Funding Community Colleges

Alan Wheeler
Reason Foundation Intern and 2018 Masters of Economics Graduate from San Jose State.

Given that many California community colleges are dealing with stagnating student populations, declining revenues, and ever-increasing pension costs pressures, it is no wonder many districts are facing budgetary uncertainty. While there are factors contributing to financial pressures that no administrator can help, often there are signs of fiscal neglect. Poor financial management at some districts raises questions as to whether they can effectively invest taxpayer money into the state’s free community college policy.

As a recent article highlights, Peralta Community College District is one institution that was recently reviewed by the Fiscal Crisis and Management Assistance Team (FCMAT), an organization that exists to help K-14 local educational agencies (LEAs) identify and resolve financial and operational challenges.  According to FCMAT’s Fiscal Health Risk Analysis, on which a score above 40% earns a district a “high risk” rating, Peralta scored an “excessively high” 69.9%. The report found that without rectifying its budgetary issues, the district may require emergency state funds or it will run the risk of insolvency. Michael Fine, CEO of FCMAT,  has commented that out of all of California’s K-14 districts, Peralta has the highest risk of insolvency.

This is not the first time Peralta was visited by organizations tasked with correcting its behavior. FCMAT examined the district in 2011, and while the district has maintained its fully accredited status, the Accrediting Commission for Community and Junior Colleges (ACCJC) issued warnings to the district and its colleges in 2011 and again in 2016. Although the 2011 sanction was removed June 2013, and the 2016 sanction was removed February 2017, the district was placed on watch again in December 2018.

One high risk area which was deemed unsustainable by FCMAT’s 2019 report was the rate at which Peralta has been adding Full Time Equivalent Faculty (FTEF) while losing Full Time Equivalent Students (FTES). In the last five years, the district’s FTES population has fallen by 2,261, but its FTEF has increased by 48. This is particularly troublesome as FTES are the primary means for state apportionment to pay for faculty. FCMAT also reported major problems in leadership, poor communication and operational practices, internal control issues that may lead to fraud, and  it states the district has twice the number of vice chancellors when compared to districts of the same size. 

Peralta’s leadership problems have been a public spectacle. The district was criticized and fined $2,000 for using $39,000 in taxpayer money to send holiday cards of Chancellor Jowel Laguerre and trustees. In 2018, claims of mismanagement of parcel tax funds emerged. Early in 2019, after a no confidence vote from Laney and Berkeley City Colleges, Laguerre ultimately left the district for an“early retirement,” one which included six months of paid and two years of health benefits. Laguerre’s replacement, Chancellor Regina Stanback Stroud, is now in charge of reversing the dangerous fiscal course the college is set on.

Peralta has also experienced significant OPEB liabilities and rising pension costs. As of 2018, its unfunded OPEB liabilities were over $203 million, and it had not established a GASB qualified trust. According to its audited financial statements, since 2004, both CalSRS and CalPERS contributions are up over 200%. With its CalPERS contribution rate set to increase to 26.7% by 2025 and its CalSTRS rate increasing to 18.1%, the district will likely have to streamline its activity or risk cutting student services.

Palomar Community College District is also in the public spotlight. On August 16, 2019, the district entered into a contract to undergo a FCMAT audit to see why the college faces a $11.7 million deficit.  Currently, the district is reviewing FCMAT’s recommendations to see what can be done to rectify its dangerous fiscal trajectory. 

This probe comes during President Joi Lin Blake’s tenure. From a $1 million president’s office whose legitimacy and utility for taxpayers was debated by members of the bond oversight committee, to claims she hid excessive expenditures on less examined consent agenda and created a culture of fear, to a salary increase amid the FCMAT audit, Blake’s time as president has been controversial to say the least. And potentially echoing the fate of Peralta’s Jowel Laguerre, Palomar’s Faculty Senate gave a vote of “no confidence” in Blake’s performance as president at the November 12, 2019 Governing Board meeting.  The Council of Classified Employees is now moving forward with its own no confidence vote

Palomar’s 2019-2020 adopted budget has described its current financial situation as “not sustainable” and that “Structural changes will need to be implemented in order to ensure fiscal solvency, stability, and performance by 2021-22.” 

The district is feeling the budgetary squeeze of rising pension and health care costs. Its budget estimates CalSTRS and CalPERS rate increases will result in contributions growing by $1.8 to $2 million dollars per year. Additionally, the budget notes pension costs combined with District-paid health premiums are outpacing base funding increases, and unless the increasing costs are dealt with, they “will continue to have a significant impact on future budgeting.” 

The scramble to find funds to cover the budget shortfall has required Palomar to dip into its OPEB reserve fund. Its 2019-2020 budget reports the district transferred $5 million out of its OPEB reserves to fund short-term needs and balance the operating budget. This is problematic as the district has historically given its OPEB obligations little attention. As stated in its 2018 comprehensive annual financial report, the district’s unfunded OPEB liabilities stood at $96.3 million, and its OPEB plan only maintained a 4.4% funded ratio. A Reason Foundation analysis of the level of funding in OPEB-related trusts among California community college districts finds Palomar’s funded ratio places it 55th out of 61 for districts with the lowest funded ratios. 

Then there is the veteran of regulatory controversy, San Francisco Community College District, better known as City College of San Francisco. 

Shortly after ACCJC issued a “show cause” sanction against the district in 2012, FCMAT was sent to investigate its financial troubles. Among a long list, FCMAT’s report noted bloated faculty and staff numbers, a falling FTES population, a declining fund balance, and “continued large operating deficits” as factors contributing to the district’s financial difficulties.  Despite the report, the issues continued, forcing a July 2013 ACCJC vote which called for the termination college’s accreditation one year later. Fortunately for its students, after intense pressure from politicians, faculty union, and administration, and after a successful lawsuit against the commision, ACCJC gave in and adopted new rules, granting the college a two year extension. The college’s accreditation was fully restored in February 2015

Since the restoration of its accreditation, the college has made a strong effort to cut faculty and classes to reduce expenditures. One example is its recent attempt to reduce its $13.1 operating deficit by cutting 289 classes for spring 2020, a choice which “horrified” the president of its faculty union. Nevertheless, the college still occasionally captures public attention, such as its current controversy over the lack of transparency of administrator pay increases amid budget cuts.

City College appears to have stopped the hemorrhaging of its FTES population, no doubt with the aid of the City of San Francisco’s free college initiative, but, according to the district’s 2018 annual report, is still relying on “reserves as a part of deficit spending” and restoration funding from the State. An examination of its past audited financial reports reveals the district has also seen pension contributions for CalPERS, CalSTRS, and SFERS increase nearly 62% since 2006, and, as of 2018, its unfunded OPEB liabilities were $126.4 million with its plan 9.3% funded. 

Unless these community college districts get a handle on their issues of falling FTES, rising pension costs, unfunded OPEB liabilities, and financial mismanagement, they may soon find themselves feeling budgetary pressures which will require difficult decisions surrounding the provision of their student services. And in the case of an economic downturn, while these downturns have historically been beneficial for FTES funding, there is no guarantee state apportionments will flow like they did during The Great Recession, especially with a newly implemented funding mechanism that focuses on equity rather than pure FTES growth. Only time will tell. In the meantime, the best practice for these districts is to choose fiscal reform and sustainability. 

Comment on this article


Please note, statements and opinions expressed on the Fox&Hounds Blog are solely those of their respective authors and may not represent the views of Fox&Hounds Daily or its employees thereof. Fox&Hounds Daily is not responsible for the accuracy of any of the information supplied by the site's bloggers.