LAO Analysis of the 2002-03 Budget: Education, Introduction

The Governor's budget proposes a $150.5 million increase in General Fund expenditures for higher education in 2002-03. This represents an increase of 1.6 percent above estimated expenditures in the current year. The 2002-03 budget proposal would fund 1.5 percent base increases for the University of California (UC) and the California State University (CSU), and a 2.15 percent inflation adjustment for the California Community Colleges (CCC). It also funds enrollment growth of 4 percent for UC, 4 percent for CSU, and 3 percent for CCC. For the eighth consecutive year, the budget proposes no increase to resident student fees. However, in a departure from recent practice, the budget does not propose General Fund support in lieu of raising resident student fees for UC and CSU.

Total Higher Education Budget Proposal. As Figure 1 shows, the 2002-03 budget proposal provides a total of $28.8 billion from all sources for higher education. This amount is $729 million, or 2.6 percent, more than the Governor's revised current-year budget proposal. The total includes funding for the UC, CSU, CCC, Hastings College of the Law, the California Student Aid Commission, and the California Postsecondary Education Commission (CPEC). Funded activities include instruction, research, and related activities, as well as other activities, such as providing medical care at UC hospitals ($2.8 billion) and managing three major U.S. Department of Energy laboratories ($3.3 billion). The Governor's current-year estimates include a variety of technical adjustments and assume adoption of the Governor's November Revision proposal, which would reduce current-year expenditures in higher education by $61 million.

Figure 1 Higher Education Budget Summary^a
(Dollars in Millions)
	Revised Estimated 2001-02	Proposed 2002-03	Change
	Revised Estimated 2001-02	Proposed 2002-03	Amount	Percent
University of California
General Fund	$3,326.7	$3,367.1	$40.3	1.2%
Student fee revenue	942.2	994.6	52.4	5.6
Federal and other funds	11,354.4	11,676.6	322.2	2.8
Totals	$15,623.4	$16,038.3	$414.9	2.7%
California State University
General Fund	$2,707.5	$2,735.6	$28.2	1.0%
Student fee revenue	655.6	676.4	20.8	3.2
Federal and other funds	1,880.6	1,864.9	-15.7	-0.8
Totals	$5,243.7	$5,276.9	$33.2	0.6%
California Community Colleges
General Fund	$2,819.5	$2,739.4	-$80.1	-2.8%
Local property tax revenue	1,855.3	2,001.9	146.6	7.9
Student fee revenue	162.4	167.3	4.9	3.0
Federal and other funds	1,198.8	1,229.0	30.2	2.5
Totals	$6,035.9	$6,137.6	$101.6	1.7%
Student Aid Commission
General Fund	$571.4	$733.7	$162.3	28.4%
Federal and other funds	576.0	575.7	-0.3	-0.1
Totals	$1,147.4	$1,309.4	$162.0	14.1%
Other^b
General Fund	$18.9	$18.7	-$0.2	-0.9%
Federal and other funds	32.9	50.0	17.1	52.1
Totals	$51.8	$68.7	$17.0	32.8%
Grand Totals	$28,102.2	$28,830.9	$728.7	2.6%
General Fund	$9,444.0	$9,594.5	$150.5	1.6%
Property tax revenue	1,855.3	2,001.9	146.6	7.9
Student fee revenue	1,774.0	1,851.7	77.7	4.4
Federal and other funds	3,674.5	3,706.2	31.7	0.9
^a General Fund amounts exclude capital outlay and payments on general obligation bonds�both of which we discuss in the �Capital Outlay� chapter.
^b Includes Hastings College of the Law and the California Postsecondary Education Commission.

Major Funding Sources. The 2002-03 budget proposes General Fund expenditures of $9.6 billion for higher education. This amount is $150 million, or 1.6 percent, more than estimated expenditures in the current year. The budget also projects that local property taxes will contribute $2 billion for CCC in 2002-03, an increase of $147 million, or 7.9 percent, over the revised current-year amount. In addition, student fee and tuition revenue at all the higher education segments account for $1.9 billion of proposed expenditures. This amount is $78 million, or 4.4 percent, greater than student fee revenue in the current year. (This increase results almost entirely from proposed enrollment growth rather than higher fees.) Lastly, the budget includes $3.7 billion in other funds�including federal funds, restricted funds, and funds from private sources. The amounts 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 chapter.

General Fund and Proposition 98 Proposals by Segment. The budget proposes General Fund expenditures for UC of $3.4 billion, which is $40.3 million, or 1.2 percent, more than the Governor's revised current-year estimate. For CSU, the budget proposes General Fund expenditures of $2.7 billion, an increase of $28.2 million, or 1 percent, over the current year. These increases are understated due to one-time costs reflected in the segments' current-year budgets.

For CCC, the budget proposes General Fund expenditures of $2.7 billion, which is $80.1 million, or 2.8 percent, less than the current year. (This decrease is offset by an increase in local property tax revenue.) Incorporating local property tax revenue, the budget anticipates $4.7 billion in CCC's Proposition 98 expenditures, an increase of $68.2 million, or 1.5 percent, over the current-year estimate.

Major Budget Changes

The Governor's budget proposal provides all three segments of higher education with funding for modest base budget increases and enrollment growth above the growth projections by the Department of Finance and CPEC, which traditionally are used for planning purposes. Figure 2 describes the major General Fund budget changes proposed by the Governor for UC, CSU, and CCC.

Figure 2 Higher Education Proposed Major General Fund Changes

	University of California	Requested:	$3.4 billion
	University of California	Increase:	$40.3 million	(+1.2%)

	*Base Budget Adjustments:* Increase of $47.6 million (1.5 percent) for salary and other cost increases. Also reflects a $77.5 million reduction due to one-time costs in current year.
	*Enrollment Growth:* $63.8 million (4 percent: 7,100 full-time-equivalent [FTE] students).
	*Proposed Current-Year Reductions:* $36 million for natural gas costs, Professional Development Institutes, and UC teaching hospitals.
	*Proposed Budget-Year Adjustments:* Reduction of $30 million in financial aid, outreach, teacher training, and K-12 Internet 2. Augmentation of $36.3 million in staff benefits, summer courses, lease-revenue bond payments, and new initiatives.

	California State University	Requested:	$2.7 billion
	California State University	Increase:	$28.2 million	(+1.0%)

	*Base Budget Adjustments:* $37.7 million (1.5 percent) for salary and other cost increases. Also reflects a $54.7 million reduction due to one-time costs in current year.
	*Enrollment Growth:* $78.1 million (4 percent: 12,030 FTE students).
	*Proposed Current-Year Reductions:* $20 million for natural gas costs.
	*Proposed Budget-Year Reductions:* $35.1 million in financial aid, K-12 professional development and teacher recruitment, and lease-revenue bond payments.

	California Community Colleges	Requested:	$2.7 billion
	California Community Colleges	Decrease:	$80.1 million	(-2.8%)

	*Base Budget Increase:* $88.8 million (2.15 percent).
	*Enrollment Growth:* $114.3 million (3 percent: 31,864 FTE students).
	*Proposed Current-Year Reductions:* $5 million (Proposition 98 Reversion Account) to reduce Teacher and Reading Partnership program by one-half, and $24.8 million (Proposition 98 General Fund) in apportionments to reflect increased property tax revenues.
	*Proposed Budget-Year Adjustments:* Reductions of $171.4 million in apportionments to reflect higher property tax revenues and $131.4 million in various categorical programs. Augmentation of $66 million for instructional equipment and scheduled maintenance.

Enrollment Growth. The largest changes in UC's and CSU's budgets are for enrollment growth. As Figure 3 shows, the budget proposes total higher education full-time equivalent (FTE) student enrollments of 1.6 million, which is about 52,000 (3.4 percent) over the budgeted enrollments for the current year. The budget provides funding for 7,100 additional FTE enrollments at UC and 12,030 additional FTE enrollments at CSU. The Governor proposes $8,987 and $6,488, 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 $63.8 million and the total cost at CSU is $78.1 million. (The Governor also proposes new funding for students enrolled in summer sessions. We discuss this proposal separately in "Update on Summer Operations at UC and CSU" later in this chapter.)

The budget also includes $114.3 million for CCC to accommodate a 3 percent, or 31,864 FTE, increase in enrollment. This is equivalent to $3,587 in Proposition 98 support for every additional CCC FTE student. The proposed level of growth is $40.4 million above the statutorily recommended level of 1.94 percent.

Figure 3 Higher Education Enrollment
2000-01 Through 2002-03 Full-Time Equivalent (FTE) Students
	Actual 2000-01	Estimated 2001-02	Proposed 2002-03	Change from 2001-02
	Actual 2000-01	Estimated 2001-02	Proposed 2002-03	Amount	Percent
University of California
Undergraduate	131,534	136,972	142,886	5,914	4.3%
Postbaccalaureate	634	625	868	243	38.9
Graduate	26,524	27,803	28,746	943	3.4
Health Sciences	12,578	12,266	12,266	�	0.0
UC Totals	171,270	177,666	184,766	7,100	4.0%
California State University
Undergraduate	246,082	254,709	264,895	10,186	4.0%
Postbaccalaureate	20,824	21,554	22,417	863	4.0
Graduate	23,219	24,033	24,995	962	4.0
CalState Teach	429	443	462	19	4.3
CSU Totals	290,554	300,739	312,769	12,030	4.0%
California Community Colleges	1,031,206	1,062,142	1,094,006	31,864	3.0%
Hastings College of the Law	1,198	1,200	1,200	�	�
Grand Totals	1,494,228	1,545,112	1,597,003	51,891	3.4%

Compensation and Cost-of-Living Increases. As Figure 2 shows, the second largest increase in UC's and CSU's budgets are 1.5 percent adjustments in their General Fund bases�designated for faculty and staff compensation and other costs. The budget provides $47.6 million to UC and $37.7 million to CSU for these base increases.

For CCC, the budget contains $84.4 million for a 2.15 percent adjustment for inflation. This adjustment is specified in statute. Another $4 million is provided for a 2.15 percent discretionary cost-of-living adjustment for several categorical programs.

Governor's Initiatives. The proposed budget contains few new programs or initiatives. Instead, it proposes reductions for a number of existing programs. These are summarized in Figure 2.

Student Fees: Resident Student Fees Held Constant. We discuss student fees at some length in the "Intersegmental" section of this chapter. Therefore, we give only a brief overview of student fees in this section.

Figure 4 shows student fee levels at California's public colleges and universities. Last year was the seventh consecutive year the state either reduced fees or held them constant. For the budget year, the Governor proposes once again to hold resident student fees constant for all the segments. For 2002-03, undergraduate systemwide and campus-based fees for full-time resident students would remain $3,859 at UC, $1,876 at CSU, and $330 at CCC. However, in a departure from past practice, the budget does not provide funding to compensate UC and CSU for additional revenue they would otherwise collect if they raised fees to keep pace with rising costs.

Figure 4 Higher Education Proposed Annual Student Fees in 2002-03
	Residents		Nonresidents
	Educational Fee	Total Fee^a	Tuition	Total Fee^a
University of California
Undergraduates	$2,716	$3,859	$11,132	$15,361
Graduates	2896	4,914	11,132	16,236
Professionals^b
Lowest fee	4,696	6,620	11,132	17,752
Highest fee	8,896	11,193	11,132	22,325
California State University
Undergraduates	$1,428	$1,876	$7,380	$9,256
Graduates	1,506	1,954	7,380	9,334
California Community Colleges	$330	$330^c	$3,900	$3,900^c
Hastings College of the Law	$10,175	$11,409	$9,486	$20,895
^a Total fee includes educational fees, registration fees, and campus-based fees (weighted average for UC and unweighted average for CSU).
^b Represents range of total fees charged to professional-school students.
^c Some community colleges charge additional fees (for purposes such as instructional supplies, health care, and parking). The amount of these fees varies considerably across campuses.
^d The amount per unit for nonresident fees at CCC ranges from $114 to $155. The statewide average is $134 per semester unit.

Nonresident Fees. The Governor's budget proposes to increase fees charged to nonresident students at UC by $428, or approximately 2.9 percent. The budget does not propose to increase nonresident student fees at CSU.

Chapter 814, Statutes of 2001 (AB 540, Firebaugh), exempts from nonresident fees most nonresident high school graduates (including undocumented immigrants) who nevertheless have attended a California high school for at least three years. Chapter 814 applies to both CSU and CCC. At the time of this Analysis, the UC Regents had decided to adopt this policy contingent on the enactment of legislation protecting UC from legal liability in implementing this policy.

Changes in Higher Education Funding Over Time

Figure 5 shows inflation-adjusted funding for UC, CSU, and CCC per FTE student over the past two decades. As illustrated in the figure, per-student funding in all segments declines slightly in the budget year. This is largely due to proposed programmatic cuts and because proposed base increases do not keep pace with inflation. Still, per-student funding for all segments remains near historically high levels. Proposed total per-student funding is $16,313 for UC, $10,722 for CSU, and $4,678 for CCC.

Legislative Analyst's Office

Analysis of the 2002-03 Budget Bill

Introduction

Major Budget Changes

Changes in Higher Education Funding Over Time