, it is not surprising to learn that many families are struggling. The median family in California was only doing as well by the end of 2010 as the median family was in 1980, in terms of total income. (Slide 7) This chart shows by what percentage family income at the median has increased or decreased since 1980. The gray bars mark periods of economic recession. At the median, family income tends to rise with economic booms and falls with busts. As yet, we have not seen the median family in California experiencing any recovery since the recent recession in terms of their income.

The story is quite different for families at either end of the income spectrum. (Slide 8) At the top end, the 90th percentile, family income is about 35 percent higher than it was in 1980. At the low end, the 10th percentile family is doing about 25 percent worse than in 1980. Over this period, low incomes usually have taken the largest hit in recessions and have taken longer to catch up. In fact, low incomes have never quite caught up to where they were in 1980. In 2010, the 10th percentile earned about $15,000�well below the federal poverty threshold for a family of four. We have yet to see household incomes rebound through 2011 (the most recent data), at least at the middle of the distribution.

The recent recession certainly impacted families across the distribution�and still is affecting many families. But if we take in this whole picture, we see it�s not just the recession that has affected family economic success in California. There are long-term, broad economic trends at play, as well, and these are related to the trends in education levels and labor market opportunities I discussed earlier. Broad economic trends have hollowed out opportunities for some workers�particularly those with lower levels of education� and increased opportunities for others, especially highly skilled or highly educated workers. These trends have resulted in historic gaps between high and low incomes in the state. Even if the recent recession hadn�t happened, we would likely still see this great disparity across the family income distribution in the state.

I want to spend the last few minutes focusing on those families at the bottom end of the income distribution. Along with income declines, we see a corresponding jump in the number of families falling below the federal poverty level. (Slide 9) California had the same poverty rate as the U.S. before the recession, but our poverty rate has since increased more rapidly. The official poverty rate is helpful in understanding poverty over the long run. However, it does not tell the whole story. For example, the official measure does not incorporate changes in the standard of living since the 1960s nor does it account for the differences in the cost of living in California and the rest of the country. In addition, it only counts cash income before taxes. Therefore we cannot use the official poverty rate to see how these families are doing after they receive CalFresh benefits or an earned income tax credit (EITC).

For these reasons, researchers are developing a "Supplemental Poverty Measure� (SPM) that uses a wider lens to view family poverty. (Slide 10) It adjusts for cost of living�housing costs, child care, work expenses� taxes, and participation in programs such as CalFresh, housing subsidies, and the school lunch program. It is useful in examining how much various factors, on the cost side as well as the benefit side, impact poverty. In that sense, it is a very useful tool in understanding family poverty more broadly. The Census has developed a SPM for the U.S., for demographic groups, and for states (on a three-year average basis only).

We at PPIC are collaborating with Stanford Center on Poverty and Inequality to develop a detailed California measure�a single-year, rather than three-year measure�with detail that accounts for regions, demographic groups, and public programs. A handful of other states have taken similar approaches. This new measure will be coming out in the fall of 2013.

The national analysis is already shedding light on how much safety net programs matter. Some programs matter a lot for children. Using the supplemental poverty measure, child poverty is lower than it is using the official poverty rate, and that is largely because of the SNAP and EITC programs. When the poverty measure does not include SNAP, it is nearly 3 points higher. When tax credits are excluded, it goes up another 6 points.

We hope that similar measures for California will shed light on poverty and family economic well-being, and ultimately help inform your decisions across a wide range of programs and issues. Given California�s ongoing labor market challenges, these are increasingly important decisions. I thank you for the opportunity to share my research with you today.

The Need for Public Safety Data Collection

Wed, 20 Mar 2013 00:00:00 PDT

By Ryken Grattet, research fellow, Public Policy Institute of California Testimony to the California Senate Budget and Fiscal Review Subcommittee No. 5 on Corrections, Public Safety, and The Judiciary � March 20, 2013
Our researchers regularly provide expert testimony to policymakers. When possible, we make it available on our website.

Thank you for the opportunity to speak today. My name is Ryken Grattet. I am a research fellow at the Public Policy Institute of California. I�m sure most of you are familiar with PPIC, but for those who are not, we are a non-partisan independent research institute focused on major policy issues in California. About two years ago, the institute made a significant commitment to develop an area of study around corrections and public safety. Several staff with background in this area have been hired, and major research efforts are underway. Today I plan to discuss some of our ongoing efforts to collect data that would permit the researchers to better understand public safety realignment.

Public safety realignment is the biggest shift in corrections policy in decades, affecting tens of thousands of prisoners and the public safety of all Californians. However, realignment came with no funding earmarked for data collection, research, or evaluation to assess the effects of the change on recidivism, costs, and crime rates. As a result, documenting the effects of the change is challenging. There have been laudable efforts to collect summary data on a handful of measures for all 58 counties by the Chief Probation Officers of California and the California Board of State and Community Corrections (BSCC). These efforts are useful but limited. Without improved efforts at documentation, the effects of realignment�both positive and negative�will remain hidden from view. Worse, in the absence of good data, these effects are apt to be characterized by anecdote, spurious correlations, or political beliefs.

Last week, the Board of State and Community Corrections unanimously endorsed a collaborative data collection project in which PPIC will partner with BSCC staff to work with 10 counties and state agencies to develop an individual-level data tracking system. The project was endorsed by the California State Sheriffs� Association, the California State Association of Counties, and the County Administrative Officers Association of California.

The project will help build capacity at the BSCC and selected counties to identify effective practices in dealing with offenders. PPIC researchers will work with the BSCC staff and 10 counties to gather the kind of data that will allow us to take a very close look at the evolving realigned population. Beyond anything that can be done now, this project will allow the state to see what is working and what isn�t and why.

PPIC will help counties track PRCS, state parolees, and 1170(h) offenders in custody and under supervision. This data will be collected at the individual level and will cover offenders� experiences with services, supervision, and sanctions, as well as several different types of program and recidivism outcomes. Some of this data can be drawn from existing state-level sources, while other data must be compiled from counties. The BSCC and the counties will be able to aggregate and "cut� the resulting data in a variety of ways in order to focus attention on the behavior and outcomes of particular subpopulations of offenders (e.g., high-risk offenders receiving substance-abuse treatment) or particular types of supervision, sanctioning, or service practices. In short, this project will allow for more meaningful performance measurement and more informative reporting than anything currently available.

Among researchers it is well known that in order to be able to do useful work that contributes to the identification of evidence-based practices in corrections, it is necessary to have data that is collected at the individual level. This includes relevant demographic and criminal history background factors, as well as recidivism outcomes. Moreover, the data needs to be collected in consistent ways across settings to be useful. When done well, such data can provide a powerful basis upon which to identify causal impacts of a wide range of service, sanctioning, and supervision practices.

The 10 counties will be selected to be representative of the state as a whole. We have not finalized our selection, although we have identified a range of counties that would allow us to represent the diversity of the state. We have been in contact with a subset of these. Once completed, the instruments and technical knowledge will be shared with other interested counties. The data will be held by the BSCC and used for its reporting requirements. PPIC is providing technical assistance to set up this data system and we will work with BSCC to establish procedures for timely access for other researchers.

Several counties already have used realignment funds to contract with researchers to do similar kinds of work. Other researchers are knocking on the doors of individual counties and organizations at the state level. Some counties have funded evaluations or data collectors to help them better understand the impact the realigned population is having on their county. To date, however, these efforts are not coordinated. It remains unclear whether data gathered in such efforts will allows us to transfer lessons from one county to the next.

In short, PPIC�s collaborative project will help BSCC fulfill a part of its statutory mission to collect data and identify evidence-based practices, and feed that information back to counties. For counties, this project will enable more informative reporting, by offering a variety of customizable ways for organizing and presenting data. For researchers, this project will facilitate analyses that will allow for the identification of the effects of supervision practices, services, or other kinds of interventions on behavioral outcomes. Without the data generated by this project, the effects of policy choices will remain unknown.

In addition to the multi-county study, PPIC also is conducting research on the impact of realignment on crime, recidivism, and local jails. Data for these projects derive from state sources. We have received some data on jails and some early data on crime. We are optimistic that the agencies soon will provide us with the data we need for these projects. I would be happy to answer questions about the multi-county study or these other projects at the appropriate time.

California School District Revenue and Student Poverty

Thu, 28 Feb 2013 00:00:00 PDT

By Margaret Weston, research fellow, Public Policy Institute of California, and Heather Rose, associate professor, UC Davis School of Education, and adjunct fellow, Public Policy Institute of California

Testimony to the California Senate Budget and Fiscal Review Committee � February 28, 2013

2013�14 K�12 Education Budget: Overview of the Governor�s Local Control Funding Formula and Accountability Plan

Our researchers regularly provide expert testimony to policymakers. When possible, we make it available on our website.

Margaret Weston:
Thank you very much for inviting us to speak today on California�s school finance system. For more than a decade, our research has focused on school finance issues in California. Our more recent work has involved explaining the current system, identifying key issues and problems with this system, proposing principles to guide any reform effort, and analyzing various reform proposals. These issues have a renewed sense of urgency in light of Governor Brown�s recent proposals. And so today we will be focusing on our most recent report, California School District Revenue and Student Poverty: Moving Toward a Weighted Pupil Funding Formula. The purpose of this report was to thoroughly describe our current system and the relationship between funding and student disadvantage. This description provides a good benchmark by which to gauge the governor�s proposals. We also reviewed the literature on resources and achievement and reviewed the finance systems in other states to provide other benchmarks. Today we�ll be focusing most on describing our current system and how the governor�s proposal would change that system. We are happy to discuss other issues and answer specific questions after our presentation.

So let us begin by very briefly describing one of the main motivations for a weighted pupil funding formula. In California, and across the nation, the test scores of students from low-income families or at schools with many low-income students tend to systematically lag behind students from higher income families or schools with fewer low-income students. I am sure you are all familiar with the black-white achievement gap. You may be surprised to know that Sean Reardon, a professor at Stanford, recently found that the income achievement gap is nearly twice the size of the black-white test gap. Furthermore, he found that the income achievement gap has grown by more than 30 percent since 1970. In the figure (Slide 3), each dot is an elementary school with its 2011 Academic Performance Index (API) plotted against its percentage of disadvantaged students. The line shows this average negative relationship, where schools with no disadvantaged students are well above the state�s goal of 800 and schools with all disadvantaged students are below the state�s goal. Of course, there is a great deal of variation around this average.

One goal of a weighted pupil formula is to provide more resources to schools serving many disadvantaged students with the hope that more revenue will provide more resources and services that will improve the academic achievement of children from low-income families and children who attend schools with many low-income students. Let�s now turn and examine the relationship between funding and economic disadvantage.

School districts receive funding from four main sources (Slide 5). The largest source of revenue is revenue limits, a general purpose entitlement financed by local property taxes and state aid. Each school district has a unique per-pupil revenue limit based on historical spending patterns. It is multiplied by the district�s average daily attendance (ADA) and adjusted for a few factors to create the entitlement. The district�s share of local property taxes are first applied to the entitlement and any gap is filled by state aid. If a district�s property taxes exceed the entitlement, the district retains that excess and is generally called a "basic aid� or "excess tax� district.

The second source of revenue is other local funds, such as parcel taxes; the rent, lease, or sale of excess buildings; student fees; and fundraising.

In addition to the state aid provided in revenue limits, the state funds a variety of "categorical programs,� funding that is earmarked for specific programs and purposes, such as special education, home-to-school transportation, and instructional materials. In 2009, the state eased the restrictions on many categorical programs and school districts have had more discretion over the use of these funds.

Finally, school districts receive funds from the federal government. The majority of these revenues are categorical programs earmarked for specific uses such as the National School Lunch Program, special education, and Title I�a program that targets disadvantaged students.

In 2010-11, total funding averaged $9,100 per pupil.

California School District Revenue and Student Poverty

Thu, 28 Feb 2013 00:00:00 PDT

In this next section, we will examine each source of revenue more closely. In particular, we will describe the current relationship between each funding source and student disadvantage. Each chart will show funding per pupil plotted by the percentage of students on free or reduced-price lunch. There are two important points about these charts. First, we show the relationship in unified districts, which enroll approximately 60 percent of the state�s students. These graphs are available for elementary and high school districts in our online technical appendix. We are happy to discuss differences across district types in the question and answer period. Second, our measure of student disadvantage differs from the governor�s proposal in that we exclude an estimate of non-poor English learners. When we estimate that measure, the trends we find do not substantively change.

Let us first turn to revenue limits (Slide 6). By design of the system, these have been equalized by school district type and size. This is evident in the figure. Every circle is a school district, with the largest one being Los Angeles Unified, which enrolls 10 percent of the state�s students. With few exceptions most districts are closely clustered around the line, which represents the average relationship between revenue limits and student disadvantage. Districts located above the line generally are small and are either basic aid districts or have special funding for very small, geographically isolated schools. As you might tell from the figure, districts in which 100 percent of students are economically disadvantaged receive slightly less per pupil.

This next chart (Slide 7) shows the relationship between local funds and student disadvantage. Local funds per pupil decline as student poverty increases. Districts with all disadvantaged students raise approximately $370 less per pupil than districts with no disadvantaged students.

As I mentioned, the state directs revenue to districts for specific programs and purposes, and we generally call these categorical programs. These programs fund a variety of activities, including more general purposes�such as textbooks and professional development for teachers�as well as targeting at-risk students, such as foster youth, pregnant minors, and students who have failed state tests. The state�s compensatory program, Economic Impact Aid, allocates funds based on a count of low-income students and English learners. Unlike the governor�s proposal, a student who is both low-income and an English learner is counted twice for funding. Taken all together, state categorical aid overwhelmingly flows to districts with large shares of disadvantaged students (Slide 8). Districts with no disadvantaged students receive approximately $500 per pupil in categorical aid, while districts with all disadvantaged students receive more than four times that amount. Although districts with many disadvantaged students get more categorical aid, there is significant variation even among districts with similar levels of disadvantaged students without explicit reasons for these differences.

Let us now turn to the last source of revenue: federal aid. Like state categorical aid, federal aid targets disadvantaged districts (Slide 9). Districts with no disadvantaged students receive no categorical aid, while those with all disadvantaged students receive nearly $1,200 per pupil.

When we combine all sources of revenue and look at total funding, we see a positive relationship between funding per pupil and student disadvantage (Slide 10). Funding per pupil generally increases as the share of disadvantaged students increases. Districts with no disadvantaged students receive total funding of about $6,600, on average. Essentially this base revenue is increased by nearly $2,400 per disadvantaged student, which can be converted into a percentage increase to determine the current "weight� for student disadvantage. When we do that, we find that under our current system, unified districts receive 36 percent more revenue per disadvantaged student from all funding sources.

On this next slide (Slide 11) we disaggregate the overall implicit weight into the four sources of revenue to show which sources contribute the most to the overall weight. What you can see is that both revenue limits and local funds decrease per pupil as student disadvantage increases. But state and federal categorical aid more than offset this trend and are the source of these additional funds for student disadvantage.

I would now like to turn it over to Heather Rose to discuss the governor�s proposal and our concluding remarks.

Heather Rose:
Governor Brown�s proposal consolidates revenue limits and a subset of state categorical programs, and it distributes them according to a weighted pupil formula (WPF). In its simplest form, a WPF would provide the same base amount of funding for every student, and then it provides additional funding for certain groups of students. For example, all students might receive $6,000 and students living in poverty might receive an additional $2,000.

The governor�s January 2013 proposal would implement the following WPF. When fully implemented, it would provide a base level of funding for all students, but that base would depend on the student�s grade. The base for K�3 students is $6,342. The base for grades 4�6 students is about $100 higher at $6,437. The base for students in grades 7�8 is another $200 higher at $6,628. And, then the base for high school students jumps up an additional $1,000, and is $7,680.

California School District Revenue and Student Poverty

Thu, 28 Feb 2013 00:00:00 PDT

The formula would then make three adjustments based on those bases. First, it would increase the funding for grades K�13 and 9�12. For grades K�3, it would provide an additional 11.23 percent of the K�-3 base to help maintain smaller classes in those grades. For grades 9�12, it would provide an additional 2.8 percent of the grade 9�-12 base to maintain career and technical education programs. Second, the WPF would provide additional funding for disadvantaged students. A disadvantaged student is classified as a student who is on the free or reduced-price lunch program, an English learner, or a student who is a foster child�although a student who meets more than one of these criteria is not double counted. Every disadvantaged student would receive 35 percent of the base. The third adjustment for the WPF is the concentration factor that would provide even more revenue for students in districts with more than 50 percent disadvantaged students. This concentration factor is proportional to the share of disadvantaged students. Effectively, it serves to the increase the weight for disadvantaged students from 35 percent, when districts have 50 percent disadvantaged students, to about 53 percent when districts have all disadvantaged students. (When there are 75 percent disadvantaged students, the effective weight is 47 percent).

In addition to this weighted pupil formula, districts would still receive revenue from the programs that had not been folded into the WPF. These are programs like Targeted Instructional Improvement Block Grant and home-to-school transportation, which are added on to the WPF funding. In addition, there are other programs required by the constitution and legal settlements to stay outside the WPF (e.g., state lottery, After School Education and Safety Program and the Quality Education Investment Act). Slide 14 shows how funding in all these programs that are excluded from the WPF are related to student poverty. On average, districts with no economically disadvantaged pupils receive $49 per pupil from these programs, and districts with all disadvantaged students receive $977. This difference serves to augment the weight from the WPF portion of the governor�s funding proposal. As you saw in a previous slide, federal aid also serves to increase the amount of funding going to economically disadvantaged students.

To demonstrate how these various revenue components work together, Slide 15 shows the relationship between revenue and student disadvantaged under the governor�s proposal. The bottom line shows the current funding in the revenue programs that would be folded into the WPF proposal. This line represents the average funding in these programs based on the level of student disadvantaged. Two important things are worth noting. First, by showing the average relationship, you miss seeing the variation around that line (these were the bubbles in the prior slides), but there is indeed variation around that line. Second, the differences in funding related to student disadvantage are much smaller in this subset of programs. Districts with no disadvantaged students receive about $6,118 per pupil. Districts with all disadvantaged students receive about 8 percent more, implying a current implicit weight for disadvantaged students of 8 percent for the programs that are folded into the WPF.

The orange line shows how the governor�s WPF would allocate revenue in these programs. For simplicity, we assume a base for all students of $6,118. We choose this base because it is effectively the base in the current programs that will be consolidated into a WPF. Although the state can�t currently afford this base, it helps illustrate where additional revenue will be directed as it becomes available. In a moment, we will show what happens with a base similar to the one the governor has proposed. With a base of $6,118, the orange line traces the district�s revenue per pupil given its share of disadvantaged pupils. Although, districts currently receive about 8 percent more revenue per disadvantaged pupil, that would increase to at least 35 percent more, and possibly up to 53 percent more with all disadvantaged students. Thus a great deal more revenue would be channeled to disadvantaged students. Furthermore, there would be no variation around that orange line. If every district were plotted like they were earlier, they would land exactly on that line. Where on the line would just depend on their rate of student disadvantage.

The light tan line shows how revenue changes once we add the state programs excluded from the WPF and once we add the federal programs. Very little of that revenue goes to districts with no student disadvantage and a great deal goes to districts with all disadvantaged students. The final dark line adds in other local revenue as well. Once all of these funding sources are taken into account, districts with all disadvantaged students receive about 77 percent more revenue than are districts with no student poverty. Another thing to keep in mind is that once these additional funding sources are added, they reintroduce variations in funding for any given level of student disadvantaged.

That effective weight of 77 percent applies to total revenue (the governor�s WPF, additional state programs, federal, and local revenue). The next slide shows how that compares to total current revenue. Currently, districts with all disadvantaged students receive about 36 percent more per pupil from all these sources. So, taking all these sources of revenue into account, the end result of the governor�s program is to direct more resources to disadvantaged pupils.

We did that example with a base of $6,118 for all students. Recall that the governor has actually proposed different weights for different grade levels. If you average those, weighting by the number of students in each grade level, you would get an average base of $6,800 per pupil, not $6,118. The light blue line shows what total revenue would be with this higher base. (But it still makes some simplifying assumptions, e.g., it doesn�t include the additional weights for K�3 or 9�12). This shows that as you increase the base, districts with all disadvantaged students still get more than 70 percent more than districts with no disadvantaged students.

We have thoroughly analyzed the governor�s 2012 WPF proposals. Although this analysis of his January 2013 proposal is not that same kind of thorough analysis, it does highlight where money will be targeted under the proposed funding system, and it does that by taking all funding sources into account.

California School District Revenue and Student Poverty

Thu, 28 Feb 2013 00:00:00 PDT

We�d like to conclude with a few remarks about the proposal. First of all, the governor�s proposal does meet many of the principles of good finance reform that we have discussed in prior work. It recognizes that cost of resources may be different for different students. It directs additional revenue to districts with large shares of disadvantaged students. It�s more equitable in that once those cost factors have been identified, all districts with the same cost factors receive the same per pupil revenue. And, it�s simpler and more transparent.

Despite these improvements, there are additional issues that you may wish to consider as you discuss the proposal further. The governor�s formula has focused on revenue adjustments for student disadvantage and for grade level, but another important cost consideration may be the regional labor markets in which districts need to compete for employees. If we equalize district revenue, but some districts face higher wages for their teachers, they must hire fewer teachers or balance their budgets by making cuts in other ways.

The other major issue to be discussed is whether the weight is right. Unfortunately, we know very little from the research about what the right funding level needs to be for students to reach the state�s standards, and we know very little about how much extra disadvantaged students need. Furthermore we can learn very little from other states about what the right weight should be. Inevitably, there will be debate about the trade-off between providing a higher base funding rate for all students or a higher weight for some students. We hope that our presentation will help you think about these issues in the context of all school district revenue districts receive (additional state programs, federal programs, and local revenue).

Thank you for this opportunity to present out work. We hope you find it helpful in your deliberations.

Addressing Funding Gaps in California Water

Tue, 26 Feb 2013 00:00:00 PDT

By Ellen Hanak, co-director of research and senior fellow, Public Policy Institute of California Testimony to the Joint Informational Hearing, Senate Governance and Finance and Natural Resources and Water Committees - February 26, 2013 Overview of California�s Debt Condition: Priming the Pump for a Water Bond
Our researchers regularly provide expert testimony to policymakers. When possible, we make it available on our website.

Thank you for the opportunity to participate in this discussion of water finance issues today. I will focus my remarks on how California can address funding gaps in the water sector, based on recent analyses we have done at the Public Policy Institute of California (PPIC).¹ I�ll begin with an overview of recent water sector funding performance � including water supply, wastewater, flood protection, and ecosystem management � drawing on available information on expenditures and funding needs. Then I�ll provide some thoughts on the potential future roles of different funding sources, including state general obligation (GO) bonds.

Recent Water Sector Performance
One of the first things to note is that California�s water sector is quite large � with annual expenditures in the late 2000s averaging around $34 billion. And by far the lion�s share � 86 percent, or nearly $30 billion � is raised and spent by hundreds of local and regional agencies that deliver and treat drinking water, collect and treat wastewater, and manage local flood and stormwater infrastructure. The state�s share is next � 11 percent or nearly $4 billion. Federal contributions are relatively small � 3 percent or roughly $1 billion. Local spending comes mainly from local ratepayers. State and federal grants to local agencies totaled just over $1 billion a year.

Breaking this information down by area, there are some big differences in scale (Figure 1). Water supply systems account for nearly two-thirds (64%) of all water sector spending, followed by wastewater systems (30%), floods (5%), and ecosystem management by state and federal regulatory agencies responsible for fish and other aquatic wildlife (1%). Of course, substantial ecosystem-related spending also occurs as part of the budgets of agencies managing water supply, wastewater, and flood protection, because all of these systems are required to address environmental impacts related to their capital improvements and maintenance work.

Figure 1. Adequacy of water system spending in California

The two largest parts of the water sector also appear to be in the best shape from a funding adequacy perspective. A comparison of capital spending and estimated capital needs suggests that California�s local water agencies are meeting and even exceeding investment needs (Figure 2).²

Figure 2. Local water and wastewater investments are generally on track

They are able to do this because their system for raising needed funds from local ratepayers is relatively robust. Of course, this does not mean every single agency is on track. Many will face increasing costs to address infrastructure backlogs and needed updates in the coming years, and some small, rural systems face particular challenges to provide safe drinking water today. Some agencies have also raised concerns about the potential for ratepayer challenges under Proposition 218. (In general, this law requires ratepayer notification about proposed changes in rates, and if a majority protests, the rate increases can be overturned.)

Much bigger problems loom in the smaller areas of the water sector portfolio, however, as Figure 1 shows above. Paying for flood protection is a major challenge. The investment needs to provide adequate levels of protection are vast � with over $17 billion in estimated needs in the Central Valley alone � excluding most of the Delta as well as the many other parts of the state that face high flood risk. And the funding system relies on outdated assumptions that California will receive large federal cost shares of 65 percent for investments. Federal funds have long been inadequate to keep pace with spending needs, and these contributions have actually been declining in recent years (Figure 3). The state stepped up to help fill this gap with two bonds authorized in November 2006, committing roughly $5 billion to flood protection. But these funds are nearly all spent. And while there have been some notable recent successes in places like Sacramento and West Sacramento, getting voter approval for local cost shares remains challenging. (Under Proposition 218, approval by at least half of property owners or two-thirds of the general electorate is required to pass or raise local flood assessments).

Addressing Funding Gaps in California Water

Tue, 26 Feb 2013 00:00:00 PDT

Figure 3. The state has surpassed the federal government
in flood investments

The other major gaps are in the areas of ecosystem management � including the science needed to support smart ecosystem solutions � and the very small but important functions of statewide data, analysis, and planning. Both of these areas have come to rely heavily on state GO bond funds, and the stop-and-go nature of these funds makes it hard to manage activities in a systematic, predictable way.

Potential Roles of Different Funding Sources
This brings me to the key issues that the legislature will need to grapple with going forward regarding water sector funding: What are the appropriate roles for state GO bonds? And what other types of funding should the state encourage?

As Figure 4 highlights, state GO bond support to the water sector increased significantly in the 2000s � in real terms, nearly $25 billion was approved in the past decade to support a variety of activities � two and a half times more than the entire amount approved in the preceding three decades. These funds have supported many valuable efforts, and they have been vital for flood protection and ecosystem management activities. But as noted, bond funding can be less reliable as a funding source: witness the period during the recent recession when bond sales � and the activities they were supporting � were suspended. And the legislature�s decision to twice postpone placing the most recently proposed $11 billion bond on the ballot (SBx7-2, approved by the legislature in late 2009 as part of a broader water package) reflects signs that voters may have lost their appetite for these measures, which ultimately require their approval as well.

Figure 4. Growth in state GO bonds for water in the
2000s was unprecedented

Addressing Funding Gaps in California Water

Tue, 26 Feb 2013 00:00:00 PDT

State GO bonds are certainly welcome budgetary supplements to water sector managers. But they also require tradeoffs with other important activities the state supports - such as education and health and social services � because they are paid back through general fund tax dollars. What�s more, the availability of bond funds to support activities that water users could readily pay for themselves can weaken the incentives to make sound management decisions at the local level. It is therefore important to consider both the total amount of state water bonds and the areas where they are especially helpful to improving statewide water management. The following three criteria seem especially relevant:

Does the funding generate broad public benefits? Areas like ecosystem enhancement fall into this category, for instance the funds anticipated for Delta ecosystem enhancement in SB x7-2.
Does the funding support public health and safety? This would include addressing environmental justice concerns of providing safe drinking water in communities that can�t afford it. It would also include helping to fill the federal gap in flood protection spending, given the likely difficulties of raising all the needed funds locally.
Does the funding leverage "good behavior� on the part of local water managers? Arguably some of the most useful programs funded by bonds in the past decade have been designed in this way � encouraging more cooperative approaches for groundwater management and integrated water resources management.

Even in these cases, however, it is important to recognize that there are alternatives to bond funding that might be both more fiscally prudent and more reliable. These sources should be considered as complements or substitutes to additional state GO bonds in the water sector:

Public goods or benefit surcharge. There has been much talk in recent years of this alternative from the playbook of California's energy sector � a surcharge levied on ratepayers to support activities that help the sector to support more environmentally sustainable goals. Such surcharges actually already exist in the water sector in some parts of the state � notably the Metropolitan Water District of Southern California's surcharge on water sales, used to support local projects that enhance water supply reliability, or the Sonoma County Water Agency's surcharge to support recovery of endangered fish species within its watershed.

Special mitigation fees. Other sectors also use revenues from surcharges on the sale of certain products to pay for related environmental mitigation. For instance, we pay an electronic waste disposal fee when we buy computing equipment, and we pay a fee to mitigate lead paint poisoning when we purchase paint. One relevant source of support for programs to clean up drinking water is a fee on the sale of nitrogen-based fertilizers. Since the passage of Proposition 26 in November 2010, these types of fees now generally require a two-thirds vote by the legislature or a supermajority vote of the general public within local agencies.

Set-asides of other state revenues. A small share of transportation funds might appropriately support the work of the state Department of Fish and Wildlife, given the major effects of roads on aquatic ecosystems. As a precedent, 0.1 cent per gallon of federal gas tax funds a Leaking Underground Storage Tank Trust Fund.

Regional and local flood fees. Given the funding gaps in flood protection, more funds will likely be needed from local assessments. In some cases, it will make sense to scale this up to the regional level. A regional flood authority for the Delta � called for in the new Delta Plan � is a proposal in this direction.

Developing a range of funding options is likely to put California in the best position to meet the challenges of sustainable water management in support of a strong 21st century economy, society, and environment.

¹ See Hanak et al. (2012) Water and the California Economy and Hanak et al. (2011) Managing California�s Water, From Conflict to Reconciliation, chapter 2. Much of this analysis is summarized in Hanak. 2012. "Adequate and Appropriate Funding for a Modern Water Sector: Insights from California.� Water Resources Committee Newsletter 14(3), August, Section of Environment, Energy, and Resources, American Bar Association.
² The U.S. Environmental Protection Agency compiles this needs assessment every four years by surveying all local and regional agencies.

Planning for a Better Future

Tue, 25 Sep 2012 00:00:00 PDT

By Mark Baldassare, President and Chief Executive Officer, Public Policy Institute of California Testimony to the Little Hoover Commission, California�s Crucial Issues�Ongoing Concerns and "The New Normal,� September 25, 2012
Our researchers regularly provide expert testimony to policymakers. When possible, we make it available on our website.

Thank you for the opportunity to participate in a public hearing on California�s Future. The research and publications of the Public Policy Institute of California (PPIC) have for many years pointed to the importance of planning for a better future even as we attempt to deal with today�s fiscal and economic challenges. The institute is busy this year raising awareness among the state�s policymakers, through our events and outreach, of the critical need to make informed policy choices about the state�s long-term challenges.

The source of most of my comments today is the PPIC briefing kit, California 2025: Planning for a Better Future. We produced the 2012 briefing kit to inform policymakers of our key findings and policy recommendations in 10 issue areas. My remarks will focus on three areas�the workforce, water, and climate change�and in so doing will refer to the work of PPIC colleagues Ellen Hanak and Hans Johnson.

I chose to highlight these three issues because they each reflect trends that are threatening the state�s economy and the wellbeing of Californians. But these threats also present opportunities for state policymakers to work together to forge a new vision for California. And because the state�s policymakers include the voting public as well as government officials, I will also discuss the PPIC Statewide Surveys that I am directing since the results have relevance for our abilities to make policies for a better future.

First, the education system is failing to keep up with the changing workforce demands of the state�s economy. Too many of our K-12 public school students are not completing high school or they are graduating high school without enough preparation for success at college-level work. California�which built the most admired public higher education system in the country guided by an ambitious master plan over 50 years ago�also lags other states in the production of college graduates. This is happening at a time when fundamental changes across industries, the growth of the service economy, and globalization require greater numbers of highly educated workers. Moreover, the baby boom cohort�a relatively well-educated one�is being replaced by demographic groups with historically low rates of college completion. Projections suggest that, if current trends continue, the state economy will require 1 million more college graduates in 2025 than the state is producing. And there will not be enough newcomers to California from other states and countries to close this workforce skills gap. If we fail to change this trend the result is likely to be a less productive economy and less tax revenue for the state. Our studies have also found that rates of employment have been much higher for college graduates than others in the wake of the Great Recession, and as a result, stubbornly high unemployment rates and high demands for public services may be among the future byproducts of a workforce skills gap.

California is also facing challenges in managing its natural resources. Managing water has always been difficult given the weather patterns that bring long droughts and severe floods, and the variability in water availability and demands across the state�s regions. After all, this is a state where much of the state�s population relies on water brought in from distant rivers or Sierra Nevada watersheds. Population growth is likely to increase water demand in urban areas, and the physical and biological fragility of the water system�s hub in the Sacramento-San Joaquin Delta compound the challenges. The Delta poses serious risks to the economies of the Bay Area, Southern California, and San Joaquin Valley. With the Delta�s physical deterioration, the state faces inevitable, fundamental changes in this region.

Climate change is expected to amplify our water problems and poses other threats throughout the state. Higher temperatures will result in more rain and less water from the Sierra snowpack. The frequency of extreme events such as heat waves, wildfires, floods, and droughts are expected to increase and will have consequences for public health and public safety. Sea levels are expected to rise and that will have impacts on coastal homes, habitats, and infrastructure. Even if global emissions of greenhouse gases are reduced, and that is by no means a certainty, we will still need to make plans to accommodate for the impacts on air, land, and water of climate changes now in process in California.

As difficult as these three challenges are, we also know that we can meet them if there is political will. Californians have solved problems in the past by making investments and hard policy choices, and planning for a better future in ways that benefit our economy and improve our quality of life today.

In education, for example, our work at PPIC has demonstrated that modest investments in our public higher education system can yield significant results. Only about one in 10 community college students, and one in four of those taking transfer-eligible courses, transfer to a four-year university. Only about half of California State University students graduate within six years as entering freshmen, compared to four of every five students in the University of California system. Gradually increasing college enrollment rates, community college transfer rates, and graduation rates could, together, reduce the workforce skills gap by half in 2025. This will not be a tough sell for state residents: The PPIC Statewide Survey in November 2011 found that 86 percent of Californians believe that it is very important for K-12 public schools to prepare students for college, 73 percent say it is very important for community colleges to prepare students for four-year universities, and 73 percent believe that California�s higher education system is very important to the quality of life and economic vitality of the state over the next 20 years.

Planning for a Better Future

Tue, 25 Sep 2012 00:00:00 PDT

In water management, the state has the tools to secure a safe, reliable water supply while improving conditions for fish and wildlife. With careful management and complementary ecosystem investments, a peripheral canal or tunnel has the best potential for safeguarding the Delta�s environment while maintaining water supply reliability. Better pricing policies�such as tiered water rates with higher prices for greater uses�can heighten incentives to conserve water. Recycled wastewater has potential for meeting new demands. Water marketing can also play an important role in increasing efficiency. Storing water underground can also be a cost-effective way to save it for dry years. Californians perceive that there is a water problem in search of a solution: The PPIC Statewide Survey in March 2012 found that 61 percent of Californians say that the supply of water is a problem in their part of the state, and in December 2009 we reported that just 32 percent believe that the water supply available for their part of California will be adequate for what is needed 10 years from now.

In climate change, California has been a leader in implementing policies to curb greenhouse gas emissions. California passed the first-ever greenhouse gas emission standards for passenger vehicles in 2004, the comprehensive effort to reduce emissions with the Global Warming Solutions Act in 2007, and Senate Bill 375 aimed at reducing driving through local land use and transportation planning in 2008. The state�s climate change laws are not without controversy or costs�however, they are efforts that the state�s residents have steadfastly supported even through the Great Recession. The PPIC Statewide Survey in July 2012 found that 78 percent of Californians favor requiring all automakers to reduce greenhouse gases from new cars, 71 percent favor the state law that requires California to reduce its greenhouse gas emissions down to 1990 levels by 2020, and 77 percent favor encouraging local governments to change land use and transportation planning so that people could drive less. While 75 percent say that global warming is a serious threat to the economy and quality of life for California�s future, just 25 percent believe that doing things to reduce global warming will result in fewer jobs.

Government officials will need to find ways to tap into the public�s concerns about the effects of trends in the workforce, water, and climate change�and their general enthusiasm for planning for a better future. Citizen engagement will be essential because our state�s policymakers include the voting public who will be called upon often to make decisions in statewide elections about taxes, bonds, and laws.

This raises the most difficult challenge for the state�s future: Californians deeply distrust state government. While voters are deeply divided along partisan lines on many issues, California voters are united in their dissatisfaction with the state of the state and its governance. Our November 2011 survey found that 56 percent of likely voters say they have very little or no confidence in the state government�s ability to plan for the future of higher education. Our March 2012 survey found that only 51 percent support the state water bond that the governor and legislature had passed in 2010 and since removed from the November ballot over fears of its defeat. And our July 2012 survey found that when likely voters are told that state efforts to reduce greenhouse gases include a cap-and-trade system that will generate about $1 billion in new revenues, 67 percent express very little or no confidence that the state government would use this money wisely. In sum, many Californians may just say no when asked to support public investments for a better future.

There is no simple way to rebuild the civic contract. We need to engage more citizens in elections, give those who do participate a better grasp of the basic facts around the issues they are deciding, and increase the amount of information about the pros and cons of ballot measures. This effort will require a sustained campaign led by a broad range of leaders across the state in business, labor, education, civic, philanthropic, and nonprofit organizations to succeed. This activity should also spark a state dialogue: What kind of government do we need and what are the citizens� obligations in achieving this vision?

While the task of restoring trust in government is not easy, there is reason to be hopeful. Californians are in a mood for change rather than being resigned to cynicism and pessimism. They approved the majority legislative vote for passing a state budget and that has resulted in two on-time budgets. They approved two electoral reforms�an open primary and independently drawn districts�that premiered in June. In that election, voters approved another reform, affecting the term limits law for state legislators. The November ballot will include more chances to reform the fiscal and governance structure. It will take time to see how the reform spirit will play out and if the changes will satisfy a distrustful electorate. But California has long been on the cutting edge of change. If leaders across all sectors team up with residents committed to change these troubling trends, we can build a better future for all Californians.

The Master Plan: Governance and Student Access

Tue, 28 Aug 2012 00:00:00 PDT

By Hans Johnson, Bren Policy Fellow, Public Policy Institute of California Testimony to the Little Hoover Commission, Public Hearing on Higher Education - August 28, 2012
Our researchers regularly provide expert testimony to policymakers. When possible, we make it available on our website.

Thank you for the opportunity to participate in this discussion of higher education policy issues facing California. Because of its importance for the state�s future, higher education policy is a central focus of the Public Policy Institute of California (PPIC). I am pleased that the Little Hoover Commission intends to complement the work you have recently completed on community colleges with this new effort. Leadership of policymakers on higher education issues is essential if California is to meet the rising demand for educated workers.

PPIC has developed a number of reports on California�s higher education. Those reports are available on the higher education page of our website at http://www.ppic.org/main/policyarea.asp?i=17. My comments today stem from that work and will focus on four topics:

The workforce skills gap
Setting new goals for higher education
The effect of budget cuts on enrollment rates
Moving forward

California faces a workforce skills gap

California�s higher education system is not keeping up with the changing demands of the state�s economy, an economy that is increasingly dependent on highly educated workers. For decades, the demand for workers has shifted toward higher levels of education. This shift has occurred as a result of changes both within and across industries. The fastest growing industries in California include those that require high levels of education, including health care and information technology. At the same time, other industries are also upgrading skill requirements. As a sign of this demand, the difference in wages between college graduates and less educated workers has grown sharply over the past few decades. Today, workers with bachelor�s degrees earn almost twice as much as those who with only high school diplomas. Throughout the recession, unemployment rates have remained far lower for college graduates than for less educated workers. Based on economic trends, PPIC projects that 41 percent of jobs in California will require a bachelor�s degree in 2025, up from 37 percent today.

But unless young adults� college-going and college graduation rates increase substantially, the supply of graduates is not likely to meet the rising demand. Two demographic trends make the supply challenge especially acute. First, the baby boomers�a well-educated group�will fully reach retirement age by 2025, marking the first time that large numbers of college graduates will leave the workforce. Second, the population is shifting toward groups with historically lower levels of educational attainment. In particular, Latinos�who now make up the largest group of young adults�have historically had low rates of college completion. Moreover, there will not be enough newcomers to California�from abroad or from other states�to close the skills gap. PPIC projects that by 2025, only 35 percent of California adults will have bachelor�s degrees. To put it another way, if current trends persist, the state will face a shortfall of 1 million college graduates with at least a bachelor�s degree. Others analysts have identified a shortage of an additional 1 million workers with some form of post-secondary credential short of a bachelor�s degree. To close the gaps, California will need to increase college enrollment and graduation rates.

The Master Plan: Governance and Student Access

Tue, 28 Aug 2012 00:00:00 PDT

Setting new goals for higher education

If we are going to close the workforce skills gap, public institutions will have to play a vital role. Higher education is largely a public endeavor in California. More than four of every five college students in California are enrolled in one of the state�s three public higher education systems: the community colleges, the California State University (CSU), or the University of California (UC). Three of every four bachelor�s degrees awarded annually in California come from either CSU or UC.

In 2010, PPIC released a report on the 50th anniversary of California�s Master Plan for Higher Education. The Master Plan defined a strategy for California�s public higher education systems to meet the state�s challenges in 1960 and set California apart among states. Many would argue that the ideals embodied in the Master Plan�ensuring access and quality of public higher education�have been abandoned. We conclude that the Master Plan is outdated, and new goals need to be established for our higher education systems. The economy of California is dramatically different today than it was in 1960. For example, the Master Plan�s eligibility targets�that the top 12.5 percent of high school graduates should be eligible for UC and the top one-third for CSU�might have seemed ambitious in 1960 when only 11 percent of working age adults in the state had a bachelor�s degree. Yet today, more than one-third of workers have a bachelor�s degree. But the Master Plan eligibility targets have not changed in 50 years. These eligibility levels are regressive in light of current and projected economic demands for college graduates.

Closing the workforce skills gap will require new approaches to higher education, as well as new investments in higher education. To meet the projected demand by 2025, the state would need to immediately increase the production of baccalaureates by almost 60,000 per year. Currently, state public institutions produce slightly over 110,000 baccalaureates each year and private institutions account for another 40,000. In other words, California would need to increase the production of baccalaureates about 40 percent above current levels to close the gap. This is a daunting challenge, and in the short run, very unlikely to be achieved. It will not only require improvements and expansions of the state�s higher education systems, but also guided investments in the state�s K-12 system to decrease the high school dropout rate and increase the share of high school graduates who are equipped for college-level work.

Just because we cannot easily erase the projected 1 million shortfall in college graduates does not mean we cannot significantly narrow the gap. The state could close most of it through relatively modest increases in three areas: rates of college-going by high school graduates, rates of transfer from community to four-year colleges, and degree-completion rates for students at the California State University system. Specifically, the state should set new goals for higher education, including:

Raising eligibility goals for UC and CSU. These goals should increase gradually so that by 2025 the top 15 percent of the state�s high school students would be eligible for UC, up from 12.5 percent today. The top 40 percent would be eligible for CSU, up from 33 percent today.
Setting explicit goals to increase community college transfers to CSU and UC. Today, fewer high school graduates in California than in other states enter four-year colleges, but many more enter community colleges. Ensuring that more of them successfully transfer to four-year institutions is critical to increasing the number of college graduates. A 25 percent increase in current transfer rates by 2025 would lead to tens of thousands of new baccalaureates.
Establishing specific goals for college completion and the number of years it takes to get a degree. Improving graduation rates from CSU�where only about half of incoming freshmen graduate in six years�is one of the most cost-effective ways to increase the number of college graduates in the state. Including specific performance measures would allow the state to identify specific goals for the higher education systems and to track progress toward those goals.

The state could make significant headway in closing the skills gap, and Californians would reap the benefits of increased economic mobility if these recommendations are implemented. There are other benefits, as well. Higher eligibility and transfer rates would lead to a more diverse student body�racially, ethnically, and economically�on UC and CSU campuses. California would benefit from the social and economic mobility that accompanies higher levels of education, and the state would receive increased tax revenues. Perhaps most important, higher educational attainment among the state�s residents would foster greater economic growth. Not only do college graduates earn higher wages, they are much more likely to start businesses than less-educated adults. Failure to improve educational outcomes threatens the long-term economic prospects for Californians and for the state. Unemployment rates will be higher and wages will be lower in a future with a less-educated workforce.

The effect of budget cuts on student enrollment

Despite the need for more college graduates, enrollment trends are going in the opposite direction. Over the past few years, the most important policy change in higher education in California has been an unprecedented reduction in state general fund support. The state now spends more on corrections than on public universities, a threshold that was first crossed in 2003-04. At both UC and CSU, state general fund support per student fell almost 50 percent from 2000-01 to 2011-12 (adjusting for inflation). In response to the decline in state support, UC and CSU have rapidly raised tuition and fees. Tuition increases have not fully compensated for the decline in state general fund support, as a large share of the tuition increases are used to provide grants for low- and middle-income students.

The Master Plan: Governance and Student Access

Tue, 28 Aug 2012 00:00:00 PDT

In the face of reduced state support, all three branches of the public higher education system have acted to limit enrollment. UC has reduced its enrollment targets, prompting many campuses to become more selective. UC places eligible applicants not admitted to their campuses of choice in a "referral pool� for admission to a less selective campus. The size of this pool has grown dramatically, to more than 10,000 students. In other words, an increasing number of students are being accepted at campuses for which they did not apply. Students are much less likely to attend a college that is not their first choice. CSU designates its more popular campuses as "impacted,� meaning that students generally outside the local admission area are required to have higher grades and test scores to be admitted. The number of impacted campuses has grown rapidly and now includes all the large urban campuses. For students applying for fall 2012, 16 of the 23 campuses are impacted. Moreover, the number of students who met CSU minimum eligibility criteria but were not offered admission at CSU campus grew from less than 4,000 in fall 2008 to more than 12,000 in fall 2011. Community colleges do not cut admissions to reduce costs but have rationed enrollment by increasing class sizes and reducing programs and course offerings.

As a result of the budget cuts and subsequent actions taken by the state�s higher education institutions, the share of California high school graduates enrolling in the state�s public colleges and universities has declined significantly over the past five years, Enrollment rates at UC and CSU have fallen by one-fifth, from about 22 percent of all California high school graduates in 2007 to less than 18 percent in 2010. Among the state�s most highly prepared high school graduates�those who complete courses required for admission to these colleges�enrollment has declined from about 67 percent to 55 percent. These declines coincide with actions taken by these university systems to limit enrollment, as well as with the most dramatic increases in tuition and fees in the history of these institutions.

The Master Plan: Governance and Student Access

Tue, 28 Aug 2012 00:00:00 PDT

The drop in enrollment rates is not a result of a decline in applicants� qualifications. The share of high school graduates who complete classes required for UC and CSU admission�known as A-G courses�is at historically high levels for every ethnic group in the state. Moreover, the share of high school graduates applying to UC and CSU has risen substantially over the past 10 years. Yet enrollment rates at UC and CSU are declining for each group and are sharpest among African Americans.

The decline in enrollment rates at UC and CSU is especially troubling because it is not matched by increases in enrollment at other California colleges. While overall enrollment in community colleges has declined, enrollment rates of recent high school graduates into community colleges have remained at about 35 percent. Enrollment rates of recent high school graduates in California�s private universities have remained relatively unchanged and at low levels (less than 4 percent in 2010). We see some evidence that increasing numbers of qualified high school graduates are not enrolling in college at all. At UC, about 10 percent of qualified applicants did not enroll in any college (public or private). Also, the number of recent high school graduates leaving California for four-year colleges has increased substantially. Those departures represent a significant loss for California, especially because the vast majority are unlikely to return to California after graduating from college in another state. In the final analysis, sizeable numbers of high school graduates are less likely to enroll in a California university than they were just a few years ago, precisely the wrong direction for California to meet the future demand for highly educated workers.

Moving forward

California policymakers need to take action to ensure that our children are prepared for the challenges and opportunities of the 21st-century economy. The long history of economic progress in California is strongly tied to improvements in educational attainment from one generation to the next. That progress is imperiled today and will not be achieved without renewed investments in our higher education systems. Undoubtedly these new investments include additional funding, but they also include renewed focus and planning. Specifically, California policymakers and higher education officials should:

Set new long-term goals for our higher education systems.
Identify how to fund these goals.
Measure progress toward reaching them.

In this testimony, I have outlined some specific goals with respect to eligibility, transfer, and completion. Those goals, if realized, would largely close the workforce skills gaps by 2025.

Establishing new goals will require new agreements between the state and its institutions of higher education. The state�s role is to ensure that these goals meet the needs of California�s economy and people, and that the goals are achieved as efficiently as possible. The state will undoubtedly need to provide additional funding. Given the size of the budget cuts�$1.6 billion in real terms between 2000-01 and 2010-11�it is not reasonable to expect progress without additional funding. However, rather than simply restoring previous cuts, new investments should be strongly aligned with the state�s goals. Higher education funding (including Cal Grants) should be prioritized where it will create the greatest benefit, based on an evaluation of which programs and institutions have the best track record of serving their students. Moreover, it is unlikely that the state will be able provide sufficient funds to dramatically reduce tuitions and fees. To date, the state and its public universities have done a good job of providing grant aid for low-income students and for some middle-income students, but have not developed new programs for other students. Income-contingent loans and college savings plans that guarantee tuition are two possibilities.

Higher education systems will have to accept some oversight and periodic review to ensure that they are meeting state objectives. With the demise of the California Postsecondary Education Commission, there is no obvious agency to provide this kind of oversight. The California Competes Council has recommended an independent "Higher Education Investment Board� that would be responsible for prioritizing the state�s funding and objectives. However, even in the absence of such oversight, positive steps toward change have already been taken by the state�s higher education institutions. For example, the California Community Colleges have begun implementing some of the suggestions designed to improve student outcomes, as identified by the Student Success Task Force, and the California State University system has established completion goals that are in agreement with those recommended by PPIC.

Finally, the state needs more information to evaluate whether institutions and practices are effective. The new state student data system is a step in the right direction, but it must be designed so that rigorous analyses of policy interventions can identify the most effective ways to improve student outcomes. Developing a linked student data system from kindergarten through college is essential. Combining that data with wage records from the Employment Development Department would go a long way toward developing a new understanding of how best to allocate limited resources.

In many ways California�s higher education system is adrift: it is short of money, goals, and data. Moreover, it lacks constructive leadership from Sacramento. The Little Hoover Commission can help rectify some of these problems by calling attention to them and identifying viable solutions. Historically, the development of California�s public higher education system has been important to the state�s prosperity. With planning and focus, we can ensure that prosperity into the future. I am happy to continue to meet with the Commission as it moves forward on this important project.