Mandatory Costs

Health Care Premium Increase, $18,709,000

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 2006/07 CSU budget plan includes $18.7 million to fund the base increase in employer-paid health care costs resulting from January 2006 premium increases. Health care cost increases are determined by the number of CSU employee participants and the difference between the old and new employer-paid contribution rates.

The following chart indicates the Government Code (employer-paid) health care contribution increases from 2002 through 2006.

The 2006 percentage increase, while considerable, represents the smallest overall employer contribution change in several years. The total increase in CSU health care costs due to contribution changes during this five-year period is approximately $110 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 (Skilled Crafts), which bargained CSU employer health contribution rates slightly above Government Code rates.The next chart shows the Government Code health care monthly employer contribution rates over the past five years and the total increase in rates since 2002.

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.

Changes in employee health care monthly deductions in 2006 are mostly minimal, depending on the health plan and the number of eligible dependents insured under the health plan. The 2006 health care contributions for employees will increase $0 to $4 per month for employees enrolled in the Blue Shield HMO plan, $0 to $16 per month for employees enrolled in the Kaiser Permanente HMO plan, $3 to $15 per month for employees enrolled in PERS Choice, and $28 to $81 per month for employees enrolled in PERSCare. The PORAC employee monthly deductions will decrease.

The overall 2006 HMO employee health care monthly deductions range from $0 to $70 per month, whereas the PPO employee health care monthly deductions range from $7 to $109 for PERS Choice and $280 to $819 for PERSCare, depending on the number of eligible dependents insured under the health plan.

In 2005/06, the permanent base costs of the January 2005 employer health care premium increases were funded ($19.5 million). In the prior two years, increases in CSU health benefit costs were not funded due to state budget shortfalls. Over that two-year period (2003/04-2004/05), the CSU absorbed $64.1 million in employer-paid health premium increases.The lack of funding for employerpaid health care increases compounded the impact of the budget reductions that the CSU experienced during those years.

Also, while the 2006/07 budget request funds permanent base costs related to January 2006 employer health care premium increases, the CSU will absorb related one-time health care costs from premium increases during the six-month period (January-June 2006) in fiscal year 2005/06 that exceed $9 million.

Full-Year Service Salary Increases, $4,056,000

Service-based Salary Increases (SSIs) are implemented on an eligible employee’s anniversary date. Therefore, costs incurred in the first year of SSI implementation are less than full-year costs. In 2006/07, $4 million is required to cover the remaining full-year costs of Service Salary Increases that took effect in 2005/06 on employee anniversary dates. Of the $4 million full-year costs requirement, most ($3.9 million) results from SSIs were included in the CSU Employee Union (CSUEU) 2005/06 compensation bargaining agreement.

New Space, $6,548,000

The CSU is scheduled to open an estimated 777,678 square feet of new space in 2006/07. Funding of regular maintenance for this new space will be provided at the rate of $8.42 per square foot. This equates to $6.5 million in permanent base budget support for regular maintenance. Regular maintenance includes the cost for utilities, building maintenance, custodial, landscape, and administrative support. The CSU is also reviewing maintenance cost for 85,800 square feet of new health services space scheduled to open in June 2006 at San Diego State University.

As reported in previous Support Budget documents, the CSU has been reviewing industry standards that would increase the current rate of funding for new space. A final methodology has not been established. The CSU will use the current rate of $8.42 per square foot for regular maintenance of new space in 2006/07.

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’s deferred maintenance backlog.

Although CSU efforts to maintain its funded regular maintenance budget have been successful, the CSU’s 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 analysis of data under review indicates the $8.42 per square foot cost standard the CSU recognizes in 2006/07 for ongoing maintenance (regular maintenance and scheduled repair) should be more appropriately budgeted at $10.13 per square foot to recognize the added 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, which increases the deferred maintenance backlog.

Energy Cost Increases, $4,316,000

Energy costs associated with electricity, natural gas, and water/sewer are increasing.

The current estimate of utilities increases are identified below:

The 2006/07 budget plan currently includes approximately $4 million to assist with increases in electricity, natural gas, and water/sewer rate occurring at campuses, which would cover roughly half of projected need. This projection is likely to change as the full impact of hurricanes Katrina and Rita on the nation’s fuel supplies is known.

There are CSU systemwide energy efficiency and conservation efforts geared toward reaching two major goals by 2010: reducing total energy consumption by 15 percent and increasing the CSU’s self-generation capacity to 50 megawatts. To meet these goals, the CSU is holding designers and engineers to a standard that will exceed the current California energy efficiency code by 15 percent, and campuses are replacing inefficient equipment whenever possible.

Although these efforts are underway, utility costs continue to rise in the short-term due not only to rate increases but also the increase of energy use intensity (EUI) with students, faculty, and staff demand for technology and electronic equipment.