BILL ANALYSIS Ó
AB 1561
Page 1
Date of Hearing: March 27, 2012
ASSEMBLY COMMITTEE ON HIGHER EDUCATION
Marty Block, Chair
AB 1561 (Hernandez) - As Amended: March 20, 2012
SUBJECT : California State University and University of
California: compensation.
SUMMARY : Prohibits the California State University (CSU) Board
of Trustees from increasing executive compensation in years of
either decreased General Fund support or student tuition/fee
increases; prohibits an administrator, as defined, from
receiving more than 10% above the total compensation, as
defined, received by the predecessor in that position; and
prohibits administrators from participating in activities, as
specified, by an auxiliary organization if that auxiliary
provides compensation to that administrator. Specifically, this
bill :
1)Prohibits the CSU Trustees from entering into or renewing a
contract that provides for a compensation increase for any
administrator, as defined, using moneys from the state,
tuition or fees in any fiscal year in which the amount of
General Fund monies appropriated to that segment is less than
the amount appropriated in the immediately preceding fiscal
year or in a year when tuition or fees are increased in the
same fiscal year.
2)Prohibits the CSU Trustees from entering into or renewing a
contract for compensation for a campus president that exceeds
10% of the compensation relative to the immediately preceding
compensation for that position, which may subsequently be
adjusted on January 1 of each year per inflation as determined
by the California Consumer Price Index (CCPI).
3)Defines "administrator" as including, but not limited to the
CSU Chancellor, a vice chancellor or an executive vice
chancellor, the general counsel, the Trustees' secretary, or
the president of an individual campus.
4)Prohibits an administrator from participating in the following
activities of an auxiliary organization if that auxiliary
provides compensation to that administrator:
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a) The procurement of donations by an auxiliary
organization if those donations are used to provide a
compensation increase to that administrator, or,
b) The bidding or negotiations for services or contracts
with an entity that provided funding to an auxiliary
organization if that funding is used to provide a
compensation increase to that administrator.
5)Requests the University of California (UC) Board of Regents
refrain from entering into or renewing a contract that
provides for a compensation increase for any administrator, as
defined, using moneys from the state, tuition or fees in any
fiscal year in which the amount of General Fund monies
appropriated to that segment is less than the amount
appropriated in the immediately preceding fiscal year or in a
year when tuition or fees are increased in the same fiscal
year.
6)Requests the UC Regents refrain from entering into or renewing
a contract for compensation for an administrator that exceeds
10% of the compensation relative to the immediately preceding
compensation for that position, which may subsequently be
adjusted on January 1 of each year per inflation as determined
by the California Consumer Price Index (CCPI).
7)Requests an administrator refrain from participating in the
following activities of an auxiliary organization if that
auxiliary provides compensation to that administrator:
a) The procurement of donations by an auxiliary
organization if those donations are used to provide a
compensation increase to that administrator, or,
b) The bidding or negotiations for services or contracts
with an entity that provided funding to an auxiliary
organization of that funding is used to provide a
compensation increase to that administrator.
8)Defines "administrator" as including, but not limited to the
UC President; any UC vice president; the general counsel; the
Regents' secretary; the chancellor of an individual campus;
all assistant, associate and vice chancellors; and all
provosts and vice provosts, and the chief counsel of each UC
campus.
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9)Defines "compensation" at UC and CSU as including salary,
benefits, perquisites, severance payments, retirement
benefits, or any other form of compensation.
EXISTING LAW :
1)Establishes the CSU Trustees, requires that they administer
CSU, and outlines the authorities, responsibilities, and
requirements of the Trustees relative to personnel matters.
(Education Code § 66600, 89500 et. seq.)
2)Requires the proposals for the compensation packages of
specified executive officers, including the Chancellor,
president of an individual campus, vice chancellor, treasurer,
general counsel and the Trustee's secretary, occur in open
sessions of a committee of the Trustees and the full Board of
Trustees, as specified. (EC § 66002.7)
3)Requires meetings of state bodies, including UC and CSU, to be
open and public, requires state bodies to publish a specific
agenda and notice of each meeting at least 10 days in advance
of the meeting, and requires executive compensation, as
defined, to be publicly disclosed. (Government Code §
11120-11132)
4)Requires records maintained by an auxiliary organization of
CSU, the California Community Colleges (CCC), and CCC
districts and a UC campus foundation be available to the
public consistent with the California Public Records Act,
excepting specified donor information. (EC § 72690, 89913,
92950)
FISCAL EFFECT : Unknown
COMMENTS : Need for the bill . According to the author, "At a
time in which both the CSU and UC systems are simultaneously
experiencing budget cuts and student fee increases, it does not
make fiscal sense to have high-level executives be paid
exorbitant compensation increases at the expense of students.
The State must remain vigilant and guarantee that the limited
public resources with which it has provided to the CSUs and UCs
are being used appropriately to enhance and expand actual
student services, and to ensure and maintain a quality
education."
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Background . In July 2011, the CSU Trustees approved an annual
salary for the incoming president of San Diego State University
that was $100,000 greater than his predecessor's salary. Prior
to this action, the Governor submitted a letter to the Trustees
expressing concern about CSU's compensation approach and asking
the Trustees to rethink their criteria for setting administrator
salaries, as well questioning whether CSU could select future
presidents from within the CSU system instead of recruiting and
paying higher compensation for candidates from other states.
The Trustees appointed a special committee to review its
executive compensation policy.
New CSU executive compensation policy . Based upon the special
committee's recommendations, in January the CSU Trustees adopted
an executive compensation policy that includes the following:
1) A "cap" of no more than 10% above the predecessor's
salary from state funds for incoming presidents.
2) A new set of comparison institutions, divided into tiers
to recognize the differences in the 23 campuses' sizes and
missions, that includes only public universities with
comparable enrollment, operating budgets, funded research,
graduation rates and Pell Grant eligible students.
3) Increased opportunities for CSU campus and system
leaders to develop the experience and skills necessary to
be a successful president.
At its recent March meeting, the Trustees approved the
compensation for the incoming presidents at its East Bay,
Fullerton, and Northridge campuses, all of which included a 10%
increase from that of their immediate predecessors, consistent
with the new CSU policy. CSU is currently conducting
presidential searches at its Monterey Bay, San Bernardino, San
Francisco, and Maritime Academy campuses.
CSU's compensation policy vs. this bill .
1)CSU's policy applies regardless of General Fund or tuition/fee
status. Under this bill, administrator compensation could
only be increased (per the conditions below) in years when
CSU's state funds increase and tuition/fees do not increase.
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2)CSU's policy includes a 10% cap above the immediate
predecessor's salary from state funds. This bill would apply
the cap to total compensation, including auxiliary funding or
other forms of compensation.
3)CSU's policy applies only to campus presidents. This bill
would apply to campus presidents, the Chancellor, vice
chancellors or executive chancellors, general counsel, and
trustee's secretary.
UC executive compensation policy . UC policies govern
accountability and disclosure of executive compensation but does
not cap or limit salaries of its senior managers. However, the
agenda for the September 2011 UC Regents meeting included a
discussion item, which notes that, pursuant to a request by the
Chair and Vice Chair of the Regents' Committee on Compensation,
the UC Office of the President intends to undertake a
comprehensive review of the compensation paid to chancellors at
other universities. Once the study and analysis are finalized,
the details will be presented in open session at a meeting of
the Board of Regents in 2012. UC is conducting chancellor
searches for its San Diego and Berkeley campuses.
National comparison of UC and CSU executive salaries . The CSU
Trustees and UC Regents determine the compensation levels for
executive personnel. Compensation typically reflects
compensation levels paid at comparable institutions nationwide.
Using the comparison institutions included its new compensation
policy (described previously), CSU estimates an 18% base salary
lag in administrative salaries. A UC study found that cash
compensation for senior managers, on average, was 22% lower than
their counterparts. Total compensation for top administrators,
including university chancellors, was 14% below their
counterparts at comparable institutions.
Issues to consider . This bill would remove the Trustees' and
Regents' authority for determining executive compensation by
placing these compensation parameters in statute rather than
leaving these decisions to the discretion of the boards, which
have fiduciary responsibility for the institutions and whose
members are chosen by the Governor and confirmed by the Senate.
1)How will this affect California's ability to attract or retain
the professionals necessary to fill these positions? Does it
put California's public institutions at a competitive
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disadvantage for recruiting leaders and risk undermining their
quality?
2)Tuition/fee levels are historically tied to funding provided
in the annual budget act. Should the institutions' authority
to compensate leaders be tied to decisions that are outside
the institutions' control? How does state support and
tuition/fees connect to the management needs of these
institutions?
3)Is it appropriate to restrict how private foundations and
auxiliaries use their funds relative to executive salaries?
Existing restrictions on state employees' executive
compensation . The Department of Personnel Administration sets
and adjusts salaries for each classification in state service.
There are currently no restrictions on executive compensation
for state employees; however, recent legislation to freeze state
salaries over $150,000, including those at UC and CSU (AB 53 and
AB 224, Portantino of 2011] was not approved by the Legislature.
General Fund fluxuations . Factors other than programmatic cuts
or increases affect General Fund appropriations, including:
1)Debt Service: General Fund appropriations include the amounts
needed to pay for existing debt service obligations. Bonds
for such projects may be sold at different times and for
different rates. A bond sold at a much better rate may result
in significantly lower debt service payments resulting in a
lower General Fund appropriation.
2)Deferral: The state often defers millions of dollars of
General Fund monies from one year to the next as a
budget-balancing mechanism. How should such deferrals be
accounted for in determining if a General Fund appropriation
differs from one year to the next?
Auxiliaries provisions . CSU and CCC auxiliary organizations and
UC campus foundations are formed to further the educational
missions of their institutions. Examples include alumni groups,
student associations, faculty organizations, and groups that
bear the name of the particular college or university or campus.
The campus presidents or chancellors usually serve the campus
auxiliary/foundation board. These groups operate as nonprofit
public benefit corporations chartered under the California
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Nonprofit Public Benefit Corporation Law and must meet certain
standards of operation such as: (1) auditing and financial
reporting procedures with oversight by a certified public
accountant; (2) expenditures that are in accordance with
policies delineated by the governing body; (3) meetings of
boards and committees that are open to the public; and (4)
conformity of operational procedures with regulations
established by the governing body. Existing law also restricts
board members from participating in any contract in which they
have a personal financial interest except as specified.
Arguments in support . The University of California Student
Association argues that this bill will restore the public's
trust in the CSU and UC by limiting executive compensation
increases when students and families must face mandatory
systemwide fee hikes and reduced course offerings and student
services. According to the American Federation of State,
County, and Municipal Employees, Local 3299, "Increasing
executive salaries while simultaneously increasing tuition costs
for students who are already struggling with fewer available
classes, larger classroom sizes and higher fees is
unconscionable and should not be tolerated."
Arguments in opposition . UC and CSU argue that this bill will:
1) jeopardize their ability to attract and retain outstanding
administrators during times of major budget reductions,
restructuring, and realignment that require the skills of highly
qualified personnel in order to maintain excellence and ensure
success; and 2) restrict their ability to raise private dollars
to support their institutions, noting that current law already
prevents individuals from raising donations for their own
self-interest. CSU also argues that this bill fails to
recognize its board's actions on executive compensation, which
respond to concerns about executive salaries and balances the
need for good leaders and fiscal restraint.
Clarifying amendment . This bill restricts executive
compensation awards in a year when tuition or fees increase.
Staff recommends the language be clarified to refer to
systemwide resident tuition and fees to avoid capturing
increases in nonresident, graduate and professional school
tuition/fees or student-approved campus based fees.
Related legislation . Several bills have been introduced on this
subject, including the following:
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1)AB 1684 (Eng), pending in this Committee, would limit the pay
of California Community College Chancellors to no more than
twice the highest faculty member salary.
2)SB 952 (Alquist), pending in the Senate Appropriations
Committee, would limit administrator salary increases using
state fund to 10% above the predecessor's salary.
3)SB 967 (Yee), which failed passage in the Senate Education
Committee on March 21, 2012, was substantially similar to this
bill, capping compensation at 5% instead of 10% of the
predecessor's total compensation.
4)SB 1368 (Anderson), pending in the Senate, would limit the
annual rate of salary of a state officer or employee to the
annual salary authorized to be received by the Governor.
5)ABx1 39 (Hernández, 2011), which was not heard by the
Legislature, was substantially similar to this bill.
REGISTERED SUPPORT / OPPOSITION :
Support
American Federation of State, County and Municipal Employees,
Local 3299
California Faculty Association
University Professional and Technical Employees, CWA Local 9199
University of California Student Association
Opposition
California State University
University of California
Analysis Prepared by : Sandra Fried / HIGHER ED. / (916)
319-3960