SENATE COMMITTEE ON

Senator Anthony Portantino, Chair

2019 - 2020 Regular Session

AB 930 (Gloria) - California State University: executive compensation: campus budget quarterly reporting

Bill Summary:

This bill prohibits the California State University (CSU) from approving an increase in executive compensation in a year in which there is a tuition increase, requires a proposed increase in executive compensation or change to compensation policies or procedures to be included as an informational item on the Board of Trustees meeting agenda and voted on publicly in a subsequent meeting, and requires biennial reporting to compare the budgets of each campus to actual spending levels.

Fiscal Impact:

• The CSU estimates that this bill could result in additional General Fund costs ranging from $1.7 to $2 million each year for campuses across the system to comply with the bill’s reporting requirements. This estimate assumes that one new budget analyst position in the Chancellor’s Office and one new half-time senior budget analyst position at each campus would be required. This estimate also includes one-time start-up costs of about $200,000 for a committee to work through the changes in data requirements and training.
• The CSU also indicates that restrictions to compensation packages could result in more executive staff turnover, which could then lead to additional, unknown costs for separation, recruitment, and training.

Background:

Existing law establishes the CSU administered by the Board of Trustees, and confers upon the CSU Trustees the powers, duties, and functions with respect to the management, administration, and control of the CSU system. Existing law requires the CSU Trustees to take action in an open session on a proposal for the compensation package of the following executive officers, including a disclosure of the compensation package and rationale for the action: the CSU Chancellor, the president of an individual campus, a vice chancellor, the treasurer, the general counsel, and the Trustees’ secretary.

The California State Auditor released a report on June 20, 2019, titled California State University: It Failed to Fully Disclose Its $1.5 Billion Surplus, and It Has Not Adequately Invested in Alternatives to Costly Parking Facilities. According to this report, “CSU has accumulated a surplus of more than $1.5 billion, which consisted primarily of unspent tuition revenue. During the same decade that this surplus was growing, the annual tuition for students attending CSU campuses nearly doubled, and the State increased annual appropriations to CSU as a result of additional voter-approved taxes. Although the Chancellor’s Office considers CSU’s surplus to be necessary reserves that it has designated for specific purposes, the $1.5 billion in these outside accounts is available for CSU to spend at its discretion to support instruction and other operating costs. By failing to disclose this surplus when consulting with students about tuition increases or when projecting CSU’s resources and needs to the Legislature, the Chancellor’s Office has prevented legislators and students from evaluating CSU’s financial needs in light of its unspent financial resources.”

Proposed Law:

This bill prohibits an executive compensation increase from being approved in a year in which there is a tuition increase. Further, the bill prohibits a compensation increase, or a change to policies and procedures relating to executive compensation, from being adopted unless all of the following conditions, as applicable, are satisfied:

• 1. The proposed increase is included as an informational item on the Board of Trustees’ meeting agenda, including the amount of the increase, the course of funding for the increase, and the rationale for the increase.
     
  2. The proposed change to policies and procedures relating to executive compensation is included as an informational item on the Board of Trustees’ meeting agenda, including the source and rationale for the change.
     
  3. A proposed increase or change to policies and procedures is placed on the agenda at the next consecutive quarterly Board of Trustees meeting, and is subject to a public vote.
     

This bill requires the Chancellor to require each campus to annually prepare a comparison of the campus’ budget to actual spending levels, including a summary report of its expenditures of state appropriations received for the academic year. and each campus to submit two years of comparisons and summary reports to the Chancellor by January 15, 2022, and by January 15 biennially thereafter.

This bill requires the Chancellor to compile each of these campus-based reports, prepare a systemwide report, and submit the report to the Legislature and the Department of Finance by March 31, 2022, and by March 31 biennially thereafter.

Related Legislation:

AB 1317 (Salas, 2015) requested the Regents of the University of California (UC) to refrain from using public funds to increase the compensation of any executive officer when the amount of mandatory systemwide student fees and tuition has been increased at any time in the immediately preceding two years. AB 1317 was subsequently amended to relate to the Labor Code Private Attorneys General Act and was never heard in the Senate.

AB 837 (Hernández, 2015) prohibited the UC from paying any employees or officers a salary in excess of $500,000 in any fiscal year and requires reporting regarding employee salaries. AB 837 was held in the Assembly Appropriations Committee.

SB 967 (Yee, 2012) prohibited the CSU Trustees from increasing the monetary compensation of any executive officer for two years if there was a systemwide fee increase or a decrease in the General Fund appropriation in the immediate preceding fiscal year. SB 967 failed passage in the Senate Education Committee.

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SENATE COMMITTEE ON EDUCATION

Senator Connie Leyva, Chair

2019 - 2020 Regular

Bill No: Hearing Date: July 10, 2019

Subject: .

SUMMARY

This bill prohibits the California State University (CSU) from approving an increase in executive compensation in a year in which there is a tuition increase, requires a proposed increase in executive compensation or change to compensation policies or procedures to be included as an informational item on the Board of Trustees meeting agenda and voted on publicly in a subsequent meeting, and requires biennial reporting to compare the budgets of each campus to actual spending levels.

BACKGROUND

Existing law:

1. Establishes the CSU administered by the Board of Trustees, and confers upon the CSU Trustees the powers, duties, and functions with respect to the management, administration, and control of the CSU system. (Education Code § 66606 and § 89030, et seq.)
2. Requires the CSU Trustees to take action in open session on a proposal for the compensation package of the following executive officers, including a disclosure of the compensation package and rationale for the action:
   1. The CSU Chancellor.
   2. The president of an individual campus.
   3. A vice chancellor.
   4. The treasurer.
   5. The general counsel.
   6. The Trustees’ secretary. (EC § 66602.7)

ANALYSIS

This bill:

Increase in compensation or change to policies and procedures

1. Prohibits an executive compensation increase from being approved in a year in which there is a tuition increase.
   
2. Prohibits a compensation increase, or a change to policies and procedures relating to executive compensation, from being adopted unless all of the following conditions, as applicable, are satisfied:
   
   1. The proposed increase is included as an informational item on the Board of Trustees’ meeting agenda, including the amount of the increase, the course of funding for the increase, and the rationale for the increase.
      
   2. The proposed change to policies and procedures relating to executive compensation is included as an informational item on the Board of Trustees’ meeting agenda, including the source and rationale for the change.
      
   3. A proposed increase or change to policies and procedures is placed on the agenda at the next consecutive quarterly Board of Trustees meeting, and is subject to a public vote.
      

Reporting

1. Requires the Office of the Chancellor of the CSU to require each campus to annually prepare a comparison of the campus’ budget to is actual spending levels, including a summary report of its expenditures of state appropriations received for the academic year.
   
2. Requires each campus to submit two years of comparisons and summary reports to the Chancellor’s office by January 15, 2022, and by January 15 biennially thereafter.
   
3. Requires the Chancellor’s office to compile each of these campus-based reports, prepare a systemwide report, and submit the report to the Legislature and the Department of Finance by March 31, 2022, and by March 31 biennially thereafter.

STAFF COMMENTS

1. Need for the bill. According to the author, “This bill would promote college affordability by prohibiting the CSU Board of Trustees (BOT) from increasing executive compensation in years when student tuition is increased. The BOT voted to increase tuition by five percent for the 2017-18 fiscal year. Additionally, in July 2018, the BOT voted to increase salaries for presidents by three percent, despite the Governor’s urge to reject the augmentations. The proposal included 10 to 31 percent increases in salaries to some highly paid executives. This accounted for individual raises of several tens of thousands to one hundred thousand dollars. Public higher education institutions went through multiple and massive budget cuts during the 2008-12 era of global economic recession. During that time, the Legislature slashed the CSU budget extensively and as a result, a large portion of the financial burden fell on students. Since then, the CSU has continued to increase the cost of tuition, regardless of economic recovery, without ever reversing the previous drastic increases.”
   
2. How is executive compensation determined? As described in the background section of this analysis, the CSU Trustees have the powers, duties, and functions with respect to the management, administration, and control of the CSU system. Although it is currently the purview of the CSU Trustees to set the compensation levels for executive personnel, such levels typically reflect compensation levels paid at comparable institutions nationwide. According to information provided by CSU, it groups its campuses into three separate groups, with each group having its own set of comparative institutions. Additionally, executives in the Chancellor’s Office are in their own group, with its own comparative institutions. Is the national marketplace the best standard for this purpose? Does comparative survey methodology assess the value of benefits or perquisites (perks)?
   
   The CSU maintains a Policy on Compensation and updates this policy periodically. The most recent iteration of this policy was adopted by the CSU Trustees on September 20, 2017. This policy states that, among other things, “it is the intent of the Board of Trustees to compensate all CSU employees in a manner that is fair, reasonable, competitive, and fiscally prudent in respect to system budget and state funding. The goal of the CSU continues to be to attract, motivate, and retain the most highly qualified individuals to serve as faculty, staff, and executives, whose knowledge, experience, and contributions can advance the university’s mission. … The CSU will consistently evaluate competitive and fair compensation for all employees based on periodic market comparison surveys and the depth of skill and experience of an individual employee. In addition, the CSU will maintain and update annually a tiered list of CSU comparison institutions for applicable employee groups. … When a presidential vacancy occurs, the successor president’s salary should not exceed the incumbent’s salary by more than 10 percent. Any amount in excess of the incumbent’s salary shall be based upon criteria such as extraordinary circumstances, knowledge and/or experience or ability to contribute to and advance the university’s mission. Additionally, as of January 1, 2018, a president’s salary can only be funded with state funds.”
   
3. Increases in executive compensation. According to CSU Executive Compensation Summaries provided on CSU’s website, which are a “snapshot in time,” executive compensation over the past few years is as follows:

In March 2019, the highest paid campus president (San Diego) had a salary of $441,504 with housing provided; the lowest paid campus president (Maritime Academy) had a salary of $282,839 with housing provided.

According to the salary summaries, the salary of every campus president increased in 2019 and 2017; four campus presidents had a salary increase in 2018; no campus president had a salary increase in 2016.

1. Why just executives, and who are they? This bill affects the compensation for select executives, which are the Chancellor of the CSU, the presidents at each campus, vice chancellors, the treasurer, the general counsel, and the Trustees’ secretary. This appears to account for a total of 30 positions. There are numerous assistant or associate vice chancellors, for example, who would not be affected by this bill. According to information provided by CSU these 30 positions are not all of the highest paid CSU employees (compensated with state funds). For example, the fourth highest-paid person is the men’s basketball coach at CSU Northridge ($399,996 annually). The CSU Trustees make the decision about tuition levels, yet are not affected by this bill (other than the CSU Chancellor) as they are not compensated. Is the issue high salaries, or which CSU employees are receiving those salaries? Should athletic coaches be prohibited from receiving a salary increase in any year in which tuition is increased?
   
2. How are tuition levels determined? The CSU Trustees set the mandatory enrollment student tuition levels. However, this appears to be more administrative rather than an executive function. Specifically, the level of tuition at CSU has a direct correlation to the Budget process, in which both the Governor and Legislature play a significant role. It does not appear that CSU has adopted a tuition level that differed from the one assumed by the Legislature and Governor as part of the annual Budget Act. Is it reasonable to tie executive compensation to an index (student tuition) that is, in essence, set by the Legislature and Governor? Should executives receive salary increases when student tuition increases, regardless of the nexus?
   
3. Past tuition increases. The CSU last increased tuition in fiscal year 2017-18, from $5,472 to $5,742 (a 5 percent increase). The rationale provided by the CSU for this tuition increase was to support the services and programs associated with CSU’s Graduation Initiative 2025, among other things.
   
   Tuition was not increased in fiscal years 2012-13 through 2016-17. The state’s General Fund contribution to CSU increased by about 60 percent, from roughly $2 billion to $3.2 billion, during these years.
   
   Tuition increased in the following recent fiscal years:
   
   1. From $4,440 to $5,472 (23 percent increase) in 2011-12.
      
   2. From $4,026 to $4,440 (10 percent increase) in 2010-11.
      
   3. From $3,048 to $4,026 (32 percent increase) in 2009-10.
      
   4. From $2,772 to $3,048 (10 percent increase) 2008-09.
      

State funding for CSU declined during these fiscal years because of the economic downturn, and CSU increased tuition to offset reductions in state support. Has CSU allocated funds derived from student tuition appropriately (see Comment # 9)?

1. Infrequent but larger tuition increases? The Maddy-Dills Act previously required fees to be: (1) gradual; moderate and predictable; (2) limited fee increases to not more than 10 percent a year, and (3) fixed at least ten months prior to the fall term in which they were to become effective. The policy also required sufficient financial aid to offset fee increases. However, even with this policy, when the state faced serious budgetary challenges the statute was "in-lieued" in order to provide the institutions some flexibility in dealing with the lack of state General Fund support. The Maddy-Dills Act sunset in 1996 and since then, the state has had no long-term policy regarding the way in which mandatory student fees are determined. Although the state currently has no student fee policy, prior policy was predicated on the philosophy that student fee increases be gradual, moderate, and predictable. Could this bill have the opposite effect, whereby student tuition remains the same for several years -- thereby allowing annual compensation increases in each of those years -- and then be increased by a substantial amount in a single year?
   
2. Is this the right solution? This bill would eliminate the discretion of the CSU Trustees to determine appropriate compensation for specified executive level positions by placing compensation restrictions in statute rather than leaving these decisions to the CSU Board of Trustees. As currently drafted, the bill raises a number of questions:
   
   1. The tuition levels set by the CSU are historically tied to the funding decisions made in the annual Budget Act by the Legislature and the Governor. Should the discretion of the CSU Trustees to identify and compensate appropriate leadership be tied to budget related decisions of the Legislature and the Governor, factors which they do not control?
      
   2. Should tuition levels be the controlling basis upon which compensation decisions are made? How do tuition levels link to the management and leadership needs of the CSU?
      
   3. Will these provisions affect CSU’s ability to attract and/or retain the caliber of professionals necessary to fill these positions?
      
3. Prior informational hearings. In July 2011, the CSU approved an increase in tuition while it also approved a salary for the incoming president of San Diego State that was $100,000 above the prior president’s salary. In response, several bills were introduced at the end of the legislative session to statutorily implement conditions and limitations on the compensation paid to university executives. As a result, this Committee held an informational hearing on Executive Compensation Policy and Practices at the University of California (UC) and the CSU on September 28, 2011, to more thoughtfully consider this issue. Among the items raised by this Committee were concerns about the appropriateness of the comparison institutions used for setting salaries, whether the definition of compensation being used to determine “comparability” to other institutions was broad enough to capture non-salary benefits, and whether the compensation being paid to executives was tied to any outcomes relative to the state’s goals and objectives for its four year universities. https://sedn.senate.ca.gov/hearings
   
   In 2006 and 2007, this Committee held several hearings on the subject of UC and CSU executive compensation. These hearings largely focused on the issues of transparency, accountability and adherence to stated policies.
4. Why just CSU? Issues related to executive compensation and tuition are not unique to the CSU. Prior legislative attempts to regulate executive compensation have addressed other or all three segments of public postsecondary education.
   
5. Recent state audit. The California State Auditor released a report on June 20, 2019, titled California State University: It Failed to Fully Disclose Its $1.5 Billion Surplus, and It Has Not Adequately Invested in Alternatives to Costly Parking Facilities. According to this report, “CSU has accumulated a surplus of more than $1.5 billion, which consisted primarily of unspent tuition revenue. During the same decade that this surplus was growing, the annual tuition for students attending CSU campuses nearly doubled, and the State increased annual appropriations to CSU as a result of additional voter-approved taxes. Although the Chancellor’s Office considers CSU’s surplus to be necessary reserves that it has designated for specific purposes, the $1.5 billion in these outside accounts is available for CSU to spend at its discretion to support instruction and other operating costs. By failing to disclose this surplus when consulting with students about tuition increases or when projecting CSU’s resources and needs to the Legislature, the Chancellor’s Office has prevented legislators and students from evaluating CSU’s financial needs in light of its unspent financial resources.”
   
   CSU Chancellor Timothy P. White issued a statement in response, a portion of which reads:
   

“The California State University is transparent in its financial operations, and detailed information about monies held by the university is readily available for review by Californians and our state’s lawmakers. We have gone to great lengths to publicly report information about investment balances, net assets and reserves.

“We are disappointed that the audit report misrepresents CSU practices, concerned that it might mislead the public, and are perplexed that the report’s recommendations are so disconnected from the language used in the headline.

“The report’s incorrect claim that the CSU failed to fully inform its stakeholders about fund balances overlooks dozens of presentations of publicly available reports that included information about these funds.

“To be clear, the auditors did find that the CSU has established appropriate practices to safeguard the university’s outside accounts and in fact suggests that the CSU ‘should establish minimum sufficient level of reserve levels for economic uncertainty.’ Additionally campuses are spending parking fines and revenue appropriately, and the earnings from parking revenue investments was disbursed appropriately.

“However, the audit report’s reference to a ‘discretionary surplus’ mischaracterizes the essential role that these reserve funds play. It is irresponsible to imply that these one-time funds could have been used in lieu of ongoing revenue sources, such as state funding or student tuition, for on-going costs. Reserve funds are like a family savings account or the much acclaimed state of California’s Rainy Day Fund which is built up gradually over time and used to pay for one-time necessary expenses or protect against uncertainties – not ongoing expenses today.

“CSU’s reserve policy encourages campuses to build operating reserves to deal with cyclical state recessions and to support year-to-year operations. The reserve policy target for economic uncertainties is five to six months of operating costs. Bond rating agencies Moody's, Standard & Poor's and Fitch periodically assess reserves when evaluating CSU’s debt program. Operating reserves also improve the university’s debt-to-equity ratio, which is one of the key measures of financial viability, and contribute to CSU’s relatively high bond ratings resulting in lower borrowing costs.”

The Auditor refutes many issues addressed in the Chancellor’s response. https://www.auditor.ca.gov/pdfs/reports/2018-127.pdf

1. Fiscal impact. According to the Assembly Appropriations Committee, this bill would impose ongoing General Fund cost pressures, likely in the hundreds of thousands of dollars annually, to CSU campuses and the CSU to report information as required by this bill.
   
2. Prior legislation. AB 1317 (Salas, 2015) requested the Regents of the University of California (UC) to refrain from using public funds to increase the compensation of any executive officer when the amount of mandatory systemwide student fees and tuition has been increased at any time in the immediately preceding two years. AB 1317 was subsequently amended to relate to the Labor Code Private Attorneys General Act and was never heard in the Senate.
   
   AB 837 (Hernández, 2015) prohibited the UC from paying any employees or officers a salary in excess of $500,000 in any fiscal year and requires reporting regarding employee salaries. AB 837 was held in the Assembly Appropriations Committee.
   
   SB 8 (Yee, 2013) established conditions on granting executive compensation increases by CSU for any employment contract after January 1, 2014; the UC was requested to comply with these provisions. SB 8 was never heard.
   
   AB 1561 (Hernández, 2012) limited compensation increases for certain executive-level positions at UC and CSU. AB 1561 was held in the Assembly Appropriations Committee.
   
   AB 1684 (Eng, 2012) limited the pay of California Community College Chancellors to no more than twice the highest faculty member salary. AB 1684 was held in the Assembly Appropriations Committee.
   
   SB 952 (Alquist, 2012) prohibited the CSU Trustees from entering into, or renewing, a contract that provides for a compensation increase for a CSU employee whose annual salary exceeds $200,000 from General Fund sources and student fee revenues. SB 952 was held in the Assembly Appropriations Committee.
   
   SB 967 (Yee, 2012) prohibited the CSU Trustees from increasing the monetary compensation of any executive officer for two years if there was a systemwide fee increase or a decrease in the General Fund appropriation in the immediate preceding fiscal year. SB 967 failed passage in this Committee.
   
   SB 1368 (Anderson, 2012) limited the annual rate of salary of a state officer or employee to the annual salary authorized to be received by the Governor. SB 1368 failed passage in the Senate Governmental Organization Committee.
   
   ABx1 39 (Hernández, 2011) was substantially similar to SB 967. ABx1 39 was never heard.
   
   SB 217 (Yee, 2009) and SB 86 (Yee, 2009) were similar to SB 967. SB 217 was held in the Assembly Appropriations Committee, and SB 86 was vetoed by Governor Schwarzenegger whose veto message read:

This bill would limit the ability of the UC and the CSU to continue to provide a high level of quality education that our students deserve when they choose to attend California public universities. A blanket prohibition limiting the flexibility for the UC and CSU to compete, both nationally and internationally, in attracting and retaining high level personnel does a disservice to those students seeking the kind of quality education that our higher education segments offer. The Regents and the Trustees should be prudent in managing their systems, given the difficult fiscal crisis we face as a state, but it is unnecessary for the State to micromanage their operations.

SUPPORT

California Faculty Association (sponsor)

California State Student Association

Fresno State Associated Students, Inc.

Howard Jarvis Taxpayers Association

Service Employees International Union (SEIU California)

United Auto Workers (UAW) 2865

OPPOSITION

California Chamber of Commerce

California State University

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ASSEMBLY THIRD READING

ATR Bill Id:AB 930

Author:(Gloria)

As Amended Ver:May 16, 2019

Majority vote

SUMMARY:

Requires the California State University (CSU) Board of Trustees, for any proposed increase to the compensation of specified CSU executive officers, or change to the policies and procedures relating to the compensation of CSU executive officers, that the Trustees include the proposed increase, or change to policies and procedures, and related information as an informational item on a meeting agenda, with a public vote at a subsequent, consecutive, quarterly meeting; prohibits an increase of compensation for an executive officer in a year in which tuition is increased; and, requires the CSU Office of the Chancellor to provide a report biennially to the Legislature on the annual spending levels of each campus, as specified.

Major Provisions

1. Prohibits the CSU Trustees from adopting a compensation increase, or a change to policies and procedures relating to executive compensation, unless all of the following conditions, as applicable, are satisfied:
   1. The proposed increase is included as an informational item on the CSU Trustees' meeting agenda, including the amount of the increase, the source of funding for the increase, and the rationale for the increase;
   2. The proposed change to policies and procedures relating to executive compensation is included as an informational item on the board's meeting agenda, including the source and rationale for the change; and,
   3. An increase proposed, or change to policies and procedures, is placed on the agenda at the next consecutive quarterly CSU Trustees meeting, and is subject to a public vote.
2. Prohibits the CSU Trustees from approving an executive compensation increase in a year in which there is a tuition increase.

COMMENTS:

Purpose. During the last recession (circa 2008-12), the Legislature was forced to make challenging budget cuts to the CSU (and other postsecondary institutions of higher learning).

According to information provided by the author, "The CSU has continued to increase the cost of tuition, regardless of economic recovery, without ever reversing the previous drastic increases". Through fiscal years 2007-08 to 2011-12, student tuition increased by 97%. Respectively, a full-time CSU undergraduate on average, went from paying $2,772 per academic year for tuition, to paying $5,472. The author notes that, "In 2018, tuition went up even further to $5,742".

Executive compensation policy at CSU. The CSU Trustees, on September 20, 2017, adopted the newest CSU policy on compensation. This policy, in part, specifies that it is the intent of the CSU Trustees to compensate all CSU employees in a manner that is fair, reasonable, competitive, and fiscally prudent in respect to system budget and state funding. Additionally, the policy states that, "The CSU will adhere to compensation practices that are fair and equitable in design, application, and delivery". Further, the policy stipulates that the compensation system for the CSU shall be administered in a manner that complies with all applicable federal, state, and local regulations and laws, and be consistent with applicable administrative policies, rules, and collective bargaining agreements. Lastly, the policy stipulates that when a presidential vacancy occurs, the successor president's salary should not exceed the incumbent's salary by more than 10%.

Please refer to the Assembly Committee on Higher Education policy analysis for further discussion.

According to the Author:

"While executive compensation remained relatively flat during that same recession era, since then, it has increased. For example in 2007, the average salary of a CSU Campus President was $295,000 and as of 2018, it went up to $333,000. During this timeframe, tuition has gone up by $2,970 while annual executive compensation has gone up by $38,000. As the cost of tuition has continued to go up, so have executive compensation packages."

Arguments in Support:

According to the sponsors of this measure, the California Faculty Association (CFA), just as the Legislature adheres to rules that prohibit committee action until bills have been in print for 30 days (shy of the Budget Bill), the CSU Board of Trustees should not be allowed to vote on executive compensation pay increases until after the public is made aware of the potential increases and has opportunity to comment during public hearing. Further, CFA states, "This bill does not obstruct the Board of Trustees' ability to vote on executive compensation pay packages. This bill simply grants a window of time for the public to provide comment". Lastly, CFA argues that, "It is imperative that an autonomous Board, like the CSU Board of Trustees, which oversees such a vast amount of taxpayer and student dollars, have at least similar accountability and transparency measures in place as required for the Legislature".

Arguments in Opposition:

According to the CSU, "AB 930 statutorily connects two unrelated items [prohibiting the Trustees from increasing compensation for executives of the CSU in a year when tuition has been increased and establishing a quarterly budget reporting process, as well as a new annual systemwide reporting requirement] and ultimately undermines the Board's ability to act in the best interest of the CSU system and its employees". The CSU notes that only one time (within the past six years) has the Board of Trustees authorized a tuition increase, which was specifically designated for tuition revenue in order to further support student success. Further, the CSU contends that with no tuition increase planned for 2019-20, "It is unclear why it is necessary to statutorily restrict the Board of Trustees' authority". Lastly, CSU argues that, "AB 930 requires unnecessary and duplicative reporting as the Legislature already has significant oversight of the CSU's budget and our use of state resources via the annual budget process".

FISCAL COMMENTS:

According to the Assembly Appropriations Committee, ongoing General Fund cost pressures, likely in the hundreds of thousands of dollars annually, to CSU campuses and the CSU to report information as required by this bill.

VOTES:

ASM HIGHER EDUCATION: 9-1-2

YES: Medina, Choi, Quirk, Bloom, Irwin, Kiley, Low, Santiago, Weber

NO: Levine

ABS, ABST OR NV: Gabriel, Patterson

ASM APPROPRIATIONS: 17-0-1

YES: Gonzalez, Bigelow, Bloom, Bonta, Brough, Calderon, Carrillo, Chau, Diep, Eggman, Fong, Eduardo Garcia, Maienschein, Obernolte, Petrie-Norris, Quirk, Robert Rivas

ABS, ABST OR NV: Gabriel

UPDATED:

VERSION: May 16, 2019

CONSULTANT: Jeanice Warden / HIGHER ED. / (916) 319-3960 FN: 0000816

Date of Hearing: May 8, 2019

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

ABPCA Bill Id:AB 930

Author:(Gloria) – As Amended Ver:April 24, 2019

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill prohibits the California State University (CSU) board of trustees from increasing executive compensation or changing policies and procedures related to executive compensation, unless (a) the proposed increase or change to policies and procedures are included as an informational item on the board’s meeting agenda with related information and (b) the increase or change to policies and procedures is placed on the agenda at the next board meeting and is subject to a public vote. In addition, the bill stipulates that an executive compensation increase shall not be approved in a year in which the CSU increases student tuition.

This bill also requires the CSU chancellor’s office to require each campus to prepare and report quarterly comparisons of the campus’s budget to its actual spending level. In addition, it requires each CSU campus to prepare a summary report of its expenditures of state appropriation received for the academic year and submit the report annually to the chancellor’s office beginning January 15, 2021. Thereafter, the chancellor’s office shall compile each of the campus reports and prepare a systemwide report to submit to the Legislature annually, beginning March 31, 2021.

FISCAL EFFECT:

Ongoing General Fund cost pressures, likely in the hundreds of thousands of dollars annually, to CSU campuses and the CSU to report information as required by this bill. This assumes each of the CSU’s 23 campuses would need a portion of a staff member to report to the CSU and assumes a staff member at CSU to compile and report data. Campuses already were directed by CSU to collect information related to campuses budgets and spending levels in 2017. Assuming per-campus costs ranging from $10,000 to $20,000, systemwide costs between $230,000 and $460,000.

COMMENTS:

1. 2017 Audit Related to Campus Budgets. A 2017 audit performed by the California State Auditor found CSU campuses do not adequately oversee their budgets. Consequently, the state auditor made recommendations that the CSU chancellor’s office “require campuses to develop and implement budget oversight policies that define minimum level and frequency of reviews that budget managers are required to perform, including the periodic comparison of budgets to actual spending levels.” In October 2017, the Chancellor's Office issued additional guidance regarding best practices for campus budget oversight. The auditor has since indicated the issue was resolved.

This bill requires campuses to report this information and the CSU chancellor’s office to compile and report the information.

1. Comments. The CSU indicates restrictions to compensation packages could result in more executive staff turnover, which could result in costs to recruit and train new staff.

Analysis Prepared by: Natasha Collins / APPR. / (916) 319-2081

Date of Hearing: April 23, 2019

ASSEMBLY COMMITTEE ON HIGHER EDUCATION

Jose Medina, Chair

ABPCA Bill Id:AB 930 (

Author:Gloria) – As Amended Ver:April 2, 2019

SUBJECT: California State University: executive compensation: campus budget quarterly reporting.

SUMMARY: Requires the California State University (CSU) Board of Trustees, for any proposed increase to the compensation of specified CSU executive officers, or change to the policies and procedures relating to the compensation of CSU executive officers, that the Trustees include the proposed increase, or change to policies and procedures, and related information as an informational item on a meeting agenda, with a public vote at a subsequent, consecutive, quarterly meeting; prohibits an increase of compensation for an executive officer in a year in which tuition is increased; and, requires the CSU Office of the Chancellor to report to the Legislature on the quarterly spending levels of each campus, as specified. Specifically, this bill:

1. Prohibits the CSU Trustees from adopting a compensation increase, or a change to policies and procedures relating to executive compensation, unless all of the following conditions, as applicable, are satisfied:
   1. The proposed increase is included as an informational item on the CSU Trustees’ meeting agenda, including the amount of the increase, the source of funding for the increase, and the rationale for the increase;
   2. The proposed change to policies and procedures relating to executive compensation is included as an informational item on the board’s meeting agenda, including the source and rationale for the change; and,
   3. An increase proposed, or change to policies and procedures, is placed on the agenda at the next consecutive quarterly CSU Trustees meeting, and is subject to a public vote.
2. Prohibits the CSU Trustees from approving an executive compensation increase in a year in which there is a tuition increase.
3. Requires the CSU Office of the Chancellor to require each campus to prepare and report quarterly comparisons of the campus’ budget to its actual spending levels.
4. Requires each campus to prepare a summary report of its expenditures of state appropriations received for the academic year and submit it to the CSU Office of the Chancellor on or before January 15, 2021, and on or before January 15 of each year thereafter.
5. Requires the CSU Chancellor’s Office to compile each of campus-based reports, per (3) and (4) above, and prepare a systemwide report.
6. Requires the CSU Chancellor’s Office submit the systemwide report, per (5) above, to the Legislature, and the Department of Finance on or before March 31, 2021, and on or before March 31 of each year thereafter.

EXISTING LAW:

1. Establishes the CSU administered by the Board of Trustees, and confers upon the CSU Trustees the powers, duties, and functions with respect to the management, administration, and control of the CSU system (Education Code (EC) Sections 66606 and 89030, et seq.).
2. Requires the CSU Trustees to take action in open session on an executive compensation proposal concerning the CSU Chancellor, the president of an individual campus, a vice chancellor, the treasurer, the assistant treasurer, the general counsel, or the Trustees’ secretary (EC Section 66602.7).
3. Requires meetings of state bodies, including the CSU, to be open and public (Bagley-Keene, Government Code Section. 11120).

FISCAL EFFECT: Unknown

COMMENTS: Purpose. During the last recession (circa 2008-12), the Legislature was forced to make challenging budget cuts to the CSU (and other postsecondary institutions of higher learning).

According to information provided by the author, “The CSU has continued to increase the cost of tuition, regardless of economic recovery, without ever reversing the previous drastic increases”. Through fiscal years 2007-08 to 2011-12, student tuition increased by 97%. Respectively, a full-time CSU undergraduate on average, went from paying $2,772 per academic year for tuition, to paying $5,472. The author notes that, “In 2018, tuition went up even further to $5,742”.

The author states, “While executive compensation remained relatively flat during that same recession era, since then, it has increased. For example in 2007, the average salary of a CSU Campus President was $295,000 and as of 2018, it went up to $333,000. During this timeframe, tuition has gone up by $2,970 while annual executive compensation has gone up by $38,000. As the cost of tuition has continued to go up, so have executive compensation packages”.

This measure seeks to prohibit CSU Trustees from approving executive pay increases during years CSU increases student tuition. Additionally, the measure requires that any executive pay increase must be placed on the CSU Trustees board agenda as an initial information item with a subsequent vote on executive compensation to take place at another board meeting within the same quarter. Finally, this measure requires each of the 23 CSU campuses to submit quarterly budget comparison reports to the CSU Chancellor’s Office.

Executive compensation policy at CSU. The CSU Trustees, on September 20, 2017, adopted the newest CSU policy on compensation. This policy, in part, specifies that it is the intent of the CSU Trustees to compensate all CSU employees in a manner that is fair, reasonable, competitive, and fiscally prudent in respect to system budget and state funding. Additionally, the policy states that, “The CSU will adhere to compensation practices that are fair and equitable in design, application, and delivery”. Further, the policy stipulates that the compensation system for the CSU shall be administered in a manner that complies with all applicable federal, state, and local regulations and laws, and be consistent with applicable administrative policies, rules, and collective bargaining agreements. Lastly, the policy stipulates that when a presidential vacancy occurs, the successor president’s salary should not exceed the incumbent’s salary by more than 10%.

Arguments in support. According to the sponsors of this measure, the California Faculty Association (CFA), just as the Legislature adheres to rules that prohibit committee action until bills have been in print for 30 days (shy of the Budget Bill), the CSU Board of Trustees should not be allowed to vote on executive compensation pay increases until after the public is made aware of the potential increases and has opportunity to comment during public hearing. Further, CFA states, “This bill does not obstruct the Board of Trustees’ ability to vote on executive compensation pay packages. This bill simply grants a window of time for the public to provide comment”. Lastly, CFA argues that, “It is imperative that an autonomous Board, like the CSU Board of Trustees, which oversees such a vast amount of taxpayer and student dollars, have at least similar accountability and transparency measures in place as required for the Legislature”.

Arguments in opposition. According to the CSU, “AB 930 statutorily connects two unrelated items [prohibiting the Trustees from increasing compensation for executives of the CSU in a year when tuition has been increased and establishing a quarterly budget reporting process, as well as a new annual systemwide reporting requirement] and ultimately undermines the Board’s ability to act in the best interest of the CSU system and its employees”. The CSU notes that only one time (within the past six years) has the Board of Trustees authorized a tuition increase, which was specifically designated for tuition revenue in order to further support student success. Further, the CSU contends that with no tuition increase planned for 2019-20, “It is unclear why it is necessary to statutorily restrict the Board of Trustees’ authority”. Lastly, CSU argues that, “AB 930 requires unnecessary and duplicative reporting as the Legislature already has significant oversight of the CSU’s budget and our use of state resources via the annual budget process”.

Committee comments. Taking away authority of CSU Board of Trustees? As presently drafted, this measure prohibits CSU Trustees from approving executive pay increases during years CSU increases student tuition. Additionally, the measure requires that any executive pay increase must be placed on the CSU Trustees board agenda as an initial information item with a subsequent vote on executive compensation to take place at another board meeting within the same quarter.

As described in the “existing law” section of this analysis, the CSU Trustees have the powers, duties, and functions with respect to the management, administration, and control of the CSU system.

The Committee may wish to consider if this measure restricts some of the authority of the Trustees.

Quarterly reports? As currently drafted, this measure requires each of the 23 CSU campuses to submit quarterly budget comparison reports to the CSU Chancellor’s Office. The measure also requires the CSU Chancellor’s Office to compile the quarterly reports and annually submit a systemwide report to the Legislature and the Department of Finance in perpetuity.

It is presently unclear as to why each campus would need to submit four detailed comparison reports to the Chancellor’s Office and the Chancellor’s Office submit a systemwide report annually. Committee Staff understands that the CSU already submits over 20 different mandated reports to the Legislature; most, if not all, due to the Budget Act requirements.

Moving forward, the author may wish to delete the provision of this measure requiring quarterly reports. If the author does not delete said provision; the author may wish to reduce the number of times each campus of the CSU must provide its budget comparison report to the Chancellor’s Office. Further, the author may wish to amend the frequency of the CSU Chancellor’s Office providing annual reports to the Legislature and the Department of Finance. That is to say, perhaps the author may wish to examine the CSU Chancellor’s Office submitting the report biennially or even triennially. The author may also wish to determine if there is an added benefit of the CSU Chancellor’s Office submitting this report in perpetuity to the Legislature and the Department of Finance.

Existing employees vs. new hires? The way the measure is currently drafted, it is unclear if the prohibition to vote on executive compensation pay increases without first having an informational hearing and then a subsequent hearing for a vote, applies only to existing employees, or potential new employees. Committee Staff understands that if the intent of the author is to include new hires; including new hires could pose a breach in confidentially as the CSU Trustees negotiate with the new hires and before it may be appropriate to announce the newly hired executive.

Moving forward, the author may wish to clarify that the intent of this measure is only for existing employees and not new hires. Or, if the author’s intent is to include new hires; the author may wish to exempt new hires from this process.

Prior legislation. SB 217 (Yee) of 2009, which was held on the Assembly Appropriations Suspense File, in part, prohibited the CSU Trustees from increasing the monetary compensation or approving payment of a bonus for any executive officer in any year in which the amount of General Fund monies appropriated to CSU was less than or equal to the amount appropriated in the immediately preceding fiscal year.

SB 190 (Yee), Chapter 523, Statutes of 2007, created the Higher Education Governance Accountability Act, which, in part, required that actions on executive compensation, as specified, occur in open, public meetings.

REGISTERED SUPPORT / OPPOSITION:

Support

California Faculty Association
California State Council of Service Employees

California State Student Association
Howard Jarvis Taxpayers Association

459 Individuals

Opposition

California Chamber of Commerce
California State University

Analysis Prepared by: Jeanice Warden / HIGHER ED. / (916) 319-3960