1. SB361 Funding Formula Basics
Allocation of Resources to the Districts of the California Community College System (CCC)
Jim Austin
April, 2014
In this lesson we are going to review the basics of how the California Community Colleges Chancellors Office distributes the unrestricted general funds to the districts. The distribution methodology is based upon AS361, authored by Jack Scott. As an aside, Jack Scott had been a community college teacher, and then the long-serving president of Pasadena City College before he went into politics. After being termed-out of the legislature he became the chancellor of the CCC system. To advance to the next slide just left click.

2. Learning Outcomes The funding components are Sources are
Base Allocation
FTES Base Allocation
COLA
Growth
Sources are
Property taxes
Student Enrollment fees
State General Apportionment; Educational Protection Account
Know how to link to the actual apportionment document (Exhibit C) that implements SB361 as defined by California Education Code
Here are the learning objectives for today. We will re-visit the SLOs at the end of this lesson.

3. For More detailed Information
%20Finance%20Handbook% pdf
That link will take you to Community College Finance Past/Present/Future
Prepared by Teresa Scott, Executive Vice Chancellor, Yosemite CCD
Beginning on page 25 there is more background and history concerning the development of the SB361 methodology
Here is the link to what I consider to be the best summary of California community college funding I have ever seen. In that document there is an informative discussion of the history and development of SB361 starting on page 25.

4. Basic Goals of the Formula
Simplicity
Transparency
Equalization of funding per FTES (Full Time Equivalent Students) among the districts
Increased funding for certain types of noncredit FTES
Remember that the formula only apportions the Unrestricted General Fund via Exhibit ; other types of funds are distributed by the other exhibits on the CCCCo.edu site
Here are the four basic goals of the SB361 methodology. Although there is not time in this class for us to really go into the CCC politics that up to the development of this formula I do think it is important that you understand that there was a tremendous amount of internal system politics and external politics that lead-up to SB361. Essentially, there were three armed camps in the system that created a circular firing squad in font of the legislature when any funding proposals were being considered. Those three camps revolved around three different interests. In no particular order, the first interest was lead by the Los Angeles CCD; the driving interest of this faction was being able to restore massive amounts of funded FTES that had been lost by the LACCD in the early 1990’s. Note that the LACCD has more Democratic legislatures than any other district. The second interest was lead by the City College of San Francisco, the second most politically powerful district in the system. The driving interest of this leg of a three legged stool was increased funding for noncredit FTES. Before SB361 noncredit was funded at a per FTES rate of about ½ that of credit. San Francisco felt, and still feels passionately that credit and noncredit FTES should be funded equally. The third leg of the three legged stool was not lead by any one district. It was called the Equalization coalition and its interest was to equalize the per FTES funding among districts. Before SB361 there were huge inequities between how any two very similar districts were funded on a per FTES basis. If you are interested in learning more about the politics, start with the link I gave you in the pervious slide, and then follow links that are given in that document.

5. Basic Allocation Components of the Formula
FTES Workload
Credit FTES
Noncredit FTES
CDCP Noncredit FTES (Career Development & College Preparation
COLA
Growth (increased access)
Base (based on accredited colleges and approved centers within a district)
There are four basic elements that determine how much funding a district is eligible to earn. When I say, “eligible to earn” I am referring to two conditions. One, there must be adequate funding available, two, the district must meet or exceed its FTES workload measures. So, the basic four components are the number of FTES taught; AKA “workload,” the Cost of Living Adjustment, know as COLA and also referred to as the “inflation adjustment;” Growth in FTES, also known as “access;” and a Basic Allocation that is computed based upon a district’s number of colleges and approved centers. Note that within the FTES workload there are three different types of FTES – that is due to the San Francisco leg of the stool.

6. Step 1: Basic Allocation
Each district receives a base allocation that is comprised of an FTES workload component and a facilities based Basic Allocation component.
The Basic Allocation is computed based on the number and size of accredited colleges and approved centers within the district
Colleges receive a greater amount than do centers
The amount per college depends upon whether it is in a single college district or a multi-college district and the size of the college
The amount per center varies upon the size of the center
Let’s start with the “Basic Allocation” within the Base Allocation. CCC districts have between one and nine colleges within their district. There are many single college districts, and there are many multi-college districts with from two to nine colleges. Note that to be funded as a college, the college must be accredited as a college. Both multi-college and single college districts can have centers. To be an approved center for funding within the formula a center must have a minimum level of FTES, an on-premise administration, and meet various other programic requirements. As you will see when we dive into Exhibit C that actually calculates a district’s unrestricted general fund income, the funding amounts for the colleges depend upon the size of the college and whether it is in a single college district of a multiple college district. The funding level for centers vary on the size of the center. Before clicking to the next slide please take a few minutes to ponder two questions. One, why would a college in a single college district be funded at a higher rate than the same sized college in a multi-college district? Two, what do you think the goal is of providing this Basic Allocation funding for colleges and centers rather than just funding on an FTES basis? I’ll give you an hint for #2 – remember the equalization districts and consider the concept of economy of scale.

7. Step 2: Base FTES Allocation
The prior year’s funded level of FTES in each category is funded as a Base allocation
For the rounded amounts are:
Credit: $4,565
Noncredit: $2,788
CDCP Noncredit: $3,283
The amount per FTES is adjusted when there is a COLA (Cost of Living Adjustment); AKA (Also Known As) the Inflation Adjustment
As you will see in Exhibit C the first funding component in the formula is called “Base” and it is comprised of the Basic Allocation we just discussed and an FTES base. The FTES base is the prior year’s level of funded FTES times the appropriate equalized FTES funding rate. It is very important that you understand that the FTES based is calculated on the prior year’s FUNDED level of FTES, not its actual level. As you can see in this slide Credit is funded at a much higher rate than is any form of noncredit FTES, but there is a form of noncredit FTES that does get a higher rate – that is due to the San Francisco leg of the three legged stool.

8. Step 3: Inflation Adjustment, COLA
If there is a state-funded COLA the total Base revenue from steps 1 and 2 is multiplied times the funded COLA percentage
In the Cola is 1.57%
After the Base Allocation the next funding component is the inflation adjustment, more commonly known as COLA. The percentage COLA is included in the approved state budget and all districts get the same percentage. For the current year, the Base Allocation is increased by the COLA percentage. For the coming year, the FTES funding rates and the allocations within the Basic Allocation are adjusted by the COLA.

9. Step 4: Growth (Access)
The intent of SB361 was that the total of the Base plus the COLA would be multiplied times the Growth percentage is the state budget funded Growth
The growth percentage would increase the district’s funding by up to the Growth percent if the FTES increased by that Growth percentage
The combination of the Base FTES and the Growth FTES equals the “Cap” FTES
That means a district is not funded for more than the Cap level of FTES no matter how many FTES are taught
The Growth component in the formula should be simple but it is the most complex. It is complex for a whole host of reasons. I’ll go into the complexities more when we dive into Exhibit C, but to start with here is the basic challenge. The start budget will include a system-wide growth percentage and a fixed amount to fund that percentage. Let’s say the percentage is 1%. Internally the CCC system assigns each district a growth rate based on several factors including its adult population growth and high school graduation rate. The basic problem is that when you add-up all those system calculated rates they always far exceed the budget state rate, so if the districts grow up to their individual system funded growth caps the total number of growth FTES will greatly exceed the funds allocated in the state budget. In that situation, which is the rule not the exception, the actual funding to each district is “deficited” For example, if the state funded rate is 1% but the sum of all the districts comes in at 3% each district’s growth funding is reduced by two thirds because there is only enough state funding for 1%, not 3%. And that is just the tip of the Growth iceberg!

10. Step 4: Growth - HOWEVER
However, the world has become more complicated due to the deep funding reductions resulting from the Great Recession
Due to the deep reductions in funding the “growth” item in the budget is being used to restore funding until districts are fully made whole
That process will take several years
Below the tip of the iceberg is another and even bigger issue resulting from the Great Recession. Due to the reduction in state revenues there were significant reductions to the Prop. 98 funds available for the CCCs. The results of that reduction included no COLA, no Growth and even a reduction to the Base funding. When the Base funding was reduced it meant that the FTES workload measures necessary to earn whatever funding was available had to be reduced also. For example, if a district’s base funding was reduced by 2% then the required FTES to earn that funding was also reduced by 2%. Does that make sense? But now that the economy is slowly recovering and Governor Brown was able to pass propositions that at least temporarily increased Prop. 98 funding, funding is be “restored” to the districts. Additionally, legislators want to increase access to the community colleges by giving the system “growth” funding. We, the CCC system also wants to increase access, but we have made the case to the legislature and governor’s office that before there is true growth funding the lost base revenue and workload FTES must be restored to the districts. It is complicated, but the current situation is that the “growth” funding that is in the state budget is being considered as increased access funding, and the funds are really being distributed by the CCCCO to restore the lost revenues from the recession. So, in the growth section of the formula there is now a new line item for restoration. To summarize, Growth is an element of the SB361 funding, but currently any “growth” funding is being allocated to restore the base funding lost during the recession. I bet you are really anxious to click on to the next slide by now!

11. Step 5: Total Computational Revenue (TCR)
Total Computational Revenue is the total of
Base Allocation
Base FTES
COLA
Growth (could be “constrained” if inadequate funding)
The next step is to identify the sources to provide the Total Computational Revenue
When you add-up the four components we have just reviewed the total is called the Total Computational Revenue, or TCR. TCR is the total amount of revenue that a district can earn if the district teaches at least its funded cap level of FTES and if there is adequate state funding for the CCC system, which there frequently is not. I’ll go into why there is often less funding than expected in a few minutes. For now let’s focus on that FTES cap. To refresh your memory, a district's FTES cap is the total of its prior year funded FTES (base FTES) plus any Growth or Restoration FTES. No matter how many FTES the district reports, it will not be funded for more than its funded cap level of FTES. Here’s a question to ponder – what do you think happens when a district reports less than its cap??? We’ll discuss that when we go through Exhibit C. Time to click forward….

12. Step 6: Sources of Revenue
The TCR is funded by the following sources in “window shade” order until the TCR is fully funded. In other words, if the total of the first two sources is adequate, then the third is not used.
Sources in order
Locally collected property taxes
Student Enrollment Fees
State General Apportionment and EPA (Prop Educational Protection Fund)
An important concept to remember is that there are only three sources of funding for the unrestricted general fund Total Computational Revenue and those three sources are used in descending order until the TCR is fully funded. The next slide gives you an example of this sequential cascading of funding.

13. Example A of Funding the TCR
Assume a TCR of $100 million
Situation A – the normal situation
$10 million of district Enrollment Fee revenue
(that means still $90 million to fund)
$70 million of locally collected property taxes
(that means still $20 million to fund: 100 – 10 – 70 = 20)
So, $20 million must come from the state’s general fund and Prop. 30 EPA sources
In this example the TCR is $100 million. This is the normal situation, the situation for all but a hand full of districts. If the district collected $10 million of enrollment fees, then that $10 is applied against the TCR, leaving still $90 million to fund. Next there is $70 million of locally collected property taxes. Once the $70 million is added to the $10 million of Enrollment fee income that still leaves $20 million of the TCR unfunded. So, $20 million must come from the state’s general fund and the Proposition 30 EPA funds. The state’s general fund is mostly provided by income and sales tax revenues. No let’s go to a second possible situation.

14. Example B of Funding the TCR
Assume a TCR of $100 million
Situation B – “Basic Aid,” Locally Funded District
$10 million of district Enrollment Fee revenue
(that means still $90 million to fund)
$110 million of locally collected property taxes
(that means that a total of $120 of funding
So, no funding is needed from the state’s general fund, but still would receive Prop. 30 EPA funding
By law, the district gets the entire $120 million even though the TCR is only $100 million
In this case the sum of the Enrollment Fees and the Property Taxes exceed the TCR. That means no funding is needed from the state’s general fund. It’s a long story (does that sound familiar?) but essentially the state’s constitution as amended by Prop. 13 (remember Howard Jarvis?) stipulates that locally collected property taxes must be distributed to the local agency. The Education Code requires that a district receives full credit for its Enrollment Fees. The statues implementing Prop. 30 specifically stipulated that every district, even basic Aid districts receive a minimum allocation from the EPA funds.

15. Final Notes on Revenues - Shortfalls
The dreaded “deficit factor”
Timing of the budget and allocation processes
Enrollment Fees
Property Taxes
Stuff to know about
Enrollment Fees – no local control
Property Taxes – lack of backfill
Do you remember that earlier I said that there may not be adequate revenues to actually fund a district’s TCR? The basic reason is a timing issue. The state budget is passed by July 1st for the fiscal year starting July first. That budget locks-in, for all intents and purposes the maximum CCC system revenue that can come from the state’s general fund. So, even if for some reason the system’s enrollment Fee revenue dropped during the year by $100 million that shortage would not be backfilled from the state general fund. That situation creates the dreaded “deficit factor.” After the system’s TCR is computed if the actual funds estimated to be available at the time is, say, 1% short of being adequate then every district will have its funded TCR reduced by 1%. That 1% reduction is the deficit factor. Let’s consider the timing issue just a little more. Remember that the July budget is really based upon budget year revenue estimates that were made in May, well before the end of the academic and fiscal year. Although the May numbers are estimates, the resulting revenue levels for the CCC system are locked-into the budget based on those early estimates. That means that during the course of the budget year as actual enrollment fee and property taxes are collected the Department of Finance adjusts the funding available for the CCC system. For the budget year, AKA FY15, the revenue numbers will be adjusted at least four times, with a final number not being known until about one year after the end of the fiscal year! Enrollment fees: it is important that you remember that the CCC enrollment fees are set by the legislature and governor and that the CCC system can not increase the fees as CSU, UC and the privates can do; once the budget is passed in June the enrollments fees are set. Obviously during the course of a year the actually number of students will be different that the number estimated in May when the enrollment fee budget was established. Assuming the property tax revenues for the system come in exactly on budget but the enrollment fees come in $5 million more than budget, how does that impact the system’s “need” from the state general fund? The impact of that scenario would make the DOF happy because it means that the CCC system would need $5 million less from the state’s general fund! But what happens if the actual enrollment fee income falls short of the budget by $5 million? The system loses that funding and the amount available to the CCC drops by $5 million thus creating a deficit factor. Why? Because the state budget passed in June stipulates a maximum general fund allocation to the CCC system, so the state’s general fund can not backfill the reduction of CCC revenue due to the enrollment fees falling short of budget. The exact same situation applies to property tax revenues. If actual statewide property tax collections fall short of the budget then the CCC system must “eat” the shortage, but if the property c tax collections exceed the budgeted amount it reduces the amount needed from the general fund but it does not increase the funding to the districts (except that hand full of Basic Aid districts). K-12 does receive an automatic backfill if any revenue source falls short of the budget. Why in two words? Compulsory Education. Since K-12 is compulsory in the state constitution K-12 gets a continuing apportionment that provides a guarantee of funding. CCC is not compulsory. Let’s move on to the next slide.

16. Review – Your Learning Objectives
The funding components are
Base Allocation
FTES Base Allocation
COLA
Growth
Sources are
Property taxes
Student Enrollment fees
State General Apportionment; Educational Protection Account
Know how to link to the actual apportionment document (Exhibit C) that implements SB361 as defined by California Education Code
I know this presentation has been loaded with content, but your learning objectives are very basic. They are to know the four basic funding components of SB361 and know that there are four revenue sources that are applied to fund the TCR in the order listed in the slide. Additionally you need to retain that:
1. Each district has a funded cap level of FTES and no matter how many FTES it reports it will not be funded for more than that cap level of FTES. 2. There are three categories of FTES and they are funded differently with credit funded at the highest rate and noncredit at the lowest rate. 3. A district is not guaranteed a revenue amount and in fact will not know its revenue until over a year after the end of the fiscal year. 4. The CCC system does not set the enrollment fee. If either enrollment fee or property tax revenues fall short of the budget the system funding is reduced by the dreaded deficit factor, but if either revenue source is actually more than in the budget the CCC system does not benefit.

17. THE END