Governor’s Budget Proposal For Higher Education

The Governor proposes about $11.5 billion in General Fund support for higher education in 2009–10. The Governor attributes about $1.5 billion of his General Fund solutions to the higher education budget. Savings are achieved through current– and budget–year reductions (including Proposition 98 reductions), as well as foregoing some planned augmentations in the budget year. The components of these projected General Fund savings are shown in Figure 7.

About 30 percent of the proposed General Fund solutions in higher education result from actual General Fund reductions to higher education budgets. In contrast, the majority of the savings come from withholding augmentations that had been built into the administration’s workload estimates and delaying state payments for some community college costs.

Concerns With Governor’s Proposal

We have identified three overarching concerns with the Governor’s proposed budget solutions: (1) they fail to account for new student fee revenue, (2) they rely too heavily on cuts to financial aid programs, and (3) they exacerbate an emerging disconnect between budgeted and actual enrollment levels at the universities.

Fails to Account for New Fee Revenue. The Governor’s budget proposal assumes that UC and CSU will enact fee increases that would generate almost $300 million in 2009–10. Assuming that the segments continue their recent practice of diverting one–third of new fee revenue to campus–based financial aid programs, the proposed fee increases would generate almost $200 million in general–purpose revenue. However, the proposed budget identifies no specific purpose for this revenue, and it is not accounted for in the proposed budget solutions. For example, this fee revenue could be used to reduce the level of General Fund support needed for university programs. The Governor’s proposal also ignores an opportunity to create General Fund savings by increasing CCC fees, which cover less than 5 percent of total costs.

Relies Too Heavily on Financial Aid Cuts. Alongside proposed fee increases of about 10 percent at the universities, the Governor proposes to reduce and restrict state financial aid programs. Given that student fees are low by national standards, we think increasing fees is a sensible way to provide resources to the segments in lieu of General Fund support. In order to ensure that fee increases do not prevent higher education access for financially needy students, however, the state would need to increase, rather than reduce, funding for its financial aid programs. Instead, the Governor proposes to reduce funding for the state’s Cal Grant programs by $87.5 million from the level that would be required under current program rules. We think this reduction is unwise, as it undermines financial aid expectations that the state has carefully established, and on which students and their families have come to rely.

There are better options for saving similar amounts of General Fund support in higher education. Using new university fee revenue to offset General Fund costs, as suggested above, is one such example. The Governor proposes modest, unallocated midyear base reductions to the universities equal to about 2 percent of their General Fund support. Other than this, the universities would receive no programmatic reductions under the Governor’s two–year budget proposal. The CCC’s current–year reduction would be less than 1 percent, with only a $4 million programmatic reduction in the budget year.

Continues Disconnect Between Budgeted and Actual Enrollment. As part of his budget solution, the Governor establishes enrollment targets that bear no relationship to actual enrollment patterns, and (at least for UC) would be many thousands of students lower than the segments’ own enrollment plans. This problem builds on a similar divergence of budgeted and actual enrollment in the current year. As a result, it is becoming impossible to determine how much of the universities’ enrollment is supported by the state. This undermines accountability, creates confusion for potential students about enrollment opportunities, and makes it difficult for the state to plan for future enrollment costs.

Recommend a Better Way to Achieve General Fund Savings

We recommend that the Legislature achieve General Fund savings in higher education using a different approach that better accounts for available resources, preserves affordability, and restores the link between the budget and enrollment levels consistent with the Master Plan. Specifically, we recommend the Legislature:

• Reduce Segments’ General Fund Support to Reflect Availability of New Fee Revenue. We recommend that the segments retain enough of this new fee revenue only to expand their campus–based financial aid programs in order to cover increased fee costs for aid recipients. The remainder should be used to create General Fund savings.
• Reject Proposed Cuts to Cal Grant Programs. The General Fund savings made possible by the universities’ fee increases would be more than enough to substitute for the Governor’s proposed financial aid cuts.
• Rebench Budgeted Enrollment Based on Realistic Targets. This would restore the link between budgeted and actual enrollment levels by locking in more realistic (and higher) enrollment levels than those proposed by the Governor, and would ensure a level of enrollment capacity that upholds the Master Plan’s promise of access.

We discuss the Governor’s specific proposals and our recommendations in the following sections.