With the implementation of California Gov. Gavin Newsom’s free tuition plan, community colleges are likely to be called on to play a bigger role in educating the state’s future workforce. Gov. Newsom’s plan offers free community college tuition to recent graduates of California high schools who are first-time students enrolled in at least 12 units per semester. Unfortunately, many of California’s community colleges are in debt and lack the fiscal fitness needed to serve larger numbers of students.
According to a Reason Foundation analysis of 2018 audited financial reports, California community college districts face total non-current liabilities of $36 billion, an average of roughly $500 million per district. These non-current liabilities include unfunded pension liabilities, unfunded retiree health benefits, and bonds that must be repaid. Approximately $2.7 billion of the unfunded liabilities are other post-employment benefits (OPEB) liabilities, with health care benefits being the largest part of that.
Of the state’s 73 districts, Los Angeles Community College District (LACCD) has the most non-current liabilities: $5.68 billion. LACCD is also the state’s largest district based on the number of full-time equivalent students (FTES). But even on a per-student basis, LACCD is deeply in debt with $59,308 of non-current liabilities per FTES, the fourth-highest per-student debt in California.
LACCD’s heavy financial burden is exacerbated by its meagerly funded plan for other post-employment benefits — primarily health care — promised to workers as well as its rising pension contributions. LACCD is among the lowest 15 community college districts in the state when it comes to pre-funding other post-employment benefit liabilities. The district has funded little more than 14 percent of the OPEBs promised to its workers and retirees. According to the district’s 2018 audited financial report, its contributions to CalPERS and CalSTRS are set to increase from $63 million in 2018 to $90 million by 2022, an increase of 42.86 percent.
San Diego Community College District has the second most unfunded liabilities — $1.87 billion in total, $41,648 per full-time student equivalent. And Coast Community College District in Orange County has the third most noncurrent liabilities — $1.16 billion in total, $30,914 per full-time student.
For Orange County as a whole, there is good news and bad news. The bad news is aggregate non-current liabilities for Coast Community College District, North Orange County Community College District, Rancho Santiago Community College District, and South Orange County Community College District are $2.67 billion. The relatively good news is that the figure is $3 billion less than the non-current liabilities for LACCD’s nine colleges. In total, Orange County community college districts had $19,532 in unfunded liabilities per FTES in 2018, close to $40,000 less than LACCD on a per full-time student basis.
Of those districts, South Orange County Community College District stands out for being in the best financial shape. As of its 2018 financial report, the district had no bonded debt, and at $8,305 it ranked third among districts with the lowest non-current liabilities per FTES. Its OPEB plan was fully funded.
Statewide, bonded debt accounts for the lion’s share of non-current liabilities. The other major drivers are unfunded pension and OPEB liabilities. Compensated absences, workers’ compensation, and claims liabilities make much smaller contributions to the total. To deal with this long-term debt challenge, the state’s community colleges are going to need to address the sustainability of pension and other post-employment benefits. They should also avoid the temptation to take on more debt to accommodate potential growth in student populations.
With the free tuition plan, California’s community colleges may be facing a situation in which an increase of students would require them to fund a greater number of student services at the same time their retirement obligations are skyrocketing.
This column originally appeared in the Orange County Register.