CSU Budget Office

Presentations and Communications

1997-1998 CSU Response to Legislative Analyst's Analysis of the Governor's Budget Proposal for the CSU

In the "Analysis of the 1997/98 Budget Bill" the Legislative Analyst has raised a number of fundamental issues that require an understanding of the backdrop of the last few years as the Legislature begins its review of the proposed budget for the California State University (CSU). The CSU has experienced severe swings in its budget over the past five years. The early 1990s were devastating to higher education, it students and their families, as we endured declining enrollments, decreasing budgets and threatened morale. In constant dollars, the CSU is receiving less money from the state today than in 1986. CSU has survived and prospered because the Governor and Legislature in 1995/96 helped restore predictable funding expectations to higher education. The 1997/98 budget again strengthens the commitment to continue CSU's recovery, ensure continued excellence, and continue to provide access to all qualified students. The 1997/98 budget provides a $118 million revenue increase for the upcoming fiscal year to address faculty compensation, enrollment growth, academic and technological support, and ongoing maintenance needs for the 22 campuses and their off-campus centers. The budget provides adequate general fund support to eliminate the need to increase systemwide fees for the third consecutive year.

The budgeted revenue increase is distributed among six priority areas established by the Board of Trustees. The priority areas are compensation ($54.5 million), enrollment growth ($14.4 million), academic technology support ($13.5 million), mandatory cost increases ($9.5 million), maintenance of the physical plant ($8.5 million), and augmented support for Monterey Bay and San Marcos as special initiatives ($3.5 million). The budget also provides required funding for lease revenue bond payments, the CSU outreach program, the Stockton development center, and the fellows program.

Annual Percentage Distribution Graph

The 1997/98 funding level provides funds to make progress on all fronts but does not begin to restore the severe budget reductions that the system suffered during the state's recession in the early 1990s.

Because of competing educational priorities, faculty salaries still lag behind comparable universities. Maintenance of our physical plant remains chronically underfunded. There remains a significant gap of over one billion dollars between the budget provided to the CSU and the need for resources.

Annual Need Graph

In addition to the unfunded need, there are new demands placed upon the CSU including increased enrollment pressure, technological investment to meet demands for a skilled workforce, and the increased demand for K-12 teachers.

In recognition of the significant unfunded additional need and the new demands for services, the CSU urges the Legislature to support the Governor's budget proposal and reject the recommendations by the Legislative Analyst's Office to redirect up to $33 million of these limited new funds from the CSU budget to the General Fund.

CROSSCUTTING ISSUES

RECOMMENDATION 1

SUBJECT: THE STATE'S APPROACH TO DEFERRED MAINTENANCE: ROUND TWO

BRIEF OF LEGISLATIVE ANALYST'S COMMENTS: (Pages F-15 - F-18)

Last year the higher education segments and the Legislature agreed on a multiyear program to resolve (1) existing backlogs in facility maintenance and (2) chronic underfunding of regular maintenance needs. We recommend that the Legislature continue the basic approach it adopted in last year's budget, including General Fund augmentations for the California State University and the University of California.

The Analyst reviews last year's legislative actions regarding the $7.5 million augmentation that would serve as the state match to the CSU's $9.6 million set aside for ongoing maintenance and repair needs. The Analyst further notes that despite the Governor's veto of this augmentation, the CSU continued its commitment and increased maintenance funding by $9.6 million in 1996/97.

The Analyst recommends that the Legislature continue with its past actions by augmenting the CSU's 1997/98 appropriation by $18.1 million for building maintenance. This is comprised of $9.6 million to match the CSU's effort in 1996/97 and $8.5 million for 1997/98. The Analyst notes that the additional funds will stop the deterioration of state facilities more quickly and that it sends the "right" signals to the segments. The Analyst further recommends the incorporation of budget bill language to ensure that the segments use these funds to supplement current building maintenance activities, rather than supplant these resources.

CSU RECOMMENDATION:

Recognition by the Analyst of CSU's commitment to addressing this critical problem is appreciated; however, we also remain committed to the funding plan approved by the Board of Trustees that allocates limited resources among several important priorities. We also believe the proposed budget bill language which is intended to assure appropriate use of new maintenance funding is unnecessary given CSU's obvious commitment as observed by the Analyst.

CSU COMMENTS:

The Analyst is correct that additional funds will contribute to stemming the growth in the deterioration of CSU facilities. The CSU continues to commit a significant portion of its budget to address this problem by allocating $9.6 million in 1996/97 and an additional $8.5 million in 1997/98. By recommending the Legislative augmentation of $18.1 million, the Analyst recognizes the state's shared responsibility with the CSU to protect the state's investment. Given limited resources and competing important priorities for funding, the CSU has developed a plan that proposes employing both incremental increases in our operating budget toward ultimate full-funding of our ongoing maintenance needs along with funding for capital renovation projects that will also address the deferred maintenance needs through the capital budget.

The proposed budget bill language regarding the use of these funds is not necessary. CSU, as the Analyst indicates, has already demonstrated its commitment to maintaining current expenditures for maintenance costs in order to reduce the growth in its deferred maintenance backlog. Campuses are required to report how supplemental appropriations are used and CSU is more than willing to share the results of those reports with the Legislature. This reporting requirement applies both to the current year allocation of $9.6 million and the proposed $8.5 million for next year.

With the budget reductions of the early to mid 1990s, it was necessary to make priority choices among the important instructional needs of students and other university demands including deferred and on-going maintenance. As a result of earlier budget reductions, deferred and ongoing maintenance needs were underfunded. As the state's economy has improved, both the Governor and Legislature have agreed to increase appropriations to the CSU. With those increased appropriations, we have been able to develop expenditure plans that meet critical university needs. However, there are other needs that go unmet. The CSU commends the Analyst in providing a recommendation which aims to significantly reduce the underfunding of plant operations. Should increased appropriations be available, the CSU would welcome the opportunity to discuss our priorities with the Legislature.

CSU ISSUES

RECOMMENDATION 2

SUBJECT: ENROLLMENT DATA

BRIEF OF LEGISLATIVE ANALYST'S COMMENTS (Page F-28)

We recommend that the CSU provide the fiscal committees, prior to budget hearings, with a written reconciliation of budgeted enrollment levels for the three fiscal years ending with the budget year. We further recommend the Legislature adopt the supplemental report language to provide that future budgets include projected enrollment data for the budget year: It is the intent of the Legislature that annual Governor's budgets include budgeted enrollment levels for the prior, current, and budget years, by lower division, upper division, postbaccalaureate and graduate levels, and by headcount and full-time-equivalent.

CSU RECOMMENDATION:

The CSU is more than willing to provide data to the Legislature that are important to the annual budget decision-making process, as they become available.

CSU COMMENTS:

For CSU, the Governor's Budget has included only since 1993/94 an enrollment table by the levels of enrollment suggested by the LAO. These data represented the most recent prior year experience as reported by the campuses and the current year enrollment target prorated in the same proportion as the prior year. These data do not represent projections of enrollment by the levels reported; they simply report actual experience. Consequently, CSU has never attempted nor been required to project enrollment by level and have only reported the total college year enrollment target for the budget year as a reflection of planned growth.

CSU ISSUES

RECOMMENDATION 3

SUBJECT: TRENDS IN NEWLY CREDENTIALED TEACHERS GOING THE WRONG WAY

BRIEF OF LEGISLATIVE ANALYST'S COMMENTS: (Pages F-29-30)

We recommend that California State University (CSU) report to the fiscal committees prior to budget hearings on the steps it is taking to (1) reverse the decline in the number of newly credentialed teachers graduating from its teacher preparation programs and (2) implement quality improvements in those programs recommended by CSU's Institute for Education Reform.

The Analyst notes that the CSU is the source of almost 60 percent of new public school teachers in California and that the Class Size Reduction program has dramatically increased the need for the trained teachers. The Analyst points out that data provided by the CSU indicates a downward trend in the number of teaching credentials awarded by CSU campuses. The Analyst suggests that the trend may be explained by campus-discretionary restraints placed on the size of teacher preparation programs and cautions that such restraints work at cross-purposes with current state needs. In addition, the Analyst expresses an interest in the quality of CSU's teacher preparation programs and asks about the status of actions to implement quality improvements.

CSU RECOMMENDATION:

The CSU appreciates the interest expressed by the Analyst and is pleased to provide updates. The data provided by the Commission on Teacher Credentialing (CTC) documents that the downward trend in the number of CSU teacher credentials has been reversed.

CSU COMMENTS:

Downward Trend in the Number of CSU Teacher Credentials Reversed. The California State University (CSU) provided the Analyst in November 1996 with statistical information about the number of teacher credential recommendations made by CSU campuses to the Commission on Teacher Credentialing (CTC). These figures were provided to the CSU Chancellor's Office by CSU campuses. Until recently, CSU campus data represented the most accurate, complete, and accessible data source on CSU credential recommendations. In response to growing awareness in December 1996 that CTC and CSU credential data were at considerable variance and complicating policy and programmatic discussions about teacher credentialing, CSU and CTC staff members met in early February 1997 to discuss, understand, and resolve data differences.

Comparison of CSU data with CTC data revealed that the numbers which CSU provided to the Analyst in November 1996 were incomplete. The CSU did not include information on the number of students whom the CSU served to upgrade and clear their basic teacher credentials. These credential recommendations should have been included. Even when additional CSU credential candidates are included in the credential tally, the CSU counts of teacher credential candidate recommendations are approximately 500 to 1,000 less than the numbers of credentials actually granted by the CTC.

Discussions between CSU and CTC staff members suggest that the most accurate and complete data now available on the number of teacher credentials recommendations made by and granted to CSU students are those of CTC. The CSU provides below the updated CTC data to guide discussions regarding CSU's role in teacher credentialing.

Teacher Credentials Granted through CSU Preparation

  1992-93 1993-94 1994-95 1995-96
Original CSU Information 7,877 7,159 6,979  
Updated CTC Information 12,264 11,995 11,079 12,356

Actions to Increase the Number and Quality of California Teachers. The CSU is taking actions that address the need to increase the number and quality of teachers in California. The following summarizes action steps taken by the CSU:

Recruitment -- To avoid fragmented approaches, the CSU is coordinating a process for teacher recruitment with other public agencies (e.g., the Commission on Teacher Credentialing, the California Department of Education, the CSU Institute for Education Reform (IER), the California Community College System, and the University of California) to develop and fund a system that will provide public service announcements, printed materials, websites, helplines, onsite advisement, and enrollment in teacher preparation programs for those individuals interested in the teaching profession. This initiative is intended not just to recruit teachers, but to advise and prepare them for the situations they will face in California education today.

Collaborative Partnerships with Local Education Agencies -- To increase the number and quality of teachers in our schools, the CSU Deans of Education met with superintendents of school districts in fall 1996. From these face-to-face meetings, superintendents and deans focused on and developed collaborative partnerships to address the needs of newly hired and reassigned teachers now working in K-3 class-size reduction programs. To date the CSU has developed special preparation programs that are conducted within the school district; provided specialized staff development assistance for the hundreds of teachers who were reassigned to K-3 under the class size reduction initiative; established classes that prepare newly hired emergency permit and waiver teachers for the California Basic Education Skills Test or the Multiple Subjects Assessment Test; and created new seminars and workshops that address reading methods and classroom management issues.

Alternative Certification Programs -- Alternative certification programs that transition the emergency permit teacher to an intern credential and an intern teacher to full certification have been increasing rapidly through the CSU. Over 3,000 new students are pursuing credentials through collaborative, alternative certification programs.

The CSU Institute for Education Reform (IER) -- Under the direction of former state Senator Gary Hart, the Institute has focused on K-12 issues and provided assistance to schools that are undertaking major reform activities. The Institute has published two major reports and conducted policy seminars. To improve reading achievement in California schools, the Institute established the Center for the Improvement of Reading Instruction that is working with CSU reading faculty on the content, processes, and structures of beginning reading instruction programs. As a reflection of Hart's leadership as a founder of the charter school movement, the Institute houses a charter school project.

Collaborative Development of Mathematics and English Standards -- AB 265 (Alpert 1996) mandated that statewide common academic standards in all subjects be developed by July 1, 1997. California State University faculty members have participated in California Education Roundtable task forces to develop statewide content standards in English and mathematics for high school graduates. These intersegmental task forces, composed of high school teachers as well as CSU faculty, have developed standards that raise the level of student performance so that, upon graduating from high school, students will have the English and mathematics skills to pursue a career or to handle the demands of postsecondary education. These proposed standards were disseminated widely and seven public hearings were held throughout the state. The California Education Round Table approved the content standards in January 1997 and sent them to the legislatively-mandated Commission for the Establishment of Academic Content and Performance Standards (AB 265). The draft standards are closely aligned with expected competencies expected of entering freshmen in various subject areas for the UC, the CSU, and the CCC.

In the section on Economic Improvement Initiative (CSU Issues, Recommendation 4, pp. F-30-31), the CSU provides a detailed discussion on the additional investment proposed to help address the qualitative and quantitative challenges of increasing demand for quality K-12 teachers.

CSU ISSUES
RECOMMENDATION 4

SUBJECT: ECONOMIC IMPROVEMENT INITIATIVE

BRIEF OF LEGISLATIVE ANALYST'S COMMENTS (Pages F-30-31):

We recommend the Legislature delete $5 million requested from the General Fund for an "economic improvement initiative" at California State University because the request is lacking in detail.

CSU RECOMMENDATION:

The CSU provides below the detail requested by the Analyst to support the expenditure of the $5 million requested to fund the Economic Improvement Initiative. CSU recommends retention of the $5 million for this initiative.

CSU COMMENTS:

Background

Under a section called "Economic Improvement Initiative", the 1997-98 Governor's Budget includes $5 million to be used for two purposes:

Expand outreach efforts at charter schools to assist pupils who are traditionally not fully prepared to pursue a college education

Work directly with third grade teachers on new instructional methods and techniques to assist students needing special assistance learning to read, and to develop curriculum that will emphasize reading skills.

CSU has a number of initiatives underway that address these purposes. Under the aegis of the Presidents' Group on Teacher Preparation and K-18 Education, three subcommittees are developing recommendations for the improvement of CSU teacher preparation. In addition, the CSU Institute for Education Reform (IER) includes a charter schools project which provides policy development and technical support to charter school developers, sponsors, and policy makers in California and throughout the country. The Institute also sponsors the Center for the Improvement of Reading Instruction.

Proposed Uses of These Resources

Following are descriptions of the initiatives that would be supported by the $5 million the Governor has proposed for the Economic Improvement Initiative.

Incentives for Developing New Approaches to Teacher Preparation

These funds would be divided between two functions. First, a portion would be allocated on the basis of recommendations of the Presidents' Group to support changes in teacher preparation responsive to the outcomes of the work of its three subcommittees, e.g., curriculum/assessment/standards, recognition for faculty who participate in teacher preparation as a university-wide responsibility, and greater emphasis on field-based teacher preparation programs. It is expected that this will include such approaches as alternative programs, internships, and collaborative programs with K-12 school districts. This would leverage the goals outlined in the K-18 Presidents' mission statement and provide incentives to campuses willing to explore innovative ways. Second, a portion would be allocated to programs providing services to emergency permit holders.

Improved Outreach Through Charter Schools

These funds would be allocated to the Institute for Education Reform to augment the Institute's charter schools project to guide and carry out CSU's aspects of this part of the initiative. The emphasis will be on expanding and improving existing charter schools and on working with charter schools to raise the aspirations and to improve the academic achievement of students who are traditionally not fully prepared to pursue a college education.

Teacher Recruitment and Support

These funds would be used to help support one or more centers for teaching careers whose function would be to advise potential teachers on educational requirements and available teacher preparation programs. These funds could be used to increase the chances of securing additional support from foundations and the Governor's Office to help support this effort as a piece of the Statewide Teacher Recruitment Plan jointly developed by CTC, CDE and CSU/IER.

Programs to Improve Teaching of Reading

These funds would provide funding for the Institute's Center for the Improvement of Reading Instruction to (1) continue to provide faculty professional development in reading methods instruction, (2) develop and provide professional development programs in reading for K-6 teachers, and (3) develop and disseminate instructional materials, including a comprehensive set of videotapes with demonstration lessons on the various components of an effective reading program.

Conclusion

This allocation of the $5 million would (1) help support adoption of changes recommended by the Presidents' Group, (2) support adoption of nontraditional teacher preparation approaches, (3) improve the teaching of reading in elementary schools and the instruction of the professors who teach those who will be teaching reading in elementary schools, (4) help emergency permit holders qualify for clear credentials, and (5) expand CSU capacity to respond to the demand for additional teachers created by the Class Size Reduction Initiative.

CSU ISSUES

RECOMMENDATION 5

SUBJECT: INTEGRATED TECHNOLOGY STRATEGY

BRIEF OF LEGISLATIVE ANALYST'S COMMENTS: (Page F-31)

We recommend that the Legislature delete $13.5 million requested from the General Fund for "academic technology" because (1) the budget makes no provision for the larger "integrated technology strategy" of which it is a part and (2) California State University presently lacks a well-defined programmatic and funding plan for this "strategy."

The Analyst states that CSU's budget includes $13.5 million from the General Fund for "academic technology", and that these funds would be used for various information technology purposes including hardware, software, user training, and support. The Analyst acknowledges that these expenditures are a relatively small part of an ambitious information technology initiative that CSU calls the "integrated technology strategy" (ITS). The Analyst acknowledges the CSU goal to provide "anytime, anyplace" access to electronic information resources for all CSU students, faculty and staff.

The Analyst notes the ITS infrastructure alone could cost up to $450 million and that the budget, however, makes no provision for these infrastructure improvements on which the ITS depends. The Analyst points out that the Governor's budget summary states that the Department of Information Technology will be meeting with the higher education segments in the coming months ". . . to determine how best to improve California's higher education technology infrastructure." The Analyst expresses concern that without the aforementioned discussion, funding for "academic technology" is premature. The Analyst also states that ITS lacks a sufficient programmatic and funding plan.

CSU RECOMMENDATION:

The CSU recommends the $13.5 million not be reduced from its budget. The CSU has developed a overall multi-source strategy for funding the ITS. Within this overall funding strategy implementation planning for each initiative carries with it a specific funding plan. Specifically, the CSU has developed a comprehensive, well-defined programmatic and funding plan for the Baseline User Hardware/Software Access, Training and Support initiative within the ITS, for which this $13.5 million is being requested.

Just as it has with representatives of the Governor's Office, the CSU is prepared to discuss and share with representatives of the Legislature its overall ITS plan and funding strategy and the specific implementation and funding plans for this initiative and the two related foundation initiatives.

CSU COMMENTS:

The ITS is the result of an extensive multi-year planning process which engaged all CSU stakeholder groups to determine how best to use technology to advance the mission of the CSU. ITS is focused on outcomes and ITS stakeholders used a value framework to determine which of a multitude of possible initiatives should be pursued. As depicted in Figure 1, eleven (11) "first wave" initiatives were selected for early and quick implementation.

FIGURE 1

Figure 1

The ITS "pyramid" depicts the relationship among the outcome focus, the prerequisite technology foundation, and the enabling initiatives.

Over the past 12-18 months there has been extensive and coordinated implementation planning for all 11 initiatives. During this extensive planning period, it became patently obvious that the eight applications-oriented initiatives (in the middle of the pyramid) could not be fully implemented in the absence of three foundation initiatives. These foundation initiatives are:

  • Baseline User Hardware/ Software Access, Training and Support;
  • Minimum baseline intra-campus telecommunications infrastructure; and,
  • Access to an enhanced and robust inter-campus infrastructure.

Together, these three initiatives are referred to as the Technology Infrastructure Initiatives (TII).

Based on an agreement reached by the 22 campus presidents and the Chancellor, the CSU formed the Systemwide Internal Partnership Team to address how best to implement and fund these foundation initiatives within the Integrated Technology Strategy, i.e., the Technology Infrastructure Initiatives (TII). The Systemwide Internal Partnership Team has developed a four-phased implementation plan and a multi-source funding plan. A key component of the implementation and funding plans involves engaging qualified potential public/private partners to assist the CSU in developing solutions which provide quality infrastructure support and services to students, faculty and staff while leveraging CSU's assets and resources.

Implementation Plan for TII. The following is a summary of the implementation planning for TII, as depicted in Figure 2. The first phase has been completed and included the following:

Baseline User Hardware/Software Access, Training and Support

Each campus has developed a three to five year Baseline User Hardware/Software Access, Training and Support plan detailing how it planned to meet its program needs and satisfy the systemwide guidelines which had been issued as part of the call. These plans were received on January 31, 1997. As part of the plan the campuses were asked to show how it planned to provide 24-hour access to information resources for all students and to meet the basic requirements for individual information competency. The following campus examples are illustrative:

24-Hour Student Access

Since 1994, for example, Sonoma State University has redirected general fund money from other campus areas to provide every permanent faculty member an advanced computer workstation (with guaranteed replacement cycle). Concurrent programmatic initiatives provided opportunities for faculty to integrate technology into their teaching. In fall 1995, the campus began receiving additional funding from the system to pilot test the implementation of a requirement for every student to own, or have 24-hour access to, a networked personal computer. Early results, mid-way through the three-year pilot program, indicate a high degree of enthusiasm for the assured access requirement on the part of students and faculty.

Information Competence

CSU Northridge has launched an array of programs to assure that all graduates of the university meet defined expectations for information competency. In 1995-96, for example, the Library trained 15,000 students in basic research skills and information competence. This year, experimental courses in information competence are being offered, and technology-mediated modules developed for use in other courses as part of a strategy to integrate information technology across the disciplines. On-line tutorials and virtual courses are planned as alternative means to assist students in gaining competence. In addition, university faculty are working with K-12 and community college teachers to develop these skills prior to admission to the university.

Intra-campus Telecommunications Infrastructure

Each CSU campus (except Fullerton, San Jose and Monterey Bay which is being handled with federal dollars through the capital outlay program) has developed an intra-campus telecommunications infrastructure preliminary design plan for minimum "baseline" capacity. The total "baseline" was calculated at approximately $200 million. These plans were submitted on January 31, 1997. As part of the plan, the campus provided a campus academic program justification and an expense plan which detailed what hardware and software already existed to support the infrastructure as well as what campus resources would be spent between 1997 and 2002 on these items.

Inter-campus Infrastructure

A comprehensive implementation three-year plan has been developed to enhance the inter-campus infrastructure, currently known as CSUnet. This plan integrates the needs of the 125 California Community Colleges with those of the CSU sites. The new configuration will be called 4CNet. Actual implementation is scheduled to start April 1, 1997 and run through the remainder of the calendar year.

The second phase of implementation planning, already in process, involves: finalizing CSU's readiness; agreeing on an initial scope for the TII; producing an environmental scan; developing alternative strategies and implementation framework; formulating a participation strategy and soliciting potential partners; and, setting forth a CSU value proposition.

The third phase will involve: deciding on the final scope of the TII; selecting a partner(s); and developing an overall implementation and business plan. The final phase of implementation planning involves developing a detailed implementation and business plan with the selected partner(s). The completion date is targeted for the end of 1997 with actual implementation to begin immediately in January 1998.

Funding Plan for TII. As depicted in Table 1.0, there are multiple sources of funds being sought to underwrite the costs of the three components which comprise the TII. Among the potential sources of funding for the ITS are: redirection of funds from the existing CSU base General Fund budget to respond to priorities; new State funding, both General and Capital Funds; grants from federal, state and private programs; partnership revenue and resource sharing; and, subscriptions or revenues for services rendered.

Baseline User Hardware/Software Access, Training and Support Funding

This initial funding plan for TII calls for $13.5 million to come from the CSU budget plan in FY 1997/98 to support the Baseline User Hardware/Software Access, Training and Support component. This equates to $36 per student headcount based on Fall 1996 enrollment. This amount is intended to rise to $72 per student headcount in FY 98/99 and $100 per student headcount in FY 99/00 with the source continuing to be the a portion of the additional General Funds CSU receives from the State. This $13.5, which reflects a priority use of incremental funding increase, is a vital part of the overall funding plan and is independent of, but related to the $18 million proposal discussed below for a source of money to finance infrastructure funding.

Intra-campus Telecommunications Infrastructure Funding

Based on ITS planning for Intra-campus Telecommunications Infrastructure component of TII it has been projected that it could cost up to $450 million to meet the full program needs. After an extensive analysis the CSU has determined that to bring all campuses to the minimum "baseline" capacity and to advance those who have already invested heavily to exceed this minimum the one-time cost would be approximately $200 million.

To satisfy this funding requirement, new State funding to develop and maintain this "baseline" capacity is needed. To that end, an additional $18 million is necessary to be able to finance this capacity in much the same way telephone systems are financed. This would be in addition to the Trustees' budget plan and that this number would need to be increased to $28 million in subsequent years to develop and maintain this "baseline" infrastructure capacity. As the Analyst noted, the Governor has requested the Department of Information Technology "to determine how best to improve California's higher education information technology infrastructure." The CSU expects the Governor's representative to recommend support for this request by April 1997.

The above amounts are based on the assumption that San Jose's intra-campus telecommunications infrastructure, coupled with electrical infrastructure, is being funded as part of the Capital Outlay budget in FY 1997/98. Also, it assumes the funds for the telecommunications infrastructure in the Fresno and San Bernardino renovation projects are also part of the 1997/98 capital budget.

As part of its funding strategy the CSU plans to leverage this State funding to secure grants and to negotiate with the potential partners to build out the infrastructure beyond the "baseline". This funding plan also assumes that additional program needs beyond the baseline will receive Capital Funding as part of major new or renovation building projects and for redirection of existing base resources.

Inter-campus Infrastructure

Finally, the funding plan for the Inter-campus Network Access component of TII calls for the use of redirected CSU funds, use of a small portion of new State compact funds, grants, income from partnerships like the CCC, and special arrangements with deals from providers and/or partners.

CONCLUSION:

Why is ITS important?

Today's marketplace demands a technologically skilled workforce, and the CSU produces the core of the workforce that forms the socio-economic engine of California. The system's 22 campuses with technology-infused environments will enable CSU to educate a skilled workforce.

  • Economic and demographic realities mean we need to develop new ways to deliver education. A robust technology capability offers opportunities to utilize the 22 campuses as one--a great seamless University System.

The continued development and build out of this "baseline" technology infrastructure is critical to achieving the outcomes of ITS and thereby enabling the CSU to be responsive to the socio-economic needs of California.

In fact, the CSU has developed a well-defined programmatic and funding plan for ITS and the Technology Infrastructure Initiatives upon which it depends. As stated earlier, the CSU is willing to discuss the ITS in depth with representatives of the Legislature.

ITS Technology Infrastructure Initiatives Project Overview

Table 1.0
Integrated Technology Strategy
Uses of Additional Funding ($ in millions)

New Projected Expenses 96/97 97/98 98/99
1 New ITS Base Access, Training and Support 5.00 12.90 11.25
2 Inter-Campus Infrastructure/CSUNet 4.55 0.60 4.35
3 New Intra-Campus Infrastructure      
  a. Capital Budget 6.60 12.00 -
  b. General Fund Support - 18.00 10.00
  Total Expenses 16.15 43.50 25.60
NOTES:
Line 1 - 96/97 $5.0 MM addition is a non-base adjustment
Line 3a - Capital outlay projects of $6.6 MM in '96/97 and $12.0 MM in '97/98
Line 3b - Debt service of 6.5% for $200 million to reach minimum baseline.

CSU ISSUES

RECOMMENDATION 6

SUBJECT: CSU NOT COMMITTING ENOUGH OF ITS FUNDS TO STOCKTON CENTER

BRIEF OF LEGISLATIVE ANALYST'S COMMENTS: (Pages F-31 to F-33)

We recommend the Legislature eliminate California State University's (CSU) $1.7 million request for ongoing funding for a relocated center in Stockton and instead provide $850,000 as one-time funds for interim maintenance of the new facility, because CSU has adequate ongoing budget resources for the center's programs.

CSU RECOMMENDATION:

CSU recommends that funding contained in the Governor's Budget not be reduced and that the $1.7 million level be maintained for the five-year period proposed.

CSU COMMENTS:

Chapter 193, Statutes of 1996 (SB 1770, Johnston), authorizes the Department of General Services (DGS) to dispose of the 102-acre site of the Stockton Developmental Center, which the Department of Developmental Services (DDS) vacated due to declining client populations statewide.

At the May 1996 meeting of the Board of Trustees Ad Hoc Committee on Campus Development Ventures, a proposal was presented by California State University, Stanislaus to develop a plan in collaboration with other interested entities of the greater Stockton community to convey the Stockton Development Center property to California State University, Stanislaus and to convert the facility to the California State University, Multi-Campus Regional Center. The objective of this initiative was to use this facility to implement a community-based plan to provide enhanced educational opportunities and human services by developing public and private partnerships with other educational entities and community programs.

A statement of revenue and expenses for the Center indicates that supplemental preconveyance funding of $2.5 million will be required from the State in addition to a continued subsidy of $1.7 million during the five- year start-up phase beginning in 1997/98. This $1.7 million will continue the current funding for operations and maintenance of the facility, which is now budgeted through the Department of Development Services. Other revenues to support the center will come from third-party leases which may also be used to support California State University instructional costs in the future.

Recommendations of the LAO indicate that if the CSU were to redirect from existing resources the systemwide average of General Fund support per FTES to the operation of the multi-campus regional center, additional funds would not be required from the State. This recommendation fails to recognize that the CSU does not receive from the State an allocation equal to the average cost per FTES. As a result of agreements reached last year with the Department of Finance and the Legislative Analyst's Office, funding is provided for the CSU at the marginal cost per FTES of $6,170 rather than the average cost cited by the LAO of $9,750. In addition, the systemwide marginal cost of $6,170 represents the marginal cost across the entire system. High and low cost programs are funded internally at rates that vary from the system marginal cost. An off-campus center, such as the one proposed for Stockton, costs are typically lower than those on a main campus as the majority of the administrative operating costs, e.g., financial aid, admissions, library operations, computer center, are provided by the main campus rather than the off-campus center.

The conveyance proposal submitted by California State University, Stanislaus for the acquisition and operation of the Center would require partnerships with other educational entities and community programs to a greater extent than currently demonstrated in the California State University in an effort to meet educational needs in the Stockton area and provide a financially alternative use of the surplus State facilities at the former hospital site. Converting the Stockton Development Center, which is no longer needed due to declining Department of Development Services statewide client population, to a multi-campus regional center operated by the California State University places the CSU at risk for the financial support of the entire site. Additional state support for the conversion and operation of the center is critical to ensure the success of the multi-campus center and avoid redirecting limited resources from other CSU campuses to support operation of the center.

CSU ISSUES

RECOMMENDATION 7

SUBJECT: MISSING ADJUSTMENT FOR PRODUCTIVITY IMPROVEMENTS

BRIEF OF LEGISLATIVE COMMENTS: (Page F-34)

Under the Governor's four-year "compact" with UC and CSU, the university systems each committed to achieving annual productivity improvements of at least $10 million. For 1997-98, the Governor's budget includes a $10 million General Fund reduction for expected productivity improvements at UC. The budget does not include a similar adjustment for CSU.

There is no indication that CSU is having difficulty generating these internal savings. Referring to the $10 million target, CSU's most recent productivity improvement report to the Legislature (December 1996) states: "We are proud to say that the CSU has met this challenge--and then some." Therefore, to recognize these savings, we recommend that the Legislature make this technical adjustment to the CSU budget for a $10 million General Fund savings.

CSU COMMENTS:

The CSU is proud to have demonstrated productivity improvements of over $17 million during the fiscal year 1995/96, a commitment that is basic to the shared responsibility aspects of the Governor's Compact. As noted in the 1996 Productivity Report, the documented improvements came in many forms - improved services to students, avoided costs, and direct savings. All of the avoided costs and direct savings are reinvested to more value-added activities - a very powerful incentive at the campus level to expanding productivity efforts. To fully understand what has happened with these improvement dollars, it is important to acknowledge that the CSU served more students than the 1% FTES increase commitment within the 1995/96 funding and that we continue to have a large unfunded need in a number of areas including instructional equipment, salaries and deferred maintenance.

In the 1997/98 CSU budget request, the CSU clearly stated $1.1 billion of continued unmet need - needs that still will not be covered by the increases to the CSU budget contained in the Governor's Budget. Within the mandatory costs portion of the unmet need alone, a normal inflationary increase in costs would have been $9.0 million in 1997/98. With many priorities on the plate, the CSU has had to make difficult decisions - allocating more dollars to reduction of deferred maintenance and foregoing $5.5 million in allocations to cover basic inflationary coverage of supplies and equipment, essentially asking departments to already do more with less.

The dollars from the documented productivity improvements are used to create class sections for the additional students, increase services to students through more streamlined processes, buy necessary supplies and replace obsolete instructional equipment that continues to be underfunded by the State. Retaining and reinvesting the dollars in the CSU provides the incentive to promote further productivity - cutting the budget as the LAO suggests is a sure disincentive.

For budget display purposes, CSU and UC were given an option on whether to present productivity savings in their annual budget request. UC chose to display the savings in its budget plan, CSU chose to report savings separately. Neither option impacts General Fund support received by the universities under the higher education funding compact. The Analyst is incorrect in reporting that the UC display of productivity savings results in a reduction of its General Fund support. As illustrated in the table below, each university receives 4% growth in base General Fund appropriations whether or not productivity savings are displayed.

Govenor's Budget 1

Under the LAO recommendation, CSU would be the only institution to lose General Fund dollars provided by the higher education compact. The budget is premised on the understanding that the 4% growth in base appropriations will not satisfy total annual need. The universities were required to make $10 million in productivity savings as part of the agreement with the Governor to offset this unmet need. The Analyst recommendation to reduce CSU General Fund appropriations breaks the funding agreement with the State, would require elimination of services currently offered, and creates an imbalance in the budgetary treatment of CSU and UC.

CSU ISSUES

RECOMMENDATION 8

SUBJECT: MISSING ADJUSTMENTS FOR INCREASED CSU REVENUES

BRIEF OF LEGISLATIVE ANALYST'S COMMENTS: (Pages F-34)

The CSU budget does not include any General Fund adjustments to account for additional revenue received by the university. We therefore recommend that the Legislature take the following actions for a total General Fund savings of $30 million.

Revert $12 million from CSU's current-year General Fund appropriation.

Reduce budget bill item 6610-001-0001 by $18 million.

The Analyst notes that CSU will realize $20 million in additional revenue in the current year and $26 million in the 1997/98 budget year that is available to offset CSU's need for General Fund monies. After discounting for Student Health Services, the analyst recommends $12 million be removed from the university's current year budget and that its proposed budget for 1997/98 be reduced by $18 million in General Fund support.

CSU RECOMMENDATION:

CSU recommends that the Legislature oppose any reduction to CSU General Fund support in 1996/97 (especially with two-thirds of the fiscal year nearly complete) and oppose any reduction of General Fund support included in the Governor's Budget proposal for 1997/98.

CSU COMMENTS:

State budget calculations for CSU have not utilized revenue offsets as described by the Analyst for 6 years. The last time the state used CSU revenue to offset budget year spending increases was in the 1990/91 Budget Act. From 1991/92 through 1993/94, CSU took budget cuts totaling $208 million. In 1994/95, CSU received a General Fund appropriation increase and revenue received from a 10% fee increase as separate appropriations to fund spending increases. In 1995/96 and 1996/97, this separate funding approach was incorporated into the way the Governor's Budget and Budget Act determined revenue that would be available to the university. The agreement CSU had with the Governor called for a 4% annual percentage increase in General Fund appropriations coupled with all revenue increases achieved by the university and $10 million in productivity savings which would be used to meet a specific set of goals: 1% enrollment annual growth, strengthened undergraduate instruction, competitive faculty salaries, improved time-to-degree, and increased use of technology.

The additional revenue identified by the Analyst ($20 million in 1996/97 plus an additional $6 million in 1997/98) are funds that have already been used to determine Budget Act appropriations for CSU and can be classified in two categories: (a) revenue used to offset enrollment costs and unfunded operations of the university; and, (b) revenue received as payment for the total cost of programs and services provided by the university that do not receive state funding support. Table 1 below illustrates CSU fee categories.

Table 1

Of the additional revenue identified by the Analyst ($26 million), $15 million (58%) is payment received for self-funded activities that do not receive General Fund support. These activities are fully funded with the revenue collected from fees and charges. The remainder of the revenue identified by the Analyst is used to fund enrollment and unfunded spending requirements in accordance with state budgeting procedures.

Under state budget procedures, and in accordance with the current funding process for CSU, budgeted revenue and any revenue collected in excess of Budget Act appropriations are available to the university for budget year spending. The Budget Act specifically states:

"All funds received in the Higher Education Fees and Income, CSU Fund, that are in excess of the amount appropriated by this item are hereby appropriated in augmentation of this item."

As Table 1 illustrates, for 1996/97 the Analyst identifies $20 million in additional revenue available to the university. Of this amount, $15 million is being used to provide health care services to CSU students ($8 million) and to fund costs associated with "Independent Operations" ($7 million) such as the use of space, utilities, staff and other logistics for conferences, seminars, or federal, state or privately funded projects held at the university. All revenue collected in payment for contracted services is used to fully pay for the cost of providing the service. This revenue is not available for other purposes. No General Fund appropriations are used to provide these self-funded activities.

The remaining $5.2 million increase identified by the LAO for 1996/97 is revenue used to fund the costs of enrollment growth and unfunded operating costs. Table 2 explains how this revenue is incorporated into the budget process. The majority of the revenue ($3.9 million) funds the cost of nonresident enrollment increases. The state requires nonresident students to pay almost the entire cost of their education. CSU does not project nonresident enrollment because of its volatile nature, consequently any revenue changes are not included in the Budget Act. An additional $1.1 million reported by the Analyst supports unfunded operating expenses. These include administrative and supply costs associated with increased student applications, bank charges for returned checks, library fines, and late registrations. The remainder of this revenue change reported by the Analyst ($200 thousand) reflects an adjustment in State University Fee and Duplicate Degree Tuition revenue which is used to fund the marginal cost of enrollment growth.

For 1997/98, the Analyst reports additional revenue of $26 million, which consists of the $20 million identified for 1996/97 plus an additional $5.7 million in 1997/98. The $5.7 million increase reported by the Analyst for 1997/98 will be used to fund CSU enrollment growth of 2,499 students and to pay for increases in state-mandated fee waivers for dependents of California disabled veterans and dependents of public safety and firefighter personnel killed in the line of duty. This revenue is included in the CSU marginal cost calculation for enrollment growth.

CSU marginal

Current state funding procedures for higher education is based on several understandings between the universities and the Department of Finance:

1. The level of General Fund annual increase provided by the compact will not be sufficient to meet annual need.

2. CSU and UC are to achieve and retain $10 million in productivity savings to satisfy some of the unfunded need.

3. Additional fee revenue received by the universities would be used to offset unfunded need.

CSU is expected to exceed its funded target of 255,501 full-time equivalent students by over 5,000 students. If this 260,501 enrollment expectation is maintained in 1997/98, campus enrollments will exceed funded targets by 3,000 students at a unfunded marginal cost of $18.5 million. The Analyst has excluded these understandings and revenue consequences from its analysis.

CROSSCUTTING CAPITAL ISSUES

RECOMMENDATION 1

SUBJECT: FINANCING FUTURE CAPITAL OUTLAY COSTS

BRIEF OF LEGISLATIVE ANALYST'S COMMENTS: (Page H - 15)

We recommend that the Legislature not approve any capital outlay project unless there is a specific plan for funding the future completion cost. We also recommend that the Legislature consider placing an appropriately sized "State Facilities Bond Act" on the June 1998 ballot, because this mechanism would provide the Legislature with flexibility to address the facilities needs of any state agency on a priority basis.

CSU COMMENTS:

We concur with the recommendation of the Analyst on the need for a specific funding plan for future completion costs of approved capital outlay projects. We agree that the funding options identified by the Analyst remain viable and that all those sources should be made available to solve the funding requirements to complete projects. We suggest that these same sources should not be the only financing options sought by either the administration, Legislature or even the agencies themselves. Consideration should be given to public/private financing, and operating budget debt service.

We disagree with the Analyst's recommendation that the Legislature consider combining the capital outlay needs for all agencies into a single statewide capital outlay plan. The needs of the University system are sufficiently different from other needs of general government that the citizens deserve the opportunity to vote on education bonds separately.

We believe the Governor and the Legislature should set the overall priority direction for each agency, and using the five-year plans submitted by the various agencies, establish the appropriate funding level for each agency. At the same time, using all funding options available, the Governor and the Legislature should determine which fund source or combination of fund sources best fits the overall financing plans to start and complete projects for all agencies. For example, there may be some agencies for which voter approved bonds would be less appropriate and therefore their capital needs should be funded from "lease payment bonds" or funded on a "pay-as-you-go" basis. The Governor and the Legislature may also wish to consider the possibility of supporting the renovation of existing facilities with the use of the operating budget, or providing agencies with the authority to use operating dollars for debt service to allow financing for a number of projects that currently are defined as "capital outlay."

We recommend that the Legislature continue the support for individual bond issues for the segments of education while endorsing the principle that each segment invest "private dollars" towards passage that would increase voter awareness and participation.

CROSSCUTTING CAPITAL ISSUES

RECOMMENDATION 2

SUBJECT: FUNDING HIGHER EDUCATION CAPITAL OUTLAY

BRIEF OF LEGISLATIVE ANALYST'S COMMENTS: (Page H - 19)

The administration is proposing a capital outlay program for higher education--which when combined with all previously approved projects--will cost $1.4 billion to complete. This is $850 million more than available funds from authorized general obligation bonds. The administration has presented no plan to fund this shortfall. In order to maximize the use of limited capital outlay funds, we believe a new approach is needed. Specifically, we believe that the Legislature should begin budgeting higher education capital outlay so that projects can be initiated and completed within identified fund sources. Based on this strategy, we recommend funding of specific projects and deferral of other, mostly new, projects until the state has a multiyear capital outlay plan identifying the state's highest priority needs and financing strategies to complete them. Based on such a plan, a June 1998 bond measure could be appropriately sized to fund high priority projects in the 1998-99 budget.

CSU COMMENTS:

We agree with the principle cited by the Analyst, that budgeting of higher education capital outlay should be done in a manner that would allow projects to be initiated and completed within identified fund sources. In working with the Department of Finance, the CSU has proposed, for 1997/98, a capital outlay budgeting restructuring plan that addresses this issue.

We do not agree with the Analyst's recommendation for the balance of the 1996 bond funds. The projects started in 1992/93 were based upon a level of capital outlay funding of $250 million per year for the CSU. With the 1992 general obligation bond, the CSU benefited from having its capital program funded from several fund sources including lease payment bonds and tidelands oil funds. In 1992, 42 percent of our capital program was funded from fund sources other than general obligation bonds, and 38 percent in 1993.

If the Governor and the Legislature had continued the level of capital outlay support previously mentioned using a mix of fund sources, and the voters had not rejected the proposed 1994 bond issue, all the "previously approved projects deferred by the segments" would have been funded.

With the loss of the 1994 bond issue and the acceptance by the Legislature of the Analyst's recommendation against the use of "lease payment" revenue bonds, the level of capital outlay support dropped dramatically from $250 million per year for each segment of higher education to $150 million per year. In the face of this reduction, and the consequences of the economic recession, the CSU reassessed its capital outlay priorities. Our emphasis over the past two years has been to fund projects that address seismic safety, infrastructure and building deficiency needs. These capital outlay project priorities are in precise alignment with the Analyst's assessment.

The five-year capital outlay program for the CSU proposes to fund most of the deferred projects listed in the budget analysis over the next two bond issues. These are intended to address the "Tidal Wave II" enrollment demands. The new projects proposed in the 1997/98 budget are more critical in the Trustees priorities based upon the limited funds available in the balance of the 1996 bonds, and completion of these projects will depend upon the passage of a future bond or the use of lease payment bonds or other sources.

The funding of projects in phases is not a new process. Over the past several decades many capital outlay projects have been funded with planning funds in one or two phases, construction funding in a third phase and equipment funds in yet another phase. In most instances, completion of projects depended on three different bond issues.

We recommend that the Legislature consider using all available funding options in financing future higher education capital outlay programs in a manner that would allow projects to be initiated and completed within identified fund sources.

` CSU CAPITAL OUTLAY ISSUES

RECOMMENDATIONS 47 TO 49

SUBJECT: PREVIOUSLY APPROVED PROJECTS

CSU GENERAL COMMENTS:

We disagree with the Analyst's recommendation to delete telecommunications costs from specific projects. In its critique and resulting recommendations on specific CSU projects, the LAO has two underlying issues that impact multiple projects. The first issue is the funding of the telecommunications infrastructure, and the second is the CSU's request to increase project funds based on the application of the approved cost guidelines. The CSU would like to address these two issues in general prior to the specific response generated for the individual projects.

The CSU is planning to fund the telecommunications infrastructure from both capital outlay and other fund sources. Based on telecommunications master plans completed at the campuses, the amount needed to upgrade the systems for voice, video and data is significant. We will need to use all available fund sources to implement both the interbuilding and intrabuilding infrastructures and purchase the necessary equipment.

The CSU plans to use capital outlay funds for telecommunications when it is most cost efficient to incorporate the telecommunications design and construction with a major building renovation and/or new building construction. CSU will also combine utility infrastructure projects with telecommunications needs to reduce costs. These will be considered for capital outlay based on campus priorities. In three cases, the LAO asserts that we should not perform the complete telecommunications upgrade during the construction or remodel of a facility, or during the installation of a utility distribution system. In the construction of a new building or in a building renovation, the facility should be constructed to the latest standards. All utility infrastructure projects should also include telecommunications for an efficient use of state dollars. The individual projects will reflect the campus priorities.

We expect capital outlay will continue to include telecommunications costs to address the unmet needs of the intrabuilding infrastructure and to supplement other funding sources.

The second item is the LAO overlooking our use of approved cost guides. In February 1993, a joint study which reported on the differences in building construction costs was submitted to the Joint Legislative Budget Committee. As a result of that effort, the CSU conferred with the Department of Finance and the Legislative Analyst Office to gain recognition of deficiencies in the CSU Cost Guide. In May 1994, the LAO and DOF agreed to a nominal increase of $15.00 per gross square foot based on the following elements:

  1. ADA requirements for the path of travel $2.50
  2. Allowance for durable exterior skin $4.50
  3. Allowance for increased energy efficiency $4.34
  4. Allowance for telecommunications elements $3.74

As the CSU has previously approved 1992/93 projects which have been delayed (as discussed in the Capital Outlay Crosscutting Issue #2), these projects were budgeted prior to these recognized cost guide deficiencies. The CSU has previously provided to the LAO a summary on each project to identify separately the specific adjustments. The CSU has focused on requesting additional funds in only two of the four areas of deficiency: ADA and telecommunications. As the backlog of projects move forward to construction in the next few years, we will continue to seek additional funding in these two areas to ensure the deficiencies are funded.

CSU CAPITAL OUTLAY ISSUES

RECOMMENDATION 47

SUBJECT: PREVIOUSLY APPROVED PROJECTS

FRESNO-MCLANE HALL RENOVATION

BRIEF OF LEGISLATIVE ANALYST'S COMMENTS: (Page H - 103)

We recommend that the Legislature delete $862,000 for the telecommunications portion of this project due to the high cost of the infrastructure inside the building and the lack of campuswide infrastructure. We recommend that the Legislature fund the remaining portion of the renovation project contingent on completion of preliminary plans. (Reduce Item 6610-301-0658 [6] by $862,000).

CSU COMMENTS:

We strongly oppose the recommendation by the LAO to delete the telecommunications portion of this project. The Instructional Technology Strategy of CSU depends upon a variety of funding strategies to meet this need including building renovation projects. It is essential that the intrabuilding communications work be accomplished within a building renovation.

The expectation of the campus academic community in a building renovation is that the telecommunications infrastructure will be upgraded in addition to facility improvements. With the expected increase in FTE for the CSU, it is critical that instructional spaces be equipped with voice and data and be able to deliver video instruction. Use of data provided by Ethernet connectivity and multi-media video is fast becoming a key element for many faculty who have integrated this form of technology into their course delivery. If the telecommunications component was deleted from this project, the ability of faculty to provide, and our students to access, a quality curriculum would be hindered.

The cost per square foot generated by the LAO is overstated. The telecommunications portion of the McLane Hall renovation will provide for the entire building (62,234 ASF/89,294 GSF), not just the renovated space. Using the Analyst's prorata amount of $862,000, the cost per gross square foot is $9.65, not $26.00.

CSU CAPITAL OUTLAY ISSUES

RECOMMENDATION 48

SUBJECT: PREVIOUSLY APPROVED PROJECTS

SAN BERNARDINO--CORPORATE YARD/ADMINISTRATIVE SERVICES ADDITION/RENOVATION

BRIEF OF LEGISLATIVE ANALYST'S COMMENTS: (Page H - 104)

We recommend that the Legislature delete $614,000 added to this project for new telecommunications and building safety code related alterations because the California State University has provided no justification for these elements of the proposal. (Reduce Item 6610-301-0658 [19] by $614,000.)

CSU COMMENTS:

We oppose the LAO recommendation to delete $614,000. This project is one of the many 1992/93 starts which need some minor redesign prior to construction to comply with ADA and telecommunications requirements based upon previously agreed systemwide costs (reference CSU General Comments section). This project is requesting support to meet the unfunded requirements for ADA and cost deficiencies for telecommunications.

The project architect will revisit and resolve the differences between the codes when the building was budgeted versus the new Title 24 building code ADA requirements.

As the current telecommunications design only includes four twisted pair of copper for voice or data connections for intrabuilding connectivity, it is deficient in meeting current standards. Our funding request to supplement telecommunications is consistent with the agreed upon May 1994 cost guideline.

The hazardous materials estimate of $15,000 was based on an earlier assessment for asbestos. The proposed abatement includes removal of existing VAT flooring and pipe insulation impacted by the proposed expansion where the administrative areas adjoin the existing automotive area. The cost impact of lead paint abatement has yet to be identified.

The San Bernardino campus is recognized by the CSU Seismic Review Board (SRB) as potentially the campus at greatest risk of damage from an earthquake. The campus sits in confluence of two major faults, one being the San Andreas fault. The additional seismic structural requirement is necessary to satisfy the life safety standards developed by the SRB after the 1994 Northridge earthquake.

CSU CAPITAL OUTLAY ISSUES

RECOMMENDATION 49

SUBJECT: PREVIOUSLY APPROVED PROJECTS

SAN JOSE--CENTRAL PLANT, TELECOMMUNICATIONS, AND DISTRIBUTION SYSTEMS UPGRADE

BRIEF OF LEGISLATIVE ANALYST'S COMMENTS: (Page H - 104)

We recommend that the Legislature delete $10,510,000 for the telecommunications portion of this project because the California State University has decided to finance telecommunications infrastructure projects through means other than capital outlay, and therefore we see no reason to fund the San Jose project using limited general obligation bond funds. (Reduce Item 6610-301-0658 [26] by $10,510,000).

CSU COMMENTS:

Telecommunications for San Jose State is a campus and system priority for capital outlay based upon the systemwide plan. We oppose the deletion of telecommunications construction funds from the project. In review of the LAO calculations of the cost reduction, we believe the amount of $10,510,000 is overstated by $103,000. This amount is calculated based on our architect's fee schedule during construction and includes the costs to redesign.

The bifurcation of this project would result in a substantial cost increase to the state for accomplishing this vital work as two separate contracts. Previously, this was wisely recognized at the state-funded CSU, Fullerton's combined Electrical/Telecommunications project.

The campus has tied the telecommunications portion of the project to the utilities portion for sound economic reasons. The construction of the campus backbone has a significant cost savings when constructed simultaneously with the utilities distribution upgrade. These cost savings are both in real dollars as well as the cost associated with the disruption to the campus due to construction. Although the real dollar savings can be calculated, the cost, as a result of the complete disruption to the campus in having the campus trenched twice, is much more difficult to ascertain. However, there is no question that the total cost of having two separate projects would run into the millions.

San Jose State University has not been included in the CSU plans for financing telecommunications infrastructure because SJSU has been ahead of the other campuses in the process and has made telecommunications a top priority for capital funding, ahead of several projects referenced in the deferred projects crosscutting issue by the LAO.

The academic community has committed to fund all equipment in order to connect with the infrastructure provided with this project. The total project will be functional and ready to serve the students, faculty and staff of San Jose State University. This telecommunications project contains no equipment but only supplies the backbone for inter- as well as intrabuilding connectivity. The funding commitment of the academic departments cannot and should not be taken lightly in that this is a major portion of the total telecommunication upgrade cost to meet CSU guidelines.

Consistent with the 1996 Supplemental Language, the CSU is transmitting separately a copy of the systemwide telecommunications Academic Program Justification along with the San Jose State Academic Program Justification and Equipment plan.

SJSU needs to move ahead with this project in order for the campus to take advantage of its unique Silicon Valley location. SJSU must have the necessary telecommunications infrastructure to utilize potential equipment and software provided by the major telecommunications and hardware firms in that area, and to facilitate potential business-university partnerships.

California State University, along with San Jose State University, strongly opposes the deletion of the $10,510,000 from the Central Plant, Telecommunications, and Distribution Systems Upgrade project.

CSU CAPITAL OUTLAY ISSUES

RECOMMENDATION 50

SUBJECT: NEW PROJECTS

FRESNO--INFRASTRUCTURE IMPROVEMENTS

BRIEF OF LEGISLATIVE ANALYST'S COMMENTS: (Page H - 105)

We recommend deletion of the $271,000 requested for preliminary plans and working drawings to make improvements to the storm drainage system and to convert the campus heating distribution system from steam to hot water because neither of these components has been justified by the California State University. (Delete $271,000 from Item 6610-301-0658 [7]. Future savings $3,878,000.)

CSU COMMENTS:

The existing storm drain system for the campus was never fully completed and many areas are flooded during rainy weather. Portions of the existing system are overgrown with tree roots and are beyond repair. These flooded areas cause potential hazard to the campus community. In addition, the flooding causes further deterioration of the paved roads and walkways. A "Concept Level Update of Storm Drainage Master Plan" was completed in October 1995 (excerpts from the master plan report are being separately transmitted) and the scope of work for this project is based upon that study.

The conversion of steam distribution to a hot water distribution system is being implemented in a phased manner. The project replaces the existing steam system which is over 40 years old and is approaching the end of its useful life. Based on a central heating and cooling system modifications and improvements study conducted in January 1989, the project is based on recommendations for replacing the existing inefficient steam distribution system. In 1992/93, the state funded construction of the initial phase of the distribution system conversion. This phase of the project will connect seven major buildings to the Central Plant (Family and Food Science, Social Science, McKee Fisk, North and South Gym, Psychology/Human Services, and the Library). North Gym and South Gym have local boilers that are in need of replacement. Replacement costs could be avoided by connecting these buildings to the Central Plant and result in reducing the campus deferred maintenance backlog. Another phase of this conversion is included in the Renovation of McLane Hall. The phased approach enables the campus to prioritize building and distribution conversion given the limited amount of capital funding.

CSU CAPITAL OUTLAY ISSUES

RECOMMENDATION 51

SUBJECT: NEW PROJECTS

POMONA--ENGINEERING LABS REPLACEMENT

BRIEF OF LEGISLATIVE ANALYST'S COMMENTS: (Pages H-105 to H-106)

We recommend that the Legislature delete $23,494,000 for construction of a new laboratory facility for the College of Engineering because this project has not been reviewed previously by the Legislature and the project does not warrant the expenditure of over $20 million of limited general obligation bond funds. (Delete $23,494,000 from Item 6610-310-0658 [17].)

CSU COMMENTS:

The campus has been working on a capital campaign for this project with employers of Cal Poly graduates since 1991. This project was submitted as part of the 1996/97 Capital Outlay Program for nonstate funding of preliminary plans and working drawings. The capital outlay budget change proposal was included as part of the systemwide submittal for the 97/98 program. There was a campus scope visit in October 1996 enabling the Analyst to review the project scope and budget. A cost/benefit feasibility study prepared in August 1993 by James G. Pulliam, FAIA, was sent to the LAO as follow-up to that visit.

Enrollment Issues

The enrollment figures that were used by the Analyst are not correct. We are separately transmitting the fall 1996/97 enrollment figures and charts that show the FTE from 1991/92 through fall 1996 for the College of Engineering and the Art Department. In 1992, as with most of the CSU campuses, Cal Poly Pomona experienced modest enrollment reductions because of State budgetary cutbacks. The impact of enrollment reductions was significant in 1994. Recent enrollment indications are that engineering's enrollment is essentially stable and starting on an upward swing. Engineering enrollment has historically experienced changes (sine curve) deriving from shifts in the rate of growth by engineering intensive campuses. Enrollment is very sensitive to the job market prospects.

In the case of engineering enrollment, although it has not increased, the percentage of decline has stabilized. Applications for engineering have increased from last year and the fall 1996 admits are above the 1994 numbers.

Enrollment in art has recovered and surpassed its 1991 enrollment. The lowest period in enrollment was 1993/94, partially due to program changes as well as the overall campus drop in enrollment. However, they have been growing at a strong, steady rate since then and have exceeded the 1991 enrollment figures. In fact, the Art Department's projected enrollment in the COBCP for 2000/01 was 193 FTE; they have presently surpassed that by 29 percent and are at 250 FTE.

Renovation Versus New

The 1993 cost/benefit study by the campus master plan architect evaluated the feasibility of renovating the existing engineering laboratory facilities. The quality of the space and the feasibility of renovation were addressed. The study concluded that four of the six existing facilities were antiquated and not adaptable for today's teaching methods, or equipment and infrastructure needs. The buildings were constructed in 1959 of lightweight steel framing with single-glazed sash windows and minimally insulated metal wall panels. Heating is provided by space unit heaters and air conditioning was added at a later date in the faculty offices only. To renovate the buildings would cost 90 percent of the construction cost for a new building of comparable square footage.

Therefore, it was recommended that four buildings be demolished and a new facility be constructed on their site. The new building, in addition to accommodating the engineering curricula more effectively and meeting code compliance, could provide energy efficiency and reduce deferred maintenance costs.

A similar assessment and conclusion was reached by the Engineering Industry Action Council (IAC), a group of major southern California industry leaders. In recognition of the relationship between quality graduates and the unique curricula provided by Cal Poly Pomona, this group provides support and guidance to the College of Engineering. The IAC, together with the engineering faculty, identified which laboratory facilities the college needs to continue to be a principal supplier of qualified engineers. Together they concluded these goals could not be met with the existing facilities. In recognition of the need for a new facility, the IAC has made a commitment to support a capital campaign to raise funds for a significant portion of the project cost of the new building. Presently, $6,975,000 in cash and in-kind equipment has been identified.

Space Issues

The project program now reflects a reduction in the amount of teaching laboratories by 5,500 ASF. A portion of the space was converted to nonteaching support space to increase the ratio between teaching labs and needed support space, and also to bring it closer to current engineering lab standards and accreditation requirements. These specialized instructional areas, which include rooms where some instruction occurs but which are so unique that they cannot be considered teaching laboratories in the traditional sense, are essential to the engineering program. This reflects the changes occurring in teaching methods and provides for the flexibility of changing technology. In addition, the square footage reflects the shift from engineering labs to converted art labs to accommodate their growing programmatic needs.

Finally, regarding campus lab capacity, on January 9, 1996, the LAO was sent the updated companion reports to the Capital Outlay Program. These include the "Summary of Campus Capacity" and the "Laboratory Enrollment FTES vs. Laboratory Capacity FTES." These update the information previously submitted with the program. In the course of preparing the original documentation, space changes for Science Renovation of Building 3 (to occur after the new Science Addition building is constructed) were inadvertently omitted. This omission was corrected and the form has been revised. The revised form reflects a campus lab capacity of 105 percent the year after occupancy (versus 125 percent cited by the LAO). The Science Renovation of Building 3 will address the previously documented need for a Design Center and eliminate the additional space request currently identified in the campus' five-year plan. Although the campus' target enrollment has essentially remained the same from 1995/96 to 1996/97, the actual enrollment has surpassed our target (includes spring 97 data).

Although the overall lab capacity of 105 percent appears to exceed the enrollment projections, it should be noted that laboratories are discipline specific. It is difficult for laboratories to function interchangeably between disciplines. This is especially true of science and engineering, the two largest lab capacity FTE generators, which are dependent on specialized space needs for equipment and materials. The equipment and materials necessary for a business or home economics lab do not lend themselves to the needs of a biological lab, or to an engineering manufacturing processes lab. These specialized facilities have different requirements for both instructional programs and for the handling of potentially hazardous equipment and materials. Cal Poly Pomona, a polytechnic university with its unique "hands on" approach to education, has a particular need for dedicated laboratories.

CSU CAPITAL OUTLAY ISSUES

RECOMMENDATION 52

SUBJECT: NEW PROJECTS

SAN FRANCISCO--HENSILL HALL RENOVATION

BRIEF OF LEGISLATIVE ANALYST'S COMMENTS: (Pages H-106 to H-108)

We recommend the Legislature delete $1,032,000 for preliminary plans and working drawings to renovate Hensill Hall on the San Francisco campus because the California State University has not demonstrated the need to spend over $20 million to renovate this building. (Reduce Item 6610-301-0658 [25] by $1,032,000.)

CSU COMMENTS:

We oppose the deletion of the funding of preliminary plans and working drawings to renovate Hensill Hall. To provide additional documentation for the project, we are separately transmitting excerpts from three reports which form the basis of the program. The first report is the "Hensill Hall Renovation Audit", completed in May 9, 1994 by Gerson/Overstreet Architects, the second report is the "Health and Safety Audit and Inventory of Environmental Hazards and Code Deficiency Items in Hensill Hall", prepared in January, 1994 by H + GCL, Inc., and the third report is the "Seismic Retrofit Program Phase 2, Hensill Hall" completed July 27, 1993 by Degenkolb Structural Engineers.

The "Hensill Hall Renovation Audit" describes in detail the existing architectural, mechanical and electrical conditions of the building and proposes solutions to the existing conditions. In their project approach they reviewed the other building studies and audits to provide an integrated program. The audit identified the items that are "required" to be done as safety issues that have either been cited by the State Fire Marshall or are handicap accessibility issues. The ADA deficiencies include interior doors, toilet rooms, elevators, cabinetry, ramps, etc.

Other safety issues were considered in the audit which are not required items for an existing building, but are not compliant with codes for new building construction. This includes: dead end corridors, interior corridor doors, fire/emergency alarm system, etc. After the safety issues were considered, the audit focused on items which enhanced the operation of the building in terms of the academic program, deferred maintenance and technology.

The objective of the "Health and Safety Audit and Inventory of Environmental Hazards and Code Deficiency Items in Hensill Hall" was to prepare an inventory of all existing and potential safety hazards and code deficiency items in all research and teaching labs in the building. The audit describes the deficiencies in the following areas: asbestos, HVAC equipment, chemical and solvent storage, emergency evacuation, electrical equipment, plumbing, and lead paint. While the study estimates the cost to correct the deficiencies at approximately $5.1 million, the campus has budgeted a lesser amount as a result of substituting full building asbestos abatement with spot abatement (reference page seven of Hensill Audit Executive Summary). This results in roughly a $2 million cost savings.

The "Seismic Retrofit Program Phase 2, Hensill Hall" resulted in a detailed evaluation of the building's performance during an earthquake and a strengthening scheme. The report indicated that Hensill Hall does not meet the life-safety criteria as it is deficient in its vertical support, panel connection strength and lateral capacity. The fourth floor diaphragm and the above floors do not have adequate shear capacity to transfer the lateral loads in the diaphragm to the shear walls because of the large openings at the center of the building containing the elevator and stair shafts. In addition, the lack of strength at the panel connections could result in panels falling from the building.

The recommended solutions include removing the precast panels and adding new braced frames on the ends of the buildings. In addition, on the third floor (currently a "soft story") new concrete walls are to be installed in addition to the braced frame. The study clearly indicates why this is a priority life-safety project for the CSU. In support of this seismic component, the LAO was previously sent an updated "Priority List for Seismic Retrofit," as compiled by the CSU Seismic Review Board. This identifies the building as priority number 41 on the list of 137 buildings systemwide.

Degenkolb estimated the seismic portion of the work to cost over $2 million dollars not including phasing costs for shift work (Gerson/Overstreet uses the same amount in their estimate included in the Hensill Audit, reference page 7). This amount represents approximately 15 percent of the total construction cost.

Program Changes

The program is based on the recommendations in the provided audits/studies. A description of the major program changes and the secondary impacts are as follows.

  1. Remodel and consolidate the animal facilities. The animal facilities in Hensill Hall are nearly 30 years old, and are both outdated and deteriorated. They do not meet National Institute of Health, Public Health Service and U.S. Department of Agriculture regulations. Necessary work is described in Section II of the "Hensill Audit" (page 11-12) and includes the following: provide electrical backup to reduce frequent power outages; provide obsolete cage washer (group I equipment) to reduce hazard of infectious agents; improve animal room integrity to withstand harsh chemicals, pressure sprays and steam; and consolidate animal facilities to improve efficiency and increase security.
  2. Renovate the Greenhouse. The greenhouse facility is used for plant growth at the Biosafety Level 1 (no special requirements) to supply plants for classroom instruction and research. The renovations are intended to improve efficiency. The audit concluded that the existing facility's shell and systems problems are significant enough to require removal and replacement. If no action is taken, the deterioration will continue until the patching approach will no longer suffice. The facility also needs to be made accessible to persons with disabilities. Renovations to the Greenhouse are discussed in the Section II of the audit, pages 9-10.
  3. Repair leaks and improve the sea water system. Some of the laboratories in Hensill Hall use sea water. The building has a sea water distribution system, but it is in disrepair and is not usable. The project will reseal or replace the pump, repair the transfer pumps and replace the roof mounted sea water tank with a reinforced glass fiber tank. In addition, the sea water tank in Room 235 leaks and must be repaired to avoid further building and equipment damage. The problems with the sea water system are discussed in Section II, page 13.
  4. Add a secure outdoor storage are for vehicles, boats, and aquarium and diving equipment. The College of Science uses field and diving equipment, boats and motor vehicles for off-site research and instructional activities. This equipment requires a secure storage space. This requirement is discussed in Section II, page 14.
  5. Secondary effects. Moving the animal facilities to the eighth floor will free up space on the first and sixth floors and require the relocation of two lecture rooms on the eighth floor. Rooms 830 and 832 will be replaced by rooms 206, 207 and 208 (currently unfinished storage and shop areas) and room 133/133a (currently animal quarters). There will be no change in the number of student stations.

The existing animal labs on the first floor and sixth floors will be remodeled for new graduate research labs for the biology department. These rooms will create an additional 1,860 ASF of graduate research space. Based on the fall 1996 Course Section Report, graduate students in biology generate a need for 11,671 ASF of graduate research space. Hensill Hall currently has 8,999 ASF of graduate research space, leaving a deficit of 2,672. The conversion of the animal laboratories will address about 70 percent of the current deficit.

Project Priority

The Trustee approved categories and criteria to be used in setting project priorities is updated annually to manage the limited funds available for capital outlay projects. Projects which are strictly for seismic strengthening do receive a higher priority than other renovation projects. However, this does not imply that the building does not pose a life-safety concern. It indicates that Hensill Hall (as others) requires many improvements. Many renovations are not related strictly to life safety but are necessary in order to correct building code and ADA deficiencies, and to maintain the academic program. The University decided to develop a project which addressed all the needs in the building for two reasons. First, it is much less disruptive to the academic program to renovate the building at one time. It is very difficult to find temporary locations for wet labs and specialized spaces and even with phasing, these renovations will be very disruptive. Second, it will be less costly to design and implement these improvements as one project rather than several projects over time.

Multimedia Facility

The LAO statement regarding the multimedia facility appears to refer to the facilities that were constructed to support the InterArts program in the College of Creative Arts (in the Arts and Industry Addition). Whereas these are well designed modern facilities, the plans for Hensill Hall have a very different focus. This facility will be available to the entire University and will meet a growing, but unmet need for this type of space. The facility will be dedicated to the production of instructionally related materials. Although there are twelve general purpose computer laboratories on campus, there are no labs on campus where a faculty member can develop full educational application materials without competing for space, time and equipment with students engaged in their studies. The facility will be a multidisciplinary facility, whereas the various multimedia classrooms and labs on campus are each fully operated by individual academic units. The facility will not duplicate existing facilities. The primary goal of the facility is to create on-line instructional materials that can be shared with our community of learners.

CSU CAPITAL OUTLAY ISSUES

RECOMMENDATION 53

SUBJECT: NEW PROJECTS

CSU STANISLAUS--STOCKTON REGIONAL CENTER, INITIAL RENOVATION

BRIEF OF LEGISLATIVE ANALYST'S COMMENTS: (Page H-108 to H110)

We recommend that the Legislature delete $2.5 million for renovation of a building and site improvements at the California State University, Stanislaus Regional Center because the need for improvements has not been justified and any major improvements at this center should be funded with revenue from leasing of existing buildings, which is expected to total up to $2.8 million annually. (Reduce Item 6610-301-0658 [32] by $25 million.)

CSU COMMENTS:

We oppose the deletion of $2.5 million for the CSU Stanislaus Regional Center as it is in need of repair and renovation to accommodate the academic program. Construction of the Stockton Developmental Center began in the mid-1800s and has been continuously remodeled and expanded until it reached its current master plan configuration in the middle of this century. Much of the infrastructure and many of the buildings are in need of attention to deferred maintenance items. The facility does not meet current codes or standards. It would not be prudent for the CSU to accept a facility with an extensive list of deferred maintenance items and academic program renovation requirements without resources or plans for meeting that need. The CSU has, from the inception of the planning process, acknowledged that this facility would need attention to significant deferred maintenance and program renovation requirements. In the early planning stages, it was the intent of the parties to complete these repairs as pre-conveyance items. Subsequently, rather than have DDS execute the necessary contracts and accomplish the repairs, the Governor added the $2.5 million to the CSU capital budget and decided the CSU would use its normal capital outlay process to both repair and renovate the facility at the same time.

Alterations

The campus has prioritized the renovation of Acacia Hall for the initial phase of the hospital conversion. Acacia Hall is comprised of small rooms designed as living, dining, administrative and minimal training areas for the DDS client population. Most of the space will need to be renovated to make it suitable for classroom instruction. Although the buildings were designed as an open-bay structure, they have been cut up into smaller rooms, most of which are smaller than 12-foot square. Interior walls will have to be removed and interior surfaces refinished and rewired before being used for classrooms. All buildings on the site, including Acacia Hall, are equipped with only 25 twisted pair copper cable, (Category 1 - also known as standard telephone cable). This backbone cable distributes voice system services to the administration spaces of the site (nurse stations, pharmacy, clinic, etc.). None of the individual hospital rooms in which the clients reside are served by this simple telephone infrastructure. The underground telecommunications infrastructure system is undersized, damaged and not functional.

It should be noted that the project will require the renovation of approximately 25,000 GSF. The cost factors used to estimate renovation costs for Acacia Hall are based on 35 to 40 percent of the costs of new construction using the ENR 5734 cost guidelines. This is a reasonable cost index model for budgeting purposes. In discussions with the campus master plan architect, the budgeting model was reviewed and reinforced. The total estimated cost is $885,000, or $35.40 per GSF.

In order to use the facility for contemporary distance learning, computer communications, and normal business communication, significant funding will be required. ORSA Consulting Engineers conducted a preliminary master plan study of the telecommunications capability of the existing center in December 1996. The study assumed a planned student enrollment of 2000 FTE by the year 2010/11. The study indicates the capital requirements for telecommunications infrastructure are $8,000,000. Our program proposes that $212,000 of the $2.5 million request be budgeted for telecommunications for Phase I occupancy.

It would be imprudent to occupy this facility as an educational building and not attempt to implement key components of the CSU telecommunications standards and guidelines. Due to competing renovation needs for limited funding, we are not proposing the facility be brought completely up to Telecommunications Infrastructure Planning standards.

Site Development

The condition of this site is a key to its success as a growing institution of higher learning in central Stockton. Students, faculty and staff must be secure in this environment. Proper exterior lighting, protective fencing, roadways, sidewalks and other infrastructure are critical to the comfort and safety of the university's students, faculty, staff and the new and unique element of the CSU family tenants.

The existing exterior lighting is woefully inadequate according to current Illuminating Engineers' Society standards. A variety of improvements to the lighting system proposed by the project will improve light levels. Average lighting levels of less than .4 foot candle throughout the site do not provide a level of security expected by students, faculty and staff on a CSU campus. For the many students who will be engaged in night classes and distance learning activities, this modest capital project will correct the deficient condition and provide proper lighting at the level of .6 foot candle for road and pathways and one foot candle for parking areas. Additionally, a secondary effect of this improvement will be improved energy conservation.

The project will standardize the exterior lighting electric voltage, fixture type and height. The use of 4,160 volt electric supply for approximately 30 percent of the currently installed street and path lights is a hazard, presenting a significant risk in the event of an accident such as a toppled light pole or exposed wire. The remaining lights are served by a more standard but lower efficiency, 205v and 277v service. Existing fixtures are low in height (13' to 18') with an effective radius of distributed light of about 12 to 15 feet.

The project proposes to replace the inadequate cyclone (chainlink) fence with an 8' high split-faced concrete block fence to protect the campus population and deter the individuals from the railroad yard from unauthorized entry.

The existing chainlink fence along the eastern property line which separates the campus from a railroad yard is subject to repeated damage by transients in the area. During inspection, it was noted that the fence is constructed of various materials and at varying heights. Numerous holes were noted throughout the length of the fence. Existing steel galvanized posts are bent and concrete footings and mow strips are cracked and crumbling. At several locations along its length, the fence is bent over where individuals from the neighboring railroad yard (40 feet to the east) have climbed over it on a frequent basis.

A dirt road runs along the fence and the railroad track, and provides the opportunity to scale the fence to gain access to the site. Because the area is minimally lighted, the area has become a dumping ground for trash, old tires, batteries and other hazardous materials. Graffiti is also a problem.

SDC personnel estimate one incident per week where someone cuts holes in the fence to gain access. This fence line is the biggest problem for unauthorized access to the facility.

Equipment

The CSU is transmitting separately the "Request for Major Construction Equipment." This document itemizes the equipment required by room type for this project. The request for equipment funds recognizes the planned growth from 319 FTE to 350 FTE. We also evaluated the existing equipment at the San Joaquin Delta campus and calculated the deficiencies based on the planned academic functions for the Stanislaus Regional Center. While equipment from the San Joaquin Delta campus will be moved and re-used, it will not be adequate for the increased space and academic needs programmed.

Revenues From Leasing Space

Revenues from leasing space at the center are expected to exceed $2 million annually. Any improvements needed at this site could be financed on a priority basis with these revenues. In addition, the proposal involves a consortium of CSU campuses, a private university, and a community college. We believe that costs to modify these facilities should be shared by members of the consortium.

Gross lease revenue is projected to ultimately exceed $2 million annually. However net revenues available to subsidize operation of the centers will be minimal in the early years. This LAO report has not considered the $2.8 million annual cost to operate and maintain the facility. Future maintenance costs are expected to exceed $1.3 million annually, utilities $1 million, and public safety $.5 million. It is important to consider that this site has not been previously operated as either an educational institution or commercial lease enterprise. The State has subsidized many of the tenants (other state entities or nonprofit organization service providers) through lower-than-market rents or in a few cases, practically rent free. Many of these leases have several years remaining and it is not known if the CSU will be able to renegotiate leases at market rents.

The leasehold revenues are paid on a monthly or quarterly basis, and in order to be used for capital purposes, will have to be accumulated over a period of time. Also, the success of the leasing program is dependent upon adequate infrastructure being in place, including electric and utilities, basic telecommunications, roadways, sidewalks, security, and lighting. Otherwise, the leaseholds will be devalued and revenue flows will be far less than anticipated or needed.

The LAO also apparently assumes that all lease negotiations now in any stage of discussion will be successfully completed at the full market value anticipated by DGS. This is not a reasonable assumption given both the current market and real-world experience.

Another issue not addressed in the LAO report is the type, age and condition of the facilities. Many of the vacant buildings are old and in poor condition. In addition, some of the buildings are designed for special purposes, such as the Central Kitchen, Residences, and Corporation Yard, and will not readily adapt for other uses or tenants.

It is the intent of the program plan that future renovations will ultimately be funded from lease revenue funds. The ability to generate income to provide future campus expansion is part of what makes this project unique and has been part of the CSU plan from the very beginning. However, it will take an initial outlay to make the buildings usable for instructional purposes, to put buildings and infrastructure into leasable condition, and to make the campus a safe place for our students, faculty, staff and tenants. Once the property is established in good marketable condition, it will be able to generate future income. It should be noted that the CSU Board of Trustees conditionally authorized the Chancellor to accept conveyance of the property with the provision that the $2.5 million be furnished by the State.

This is a unique opportunity to convert a stranded asset into a productive one that will benefit the people of Stockton and the State of California. Most of the leasehold agreements are predicated on the CSU coming into the facility. If the CSU does not take the property, it will be a stranded asset. It would be unfortunate not to take this cost effective opportunity for state taxpayers, considering that the cost of a fully operational new campus can approach $500 million.