Student Services Categorical programs have two questions regarding the funds that may be used to pay retroactive salary increases.

Question 1:

Can current year categorical funds be encumbered in anticipation of potential salary increases resulting from collective bargaining agreements reached after the end of the fiscal year?

Background:

Funds provided for categorical programs through the State Budget must be spent in the budget year in which they were allocated. Student Services has been consistent in informing college that categorical funds may not be encumbered to cover potential retroactive salary increases if the collective bargaining agreements have not been settled by the end of the fiscal year.

The Chancellor’s Office has issued various letters in regards to this issue in the past. See references below.

Question 2:

If collective bargaining agreements are settled after the beginning of the fiscal year, can current year categorical funds be used to retroactively pay salary increases for the prior fiscal year?

Background:

Historically, the position taken by Student Services based on the intent of budget act language for the categorical programs (EOPS/CARE, DSP&S, Financial Aid, Matriculation, CalWORKs) has been that the funds included in the state budget are to be used for activities that occur in the fiscal year for which they were allocated. Based upon this interpretation, it would not be allowable to use current year funds to pay for activities that actually occurred in the past fiscal year.

In the case in question, the district asked if current year categorical funds could be used to pay all retroactive salary increases, including the prior year, since this expense is now incurred, and therefore, in their opinion is not a prior year expense.

Consistent with our past interpretation, staff responded to the college program staff that current year funds could not be used to pay retroactive salary increases past the beginning of the fiscal year. Thus current year categorical funds could be used to pay salary increase back to July 1, 2005, but not to July 1, 2004.

This is the first time this request has been framed in regard to retroactive salary increases. Previous requests pertained to using current year funds to cover over-expenditures of prior year allocation or to pay for supplies or equipment ordered and received in prior year but paid from current year.

Subsequently, the college apparently contacted James Kong in your office posing the same questions. The information provided to the college business office contradicted our program staff’s response.

We are concerned about this inconsistency in information and there are significant program implications if in fact this is determined to be an allowable expense.

Issue:

A specific college has received contradictory information from the Chancellor’s Office and is asking for clarification and direction. It is compounded further by the fact that the college intends to issue salary adjustment warrants in April 2006 with current year funds.

Recommended Actions:

  1. Have a meeting between Student Services and Fiscal Services to discuss the issues and implications, obtain further clarification and find a resolution to the immediate issue.
  2. The Chancellor’s Office should release formal policy or guidance clarifying the use of categorical funds for retroactive salary increases. Student Services further recommends the continuance of current policy – (1) categorical funds may not be encumbered to pay retroactive salary increases if the collective bargaining agreement is not settled by the end of the fiscal year (June 30) and (2) categorical funds may not be used to pay retroactive salary increases for a past fiscal year.

Timeline:

ButteCollege will be issuing retroactive checks in April for past fiscal year salary increases and will be using current fiscal year categorical funds. If possible, the final decision of this issue should be resolved and communicated to the colleges/districts before this occurs.

References:

In a June 6, 1996 letter from Gary Cook to the Vice Chancellor of the Rancho Santiago Community College District refers to “categorical program funds can only be charged for salary costs incurred by the district during the period the funds are provided or awarded”. This addresses holding funds to pay for increases decided after the end of the fiscal year.

In a December 10, 1998 letter from Ed Gould to the Ventura CCD Executive Director of Business Services & Financial Management reiterates the decision contained in the June 6, 1996 letter.

On April 25, 2005 a joint letter from Robert Turnage and Linda Michalowski sent to CBOs and CSSOs stated that “State Budget Act language for the categorical programs – CaWORKs, CARE, DSP&S, EOPS, BFAP-Student Financial Aid Administration and Matriculation (Credit and Non-credit) – requires that funds be spent in the budget year in which they were allocated.”

i:/EOPS/categorical funds & retroactive salary issue