Legislative Analyst's Office Analysis of the 2002-03 Budget Bill

California State University (6610)

The California State University (CSU) currently consists of 22 campuses. The CSU Channel Islands, located in Camarillo (Ventura County), is scheduled to open in fall 2002 as CSU's 23^rd campus. The Governor's budget proposes General Fund spending of $2.7 billion. This is an increase of $128 million, or 4.9 percent, over the enacted 2001-02 budget and an increase of $28 million, or 1 percent, over the Governor's proposed revision of the 2001-02 budget. For the budget year, the Governor proposes $118 million in augmentations and $35 million in reductions. Figure 1 indicates General Fund changes from the enacted 2001-02 budget to the revised 2001-02 budget. It also describes the Governor's 2002-03 General Fund budget proposals.

Base Budget Increase. The Governor's budget provides CSU with a 1.5 percent base increase totaling $37.7 million. The budget assumes that CSU will use this increase for adjustments to faculty and staff salaries (pursuant to collective bargaining negotiations), maintenance, information technology projects, and other programs.

Enrollment Growth of 4 Percent. In addition to a 1.5 percent base increase, the Governor's budget provides CSU with $78.1 million for enrollment growth. The budget assumes that CSU will serve 12,030 additional full-time equivalent (FTE) students, or 4 percent more FTE students than budgeted in the current year. This growth rate is above the growth rate projected by the Department of Finance (3.4 percent).

In the current year, CSU served substantially more students than budgeted. Although CSU was budgeted for 3 percent growth in the current year, it estimates (based upon fall 2001 enrollment) that it will experience 5.9 percent growth (serving an additional 17,181 FTE students rather than the 8,760 additional FTE students for which it was budgeted). The CSU attributes much of the unanticipated growth to the recent economic downturn. It used temporary measures (such as salary savings and an increased student-per-faculty ratio) to cover the cost of educating these additional students.

Student Fees Maintained at Current Levels. The Governor proposes to maintain both resident and nonresident fees at their current levels. The total proposed fees are:

• $1,876 for full-time resident undergraduates.
• $1,954 for full-time resident graduates.
• $9,256 for nonresidents.

In contrast to the previous six years, the Governor does not propose to provide General Fund support in lieu of an increase in student fees. Since 1996-97, the state has annually provided CSU with this support. From 1996-97 though 1998-99, the state provided General Fund support in lieu of increases in student fees at an annual rate of 10 percent. From 1999-00 through 2001-02, the state provided such support at an average annual rate of 4.5 percent. As a matter of recent practice, the foregone fee increases are assumed to reflect the percent change in per capita income, with a two-year lag.

The CSU has not raised fees in eight years. After adjusting for the effects of inflation, total resident undergraduate fees are actually $384, or 18 percent, less today than they were in 1994-95. By choosing not to provide General Fund support in lieu of a increase in student fees, the Governor is assuming that CSU will either (1) absorb the associated inflationary impact or (2) raise fees (which the CSU Board of Trustees has the statutory authority to do). We discuss student fees for all three segments in more detail in the "Intersegmental" section of the Analysis.

Summer Expansion at CSU Chico. The Governor's proposal includes $1.2 million to continue the enhancement of summer operations at CSU. The system intends to use this funding to provide General Fund support for 240 existing FTE summer enrollments at CSU Chico. In the current year, the state began providing this additional support as an incentive for CSU to expand its summer enrollment more rapidly. According to the "buyout" formula used in the current year (but updated to account for the higher marginal cost rate in 2002-03), CSU needs $977,000 to fully support the 240 FTE enrollments at Chico. We discuss this issue, as well as related issues, in our "Update on Year-Round Operations," which is included within the "Intersegmental" section of the Analysis.

Proposed Reductions. While the budget proposes a total of $118 million in augmentations, it also proposes $35 million in reductions.

• Financial Aid Adjustment. The Governor proposes a $14.5 million reduction in General Fund support for campus-based financial aid. The Governor argues that this reduction is made possible as a result of fee reductions in 1998-99 and 1999-00 that were not accompanied by corollary reductions in financial aid. Over those two years, the state increased CSU's base
• budget by a total of $43.6 million (General Fund) to backfill the reduction in fee revenue. One-third of this amount, or $14.5 million, had been designated for student financial aid and is now proposed for elimination.
• Education Technology Professional Development Program. The Governor proposes a $6.5 million reduction to CSU's education technology institutes, reducing the total appropriation for the program to $6 million.
• California Center for Teaching Careers (CalTeach). The Governor proposes a $5 million reduction in CalTeach's advertising activities. The previous two budgets provided CalTeach with $9 million annually (in addition to the funding it receives for operating expenses) to run a statewide advertising campaign aimed at attracting individuals into the teaching workforce.

General Fund Support Per Student. Figure 2 shows the average and marginal General Fund support per FTE student at CSU from 2000-01 through 2002-03. The budget proposes average General Fund support of $8,599 per FTE student. This is $74, or 0.9 percent, more than the average General Fund support provided in the enacted current-year budget. For each additional FTE student budgeted in 2002-03, the Governor provides $6,487 in General Fund support. This is $127, or 2 percent, more than the marginal General Fund support provided in the current year.

Crosscutting and Intersegmental Issues Involving CSU

We address several issues relating to CSU in other sections of this chapter. In "Education Crosscutting Issues—Teacher Support and Development," we discuss the Governor's proposal to reduce funding for the CSU-administered Education Technology Professional Development program. We recommend that the Legislature approve the reduction but do so as part of a broader effort to streamline existing professional development programs for K-12 teachers. Specifically, we recommend the Legislature shift the program into a formula-based teacher support and development block grant.

In the "Intersegmental" section of the chapter we discuss:

• The CSU's student fee policies. We recommend the Legislature adopt a fee policy for CSU that is fair, consistent, and predictable.
• The CSU's institutional financial aid programs. We recommend the Legislature create a fair and consistent statewide financial aid policy and shift state funds from institutional aid programs to the statewide Competitive Cal Grant program.
• The Governor's proposal to provide CSU with $1.2 million to expand summer operations at CSU Chico. We recommend the Legislature approve $977,000 but continue to link the funding to summer enrollment growth.
• The CSU's and UC's joint doctoral programs in education. We recommend the Legislature ask the systems to report on their new funding and fee policies for these programs.

Convert Governor's Teaching Fellowships Into APLE Warrants

We recommend the Legislature convert the Governor's Teaching Fellowships into awards issued under the longstanding Assumption Program of Loans for Education (APLE), which is administered by the Student Aid Commission. The Legislature could then authorize the commission to issue 1,000 additional new warrants (for a total of 7,500 new warrants) each year. This program conversion would allow more students to receive financial aid, save $21.1 million in the budget year, reduce future costs by several million dollars, eliminate the fellowship repayment process, and reduce administrative costs.

The CSU administers the Governor's Teaching Fellowship program, which was established in 2000. The Governor's budget includes a total of $21.1 million for the program in the budget year. The program offers nonrenewable $20,000 grants to meritorious students enrolled in teacher-education programs. The CSU issues 1,000 fellowships each year. The Student Aid Commission administers a similar program—the longstanding APLE, which offers up to $19,000 in loan forgiveness to meritorious students enrolled in teacher-education programs. The commission currently issues 6,500 new warrants each year. We recommend the Legislature convert the Governor's Teaching Fellowships into APLE warrants and authorize the commission to issue 1,000 additional warrants (for a total of 7,500 new warrants) each year.

Programmatic Similarities

These two programs share several central characteristics, including: (1) serving similar students and (2) requiring similar teaching commitments.

Programs Serve Similar Students. The eligibility criteria for the fellowship program and APLE program are very similar. Under both programs, recipients must have outstanding ability as demonstrated by academic performance, faculty evaluations, interviews, and/or letters of recommendation. The only notable difference is that APLE recipients must already have or agree to receive a federal or state educational loan.

Programs Require Similar Teaching Commitments Additionally, both programs require very similar teaching commitments. The most notable difference in teaching commitment is that APLE recipients have more flexibility. Whereas fellowship recipients must agree to teach four years in a low-performing school, APLE recipients must agree to teach four years in one of the following areas: a low-performing school, a low-income school, a school with a high percentage of uncredentialed teachers, or a designated subject matter shortage area.

The penalties for not fulfilling these teaching commitments are also similar. Fellowship recipients are required to repay $5,000 for each year they renege on their teaching agreement, whereas APLE recipients are denied loan forgiveness (ranging from $2,000 to $5,000) for each year they renege on their teaching agreement.

The APLE Has Benefit of Multiple Incentives. The APLE program has the added benefit of multiple incentives, in which individuals can obtain greater loan forgiveness if their teaching assignment addresses multiple areas of need. For example, an APLE recipient who agrees to teach in a low-income school is eligible for a total of $11,000 in loan forgiveness; an APLE recipient who agrees to teach mathematics in a low-income school is eligible for a total of $15,000; and an APLE recipient who agrees to teach mathematics in a school in the lowest 20 percent of the Academic Performance Index rankings is eligible for a total of $19,000. The fellowship program does not have any of these additional incentives.

Fiscal Efficiencies

Although the two programs could be combined simply because they serve similar students and require similar teaching commitments, the Legislature could obtain several fiscal benefits by converting the $20,000 fellowships into $19,000 redeemable APLE warrants. These benefits include: (1) saving $21 million in the budget year, (2) reducing out-year costs, (3) reducing enforcement costs, and (4) reducing administrative costs.

Saves $21 Million in Budget Year. Converting the fellowships into warrants saves $21 million in the budget year because award recipients would not begin redeeming their warrants until 2003-04. Although this is a short-term savings, the Legislature can also obtain the long-term savings, as described below.

Reduces Enforcement Costs. Under the fellowship program, recipients must repay $5,000 for each year of their teaching commitment they do not fulfill. State law gives CSU the authority to adopt any rules and regulations that are necessary for "the recovery of funds it determines are owed to the state." It also gives CSU the authority "to seek a civil penalty on a recipient of funds under this program." Under the fellowship program, therefore, CSU potentially can become involved in a time-consuming, difficult, and costly enforcement process to obtain repayment from individuals who have already received fellowships yet have decided not to teach. In contrast, under the APLE program recipients agree to take a loan in their own name and are held immediately liable if they do not fulfill their teaching commitment. (In such cases, the state simply does not forgive that portion of their loan.)

Reduces Administrative Costs. To administer the fellowship program and track fellowship recipients, CSU receives $1 million annually and the Commission on Teacher Credentialing receives $66,000. These two agencies have received this funding since the inception of the program—when there were few fellowship recipients and no fellowship recipients to track. They continue to receive this funding even though the program involves only 1,000 fellowship recipients. Thus, the state pays more than $1,000 in administrative costs for each fellowship that CSU awards. By comparison, the commission expends approximately $400,000 annually to administer the APLE program. With this $400,000, the commission is able each year to issue 6,500 new warrants as well as track more than 15,000 existing warrants. Thus, the state pays less than $19 in administrative costs for each APLE warrant issued.

In sum, we recommend the Legislature convert the Governor's Teaching Fellowships into APLE warrants and authorize the commission to issue 1,000 additional warrants (for a total of 7,500 new warrants) each year. This would result in both short- and long-term fiscal benefits, including: (1) saving $21.1 million in the budget year, (2) reducing future costs by several million dollars, (3) reducing enforcement costs, and (4) reducing administrative costs.