May 7, 2012
Pursuant to Elections Code Section 9005, we have reviewed the
proposed statutory initiative regarding public postsecondary funding and
accountability (A.G. File No. 12‑0011 Amdt.1S).
Students Are Charged Tuition/Fees to Attend Public
Colleges and Universities. The state has three public
systems of higher education: the University of California (UC), the
California State University (CSU), and the California Community Colleges
(CCC). In general, students must pay tuition (at the universities) and
systemwide fees (at the community colleges). For 2011‑12, the charges
for a full-time undergraduate student are $12,192 at UC, $5,472 at CSU,
and $1,080 at CCC. Students in graduate and professional programs
generally are charged somewhat higher tuition. The state has no specific
policy for how tuition and fees should be adjusted annually. From
2007‑08 to 2011‑12, undergraduate tuition and fees at UC and CSU have
increased by 84 percent and 97 percent, respectively. At the CCC, fees
for full-time students increased by 80 percent since 2007‑08.
Tuition and Fee Revenue Partially Pay for College and
University Costs. The revenues provided from tuition and
fees are used to partially cover the operating costs of colleges and
universities, with state funding covering most of the remainder of these
costs. Currently, tuition and fee revenue cover roughly half the
operating costs at UC and CSU, and about a fifth of the operating costs
State Financial Aid Programs Help Cover Cost for Needy
Students. The state administers several financial aid
programs, such as the Cal Grant program, that provide grants and other
forms of aid to help cover higher education costs for financially needy
students. The state currently spends about $1.5 billion annually on such
Tuition and Fee Rollback. This proposal
would reduce tuition and fees at UC, CSU, and CCC to their January 2010
levels, adjusted for inflation. We estimate that this would result in
full-time annual resident tuition and fee charges of approximately
$9,500 at UC, $4,270 at CSU, and $830 at CCC, beginning in January 2013.
Tax Increases to Fund Universities. This
measure would increase rates of four existing statewide taxes and fees,
with the resulting revenue placed in a special fund to be used by UC and
CSU. Specifically, the measure states the following: “Taxes increases in
automobile registration of $5.00, a 0.20 cent tax increase per pack of
cigarettes, a 25% increase of taxes for alcoholic beverages, [and] a 1.5
cent tax increase per gallon of gasoline.” These provisions are subject
to a large degree of interpretation.
First, the measure would institute a new cigarette tax of less than
one cent per pack. It is unclear if this would also result in an
increased tax on other tobacco products. Current state cigarette taxes
of 87 cents per pack are paid by distributors, which may seek
reimbursement for these taxes from the businesses to which they sell
cigarettes (which, in turn, may include the taxes in the retail selling
price). This measure would increase the cigarette taxes by two-tenths of
one cent per pack, such that the tax would be a number of cents that was
not a whole number.
Second, the measure requires a 25 percent “increase of taxes” for
alcoholic beverages, without any additional detail. Currently,
California charges a tax of $3.30 per gallon for distilled spirits of
100 proof or less; $6.60 per gallon for distilled spirits of over 100
proof; 30 cents per gallon of champagne and sparkling wine; and 20 cents
per gallon for beer, wine, and sparkling hard cider. For purposes of
this analysis, we have interpreted the measure to require each of those
tax rates to be increased by 25 percent—that is, for example, 5 cents
more per gallon for beer (up 25 percent from the current 20-cent tax) or
$1.65 more per gallon of over-100-proof spirits (up 25 percent from the
current $6.60 tax). Other interpretations of these tax increases may be
The revenue resulting from these tax increases would be apportioned
between UC and CSU in proportion to the number of students admitted to
each system. The funds would be restricted only for education related
expenses at the two university systems.
Spending Caps. This measure requires that
per-student spending levels at UC, CSU, and CCC be maintained below the
levels in place on January 1, 2010, adjusted for inflation. Combining
all major sources of funding (tuition, fees, and state General Fund
support), we estimate the respective caps for the three systems would be
approximately $19,800 per full-time student at UC, $11,100 at CSU, and
$5,430 at CCC.
Other Funding Requirements. This measure
prohibits both decreases in funding and increases in tuition at the
three systems, with the exception of underachieving campuses. The state
Legislature would be required to set benchmarks for determining which
campuses, if any, are underachieving. The measure also prohibits the
state from reducing funding for its student aid and student loan
programs below January 2011 levels.
New Commission. The initiative would
establish a new commission with the purpose of eliminating redundancies
at UC, CSU, and CCC. Within 600 days of passage of this measure, the
Legislature would be required to make appropriate recommendations to
eliminate redundancies and reduce costs at the three systems. Findings
would be published on a publicly accessible state website.
Tuition and Fee Rollback. We estimate that
the tuition and fee rollbacks would reduce fee and tuition revenue
received by the three higher education systems in the second half of the
2012-13 academic year by about $755 million ($430 million at UC, $225
million at CSU, and $100 million at CCC). These revenue losses would
roughly double in the following academic year. It is unclear whether the
initiative would permit the universities to increase tuition levels each
year for inflation.
Tax Increases. We estimate the measure’s
proposed tax increases would result in additional annual state revenue
of about $440 million, as follows:
- About $140 million per year from the increased tax on automobile
- About $2 million per year from the increased tax on cigarettes.
- About $220 million per year from the increased tax on each
gallon of gasoline.
- About $80 million per year from the increased alcoholic beverage
In addition to the above effects, the increased amount spent by
consumers and businesses on such products could reduce the amount they
have to spend on other purchases in the economy, affecting negatively,
among other things, collections of state and local sales taxes. Such
reductions in collections would offset somewhat the higher state
revenues described above.
Allocation of Tax Funds to Universities.
Based on the universities’ current enrollment levels, UC would receive
about 40 percent of the revenue from the education fund, while CSU would
receive about 60 percent. As a result, we estimate annual funding of
about $175 million for UC and $265 million for CSU.
Spending Caps. Given that new revenue from
the education fund would fall significantly short of the amount needed
to replace lost tuition revenue, the amount of total funding available
per student would probably fall short of the spending caps.
New Commission. The state likely would
incur minor administrative costs to create the new commission directed
at eliminating redundancies in higher education. These costs could be
more than offset if some (or all) of the commission’s efficiency
recommendations were implemented and resulted in sufficient savings.
Summary of Fiscal Effects:
- Annual reduction in student tuition and fee revenue at the
state’s public colleges and universities totaling about $1.5
- Annual increase in state tax revenue of about $440 million. Of
this amount, about $175 million would be directed to the University
of California (UC) and about $265 million would be directed to the
California State University (CSU) for education related expenses.
- As a result of the above, net funding losses for higher
education of about $680 million at UC, $180 million at CSU, and $200
million at the California Community Colleges.
- Minor costs to create a new commission to eliminate redundancies
in higher education. These costs could be more than offset if some
(or all) of the commission’s efficiency recommendations were
implemented and resulted in savings.
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