LAO 2005-06 Budget Analysis: General Government

Analysis of the 2005-06 Budget Bill

Legislative Analyst's Office
February 2005

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, which is scheduled to open in fall 2005. The Governor's budget proposal includes about $19.4 billion for UC from all fund sources—including state General Fund, student fee revenue, federal funds, and other funds. This is an increase of $722 million, or 3.9 percent, from the revised current-year amount. The budget proposes General Fund spending of $2.8 billion for the segment in 2005-06. This is an increase of $97.5 million, or 3.6 percent, from the proposed revision of the 2004-05 budget.

For the current year, the Governor proposes a net General Fund reduction of $12.2 million to account for (1) Public Employees' Retirement System rate adjustments and (2) an unexpended balance from lease-revenue bond proceeds. For the budget year, the Governor proposes $128.1 million in General Fund augmentations, $21.1 million in General Fund reductions, and a $9.5 million net decrease for baseline and technical adjustments. Figure 1 summarizes the Governor's proposed General Fund changes for the current year and the budget year.

Figure 1

University of California (UC)
General Fund Budget Proposal

(Dollars in Millions)


General Fund

2004‑05 Budget Act


Baseline adjustments


2004‑05 Revised Budget


Baseline and Technical Adjustments


Proposed Increases


Base budget increase (3 percent)


Enrollment growth (2.5 percent)


One-time augmentation for UC Merced




Proposed Reductions


Reduce funding for enrollment and outreach


Eliminate labor research institute




2005‑06 Proposed Budget


Change From 2004‑05 Revised Budget






Proposed Augmentations. The budget provides UC with a 3 percent General Fund base increase of $76.1 million that is not restricted for specific purposes. The UC indicates that it would apply most of these funds towards various salary increases. The Governor's budget also includes a $37.9 million General Fund augmentation for enrollment growth at UC. This would increase the university's budgeted enrollment by 5,000 full-time equivalent (FTE) students, or 2.5 percent, above the current-year level. In addition, the budget proposes a $14 million one-time augmentation for the UC campus in Merced, which is scheduled to open this fall.

Proposed Reductions. While the Governor's budget proposes a total of $128.1 million in General Fund augmentations, it also proposes $21.1 million in General Fund reductions. Specifically, the budget includes a $17.3 million reduction to outreach programs (also known as academic preparation programs) and enrollment. Proposed budget bill language directs UC to apply this reduction to any combination of outreach programs and student enrollment that it chooses. The Governor's budget also eliminates all General Fund support for the labor research institute, for savings of $3.8 million. Both of the above proposals would reduce specific augmentations approved by the Legislature last year in its adoption of the 2004-05 budget.

Student Fee Increases

The Governor's budget assumes that the university will receive $144.6 million in new student fee revenue—$30.6 million associated with 2.5 percent enrollment growth and $114 million from fee increases recently approved by the UC Board of Regents for undergraduate, graduate, professional school, and nonresident students. Below, we review the proposed fee levels. (For a detailed discussion about the need for a long-term fee policy and how fees interact with General Fund revenue, please see the "Student Fees" write-up earlier in this chapter.)

Undergraduate and Graduate Systemwide Fees. Figure 2 summarizes the planned increases in undergraduate and graduate systemwide fees. As the figure shows, the budget assumes a planned increase of 8 percent in the systemwide fee for undergraduate students. The budget also assumes a 10 percent increase in the systemwide fee for graduate students. When combined with campus-based fees, the total student fee for a resident full-time student in 2005-06 would be $6,769 for undergraduates and $8,556 for graduates. In addition to paying the systemwide and campus-based fees, professional school students and nonresident students also pay special supplementary fees, as we discuss below.

Figure 2

UC Systemwide Fees a
Resident Full-Time Students





Change From 2004‑05

















a  Amounts do not include campus-based fees.

Professional School Fees. The Governor's budget assumes $7.3 million in additional revenue from a planned 3 percent average increase in professional school fees. The budget also proposes extending a supplementary fee to professional programs in public health, public policy, and pacific international affairs. Currently, professional school fees vary by program. For 2005-06, the professional school fee is planned to range from a low of $3,013 for students in nursing programs to a high of $14,276 for business/management school students.

Nonresident Tuition. The proposed budget also assumes a planned 5 percent increase in the tuition surcharge imposed on nonresident students. Specifically, this surcharge would increase from $16,476 to $17,304. The increase in nonresident tuition is expected to provide about $6 million in additional fee revenue in the budget year.

Intersegmental Issues Involving UC

In intersegmental write-ups earlier in this chapter, we address several issues relating to UC. For each of these issues, we offer an alternative to the Governor's proposal. We summarize our main findings and recommendations below.

Evaluate Higher Education Funding Needs Based on Master Plan, Not Governor's "Compact." The General Fund support and student fee increases proposed for 2005-06 are consistent with the compact that the Governor developed with UC and the California State University last spring. This compact specifies targets for the Governor's budget requests through 2010-11. Notwithstanding the Governor's compact, we advise the Legislature to enact a budget for higher education as it normally does, by examining each of the Governor's proposals on its own merits. Specifically, the Legislature should evaluate funding for higher education based on its Master Plan for Higher Education and not the Governor's compact.

Fund Enrollment Growth Consistent With Demographic Projections and Agreed-Upon Funding Practices. The Governor's budget provides $37.9 million to fund 2.5 percent enrollment growth at a marginal General Fund cost of $7,588 per additional FTE student. We recommend the Legislature instead provide funding for enrollment growth at a rate of 2 percent, which better matches anticipated need under the Master Plan. We also recommend adopting budget bill language specifying an enrollment target of 204,996 FTE students for UC. Moreover, using our marginal cost estimate based on the agreed-upon 1995 methodology, we recommend reducing the Governor's proposed per student funding rate for UC from $7,588 to $7,108. Accordingly, we recommend a General Fund reduction of $9.4 million for UC. In the "Enrollment Growth and Funding" write-up in this chapter, we also propose that the Legislature revisit and assess how the state determines the amount of funding to provide UC for each additional FTE student in future budget years.

Align Student Fee Increases to Share of Education Costs. The proposed budget assumes an additional $114 million in student fee revenue from various fee increases recently approved by the UC Regents. However, the Governor's budget does not account for this revenue, ceding to UC full discretion in deciding how to spend the additional revenue. We recommend that the Legislature consider this revenue as part of the base support for UC's programs, as it always has. 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. Moreover, we recommend the Legislature reduce UC's General Fund appropriation to reflect $1.1 million in new revenue and savings associated with the second-year phase-in of the excess-unit fee policy that was adopted as part of the 2004-05 budget.

Impact of LAO Recommendations

Adopting all the above recommendations would result in a much different approach to UC's budget than that taken by the administration. In our view, the Legislature should approach UC's budget as it traditionally has: (1) assessing the cost of funding the programmatic objectives the Legislature has identified and (2) directing available funding—including both General Fund support and student fee revenue—to cover those costs. Figure 3 shows how UC's budget would be affected if the Legislature adopted our recommendations under this approach. Specifically, it shows the additional expenditures and resources above 2004-05 levels.

Figure 3

LAO Alternative 2005‑06 Budget Plan for UC

Increases Over 2004‑05


In Millions



Base budget increase(3 percent) a


Enrollment growth (2 percent)


Adjustments for Merced and annuitant health and dental benefits b






Additional revenue from student fee increase c


Additional revenue from excess course unit charge


Governor's proposed General Fund increase




Freed Up General Fund Resources


a  Based on total state General Fund and student fee revenue.

b  As proposed in the Governor's budget.

c  Assumes 2 percent enrollment growth.

Expenditures. Figure 3 first shows new spending components:

Resources. Figure 3 displays two sources of new revenue:

Uncommitted Resources. As shown in Figure 3, the Legislature could (1) fully fund enrollment growth and a cost-of-living adjustment for UC and (2) reject the Governor's proposed $17.3 million reduction to UC's outreach programs and enrollment funding, all at a lower General Fund cost than proposed by the Governor. In fact, under our proposal the Legislature would free up almost $57 million in General Fund support (from the level in the Governor's budget proposal) to address other priorities.

As discussed earlier, the Legislature may wish to use some of this amount to provide increased financial aid for UC graduate students, given that these students, unlike needy UC undergraduates, are not protected from fee increases by the Cal Grant entitlement program. Our identified General Fund savings could also be used to fund legislative priorities in other areas, including addressing the state's budget problem.

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