BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair SB 1466 (DeLeon) - Cal Grant Program Eligibility Expansion. Amended: May 2, 2012 Policy Vote: Education 8-1 Urgency: No Mandate: No Hearing Date: May 21, 2012 Consultant: Jacqueline Wong-Hernandez This bill does not meet the criteria for referral to the Suspense File. Bill Summary: SB 1466 expands eligibility for a Cal Grant, beginning in the 2014-15 academic year and until either all funds in the Higher Education Investment Tax Credit (HEITC) program are expended or December 1, 2018. This bill allows a student who household income is $150,000 or less to be eligible for a Cal Grant, subject to specified funding prioritization, and contingent upon legislation that creates the HEITC. Fiscal Impact: Minor and absorbable workload increase to the California Student Aid Commission (CSAC) to administer increased Cal Grants. Potentially substantial General Fund savings, to the extent that HEITC funding supplants General Fund support for Cal Grants. To the extent that expanded Cal Grant eligibility and funding covers additional students, it may supplant institutional aid from the segments. Background: Existing law authorizes the Cal Grant Program, administered by the CSAC, to provide grants to financially needy students to attend college. The Cal Grant programs include both the entitlement and the competitive Cal Grant awards, and eligibility is based upon financial need, grade point average (GPA), 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 SB 1466 (DeLeon) Page 1 middle income high school graduates who have at least a 3.0 GPA, 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, and apply 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. Cal Grant 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, 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. 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. Cal Grant funding is annually appropriated in the Budget Act, and reductions to the program translate to award reductions. Proposed Law: This bill, commencing with the 2014-15 academic year, establishes eligibility for Cal Grants funded by the HEITC, subject to specified priorities. This bill provides that HEITC funding will be used, until exhausted, to fund grants for SB 1466 (DeLeon) Page 2 qualifying students whose household income does not exceed $150,000, as specified, and in the following order of priority: (1) Students who meet the eligibility requirements established for a Cal Grant A, B, or Transfer Entitlement Award for the 2011-12 academic year. (2) Students who meet the eligibility requirements established for a Competitive Cal Grant A or B Award for the 2011-12 academic year, up to the maximum number of awards authorized for Competitive Cal Grant A or B Awards in the annual Budget Act. (3) All other students who meet the eligibility requirements established for a Cal Grant Award for the 2011-12 academic year, except that these students may have a maximum household income no greater than $150,000. Related Legislation: The provisions of this bill are contingent upon the enactment of SB 1356 (DeLeon) which establishes the HEITC Program Special Fund, and requires that all revenue in this fund be allocated to the CSAC for purposes of awarding Cal Grants to students eligible pursuant to the provisions of this bill. SB 1356 will also be heard in this Committee on May 21, 2012. Staff Comments: The program expansion created by this bill is contingent on the enactment of SB 1356 (DeLeon), which provides funding to increase Cal Grant awards. That bill provides that all HEITC revenue will be allocated to CSAC to implement these provisions. Essentially, any money collected by the Franchise Tax Board under SB 1356 will flow directly to the CSAC to use for Cal Grant awards. The CSAC has indicated it would be able to absorb the increased workload associated with implementing the new eligibility requirements and awarding additional Cal Grants. The language of this bill suggests that the initial revenue generated by the HEITC will supplant General Fund money that currently funds Cal Grants. In awarding HEITC-funded Cal Grants, this bill provides that first priority will be for students "who meet the eligibility requirements established for a Cal Grant A, B, or Transfer Entitlement Award for the 2011-12 academic year." Assuming similar requirements and income ceilings are in place in 2014-15 for General Fund-supported Cal Grant awards, the first priority students for HEITC-funded awards would be the same students who would otherwise be eligible for General SB 1466 (DeLeon) Page 3 Fund-supported Cal Grant entitlements. Thus, the effect seems to be that these entitlement awards would be funded by the HEITC instead. It is unlikely that the intent is to double their Cal Grant award amounts by accessing two funding sources, though the author may wish to clarify this point. If the requirements for Cal Grant become more stringent in the future, the HEITC funds would also be used to prioritize grants for both the population that qualified under the 2011-12 requirements, and the population that would have qualified under those requirements. The 2001-12 Budget provided $1.3 billion for entitlement Cal Grant awards; it is not known whether or not the HEITC will generate enough money to cover all of the first priority students each year, since it depends on the decisions of individual taxpayers and businesses. To the extent that first priority students, the ones who would otherwise likely receive Cal Grants under the existing program, will receive Cal Grants funded by the HEITC instead, there will be General Fund savings. Any additional HEITC funding would go to fund Cal Grants for students who meet the eligibility requirements established for a Competitive Cal Grant A or B Award for the 2011-12 academic year, up to the maximum number of awards authorized for Competitive Cal Grant A or B Awards in the annual Budget Act. To the extent that these students receive grant aid they would not have otherwise, the segments' existing institutional aid can be offered to other students. This would continue to be true for the third priority group of students. Recommended Amendments: It is unclear whether the author intends for HEITC funding to supplant General Fund money in the Cal Grant program, as would be the case if the first priority students identified were given HEITC-funded Cal Grants, or if the intent is to simply prioritize students (who would have met eligibility requirements for entitlements in 2011-12) who lose Cal Grants under potential program requirement changes (like the ones proposed in the Governor's Budget). Prior versions of this bill focused clearly on expanding grant eligibility, and it is not clear whether the author intends to shift the focus of this bill. The author should clarify which students will be eligible to receive HEITC-funded Cal Grants and how that award would interact with any other Cal Grants for which they would be SB 1466 (DeLeon) Page 4 eligible (e.g. if HEITC awards should only be given to students who will not receive a General Fund-supported Cal Grant).