
Gov. Brown's State of the State speech earlier tonight focused mainly on the state budget. There are occasional references to the University and one to public pensions.
Part 1
Part 2
There is some ambiguity in the report as to what Moody’s is counting. But calpensions seems to think that UC is in the mix. That can be taken as Good News since it adds pressure on the state to do something affirmatively regarding the UC pension and its unfunded liability.
Below are excerpts from the calpensions report:
Moody’s begins treating pensions like bond debt
Ed Mendel, 1-31-11
A leading credit-rating agency, Moody’s, has begun treating unfunded pensions like bond debt, giving California a combined tax-supported debt of $136.9 billion that is well beyond other states but also may be understated.
The decision to add pensions to bond debt announced by Moody’s Investors Services last week reflects concern about public employee pension costs, which are growing as state budgets plunge deep into the red during a lengthy economic downturn.
…In the past, said Moody’s, pension funding levels were factored into state credit analysis. But the annual state debt reports were based only on the value of outstanding bonds as a percentage of income and other factors… California currently has one of the lowest bond ratings of any state, A1 from Moody’s.
…California’s combined bond and unfunded pension debt is 162.6 percent of annual state revenue, Moody’s said, ranking 19th among states. Oregon leads with debt equal to 316.8 percent of revenue, while Nebraska is the lowest, just 2.3 percent.
…The Moody’s report lists California’s combined debt as $136.9 billion ($87.3 billion bonds and $49.6 billion unfunded pensions).
…The Moody’s listing of California’s unfunded pension liability, $49.6 billion, apparently reflecting a lag in annual state reports, is similar to the total before major pension fund investment losses in the 2008 stock market crash. The unfunded liability separately reported by the three state pension funds as of June 30, 2009, totaled $91.5 billion: California Public Employees Retirement System $48.6 billion, California State Teachers Retirement System $40.5 billion, and the University of California Retirement Plan $2.4 billion.
The Moody’s report acknowledges a dispute over the way public pension funds estimate their unfunded liability. The funds use their investment earnings forecast, often about 7.75 percent, to offset or “discount” their future pension obligations.
Some economists argue that public pensions should use a lower discount rate based on “risk-free” government bonds because the pensions are “risk-free,” guaranteed by the taxpayer.
The Governmental Accounting Standards Board may adopt a blended discount rate. For any part of future pension obligations not covered by assets assumed to grow at the forecast earnings rate, a lower “risk-free” discount rate would be used…
Full report at http://calpensions.com/2011/01/31/moodys-begins-treating-pensions-like-bond-debt/
Anything that pushes the state to pay up is more Good News than bad:
UCLA gets $100-million donation: Half of the gift from Meyer Luskin and his wife, Renee, will go to the School of Public Affairs.... The rest will go toward building an on-campus hotel and conference center.
Larry Gordon, Los Angeles Times, Jan. 26, 2011
A UCLA alumnus who earned a fortune in the animal feed business is donating $100 million to the Westwood campus for its school of public affairs and the controversial construction of an on-campus hotel and conference center, officials plan to announce Wednesday. The gift from Meyer Luskin and his wife, Renee, is the second largest ever to UCLA. It is topped only by entertainment industry mogul David Geffen's $200-million donation to UCLA's medical school in 2002. Half of the Luskin donation will go to UCLA's School of Public Affairs, where it will support graduate student financial aid, and teaching and research in such fields as public policy, urban planning and social welfare. The school will be renamed in honor of the couple.
The other half of the gift will help build a 282-room conference center and faculty club that is intended to replace the existing campus faculty center if opposition does not alter or stop the project.
Meyer Luskin, 85, president and chairman of Scope Industries, a Santa Monica-based firm that recycles bakery waste into an ingredient in animal feed, said he could think of no better use for his money than to support a university.
"Education is the fountain of a good life," said Luskin, who commuted from Boyle Heights to UCLA as a scholarship student in the 1940s. "If you want to do the best for somebody, give them a good education."
Public policy studies do not receive enough funding, Luskin said, especially compared with the sciences. "More money should go into teaching people the techniques of helping each other and living together and figuring out how society works best," he said. "The School of Public Affairs will do that."
…Even before the donation was announced, plans to demolish the faculty club had triggered debate. Critics say the much larger replacement complex is a waste of money and risky investment during the UC system's current budget crisis. But if the project goes forward, they said, the conference center should be built elsewhere on campus without demolishing a beloved building. On Monday night, about 120 people, including retired professors who use the club for social events, attended a meeting at the facility and heard critics urge UC administrators to drop or change the proposal. …About $40 million of the Luskins' donation will go toward construction of the center and $10 million to an endowment for programming and other costs there, UCLA officials said. The remaining $120 million of construction costs will be financed by bonds that are expected to be repaid through rental and room revenue, according to the plan. Construction is scheduled to begin in the spring 2012 and be completed in late 2014.…Meyer and Renee Luskin, who live in Brentwood and have three children and four grandchildren, both received undergraduate degrees from UCLA, he in economics in 1949 and she in sociology in 1953. Meyer Luskin, who also earned a master's in business administration at Stanford University, worked as an investment counselor before he was hired at Scope in 1961. The firm, which last year had revenue of $110 million and employs 250 people at plants around the country, sells animal feed products for poultry and dairy farms, said Luskin, who is now its majority shareholder. It previously also owned cosmetology schools but sold them in 2004.
Full article at http://www.latimes.com/news/local/la-me-ucla-gift-20110126,0,6822484.story
PS: If you've seen the film from which this video comes, you know that the cheery song is followed by a raid by the sheriff because the show is in fact bankrupt.
From California’s Capitol:
UC Faces a Budget Hole of Not $500 Million But $700 Million
Jan. 25, 2011
The University of California faces a more than $200 million deeper reduction than the $500 million proposed in Gov. Jerry Brown’s budget – in part because the state refuses to make a contribution to the 10-campus system’s retirement system. UC says the state, as it has in the past, should pay a percentage of the employer payments the university makes to its retirement system based on the $3 billion general fund contribution the state makes to the system’s $6 billion instructional budget. Brown would reduce the $3 billion to $2.5 billion.
…“The governor’s budget treats the UC pension issue in a manner consistent with prior budgets – it proposes no state contribution to its independent retirement system,” said H.D. Palmer, a spokesman for Brown’s Department of Finance.
…Historically, the state has contributed to UC’s retirement system, which was created in 1961. Then Gov. Ronald Reagan’s 1969 budget shows a contribution of $14.1 million to the fund from two years earlier. Twice in the 1980s, the state has missed payments because of fiscal problems but agreed to repay what was owed over time. The state’s contribution is calculated and included in the budget request sent to Sacramento by UC’s Board of Regents.
…There is no such dispute with the 23-campus California University System. Its retirement system is part of PERS and the Brown administration has proposed a $75.2 million increase in employer payment in the budget.
…The Legislative Analyst, while not objecting to the state making a contribution, is concerned about safeguards. “These retirement costs are in part — I emphasis in part — costs of UC fulfilling its public mission and generally the state has supported UC’s core mission with general fund revenue,” said Steve Boilard, director of Higher Education for the analyst’s office. “There’s nothing inherently distinct about this particular cost with one exception: UC makes its own decisions about these retirement benefits and its own decisions, which determines what the out-year costs will be. Our concern is we wouldn’t want the state to be obligated for whatever amount, even a percentage, UC decides it independently wants to provide for retirement benefits.”
Full article at http://californiascapitol.com/blog/?p=5060
The Governor’s budget solutions in higher education include unallocated General Fund reductions of $500 million for the University of California (UC) and the California State University (CSU). As we discuss in our recent publication, The 2011–12 Budget: Higher Education Budget in Context, while these reductions are large, in our view they do not appear unreasonable given the size of the state’s budget problem, and considering that the current–year budget imposed no program reductions on the universities. Despite some new revenue from tuition increases, the universities would have to implement a range of service reductions affecting students, faculty, and staff to absorb these reductions. This brief provides our recommendations for mitigating the impact of the reductions on UC’s and CSU’s educational missions.
The universities received a double–digit General Fund augmentation in the current year, followed by the Governor’s even larger proposed reduction for 2011–12. The large current–year augmentation creates a “cliff effect”—amplifying the reduction needed to achieve the proposed 2011–12 funding level. We recommend shifting a portion of the proposed reduction to the current year. This would reduce the magnitude of funding changes in both years, while still achieving needed General Fund savings. This approach would have several benefits:
Even if the budget is enacted by March 2011, no more than four months would remain in the fiscal year for the universities to achieve savings. It can be difficult to make necessary changes in such a short period of time, with the spring term well underway. However, there are reasons to expect the universities to have savings in the current year.
As noted above, the magnitude of funding reductions in 2011–12 would be smaller under LAO’s alternative distribution than the Governor’s proposed budget. However, total university support in the current year and the budget year would still be about $368 million less each year than the 2010–11 budget presumed. This is an annual reduction of about 4.5 percent in total programmatic funding. We recommend the Legislature provide some parameters regarding how the segments accommodate these reductions.
Continue to Implement Academic and Administrative Cost Reductions. In response to funding reductions in recent years, both segments have begun to implement a number of actions to reduce costs for instruction, student support, and administrative services. For example, administrative initiatives include bulk service, supply and energy procurement; joint information technology support; and restrictions on travel and other discretionary spending. Academic cost reductions have been achieved through increased class sizes, higher teaching loads, consolidated student support services, and academic program consolidation or elimination, as well as efforts to reduce students’ time to degree. In addition, cross–cutting personnel actions have included postponing merit increases; imposing employee furloughs and layoffs; reducing salaries for senior management; and increasing employee contributions to retirement plans and other employment benefits. We recommend the Legislature direct the segments to continue pursuing these types of reductions as they develop plans to accommodate budget cuts.
Recognize Lower Enrollment Level for CSU. Given the late passage of the 2010–11 budget, it is unlikely CSU will meet its budgetary enrollment target. The CSU campuses admitted students for the fall semester based on an enrollment target that was about 30,000 FTE students lower than the level ultimately funded in the 2010–11 budget. Recognizing the enrollment reductions that have already taken place for CSU and basing the 2011–12 targets on a realistic estimate of current–year enrollment would lessen the need to further “reduce” enrollment in the budget year.
In contrast, UC enrolled more students than budgeted in the current year. To better align enrollment with available resources, the university is likely to adjust its enrollment toward the budgeted level.
Do Not Rule Out Limited Tuition Increase. In The 2011–12 Budget: Higher Education Budget in Context, we note that while resident undergraduate tuition at UC is at the median for its comparison group, tuition at CSU remains lowest among its comparison group of 16 state universities. The result is that, compared with other states, California is more broadly subsidizing all state university students, including those with the ability to pay more. Given substantial protections in place for financially–needy students—Cal Grants and campus financial aid cover full tuition for about half of UC and CSU students—we suggest the Legislature consider the possibility of some additional tuition increases.
Although the administration says that the unallocated reductions are “intended to minimize fee and enrollment impacts on students by targeting actions that lower the cost of instruction,” it is not clear how the administration plans to achieve this goal. Proposed budget bill language simply requires the segments to “develop an appropriate enrollment target” in consultation with the administration and the Legislature. We recommend the Legislature amend the budget package to specify how the segments accommodate General Fund reductions. For example, it could specify enrollment targets and maximum tuition levels, thus influencing the extent to which the segments balance enrollment and tuition changes with other strategies as discussed above. To ensure compliance, General Fund appropriations could be tied to the meeting of these expectations.
While immediate steps are necessary to accommodate reductions, funding constraints are projected to persist for the foreseeable future. As a result, we believe the state needs a longer–term strategy to make the higher education system more efficient and productive. (See nearby box about the growing consensus on the need for structural reform in higher education.) Many of the policy changes the Legislature may wish to make will require time to develop and fully implement. There are steps, however, the Legislature and the universities could take now to begin this process.
A National Drive to ReformThere has been growing nationwide consensus that public colleges and universities must find ways to markedly improve student outcomes—such as degree and credential attainment—within available resources. States have begun to make fundamental changes in their higher education systems to this end. For example, Washington, Ohio, and Indiana have recently implemented new funding strategies tied to student outcomes, and several other states are close behind them. Indiana has partnered with a low–cost online university to boost educational attainment for adults in the state. Several other states are developing ways to take advantage of capacity in private colleges and universities. Tennessee has revised its approach to remedial education. Maryland and Ohio have implemented comprehensive efficiency programs for their higher education systems. In California, this notion of a systematic review of programs characterized the work of UC’s Commission on the Future, the Community College League of California’s similarly named commission, and the recent legislative Joint Committee to Review the Master Plan. In addition, both UC and CSU have launched systemwide initiatives to improve efficiency, degree completion, and other positive outcomes. With the notable exception of recent transfer legislation (Chapter 428, Statutes of 2010 [SB 1440, Padilla]), however, there has been little statewide policy action to improve the productivity of public higher education as a system. |
Profound changes will be required to align higher education outcomes and costs with the state’s needs and realities. Although many of these reforms involve longer–term transformation, each could be started by legislative or institutional policy actions in the current year.
This brief provides our preliminary recommendations for responding to the proposed reductions in UC’s and CSU’s General Fund budgets. In the coming weeks, we will provide additional guidance on these proposals and other features of the Governor’s budget.
Contact Information
Steve Boilard, Director, Higher Education, 319–8331
Paul Steenhausen, California Community Colleges, 319–8324
Judith Heiman, California State University, Financial Aid, 319–8358
Normally, a 2/3 vote would be needed for the legislature to put a proposition on the ballot. But without Republican votes, he does not have 2/3. There has been a proposal that it could be done by a simple majority. But there might be legal challenges and if there were, the process could be fatally delayed. As a result, Republicans have been mulling over what kind of a deal they would require to provide the 2/3. Leaks of such mulling (trial balloons?) have been appearing in the press. And one idea is a pension proposition. See below:
GOP senator: No pension reform, no vote on taxes
Steven Harmon, Contra Costa Times, 1-23-11
SACRAMENTO -- Republicans have yet to emerge with an official set of demands they'd want met before considering Gov. Jerry Brown's budget proposal, but pension reform will top the list once they do. Sen. Mimi Walters, R-Laguna Hills, is preparing a package of pension reform bills she said must be addressed before taking up taxes. Among her reforms is legislation requiring all new state employees to enter 401(k)-style benefit plans.
"We want reforms in place before there's any discussion about tax increases," said Walters, the GOP's nominee in the fall for state treasurer who was trounced by incumbent Bill Lockyer. "I do know there's not support at all to even put it on the ballot without significant pension reforms."
…Brown said last week he intends to unveil his own pension proposal "in the coming weeks," but does not want to tie it to budget negotiations with Republicans.
…Though pension reform may help attract Republican support, it could be vital to Brown's hopes of gaining voter approval for his tax extension, said Marcia Fritz, a public accountant and president of the California Foundation for Fiscal Responsibility. "If Brown doesn't show real reform, not just a little, I think his (tax plan) is dead," said Fritz, a Democrat who said she voted for Brown. "Just calling for taxes and keeping the pension problem unresolved is madness. I think the two go hand in hand."
…Still, most of the large public employee labor organizations have agreed to contracts in which they rolled back previous gains, and have said they are willing to look at more changes. But coupling pension reform with the budget is a nonstarter for them.
…Typical Democratic turnout advantages over Republicans in California disappear in special elections, political observers say, primarily because there is no major party candidate at the top of the ticket. And Republicans come out in larger force on fights over taxes… Fritz, the pension reform advocate, doesn't agree with a straight 401(k)-style pension, but said there are several easy fixes that would start to cut into the costs. She has sought meetings with Brown but has not heard back from him…
Full article at http://www.contracostatimes.com/top-stories/ci_17163855
By the way, grumbling in California about defined-benefit pensions has now spilled over into the private sector. Yours truly does a blog for a group called the Employment Relations Research Network. See
http://employmentpolicy.org/sites/eprn.cloud.ojctech.com/files/MitchellMusings1-24-11.pdf
Jan. 21, 2011
In response to Gov. Jerry Brown's proposal to slash $500 million from the University of California budget, UC President Mark G. Yudof said this week that he might be forced to flout the state's 50-year-old Master Plan for Higher Education by reducing enrollment by thousands of students who otherwise would qualify for entrance. It's unclear whether Yudof meant that as a strategic threat or as a plan, but we're afraid it may have to be the latter. As dear as Californians hold the master plan, and as painful as it would be to deny California students admission at a moment when the U.S. government is stressing the importance of producing more college graduates, it's more important to preserve the educational excellence and worldwide reputation of UC.
...Further big increases in tuition would turn California's elite students toward other colleges, including private institutions where merit scholarships would bring the cost of a college education close to that of UC. Although some cuts will certainly be necessary, major program reductions could harm the university's reputation. Accepting more out-of-state students who pay full tuition is a good interim solution, but the university is already doing that, and it's a strategy with limited growth potential. Only a few campuses have the cachet to draw outside students.
...UC should be asking its employees to prevent layoffs by sharing some sacrifice. This also is the wrong time for the university to be moving toward a more expensive and subjective "holistic" admissions system, when too many high-achieving students already face the prospect of being rejected.
Reduced admissions to UC would create a domino effect... Students rejected at UC would knock at the doors of the California State University system, which faces equally daunting cuts. That in turn would push more students into the community colleges, where Brown has recommended a $10-per-unit fee increase, or about $300 a year for a full-time student. The community colleges are the one system in which fee increases are overdue; even at the higher price, they would be the least expensive in the nation.
Full article at http://www.latimes.com/news/opinion/opinionla/la-ed-0121-yudof-20110121,0,5809615.story
Note: The reference to employee sacrifice probably comes from this other LA Times item:
...As they wrapped up their meeting in San Diego, the regents also awarded controversial, 10% pay raises to three financial managers in the UC president’s office whose salaries after the increases will range from $216,370 to $247,500. Officials defended the one-time raises as a way to save money in the long run; chief risk officer Grace Crickette; Dan Sampson, assistant vice president for financial services and controls; and Sandra Kim, executive director of capital markets finance, had contracts that called for annual bonuses even while UC was eliminating such bonus plans. Their contracts were renegoiated for the one-time raise with no bonuses or future raises planned, according to Peter J. Taylor, UC’s executive vice president and chief financial officer.
Unions criticized the decisions, calling such raises for executives unseemly at a time when low-wage UC employees face increased costs for pension and retirement health plans and a state budget crisis threatens large scale layoffs across the university.
Full article at http://latimesblogs.latimes.com/lanow/2011/01/uc-urges-admissions-change-and-approves-controversial-pay-hikes.html
Part 6 UC-San Diego / Holistic Admissions
Part 7 Holistic Admissions – continues
Part 8 Holistic Admissions – continues
Part 9 Holistic Admissions / Student Response to Budget
Part 10 Budget
Part 11 Budget
Part 12 Budget
Part 13 Budget
Part 14 Budget (end of morning session)
1.18.11 Asm. Donnelly / Budget Shreding from CA Assembly GOP on Vimeo.
There is no doubt that at the March meeting, the Regents will follow Yudof's recommendation and just say no. So why not now?Nanette Asimov, Jan. 20, 2011
SAN DIEGO -- The University of California will shut out tens of thousands of qualified students over the next decade as deep budget cuts force the nation's premier public university to become more exclusive, UC President Mark Yudof told the regents Wednesday in San Diego. UC is staring at a budget gap of at least $1 billion next year, half of which is expected to come from reduced state funding for 2011-12. The rest, Yudof said, will be from unavoidable expenses: higher negotiated salaries, rising energy costs, millions in pension contributions and more.
…"The moment is fast approaching when the university will no longer be able to guarantee admission to all California applicants who meet the eligibility criteria," the central tenet of the state's 50-year-old Master Plan for Higher Education, Yudof said.
…Yudof estimated that 20,000 to 30,000 qualified students will be turned away because UC won't have the money to educate them.
…Besides turning away students, UC is likely to lay off more employees next year, offer fewer courses, reduce financial aid and enroll more out-of-state students who pay higher tuition than in-state students, said Yudof, who will propose specific cuts in March after hearing from each campus' chancellor. "I feel like a passenger on the Titanic being told by the captain how long it'll take before the boat sinks," lamented Regent Rex Hime, who suggested pushing Congress to tax Internet sales so the money could be set aside for higher education. Regent Sherry Lansing agreed that identifying new funding sources is crucial…
Full article at http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2011/01/20/MNS11HATRF.DTL
The Governor’s proposed 2011–12 budget includes sizable General Fund reductions for the state’s university systems and the community colleges totaling about $1.4 billion. While the administration does not provide many specific proposals as to how those reductions would be accommodated, they could affect access to higher education programs, the price paid by students, average class size, and the availability of various related services, among other things. The budget assumes fee and tuition increases at all three public segments.
At the same time, the Governor’s budget would fully fund financial aid programs, thus helping to ensure that cost does not prevent enrollment by financially needy students. The budget also includes General Fund augmentations to backfill one–time federal funds received by the universities in 2010–11, pay for increased retirement costs, and cover other workload adjustments.
This publication provides context to help the Legislature think about what the Governor’s proposed budget could mean for higher education. It is divided into two parts. The first part reviews how the state’s budget crisis has affected higher education to date, while the second part assesses how the Governor’s budget proposal would affect higher education in 2011–12. In other publications we recommend specific budget actions for the Legislature to take with regard to higher education.
In recent years, confusion has surrounded the question of how the budget crisis has affected higher education budgets. To a large extent, this confusion results from different characterizations that focus on different funding sources or use different baselines for their comparisons. As we have explained elsewhere, there is no single correct way to describe higher education funding. However, below we present what we consider to be the most relevant facets of changes to higher education funding since 2007–08. That year is considered by most to be the last fairly “normal” year for higher education funding—enrollment growth and cost–of–living increases were funded at all three segments, no large unallocated reductions were imposed, and no payments for new costs were deferred to future years.
As shown in Figure 1, General Fund support for higher education has declined by 5 percent between 2007–08 and 2010–11. This includes reductions of 10 percent to 11 percent for the universities and 6 percent for California Community Colleges (CCC), and growth of more than 40 percent in state financial aid programs. (Note that these figures and the others in this section show only budget changes through the current year—not the Governor’s proposal for 2011–12.)
Figure 1
Higher Education General Fund Appropriations
(Dollars in Millions)
| 2007–08 | 2008–09 | 2009–10 | 2010–11 | Change From 2007–08 | |
| Amount | Percent | ||||
UC | $3,257.4 | $2,418.3 | $2,591.2 | $2,911.6 | –$345.8 | –11% |
CSU | 2,970.6 | 2,155.3 | 2,345.7 | 2,682.7 | –287.9 | –10 |
CCC | 4,272.2 | 3,975.7 | 3,735.3 | 3,994.7 | –277.5 | –6 |
Hastings | 10.6 | 10.1 | 8.3 | 8.4 | –2.2 | –21 |
CPEC | 2.1 | 2.0 | 1.8 | 1.9 | –0.2 | –12 |
CSAC | 866.7 | 888.3 | 1,043.5 | 1,224.3 | 357.6 | 41 |
Totals | $11,379.6 | $9,449.7 | $9,725.8 | $10,823.5 | –$556.0 | –5% |
Hastings = Hasting College of the Law; CPEC = California Postsecondary Education Commission; and CSAC = California Student Aid Commission. |
Simply looking at General Fund appropriations can be misleading for purposes of understanding trends in programmatic support for higher education. Other sources of funding (primarily tuition and fee revenue, local property taxes, and federal stimulus funding) work in combination with General Fund revenue to support core higher education programs. In addition, some budget solutions (such as funding “deferrals”) create General Fund savings without having a direct impact on programs. Moreover, increases or decreases in enrollment affect the level of resources available to serve each student and thus should be factored into an analysis of programmatic funding.
In Figure 2, we combine all core sources of funding and adjust for deferrals and enrollment changes to show programmatic support per student from 2007–08 through 2010–11. Over that period, funding per student increased 3.6 percent and 4.6 percent at University of California (UC) and California State University (CSU), respectively, and declined 3.9 percent at CCC. Note that this figure does not adjust funding levels for inflation. This is for two reasons: (1) inflation rates have generally been low, and (2) state law adopted in 2009 expressly prohibits automatic annual price increases for higher education and most other areas of state government. At the same time, we acknowledge that any price increases experienced by the segments have the effect of eroding their programmatic funding.
Figure 2
Programmatic Funding Per Student for Higher Educationa
| 2007–08 Actual | 2008–09 Actual | 2009–10 Actual | 2010–11 Estimated | Change From 2007–08 | |
| Amount | Percent | ||||
University of California | $20,345 | $18,948 | $17,484 | $21,087 | $741.8 | 3.6% |
California State University | 11,038 | 10,791 | 10,143 | 11,542 | 503.8 | 4.6 |
California Community Collegesb | 5,731 | 5,636 | 5,551 | 5,506 | –224.8 | –3.9 |
a Includes General Fund, tuition and fees, local property tax revenues, federal stimulus funds, and Lottery proceeds. | ||||||
b Counts deferral monies in the fiscal year in which they were programmed (as opposed to received) by districts. Reflects funding per budgeted full–time equivalent student. |
In our opinion, higher education has generally been spared the kinds of programmatic reductions experienced by other state sectors since the recession began. Although the segments have experienced significant General Fund reductions, these reductions by 2010–11 have been backfilled with other sources of revenue, primarily student tuition and federal stimulus funding. As a result, students are now paying a higher share of the cost of their education, as we describe in the next section.
College affordability is determined by several factors. These include tuition levels, other costs of attending college, personal income and financial resources, and the availability of financial aid. California historically has had relatively low tuition and robust financial aid programs compared with other states. These advantages have been somewhat offset by higher–than–average living expenses.
From this comparatively low starting point, tuition charges at the state’s public universities have increased steadily in recent years. Tuition–paying students—those who do not qualify for financial aid due to their income levels or other factors—are paying significantly more than they paid in 2007–08. Many students, however, do not pay tuition. State and campus financial aid programs cover full or partial tuition for nearly half of university students, and full tuition for more than half of community college full–time equivalent (FTE) students.
Tuition by Any Other Name. In 2010, UC and CSU ended the longtime practice of avoiding the term tuition. Some student charges previously called mandatory systemwide fees (including the Education Fee at UC and the State University Fee at CSU) are now called tuition.
Students Paying Higher Share of Costs. Tuition represents a growing share of average educational costs at all three segments. In 2007–08, the full tuition charge represented about one–third of average costs at UC, one–quarter at CSU, and 11 percent at CCC. This year the tuition shares of cost are 45 percent, 35 percent, and 15 percent, respectively. Figure 3 shows amounts currently paid by a tuition–paying student and the state at each segment.
Tuition at UC Rises to Middle of Comparison Group. Since 2007–08, UC has increased tuition 68 percent, to $10,302 (see Figure 4 on next page). Even with those tuition increases, UC’s tuition is roughly average relative to comparable public research universities in the United States.
Tuition at CSU Rises Steeply, but Remains Lower Than Comparison Institutions. As Figure 4 shows, the four–year increase in CSU tuition is even greater, at 76 percent. Undergraduate tuition is now $4,440 annually. Despite these recent increases, CSU remains at the very bottom of its group of 15 comparison public institutions and far below regional and national averages for state universities.
Figure 4
University Tuition Increases Since 2007–08
Academic Year | University of California | California State University |
2008–09 | 7.4% | 10.0% |
2009–10 | 9.3 | 32.1 |
2009–10 midyear additional increase | 15.0 | — |
2010–11 | 15.0 | 5.0 |
2010–11 midyear additional increase | — | 5.0 |
2011–12 | 8.0 | 10.0 |
Cumulative Increases | 67.6% | 76.2% |
CCC Fees Remain Lowest in Nation. California has long had the lowest community college fees in the nation. Fees were increased from $20 per unit ($600 per year for a student taking a full course load) to $26 per unit ($780 per year) in 2009–10. At this level, CCC fees are about one–fourth of the national average for community college fees, and are more than $400 below those of New Mexico, the state with the second–lowest fees.
California students with financial need (as defined by federal aid guidelines) may qualify for a range of financial assistance including grant aid from the federal government, state, universities, and private sources; full or partial fee waivers; and student loans.
Many Students Shielded From Tuition Increases. About half of students receive need–based financial aid specifically to cover full tuition costs. The state’s primary student financial aid program is the Cal Grant program. About 240,000 students at public and private postsecondary institutions will receive an estimated $1.3 billion in Cal Grant awards this year. Income ceilings for eligibility are relatively high. For example, a student from a four–person family making up to $78,100 per year could qualify. Most Cal Grant awards include full tuition coverage at the universities, and Cal Grant recipients at the CCC receive fee waivers.
Cal Grants Are Tied to Tuition Levels. The Cal Grant award amount for UC and CSU students is set by statute at the mandatory systemwide tuition and fee level for each segment. (Some Cal Grant recipients are not eligible for a tuition payment in their first year, but most of these students receive additional support from the institutions to cover this cost.) When the segments increase tuition, California Student Aid Commission (CSAC) increases award amounts accordingly. As a result, all university students whose tuition is paid by Cal Grants are protected from tuition increases.
Campus–Based Financial Aid Programs Expand With Tuition Revenues. For many years, the universities have set aside a portion of revenues from tuition increases, currently about one–third, to augment their own financial aid programs. In the current year, UC and CSU campuses are providing about $1.5 billion in student financial aid, primarily from tuition revenues. Between Cal Grants and institutional funds, tuition is fully covered for about 45 percent of CSU students and 47 percent of UC students. In addition, UC campuses offer partial tuition coverage, equal to half the amount of any tuition increases, to eligible students with family incomes up to $120,000 who are not otherwise eligible for grant assistance. The UC plans to expand this program to cover 100 percent of the 2011–12 tuition increase for these students.
Beyond tuition coverage, campus–based aid at the universities also covers some non–tuition expenses (such as books and living expenses). In fact, UC uses its campus–based aid to cover any remaining financial need not covered by other sources (such as federal aid and family and student contributions) for all of its students. Similar programs at CSU ensure all need is met for some, but not all, students.
The CCC’s primary campus–based aid is provided through the Board of Governors (BOG) fee waiver program. All financially needy students qualify to have their enrollment fees waived, and thus are not affected by fee increases. The CCC estimates that more than half of all enrollment fees are waived under this program.
Federal Aid Programs Have Expanded. Although not directly tied to tuition levels, federal financial aid programs have helped to offset some cost increases in recent years.
Many Perceive Price as Barrier. Despite these benefits from the state, campuses, and the federal government, there is a public perception that higher tuition is a barrier to attending college. According to a fall 2010 survey by the Public Policy Institute of California, more than two–thirds of Californians—and more than 80 percent of lower–income respondents—believe the price of a college education keeps students who are qualified and motivated to go to college from doing so. This suggests a need for more effective outreach to financially needy students and their families.
In the current year, CCC has slightly less funding per student than it had before the current recession began, while UC and CSU have slightly more (after taking into account revenue from tuition increases). Meanwhile, state financial aid programs have received funding increases to cover increased participation and the increased cost of fee coverage. While higher education has been spared the programmatic reductions experienced by most other sectors of state government, it has been affected by the budget crisis in several key ways.
Some Cost Increases Not Funded. As noted earlier, the segments have not received inflation adjustments for several years. Even though inflation rates have generally been low, the segments have had to accommodate general cost increases. Some unfunded costs have been significant, such as UC’s resuming of employer payments for the UC Retirement Program. (Unlike UC, CSU has received General Fund augmentations to cover increased retirement costs.)
General Fund Reductions and Augmentations Have Been Uneven. While most state agencies have experienced significant budget dislocations in the past several years, General Fund support for higher education has been particularly volatile. Recent state higher education budgets have included retroactive funding reductions, midyear budget changes, and partial restorations of past cuts. As shown in Figure 5, higher education’s share of total state General Fund support has fluctuated year by year. While there is no policy reason to expect higher education’s share of the state budget to remain fixed, the fluctuations appear disconnected from tuition increases, enrollment levels, and other factors that one might expect to influence higher education’s need for General Fund support. (Note that the Governor’s 2011–12 budget proposal would reduce higher education’s share to 11.6 percent, which is the average of the past ten years.)
Campuses Contending With Funding Constraints. As a result of this General Fund volatility, the higher education segments in some years have had to tap into funding reserves and take actions to reduce per–student costs—increasing class size, furloughing employees, and reducing various campus services and overhead, among others. Moreover, the universities in particular have sought to limit enrollment, employing various enrollment management practices such as increasing admission standards, restricting the number of courses students can take, suspending summer sessions, and other techniques. Some campuses have also boosted revenues by enrolling more nonresident students. The lack of inflationary adjustments has generally prevented faculty and staff salary and benefits increases.
The Governor’s budget proposal provides $15.9 billion for higher education, including $9 billion from the General Fund, $1.9 billion in local property tax revenues, and $3.8 billion from student fees (see Figure 6). The proposal reduces General Fund support for higher education by $1.8 billion or about 17 percent from the 2010–11 level. These reductions are overstated, however, due to a proposal in the budget to shift $947 million in funding for the Student Aid Commission from the General Fund to federal funds. After adjusting for this shift, the year–over–year reduction in higher education spending is $875 million, or 8 percent. Figure 7 lists the primary reductions and augmentations that produce this net year–to–year reduction.
Figure 6
Higher Education Core Funding
(Dollars in Millions)
| 2007–08 Actual | 2008–09 Actual | 2009–10 Actual | 2010–11 Estimated | 2011–12 Proposed | Change From 2010–11 | |
| Amount | Percent | |||||
University of California | | | | | | | |
General Fund | $3,257.4 | $2,418.3 | $2,591.2 | $2,911.6 | $2,524.1 | –$387.6 | –13% |
Tuitiona | 1,116.8 | 1,166.7 | 1,449.8 | 1,793.6 | 1,909.5 | 116.0 | 6 |
ARRA | — | 716.5 | — | 106.6 | — | –106.6 | — |
Lottery | 25.5 | 24.9 | 26.1 | 30.0 | 30.0 | — | — |
Totals | $4,399.7 | $4,326.4 | $4,067.0 | $4,841.9 | $4,463.6 | –$378.2 | –8% |
California State University | | | | | | | |
General Fund | $2,970.6 | $2,155.3 | $2,345.7 | $2,682.7 | $2,291.3 | –$391.4 | –15% |
Tuitiona | 916.3 | 1,104.5 | 1,210.8 | 1,254.9 | 1,400.7 | 145.7 | 12 |
ARRA | — | 716.5 | — | 106.6 | — | –106.6 | — |
Lottery | 58.1 | 42.1 | 42.4 | 45.8 | 45.8 | — | — |
Totals | $3,945.0 | $4,018.4 | $3,599.0 | $4,090.1 | $3,737.8 | –$352.3 | –9% |
California Community Colleges | | | | | | | |
General Fund | $4,272.2 | $3,975.7 | $3,735.3 | $3,994.7 | $3,599.8 | –$394.9 | –10% |
Fees | 291.3 | 302.8 | 353.6 | 350.1 | 456.6 | 106.5 | 30 |
Local property taxes | 1,970.8 | 2,028.8 | 1,999.8 | 1,892.1 | 1,873.5 | –18.6 | –1 |
ARRA | — | — | 35.0 | 4.0 | — | — | — |
Lottery | 168.7 | 148.7 | 163.0 | 168.5 | 168.5 | — | — |
Totals | $6,702.9 | $6,456.0 | $6,286.7 | $6,409.4 | $6,098.3 | –$311.0 | –5% |
Hastings College of the Law | | | | | | | |
General Fund | $10.6 | $10.1 | $8.3 | $8.4 | $6.9 | –$1.4 | –17% |
Feesa | 21.6 | 26.6 | 30.7 | 34.2 | 35.3 | 1.1 | 3 |
Lottery | 0.1 | 0.1 | 0.1 | 0.2 | 0.2 | — | — |
Totals | $32.3 | $36.8 | $39.1 | $42.7 | $42.4 | –$0.3 | –1% |
California Postsecondary Education Commission | | | | | | ||
General Fund | $2.1 | $2.0 | $1.8 | $1.9 | $1.9 | $0.1 | 4% |
California Student Aid Commission | | | | | | ||
General Fund | $866.7 | $888.3 | $1,043.5 | $1,224.3 | $577.6 | –$646.8 | –53% |
Otherb | — | 24.0 | 32.0 | 100.0 | 976.8 | 876.8 | 877 |
Totals | $866.7 | $912.3 | $1,075.5 | $1,324.3 | $1,554.4 | $230.0 | 17% |
Grand Totals | $15,948.7 | | $15,069.2 | $16,710.2 | $15,898.5 | –$811.7 | –5% |
General Fund | $11,379.6 | $9,449.7 | $9,725.8 | $10,823.5 | $9,001.5 | –$1,822.0 | –17% |
Fees/Tuitiona | 2,346.0 | 2,600.6 | 3,044.9 | 3,432.8 | 3,802.1 | 369.3 | 11 |
ARRA | — | 1,433.0 | 35.0 | 217.2 | — | –217.2 | — |
Local property taxes | 1,970.8 | 2,028.8 | 1,999.8 | 1,892.1 | 1,873.5 | –18.6 | –1 |
Lottery | 252.4 | 215.8 | 231.7 | 244.6 | 244.6 | — | — |
Otherb | — | 24.0 | 32.0 | 100.0 | 976.8 | 876.8 | 877 |
a Figures for tuition revenue and fee revenue at UC, CSU, and Hastings College of the Law exclude amount diverted to financial aid. b Other funds for CSAC include reimbursements from Student Loan Operating Fund and federal Temporary Assistance for Needy Families funding. | |||||||
ARRA = American Recovery and Reinvestment Act. |
Figure 7
Components of Net $1.8 Billion General Fund Reduction For Higher Education
Decreases |
$500 million unallocated reduction for UC. |
$500 million unallocated reduction for CSU. |
$400 million unallocated reduction for CCC. |
$129 million “deferral” of some CCC apportionment funding from 2011–12 to 2012–13. |
$947 million reduction in General Fund support for the California Student Aid Commission (CSAC), replaced with the same amount of federal funding. |
Increases |
$371 million augmentation to cover increased Cal Grant costs. |
$212 million augmentation to backfill one–time federal funding in the universities’ 2010–11 budget. |
$70 million augmentation to backfill one–time Student Loan Operating Fund support in CSAC’s 2010–11 budget. |
Compared with our benchmark of 2007–08, the Governor’s proposed would:
In general, the Governor’s 2011–12 budget proposal adjusts the universities’ budgets in two steps:
The administration says that the unallocated reductions are “intended to minimize fee and enrollment impacts on students by targeting actions that lower the cost of instruction.” However, the administration does not explain how it expects this goal to be achieved.
The Governor proposes a $400 million unallocated reduction to CCC apportionments, as well as a new deferral of $129 million. The deferral has no programmatic effect; it simply delays into the next fiscal year a state payment of $129 million to cover CCC costs incurred in 2011–12. This new deferral would bring CCC’s ongoing deferrals up to $961 million—or about 17 percent of its annual Proposition 98 appropriation.
While the Governor offers no specific proposals for allocating the $400 million apportionments reduction, he suggests that changes to allocation formulas (including a change in how and when the number of students to be funded at each campus is counted) could better align campus incentives with state objectives. In addition, revenue from a proposed fee increase (see below) would in effect compensate for $110 million of CCC’s unallocated reduction, leaving a net reduction of $290 million.
Past, current, and proposed enrollment levels for the higher education segments are shown in Figure 8.
Figure 8
Higher Education Enrollment
Resident Full–Time Equivalent Students
| 2007–08 Actual | 2008–09 Actual | 2009–10 Actual | 2010–11 Budgeted | 2011–12 Proposed | Change From 2010–11 | |
| Amount | Percent | |||||
University of California | | | | | | | |
Undergraduate | 166,206 | 172,142 | 174,681 | 170,005 | 170,005 | — | — |
Graduate | 24,556 | 24,967 | 28,218 | 27,366 | 27,366 | — | — |
Health Sciences | 13,144 | 13,449 | 13,675 | 12,606 | 12,606 | — | — |
Subtotals | (203,906) | (210,558) | (216,574) | (209,977) | (209,977) | (—) | (—) |
California State University | | | | | | | |
Undergraduate | 304,729 | 307,872 | 294,736 | 294,363 | 294,363 | — | — |
Graduate/post–baccalaureate | 49,185 | 49,351 | 45,553 | 45,496 | 45,496 | — | — |
Subtotals | (353,914) | (357,223) | (340,289) | (339,859) | (339,859) | (—) | (—) |
California Community Colleges | 1,182,627 | 1,260,498 | 1,254,487 | 1,187,807 | 1,210,507 | 22,700 | 1.9% |
Hastings College of the Law | 1,262 | 1,291 | 1,250 | 1,250 | 1,250 | — | — |
Totals | 1,741,709 | 1,829,570 | 1,812,600 | 1,738,893 | 1,761,593 | 21,575 | 1.2% |
The current (2010–11) budget directs UC to serve 209,977 FTE students, and CSU to serve 339,873 FTE students. The Governor proposes no new enrollment funding for the universities in 2011–12. In recent years, the state budget has included language specifying the number of FTE students the segments are expected to enroll. The Governor does not suggest a specific enrollment target for 2011–12, and instead proposes budget language directing the universities to set their own targets “in consultation with the Administration and the Legislature.”
For CCC, the administration proposes a $110 million augmentation to increase funded enrollment by 1.9 percent (or about 23,000 FTE students). However, as noted above, the administration also proposes a $400 million reduction to CCC apportionments. Combined, these two proposals lead to a net reduction of $290 million in CCC apportionment funding. In addition, most CCC campuses are already enrolling more students than they are funded to serve. For these reasons, we believe it is unlikely to expect an increase in systemwide community college enrollment under the Governor’s budget.
Figure 9 shows past, current, and proposed annual student fees at the public colleges and universities.
Figure 9
Higher Education Annual Tuition/Fees
Full–Time Resident Students
| 2007–08 | 2008–09 | 2009–10 | 2010–11 | 2011–12 Proposed | Change From 2010–11 | |
| Amount | Percent | |||||
University of California | | | | | | | |
Undergraduate | $6,636 | $7,126 | $8,373a | $10,302 | $11,124 | $822 | 8% |
Graduate | 7,440 | 7,986 | 8,847 | 10,302 | 11,124 | 822 | 8 |
California State University | | | | | | | |
Undergraduate | 2,772 | 3,048 | 4,026 | 4,440a | 4,884 | 444 | 10 |
Teacher credential | 3,216 | 3,540 | 4,674 | 5,154a | 5,670 | 516 | 10 |
Graduate | 3,414 | 3,756 | 4,962 | 5,472a | 6,018 | 546 | 10 |
Doctoral | 7,380 | 7,926 | 8,676 | 9,546 | 9,546 | — | — |
California Community Colleges | 600 | 600 | 780 | 780 | 1,080 | 300 | 38 |
Hastings College of the Law | 21,303 | 26,003 | 29,383 | 36,000 | 37,080 | 1,080 | 3 |
a Amount reflects full effect of midyear increase. |
The UC and CSU have already approved tuition increases of 8 percent and 10 percent, respectively, for 2011–12. In addition, CSU adopted a 5 percent midyear increase in 2010–11 which will further raise student tuition payments when its full–year effect is realized in 2011–12. Both universities have announced plans to continue their practice of setting aside one–third of new tuition revenue to augment campus financial aid programs. In combination with Cal Grants, these programs fully cover fees for nearly half of UC and CSU students.
The Governor proposes the CCC student fee be increased from $26 per unit to $36 per unit. (As noted above, CCC would keep the associated revenue, which would in effect backfill a portion of the Governor’s proposed $400 million cut.) Even with this increase, California’s community college fees would remain by far the lowest in the nation. In addition, the BOG’s fee waiver program waives fees for all financially needy students—about half of all FTE students enrolled at CCC.
As shown in Figure 10, the Governor proposes $307 million in bond spending on capital outlay at the three segments. About two–thirds of this spending would come from new lease–revenue bonds, with the remainder coming from general obligation bonds already approved by voters. The budget also projects $756 million in General Fund expenditures in 2011–12 to service existing general obligation fund debt for higher education projects.
Figure 10
Higher Education Capital Outlay Appropriations
(In Millions)
| 2007–08 | 2008–09 | 2009–10 | 2010–11 | Proposed 2011–12 |
University of California | | | | | |
General obligation bonds | $450.0 | $57.0 | $30.9 | $9.8 | $9.3 |
Lease–revenue bonds | 70.0 | 205.0 | — | 342.9 | 45.3 |
Subtotals | ($520.0) | ($262.0) | ($30.9) | ($352.7) | ($54.6) |
California State University | | | | | |
General obligation bonds | $417.0 | $72.0 | $16.1 | $13.4 | $2.8 |
Lease–revenue bonds | — | 224.0 | — | 76.0 | 201.2 |
Subtotals | ($417.0) | ($296.0) | ($16.1) | ($89.4) | ($204.0) |
California Community Colleges | $536.0 | $444.0 | $205.0 | $111.0 | $48.6 |
Totals | $1,473.0 | $1,002.0 | $252.0 | $553.1 | $307.2 |
The Governor’s 2011–12 budget proposal for higher education includes sizable General Fund reductions to help balance the state budget, increases in student tuition and fees to partially backfill those reductions, and increases in student aid to help prevent cost increases from affecting access for financially needy students. The budget generally returns higher education’s share of state General Fund support to the average level it has received over the past decade.
At the same time, the Governor’s budget does not clearly specify how the segments should absorb the proposed net funding reductions. We recommend that the Legislature express its expectations about this issue as part of the budget process. We also recommend that the Legislature consider achieving some General Fund savings for the universities in the current year, which could help reduce the size of the budget–year reductions proposed by the Governor. We elaborate on these recommendations in other publications.
Contact Information
Steve Boilard Director, Higher Education 319–8331
Paul Steenhausen California Community Colleges 319–8324
Judith Heiman California State University, Financial Aid 319–8358