Analysis of the 2004-05 Budget Bill Legislative Analyst's Office February 2004

Budget Issues

Intersegmental: Preserving Student Access In Tough Fiscal Times

The Governor's budget proposal includes major reductions in higher education, including the elimination of General Fund support for outreach programs at the University of California (UC) and the California State University (CSU), increases in UC and CSU's student-faculty ratios, a 7.5 percent reduction in funding for academic and administrative support at UC and CSU, new restrictions and reductions for state financial aid programs, and unallocated reductions. These reductions, however, would be backfilled in part by proposed increases in student fees at the two segments. The budget proposal would reduce freshman enrollment at UC and CSU, while increasing enrollment at the California Community Colleges by about 35,000 full-time equivalent students.

While the state's fiscal situation justifies efforts to achieve General Fund savings in various areas, including higher education, we are concerned that the Governor's proposal does not adequately safeguard student access to postsecondary education. In this section, we outline our recommended changes to the Governor's budget, which we believe would better preserve student access. Details of our specific proposals appear immediately after this introductory section.

The Governor's budget for higher education involves policy and budget changes in a number of interrelated areas. Among these are K-14 outreach programs, budgeted enrollment, student fees, and financial aid. Major proposed changes in these areas are summarized in Figure 1.

We recommend a number of changes to the Governor's proposal that in our view would (1) better preserve student access to higher education, (2) make better sense on policy grounds, and (3) achieve a similar level of General Fund savings. We summarize the Governor's major proposals and our recommendations below:

K-14 Outreach

Governor's Proposal Would Eliminate State Support. The state supports many K-14 outreach programs that focus on preparing students from disadvantaged backgrounds for college. The Governor's budget proposes to reduce funding for these programs at the University of California (UC) and the California State University (CSU) in both the current year and budget year. For 2003-04, the Governor proposes (pursuant to Section 27.00 of the 2003-04 Budget Act) to reduce General Fund support for outreach at the two universities by $24.7 million. For 2004-05, the Governor proposes an additional $60.6 million in reductions, thus eliminating all General Fund support for UC and CSU outreach programs. The budget does include $43.2 million in General Fund (Proposition 98) support for the California Community Colleges' (CCC) outreach efforts, including $37 million for financial aid outreach.

LAO Recommendation—Establish College Preparation Block Grant. In the "K-14 Outreach Programs" intersegmental section immediately following, we assess the state's current outreach efforts and present a framework for improving the effectiveness and efficiency of these efforts. First, we recommend the creation of a College Preparation Block Grant targeted at K-12 schools with very low college participation rates. Under our proposal, K-12 schools would have the flexibility to contract with UC, CSU, or other providers for outreach services. This block grant could be funded by redirecting $30 million from community college financial aid outreach in the budget year.

In addition, we recommend that the Legislature redirect the $3.5 million proposed for dual admissions counseling to preserve selected outreach programs at UC and CSU, in order to more accurately target limited resources at students most in need of college preparation. Overall, our proposal allows the Legislature to achieve the same amount of General Fund savings as proposed by the Governor, while still providing outreach services for disadvantaged students.

Enrollment

Governor Proposes No Enrollment Growth Funding for UC and CSU. In keeping with legislative intent expressed in the 2003-04 budget package, the Governor's proposal includes no new funding for enrollment growth at UC and CSU. In fact, the Governor proposes to reduce new freshman enrollment at UC and CSU by 10 percent, with the forgone enrollment being directed to CCC through a new dual admissions program. Under this program, students who are already eligible to attend UC or CSU directly from high school would be admitted to a specific campus, provided they first complete a transfer program at a community college. Partially in recognition of this diverted enrollment, the Governor's budget increases funded enrollment at CCC by 3 percent.

LAO Finding—UC and CSU Have Room to Accommodate Additional Students. As discussed in our recent report, Maintaining the Master Plan's Commitment to College Access, we believe the segments are currently drawing students outside their Master Plan targets and thus would have room to accommodate additional eligible students if they realigned their admissions criteria with Master Plan guidelines. Moreover, both UC and CSU have enrollment growth funding in their base budgets that they can use in 2004-05 to serve additional students above their actual current-year enrollment levels.

LAO Recommendation—Encourage Community College Participation on Voluntary Basis. We recommend establishing a policy similar to the Governor's proposal, whereby UC and CSU would admit qualified freshmen but redirect a portion of them to enroll in community colleges for their lower division coursework. Under our proposal, students would be redirected on a voluntary basis, and the university would encourage participation by guaranteeing a student's admission to his or her first-choice campus. We discuss this recommendation, as well as our findings concerning UC and CSU's enrollment funding and admissions policies in the "Higher Education Admissions and Enrollment" intersegmental section.

Student Fees

Governor Proposes Various Fee Increases and Long-Term Fee Policy. The Governor's budget achieves approximately $390 million in General Fund savings by increasing student fees at all three segments of higher education. The size of these increases ranges from 10 percent for undergraduates at UC and CSU to 40 percent for graduates at UC and CSU. Although community college fees would increase by 44 percent, the low level of the current fee means that the average full-time student would pay less than $200 per year in additional fees. In order to guide the setting of future fee levels, the Governor proposes a long-term fee policy intended to make future fee adjustments moderate and predictable. However, the Governor's proposal would not include CCC fees, professional school fees, or nonresident tuition under the long-term policy.

LAO Recommendation—Establish Clear Basis for Long-Term Fee Targets, Adopt Some of the Proposed Fee Increases, and Modify Others. We agree that the state should adopt a long-term fee policy that ensures moderate and predictable annual adjustments to student fees. However, we believe the Governor's proposal lacks a meaningful basis for setting fee targets. We also believe the fee policy should extend to all student fees, including those paid by community college students, professional school students, and nonresident students. Finally, we believe the Governor's proposal violates its own stated policy by increasing graduate fees too quickly.

In the "Student Fees" intersegmental section, we propose a long-term fee policy that sets student fee levels at a fixed percentage of total educational costs. We believe this establishes a meaningful basis for student fees that acknowledges both the private and public benefits that are derived from higher education. Moreover, our suggested policy would extend to all types of students. We also recommend that the proposed increase in graduate student fees at UC and CSU be slightly reduced to a more reasonable level. We also identify ways that this foregone fee revenue could be made up from other areas.

Financial Aid

Governor Proposes New Restrictions, Reductions for Cal Grants. The Governor's budget proposal would add new restrictions on the state's Cal Grant programs, lowering the income eligibility ceilings for both Cal Grant A and Cal Grant B. In addition, the proposal would break with longstanding practice by not increasing the Cal Grant award amounts for UC and CSU students to reflect the proposed fee increases. The proposal also reduces the Cal Grant award amount for needy students attending private universities. At the same time, the Governor's proposal would increase financial aid funding that UC and CSU administer themselves.

LAO Recommendation—Preserve Integrity of Cal Grant Program. In the "Financial Aid" intersegmental section, we express concern that the Governor's proposal would undermine the integrity of the Cal Grant program. In recent years the Legislature has made important strides in ensuring that needy students are provided with a level of financial support to ensure their access to higher education. By "decoupling" the Cal Grant award amount from the level of student fees at UC and CSU, the Governor's proposal would weaken state assurances that Cal Grants—especially those under the entitlement program—will address their financial needs. The proposed reduction of the Cal Grant award for students at private colleges similarly undermines a long-standing practice to link aid awards to anticipated costs.

We therefore recommend that the Legislature reject the Governor's proposals to reduce Cal Grant awards and further restrict eligibility. We recommend that the General Fund savings the Governor envisions from those actions instead be achieved by reducing the planned increases in UC and CSU's institutional financial aid programs. In this way, the state would preserve the integrity of statewide financial aid programs that are geared to all students, including those attending UC and CSU.