Analysis of the 2007-08 Budget Bill: Education

California State University (6610)

The California State University (CSU) consists of 23 campuses. The Governor’s budget includes about $6.8 billion for CSU from all fund sources—including state General Fund, student fee revenue, federal funds, and other funds. The budget proposes General Fund spending of about $3 billion for the segment in 2007-08. This is an increase of $165 million, or 5.9 percent, from the revised 2006-07 budget.

Major General Fund Proposals

Figure 1 summarizes the Governor’s proposed General Fund changes for the current and budget year. For 2007-08, the Governor proposes $176.3 million in various General Fund augmentations, a $7 million General Fund reduction to CSU’s outreach programs, and a $4.4 million net reduction for baseline and technical adjustments. We discuss the proposed augmentations in further detail below.

Base Budget Increase. The Governor’s budget provides CSU with a 4 percent General Fund base increase of $108.9 million that is not designated for specific purposes. The university indicates that it would apply most of these funds to support salary and benefit increases for faculty and staff.

Enrollment Growth. In addition to the base increase, the budget includes a $65.5 million General Fund augmentation for enrollment growth at CSU. This would increase the university’s state-supported enrollment by 8,355 full-time equivalent (FTE) students, or 2.5 percent, above the current-year level. The proposed augmentation assumes a marginal General Fund cost of $7,837 per additional student, reflecting a new methodology proposed by the Governor for calculating the marginal cost of serving an additional student.

Science and Math Teacher Initiative. The budget provides $2 million in new funding for the expansion of the Governor’s science and math teacher initiative, which is intended to increase the number of science and math teachers trained at CSU. The proposed augmentation is intended to enable the university to establish three regional science and math teacher recruitment centers.

Student Fee Increases

For 2007-08, the Governor’s budget assumes student fee increases of 10 percent for undergraduates, graduate students, and teacher credential candidates. (Student fees at CSU are established by the CSU Board of Trustees.) The assumed fee increases are expected to provide an additional $97.8 million in student fee revenue. The Governor’s proposal would provide CSU full discretion in deciding how to spend the additional revenue. Below, we review the various fee levels for the budget year.

Systemwide Fees for Undergraduate, Graduate, and Teacher Credential Program Students. Figure 2 summarizes the Governor’s proposed increases in systemwide fees. As the figure shows, the budget assumes an increase of 10 percent in the systemwide fee for undergraduate and graduate students, including those enrolled in a teacher credential program (who pay a different fee than students enrolled in other graduate programs). When combined with campus based fees, the proposed total student fee for a full-time student in 2007-08 would be $3,451 for undergraduates, $3,895 for teacher credential students, and $4,093 for all other graduate students.

Nonresident Tuition. In addition to paying systemwide and campus-based fees, nonresident students also pay a supplementary fee (commonly known as nonresident tuition). The budget assumes that the surcharge for nonresident students—both undergraduates and graduates—would remain unchanged at $10,170.

Intersegmental Issues Involving CSU

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

Consider Different Approaches for Funding and Evaluating Outreach Programs. For the fourth year in a row, the Governor’s budget proposes to reduce General Fund support for CSU’s outreach programs, for savings of $7 million. (The CSU budget would still contain $45 million for these programs.) In the “UC and CSU Outreach Programs” write-up in this chapter, we withhold recommendation on the proposed reduction, pending our review of the evaluation of the programs to be submitted in the spring. If the Legislature wishes to restore funding for these programs, we recommend requiring an external evaluation of CSU’s outreach programs, rather than continue the practice of asking the university to evaluate the effectiveness of its own programs. We also recommend the Legislature consider an alternative approach for funding and delivering outreach services—a College Preparation Block Grant targeted at K-12 schools with very low college participation rates.

Fund Enrollment Growth Consistent With Demographic Projections and Legislative Marginal Cost Methodology. The Governor’s budget provides $65.5 million to fund 2.5 percent enrollment growth at a marginal General Fund cost of $7,837 per additional FTE student, based on his proposal for a new marginal cost methodology. The Governor essentially uses the same methodology that he used last year in his 2006-07 budget proposal, which the Legislature rejected. In the “UC and CSU Enrollment Growth and Funding” write-up, we recommend two modifications to the Governor’s enrollment proposal. First, based on our demographic projections, we recommend the Legislature provide funding for enrollment growth at a rate of 2 percent. Our proposal would allow the university to accommodate enrollment growth next year due to increases in population, as well as modest increases in college participation rates.

Second, we recommend the Legislature once again reject the Governor’s proposed marginal cost methodology. We find the marginal cost methodology that the Legislature developed and approved as part of the 2006-07 budget more appropriately funds the increased costs associated with enrollment growth and preserves legislative prerogatives. Using this legislatively determined marginal cost methodology, we recommend reducing the Governor’s proposed CSU student funding rate from $7,837 to $7,710. Accordingly, we recommend a General Fund reduction of $13.9 million to reflect our enrollment growth and marginal cost recommendations for CSU.

Assume Lower Fee Increase to Maintain Students’ Share of Cost at Current-Year Levels. The proposed budget assumes a 10 percent increase in the systemwide fees for undergraduates, graduate students, and teacher credential candidates at CSU. In the “Student Fees” write-up, we recommend that, absent an explicit student fee policy, the current share of educational costs borne by students through fees be maintained in 2007-08. We estimate that this would entail a modest systemwide fee increase of 2.4 percent, which is our projection of inflation for the budget year. For a full-time CSU undergraduate, this equates to an annual increase of $147.

Standardize Approach for Funding Enrollment in Nursing Programs. The proposed budget includes provisional language requiring CSU to increase its enrollment in its nursing programs by 340 FTE students. However, in contrast to how nursing enrollment is treated elsewhere in CSU’s budget (as well as in the University of California’s [UC’s] and the California Community College’s budget), the Governor’s proposal does not provide supplemental funding in recognition of the higher cost of serving these students. In the “Higher Education Nursing Proposals” write-up, we recommend a standardized approach to funding enrollment growth in nursing programs at all three segments. For CSU, we recommend an augmentation of $939,000 to recognize the higher costs (above normal marginal cost funding) imposed by the additional nursing students.

General Fund Base Increase

Given our projection of inflation for 2007-08, we recommend the Legislature provide a 2.4 percent General Fund base increase, or cost-of-living adjustment, to the California State University (CSU). Given the Governor’s budget funds a 4 percent base increase, we recommend deleting $43.6 million from the $108.9 million General Fund augmentation requested in the budget for CSU. (Reduce Item 6610-001-0001 by $43.6 million.)

In order to offset the effects of inflation, which erodes the purchasing power of a fixed appropriation over time, the annual state budget typically includes funding to provide price or cost-of-living adjustments (COLAs) for many state programs. It is from these adjustments that programs generally pay for employee salary and wage increases, as well as increased prices of goods and services. In other words, these adjustments are not intended to fund increased workload (such as the expansion of existing services or the establishment of new services), but rather are meant to help pay for existing workload whose costs have increased due to inflation. Although COLAs have customarily been provided to CSU in most years, there is no statutory requirement for these payments.

Governor’s Budget Proposes 4 Percent COLA. For 2007-08, the Governor proposes a 4 percent General Fund base increase (effectively a discretionary COLA) of $108.9 million for CSU. At this time, we project inflation in 2007-08 to be 2.4 percent (based on our estimate of the change in the U.S. state and local deflator from 2006-07 to 2007-08). We therefore believe the Governor’s proposed 4 percent General Fund base increase, combined with increased fee revenue, would provide the university with funding well above what is needed to pay for the higher cost of meeting existing workload. For example, CSU plans to use some of the new funding to increase salaries beyond inflation, as well as to support new academic technology initiatives. (We further discuss the issue of faculty salaries in the “California Postsecondary Education Commission” section of this chapter.)

Recommend Funding 2.4 Percent COLA. In view of our estimate of inflation for the budget year, we recommend the Legislature provide a 2.4 percent COLA to CSU, rather than the Governor’s proposed 4 percent. An adjustment tied to inflation would cost $65.3 million. Thus, we recommend the Legislature reduce the Governor’s proposed base increase for CSU from $108.9 million to $65.3 million, resulting in General Fund savings of $43.6 million.

Under our proposal, the university would still receive sufficient general purpose funding to compensate for increased costs. At the same time, the Legislature could use our identified General Fund savings of $43.6 million (in addition to the savings from our enrollment growth recommendations) to address other priorities in higher education or elsewhere.

Science and Math Teacher Initiative

We withhold recommendation on the proposed $2 million General Fund augmentation in base funding for the Governor’s science and math teacher initiative, pending our review of the California State University’s progress report on the initiative to be submitted in April.

For the current year, the 2006-07 Budget Act includes a total of $1.4 million in General Fund support for the Governor’s science and math teacher initiative. This initiative, which was initially funded in the 2005-06 budget, is intended to increase the number of science and math teachers trained at CSU. The current-year amount consists of $715,000 in base funding and a one-time increase of $652,000. For the budget year, the Governor proposes a $2 million increase in base funding for the science and math teacher initiative, for a total of $2.7 million. (The Governor’s budget also includes $3.8 million to support the same initiative at UC.) The proposed augmentation is intended to enable CSU to expand its current efforts and establish additional regional science and math teacher recruitment centers.

As part of the 2006-07 Budget Act, the Legislature adopted provisional language to ensure oversight of CSU’s use of the science and math teacher initiative funding. Specifically, the 2006-07 budget requires that CSU report to the Legislature by April 1, 2007, on its progress toward increasing the quality and supply of science and math teachers. We withhold recommendation on the proposed augmentation to the science and math teacher initiative until we have had an opportunity to review this report.

Long Range Planning Issues

In a recent report, A Review of UC’s Long Range Development Planning Process, we reviewed the current process used by UC to prepare land use plans (also referred to at UC as long range development plans) that guide the physical development of its campuses. We recommended steps the Legislature could take to make the process more transparent and effective. (The “University of California” write-up earlier in this chapter includes a summary of our report.) Although the report focused exclusively on UC, we believe that many of our recommendations also apply to CSU, as we discuss below.

Each CSU Campus Prepares a Physical Master Plan

Currently, CSU uses a long range planning process somewhat similar to UC’s. Each of the 23 CSU campuses periodically develops a physical master plan that is supposed to guide the future development of its facilities—based on academic goals and projected student enrollment levels—for an established time horizon (usually about ten years). Since CSU is a state institution, such a plan is not subject to local land use regulations. This means that local government does not have the jurisdiction to reject or oppose a campus’s physical master plan or a specific capital outlay project on the campus. In addition, state agencies typically do not review or approve a CSU campus’s master plan. Moreover, the Legislature currently does not provide any formal guidance or oversight regarding the development or implementation of such a plan.

As with UC, the California Environmental Quality Act (CEQA) requires CSU campuses to complete an Environmental Impact Report (EIR) for each plan. The EIR must (1) provide detailed information about a project’s likely effect on the environment (such as traffic), (2) identify measures to mitigate significant environmental effects (such as mitigating traffic impacts by constructing physical improvements like signals or roundabouts), and (3) examine reasonable alternatives to the project. Under CEQA, the CSU Board of Trustees must certify an EIR before approving a campus’s physical master plan.

In developing physical master plans and the accompanying EIRs, campuses typically consult surrounding communities in an attempt to achieve mutually agreeable plans. In recent years, however, campuses and communities have sometimes disagreed about the responsibility for environmental impacts that occur outside of the university’s jurisdiction. For example, although a new signal light in the city could manage traffic from campus expansion, the city and campus might disagree about how the cost of that signal light should be shared. As we discuss below, a recent court decision involving CSU helps clarify the responsibility of the university to help mitigate off-campus impacts.

City of Marina v. CSU Board of Trustees

In 1994, CSU agreed to establish a Monterey campus on a portion of the former Fort Ord military base as part of the Fort Ord Reuse Authority (FORA) Act. (The state Legislature created FORA—which includes Monterey County and the Cities of Monterey, Salinas, Carmel, Marina, and Pacific Grove—to manage the transition of the base from military to civilian use.) The CSU Board of Trustees in 1998 certified a master plan for the new campus and an accompanying EIR, which identified significant environmental impacts to various public resources. Although the Trustees agreed to mitigate those impacts that would occur on campus, they determined that the mitigation of off-campus impacts was not within their jurisdiction, but rather within the jurisdiction of FORA. Accordingly, the Trustees declined to fund off-campus mitigation measures.

In response, FORA and the City of Marina challenged the Trustees’ decision to certify the EIR (despite the unmitigated effects) as a violation of CEQA. In July 2006, the California Supreme Court reversed an earlier Court of Appeal’s decision by concluding that the Trustees had abused their discretion and thus their approval of the EIR was not valid. Specifically, the Supreme Court ruled that:

• Off-Campus Impacts Must Be Mitigated. The CEQA does not restrict the CSU Trustees’ obligation to mitigate or void significant environmental effects occurring only on the university’s own property. Rather the trustees are required to mitigate a project’s significant effects on the environment.

• Voluntary Payments Are a Feasible Form of Mitigation. If the trustees cannot adequately mitigate off-campus environmental impacts with actions on campus, then a voluntary payment to a third party (such as FORA) to perform the necessary acts off campus is a feasible form of mitigation.

LAO Recommendations

As previously discussed, many of the recommendations in our recent report on UC’s long range development planning process could also apply to CSU. For example, we believe the Legislature should (1) provide greater oversight over CSU’s physical master plans (including the enrollment projections that they are based on) and (2) have the university report on its efforts to mitigate off-campus impacts.

Greater Legislative Oversight

We recommend greater legislative oversight over the California State University’s (CSU) physical master plans, in order to ensure that campuses’ long-term goals are aligned with statewide priorities. Specifically, we recommend CSU provide copies of draft plans to the Legislature before they are approved by the CSU Board of Trustees. Since future student enrollment levels are the main drivers of a campus’s physical master plan, we further recommend requiring CSU to provide systemwide projections through 2020 at budget hearings this spring.

Given that a campus’s physical master plan serves as an important policy document that outlines the enrollment and academic goals of a CSU campus and lays out the framework and rationale for future capital outlay projects, we recommend greater legislative oversight over their development. Specifically, we recommend CSU provide the Legislature with copies of draft master plans before they are approved by the CSU Trustees. At its discretion, the Legislature could hold hearings to review certain aspects of these draft plans. Moreover, the Legislature could express any concerns about the draft plan before it became final. (This, however, would not preclude the Legislature from expressing concerns in the future when the university requests funding for specific projects related to a campus master plan.) This process would allow the university to amend the plan as needed to accommodate any legislative concerns.

Since future student enrollment levels are the main drivers of a campus’s physical master plan, we also recommend greater oversight regarding CSU’s long-term enrollment projections. Specifically, we recommend the Legislature direct CSU to provide an enrollment plan that includes systemwide projections through 2020 at budget hearings this spring. In order for the plan to be useful planning tool for the Legislature, we believe it is important for the university to explain and justify the assumptions and data used to calculate the enrollment projections. A systemwide enrollment plan would also assist the Legislature in assessing proposals to fund specific enrollment growth levels at CSU as part of the annual state budget process.

Update on Mitigation of Off-Campus Impacts

In view of the recent court decision in City of Marina v. California State University (CSU) Board of Trustees, we recommend CSU report to the Legislature on what steps it will take to reach agreements with local public agencies regarding the mitigation of off-campus environmental impacts.

As mentioned above, the recent court decision in City of Marina v. CSU Board of Trustees clarifies the need for the university to negotiate with local public agencies regarding the mitigation of the environmental impacts caused by it projects. Thus, we recommend the Legislature require CSU to report on its policies for reaching such agreements with the appropriate jurisdictions. We believe it is important for the Legislature to have assurance that there is resolution on the mitigation of off-campus impacts prior to considering related CSU capital outlay projects. Depending on the outcome of CSU’s report, the Legislature could decide not to approve funding for a CSU capital outlay project until the appropriate campus has entered into a memorandum of understanding with the appropriate jurisdictions regarding the mitigation of off-campus impacts associated with that project.

CSU Capital Outlay

The budget proposes to spend $346 million in bond funds on 27 CSU capital projects in the budget year. (Almost all this amount—$326 million—would be from Proposition 1D, the bond approved by voters in November 2006.) Most of the proposed spending would go for new phases of 19 projects previously funded by the state. (These projects have future costs to complete them of about $115 million.) The budget also proposes eight new projects, costing $54 million in 2007-08 and $134.6 million in future costs.

Proposition 1D allocated $690 million in funds to CSU. After accounting for the monies appropriated in the current year and proposed to be spent in the budget year, there would be $30 million remaining in 2008-09. This amount is not adequate to cover the future costs of all projects currently in the works and those proposed by the Governor in the budget.

New Projects. Most of new projects proposed in the budget involve renovation or replacement of existing facilities. Given the high average age of CSU’s facilities, it is appropriate for the segment to focus a large proportion of its annual capital budget on these types of projects. The new projects would have little impact on instructional space. In fact, the loss of space in one classroom renovation results in a small net loss of instructional space for the segment as a whole. We raise no issues with CSU’s capital outlay budget.

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