University Capital Outlay - The 2021-22 Budget: Legislative ...
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
The 2021-22 Budget:
University Capital Outlay
MARCH 2021
In this post, we focus on university capital outlay provide a small campus match from their reserve
projects. We first provide background on university funds to support their academic facility projects.)
capital financing and project review. We then review Review Process Designed to Give Legislature
capital outlay proposals for the California State Opportunity to Assess Proposals. At the same
University (CSU) and the University of California time the state changed how it funded university
(UC). Next, we raise some concerns with the academic facilities, it also changed the process it
previously authorized UC Merced medical school used for approving projects. As Figure 1 on the
project and make an associated recommendation. next page shows, the former approval process was
We end the post by offering several other closely connected to the annual budget process.
recommendations intended to strengthen legislative The new process commences at about the same
oversight of university projects. time (in the fall), but then the time line veers
somewhat from the budget process. In the fall, CSU
Background and UC are required to submit “the same level of
New Financing System Put in Place Several detail” as a capital outlay budget change proposal,
Years Ago. Whereas the universities fund their or COBCP. (A COBCP contains information about
nonacademic facilities (such as their dormitories a project’s scope, cost, and schedule.) The
and bookstores) using nonstate funds, the administration, in turn, is required to submit to the
state historically has funded the universities’ Legislature a letter by February 1 that identifies the
academic facilities (such as their classrooms and projects it preliminarily approves for each segment.
laboratories). To finance these academic facilities, State law requires the administration to provide a
the state traditionally sold bonds and directly paid final approval letter to the Legislature no sooner
the associated debt service from the General Fund. than April 1. The period between February and April
Beginning in 2013-14 for UC and 2014-15 for is intended to give the Legislature a minimum of a
CSU, the state altered this arrangement by making couple of months to review projects and signal to
university bonds, rather than state bonds, the main the administration its consent or concerns.
source of financing for academic facility projects. Annual February Report Intended to Give
Under this approach, the universities finance their Project Updates to the Legislature. State law
projects using their main General Fund support requires CSU and UC to submit an annual capital
appropriations. To prevent capital financing from outlay progress report by February 1 to the
overwhelming the universities’ operating budgets, Legislature and administration. This report must
state law limits General Fund spending on debt include information about all university projects
service and pay-as-you-go projects. Specifically, supported by state General Fund, either through
CSU’s limit is 12 percent of its annual General university bonds or on a pay-as-you-go basis. The
Fund support appropriation, whereas UC’s limit report must provide detail on the scope, cost, and
is 15 percent. (In addition to state funds, the current status of each project.
universities, particularly UC, commonly receive
private donations to support the construction CSU Proposals
of certain academic facilities. The universities, Governor Preliminarily Approves Two CSU
particularly CSU, also encourage campuses to Proposals for 2021-22. On November 30,
2020, CSU submitted its final 2021-22 capital
2 0 21-2 2 L AO B u d g e t S e r i e s 1outlay request, which consisted Figure 1
of two proposals. (CSU’s
Old and New Time Line to Approve University Projects
preliminary request submitted in
September 2020 had included
17 proposals.) On February 1, Old Process New Process
September
2021, the Department of Finance CSU and UC submit CSU submits preliminary proposals
(DOF) submitted a letter to the preliminary proposals and UC submits final proposals to
to the administration. Legislature and administration for
Legislature providing preliminary initial review.
approval of both proposals. As
Figure 2 shows, these proposals
have a total cost of $299 million,
November
consisting of $284 million from CSU and UC submit
final project proposals
university bonds and $15 million to the administration.
from campus reserves. The
December
associated annual debt service CSU submits final proposals
is estimated to be between to Legislature and administration.
$16 million and $19 million. CSU January
anticipates it would be able to Governor submits
cover this cost within its existing proposed projects
to the Legislature.
budget for debt service because February
of lower-than-expected interest Administration submits
list of projects it intends
rates and savings in certain to approve. Legislature
previously approved projects. It reviews projects.
estimates its total debt service
and pay-as-you-go spending on
academic facility projects would Legislature April
be $197 million in 2021-22, reviews projects.
Administration submits
equating to about 5 percent final list of approved
of its General Fund support projects. Legislature can
take further action if desired.
appropriation.
First Proposal Would Support
Systemwide Infrastructure
June
Improvements. This proposal
would authorize CSU to undertake Legislature approves
or rejects projects in
$200 million in infrastructure annual budget act.
projects across the 23 campuses.
The projects would address
building systems deficiencies,
energy efficiency, and code Figure 2
compliance, among other issues. Governor Preliminarily Approves Two CSU Proposals
CSU would select the projects
2021-22 (In Thousands)
from a list totaling $1.2 billion
Campus Project Phases State Cost Total Costa
in infrastructure improvements
that it has submitted to the Systemwide Infrastructure improvements Various $195,000 $200,000
administration and Legislature for Chico Butte Hall replacement P,W,C 89,012 98,663
review. (Some projects on this list Totals $284,012b $298,663
a Campus reserves are often used for facility projects.
also appear on a separate list of b The associated annual debt service costs are estimated at $16 million to $19 million.
deferred maintenance projects for P = preliminary plans; W = working drawings; and C = construction.
2 0 21-2 2 L AO B u d g e t S e r i e s 2which CSU has requested one-time General Fund process. UC must certify compliance with this
in 2021-22. We cover the deferred maintenance requirement each year before DOF may approve UC
request in our report, The 2021-22 Budget: projects. According to DOF, UC is still developing a
Analysis of the Major University Proposals.) The process to use to demonstrate its compliance.
CSU Chancellor’s Office indicates that being able UC Is Requesting Approval of One Project
to select projects from among this list provides in 2021-22. In September 2020, UC submitted
flexibility to respond to changes in campus one project for state approval totaling $117 million
priorities, as developments arise between the time in new university bond authority. The project
campuses initially submit their project lists for state would construct a replacement building for Evans
approval and when the funds become available. Hall on the Berkeley campus. Evans Hall has a
Under the Governor’s proposal, the Legislature relatively poor seismic rating (Level VI, with Level
would receive information on the specific projects VII being the poorest rating), and the campus has
selected when CSU submits its annual capital determined constructing a replacement building
outlay progress report due February 1, 2022. would be a more cost-effective approach for
Second Proposal Would Modify a Previously making seismic upgrades than renovating the
Approved Project at Chico. In 2019-20, the existing building. The replacement building would
state authorized the renovation of Butte Hall at contain around half of the assignable square feet
the Chico campus at a total cost of $90 million. of Evans Hall, with the reduction in space primarily
Since then, the campus has discovered additional due to fewer faculty offices, research laboratories,
hazardous waste remediation needs that would and library/study spaces. According to UC, the
bring the cost of renovation to $106 million. Rather campus plans to accommodate any displaced
than renovating the building, the 2021-22 proposal functions by improving utilization of other existing
would instead replace the building at a total cost of campus spaces. Assuming the administration’s
$99 million. preliminary letter does not make any changes to the
No Major Concerns With Two Proposals. September proposal, we do not take issue with this
Though we do not have major concerns with project.
either CSU proposal, we believe the Legislature
could provide more meaningful oversight if it had
UC Merced Medical Education Project
a list of the specific infrastructure improvement UC Received Authority for Merced Project in
projects CSU plans to undertake in 2021-22. We 2019-20. The 2019-20 Budget Act authorized UC
recommend the Legislature direct CSU to provide to pursue medical school projects at the Riverside
this list in the spring, along with an explanation campus and at or near the Merced campus.
regarding the criteria it used to prioritize among Provisional budget language stated intent that the
projects. projects be financed by state-supported university
bonds. In September 2019, UC submitted to the
UC Proposals state a proposal for the Riverside project, which
Governor Has Not Yet Submitted Preliminary totaled $100 million in associated bond authority.
Approval List of UC Projects. Though statute Riverside is the newest of UC’s six medical schools.
requires the administration to submit its preliminary UC Merced (along with Berkeley, Santa Barbara,
approval list for UC by February 1, the Legislature and Santa Cruz) does not have a medical school.
had not yet received that list at the time of this UC Recently Submitted Information on
writing. According to the administration, it could not Merced Project. In September 2020, UC
make the February 1 submittal deadline because submitted information on the proposed project
it was awaiting certain information from UC. at the Merced campus. UC plans to construct a
Specifically, the 2020-21 budget package included 116,750 assignable square foot building intended
a new ongoing requirement that UC only use to support education and research-related spaces.
service unit employees for maintenance work on UC anticipates the project will cost $210 million.
facilities supported through the new capital outlay To date, UC has identified funding for $12 million
2 0 21-2 2 L AO B u d g e t S e r i e s 3of this cost ($7.8 million state cost and $4.2 million funding plan is particularly concerning given
in campus reserves), covering the project’s the fiscal challenges facing the state, the UC
preliminary planning phase. According to UC, it is system, and the Merced campus. For Merced
still determining which fund sources would cover specifically, staff noted to us in a discussion
the remaining $198 million in project costs. The during the fall that the campus already has
administration has not signaled whether it plans relatively high debt service levels following the
to include this proposal in its preliminary letter or completion of the Merced 2020 project.
whether it believes the project does not require
• Planning Phases Are Costlier Than Is
any additional authorization beyond the language
Typical. The combined preliminary planning
included in the 2019-20 Budget Act.
and working drawings phases would total
Merced Project Raises Four Concerns. Each
$34 million. This equates to 16 percent
concern is described below.
of total estimated project costs—higher
• Project Scope Includes a Significant than the average of around 10 percent of
Amount of Research Space. The provisional projects costs. The Merced project’s size and
language in the 2019-20 Budget Act focused complexity may be a factor that is driving up
on authorizing a “medical school project.” costs for these initial phases.
Riverside’s project focused primarily on adding
Recommend Requesting UC Provide Stronger
more instructional space for its medical school
Justification for Specific Project Proposal. We
students. The proposed space at Merced,
think overseeing the UC Merced project at this
however, also includes a significant amount of
early phase is especially important for ensuring that
research space and adds many more faculty
key legislative objectives are met in both the near
offices, as shown in Figure 3. The inclusion of
and long term. Though the Legislature already has
research space is what makes the overall cost
indicated interest in approving a medical school
of the project ($210 million) so high—more
building at or near the UC Merced campus, several
than double the Riverside medical school
aspects of the specific project proposal may not
project.
align with original legislative objectives. In particular,
• Project Scope Also Includes Substantial the Legislature might have intended for (1) more of
Space for Behavioral Sciences. Though the proposed space to be dedicated to instruction,
the language envisioned a medical school (2) more of the proposed space to be focused
building, the September proposal notes that directly on medical education, (3) an explicit plan
much of the research space would support to secure funding for the project, and (4) planning
faculty in psychology and public health, two costs that were at a more typical level. To the
academic fields separate from professional extent the Legislature shares these concerns about
medical education. According to Merced, the project, we recommend it ask UC to respond,
these academic departments lack adequate
space on the campus. This is despite the
Figure 3
campus having recently completed the
Merced 2020 project, a public-private UC Proposes Much Larger Building at
partnership that doubled the amount of its Merced Than at Riverside
academic space. Assignable Square Feet
• Project Financing Is Uncertain. Despite Merced Riverside
proposing to undertake such a costly project,
Instruction 37,870 52,100
UC has not identified a funding plan for Research 40,070 —
most of the project (any of the costs beyond Academic offices 23,582 7,700
preliminary plans). Initiating a capital project Student support 3,200 5,200
without a funding plan is highly irregular Other 12,028 —
and is poor budget practice. The lack of a Totals 116,750 65,000
2 0 21-2 2 L AO B u d g e t S e r i e s 4either by providing stronger justification for the the exact projects that would be undertaken. We
existing proposal or adjusting the project proposal think advance notification of which projects will be
so that it is more in line with original legislative undertaken is a fundamental aspect of meaningful
objectives. legislative review. We recommend the Legislature
amend statute to clarify that the administration is to
Recommendations to Improve Project submit a list of specific infrastructure improvement
Review Process and deferred maintenance projects that it approves
as part of its preliminary and final approval letters.
Four Recommendations Designed to Improve
(In this recent university budget report, we make a
Project Review Process. In the years since the
similar recommendation regarding pay-as-you-go
state established the new project review and
deferred maintenance proposals.) To offer CSU
approval process, we have observed several
and UC some flexibility to respond to changing
weaknesses with this process. Below, we offer four
infrastructure needs, the Legislature could consider
recommendations that would increase transparency
further modifying statute in two ways. First, it
and strengthen legislative oversight, thereby
could allow CSU and UC each to change a certain
potentially improving the overall quality of university
percentage (such as 10 percent) of the projects
projects. The recommendations would apply to
identified on their respective final approval letter,
both CSU and UC projects and entail statutory
as long as the originally approved debt level is
amendments. We recommend adopting the
not exceeded. Second, it could require that CSU
statutory changes this session but not making them
and UC document any of these changes in their
operative until the next capital outlay review cycle
February capital outlay progress reports to the
(for 2022-23 project proposals).
Legislature.
Recommend Requiring Public Posting of
Recommend Requiring Submission of Final
COBCP Material and Approval Letters. Currently,
Approval Letter No Later Than May Revision.
the administration does not publicly post the
While current law specifies that the administration’s
COBCP material that CSU and UC are required
final letter is to be submitted no sooner than
to submit for each project, nor does it post its
April 1 (to allow some time for the Legislature to
February and April project approval letters. In
review the preliminary approval letter), it does
contrast, DOF posts COBCPs for other agencies,
not specify a deadline for final submission. We
including for the community colleges. The state also
recommend the Legislature modify statute to
records approved projects for those agencies in
require the administration to provide final project
the annual budget act. Publicly posting information
approval no later than the May Revision. We also
about proposed and approved projects increases
recommend that the final approval letter contain
transparency, ensuring that the Legislature and
only minor revisions to the preliminarily approved
the public have ready access to key details about
projects, rather than significant new proposals. (As
each project. Consistent with these state practices,
discussed further below, significant new proposals
we recommend the Legislature amend statute to
still could be introduced through legislation, even if
require the administration to publicly post COBCP
disallowed through the section letter process.) As
material for CSU and UC projects, as well as its
the May Revision is close to the end of the budget
February and April project approval letters for the
process, the Legislature very likely would not have
universities.
time to undertake meaningful review of new or
Recommend Clarifying Requirement to
substantially changed proposals. Equally important,
Provide List of Certain Projects. Like CSU’s
having a final approval list no later than the May
infrastructure improvement proposal this year, UC
Revision would ensure the Legislature is aware
has also submitted proposals in previous years
of CSU’s and UC’s new debt-service obligations
that requested funding for an unspecified package
before it adopts its final university General Fund
of deferred maintenance projects. In these cases,
support appropriations in the annual budget act.
the administration’s preliminary and final letters
Knowing the level of these debt service obligations
also have authorized funding without specifying
2 0 21-2 2 L AO B u d g e t S e r i e s 5for CSU and UC is particularly important as those these changes until June 30—after the Legislature
obligations are being paid using the universities’ had enacted the budget. Proposing such notable
support appropriations. changes so late in the budget process gave
Recommend Significant, Substantive the Legislature effectively no time to review
Changes to Project Proposals Be Made Through them publicly. To ensure the Legislature has a
Legislation. Under the new project approval meaningful opportunity to review future project
process, the administration has sometimes proposals, we recommend the Legislature amend
introduced significant new proposals after it statute to require that any significant changes
submitted its preliminary approval letter to the the administration proposes after the February
Legislature. For example, for CSU in 2020-21, preliminary approval letter be introduced in
the administration proposed notably increasing legislation. (“Significant changes” could include
total project costs from the initial February proposals that add projects, significantly expand
letter, primarily by adding one new project and the scope of projects, or substantially increase
significantly changing the scope of another project. project costs and associated state-funded debt.)
Moreover, DOF did not notify the Legislature of
LAO Publications
This report was prepared by Lisa Qing and Jason Constantouros and reviewed by Jennifer Pacella and Anthony
Simbol. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and
advice to the Legislature.
2 0 21-2 2 L AO B u d g e t S e r i e s 6You can also read
