Intersegmental: Governor's Budget Solutions

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.