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

University of California (6440)

The University of California (UC) includes eight general campuses and one health science campus. The university is developing a tenth campus in Merced. The budget proposes General Fund spending of $3 billion in 2003-04, a decrease of $134 million, or 4.2 percent, from estimated expenditures in the current year. The Governor's current-year estimate assumes passage of his mid-year reduction proposals, which would reduce current-year spending for UC by $74 million. Figure 1 displays these proposed reductions for the current and budget years.

Figure 2 (see page 56) summarizes the various changes in UC's budget. Major augmentations in 2003-04 include $117 million for enrollment growth, $24.4 million for lease revenue costs, $16.1 million for increased costs of annuitant health and dental benefits, and $11.3 million for the planned UC Merced campus. The budget also proposes General Fund base reductions of $299 million in 2003-04. Of this amount, $195 million is unallocated and $89 million reflects the budget year expansion of allocated reductions proposed in the December revision. In addition, the budget proposes a reduction of $15 million for the California Subject Matter Projects (SMP).

The budget assumes student fee increases will result in about $130 million of additional revenue that will be available to offset the unallocated General Fund reductions. As a result, the remaining unallocated reduction would be about $65 million.

Enrollment Growth of 6.9 Percent. The budget provides UC with $117 million to increase its budgeted enrollment by 13,000, or 6.9 percent, additional full-time equivalent (FTE) students in 2003-04. This would bring UC's budgeted enrollment to 202,628 FTE students. 

First Student Fee Increases in Eight Years

Current-Year Increases. The budget reflects a current-year increase in resident student fees, professional school fees, and nonresident tuition for undergraduate students. In December 2002, the UC Regents approved a fee increase to be assessed in the spring 2003 term—the first undergraduate increase in eight years. Revenue from this and the professional school fee increase is intended to backfill the Governor's proposed unallocated $19 million General Fund reduction in the current year. Figure 3 displays 2002-03 fee levels and proposed budget-year fee levels.

Proposed Budget-Year Increases. The budget assumes further increases in resident student fees, professional school fees, and nonresident tuition in the budget year. (Although the Governor's budget assumes these further increases, UC student fees are established by the UC Regents.) These increases, excluding nonresident tuition, are expected to provide an additional $130 million in student fee revenue that would be available to partially offset the proposed $195 million unallocated reduction in UC's General Fund support. (We suggest some ways for UC to minimize the impact of the unallocated reduction on instruction later in this section.)

As Figure 3 shows, the budget assumes a 35 percent increase in the systemwide fee (educational and registration fee) for undergraduate resident students from 2001-02. When combined with campus-based fees, the percentage increase in total fees is slightly less than 35 percent. In 2003-04, the proposed total resident fee for a full-time student is $5,082 for undergraduates and $6,196 for graduates. This reflects increases of 32 percent and 33 percent, respectively, over fee levels in 2001-02.

In addition to the educational and registration fees, professional school students pay a special fee which varies by program. Similar to the resident systemwide fee, the Regents approved a professional school fee increase to be assessed in the spring 2003 term. These fees are assumed to increase again in 2003-04 by varying amounts. Figure 4 (see next page) displays professional schools fees from 2001-02 through 2003-04. Generally, the budget assumes a 35 percent increase in professional school fees over the two-year period.

Nonresident students also pay a special, or supplementary, fee. The budget assumes the Regents will approve an increase in this fee of 4 percent from the annualized spring 2003 fee level. For nonresident undergraduate students, the supplementary fee would increase from $12,480 to $12,980, while nonresident graduate students fees would increase from $11,132 to $11,577. (When the supplementary fee for nonresident students is combined with educational and other fees, the increase in the total nonresident undergraduate and graduate charges is 10 percent.) The increase in nonresident tuition is expected to provide $11 million in the budget year. We discuss student fees in more detail in the "Intersegmental" section of this chapter. 

UC Alternative Budget Proposal

We recommend alternatives to two major components of the Governor's budget proposal for higher education. First, we recommend lower student fee increases at UC and the California State University (CSU), adopted within the context of an explicit and rational fee policy. Second, we recommend lower enrollment growth funding at UC and CSU that is more in line with anticipated demand and state budget priorities. We discuss both of these components more fully in the "Intersegmental" section of this chapter. Here we summarize the impact of our alternative on UC specifically.

Student Fees. We propose increasing mandatory resident student fees for undergraduates by 15 percent (rather than the Governor's proposal of 25 percent) in the budget year. For graduate fees at UC, we propose a 20 percent increase in the budget year (rather than the Governor's proposed 25 percent). In the "Intersegmental" section we note that additional fee increases beyond the budget year would be necessary to reach various "target" fee levels (such as the average fee level of the segments' comparison institutions). Once such a target is reached, we recommend that student fees be adjusted annually to maintain their purchasing power.

Enrollment Growth. The Governor proposes a 6.9 percent increase in UC's budgeted enrollment in 2003-04. We recommend the Legislature instead provide funding for enrollment growth of 4 percent (7,585 FTE students). This would cost $68.5 million, which is $48.7 million less than proposed by the Governor. Enrollment growth of 4 percent is comparable to the amount requested by the UC Regents in the fall (4.2 percent). We believe that this level of enrollment growth would allow UC to accommodate enrollment growth due to increases in population and college participation and is consistent with past practice.

Fee Revenue. As previously mentioned, the budget assumes that revenue from student fee increases will partially offset the proposed unallocated General Fund reduction. The budget assumes that the combined two-year increase in student fees will generate $224 million in additional fee revenue in 2003-04. The budget also assumes that one-third of this additional fee revenue will be earmarked for UC's own financial aid program. Thus, the "net" fee revenue available to offset the combined current-year and budget-year unallocated General Fund reductions of $214 million would be $149 million.

Under our alternative proposal, we estimate UC would receive $190 million, or $34 million less fee revenue than the budget assumes. This is due both to more moderate fee increases in the budget year and to a lower level of enrollment growth than the budget proposes. In addition, we believe that only $16 million of the additional fee revenue should be earmarked for financial aid. (Please see "UC and CSU's Institutional Aid Programs" in the "Intersegmental" section of this chapter.) Thus, under our proposal $174 million would still be available to offset the proposed unallocated General Fund reduction, which is $24 more than the Governor's proposal.

UC Can Minimize Impact of Unallocated Reduction on Instruction by Increasing Student-Faculty Ratio

The Legislature could direct the University of California to temporarily increase its student-faculty ratio (SFR) in order to minimize any potentially negative impact on instruction due to unallocated reductions. The university has some flexibility in how it chooses to increase its SFR—it could increase class size or it could redistribute faculty workload.

As discussed in the introduction, the budget proposes an unallocated reduction in UC's General Fund support. Under the Governor's proposal, all but $65 million of this reduction would be backfilled by student fee revenue. At the time of this analysis, UC was unable to provide detail on how the university would accommodate this reduction. In this section, we suggest a way for UC to minimize the impact of the unallocated reduction on instruction.

The Legislature Could Direct UC to Temporarily Increase Its SFR. The UC's current budgeted SFR is 18.7 to 1. An increase in UC's SFR would allow UC to serve more students with fewer faculty. The UC would experience savings because it would not need to hire as many new faculty as it would at a lower SFR. We note that UC has some flexibility in how it would accommodate a higher SFR. For example, the university could increase average class size, thus serving more students with the same number of faculty. Alternatively, UC could increase the portion of faculty time that is dedicated to teaching (rather than other activities, such as research, administration, or public service). The university indicates that in 1999-00, the average teaching load (undergraduate and graduate students) for regular-rank FTE faculty was 4.9 classes per year—less than two courses per quarter. Increasing the average teaching load of existing faculty above 4.9 classes per year would allow the university to offer more classes to students without hiring additional faculty, thus achieving savings in the budget year. This would not require an increase in faculty's overall workload. Instead, it would shift current workload to teaching from other activities. We believe that such an action could have less negative impact on instruction than other options for accommodating the proposed unallocated reductions.

Outreach Programs

The proposed budget includes approximately $36 million for UC's outreach programs (see Figure 5). Of this amount, $33 million is from the General Fund. This is a reduction of $37 million (General Fund), or 50 percent, from the current-year enacted budget. (The Governor's proposed mid-year reductions would reduce current-year spending for UC outreach by $3.3 million.) Rather than targeting only some specific outreach programs, the Governor proposes reductions in all of UC's systemwide outreach programs. Reductions range from 25 percent (informational outreach and recruitment) to 56 percent. Most, however, represent a 56 percent reduction from 2002-03 (enacted) levels.

Background

Purposes of Outreach. We believe the chief goal of outreach is to seek the enrollment of disadvantaged students in higher education by increasing their eligibility and qualifications. Generally, the three basic obstacles restricting student's access to higher education are: inadequate academic preparation, lack of information concerning the accessibility and purposes of a college education, and lack of information on and assistance with financial aid. As we noted in our Analysis of the 2002-03 Budget Bill (see pages E-219 through E-229), there are a variety of K-12 outreach programs, administered by different state agencies, that provide an array of services to K-12 students and schools. The state's outreach system is complex. In addition to systemwide programs, there are many federal, private, and campus-level outreach programs. In last year's Analysis, we reviewed the structure of UC's K-12 outreach programs, identified problems with the structure, and recommended steps for improving the efficiency and effectiveness of the system.

Types of Outreach. Generally, UC's approach to outreach falls into three categories:

• Student Academic Development Programs. These programs focus on increasing the academic preparation of students directly through activities such as tutoring, academic advising, and test preparation.
• University-School Partnerships. These programs are intended to improve student performance indirectly by systemically reforming/improving K-12 education.
• Informational Outreach and Recruitment. Programs in this category help students plan and prepare for college through informational outreach and recruitment programs.

In addition, UC's outreach strategy includes research to evaluate the root causes of educational disparity and the effectiveness of outreach programs.

Recent Funding History. The UC spent approximately $14 million on systemwide outreach in 1997-98. The majority of these programs focused on improving student academic development. In 1998-99, UC's K-12 outreach budget received a major augmentation of about $40 million—almost quadrupling its K-12 outreach budget to $54 million. The UC's K-12 outreach was augmented again by $20 million between 1999-00 and 2000-01. These augmentations allowed UC to expand student academic programs and to implement a number of new initiatives which broadened the scope of K-12 outreach. These programs grew quickly and in many cases, new programs were implemented with little substantive data on program effectiveness. Even with the reductions proposed by the Governor in 2003-04, UC outreach funding would still be almost three times greater than it was prior to augmentations in the late 1990s.

Little Evidence of Program Effectiveness. Budget bill language directs UC to report annually by March 15 on the outcomes and effectiveness of its outreach programs. The university has received about $6.7 million since 1998-99 to evaluate its outreach efforts. Despite this investment, little is known about the effectiveness of the state's outreach programs. Consequently, it is difficult for the Legislature to determine which out reach programs are most successful in achieving the important objectives of increased awareness, preparation, and access to undergraduate education.

In summer 2002, the university established the Strategic Review Panel on UC Educational Outreach. The UC indicates that the panel's purpose is to assess the effectiveness of UC's programs in meeting its goals, to define desirable changes to the university's overall outreach plan, to set reasonable short-term and long-term goals for the university in pursuing its outreach agenda, and to recommend a new working alliance with the state's K-12 educational bodies and the California Community Colleges (CCC). The Strategic Review Panel was to complete its work by December 2002. However, the completed work product of the panel was not available at the time of this Analysis.

LAO Recommendation

We recommend the Legislature approve the Governor's proposed level of reductions for outreach. However, we recommend a more targeted approach in achieving the savings.

In proposing an across-the-board reduction to all outreach programs, the Governor implicitly assumes that (1) all of UC's outreach programs are equally meritorious and (2) all programs can continue functioning with approximately half of their existing funding. We believe that these assumptions are faulty. Instead, we recommend targeting cuts to preserve programs that increase the eligibility and qualifications of students for higher education, or provide direct services to students or schools. We offer the following criteria that we believe can guide the Legislature in considering the Governor's outreach proposal.

Some Programs Are Better Than Others. Some of UC's outreach programs do not increase the academic preparedness of students or provide direct services to schools. Instead, they focus on "yield" or recruiting activities. As we noted in last year's Analysis, yield activities do not increase educational opportunities for disadvantaged students. Instead, they typically work to convince already qualified or eligible students to choose UC over some other higher education institution. These students already have an opportunity to participate in higher education. We believe that state resources should be used to increase the number of students that are eligible for higher education, rather than convince an already qualified student to choose a public rather than a private institution.

Other Sources Are Available to Fund Research on Outreach. Two programs which UC counts as outreach, UC All Campus Consortium on Research for Diversity and the Urban Community-School Collaborative, provide research grants to faculty to study the root causes of educational inequality. The budget proposes approximately $500,000 for these two programs in 2003-04. We recommend deleting funding for these two programs because they can be funded through UC's research budget. The budget proposes providing approximately $260 million in General Fund support for research. If the university believes that this type of research is a high priority, it can fund such research by reallocating funds within its substantial research budget.

Some Programs May Not Be Viable With Reduced Funding. Given the magnitude of the Governor's proposed reduction to individual outreach programs, it is unclear whether all programs are viable with such reduced resources. The Governor's proposal leaves many of the smaller programs such as the Community Education and Resource Center Initiative and UC Nexus with a few hundred thousand dollars. The university was unable to provide any detail on how these types of programs would absorb these reductions. It is also unclear whether these programs would be cost effective if scaled back. Therefore, it may be preferable to eliminate these programs and redirect funds to other outreach programs if programs are no longer viable under the proposal.

Comprehensive Approach Improves System. Although the state directs the majority of funding for outreach to UC, other state agencies provide outreach. In addition, various nonstate entities provide outreach services. In allocating outreach reductions, we recommend that the Legislature take a comprehensive approach that considers the interaction of outreach programs within agencies and among agencies. For example, CSU has two programs—the Collaborative Academic Preparation Initiative—Faculty-to-Faculty Alliance and the California Academic Partnership Program—that are similar in nature to UC's K-12 School-University Partnerships. Even though there is little data on the effectiveness of any of these programs, CSU has generally been able to serve more high schools at a lower cost than UC. Thus, the Legislature should consider the availability of other resources in allocating cuts. A comprehensive approach helps prevent overlap and duplication of services. It also makes it easier for K-12 schools to use outreach services effectively to help students.

Consolidate Existing Outreach Programs to Reduce Inefficiencies and Administrative Overlap. We believe that the Legislature should consolidate existing outreach programs at UC by the type of outreach provided, to reduce inefficiencies and administrative overlap. For example, while slightly different in academic focus, the Early Academic Outreach Programs (EAOP); Mathematics, Engineering, and Science Achievement (MESA); and Puente programs all offer academic development programs, academic advising, and informational outreach. In the long term, the Legislature should consider consolidating existing outreach programs according to function. Consolidation could limit duplication of services and improve coordination. Consolidation would also benefit the segments since less effort would be needed to administer the programs. At the time of this Analysis, we lacked sufficient data on program expenditures and effectiveness. Without this data, we were unable to determine how to best consolidate student academic development programs. Therefore, our alternative proposal retains separate funding for EAOP, MESA, and Puente. The UC evaluation and the Strategic Review Panel's work may provide some relevant information for future consolidation of programs.

Community College Outreach Programs. The Legislature has shown considerable interest in improving transfers from CCC to UC and CSU. Our proposal provides about 11 percent more funding ($545,000) for UC's community college outreach programs than the Governor's. We propose maintaining the current-year level ($432,000) of support for the Articulation System Stimulating Inter-Institutional Student Transfer program supported jointly by UC, CCC, and CSU. We believe that the Governor's proposed level of support from UC ($191,000) is insufficient to maintain existing service levels. We also recommend less severe reductions for various student academic development programs for community college students. We propose the elimination of funding for the dual admissions program, whereby UC admits some students who will complete their lower-division coursework at a CCC. This is a new program (first funded in the current year) which we believe the university can implement with existing resources.

LAO Proposal. Figure 6 displays our alternative to the Governor's proposal. Using the above criteria, we have targeted the proposed reductions. We believe that this list provides a reasonable starting point for considering outreach funding in the budget year. We recommend a targeted approach to protect programs that increase student's academic development and improve the efficient delivery of outreach services.

Other Issues

Additional Funding for Unopened Campus Not a Clear Priority

We withhold recommendation on $11.3 million in additional General Fund support requested for the University of California Merced, pending our review of an expenditure plan for the campus to be submitted in mid-February. (Withhold recommendation on Item 6440-004-0001.)

The Governor's budget requests an $11.3 million augmentation to expand funding for the planned UC campus in Merced. This is in addition to $10 million in "base" funding, bringing total budget-year General Fund support for the campus to $21.3 million. Proposed budget bill language specifies that funding is for planning and startup costs associated with academic programs and ongoing support for the unopened campus, including academic planning activities, faculty recruitment, and ongoing support for faculty and staff. An additional $16.6 million in bond funds is proposed for capital outlay expenditures at the campus.

Supplemental report language from the 1998-99 Budget Act requires UC to submit annual reports on expenditures for the Merced campus, including actual expenditures for the past year and budgeted expenditures for the current and budget year. These reports are due by February 15 each year until the campus opens. The campus is currently scheduled to open in 2004-05.

Little Detail on Proposed Augmentation. The university indicates it will hire 15 faculty by the end of 2002-03 using funds provided by the state in the current and prior years. The UC plans to hire an additional 20 faculty in the budget year and 25 in 2004-05 (for a total of 60 faculty by the time of the planned opening in fall 2004). Other than stating its intent to hire faculty, the university has provided little detail on expenditures in the budget year. Without an expenditure plan, we cannot determine the degree to which additional funds are necessary in the budget year. Neither can we evaluate how this proposal compares with other priorities in higher education and elsewhere. Therefore, we withhold recommendation on the $11.3 million proposed augmentation for the Merced campus until we receive and review the campus expenditure plan.

Avoid Dismantling Subject Matter Projects

We recommend the Legislature designate a total of $10 million (consisting of $5 million General Fund and $5 million federal Title II funds) to support four Subject Matter Projects (SMP). Despite the administration's concerns, we understand that this funding designation would not violate federal supplanting laws. We recommend retaining the four SMPs because: (1) a recent evaluation deemed them successful in enhancing teacher-leaders' content knowledge and classroom practices, and (2) they should help the state meet a new federal requirement to increase annually the percentage of teachers that receive high-quality professional development.

The SMP is a longstanding professional development program for K-12 teachers administered by UC. The model for the program was the Bay Area Writing Project—begun in 1974 as a partnership between UC Berkeley and nearby K-12 schools. Since this time, additional partnerships have developed, forming a statewide network of subject-specific professional development programs. Currently, UC is administering six SMPs in the following areas: history and social science; international studies; mathematics; reading and literature; science; and writing. Three characteristics distinguish the SMPs from most other professional development programs. The SMPs: (1) are subject-specific and aligned with the state's academic content standards, (2) develop teacher-leaders who are expected to serve in critical leadership positions at their school sites, and (3) are linked primarily with low-performing schools.

The Governor's budget proposes a $15 million General Fund reduction for the SMPs—reducing the total General Fund appropriation to $5 million. The administration indicates that the $5 million General Fund remaining for 2003-04 would support only the Science SMP. All other SMPs would be dismantled. The Governor's budget also includes $5 million in federal Title II funds for the Science SMP (the same amount as in the current year). Thus, in 2003-04, the Science SMP would receive a total of $10 million in state and federal funds.

Governor's Proposal Would Dismantle SMPs Unnecessarily. The administration argues the state must maintain the $5 million General Fund for this SMP or else it will violate federal supplanting laws. The federal supplanting concerns arise from the fact that in 2002-03, for the first time, the state designated $5 million in federal Title II funds specifically for the Science SMP. The administration believes therefore that if state funding for the Science SMP declines, it will appear as if federal dollars are now supplanting state dollars. Legal advice from the Department of Education's (SDE) federal counsel suggests this is not the case.

State Can Avoid Supplanting Concerns by Documenting That the SMP Program Would Have Been Dismantled. The SDE's federal counsel advises that states may argue that they have not violated federal supplanting laws if they would have eliminated a program in the absence of available federal funds. Title II, Part A Non-Regulatory Draft Guidance, issued by the US Department of Education on December 19, 2002, declares that states desiring to use federal Title II funds for state activities "should carefully identify the activities they would have supported in the absence of funding from the program [Title II]." In the absence of federal funds, the Governor's budget proposal still would be eliminating all but the science SMP. (Potentially, were the science SMP not partially federally funded, even it might have been eliminated.) We believe therefore that the state will be able to document successfully that it is not violating federal supplanting laws.

Achieve Efficiencies and Savings by Focusing on Four Core Subjects. Because additional state funds are not available to support the SMPs, we recommend UC consolidate the existing six SMPs into four SMPs that focus on the core subject areas of English language arts, social science, mathematics, and science. By collapsing the International Studies SMP with the Social Science SMP, and the Reading and Literature SMP with the Writing SMP, UC essentially would not have to dismantle any of its existing projects and it could maintain all of its core infrastructure. We recommend maintaining SMPs in all core subject areas because teachers appear to have considerable needs in each of these areas. The UC estimates that it could support these four consolidated projects with $10 million (of which it would designate $8 million for local project services and $2 million for centralized assistance, monitoring, and evaluation). We recommend the Legislature therefore designate a total of $10 million (consisting of $5 million General Fund and $5 million federal Title II funds) for these four projects. We think maintaining the basic infrastructure of the SMPs is in the interests of both the state and federal governments.

Three-Year Evaluation Concludes SMPs Have Positive Impact on Teachers. One reason to retain this infrastructure is because the SMPs are among the few professional development programs that evaluators have found even partially successful in enhancing teacher knowledge. Whereas most state-funded professional development programs have not been evaluated, the American Institutes for Research conducted a three-year evaluation of the SMP program (which it submitted in August 2002). The evaluation found that the SMP program made a positive impact on teachers. For example, teachers participating in SMPs gained a deeper knowledge and understanding of their subject area. Additionally, almost all SMP participants reported that the program had influenced their career and encouraged them to assume new school-site roles. Half of participants said the experience had profoundly influenced their career. (However, despite these positive effects on teachers, the evaluation did not find any clearly positive effect on student achievement.)

The SMPs Could Help State Meet New Federal Professional Development Requirement. Another reason to retain the four SMPs is that these programs should help the state meet a new federal professional development requirement. The federal No Child Left Behind Act, enacted in 2002, requires states to increase the percentage of teachers receiving high-quality professional development. States are to set annual performance targets and report on their ability to reach these targets. Dismantling all but the Science SMP might make it more difficult for the state to meet this new requirement, particularly because the SMPs focus on developing teacher-leaders. The SMPs expect these teacher-leaders to take on greater professional development responsibilities both within their school and in future professional development programs. Dismantling the SMPs therefore might have a ripple effect on the capacity and quality of the state's other professional development programs.

In conclusion, we recommend the Legislature designate a total of $10 million ($5 million General Fund and $5 million federal Title II funds) for four SMPs. Instead of maintaining only the Science SMP, this would allow the state also to preserve three other consolidated projects in English language arts, social science, and mathematics. These are all longstanding projects that a recent evaluation deemed successful in enriching teachers' subject-matter knowledge. We think preserving these SMPs is in the best interests of the state and federal governments and will not be considered in violation of federal supplanting laws.