Analysis of the 2004-05 Budget Bill
Legislative Analyst's Office
For the past ten years, the state's public higher education segments have experienced sustained moderate enrollment growth. In keeping with legislative intent expressed in the 2003-04 budget package, the Governor's budget for 2004-05 does not include new funding for enrollment growth at the University of California and the California State University. The proposed budget does, however, provide funding for an increase of enrollment at the California Community Colleges of 3 percent. In this section, we (1) review current-year enrollment levels at the segments, (2) review the principles for access adopted by the Legislature in the Master Plan for Higher Education, and (3) recommend a series of steps the Legislature can take to preserve the Master Plan's commitment to access even with the state's current fiscal limitations.
As part of the 2003-04 budget package, the Legislature expressed its intent to provide no new funding for enrollment growth at the University of California (UC) and the California State University (CSU) in 2004-05. In keeping with that intent, the Governor's budget proposal includes no new enrollment growth funding. In fact, the Governor proposes to reduce new freshman enrollment at UC and CSU by 10 percent, with the foregone enrollment being redirected to the California Community Colleges (CCC) under a new dual admissions program. This would result in a $45.9 million General Fund reduction as follows:
Under the proposed new dual admissions program, students who are eligible to attend UC or CSU directly from high school would be admitted to a specific campus provided they first complete a transfer program at a community college. (The UC currently operates a similar program for ineligible students.) The Governor's budget requests a total of $3.5 million in General Fund support—$1.6 million for UC and $1.9 million CSU—to provide counseling services to students participating in the new program. (We make recommendations concerning the proposed funding for dual admission counseling in the "K-14 Outreach Programs" section of this chapter.)
In contrast to the Governor's proposal for the public universities, the budget actually increases funded enrollment at CCC by 3 percent, which is considerably higher than the statutory growth rate of 1.8 percent. The budget requests $121 million in Proposition 98 funds for the community colleges to serve an additional 33,120 FTE students above the current-year budgeted level. This increase is partly in recognition of the enrollment that is expected to be diverted from UC and CSU to the community colleges. (We discuss enrollment at CCC in the "California Community Colleges" section of this chapter.)
Typically, the Legislature provides funding in the annual budget act to the state's public higher education segments to support a specific level of enrollment growth. For the current year, the 2003-04 Budget Act provided about $268 million to fund enrollment growth rates of 6.9 percent at UC and 7.1 percent at CSU. These current-year funded growth rates for each segment are the highest in at least the past 20 years.
Segments Not Following Budget Language. Notwithstanding budgeted enrollment growth, the segments report that they plan to serve significantly fewer students than they are funded to serve. Essentially, UC and CSU have chosen to redirect enrollment growth funding away from serving additional students to essentially "backfill" budget reductions in other program areas. In other words, the current-year enrollment levels are lower than called for in the 2003-04 Budget Act as a result of specific choices by the segments—not because of demographic changes or lack of enrollment funding. We recognize, of course, that UC and CSU experienced significant current-year reductions in their General Fund budgets. However, during the 2003-04 budget hearings, the Legislature deliberated how the segments should accommodate their reductions. As part of these deliberations, the Legislature considered whether a portion of the General Fund reductions should be taken from enrollment growth funding. (Our office in fact recommended this approach in the Analysis of the 2003-04 Budget Bill.) During conference committee, the Legislature ultimately decided to leave the segments' enrollment funding (and budgeted enrollment levels) where the Governor had originally proposed—that is, reflecting about 7 percent growth. The enacted budget made some of the segment's General Fund reductions in specific programs (such as outreach), and left some unallocated (with language expressing the Legislature's intent that the segments implement their reductions in a manner that minimizes the impact on instructional programs, student services, and outreach programs).
UC's Current-Year Enrollment. The 2003-04 budget provided $117 million to UC to enroll 13,000 additional FTE students above the prior-year funded enrollment level, for a total of 202,628 FTE students. However, as indicated in Figure 1, the university plans to serve only 198,628 FTE students. This is a difference of 4,000 students, which equates to about $33 million in enrollment funding (based on the "marginal" cost associated with each additional student). In order to help reduce expected enrollment below the budgeted level and "free up" enrollment funds for other purposes, UC announced last fall that it would not consider the applications of about 1,600 freshmen and CCC transfer students seeking winter or spring admission. Specifically, the university returned the applications and application fees to these students. It was unclear which particular program reductions the university chose to offset with this portion of the funds the Legislature provided for enrollment growth.
UC's Budget-Year Enrollment. For 2004-05, the Governor's budget proposes funding for total FTE enrollment at UC of 199,428 students. (This total is less than the 2003-04 budgeted level of 202,628 FTE students because it reflects the redirection of 3,200 students to the community colleges.) At the time this analysis was prepared, the university was making plans (such as admissions decisions) based on this enrollment target for next year. As indicated in Figure 1, the Governor's enrollment target of 199,428 FTE students for 2004-05 is about 800 FTE students more than the university is planning to serve in the current year. In other words, the proposed budget allows UC to retain base enrollment funding into the budget year to accommodate an additional 800 students above the current-year level.
CSU's Current-Year Enrollment. For 2003-04, the enacted budget includes $151 million to fund 22,881 more FTE students at CSU than budgeted in the prior year. This results in a total funded enrollment level of 344,013 FTE students at CSU in 2003-04. However, as indicated in Figure 2, the university plans to serve only 334,914 students. This is a difference of 9,099 FTE students, which equates to approximately $60 million in enrollment funding (based on the marginal cost associated with each additional student). In order to reduce enrollments in the current year below the budgeted level, CSU campuses took steps to reduce spring 2004 admissions.
According to the Chancellor's Office, CSU is using this diverted enrollment growth funding to backfill various budget reductions. For example, $45.5 million is being used to offset part of a one-time unallocated reduction of $69.5 million. As we discuss in the "California State University" section of this chapter, the Governor's budget for 2004-05 proposes to restore this entire $69.5 million unallocated reduction.
CSU's Budget-Year Enrollment. For the reasons described above, we believe the Governor's 2004-05 budget for CSU includes enough enrollment funding to serve 340,213 FTE students. (This total is less than the budgeted level for 2003-04 of 344,013 FTE students, because it reflects the redirection of about 3,800 students to the community colleges.) As indicated in Figure 2, this enrollment target of 340,213 FTE students for 2004-05 is about 5,300 FTE students more than the university plans to serve in 2003-04. Essentially, the Governor's budget allows CSU to retain base enrollment funding into the budget year that can accommodate an additional 5,300 students above the current-year level. At the time this analysis was prepared, however, the university was making plans (such as admissions decisions) to serve only 331,540 FTE students for next year. This amount is almost 8,700 FTE students less than can be served with available enrollment funding. Moreover, the Chancellor's Office has indicated that the university may further reduce its planned enrollment target for the budget year, in order to accommodate various budget reductions proposed by the Governor (such as reductions to academic and institutional support).
In conclusion, the Legislature made enrollment growth a priority when it provided UC and CSU with funding to increase the number of students by 7 percent in the current year. The segments, however, chose to redirect some of these enrollment growth funds to preserve their own priorities. It is unclear why UC and CSU disregarded the Legislature's direction. Because the segments decided to enroll fewer students than they received funding for in 2003-04, they have base enrollment funding to serve a total of 6,100 additional students in 2004-05. Thus, even though the budget provides no new funding for enrollment growth, UC and CSU can serve additional students within existing resources.
Increasingly, the Legislature has expressed concern about the state's ability to ensure "access" to public higher education. In response to this, over the past few years UC and CSU have adopted various changes to their freshman admissions processes. Because these changes cumulatively can have significant policy implications, it is important for the Legislature to revisit and assess the process of higher education admissions in California. Such a review is particularly important at this time because, as discussed earlier, the Governor's budget for 2004-05 provides no new funding for enrollment growth at UC and CSU. In a recent report, Maintaining the Master Plan's Commitment to College Access, we reviewed the principles for access adopted by the Legislature in the Master Plan for Higher Education and in this context we examined the current admission practices of UC and CSU. We summarize the major findings of our report below.
As a reference point to guide legislative and executive decisions, the Master Plan (adopted by the Legislature in 1960 and periodically updated) established admission guidelines that remain as the state's official policy today. The plan calls for the community colleges to accept all applicants 18 years and older that can benefit from attendance. The plan calls for CSU to draw from the top one-third (33.3 percent) of public high school graduates, and to accept all qualified community college transfer students. The Master Plan calls for UC to draw from the top one-eighth (12.5 percent) of public high school graduates and to accept all qualified community college transfers. In short, the Master Plan specifies a target for the subgroup of high school graduates to be selected to attend each segment.
In order to serve the above populations, UC and CSU have adopted their own specific admissions criteria—such as grade point average (GPA) and SAT requirements. Students meeting these requirements are identified by the segments as being "eligible" for admission. As we discuss later, we believe it is likely that UC and CSU are currently drawing students for admission from outside their Master Plan targets.
Eligibility applies to each segment as a whole, and does not guarantee admission to any particular campus. This is because some campuses do not have the capacity and resources to admit all eligible applicants who desire to enroll there. As a result, some campuses use additional admissions criteria (which are stricter than systemwide eligibility criteria) to select new students from among eligible applicants. Eligible students who cannot be accommodated at the campus of their choice typically are offered a space at a different campus in the system.
The Legislature's intention (expressed in the 2003-04 budget package) not to provide funding for enrollment growth at UC and CSU in 2004-05 raises important policy questions regarding higher education admissions. The state must find ways to both ensure continued access to eligible students and preserve the Master Plan principles with limited resources. Anticipating no new enrollment growth funding in 2004-05, the UC Board of Regents and the CSU Board of Trustees discussed various alternatives in summer and fall 2003 for bringing admissions and enrollment policies more in line with budgeted resources. Some of these alternatives being discussed would, we believe, jeopardize some principles expressed in the Master Plan. However, as we noted in our admissions report, we do not think this is necessary.
We recognize that the state's fiscal constraints are requiring that the segments enroll fewer additional students than they likely would have in better fiscal times. However, for reasons described below, we believe the state can continue to maintain the Master Plan's commitment to access even with these resource constraints.
Based on our review of the University of California and the California State University's admissions policies and enrollment funding levels, we believe the segments can accommodate additional eligible students in 2004-05 without increased funding for enrollment growth.
In order to gauge how well the segments are selecting the target populations called for in the Master Plan, existing law requires the California Postsecondary Education Commission (CPEC) to periodically estimate the percentages of California public high school graduates that the segments determine are eligible for admission. The most recent CPEC eligibility study was based on a survey of California's 1996 public high school graduates. In this report, CPEC found that CSU was drawing from the top 29.6 percent of high school graduates. This is about 3.7 percentage points below CSU's Master Plan target of about 33.3 percent. On the other hand, the study found that UC was drawing from a considerably larger pool than the top 12.5 percent. Based on CPEC's 1996 survey, the segment was selecting from the top 20.5 percent of public high school graduates. (See accompanying box on issue of determining the eligibility pool.)
A Note on Measuring the Eligibility Pool for UC
In its report, Eligibility of California's 1996 High School Graduates for Admission to the State's Public Universities, the California Postsecondary Education Commission (CPEC) described the eligibility pool for the University of California (UC) in two ways. First, it estimated that 11.1 percent of high school graduates in 1996 were "fully eligible" for UC because they had achieved the then-required 3.3 grade point average (GPA) on UC preparatory classes and taken the SAT and three separate SAT II achievement tests. The CPEC also estimated that 20.5 percent of high school graduates in 1996 were "potentially eligible" for UC. These potentially eligible students, according to CPEC, included those who had achieved a 3.3 GPA but may not have taken the SAT I and SAT II test. At the time of the 1996 CPEC report, the university required students to take these tests, but did not use the test scores to determine a student's eligibility if their GPA was 3.3 or above. (High school graduates with GPAs between 2.82 and 3.3 could have become eligible for UC if their SAT I scores were sufficiently high.)
Top high school graduates that choose to attend CSU rather than UC do not need to take either the SAT I or SAT II, and many probably do not. Similarly, top high school graduates that choose to attend other top universities in the country do not need to take SAT II tests, and many probably do not. By excluding students who have not taken these tests when it identifies top high school graduates, UC significantly understates the size of the pool from which it draws freshmen. When such students are included, as we believe they should be, UC is drawing from the top 20.5 percent of high school graduates.
Although we do not know how well the segments' current admissions standards are achieving their Master Plan targets, recent initiatives have probably expanded their eligibility pools in recent years. For example, UC established the Eligibility in the Local Context (ELC) program in order to extend eligibility to additional students who do not meet UC's minimum standards for statewide eligibility. (The ELC program extends eligibility to the top 4 percent of graduates [as determined solely by GPA in UC-approved courses] at each California high school.) The CSU has also in recent years made changes to its eligibility requirements (such as modifying its high school course requirements) in order to increase its eligibility pool.
Moreover, both UC and CSU admission policies currently exceed the Master Plan's limits on "special admissions" of otherwise ineligible students. Specifically, the Master Plan states that no more than 2 percent of freshman and 2 percent of transfer students should be admitted through special procedures outside the state's minimum eligibility standards for academic coursework and standardized test scores. Because students "admitted by exception" to UC and CSU are otherwise ineligible for admission, a special admit essentially takes up a "slot" at the university that could otherwise have gone to an eligible student. (Please refer to our report, Maintaining the Master Plan's Commitment to College Access, for a more detailed discussion about special admissions.)
In view of the above, we believe it is likely that UC and CSU are currently drawing students outside their Master Plan targets and special admission pools. Rather than accept as many students from outside the Master Plan targets, the segments could more strictly observe these targets and refocus existing funds at the state's high school graduates who fall within the targets. In effect, realigning UC and CSU's eligibility criteria with the Master Plan targets may create "room" to fund additional eligible students in 2004-05. Ineligible students denied admission to UC might be able to attend CSU instead. In addition, students denied admission to UC and CSU would be eligible to attend a community college.
As previously discussed, the segments also have base enrollment funding to serve additional students in 2004-05. Thus, we believe the segments have room to accommodate additional students who qualify for admission in 2004-05 even without increased funding for enrollment growth.
Updated CPEC Eligibility Study Forthcoming. Although CPEC has not completed an eligibility study in recent years, the past three budgets have provided funding for CPEC to conduct such a study. This funding was included in the budgets of CPEC and the three public higher education segments. As part of the 2003-04 budget, the Legislature adopted supplemental report language directing CPEC and the segments to complete and submit an eligibility study based on 2003 public high school graduates by May 15, 2004. Given the importance of understanding enrollment demand and determining where the segments actually are relative to their Master Plan targets, the Legislature should carefully consider the results of CPEC's eligibility study in its upcoming budget and policy deliberations.
Our review suggests that the current eligibility requirements established by the University of California and the California State University may not be accurately defining the state's top high school graduates under the Master Plan.
Since the Legislature first established the student population targets in the Master Plan in 1960, the segments have been permitted to define for themselves who are the state's top high school graduates that fall within those targets. In adopting and modifying eligibility criteria, UC and CSU can (1) increase or decrease the percentage of students eligible for freshman admission at each segment, (2) alter the profile of eligible students without changing the percentage of eligible students, and (3) change the allocation of students across the three segments. These definitions of eligibility therefore reflect important policy choices that affect access to and the quality of the state's higher education system. Yet, they have been made with very little legislative oversight. We note also that the Legislature has little information about the appropriateness of existing criteria and how well the criteria are aligned to its K-12 education priorities and expectations.
For example, the Master Plan does not require that students complete a college entrance exam (such as the SAT) in order to be considered among the state's top public high school graduates. However, UC defines its eligibility pool to exclude those students who have not taken the SAT I and SAT II exams, regardless of their other academic achievements. As noted above, the 1996 CPEC eligibility study identified "potentially" UC eligible students who completed the required courses and earned exceptionally high grades but chose not to take the required tests. In other words, these students simply had to take the SAT I or SAT II tests in order to become fully eligible under UC's definition. We believe it would make more sense, and would be easier to calculate the top one-eighth and one-third of high school graduates, if the definition of these pools did not depend on whether a student voluntarily chose to take a test. Instead, we believe the targets specified in the Master Plan should—to the maximum extent possible—be defined on the basis of data available for all students.
In our recent report, we reviewed UC's and CSU's current admission policies and practices and identified a number of important policy issues that merit legislative consideration. Based on our findings and the Legislature's desire to preserve the Master Plan, we recommend (1) redirecting lower division students on a voluntary basis to enroll at a community college, (2) returning to the Master Plan special admission caps, (3) implementing enrollment management policies, and (4) reexamining current eligibility standards.
In order to preserve college access, we recommend the Legislature establish a policy (similar to that proposed by the Governor) whereby the University of California and the California State University would admit qualified freshmen but redirect a portion of them to enroll in specific community colleges for their lower division coursework. We further recommend the Legislature reject the Governor's proposal to waive the fees for students redirected to community colleges. We also recommend that students be redirected on a voluntary basis, but that the segments encourage participation by guaranteeing a student's admission to his or her first-choice campus. (Reduce Item 6870-001-0001 by $3.4 million.)
One of the major drivers of higher education cost is growth in student enrollment. As enrollments increase, the segments face additional costs for serving more students. Based on projections of enrollment increases and the Legislature's budget priorities each year, funding is added to UC's and CSU's budgets for the cost of serving additional students (commonly referred to as the "marginal cost"). Similarly, the state provides funding for additional students at the community colleges using an established budget formula.
Because of the different missions of the three segments, the per student support rate for new students varies substantially. For 2003-04, the state provided UC with $9,030 for each additional FTE student compared to $6,594 at CSU and about $4,132 at CCC. In addition, the student fees charged by the segments also vary substantially. In the current academic year, UC full-time undergraduate student's systemwide fee is $4,984 com pared to $2,046 at CSU and $432 at CCC (based on an average full-time load of 24 units).
All three segments of higher education offer lower division (freshman and sophomore) instruction. In recent years the Legislature has identified transfer from community colleges to UC and CSU as a central priority for all segments of higher education. Given the high costs to the state and student to attend UC and CSU, it can be cost-beneficial for students to attend the community colleges for lower division work and then transfer to either UC or CSU for upper division work. The Legislature through the Master Plan and other initiatives has recognized the importance and value of facilitating a four-year student's ability to complete lower-division courses at a community college. For example, existing statutes place a high priority for the enrollment and admission of community college transfer students to UC and CSU. As noted earlier, UC recently developed a "dual admissions" program so that students who are not eligible to attend the university directly from high school can be admitted to a specific UC campus provided they first complete a transfer program at a community college.
LAO Redirection Proposal. Given the state's fiscal condition and projections for enrollment growth, we believe encouraging eligible students to enroll at community colleges for their lower division coursework helps preserve college access. Accordingly, as we have in prior analyses and most recently in our report on college admissions, we recommend the enactment of legislation establishing a policy whereby UC and CSU would admit qualified freshman but redirect a portion of them, on a voluntary basis, to enroll at community colleges for their first two years. Some students may find it more advantageous to initially attend a community college and incur lower direct costs (such as student fees and housing costs). In order to encourage a student to participate in this "redirection," the segments could guarantee a student's admission to his or her first-choice campus after completing lower-division coursework at a community college. This would be beneficial to students who otherwise could not attend their campus of choice because of its selectivity. Finally, we acknowledge that the proposal would take time to implement and would require a commitment on the part of UC and CSU to fully inform students and parents about the program in order to be successful.
Governor's Redirection Proposal Has Merit, But Needs Improvement. As noted earlier, the Governor's budget for 2004-05 proposes to reduce new freshman enrollment at UC and CSU by 10 percent (or 7,000 FTE students), with the foregone enrollment redirected to the community colleges. Overall, we believe the Governor's redirection program makes sense on policy grounds and shares some of the basic features of our proposal. However, there are some major differences. Under the Governor's proposal, some eligible students would be guaranteed admission to a specific UC or CSU campus (though not necessarily their first-choice campus) provided they first attend a community college.
As an incentive to encourage participation in the new dual admissions program, the administration proposes waiving the community college fees of participating students. However, we do not think this is an effective and efficient incentive. First, students would already have a pre-existing fiscal incentive to attend a community college versus UC or CSU. This is because of the lower direct costs (such as student fees and housing) associated with attending a community college. In the current academic year, student fees at the community colleges are on average about one-tenth the undergraduate systemwide fee at UC and roughly one-fourth CSU's undergraduate systemwide fee. We also note that all of the redirected students who demonstrate financial need will already pay no fees at the community colleges as a result of the Board of Governors' fee waiver program. (About one-third of CCC students receive this waiver.) We believe that a better incentive to encourage students to attend a community college is to guarantee admission to their first-choice UC or CSU campus, as we propose above. For these reasons, we recommend the Legislature reject the Governor's proposal to waive the fees for students redirected from the universities to the community colleges. We estimate that this action would result in General Fund (Proposition 98) savings of $3.4 million.
At the time this analysis was prepared, it was also unclear how certain aspects of the Governor's proposal would be implemented. For example, while the administration told us they expected the program to be voluntary, UC told us eligible students selected for the program would not be given the option of enrolling at UC as a freshman. Our view is that students should be redirected on a voluntary basis.
We recommend the Legislature require the segments to return to the Master Plan's special admissions cap of 2 percent, in order to maximize access for eligible students with the state's limited fiscal resources.
As discussed earlier, both UC and CSU admissions policies exceed the Master Plan's special admission provisions. Given the state's fiscal constraints and the desire to maintain access for eligible students, we recommend that the Legislature reinforce the Master Plan's admission priorities and require the segments to return to the 2 percent special admit cap. Under this proposal, UC and CSU would still retain the flexibility to admit a small percentage of otherwise ineligible students whose special circumstances warrant an exception. We recommend that priority be given to those students from disadvantaged backgrounds.
We recommend the University of California and the California State University implement policies (such as limiting consideration of new applications to a specified filing period) on a systemwide basis that seek to manage enrollment demands by preserving access for state residents who are eligible for admission.
The CSU campuses currently use enrollment management tools at their discretion to align enrollment demand with available resources without specifically denying California high school graduates who are eligible for admission. (Please refer to our admissions report for a detailed description of CSU's enrollment management policies.) One tool is for campuses to stop accepting applications after a reasonable filing period. We note that 15 of the 23 CSU campuses were still accepting applications in March 2003 for fall 2003 admissions. This was well after the official filing deadline of November 30, 2002. In limiting acceptance of applications to a specific period, CSU would be accommodating all eligible students who apply by the deadline, thereby encouraging potential applicants to plan and prepare. This would also have the effect of giving CSU more time to plan for enrollment demands and make admissions decisions.
Under CSU's enrollment management policies, campuses can also limit or not accept applications from lower-division transfer students. Such students can essentially "defer" their transfer to the university until after they finish their lower-division coursework at a community college. This protects access for students who are eligible for freshman and upper-division transfer admission. In view of the above, we recommend both segments implement policies on a systemwide basis that seek to manage enrollment demands.
We recommend the Legislature more clearly define how the segments should select the state's top high school graduates, in order to preserve its higher education priorities.
As we concluded above, the current eligibility requirements established by UC and CSU probably do not accurately define the state's top high school graduates as called for in the Master Plan. Consequently, we recommend the Legislature examine alternative ways for defining eligibility. For example, the Legislature could specify that the segments determine eligibility solely based on high school GPA and scores on the California High School Exit Exam or the California Standards Test (CST). (The CST, which all public high school students must take, measures the degree to which students achieve the academically rigorous content and performance standards adopted by the State Board of Education.) Under this scenario, UC and CSU eligibility requirements would be objective, transparent, and based on measurements aligned to K-12 curriculum standards.
The segments could choose to place additional requirements (such as requiring students to take the SAT and complete a specific high school course pattern) as a condition for admission to a specific campus, particularly for those students seeking admission to a highly selective campus. However, such supplemental criteria would not be used to identify the pool of students that each segment should draw from for systemwide eligibility. We note that CSU currently uses portions of the CST to identify high school students that need assistance in improving their proficiency in English and mathematics prior to entering CSU.
In conclusion, many state and campus policies—including admission standards, institutional capacity, student fees, financial aid, and K-14 outreach efforts—affect access to the state's public higher education segments. We believe it is important for the Legislature to think broadly about access and consider the interaction of these policies in its budget and policy deliberations. In this section, we have recommended a series of admissions-related steps the Legislature can take to preserve the Master Plan's commitment to access with limited resources. In another section of this chapter, we examine the state's outreach programs.