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Analysis of the 2008-09 Budget Bill: Education

Intersegmental: Governor's Budget Solutions

Similar to its approach in other areas of the budget, the Governor's higher education proposal generally includes 10 percent reductions to estimated General Fund “workload” funding levels. However, because more than one–half of these budget solutions take the form of unallocated reductions to the University of California (UC) and the California State University (CSU), it is not clear what effect these proposals would have on critical aspects of higher education, including college access and affordability.

Two Perspectives on the Budget Solutions

The changes proposed to higher education funding can be viewed in two basic ways: in comparison to what was provided in the current year, and in comparison to the estimated 2008‑09 workload funding level.

Modest Year–to–Year Decline in General Fund Support. The Governor proposes to fund higher education with General Fund support of $11 billion, which is $261 million, or 2.3 percent, lower than the revised current–year level. As shown in Figure 1, net General Fund reductions would be experienced at all higher education segments and agencies except for the California Student Aid Commission (CSAC), which would receive $47.6 million more than in the current year.

 

Figure 1

2008‑09 Higher Education Budget Proposal

General Fund (Dollars in Millions)

 

2007‑08
Revised

2008‑09
Proposed

Difference

 

Amount

Percent

University of California

$3,260.7

$3,162.2

-$98.5

-3.0%

California State University

2,970.7

2,873.1

-97.6

-3.3

California Community Colleges

4,146.7

4,034.9

-111.8

-2.7

California Student Aid Commission

842.9

890.5

47.6

5.7

Hastings College of the Law

10.6

10.1

-0.5

-4.9

California Postsecondary

Education Commission

2.2

2.0

-0.2

-9.2

  Totals

$11,233.9

$10,972.8

-$261.1

-2.3%

 

Larger Decline From Governor's Workload Level. When compared to the Governor's estimate of 2008‑09 workload costs, the Governor's proposed General Fund reductions appear larger. The reductions for UC and CSU appear especially large because the workload estimates are based on the Governor's compact with those segments. (See box below for a discussion of how the administration characterizes the magnitude of these proposed General Fund reductions.) Overall, as shown in Figure 2, the proposed budget would provide $1.1 billion less than the General Fund workload estimate. We discuss the Governor's proposed reductions in more detail below.

 

Figure 2

Governor's Proposed Higher Education
Funding Compared to Workload Estimates

General Fund (Dollars in Millions)

 

2008‑09
“Workload”

2008‑09
Proposed

Difference

 

Amount

Percent

University of California

$3,494.1

$3,162.2

-$331.9

-9.5%

California State University

3,186.0

2,873.1

-312.9

-9.8

California Community Colleges

4,519.4

4,034.9

-484.5

-10.7

California Student Aid Commission

892.7

890.5

-2.2

-0.2

Hastings College of the Law

11.2

10.1

-1.1

-10.0

California Postsecondary

Education Commission

2.2

2.0

-0.2

-10.0

  Totals

$12,105.7

$10,972.8

-$1,132.9

-9.4%

 

 

UC and CSU Budgets Start With Compact

The administration calculated “workload” budgets for the University of California (UC) and the California State University (CSU) that reflect the level of General Fund support the university systems would expect to receive under the 2004 “compact.” The compact is a nonstatutory agreement between the segments and Governor that envisions annual spending increases through 2010–11. Major components of that plan for 2008‑09 include $126 million for enrollment growth of 2.5 percent and $301 million for base increases of 5 percent. The administration’s calculation of the 2008‑09 workload budget also includes adjustments for retirement costs, lease revenue payments, and various other expenses. Overall, the UC and CSU workload budgets reflect combined General Fund costs that exceed the current–year amount by $449 million.

As the figure below shows, the Governor's budget proposal starts with this workload base for UC and CSU, and then reduces those amounts by roughly 10 percent, generating budgetary solutions of over $300 million for each segment. The figure also shows how these calculations result in net General Fund reductions for UC and CSU of $98.5 million and $97.6 million, respectively, from their current–year levels.

 

Governor's Budget Proposal for UC and CSU
General Fund Workload Budget and
Budget-Balancing Reductions

(In Millions)

 

UC

CSU

2007‑08 Estimated Budget

$3,260.7

$2,970.7

Workload augmentation

233.4

215.3

2008‑09 Workload Budget

$3,494.1

$3,186.0

Budget-balancing reduction

-331.9

-312.9

2008‑09 Proposed Budget

$3,162.2

$2,873.1

Net reduction from 2007‑08

-$98.5

-$97.6

 

 

UC and CSU

General Fund Reduction Virtually All Unallocated. Virtually all of the proposed General Fund reduction to UC and CSU is unallocated. The exception (aside from several technical adjustments) are reductions to the two segments’ “institutional support” budgets, which fund administrative and management functions (both systemwide and at the campuses).

Governor Makes No Fee Proposal, but Assumes Increases Will Be Part of Budget Solution. The budget proposal defers to UC and CSU on the allocation of General Fund reductions and the setting of student fee levels. Although the UC Board of Regents and the CSU Board of Trustees had earlier considered plans to enact fee increases of 7.4 percent and 10 percent, respectively, for the 2008‑09 academic year, both boards delayed final approval of fee increases pending release of the Governor's budget proposal. Neither segment had acted on a fee increase at the time this Analysis was prepared. Although the Governor's budget makes no specific fee proposal for UC and CSU, it provides funding for increases in the Cal Grant entitlement program to cover fee increases of up to 30 percent and 33 percent, respectively. The lack of specificity on fee levels means the Legislature has no way of knowing the overall funding level (General Fund plus fee revenue) that the Governor's proposed budget would provide for core programs at the universities.  

CCC

As earlier shown in Figure 1, the budget proposes to reduce the California Community Colleges’ (CCC’s) 2008‑09 General Fund support by $112 million from the revised current–year level. (The current–year amount reflects a one–time, midyear reduction of $40 million.) This reduction is based on a 10 percent reduction to CCC’s General Fund workload funding. The colleges’ General Fund support is combined with local property tax revenues and counted toward the state’s Proposition 98 expenditures. As a result of growth in property tax revenues, CCC’s Proposition 98 funding would actually increase by $55 million in the budget year.

The proposed budget includes funding for 1 percent enrollment growth, does not include any funding for a cost–of–living adjustment, and reduces funding for all categorical programs across the board.

CSAC

The CSAC would receive a net $47.6 million increase in General Fund support. The major augmentation is $107 million for increased Cal Grant costs, most of which would cover fee increases for eligible students at UC and CSU. (As noted earlier, while the Governor's budget does not propose any specific fee level for UC and CSU, this Cal Grant augmentation would cover fee increases of 30 percent and 33 percent respectively.) Offsetting this augmentation is a $57.4 million reduction achieved by eliminating new student participation in the Cal Grant competitive program.

The proposed CSAC budget also contains various adjustments to reflect the sale of EdFund, which is an auxiliary organization carrying out federal loan guarantee functions on behalf of CSAC. The 2007–08 budget package assumed EdFund would be sold for $1 billion in the current year. The Governor's 2008‑09 budget proposal assumes instead that $500 million will be realized from the sale.

LAO Assessment

Because the Governor's budget proposal leaves many of the decisions about allocating reductions and increasing fees to the university systems, we cannot estimate the full effect of this budget on higher education. The ability of the segments to maintain their commitments under the state Master Plan for Higher Education will depend on the outcome of a variety of issues not resolved by the Governor's budget proposal. Two of the most critical issues include:

  • Effect on Affordability. Two key factors influencing college affordability are student fee levels and financial aid. Under the Governor's budget proposal, student fee costs at community colleges would decline slightly (in inflation–adjusted dollars). However, the proposed budget includes no specific proposal for UC and CSU fee levels. Instead, it defers to those segments decisions about how much additional revenue should be collected from student fee increases and, by extension, what share of education costs should be borne by students. At the same time, the proposed phasing out of competitive Cal Grants would eliminate an important source of financial assistance for up to 22,500 additional students in 2008‑09 (current recipients would still be able to receive support in the budget year).
  • Effect on Access. We project that population growth will increase enrollment demand by 1.8 percent at UC and 1.6 percent at CSU and CCC. If UC and CSU accommodated some portion of the proposed General Fund reductions by reducing enrollment,
  • eligible applicants might be denied access. In addition, the proposed 1 percent growth in CCC enrollment funding is somewhat less than our projection of 1.7 percent enrollment growth for that segment.

In the following section, we offer an alternative to the Governor's budget proposal that minimizes adverse effects on affordability and access, and ensures greater transparency and accountability in the higher education budget.


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