Legislative Analyst's Office Analysis of the 2003-04 Budget Bill

Higher Education Introduction

The Governor's budget proposes an $890 million decrease in General Fund expenditures for higher education in 200304. This represents a 9.8 percent decrease from the revised 200203 amount. However, the Governor's proposal assumes the enactment of student fee increases which, when coupled with other new revenue, would result in a $447 million, or 1.5 percent, increase in total higher education funding. The Governor's proposal includes no funding for cost-of-living adjustments. It includes funding for 6.9 percent enrollment growth at the University of California and 7.1 percent at the California State University. It also projects a 5.7 percent decline in enrollment at the California Community Colleges. The expected decline is attributable to attrition resulting from fee increases, as well as the elimination of enrollment that was inappropriately added in recent years.

Total Higher Education Budget Proposal. As Figure 1 shows, the 200304 budget proposal provides a total of $30.3 billion from all sources for higher education. This amount is $447 million, or 1.5 percent, more than the Governor's revised current-year budget proposal. The total includes funding for the University of California (UC), the California State University (CSU), the California Community Colleges (CCC), Hastings College of the Law, the California Student Aid Commission, and the California Postsecondary Education Commission. Funded activities include instruction, research, and related functions, as well as other activities, such as providing medical care at UC hospitals and managing three major U.S. Department of Energy laboratories. The Governor's current-year estimates include a variety of technical adjustments and assume adoption of various mid-year reduction proposals, which would reduce current-year expenditures in higher education by $352 million.

Major Funding Sources. The 200304 budget proposal provides $8.2 billion in General Fund appropriations for higher education. This amount is $890 million, or 9.8 percent, less than proposed current-year funding. The budget also projects that local property taxes will contribute $2.2 billion for CCC in 200304, an increase of $178 million, or 9 percent, over the revised current-year amount. 

In addition, student fee and tuition revenue at all the higher education segments account for $2.3 billion of proposed expenditures. This amount is $623 million, or 36.5 percent, greater than student fee revenue in the current year. This is due to proposed fee increases at all three segments, as well as unusually high enrollment projections at UC and CSU. The increased student fee revenue is expected to backfill unallocated General Fund reductions at the three segments.

Finally, the budget includes $17.6 billion in other funds—including federal funds, restricted funds, and funds from private sources. The amounts in Figure 1 do not include capital outlay expenditures or the General Fund costs associated with paying off general obligation bonds. These costs are discussed in the "Capital Outlay" chapter of this Analysis.

General Fund and Proposition 98 Proposals by Segment. For UC, the budget proposal provides General Fund appropriations of $3 billion, which is $134 million, or 4.2 percent, less than the Governor's revised current-year estimate. For CSU, the budget proposes $2.6 billion in General Fund support, a decrease of $123 million, or 4.5 percent, from the current year.

For CCC, the budget proposes General Fund appropriations of $1.9 billion, which is $707 million, or 27 percent, less than the current year. Incorporating local property tax revenue, the budget anticipates $4.1 billion in CCC's Proposition 98 funding, a decrease of $442 million, or 9.8 percent, from the current-year estimate.

Major Budget Changes

In a departure from past practice, the Governor's budget provides no funding for cost-of-living adjustments (COLAs) at the segments. While it also makes General Fund reductions for all three segments, these are offset in part by new student fee revenue. In addition, the budget provides for substantial enrollment increases at UC and CSU. Figure 2 describes the major General Fund budget changes proposed by the Governor for the three segments.

Enrollment Growth. The Governor's budget provides funding for increases in budgeted enrollment of 6.9 percent at UC and 7.1 percent at CSU. This is more than 4 times the expected increase in the state's college-age population, and well above the amounts requested by the segments in their budget requests. As Figure 3 shows, the budget proposes total full-time equivalent (FTE) student enrollment at the two segments of 546,641 students, which is 35,881 FTE (7.8 percent) over the budgeted current-year amount. The Governor proposes $9,030 and $6,594, respectively, in General Fund support for each additional FTE student at UC and CSU. Thus, the total cost of accommodating proposed enrollment growth at UC is $117.2 million and the total cost at CSU is $150.9 million.

For CCC, the budget anticipates a net reduction of 62,202 FTE students, or 5.7 percent, from the budgeted current-year level. This enrollment figure accounts for some population growth, which is more than offset by anticipated attrition. This is due to a proposed fee increase as well as the elimination of funding for 20,000 FTE students that were inappropriately added to CCC's apportionments in recent years. (We discuss proposed enrollment levels in more detail later in this chapter.)

Compensation and COLA Increases. The Governor's budget proposal provides no funding for COLA increases at any segment. The enrollment growth funding is intended to support increases in associated workload demands (such as the hiring of additional faculty and staff), but is not intended for faculty and staff COLAs. To the extent that employee contracts call for COLAs in the budget year, either these will have to be renegotiated, or funding will have to be redirected from other purposes.

Student Fees. The proposed budget makes "unallocated" General Fund reductions at all three segments that it presumes will be backfilled with increased student fee revenue. In this way, the unallocated reductions would amount to fund shifts rather than true reductions in overall funding. For UC and CSU, the budget assumes the governing boards will approve fee increases of approximately 25 percent for most students. This is in addition to increases of 10 percent to 15 percent approved for both segments for the spring 2003 term (in the current fiscal year). The current-year increases are the first fee increases at the segments in eight years. For CCC, the budget assumes that resident fees will increase from $11 to $24 per unit in the budget year. Even with this increase, California's community college fees would remain the lowest in the nation. Proposed student fees are shown in Figure 4. (The proposed increases are discussed in detail later in this chapter.)

Student Financial Aid

The Governor's budget provides an $82 million augmentation for the Cal Grant A and Cal Grant B programs. Of this amount, $54 million is associated with recent and anticipated student fee increases at UC and CSU. This augmentation would ensure that all Cal Grant recipients attending UC and CSU would continue to receive full fee coverage in both the current year and the budget year. However, the budget also proposes to reduce the value of Cal Grant awards by 9 percent for students attending private colleges (for a General Fund savings of $10.2 million).