Analysis of the 2004-05 Budget Bill Legislative Analyst's Office February 2004

University of California (6440)

The University of California (UC) consists of eight general campuses and one health science campus. The university is developing a tenth campus in Merced. The Governor's budget proposal includes about $18.4 billion for UC from all fund sources—including General Fund, student fee revenue, federal funds, and other funds. This is a decrease of $420 million, or 2.3 percent, from the revised current-year amount. The budget proposes General Fund spending of $2.7 billion for the segment in 2004-05. This is a decrease of $232 million, or 8 percent, from the enacted 2003-04 budget and a decrease of $198 million, or 6.9 percent, from the Governor's proposed revision of the 2003-04 budget.

For the current year, the Governor proposes a $15.7 million unallocated General Fund reduction and a $12.2 million targeted reduction to UC's K-14 outreach programs. The Governor proposes to make these reductions pursuant to Section 27.00 of the 2003-04 Budget Act. In addition, the Governor proposes to reduce funding in the current year for UC's labor research institute by $2 million. For the budget year, the Governor proposes $82.1 million in General Fund augmentations, $360 million in General Fund reductions, and a $79.9 million net increase for various baseline adjustments. Figure 1 indicates changes from the enacted 2003-04 budget to the revised 2003-04 budget. It also describes the Governor's 2004-05 General Fund proposals.

Proposed Augmentations. The Governor's budget provides UC with an $80.5 million General Fund augmentation to restore a one-time unallocated reduction made in 2003-04. The budget also includes $1.6 million in General Fund support for UC to provide counseling services to students that participate in the Governor's proposed dual admissions program for otherwise eligible students. Under this new program, students who are eligible to attend the university directly from high school would be admitted to a specific UC campus provided they first complete a transfer program at a community college. (The UC currently operates a similar program for ineligible students.) 

Proposed Reductions. While the Governor's budget proposes $84.8 million in General Fund augmentations, it also proposes $360 million in General Fund reductions. These reductions consist of:

• $196 million unallocated reduction. (As we discuss below, increased student fee revenue is expected to backfill this reduction.)
• $45.4 million from reducing academic and institutional support by 7.5 percent.
• $35.3 million from increasing the student-faculty ratio by 5 percent (from 19.7:1 to 20.7:1).
• $24.8 million from reducing freshman enrollment by 10 percent. These students would instead be directed to the new dual admissions program, as discussed above.
• $21.1 million to expand the reduction to K-14 outreach programs proposed by the Governor in the current year to $33.3 million. (This proposal would eliminate all General Fund support for UC's outreach programs.)
• $14.3 million from eliminating the California Digital Project.
• $11.6 million from reducing research support by 5 percent.
• $9.3 million for the first phase of eliminating General Fund support for students that exceed by more than 10 percent the minimum number of units for their degree programs.
• $2 million to expand the proposed mid-year reduction and eliminate all General Fund support for the labor research institute.

Student Fee Increases

For 2004-05, the Governor's budget assumes increases in systemwide fees for undergraduate and graduate students, professional school fees, and nonresident tuition. (Although the budget assumes these increases, student fees at UC are established by the UC Board of Regents.) The fee increases are expected to provide an additional $196 million in student fee revenue that would fully backfill the proposed unallocated reduction to UC's General Fund support.

Undergraduate and Graduate Systemwide Fees. Figure 2 summarizes the Governor's proposed increases in undergraduate and graduate systemwide fees. As the figure shows, the budget assumes an increase of 10 percent in the systemwide fee (educational and registration fees) for undergraduate students. The budget also assumes a 40 percent increase in the systemwide fee for graduate students. When combined with campus based fees, the proposed total student fee for a full-time student in 2004-05 is $6,028 for undergraduates and $8,931 for graduates. In addition to the systemwide and campus-based fees, professional school students and nonresident students also pay special supplementary fees, as we discuss below.

Professional School Fees. The Governor's budget reduces General Fund support for professional school students by 25 percent, with the assumption that UC would offset this reduction by increasing professional school fees (except for nursing school students). Currently, these fees vary by program. For 2003-04, the professional school fee ranged from a low of $2,925 for students in nursing school to a high of $9,849 for law school students. In order to backfill the proposed reduction in General Fund support, the Regents would need to increase professional school fees by an average of $4,900. At the time this Analysis was prepared, the university had not yet determined the specific fee increases that would apply to each of its nine professional school programs.

Nonresident Tuition. The proposed budget also assumes that the Regents will increase the tuition surcharge imposed on nonresident students by 20 percent from their current-year levels. For nonresident undergraduate students, the surcharge would increase from $13,730 to $16,476, while the nonresident graduate student surcharge would increase from $12,245 to $14,991.

Intersegmental Issues Involving UC

In the "Intersegmental" section of this chapter, we address several issues relating to UC. For each of these issues, we offer an alternative to the Governor's proposal that in our view better preserves student access to higher education. We summarize our main findings and recommendations below.

Preserve Selected K-14 Outreach Programs. The Governor's proposed budget eliminates all General Fund support for UC's K-14 outreach programs. As we discuss above, the budget does include a $1.6 million General Fund augmentation for UC to provide counseling services to students participating in the Governor's proposed dual admissions program for eligible students. We recommend the Legislature redirect these funds to preserve other, more critical outreach programs at UC—specifically the ASSIST program and academic enrichment services for potential graduate and professional school students. In the "K-14 Outreach Programs" section of this chapter, we also recommend the establishment of a College Preparation Block Grant, which K-12 schools could use to contract with UC for outreach services.

Redirect Lower Division Students to Community Colleges. Similar to the Governor's proposal, we recommend establishing a policy whereby UC would admit qualified freshmen but redirect a portion of them to enroll in specific community colleges for their lower division coursework. However, in contrast to the Governor's proposal we recommend that students be redirected on a voluntary basis, and that the university encourage participation by guaranteeing a student's admission to his or her first-choice campus. Earlier in this chapter, we also provide a synopsis of our recent report, Maintaining the Master Plan's Commitment to College Access, and recommend the Legislature and UC (1) return to the special admission caps established in the state's Master Plan for Higher Education, (2) implement enrollment management policies, and (3) reexamine current eligibility standards.

Align Student Fee Increases to Education Costs. The Governor's budget assumes that the UC Board of Regents will increase (1) undergraduate systemwide fees by 10 percent, (2) graduate systemwide fees by 40 percent, and (3) nonresident tuition by 20 percent. The budget also assumes increases in professional school fees and establishes a new surcharge for each unit taken in excess of 110 percent of the units required for a baccalaureate degree. We recommend adoption of the proposed 10 percent undergraduate fee increase. However, we recommend that graduate fees increase by a slightly lower rate (30 percent) than the Governor's budget proposes. We further recommend that UC provide additional information regarding professional school expenditures and the implementation of the excess unit surcharge policy. In the "Student Fees" section, we also propose the Legislature adopt a long-term fee policy that sets fees at a fixed percentage of students' total education costs.

Increase Cal Grant Awards for UC Students. Although the Governor's budget does increase funding for UC's own financial aid program, it does not increase financial aid awards under the state's Cal Grant program to account for the higher fees at UC. We recommend the Legislature retain its existing policy of setting Cal Grant award amounts to cover UC's entire systemwide fee, thus ensuring that fees do not impede access for financially needy students. We believe that it is important to maintain existing Cal Grant benefits before further expanding UC's institutional financial aid program (which grew dramatically in the current year). Accordingly, we recommend a General Fund reduction of $35 million to UC's institutional aid budget and a related increase in General Fund support for the Cal Grant program. We further recommend shifting $35 million in EdFund operating surplus monies from the Student Aid Commission to UC for financial aid administration, thereby achieving a like amount of General Fund savings.

For a detailed discussion on the above recommendations, please refer to the "Intersegmental" section of this chapter. Below, we present additional recommendations regarding the Governor's budget proposal for UC.

Other Issues

Restoration of One-Time Reduction From 2003-04

We recommend the Legislature reduce by $33 million the Governor's proposed restoration of an $80.5 million one-time unallocated reduction made in 2003-04. Our proposed reduction accounts for the availability of ongoing funds the university has dedicated to partially offset this one-time reduction. (Reduce Item 6440-001-0001 by $33 million.)

The enacted 2003-04 budget included a one-time unallocated reduction of $80.5 million to UC's General Fund support budget. The Governor's budget for 2004-05 proposes an $80.5 million General Fund augmentation to fully restore this reduction.

Our analysis indicates that UC accommodated the reduction in its current-year budget in two ways. According to UC's official reports summarizing its final budget plan for 2003-04 (as approved by the Board of Regents), the university redirected $33 million in additional fee revenue resulting from student fee increases in the current year to partially backfill the unallocated reduction. The remaining $47.5 million of the reduction was addressed through internal borrowing from funds within the university.

Consequently, the university backfilled $33 million of the $80.5 million unallocated reduction with an ongoing revenue source—student fee revenue. This source will produce another $33 million of revenue in 2004-05, even if the General Fund it is currently backfilling is restored. This means that the Governor's proposal has the effect of increasing UC's available revenue by $33 million. Because the university has already offset part of the one-time reduction, we recommend that the Legislature reduce the proposed General Fund augmentation by $33 million.

Merced Campus

We recommend the Legislature reject the $10 million proposed augmentation for the planned Merced campus, because neither the administration nor the University of California could provide adequate justification for the additional funds. (Reduce Item 6440-004-0001 by $10 million.)

For the current year, the 2003-04 Budget Act includes a total of $17.3 million in General Fund support for the planned UC campus in Merced. This amount consisted of $10 million in base funding and a one-time increase of $7.3 million. Provisional language in the enacted budget expressed the Legislature's intent that the opening of the new campus be delayed from fall 2004 to fall 2005. At the time this Analysis was prepared in early February, the university was unable to provide any information on how the university spent (or plans to spend) the funds provided for the Merced campus in the current fiscal year, which began over seven months ago. Moreover, the university could not provide information on how many faculty members have been hired thus far by the campus and what activities these faculty members have undertaken in the current year.

For the budget year, the Governor proposes a total of $20 million for the Merced campus. This consists of $10 million in base funding and $10 million in a one-time augmentation. Proposed budget bill language specifies that funding is for planning and startup costs associated with academic programs and ongoing support for the unopened campus including academic planning activities, faculty recruitment, and ongoing support for faculty and staff. An additional $9.3 million in bond funds is proposed for capital outlay expenditures at the campus.

At the time this Analysis was prepared, the administration and the university were unable to provide any information on how the university plans to spend the funds proposed in the Governor's budget for UC Merced in 2004-05. Lacking an expenditure plan for the budget year and no detail on expenditures in the current year, we can find neither justification nor rationale for the $10 million augmentation proposed for the budget year. Therefore, we recommend the Legislature reject the $10 million proposed augmentation for the Merced campus. Under our proposal, the university would still have $10 million in its base support budget for the campus.