2005/06 Support Budget

Support Budget Proposal — Mandatory Costs

2005/06 Health Care Premium Increase, $19,500,000

The California Public Employees’ Retirement System (CalPERS) administers CSU employee health care benefits. CalPERS offers a selection of health maintenance organization (HMO) and preferred provider organization (PPO) plans to its enrollees. Health care premiums are shared between the CSU and employees, with the CSU funding a significant portion of the premium costs.

The 2005/06 CSU budget plan includes $19.5 million to fund the increase in employer-paid health care costs resulting from January 2005 premium increases. Health care cost increases are based on the number of CSU employee participants and the difference between the old and new employer-paid contribution rates.

Contribution Rate Increases table
The above chart indicates the Government Code (employer-paid) health care contribution increases from 2001 through 2005. The total increase in CSU health care costs due to contribution changes during this five-year period is $102.4 million.

The CSU is governed by Government Code Section 22871 that defines how employer-paid health care contribution rates are calculated. Rates are based on the weighted average cost of the four largest health benefit plans. Either through policy or collective bargaining unit agreement, the CSU covers health care costs for represented and non-represented employees up to an amount equivalent to the established Government Code rates, with the exception of Unit 6 employees (Skilled Crafts) who bargained CSU employer health contribution rates slightly above Government Code rates. The following table on page 12 provides the monthly Government Code health care contribution rates over the past five-year period and the total increase in rates since 2001.

Monthly Contribution Rates table

CalPERS offers CSU employees the choice of three health maintenance organizations (Blue Shield of California, Kaiser Permanente, and Western Health Advantage), two preferred provider organizations (PERSCare and PERS Choice), and one association plan (PORAC) for peace officers only.

While the CSU’s health care costs have increased dramatically, employee health care costs have been impacted to a much lesser degree. Recently, employee health care contributions have not changed or only increased modestly, depending upon the plan and number of eligible dependents insured under the plan. For example, the 2005 monthly health care contributions for employees enrolled in the Blue Shield HMO will increase up to $26 monthly, monthly contributions for employees enrolled in Kaiser Permanente will not change, and monthly contributions for employees enrolled in PERS Choice will decrease as much as $35. The 2005 monthly contributions for employees enrolled in the PERSCare plan (which has the highest total monthly premium) will increase more significantly, ranging from $38 to $101 per month.

Due to state budget constrictions in the past two years, health benefit mandatory cost increases were not funded. In 2003/04, the CSU absorbed $37.1 million in permanent mandatory health care costs, and in 2004/05 the CSU will absorb an additional $26 million of permanent mandatory health care costs. Also, the CSU incurs one-time costs due to premium increases effective in January, which over this two-year period will reach approximately $23 million. In total, unfunded CSU permanent and one-time health care costs during this two-year period is nearly $86.1 million. The lack of funding for mandatory costs has compounded the impact of budget reductions since 2003/04.

Further, while the 2005/06 budget request includes the permanent base increase required due to the January 2005 employer-paid health care contribution increase, the CSU will also incur related one-time mandatory costs during fiscal year 2004/05 equivalent to approximately $9.75 million.

2005/06 Dental Insurance Premium Increase, $1,525,000

The CSU Dental Program consists of the following two plans:

  • Delta Dental Plan of California
  • PMI DeltaCare

Each dental plan has varying levels of benefit coverage (e.g., Delta Basic, Delta Enhanced I, and Delta Enhanced II). CSU collective bargaining unit agreements designate plan levels. In January 2005, Delta Dental monthly premium rates will increase approximately 5 percent and PMI monthly premium rates will increase approximately 4 percent. The 2005/06 CSU budget plan includes $1.53 million to fund the increase in employer-paid dental costs resulting from January 2005 premium increases. Dental cost increases are based on the number of CSU employee participants by plan and levels, and the difference between the old and new employer-paid premium rates. Following are changes in the plan rates from 2004 to 2005:

Change in Dental Monthly Premiums table

New Space, $4,466,000

The CSU is scheduled to open approximately 530,000 square feet of new space in 2005/06. Funding of this new space will be provided at the rate of $8.42 per square foot. This equates to $4,466,000 in permanent base budget support for regular maintenance. Regular maintenance includes the cost for utilities, building maintenance, and custodial, landscape, and administrative support.

As reported in previous Support Budget documents, the CSU has been reviewing industry standards to increase the current rate of funding for new space. A final methodology has not been established. Beginning in fiscal year 2003/04, the CSU based adjustments in funding for regular maintenance on the change in the California Consumer Price Index (CA-CPI). The CSU used the inflationary index absent a new standard based on current industry norms and projections. Using the most recent CSU report on “Ongoing Facility Maintenance and Deferred Maintenance Program” prepared at the request of the California Legislative Analyst’s Office, the CSU compared the change in per-square-foot maintenance costs reported by campuses with the rate of change based on the CA-CPI beginning with the 1998/99 fiscal year. Based on that comparison, a funding rate of $8.42 per square foot for regular maintenance (the rate of change associated with annual change in the CA-CPI) is provided for new space regular maintenance in 2005/06.

Although the CSU will continue to review its regular maintenance budget to achieve a better approximation of regular maintenance need, there is general consensus that the $8.42 per-square-foot rate will restore an adequate funding base for opening and operating a new building and for mitigating growth in the CSU deferred maintenance backlog. Although CSU efforts to maintain its funded regular maintenance budget have been successful, the CSU deferred maintenance need continues to grow because the cost of critical repairs in older buildings exceeds the average funding provided for regular maintenance. Consequently, delays in the scheduled repair of building space five years old or less offset some of the gains that are made as critical repairs occur in older buildings. Current information provided by the campuses indicates the $8.42 per-square-foot cost standard the CSU recognizes in 2005/06 for ongoing maintenance (regular maintenance and scheduled repair) should be more appropriately budgeted at $9.72 per square foot to recognize the cost of scheduled repairs. Campuses currently use productivity and efficient management of available resources to satisfy a portion of this unfunded need, but they most often have to delay scheduled repairs due to a lack of available funds, which increases the deferred maintenance backlog.

Custodial and Farm Space Summary table

Insurance Premium Increases, $12,334,000

The CSU Risk Management Authority (CSURMA) risk pool program includes liability insurance, industrial disability leave/non-industrial leave/ unemployment insurance (IDL/NDI/UI), workers’ compensation insurance, and property insurance. Prior to 1995/96, the CSU systemwide office paid all related claims and expenses. Beginning in 1995/96, the CSURMA risk pool was established, and campuses assumed accountability for liabilities. The risk pool was developed to encourage participatory campus risk management while sharing liability costs. CSU systemwide funds ($14.2 million) were permanently allocated to campuses to establish the risk pool. Since that time, campuses have assumed total responsibility for increased liability insurance costs. In 2001/02 and 2002/03, additional subsidies ($2.2 million) were provided to campuses to offset rising property insurance costs.

The CSURMA risk pool program currently costs $69.8 million, an increase of $12.3 million from the prior year. The risk pool cost components include claims paid and incurred, claims administration, litigation expenses, program administration, and reinsurance. The CSURMA risk pool funding for 2004/05 for workers’ compensation premiums alone ($44.8 million) is 31 percent above projected 2003/04 costs. Workers’ compensation insurance costs have increased due to litigation, inflation of medical costs, and increased benefits. Although CSU workers’ compensation costs are increasing significantly, CSU rates have not risen as quickly as rates on a statewide basis, and the CSU has benefited from self-insuring.

The CSU 2005/06 support budget includes $12.3 million to increase campus base budgets to offset increased self-insurance costs.

Insurance Premium Increases table

Energy Cost Increases, $4,000,000

Energy costs associated with electricity, natural gas, and water/sewer are increasing. A budget increase of $4 million is requested for 2005/06 to address electricity rate increases, natural gas cost increases occurring at campuses—the majority of which is related to a 12 percent increase in consumption that has occurred in the past year—and increases in and the rates paid for water and sewage utilities.

The consumption increase in natural gas can be attributed to cogeneration plants scheduled to come online. CSU systemwide energy efficiency and conservation reductions have resulted in a zero sum gain in utility budgets due not only to rate increases, but also the increase of energy use intensity (EUI) with student, faculty, and staff demand for technology and electronic equipment.

The total budget increase for CSU energy costs is identified by utility type in the following table:

Energy Costs table

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Budget Development
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Last Updated: November 10, 2004