Analysis of the 2007-08 Budget Bill: Education
The Governor’s budget includes $11.4 billion in General Fund support for higher education in 2007-08. This is about 11 percent of all proposed state General Fund expenditures. Although the Governor’s budget would increase overall General Fund spending by about 1 percent from the current-year level, higher education would increase by about 5 percent, or $539 million.
Higher Education Choices Will Be Important. Given the significant share of state General Fund resources committed to higher education, as well as the magnitude of new resources that would be dedicated for these purposes, the Legislature’s decisions about the Governor’s higher education proposals could have important consequences for the state’s overall fiscal picture. In addition, the budget proposal presents the Legislature with some important policy choices with regard to access, affordability, and accountability.
In the following “Intersegmental” sections we discuss three budget themes on which the Legislature will have to make important choices: enrollment growth funding, outreach programs and student fees. In addition, we include an “Intersegmental” section on higher education nursing programs, in which we discuss a number of related budget proposals. After these “Intersegmental” sections, we examine specific issues for each of the higher education segments and agencies in analyses of the California Postsecondary Education Commission, the University of California (UC), the California State University (CSU), the California Community Colleges (CCC), and the California Student Aid Commission. In the remainder of this section, we (1) outline the basic choices the Legislature faces each year with regard to the higher education budget and (2) summarize our recommendations on each of these key issues.
Although the state’s higher education budget involves billions of dollars of expenditures and a variety of interrelated issues, the Legislature’s budgetary choices involve three basic steps.
Adjust Base Budgets. In any given year, funding contained in a segment’s base budget may need to be adjusted to account for one-time costs or anomalies. For example, if the base budget contained funds for expected enrollment growth that never materialized, it could be appropriate to reduce that segment’s enrollment funding to match actual experience. Similarly, the inclusion of funds for a one-time purpose (such as start-up costs for a new campus) would normally be backed out of a segment’s base budget for the following year.
Determine What New Higher Education Costs the Budget Should Accommodate. Given the state’s current fiscal circumstances, we believe that first priority for budget increases should be given to those new costs that are necessary to maintain existing services. The largest costs in this area typically include enrollment growth and inflationary adjustments. After addressing these base issues, the Legislature then typically considers proposals for program expansions or new programs. The sum of these various changes results in new costs to each higher education segment or agency.
Determine How Costs Should Be Covered. After making decisions about the total budget for each segment, the Legislature then has to decide how these costs are to be covered by various funding sources. In general, education-related programs at the three higher education segments are funded with a combination of state General Fund support and student fee revenue. These funds are essentially interchangeable. The key decision for the Legislature in this area is: What share of total costs should students (and their families) bear?
Based on the approach described above, we provide specific recommendations to the Legislature throughout the rest of this chapter. We summarize our major recommendations below.
Fund Expected Levels of Enrollment Growth. The Governor’s budget proposal would fund enrollment increases of 2.6 percent at UC, 2.5 percent at CSU, and 2 percent at CCC. These increases far exceed the projected 1.1 percent growth in the underlying college-age population. They also exceed the Department of Finance’s own projections of increases in the enrollment at the segments. In the “UC and CSU Enrollment Growth and Funding” section later in this chapter, we recommend the Legislature fund 2 percent enrollment growth at UC and CSU. In the “California Community Colleges” section, we recommend funding 1.65 percent enrollment growth at CCC, as well as capturing savings from unspent CCC enrollment funding from the current and prior years.
Fund Cost Increases Caused by Inflation. The Governor proposes 4 percent unrestricted base increases for UC and CSU in 2007-08. We estimate that inflation will cause costs to increase by about 2.4 percent in 2007-08. Accordingly, in the “University of California” and “California State University” sections of this chapter, we recommend base increases of 2.4 percent. Because a statutory formula using a lagged index is customarily used to fund cost-of-living adjustments at CCCs, we do not take issue with the Governor’s proposed augmentation based on that formula.
Maintain Current Share of Cost Covered by Fees. The Governor’s budget proposes fee increases of 7 percent and 10 percent for UC and CSU respectively. No fee increase is proposed for CCC. Absent an explicit state fee policy, we recommend that fees be adjusted in 2007-08 so that they cover the same share of education cost as in the current year. Given our recommendation to fund inflation-based increases of 2.4 percent at UC and CSU, maintaining the same share of cost in the budget year would require 2.4 percent increases in fee levels. This would increase full-time resident undergraduate fees at UC and CSU by $147 and $60, respectively, in 2007-08. The corresponding increase for student fees at CCC would be less than 50 cents per unit. Given that CCC fees are traditionally charged in whole dollars, and given that current fee levels were adjusted very recently (January 2007), we do not recommend any change to CCC fee levels in 2007-08.
Address New Nursing Program Costs Using Standardized Funding Approach. The Governor’s budget includes augmentations for nursing programs at all three segments. While we agree with the need to increase the supply of nursing graduates, we have concerns with several of the Governor’s proposals. In the “Higher Education Nursing Proposals” Intersegmental section later in this chapter, we recommend a more consistent, simpler way to fund the expansion of nursing enrollment in order to improve outcomes and budgetary transparency.
General Fund Savings. We estimate that the Legislature could free up more than $150 million in General Fund support in the budget year if the recommendations we have made for the segments are adopted. (We also identify considerable potential savings in the current year.) The Legislature could apply these savings toward the state’s 2007-08 budget deficit (which we estimate to be about $726 million under the Governor’s budget proposal) or to other priorities.
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2007-08 Budget Analysis