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

University of California (6440)

The University of California (UC) includes eight general campuses and one health science campus. The university is developing a tenth campus in Merced. The budget proposes General Fund spending of $3.4 billion. This is an increase of $202.5 million, or 6.3 percent, over the current year. Major increases include $149.6 million for a general 5 percent increase in the university's base budget, $52.2 million for increases in budgeted enrollments, $20.7 million for increased state support for summer instruction at the Berkeley, Los Angeles, and Santa Barbara campuses, and $19 million for various research programs. Figure 1 summarizes the various changes in UC's budget.

Partnership With Higher Education. The Governor characterizes his budget with UC and California State University (CSU) as a "partnership. "In this partnership, the Governor agrees to provide UC and CSU with annual 5 percent base increases, plus funds for enrollment growth, capital needs, and high-priority initiatives. The proposed 2001-02 budget is the second year of a four-year partnership agreement initiated in 2000-01. Of the requested 5 percent base increase, 4 percent ($119.7 million) is not designated for specific purposes. The UC indicates that most of these funds will be applied toward various salary increases. The remaining 1 percent ($29.9 million) is designated specifically for four long-term core needs—building maintenance ($11 million), instructional technology ($12 million), instructional equipment ($2 million), and library materials ($5 million).

Enrollment Growth of 3.3 Percent. The budget assumes that UC will serve 5,700, or 3.3 percent, more full-time equivalent (FTE) students in 2001-02. The budget provides UC with $52.2 million to offset the "marginal cost" UC anticipates it will incur to serve the additional students.

No Increase in Resident Student Fees. The budget includes a total of $21.5 million in lieu of raising resident student fees by 4.9 percent. Fees for resident undergraduate, graduate, and professional school students would remain at current levels. The proposed fee for a full-time resident undergraduate is $3,964 and the proposed fee for a resident graduate is $4,747. The supplementary fee for nonresident students would increase by 4.5 percent from $10,244 to $10,704. (When the supplementary fee for nonresident students is combined with educational and other fees, the increase in the total nonresident undergraduate charge is 3.2 percent.)

One-Time Appropriations. In the budget year, the Governor provides $57.3 million in one-time funds for various initiatives (see Figure 2). He includes $20 million in one-time funds for deferred maintenance, instructional equipment, and library materials. This one-time funding supplements the ongoing 1 percent base increase for the same "core" purposes. The bulk of the remainder of one-time funds is for various research initiatives. The 2000-01 budget included $108 million in one-time funds. Thus, the net change in one-time appropriations, in the budget year, is a reduction of $50.7 million.

Crosscutting and Intersegmental Issues Involving UC

Figure 3 summarizes several issues relating to UC that we address in other sections of the Analysis. In "Education Crosscutting Issues," we discuss the recent expansion of the UC-administered California Professional Development Institutes. We also provide a synopsis of our recent report entitled "Improving Academic Preparation for Higher Education" and then discuss a budget request of $1.1 million to improve the Articulation System Stimulating Inter-Institutional Student Transfer. In "Intersegmental Issues" within the Higher Education section, we recommend linking the $20.7 million the budget provides for year-round instruction at three UC campuses to summer enrollment growth.

The UC Should Increase Fees Charged Nonresident Students

We recommend the Legislature ask the University of California (UC) to increase total fees paid by nonresident students to at least the average charged nonresidents at comparable public universities. This would increase UC's fee revenue by $6 million, thereby reducing the need for $6 million in General Fund support for 2001-02. (Reduce Item 6440-001-0001 by $15.3 million.)

There are approximately 14,000 nonresident undergraduate (7,500) and graduate (6,500) students attending UC. Total fees in 2000-01 for UC are $14,578 for nonresident undergraduates and $15,181 for nonresident graduate students. Of each total, $10,244 represents the supplementary fee nonresident students pay on top of regular systemwide and campus-based fees paid by all students. The Governor proposes to increase the supplementary fee for nonresidents from $10,244 to $10,704, an increase of $460, or 4.5 percent. This has the effect of raising total fees for nonresident undergraduates to $15,038, an increase of 3.2 percent. It would raise total nonresident graduate fees to $15,641, a 3 percent increase.

State Policy on Nonresident Fees. Chapter 792, Statutes of 1990 (SB 2116, Morgan), enumerates the state's policy on the adjustment of nonresident tuition. Chapter 792 requires UC and California State University (CSU) to take into consideration:

• The total nonresident charges imposed by each of their public comparison institutions as identified by the California Postsecondary Education Commission.
• The full average cost of instruction of their segment.

Chapter 792 also states that, "under no circumstances shall an institution's level of nonresident tuition plus required student fees fall below the marginal cost of instruction for that segment" and that increases in the level of nonresident tuition should be gradual, moderate, and predictable.

Nonresident students should not pay less than the average cost of providing instruction and related services because these students and their families generally have not paid the state taxes that help subsidize the education of UC students. Consequently, nonresident students should pay directly for the services they receive from the university because if they do not, then the state is effectively subsidizing the education of nonresident students at the expense of California residents.

The UC Charges Nonresidents Less Than Comparable Universities Charge. Total fees for nonresident tuition are below the average fees charged nonresidents at comparable universities. For the four public institutions which UC uses for salary comparisons, the 2001-02 estimated average fee for nonresident students is $15,625 (undergraduates) and $15,884 (graduates). The proposed fees for UC's nonresidents undergraduates would be $587 (or 3.8 percent) below those at the comparison universities. The proposed fees for UC's nonresident graduate students would be $243, or 1.5 percent, below fees at the comparison universities.

The UC's Nonresident Fees Do Not Cover Average Costs. The 2001-02 budget proposal includes average General Fund costs at UC of $18,966 per FTE student. Based on the proposed budget, then, nonresidents would pay between 79 percent (undergraduates) and 82 percent (graduates) of the average costs.

The UC Should Raise Fees for Nonresidents. In view of the Legislature's intent expressed in Chapter 792, we recommend that UC raise total fees it charges nonresident students to at least the level UC expects comparable universities to charge nonresident students in 2001-02. This would require that UC raise current (2000-01) nonresident fees by 7.2 percent (undergraduates) and 4.6 percent (graduates) for 2001-02. This would increase UC fee revenue in 2001-02 by approximately $6 million. The additional fee revenue would reduce General Fund support needed by UC by $6 million. Accordingly, we recommend the Legislature ask UC to raise nonresident fees to match fees at comparable universities and reduce the proposed General Fund budget for 2001-02 by $6 million.

The UC Delinquent in Reporting Financial Aid Policies for Nonresidents. The university gives substantial amounts of grant aid to nonresident students. In 1998-99, for example, UC gave $61.2 million in grant aid to nonresident undergraduates ($10.3 million) and nonresident graduate students ($50.9 million). This is equivalent to $1,546 for each nonresident undergraduate student and $8,354 for each nonresident graduate student.

The large amount of grant aid UC provides nonresident students does not necessarily mean that nonresident students are economically disadvantaged. The median family income of UC undergraduates from other states, for example, was about $90,000 per year in 1999. The median family income of undergraduates from California was about $60,000.

Grant aid to nonresident students has the effect of reducing the "net" fees nonresidents pay. After taking grant aid into account, nonresident undergraduates in 1998-99 paid average net fees of $11,897, or 76 percent of UC's average General Fund cost in that year. Nonresident graduate students paid average net fees of $5,452, or 35 percent of the average General Fund cost per UC student.

During hearings on the 2000-01 budget, the subcommittees expressed concerns about the university's fee and grant policies for nonresident students. In the Supplemental Report of the 2000-01 Budget Act, the Legislature directed UC to report by November 2000 on its policies and practices for providing financial aid to nonresident undergraduate, graduate, and professional students. The UC did not meet this deadline and had not submitted its report at the time of this Analysis. The university should comply with the Legislature's directive.

The University Should Resume Raising Professional-School Fees

We recommend the University of California (UC) increase professional-school fees by 10 percent for 2001-02, because its fees are far below those at comparable universities thereby increasing revenue in 2001-02 by $3.5 million. We recommend deletion of the $1.5 million the budget requests from the General Fund under its assumption that UC would not raise professional-school fees.

The budget requests $1.5 million from the General Fund in lieu of raising student fees in the university's various professional schools. This marks the fourth year in a row that UC has not raised professional fees.

The UC Planned to Raise Professional-School Fees to Levels at Comparable Universities. Prior to 1990, UC charged students in professional schools the same fees that they charged other graduate students. In response to the Legislature's request in the 1990-91 Budget Act, the Regents of the University of California raised total annual fees for graduate law and medical students to $2,000, an increase of $376, or 23 percent, above total fees for these professional programs in 1989-90.

In January 1994, the Regents approved a policy to gradually raise student fees for selected professional schools over time. The Regents' plan called for professional fees to approximate fees charged by professional schools at universities most comparable to UC. The planned fee increases reflected UC's higher costs for professional education, high demand for admissions to professional schools, and the personal benefits that professional-school graduates receive during their subsequent careers. From 1994-95 through 1997-98, UC raised total fees charged professional students by an average of about 11 percent per year.

Chapter 853, Statutes of 1997 (AB 1318, Ducheny), among its provisions, stated legislative intent that UC freeze student fees for professional schools at 1997-98 levels for 1998-99 and 1999-00. The act appropriated funds to UC sufficient to offset revenues it lost as a result of this freeze. The university froze fees at the 1997-98 levels, and has not raised them since.

Professional Fees Lag Behind Comparable Universities. Figure 4 shows that total fees UC charges students in professional schools are currently well below the total fees charged in comparable universities around the country. (These are universities with which UC compares itself when seeking state funding for faculty salaries.) Professional-school fees at the public comparison universities are, depending on discipline, from 10 percent (nursing) to 47 percent (medicine) above UC professional-school fees. Annual professional-school fees at private comparison universities are over $18,000, or over two and one-half times, higher than the fees at UC.

Raising Professional Fees Could Increase Student Access. During our site visits it was pointed out that with additional fee support UC could improve professional school programs, admit more students, and provide additional assistance to financially needy students. Student demand for UC professional schools far exceeds available space. The university indicates that previous fee hikes in the 1990s did little to dampen the high demand.

Professional-School Degrees Offer Graduates Large Economic Returns. As an investment, UC professional schools offer students handsome returns. According to the Anderson School (of business) at UCLA, for example, graduates in the year 2000 obtained jobs that offered an average starting base salary of $80,000 per year, with average signing bonuses of $25,000 and average guaranteed bonuses of $30,000. Currently, however, professional-school students, on average, pay less than one-third of the cost of the educations that they receive.

The UC Should Phase In Fee Increases, Beginning With a 10 Percent Increase. Given that (1) UC professional-school fees are well below those at comparable universities, (2) additional fee support could increase student access and education quality, and (3) students receive very high economic returns on the fees they pay, we recommend the Legislature ask UC to increase professional-school fees toward those charged by comparable universities. Rather than raise them all at once, however, we recommend that UC raise them gradually.

Given that professional-school fees at comparable public universities in 2000-01 are 36 percent higher than UC fees, we think that raising UC professional-school fees by 10 percent in 2001-02 would provide a reasonable step toward comparability. This would increase annual UC revenues by approximately $3.5 million in 2001-02, and by approximately $10 million by the end of three years. (This assumes that existing students would still pay the fees they paid upon entering their professional-school programs. Fee increases would follow each successive class of first-year students through their professional-school careers.) We recommend, therefore, that the Legislature ask UC to raise total fees charged professional-school students in 2001-02 by 10 percent for entering first-year students.

Requested $1.5 Million General Fund Augmentation Not Needed. By raising professional-school fees, UC would not need the $1.5 million requested to offset revenues that it would have received if it had raised fees in line with overall program costs. Accordingly, we recommend that the Legislature delete this request.

Options for Additional UC Fee Revenue. Of the $3.5 million UC would obtain in 2001-02 from a 10 percent fee increase for professional-school students, it would use $1.5 million in lieu of the General Fund augmentation. With the balance of additional fee revenue—$2 million—the Legislature could either (1) allow UC to keep the funds and use them for their own priorities (such as, increased enrollments, financial aid, or student outreach), or (2) reduce General Fund support by the same amount.

Proposal to Reduce Student/Faculty Ratio Not Justified

We recommend deletion of $8 million requested from the General Fund for "strengthening the quality of undergraduate education" because the proposal is vague and the university can already reduce the student/faculty ratio by having existing faculty teach more undergraduate classes. (Reduce Item 6440-001-0001 by $8 million.)

The budget requests $8 million from the General Fund for a UC proposal to "strengthen the quality of undergraduate education." The 2000-01 budget included $6 million and UC plans to request an additional $36 million (for a total of $50 million) over the next eight years for this purpose.

Reducing Student/Faculty Ratio (SFR) Accounts for Most of Requested Funds. Beyond broadly describing its proposal, UC has not been able to provide details on how it is spending the $6 million in the current year or how it will spend the requested $8 million for 2001-02. The only detail that UC has provided is that it intends to spend most of the requested funds to hire more faculty. The UC estimates that the requested 2001-02 funding would allow UC to hire about 60 FTE faculty, reducing its SFR from 18.7:1 to 18.4:1. The university plans to hire a total of 500 faculty over the next eight years to reduce further the SFR to 17.6:1, at an annual cost of $50 million when fully complete. This is in addition to new faculty funded each year in the budget to serve additional enrollments.

The University Has Not Made a Case for a Lower SFR. In 1990-91, the budgeted SFR was 17.6:1. The SFR increased to as much as 18.7:1 through 1993-94. In 1994, the university and the Legislature agreed to a funding ratio of 18.7:1. In doing so, the Legislature agreed to fund new enrollments at the "marginal cost of instruction." The Legislature believed that an 18.7 to 1 ratio would constrain costs without negatively affecting the quality of education at UC. The Legislature asked UC to report to it by December 1996 on how the 18.7:1 ratio affected the quality of education. The UC did not complete the report and has not provided any evidence that the quality of undergraduate education eroded after the ratio increased to the agreed upon level or that lowering the SFR is a cost-effective way of improving the quality of education. Because more faculty would permanently be added to UC's base budget, lowering the SFR has significant operating- and capital-cost implications for the state.

Funds Not Needed to Improve Graduation Rates. The UC contends that lowering the SFR will improve graduation rates (the time from the date of first enrollment to the date of graduation). By UC's own admission, however, graduation rates have steadily improved. Of all regularly admitted freshmen in 1994, 36 percent graduated in four years compared to 31 percent in 1984. The percentage of freshmen students that "persist" to their second year has increased over time as well, from 88 percent in 1984 to 93 percent in 1998. The improvement in both rates occurred even though the SFR increased from 17.6:1 (1990-91) to 18.7:1 (1991-92) and has fluctuated around 18.7:1 ever since.

The UC's SFR Is in the Middle Range of Its Public Comparison Institutions. In the Regent's budget, UC states that its SFR compares unfavorably to the private and public institutions to which UC is compared when evaluating faculty salaries. However, graduate students tend to make up a much larger percentage of total enrollment at private universities than at public ones. Because graduate class sizes are typically smaller, the overall SFR at a private university tends to be lower. For this reason, it is somewhat misleading to compare the SFR of a public university to a private one. The SFRs for the four public universities UC compares itself to range from 16.6 to 19.8. Thus, UC's SFR compares favorably with comparable public universities.

The UC Can Already Reduce Student/Faculty Ratio. The UC can reduce class sizes for undergraduates without the requested funds by increasing the amount of faculty time spent teaching undergraduates. For example, from 1993-94 through 1998-99, the average undergraduate teaching load for regular-rank FTE faculty was 2.60 classes per year—or less than one course per quarter. If UC increased the average undergraduate course load of its 8,532 faculty from 2.60 to 2.62 per year, it would have the same affect on class size as hiring 60 new FTE faculty. Viewed another way, if only 156 of the 8,532 university's FTE faculty each taught one more class, it would be like adding 60 new faculty to undergraduate classes. Not only would this save the proposed $8 million, it would ensure that UC directed resources to undergraduate education. By doing this, the Legislature would be shifting a small percentage of existing faculty time from research and other activities to teaching.

Given that (1) UC has not provided details on how it intends to spend the requested $8 million, (2) there is no evidence that lowering the SFR would lead to improved undergraduate education, and (3) UC can reduce undergraduate class sizes by slightly increasing existing teaching loads, we recommend that the Legislature not approve UC's request for $8 million.

Graduate and Professional School Outreach Request Is Premature

We withhold recommendation on $1.5 million in ongoing General Fund support requested for graduate and professional school outreach, pending the release of a comprehensive report in March 2001 by the University of California on their outreach efforts.

The Governor's budget requests $1.5 million in permanent funds to expand graduate and professional outreach programs intended to identify potential candidates and help them prepare for and apply to graduate and professional programs. This is in addition to the $5.5 million in General Fund support currently in UC's base budget for graduate and professional school outreach programs.

The budget proposes that UC use the requested funds to:

• Augment the university's existing Summer Research Internship Program.
• Provide outreach funding to the UC's professional schools (including Dentistry, Optometry, Pharmacy, Public Health, Veterinary Medicine, Management, and Public Policy and International Affairs).
• Link the California Pre-Doctoral Program at California State University directly to UC's doctoral programs.
• Offer an extra session of the California Forum for Diversity in Graduate Education each year (forum would be available twice rather than once a year).

The UC to Issue Preliminary Evaluation of Outreach. In the Supplemental Report of the 1997-98 Budget Act, the Legislature directed UC to submit a proposal and implementation plan by March 1998 for evaluating the costs and short-term and long-term effects on participants of student outreach programs. The 1998-99 Budget Act appropriated $1.2 million in ongoing funds to UC to evaluate the relative cost-effectiveness of outreach programs administered by higher education institutions. In 1998, UC outlined its methodology and promised to report annually on its research on outreach programs. The UC expects the first comprehensive evaluation of UC's outreach program to be available this spring.

The stated goals of UC's outreach efforts are to contribute to academic enrichment by increasing diversity and to improve opportunities for California's educationally disadvantaged students to more fully participate in higher education. To ensure that these important goals are met, it is vital that the Legislature know which programs are most successful in increasing access to and successful participation in undergraduate and graduate education. The UC should be prepared at the time of hearings to advise the legislature on its analysis of outreach programs. Accordingly, we withhold recommendation on the $1.5 million requested for graduate and professional school outreach, pending receipt of UC's outreach report.

Internet2 and the Digital California Project

We withhold recommendation on $32 million from the General Fund proposed for the Digital California Project (Item 6440-001-0001), pending receipt and review of an updated implementation plan due in mid-February 2001, that details actual expenditures, justifies future expenditure needs, and explains future program and technical needs of the project. We further recommend that the University of California report on how schools will connect to Internet2 access points.

The budget provides $50 million from the General Fund to UC for Internet2 connectivity and network infrastructure for K-12 schools and UC campuses (Item 6440-001-0001, Provision 24). The budget characterizes $18 million of this amount as available on a one-time basis for UC campuses and $32 million as ongoing funding of the Digital California Project (DCP). The 2000-01 Budget Act also provided $18 million of one-time funds for UC campuses and $32 million for the DCP.

Although we do not raise any issues with respect to the $18 million requested by UC for UC campuses, we do have several concerns with respect to the $32 million DCP component, which we discuss below.

Background

What Is Internet2? Internet2 is a high-speed national network developed by a working group of 34 universities. It provides faster, more reliable Internet service and can transmit up to 45,000 times more information than the existing Internet technology. Figure 5 summarizes key features of Internet2. Currently, 171 universities across the nation are connected to Internet2.

What Is the DCP? The DCP is a multiyear project to develop, implement, and manage a statewide education network for K-12 schools. The UC has oversight responsibility for DCP, but has contracted with the Corporation for Education Network Initiatives in California (CENIC), a nonprofit corporation of California higher education Internet users, to develop and implement K-12 access points for Internet2.

The DCP's purpose is to extend Internet2 to all 58 county offices of education (COEs). The DCP would create two types of access points to Internet2—hubs and nodes—at COEs and certain other locations intended for eventual access by K-12 schools. The goals of DCP, as stated in the DCP plan, are shown in Figure 6. Meeting these goals would provide K-12 schools with such benefits as access to enhanced computer applications (such as interactive video and multimedia learning experiences) as well as access to higher education resources (such as online staff development programs and digital libraries).

For schools to realize these benefits, however, they must be able to connect to the Internet2 access points at the COEs. This is often called the "last mile" connection. The DCP is missing this critical piece since it does not include funding to connect Internet2 to districts, schools, or the classroom. Thus, in order to benefit from the proposed state expenditures for DCP, nearly all districts and schools would have to purchase computers, local area networks, and/or telecommunications services for the "last mile." According to information provided by Department of Finance staff, this could cost billions of dollars statewide.

Current Status of DCP Implementation

Under its original plan of August 2000, CENIC divided DCP into four phases to be completed over the course of two fiscal years, as shown in Figure 7. Phases I and II span the current year (2000-01) while Phases III and IV pertain to the budget year (2001-02). Already, the plan has experienced several revisions. Most notably, the project calls for fewer hubs and nodes, but more expensive circuitry. Also, CENIC issued the Request for Proposal (RFP) for a network architecture plan late—in Phase II rather than Phase I.

At the time this analysis was written, CENIC had completed DCP's Phase I. Specifically, CENIC has created a governance structure and a steering committee, hired staff and consultants, and issued the RFP for a network architecture plan. In completing these objectives, CENIC spent about $975,000 of their $32 million budget.

The RFP identifies 11 hubs and between 70 to 80 nodes to be installed by July 2001. This represents a scaled-down implementation level compared to 25 hubs and 100 to 140 nodes called for in the original plan developed last year.

Concerns With the Budget Proposal

We have several major concerns with the budget proposal which we discuss below.

Questionable Timelines for Spending Funds. We question whether DCP will continue to meet their implementation timeline given the slippage that already has occurred. To the extent that DCP runs behind schedule, CENIC would need to modify their implementation goals in Phases III and IV. If work on DCP spills over into future years, the amount needed for appropriation in 2001-02 likely would decrease.

Project Scope Apparently Reduced. The RFP reflects a scaled-down implementation compared to that proposed in the original plan. Specifically, the RFP calls for 11 hubs, not the original 25 hubs, and between 70 to 80 nodes, rather than the original 100 to 140 nodes. Although CENIC explains that increased circuit costs will absorb any left-over funds, it is difficult to assess this claim without a revised cost estimate. In our view, based on the fewer hubs and nodes, it is possible that current-year money could be available to reduce the funding requirement for Phases III
and IV in 2001-02.

Updated Expenditure Plan Needed. To date, UC has not submitted to the Legislature updated budgetary information for the current year nor has UC provided the Legislature with information supporting its budget-year request. The CENIC has hired a contractor to prepare an implementation plan with an updated timeline and budget for Phases III and IV (fiscal year 2001-02). This report, however, will not be available until February 19, 2001. The revised timeline and budget is crucial for the Legislature to have when determining the appropriate budget for DCP.

Analyst's Recommendation. The Legislature needs clarification on several key implementation and budget issues in order to assess the DCP budget proposal. In particular, the Legislature needs updated implementation plans, expenditure reports, and budget justifications for the current year, budget year, and future years. Without this information, the Legislature is not able to make an informed decision about DCP's budget, including whether another $32 million is needed for DCP in the budget year. Thus, we withhold recommendation on $32 million for DCP, pending receipt and review of an updated implementation plan due in mid-February 2001.

We further recommend that UC report on how the "last mile" issue is going to be addressed. The Legislature needs information regarding what UC and the administration plan to do to resolve this critical component. Without the last mile connection, the state cannot realize the benefits of the program.

Research Related Issues

Funds Already Available for Graduate Research Assistant Positions

We recommend the Legislature delete $7.5 million requested for additional graduate research assistants (RAs), because funding for the positions is available from a variety of other sources. (Reduce Item 6440-001-0001 by $7.5 million.)

The budget requests a one-time appropriation of $7.5 million to create approximately 250 new graduate student research-assistant (RA) positions in engineering and computer science ($5 million) and environmental science ($2.5 million). (The budget also requests $1.5 million for 50 RAs to study Pierce's Disease, which we analyze in the next issue).

The UC Has Not Justified Need for Extra RAs. The university has not provided any evidence that it does not have enough RAs, nor that existing mechanisms for funding them are broken.

Funding Not Needed for Additional RAs. The university spends $141 million to support RAs, of which $120.2 million (85 percent) comes from federal grants and other nonstate sources. The university indicates that $20.8 million, or 15 percent, of RA support comes from UC and state General Fund resources. (The university is not able to identify the portion that comes directly from the state General Fund.)

Much of the research performed by RAs is funded through research grants and contracts. To the extent that UC needs more RAs for such projects, it should include their associated costs in such contracts.

The university can also use funds requested in the budget to employ additional RAs.

• $52.3 million requested for the "marginal cost" of adding 5,700 FTE students. The marginal cost formula includes $9,158 in General Fund support for each additional FTE student. Of this amount, $4,036 is for the direct costs of hiring new faculty and teaching assistants. The balance of the funding ($5,122) is to support administrative and overhead costs associated with new enrollments. The university can support additional RAs from these funds.
• $119.7 million requested to increase UC's base General Fund budget for unrestricted purposes. The university can use these unrestricted funds to increase its General Fund support for additional RAs.

In sum, UC can include the costs of additional RAs in its grant and contract agreements. It can also support additional RAs from enrollment-growth and base General Fund increases. We therefore recommend the Legislature delete the $7.5 million requested for additional RAs.

Direct Pierce's Disease Research Through Competitive Process

We recommend deletion of $3 million from the General Fund proposed for University of California research on Pierce's Disease because the Legislature created the Pierce's Disease Advisory Task Force in the Department of Food and Agriculture to direct such research.

The Governor requests $3 million in one-time funds to support research into long-term solutions to Pierce's Disease (PD), an insect-transmitted bacterium that threatens California's wine-, table-, and raisin-grape industries. The proposal calls for UC to use one-half of the funds to support graduate-student researchers. It does not specify how UC is to use the remaining $1.5 million in PD research funds.

Our analysis indicates that this proposal is unjustified because:

• The Legislature created the PD Advisory Task Force in the California Department of Food and Agriculture (CDFA) to award PD research grants, and UC can continue to compete for PD research funds through the existing task force.
• The UC can also redirect its existing research funds if it believes this research is a high priority.

Legislature Created PD Research Process. Chapter 627, Statutes of 1999 (AB 1232, Committee on Agriculture), created the Pierce's Disease Advisory Task Force in the CDFA to advise the Secretary on projects "to be conducted in a competitive grant program for Pierce's Disease research."

The act specified that membership on the task force include scientific experts, university researchers, agricultural representatives, and others. Because the task force represents a variety of stakeholders it is well positioned to look at the problem of PD from a statewide perspective and to ensure:

• The most meritorious proposals are funded.
• There is no duplication of services/research.
• Resources are used effectively.

The act appropriated $750,000 each year for three years to the Secretary of CDFA to fund on a competitive basis research relating to the control and management of PD. The act made each $750,000 appropriation contingent on matching $250,000 in private contributions from the California viticulture and enology industry. (The industry provided the funds.) In addition to the total of $3 million in state and industry funds, the CDFA obtained $4.2 million in federal funds for this purpose. Thus, the CDFA received a total of $7.2 million for PD research grants.

To date, CDFA has directed a total of almost $6.6 million to PD research projects, $6.1 million of which have been to UC. According to CDFA, approximately $600,000 remains in the Pierce's Disease Management Account. The CDFA has not requested more funding for additional research projects. To the extent the Legislature seeks to fund additional PD research, we recommend it augment this account, and continue to use the PD Advisory Task Force process for evaluating competitive research proposals. To the extent the Legislature provides CDFA with additional funds, UC could submit additional research proposals to the task force for its consideration. By requiring UC's research to compete with other possible research proposals, the state can better ensure that research funds serve state research interests.

The UC Can Also Fund PD Research by Reallocating Funds Within Its Existing Budget. The budget proposes spending approximately $362 million from the General Fund for research at UC. When federal funds, university funds, and extramural funds are included, total UC proposed research expenditures are $2.5 billion (excluding federal funds for energy labs). If UC fails to obtain funding for its proposed PD research from the PD Advisory Task Force process, and it believes such research is a high priority, it can fund such research by reallocating funds within its substantial research budget.

In sum, the Legislature created a process in the CDFA to award PD research grants on a competitive basis, with advice from an advisory task force representing diverse state interests. We recommend the state continue to use this competitive process to award PD research grants. The UC can also fund PD research, if it believes it to be a high enough priority, from within its substantial research budget. Therefore, we recommend deletion of the $3 million requested to fund UC directly for PD research.