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 




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            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:





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          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 




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               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. 




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               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 




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               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 




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                    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.