LAO 2006-07 Budget Analysis: Education

Analysis of the 2006-07 Budget Bill

Legislative Analyst's Office
February 2006

University of California (6440)

The University of California (UC) consists of nine general campuses and one health science campus. The Governorís budget includes about $20†billion for UC from all fund sources-including the state General Fund, student fee revenue, federal funds, and other funds. This is an increase of about $643†million, or 3.3†percent, from the revised current-year amount. The budget proposes General Fund spending of $3†billion for the segment in 2006-07. This is an increase of $206.7†million, or 7.3†percent, from the revised 2005-06 budget.

Figure†1 summarizes the Governorís proposed General Fund changes for the current year and the budget year. For 2006-07, the Governor proposes $222.1†million in General Fund augmentations, a $17.3†million General Fund reduction to outreach programs, and a $2†million net increase for baseline and technical adjustments. We discuss the proposed augmentations in further detail below.

 

Figure 1

University of California (UC)
General Fund Budget Proposal

(Dollars in Millions)

 

 

2005‑06 Budget Act

$2,843.2

Entry-level nursing programa

$1.7

Baseline adjustments

-2.5

2005‑06 Revised Budget

$2,842.4

Baseline and Technical Adjustments

$2.0

Proposed Increases

 

Base increase (3 percent)

$80.5

Additional base increase in lieu of fee increase (2.8 percent)

75.0

Enrollment growth (2.5 percent)

52.0

One-time augmentation for UC Merced

14.0

Other increases

0.6

  Subtotal

($222.1)

Proposed Reductions

 

Eliminate General Fund support for outreach programs

-$17.3

2006‑07 Proposed Budget

$3,049.2

Change From 2005‑06 Revised Budget

 

Amount

$206.7

Percent

7.3%

 

a  Per Chapter 592, Statutes of 2005 (SB 73, Committee on Budget and Fiscal Review).

 

Base Budget Increases. The Governorís budget proposes two base increases to UCís General Fund budget totaling $155.5†million that are not restricted for specific purposes. First, the budget provides UC with a 3†percent General Fund base increase of $80.5†million intended to support salary and benefit increases for faculty and staff. The UC indicates that it would apply most of these funds towards various salary increases. The second base increase totals $75†million and is provided to UC in lieu of additional student fee revenue that would have been generated by the fee increases recently approved by the UC Board of Regents for undergraduate, graduate, and professional school students. The Governor assumes that the Board of Regents will cancel these fee increases. According to UC, this additional revenue will be used to (1) provide further salary and benefit increases (for a total average increase of 4†percent), (2) reduce the universityís current student-faculty ratio, and (3) fund costs increases for professional school programs. Because the funding provided in lieu of the fee increases is not intended for any particular program, it effectively increases UCís total, unrestricted base increase from 3†percent to 5.8†percent.

Enrollment Growth. In addition to base increases, the Governorís budget includes a $52†million General Fund augmentation for enrollment growth at UC. This would increase the universityís budgeted enrollment by 5,149 full-time equivalent (FTE) students, or 2.5†percent, above the current-year level, which assumes a marginal General Fund cost of $10,103 per additional student. The proposed enrollment growth funding reflects a new methodology proposed by the Governor for calculating the marginal cost of serving an additional student. In addition, the budget proposal assumes UC will enroll an additional 130 FTE students in its entry-level masterís nursing program, as required under Chapter†592, Statutes of 2005 (SB 73, Committee on Budget and Fiscal Review).

Other Proposed General Fund Augmentations. The Governorís budget proposes a $14†million one-time augmentation for start-up costs to support the UC campus in Merced, which opened in fall 2005. In addition, the budget provides UC $375,000 in new funding for the expansion of the Governorís math and science teacher initiative, which is intended to increase the number of math and science teachers trained at UC and the California State University (CSU). The proposed budget also includes a $180,000 augmentation to expand enrollment in UCís Program in Medical Education for the Latino Community (PRIME-LC).

Student Fees

As discussed earlier, the Governorís budget assumes no fee increases in the systemwide fees for undergraduate, graduate, and professional school students at UC. The full-time resident systemwide fees would remain at $6,141 for undergraduate students and $6,897 for graduate students. These amounts do not include campus-based fees. When combined with campus-based fees, the total student fee for a resident full-time student in 2006-07 would be $6,802 for undergraduates and $8,708 for graduates. For 2006-07, the systemwide professional school fee is planned to range from a low of $10,360 for students in nursing programs to a high of $24,513 for business/management school students.

The proposed budget, however, does assume a planned 5†percent increase in the tuition surcharge imposed on nonresident undergraduate students, as recently approved by the UC Board of Regents. Specifically, this surcharge would increase from $17,304 to $18,168. This increase in nonresident tuition for undergraduates is expected to provide about $7.5†million in additional fee revenue in the budget year. The budget also assumes that nonresident tuition for graduate students would remain at $14,694, as recently approved by the Regents.

Intersegmental Issues Involving UC

In the ďIntersegmentalĒ write-ups earlier in this chapter, we address several issues relating to UC. For each of these issues, we offer an alternative to the Governorís proposal. We summarize our main findings and recommendations below.

Fund Enrollment Growth Consistent With Demographic Projections and Our Revised Marginal Cost Methodology. The Governorís budget provides $52†million to fund 2.5†percent enrollment growth at a marginal General Fund cost of $10,103 per additional FTE student, based on his proposal for a new marginal cost methodology. In the ďUC and CSU Enrollment Growth and FundingĒ write-up in this chapter, we recommend, based on our demographic projections, the Legislature instead provide funding for enrollment growth at a rate of 2†percent. Our proposal would allow the university to accommodate enrollment growth next year due to increases in population, as well as modest increases in college participation rates.

Moreover, we recommend the Legislature reject the Governorís proposed marginal cost methodology. While we concur that the methodology is in need of revision, we propose an approach which more appropriately funds the increased costs associated with enrollment growth. Specifically, we propose (1) excluding unrelated costs, (2) better reflecting the actual costs of hiring entry-level faculty and teaching assistants, (3) including operation and maintenance costs, and (4) adjusting the total marginal cost by the average fee revenue collected per student. Using our revised methodology, we recommend reducing the Governorís proposed per student funding rate for UC from $10,103 to $8,574. (Our proposed rate is still higher than the level that would be generated under the current methodology.) Accordingly, we recommend a General Fund reduction of $16.7†million for UC.

Maintain Nonneedy Studentsí Share-of-Cost At Current-Year Levels. The proposed budget assumes no increases in the systemwide fees for undergraduate, graduate, and professional school students at UC. In the ďStudent FeesĒ write-up, we recommend the Legislature maintain nonneedy studentsí share-of-cost at their current-year levels. Because of various augmentations proposed for the budget year at UC, holding studentsí share-of-cost constant would entail a modest systemwide fee increase of 3.5†percent. For a full-time UC undergraduate, this equates to an annual increase of $215. In addition, we recommend adjustments in Cal Grant award amounts sufficient to ensure that all eligible financially needy students receive grants that fully cover the fee increase.

Facilitate Expansion of Summer Programs. In recent years, the Legislature has taken steps to encourage UC to serve more students during summer sessions (such as providing supplemental funding to enhance summer operations), thus reducing the need for adding new facilities to accommodate additional demand. Between summer 2000 and summer 2005, summer enrollment at UC campuses targeted for expansion doubled. Over the same time period, summer enrollment at campuses not targeted for expansion has also increased. Despite these increases, the summer term at UC is very far from operating at full capacity. In the ďYear-Round Operations at UC and CSUĒ write-up in this chapter, we (1) provide an update on UCís efforts to expand summer operations, (2) examine whether the Legislature should provide funding to fully convert additional UC campuses to year-round operations, and (3) outline steps that campuses could take to encourage more students to enroll during the summer term.

Address Retiree Health Benefits. In ďPart VĒ of the 2006-07 Budget: Perspectives and Issues, we discuss the increasing costs of providing health and dental benefits to retired public employees-including UC employees. With regard to UC, we recommend that the segment assess its retiree health benefit liabilities and propose a long-term plan to address these liabilities.

General Fund Base Increase

Given our projection of inflation for 2006-07, we recommend the Legislature provide a 3.3†percent General Fund base increase to the University of California (UC). Since the Governor proposes funding for a 5.8†percent base increase, we recommend deleting $67†million from the $155.5†million General Fund base augmentation requested in the budget for UC. (Reduce Item 6440-001-0001 by $67†million.)

In order to offset the effects of inflation, which erode the purchasing power of a fixed appropriation over time, many state programs receive periodic base increases. The UC uses these increases to fund salary and wage increases for faculty and staff, as well as increased prices of goods and services. In other words, these cost-of-living adjustments are not intended to fund increased workload, but rather are meant to help the universityís campuses pay for existing workload whose cost has increased due to inflation.

For 2006-07, the Governor proposes two base increases: (1) $80.5†million for a 3†percent operational base increase and (2) $75†million for a 2.8†percent base increase provided in lieu of increased funding from student fees. However, we project inflation in 2006-07 to be 3.3†percent (based on our estimate of the change in the U.S. state and local deflator from 2005-06 to 2006-07), which would cost $88.5†million. Thus, we recommend the Legislature reduce the Governorís proposed base increase from $155.5†million to $88.5†million. Under our proposal, the university would receive sufficient funding to compensate for increased costs. At the same time, the Legislature could use our identified General Fund savings of $67†million to address other priorities, including addressing the stateís budget problem.

Other Issues

K-14 Outreach Programs

We withhold recommendation on the proposed $17.3†million General Fund reduction to the University of Californiaís outreach programs, pending our review of an evaluation of the programs to be submitted in April.

The UC currently administers over 15 different K-14 outreach programs (also known as academic preparation programs) that focus on preparing students from disadvantaged backgrounds for college. The 2005-06 Budget Act included a total of $29.3†million for such programs. This amount consists of $17.3†million from the General Fund and $12†million in other funds. For 2006-07, the Governorís budget proposes a $17.3†million General Fund reduction to UCís outreach programs, which would eliminate all their General Fund support. Under the Governorís proposal, UC would maintain $12 million in other funds to allocate across its various outreach programs. In adopting the 2005-06 budget, the Legislature rejected a similar reduction proposed by the Governor last year.

As part of the 2005-06 Budget Act, the Legislature adopted provisional language to ensure oversight of the use of UCís outreach funds. Specifically, the 2005-06 budget required that UC report to the Legislature by April†1, 2006, on the outcomes and effectiveness of its outreach programs. We note that the Legislature has required the university to provide similar reports in the past. In fact, the university has been provided a combined total of about $9†million since 1998-99 for the purpose of evaluating its outreach efforts. For example, the 2005-06 budget includes $1.1†million for outreach program evaluation. However, as we discussed in our Analysis of the 2004-05 Budget Bill, UCís past outreach evaluations showed little conclusive evidence regarding program effectiveness. This is not to say that outreach programs are ineffective in helping disadvantaged students enroll in college. Rather, UCís data did not demonstrate whether students participating in outreach programs would have been eligible for or likely to attend college without these services. In addition, it was unclear whether the stateís current outreach efforts are cost-effective in comparison to alternative approaches.

In April 2005, UC adopted a new accountability framework for assessing its outreach programs. For each program, the framework (1) specifies goals and target groups and (2) establishes performance measures and indicators in order to determine program effectiveness. The 2005-06 budget specifies that UCís evaluation report to the Legislature this spring shall be consistent with this accountability framework. We withhold recommendation on the Governorís proposed $17.3†million General Fund reduction, pending receipt and review of the required evaluation.

PRIME-LC

We withhold recommendation on the $180,000 proposed augmentation for the University of Californiaís Program in Medical Education for the Latino Community, pending further review of the basis of the proposed augmentation.

The 2005-06 Budget Act included $300,000 in General Fund support for 20 medical students in UCís PRIME-LC. The purpose of PRIME-LC is to train physicians specifically to serve in underrepresented communities. The Governorís budget proposes a $180,000 General Fund augmentation for the program to enroll an additional 12 medical students. At the time this Analysis was being prepared in early February, both the university and the administration could not provide adequate information regarding the requested augmentation. As a result, we withhold recommendation on the proposed augmentation pending further review.


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