RESULTS IN BRIEF
Community college districts (districts) are not accurately reporting the level of resources they dedicate to salaries for classroom instructors. Since 1961, state law has required that districts spend 50 percent of their current educational expenses on instructor salaries each year. By mandating this spending level, the Legislature hoped to reduce class size and increase the effectiveness of classroom instruction. However, districts are overstating their reported compliance rates. The districts are not correctly using the law's formula for calculating the percentage they spend on instructor salaries. Also, the districts' errors in determining compliance have gone unnoticed by the California Community Colleges Chancellor's Office (Chancellor's Office), whose weak oversight has failed to ensure that districts understand the law's requirements or that Certified Public Accountants (CPAs) who audit the districts receive and follow effective procedures for catching errors.
Although the Chancellor's Office records indicate that all 71 districts reported spending at least 50 percent of their current educational expenses on instructor salaries in fiscal year 1998-99, compliance rates for 6 of the 10 districts we visited fell below the 50 percent mark during this period. We estimate that, in total, the six districts spent $10 million too little on instructor salaries.
The 50 percent law specifies how districts should compute their compliance rates, which is to divide instructor salaries by current educational expenses, and defines the numerator and denominator of this equation. Districts should calculate instructor salaries using the salaries and fringe benefits of instructors teaching students and of instructional aides, and then reduce this figure by the portion of salaries and benefits for time instructors spend in noninstructional positions, such as department chairs. They are to compute current educational expenses as total expenditures-including employee salaries and benefits, utilities, and supplies-reduced by exclusions outlined in the law, such as costs for purchasing or leasing capital equipment. The reported compliance rate can be overstated by increasing instructor salaries or decreasing current educational expenses. In general, districts overreported their compliance rates in two ways:
Because regulations adopted by the Board of Governors allow districts to exclude certain noninstructional activities, districts have incorrectly reduced their current educational expenses for money spent on activities that the law does not exclude. The law specifically excludes expenditures for only three such activities-student transportation, food services, and community services. The Chancellor's Office argues that the regulations are correct because the Legislature intended to exclude all ancillary activities, including bookstore, child development, parking, and student housing operations. The law specifically describes the three excluded activities and does not include a general or "other" category for similar activities. Accordingly, the districts should include in their current educational expenses any payment from the unrestricted general fund that they use to subsidize these other activities. Increasing current educational expenses would further the Legislature's goal of providing more funding for instructional programs.
Ineffective oversight by the Chancellor's Office allows districts to misreport their compliance rates and does not ensure that they take corrective action. Beyond providing districts with its manual and one page of instructions for completing the compliance form, the Chancellor's Office gives little guidance or training to the districts on calculating their compliance with the 50 percent law. The Chancellor's Office relies primarily on district-hired CPAs to verify whether the districts reports are accurate, but because these CPAs use inadequate audit procedures developed by the Chancellor's Office, they fail to discover errors. Also, some CPAs even fail to demonstrate that they have completed the audit procedures from the Chancellor's Office. Since fiscal year 1993-94, the Chancellor's Office has not routinely inspected the CPAs' work to ensure that districts are complying with the 50 percent law. Unless the Chancellor's Office strengthens its audit procedures and begins monitoring the CPAs, districts will continue to report inaccurately the level of spending they devote to instructor salaries.
To ensure that districts are accurately reporting their compliance rate under the 50 percent law, the Chancellor's Office should take these steps:
The Chancellor's Office generally agrees with our recommendations, with the exception of our recommendation relating to the treatment of ancillary services. The Chancellor's Office disagrees with us on the treatment of ancillary services, but states that it will present this issue to the 50 percent law task force for consideration as part of any legislative proposal for changing the law. We also gave those districts falling below the 50 percent threshold an opportunity to respond to their specific findings. Their comments and our response begin at page 37.