BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Kevin de León, Chair SB 174 (de León) - Cal Grant Program Amended: January 6, 2014 Policy Vote: Education Urgency: Yes Mandate: No Hearing Date: January 23, 2014 Consultant: Jacqueline Wong-Hernandez SUSPENSE FILE. Bill Summary: SB 174 provides for the use of funds from the College Access Tax Credit Fund (CATC) to increase the amount of the Cal Grant B Access Award up to a maximum of $5,000 per award per academic year. This bill is contingent upon the enactment of legislation creating the CATC, and is an urgency measure. Fiscal Impact: $140,000 in staffing costs to the California Student Aid Commission (CSAC) to administer the program expansion, reimbursed by the CATC. Cost pressure: This bill prohibits the Cal Grant B Access Award amounts funded in the annual Budget Act (by the non-CATC General Fund) from being reduced below 2012 Budget Act levels, for the duration of the existence of CATC funding. If budget reductions became necessary, the Cal Grant B Access Award would be protected at the expense of other programs. To the extent that expanded Cal Grant Access Awards provide additional funding to students in California's public postsecondary institutions, that funding may supplant some 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 SB 174 (de León) Page 1 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 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 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 meet 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. Existing law requires that the maximum household income and asset levels for the Cal Grant program be adopted and defined in regulations by the CSAC, and that these eligibility 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: SB 174 provides for the use of funds from the CATC Fund for purposes of increasing the Cal Grant B Access Award. Specifically it: SB 174 (de León) Page 2 1) Declares the intent that CATC Funds supplement other funds appropriated for the Cal Grant Program and, once the CATC Fund is established, prohibits the adjustment of the Cal Grant B Access Award below the level set in the Budget Act of 2012 ($1,473). 2) Requires the Treasurer to certify the amount of moneys available for distribution from the CATC fund beginning April 1, 2015, and annually thereafter by April 1. 3) Prohibits the amount available for distribution in any year from exceeding 85% of the certified fund balance. 4) Requires the CSAC to thereafter determine the amount of the supplemental awards to be granted, and requires CSAC to include both that amount and an estimate of its administrative costs in its budget change proposals submitted to the Legislature, to be reimbursed by the CATC. 5) Requires that any funds remaining after all supplemental awards are made be retained in the CATC for allocation in future fiscal years. 6) Requires that supplemental awards be made for "access costs" as defined under the provisions of the Cal Grant Program. 7) Caps the amount of the supplemental award, when combined with the annual award amount established in the annual Budget Act, at $5,000. 8) Provides that these awards are only payable to the extent moneys are available from the CATC Fund. 9) Requires CSAC to inform award recipients that the award is for one academic year only, is not an entitlement, and that future supplemental awards are subject to the availability of moneys in the CATC. Related Legislation: The provisions of this bill are contingent upon the enactment of SB 798 (de León) which establishes the CATC Fund, and requires that all revenue in this fund be allocated to the CSAC for purposes of increasing Cal Grant B Access Awards pursuant to the provisions of this bill. SB 798 SB 174 (de León) Page 3 will also be heard in this Committee on January 21, 2014. Staff Comments: The grant expansion created by this bill is contingent upon the enactment of SB 798 (de León) which provides funding to increase specified Cal Grant awards. SB 798 specifies that the funding in CATC can only be used for the purposes outlined in this companion bill. This bill provides that revenue generated pursuant to SB 798 (up to 85% of the balance of the CATC Fund) will be allocated to CSAC to implement these provisions. The bill's language clearly states that these awards are only payable to the extent moneys are available from the CATC Fund, and even specifically requires CSAC to inform award recipients that the award is for one academic year only, is not an entitlement, and that future supplemental awards are subject to the availability of moneys in the CATC. This bill also indicates that state operations costs to implement the program will be paid from the CATC, and requires the CSAC to submit those expenses as a part of its annual budget change proposals. The CSAC estimates that it will require approximately $140,000 annually, for staffing costs related to this program. Specifically, the CSAC reports it will require 1 Staff Services Analyst to field additional calls generated from the additional notifications, regularly revise the website, publications, and award notifications, and to provide training to high school counselors and college financial aid administrators. The CSAC will also need a .5 Research Analyst II to develop a methodology to project the supplemental access award amount to fully utilize the funds available, analyze the actual access award expenditures, monitor supplemental payments expended, and to prepare a final reconciliation of the access award supplemental payments. This bill does, however, create cost pressure on the General Fund by locking in a minimum funding level for Cal Grant B Access Awards. This bill specifies that during the existence of the CATC, the "amount of the Cal Grant B access award as established in the annual Budget Act," which is the General Fund portion prior to any CATC supplement, "shall not be adjusted below the amount set forth in the Budget Act of 2012." In other words, regardless of any competing state fiscal interest, a Cal Grant B Access Award cannot be adjusted below $1,473 (the 2012 SB 174 (de León) Page 4 funding level) in General Fund support for the next three years.