BILL ANALYSIS Ó SENATE COMMITTEE ON EDUCATION Alan Lowenthal, Chair 2011-2012 Regular Session BILL NO: SB 1466 AUTHOR: De Leon AMENDED: April 9, 2012 FISCAL COMM: Yes HEARING DATE: April 25, 2012 URGENCY: No CONSULTANT:Kathleen Chavira SUBJECT : Cal Grants. SUMMARY This bill, beginning in the 2014-15 academic year and until all funds in the Higher Education Investment Tax Credit Program Special Fund program are expended, establishes eligibility for a Cal Grant recipient whose maximum household income is $150,000 or less and makes these provisions contingent upon legislation that creates the specified fund. BACKGROUND Current law authorizes the Cal Grant Program, administered by the California Student Aid Commission, to provide grants to financially needy students to attend college. The Cal Grant programs include both the entitlement and the competitive Cal Grant awards. The program consists of the Cal Grant A, Cal Grant B, and Cal Grant C programs, and eligibility is based upon financial need, grade point average, California residency, and other eligibility criteria, as specified in Education Code § 69433.9. These programs currently operate as follows: Cal Grant A* High School Entitlement Program provides tuition fee funding for the equivalent of four full-time years at qualifying postsecondary institutions to eligible lower and middle income high school graduates who have at least a 3.0 grade point average (GPA) on a four-point scale and apply within one year of graduation. Cal Grant B* High School Entitlement Program provides funds to eligible low-income high school graduates who have at least a 2.0 GPA on a four-point scale and apply SB 1466 Page 2 within one year of graduation. The award provides up to $1,551 for books and living expenses for the first year and each year following for up to four years (or equivalent of four full-time years). After the first year, the award also provides tuition fee funding at qualifying postsecondary institutions. Community College Transfer Program provides a Cal Grant A or B to eligible high school graduates who have a community college GPA of at least 2.4 on a four point scale and transfer to a qualifying baccalaureate degree granting college or university. Cal Grant Competitive Award Program provides 22,500 Cal Grant A and B awards available to applicants who meet financial, academic, and general program eligibility requirements. Half of these awards are reserved for students enrolled at a community college and who met the September 2 application deadline. Cal Grant C Program provides funding for financially eligible lower income students preparing for occupational or technical training. The authorized number of new awards is 7,761. For new and renewal recipients, the current tuition and fee award is up to $2,592 and the allowance for training-related costs is $576. Education Code § 69430-69450) Current law also authorizes the Cal Grant T program to provide assistance to individuals who attend teacher credential programs at colleges and universities approved by the California Commission on Teacher Credentialing. According to the California Student Aid Commission, The Governor and California State Legislature have not permitted new awards for the Cal Grant T program since the 2002-2003 academic year. Current law requires that the maximum household income and asset levels for the Cal Grant program be adopted and defined in regulations by the California Student Aid Commission and that these ceilings be annually adjusted based upon changes in the cost of living. (EC § 69432.7) The chart below outlines the income and asset ceilings for new Cal Grant applicants for 2012-13: SB 1466 Page 3 Cal Grant Income Ceilings Family size: Cal Grant A & C Cal Grant B Six or more $92,600 $50,900 Five $85,900 $47,100 Four $80,100 $42,100 Three $73,700 $37,900 Two $72,000 $33,600 Cal Grant Asset levels Dependent students $62,000 Independent students $29,500 ANALYSIS This bill : 1) Expands, beginning with the 2014-15 academic year, eligibility for Cal Grants to applicants with a maximum household income of $150,000. 2) Makes the provisions of this bill contingent upon the enactment of SB 1356 (De Leon), which proposes the establishment of a Higher Education Investment Tax Credit, as specified. 3) Repeals the provisions of the bill on the date that all funds in the Higher Education Investment Tax Credit Program Special Fund (to be created by SB 1356) are expended. STAFF COMMENTS 1) Need for the bill . Due to California's fiscal crisis, the state's contribution to higher education has steadily declined, and since 2000, the author's office SB 1466 Page 4 calculates that the share of expenditures borne by students in the form of fees has tripled from 13 percent to 40 percent in 2011. According to the author, this bill provides an opportunity to leverage federal dollars to help offset skyrocketing college tuition in California and make a public school education more affordable for middle-income Californians. 2) Cal Grants . The current maximum award for Cal Grants A and B are equal to the mandatory systemwide tuition fees at the UC ($12,192) and CSU ($5,472). With regard to private for-profit and independent non-profit institutions, the maximum award has been $9,708 since 2000, with the exception of two years (2004-2006), where the award levels were reduced by 14 percent, to a total of $8,322. The Governor's budget proposal for 2012-13 includes $300 million in cuts to the Cal Grant program. These cuts are accomplished by reducing the amount of the award for new and continuing students at the private non-profit and for-profit institutions, and by increasing the GPA requirements for new applicants to the Cal Grant program from 3.0 to 3.25, Cal Grant B Awards from 2.0 to 2.75, and Community College Transfer awards from 2.4 to 2.75. According to a recent Budget Subcommittee on Education analysis, the GPA changes would affect approximately 24,700 students, 46 percent of which are at the CCC, 34 percent at the CSU, eight percent at non-profit independent institutions, seven percent at private for-profit colleges, and five percent at the UC. The resulting savings for budget purposes of the GPA changes is estimated at $97.2 million. 3) Contingency language . The provisions of this bill are contingent upon the enactment of SB 1356 (De Leon) which: a) Establishes the Higher Education Investment Tax Credit Program Special Fund. b) Establishes a tax credit equal to 65% of contributions to the Special Fund. SB 1466 Page 5 c) Requires that all revenue in this fund be allocated to the Student Aid Commission for purposes of awarding Cal Grants to students eligible pursuant to the provisions of SB 1466 (De Leon). d) Provides for a repeal of the tax credit in December 2018. SB 1356 is scheduled for hearing in the Senate Governance and Finance Committee on April 25, 2012. The provisions of SB 1356 are also contingent upon the enactment of SB 1466 (De Leon), currently before the committee. 1) Optimistic language ? This bill sunsets its provisions on the date that all funds in the "Special Fund" are expended. According to information provided to staff, this language is based upon projections that suggest that contributions to the fund will be generous enough that they will be available for Cal Grant awards even after the sunset date of the authorized tax credit proposed in SB 1356 (De Leon). Notwithstanding this optimism, staff recommends the bill be amended to provide that this section shall be in effect for as long as the special fund exists or until all funds in the special fund are expended, whichever comes last. 2) What's the cost impact ? According to an analysis by the California Student Aid Commission (CSAC), if the only change made to the Cal Grant Program was to increase the income level to $150,000, the estimated cost of these additional awards would be $112.9 million in 2012-13. Staff notes that these costs would double, then triple, etc., as each cohort of awardees is granted a renewal Cal Grant. Staff further notes that the CSAC estimate of the costs for additional awards if the income level was increased to $120,000 annually would be $81.6 million in 2012-13. While there is no certainty how much funding would be generated from the tax credit, the author cites Franchise Tax Board estimates of about $300 million per year, on average, in additional funding for awards. Should a program be established that provides an award for a student's first year, but that is unable to guarantee the award for the entire four years? Would it be more prudent/honest to extend the SB 1466 Page 6 income ceiling to $120,000? 3) What should the priority uses for this funding be ? As drafted, the focus of this bill is the use of any new funds generated by the credit to allow higher income families access to a Cal Grant. In 2000, the Legislature made a significant change to the Cal Grant program by creating an entitlement program, in essence, promising that any graduating high school student who met financial, academic and general eligibility requirements would be guaranteed a Cal Grant to assist in meeting their post-secondary education costs. As noted in staff comment #2, the current budget realities could result in the elimination of almost one third of those students who might otherwise have been served under the current entitlement program, with the greatest reductions to the Cal Grant B program, designed to assist the lowest income students. While all families in California have been affected by the cuts to higher education funding, this year, the Governor has proposed to the Legislature that it significantly "scale back" its promise to the lowest income students in the state. Should access to a Cal Grant for higher income students be expanded prior to meeting the needs of our lowest income students? Shouldn't any funds generated by a tax credit first be used to ensure that, regardless of budget actions, a Cal Grant can be provided to students who would have otherwise received it under the current eligibility criteria? Staff recommends that the bill be amended to prioritize the use of these funds for Cal Grant awards as follows: a) First priority use should be for awards to students meeting entitlement eligibility for a Cal Grant based upon the GPA, asset and income levels that were established pursuant to Education Code Section 69432.7, for the 2011-12 academic year. b) Second priority use should be awards to students meeting competitive eligibility criteria for a Cal Grant that were established pursuant to SB 1466 Page 7 Education Code Section 69432.7, for the 2011-12 academic year, up to the maximum level of awards authorized in the Annual Budget Act. c) Third priority use should be awards for students meeting eligibility for a Cal Grant based upon GPA and asset levels that were established pursuant to Education Code Section 69432.7 for the 2011-12 academic year and, notwithstanding subdivision (k) of Section 69432.7, a maximum household income level of $150,000. SUPPORT California Catholic Conference OPPOSITION None received.