Legislative Analyst's Office Analysis of the 2001-02 Budget Bill

Higher Education Introduction

The Governor's budget proposes a $783 million increase in General Fund expenditures for higher education in 2001-02. This is an increase of 8.7 percent above estimated expenditures in the current year. This funds 5 percent base increases for the University of California (UC) and the California State University (CSU) and a 3.9 percent inflation adjustment for the California Community Colleges (CCC). It also funds enrollment growth of 3.3 percent for UC and 3 percent for CSU and CCC. Additionally, the budget provides General Fund support to hold resident student fees constant, and it funds several Governor's initiatives, including increasing state support for summer terms at UC and CSU and increasing part-time faculty salaries at CCC.

Total Higher Education Budget Proposal. As Figure 1 shows, the 2001-02 budget proposal provides a total of $28.1 billion from all sources for higher education. This amount is $1.4 billion, or 5.4 percent, more than estimated expenditures in the current year. The total consists of funding for all activities of the University of California (UC)—including activities that are only marginally related to instruction, such as providing medical care at its hospitals ($2.6 billion) and managing three major U.S. Department of Energy laboratories ($3.2 billion)—as well as all activities of the California State University (CSU), the California Community Colleges (CCC), Hastings College of the Law, the California Student Aid Commission, and the California Postsecondary Education Commission.

Major Funding Sources. The 2001-02 budget proposes General Fund expenditures of $9.7 billion for higher education. This amount is $783 million, or 8.7 percent, more than estimated expenditures in the current year. The budget also projects that local property taxes will contribute $1.8 billion for CCC in 2001-02, an increase of $137 million, or 8 percent, over the current year. In addition, student fee and tuition revenue at all the higher education segments account for $1.7 billion of proposed expenditures. This amount is $67 million, or 4 percent, greater than student fee revenue in the current year. (This increase results primarily from proposed enrollment growth rather than higher fees.) Lastly, the budget includes $15 billion in other funds—including federal funds, restricted funds, and funds from private sources. The numbers in Figure 1 do not include capital outlay expenditures or the General Fund costs associated with paying off general obligation bonds. These costs are discussed in the Capital Outlay section.

General Fund and Proposition 98 Proposals by Segment. The budget proposes General Fund expenditures for UC of $3.4 billion, which is $202 million, or 6.3 percent, more than estimated General Fund expenditures in the current year. For CSU, the budget proposes General Fund expenditures of $2.7 billion, an increase of $216 million, or 8.8 percent, over the current year. For CCC, the budget proposes General Fund expenditures of $3 billion, which is $225 million, or 8.2 percent, more than the current year. Incorporating local property tax revenue, the budget provides CCC with $4.7 billion in Proposition 98 funding, an increase of $360 million, or 8.3 percent, over the current year.

Major Budget Changes

The Governor's budget proposal provides all three segments of higher education with funding for base budget increases, enrollment growth, and various new and expanded programs.

Compensation, Core Needs, and Cost-of-living Increases. Figure 2 describes the major General Fund budget changes proposed by the Governor for UC, CSU, and CCC. The largest changes in UC's and CSU's budgets are 5 percent increases in their General Fund bases—4 percent of which is designated for compensation and other cost increases and 1 percent which is designated for "core" needs such as deferred maintenance, instructional equipment, and library materials. The budget provides $150 million to UC and $117 million to CSU for these base increases. For CCC, the budget contains $154 million for a 3.9 percent adjustment for inflation.

Enrollment Growth. As Figure 3 shows, the budget proposes total higher education full-time equivalent (FTE) student enrollments of 1.5 million, or 3 percent, over the budgeted enrollments for the current year. The budget provides funding for 5,700 additional FTE enrollments, at UC and 8,760 additional FTE enrollments at CSU. The Governor proposes $9,158 and $6,360, respectively, in General Fund support for each additional FTE student at UC and CSU. Thus, the total cost of accommodating proposed enrollment growth at UC is $52.2 million and the total cost at CSU is $55.7 million. The budget includes $106.8 million for CCC to accommodate a 3 percent, or 30,871 FTE, increase in enrollment. This is equivalent to $3,461 in Proposition 98 support for every additional CCC FTE student.

Governor's Initiatives. The budget includes funds for various new and expanded programs. Most notably, the Governor's budget provides $128 million for 57,000, or 37 percent, more Cal Grant awards. This significant increase is a result of prior-year expansions and new legislation making the Cal Grant program an entitlement for qualified students. For UC, the budget extends several one-time appropriations—including $18 million for expansion of Internet 2 and $20 million to reduce further its maintenance backlog and to purchase instructional equipment and library materials. The budget provides CSU with $20 million in one-time funds for similar purposes. It also provides CSU with $18.5 million to expand the Educational Technology Institutes and $17.5 million to expand the Governor's Teaching Fellowship program—both of which were established in the current year. The budget provides both UC and CSU funding to enhance the quality of their summer terms ($20.7 million and $12.4 million, respectively). Lastly, for CCC, the Governor's budget proposes $62 million to improve part-time faculty salaries.

Student Fees

Resident Student Fees Held Constant. Figure 4 shows student fee levels at California's public colleges and universities. Last year was the sixth consecutive year the state either reduced fees or held them constant. In the budget year, the Governor proposes once again to hold resident student fees constant at all the segments. For 2001-02, undergraduate systemwide and campus-based fees would remain $3,964 at UC, $1,834 at CSU, and $330 at CCC. The budget includes $22 million to compensate UC and $17 million to compensate CSU for additional revenue they would otherwise collect if they raised fees by 4.9 percent, which the budget assumes would reflect the increase in California per-capita personal income.

At UC, the Governor's budget proposes to increase fees charged to nonresident students by $460, or approximately 3 percent. The budget does not increase nonresident student fees at CSU.

Two Perspectives on Student Fees. The top portion of Figure 5 shows that student fee revenue comprises only a small portion of all state and local support provided to the three segments. For example, at the community colleges, total student fee revenue comprises less than 5 percent of all state and local support, and almost 40 percent of students do not pay any fees. The bottom portion of Figure 5 compares student fees at the three segments with their comparison institutions. Total student fees at all three segments are substantially lower than fee levels at their comparison institutions. The average current resident student fee at UC's four public comparison institutions is $5,243, which is almost one-third greater than the total proposed resident student fee at UC. At CSU's 15 public comparison institutions, the average student fee is more than double CSU's proposed 2001-02 fee level. Finally, the CCC does not have a special comparison group, but its proposed fee level is the nation's lowest. Students attending CCC in 2001-02 would pay only one-fifth of the 1999-00 national average for public two-year institutions.