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

California State University (6610)

The California State University (CSU) consists of 23 campuses. The Governor's budget includes about $5.8 billion for CSU from all fund sources—including General Fund, student fee revenue, federal funds, and other funds. This is a decrease of $82.4 million, or 1.4 percent, from the revised current-year amount. The budget proposes General Fund spending of $2.4 billion for the system in 2004-05. This is a decrease of $82.5 million, or 3.3 percent, from the enacted 2003-04 budget and a decrease of $220.5 million, or 8.4 percent, from the Governor's proposed revision of the 2003-04 budget.

For the current year, the Governor proposes an $11.3 million unallocated General Fund reduction and a $12.5 million targeted reduction to CSU's K-12 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 a $155 million General Fund augmentation in the current year for increased Public Employees' Retirement System benefit costs. For the budget year, the Governor proposes $71.4 million in General Fund augmentations and $299 million in General Fund reductions. 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 budget proposals.

Proposed Augmentations. The Governor's budget provides CSU with a $69.5 million General Fund augmentation to restore a one-time unallocated reduction made in 2003-04. The budget also includes $1.9 million in General Fund support to provide counseling services to students that participate in the Governor's proposed dual admissions program. Under this new program, students who are eligible to attend the university directly from high school would be admitted to a specific CSU campus provided they first complete a transfer program at a community college.

Proposed Reductions. While the Governor's budget proposes a total of $71.4 million in General Fund augmentations, it also proposes $299 million in General Fund reductions. These reductions consist of: 

• $102 million unallocated reduction. (As we discuss below, increased student fee revenue is expected to backfill this reduction.)
• $53.5 million from increasing the student-faculty ratio by 5 percent (from 19.9:1 to 20.9:1).
• $52.6 million from reducing academic and institutional support by 7.5 percent.
• $39.5 million to expand the reduction to K-12 outreach programs proposed by the Governor in the current year to $52 million. (This proposal would eliminate all General Fund support for CSU's outreach programs.)
• $24.4 million for the first phase of eliminating General Fund support for students that exceed by more than 10 percent the minimum number of units required for their degree programs.
• $21.1 million from reducing freshman enrollment by 10 percent. These students would be directed to a new dual admissions program, discussed above.
• $6 million from deferring costs associated with CSU's Common Management System.

Student Fee Increases

For 2004-05, the Governor's budget assumes increases in the systemwide fees for undergraduate and graduate students, and in nonresident tuition. (Although the budget assumes these increases, student fees at CSU are established by its Board of Trustees.) The fee increases are expected to provide an additional $102 million in student fee revenue that would fully backfill the proposed unallocated reduction in CSU's General Fund support. Figure 2 summarizes the Governor's proposed fee increases for full-time students. 

As Figure 2 shows, the Governor's budget assumes an increase from 2003-04 of 10 percent, or $204, in the systemwide fee for undergraduate students. The proposed budget also assumes a 40 percent increase in the graduate student systemwide fee (from $2,256 to $3,156). At CSU, nonresident students also pay a supplementary fee (commonly known as nonresident tuition). The budget assumes that the Trustees will increase this supplementary fee from $8,460 to $10,170. This reflects an increase of 20 percent over the current-year fee level.

In addition to the above systemwide fees and nonresident tuition, students at CSU also pay specific campus-based fees. When combining all mandatory fees, the total proposed fees for a full-time student in 2004-05 are:

• $2,766 for resident undergraduates.
• $3,683 for resident graduate students.
• $12,946 for nonresident undergraduates and $13,852 for nonresident graduate students.

Intersegmental Issues Involving CSU

In the "Intersegmental" section of this chapter, we address several issues relating to CSU. 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 findings and recommendations below.

Preserve Selected K-12 Outreach Program. The Governor's proposed budget eliminates all General Fund support for CSU's K-12 outreach programs. As noted above, the budget does include a $1.9 million General Fund augmentation for CSU to provide counseling services to students participating in the Governor's new dual admissions program for eligible students. We recommend that the Legislature redirect these funds to support CSU's Early Assessment Program, in order to more effectively and efficiently target limited resources at students most in need of college preparation. 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 CSU for outreach services.

Redirect Lower Division Students to Community Colleges. Similar to the Governor's proposal, we recommend establishing a policy whereby CSU would admit qualified freshmen but redirect a portion of them to enroll in community colleges for their lower division coursework. 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 CSU (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 for freshman admissions.

Align Student Fee Increases to Education Costs. The Governor's budget assumes that the CSU Board of Trustees 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 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 the Legislature apply the 2004-05 undergraduate and graduate fee increases to either summer 2004 or summer 2005, resulting in $9.5 million General Fund savings. In addition, we recommend the Legislature (1) approve the Governor's policy to charge the full cost of instruction for excess course units and (2) establish a special fee for CSU's high-cost graduate programs. In the "Student Fees" section, we also propose a long-term fee policy that sets fees at a fixed percentage of students' total education costs.

Increase Cal Grant Awards for CSU Students. Although the Governor's budget does increase funding for CSU'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 CSU. We recommend the Legislature retain its existing policy of setting Cal Grant award amounts to cover CSU's entire systemwide fee, thus ensuring that fees do not impede access by financially needy students. We believe that it is important to maintain existing Cal Grant benefits before further expanding CSU's institutional financial aid program (which grew dramatically in the current year). Accordingly, we recommend a General Fund reduction of $13 million to CSU's institutional aid budget and a related increase in General Fund support for the Cal Grant program. We further recommend shifting $32 million in EdFund operating surplus monies from the Student Aid Commission to CSU 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 an additional recommendation regarding the Governor's budget proposal for CSU.

Restoration of One-Time Reduction From 2003-04

We recommend the Legislature reduce by $24.5 million the Governor's proposed restoration of a $69.5 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 6610-001-0001 by $24.5 million.)

The 2003-04 Budget Act included a one-time unallocated reduction of $69.5 million to CSU's General Fund support budget. The Governor's budget for 2004-05 proposes a $69.5 million General Fund augmentation to fully restore this reduction.

Our analysis indicates that CSU accommodated the reduction in its current-year budget in two ways. First, the university redirected $24.5 million in additional fee revenue resulting from student fee increases in the current year to partially backfill the unallocated reduction. In addition, CSU decided to redirect $45 million from the funds the Legislature provided in the budget for enrollment growth. This caused the university to enroll 6,744 fewer full-time equivalent students than funded in the budget. (We note that CSU redirected additional enrollment growth funding to backfill other reductions in its budget. Please see the "Higher Education Admissions and Enrollment" section of this chapter for a more detailed discussion of CSU's current-year enrollments.)

Consequently, the university backfilled by $24.5 million of the $69.5 million unallocated reduction with an ongoing revenue source—student fee revenue. This source will produce another $24.5 million of revenue in 2004-05, even if the General Fund reduction it is currently backfilling is restored. This means that the Governor's proposal has the effect of increasing CSU's available revenue by $24.5 million. It is unclear how the university will allocate these additional funds in the budget year. For the above reasons and given the state's current fiscal constraints, we recommend that the Legislature reduce the proposed augmentation by $24.5 million.