BILL ANALYSIS Ó
AB 1561
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Date of Hearing: May 2, 2012
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 1561 (Hernandez) - As Amended: April 23, 2012
Policy Committee: Higher
EducationVote:8-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill limits compensation increases for certain
executive-level positions at the University of California (UC)
and the California State University (CSU). Specifically, this
bill:
1) Prohibits the CSU Trustees from entering into or
renewing a contract that provides for any compensation
increase for an administrator using state funds or tuition
revenue, in any fiscal year where the amount of General
Fund monies appropriated to CSU is less than the amount
appropriated in the immediately preceding fiscal year or in
a year when mandatory systemwide tuition is increased in
the same fiscal year.
2) Prohibits the trustees from otherwise providing a
compensation increase for an administrator that exceeds the
previous compensation for that position by more than 10%,
and limits future annual compensation increases to the
percentage change in inflation, as specified.
3) Defines administrator, for purposes of the above, as
including, but not limited to: the CSU Chancellor and any
vice chancellor of the university; the president of each
campus; all assistance presidents, associate presidents,
and vice-president of each campus; all provosts and vice
provosts of each campus; and the chief counsel of each
campus of the university.
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4) Requests that the UC Regents conform to the same
compensation restrictions established in (1).
5) Defines administrator, for purposes of (3), as
including, but not limited to: the UC President; a
vice-president of the university; the regents' secretary;
the university treasurer and general counsel; and the
chancellor, assistant chancellors, associate chancellors,
vice chancellors, provosts, vice provosts, and chief campus
counsel of each campus of the university.
6) Defines compensation as salary, benefits, perquisites,
severance payments, retirement benefits, or any other form
of compensation.
FISCAL EFFECT
The bill's restrictions on compensation will likely increase
turnover in the affected executive administrator positions, as
executives leave CSU for favorable compensation prospects. CSU
will incur significant additional costs associated with filling
these additional vacancies. CSU estimates the cost to fill each
vacant president position is around $500,000, including the
search firm, travel expenses, relocation expenses, and interim
president's salary. CSU has not quantified the total number of
positions impacted by this bill. (The bill states that its
provisions are not limited only to the administrative positions
specifically named, so it is unclear how many positions would be
impacted.) CSU indicates, however, that the system has about 100
vice presidents and provosts, with an average base salary of
$197,000. Using an industry standard of 160% of base salary to
fill an administrative position yields an average cost of about
$315,000 per additional vacancy.
UC will experience similar cost impacts. UC estimates the bill
potentially impacts 314 senior management positions and that the
estimated average replacement cost for these positions is
$404,000. UC notes that 58% of its Senior Management Group is
eligible to retire, and contends the bill would induce a
significant number to elect to retire due the compensation
restrictions. About 11% of UC's budget is supported by the
General Fund.
The above costs will be partially offset by savings from the
compensation limitations provided for in the bill.
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COMMENTS
1)Purpose . 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."
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."
2)CSU Compensation Policy . In January, the CSU Trustees adopted
an executive compensation policy that: (a) establishes a cap
of no more than 10% above the predecessor's salary from state
funds for incoming presidents; (b) establishes a new set of
comparison institutions, divided into tiers to recognize the
differences in the sizes and mission of the 23 campuses; and
(c) increases opportunities for CSU campus and system leaders
to develop the experience and skills necessary to be a
successful president.
3)In comparing CSU's policy to this bill :
a) CSU's policy applies only to campus presidents, while AB
1561 applies to many more administrative classifications.
b) CSU's policy applies regardless of changes in General
Fund support or tuition levels. Under AB 1561,
administrator compensation could only be increased in years
when CSU's state funds increase and tuition does not
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increase.
c) CSU's policy includes a 10% cap above the predecessor
president's salary from state funds. (An amendment to this
policy, which is pending before the CSU Board of Trustees
at its May 9 meeting, would limit an incoming president's
base salary, using state funds, to the prior president's
salary level.) AB 1561 applies the cap to total
administrator compensation, including auxiliary funding and
other forms of compensation.
d) CSU's policy does not address subsequent salary
increases, while this bill limits those increases to the
annual rate of inflation.
4)UC Compensation . UC currently has no policy limiting executive
compensation. However, pursuant to a request from the Chair
and Vice Chair of the Regents' Committee on Compensation, the
UC Office of the President intends to undertake a review of
the compensation paid to chancellors at other universities and
report its findings at a Regents' meeting in 2012.
5)Comparison to Other Institutions . CSU estimates an 18% base
salary lag in administrative salaries compared to systems in
other states. A UC study found that cash compensation for
senior managers, on average, was 22% lower than their
counterparts at similar institutions. Total compensation for
top administrators, including university chancellors, was 14%
below their respective counterparts.
6)Opposition . CSU argues the bill will jeopardize its ability
to attract new leaders and retain existing ones, and that "it
penalizes the system and its leadership for state budget
decisions." CSU argues that compensation decisions are best
made by the trustees and that recent policy changes have
responded to current concerns and criticisms in a thoughtful
way.
UC similarly indicates that AB 1561 would impair its ability
to compete for and retain administrators at a time of "major
budget reductions, restructuring and realignment that require
the skills and abilities of highly qualified personnel?" UC
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argues further that "there is a tenuous relationship at best
between state General Fund support (now less than 12% of total
University funding) and the need of the University to provide
reasonable increases periodically to key employees who are
serving the University well."
UC further contends there is no relationship between
compensation packages for administrators and student fee
increases, with the latter being the result of the significant
drop in the state's support to UC.
7)Related Legislation . Several bills have been introduced on
this subject, including:
a) SB 952 (Alquist), pending in Senate Appropriations,
limits salary increases using state funds to 10% above the
predecessor's salary for positions paying over $200,000.
b) SB 967 (Yee), which failed passage in the Senate
Education Committee, was substantially similar to this
bill, capping compensation at 5% instead of 10% of the
predecessor's total compensation.
c) SB 1368 (Anderson), which failed in Senate Governmental
Organization, limits the annual salary of a state officer
or employee to the annual salary authorized to be received
by the governor.
d) ABx1 39 (Hernández, 2011), which was not heard by the
Legislature, was substantially similar to this bill.
Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081