LAO Doesn’t Think “No Pay/No Say” Applies to the UC Budget

The Legislative Analyst has released his analysis of the Brown budget proposal. It generally follows the polite format of not being to assertive about risks, etc. It actually suggests a somewhat brighter economic outlook than the governor’s budget was based on. However, it does not fundamentally challenge his numbers. You can find the analysis at http://lao.ca.gov/reports/2011/bud/budget_overview/budget_overview_011211.pdf

Of special interest to readers of this blog are comments made about the higher ed elements of the budget. These comments are reproduced below. However, the LAO continues to assume that good public policy is for the legislature, while cutting the higher ed budget, to dictate how those cuts should be accommodated. For UC (much more than CSU or the community colleges), this approach amounts to the tail wagging the dog. The legislature is currently putting in about one eighth of the UC budget. At some point, one has to say, “No pay/no say.”

I have put the relevant points in larger font below.

Higher Education: Major Proposals

Sizable General Fund Reductions for All Segments. The Governor’s budget includes unallocated $500 million General Fund reductions for the University of California (UC) and the California State University (CSU). The Governor intends that these reductions be achieved primarily by reducing instructional cost. The budget also includes a $400 million reduction in general purpose “apportionment” funding for the community colleges, and proposes unspecified changes in funding formulas.

Tuition Increases for All Segments. The UC and CSU have already approved tuition increases of 8 percent and 10 percent, respectively, for the 2011–12 academic year. Total tuition revenue for the universities is estimated to increase by about $400 million, supporting core programs and campus–based financial aid. The Governor proposes to increase community college fees from $26 per unit to $36 per unit, generating about $110 million in additional revenue that would in effect fund enrollment growth of almost 23,000 full–time equivalent (FTE) students.

Full Funding for Financial Aid Programs. Unlike his predecessor, the Governor proposes no reductions in existing financial aid programs. The budget proposal includes augmentations to fully cover fee increases in the Cal Grant programs, and assumes full fee waivers at the community colleges covering more than one–half of all credit FTE students.

Major Financial Aid Fund Shift. The Governor’s proposal would shift $947 million in Cal Grant costs from the General Fund to federal Temporary Assistance for Needy Families (TANF) funds. This fund swap would have no net effect on total funding for Cal Grants. As discussed later in the report, the TANF funds would be provided through an interagency agreement with the Department of Social Services, whose TANF funding would be freed up by the Governor’s proposed cuts in CalWORKs.

Key Issues

University Cuts Needed, but Volatility an Issue. Volatility in public funding is one of the persistent challenges universities confront in managing their operations. 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. Efforts should be made to smooth out these peaks and valleys, while still achieving needed General Fund savings.

Unclear How Segments Would Accommodate General Fund Cuts.

Although the administration intends that the segments’ General Fund reductions be achieved primarily through cost reductions and increased efficiency, the proposed budget package includes no language that would ensure such an outcome. In the past, the segments have responded to unallocated cuts in a variety of ways, including midyear tuition increases, enrollment reductions, and furloughs, as well as some efforts at increased efficiency.

Alternatives for Legislative Consideration Shift Part of Universities’ Cuts to Current Year.

Rather than impose a $500 million cut for each university in the budget year, the Legislature may wish to achieve part of that savings by reducing the universities’ current–year augmentations. Such an approach would smooth out the volatility of augmentations and cuts that would otherwise result. Evidence suggests that the universities were already preparing for smaller current–year augmentations prior to enactment of the budget in October. This alternative would bring the universities’ current–year funding more into line with those contingency plans, and would preserve more funding for the segments to provide education services in the budget year. This would allow additional time for the state to seek alternative savings for the future, or for the segments to align their out–year costs with projected funding levels.

Ensure Reductions Meet Legislature’s Expectations.

The Legislature could amend the budget package to specify how the segments accommodate General Fund reductions. For example, it could specify the number of FTE students it expects the universities to enroll and the maximum tuition levels the universities should charge. To ensure compliance, General Fund appropriations could be tied to the meeting of these expectations. Similarly, the Legislature could specify whether it will permit CCC to reduce overall funded enrollment, and how it expects campuses to prioritize course enrollment. For example, the Legislature could limit the total number of taxpayer–subsidized credit units that students may earn at a community college.

Develop Longer–Term Fee Strategy for Community Colleges. The Governor’s proposal to increase community college fees makes sense, because California’s fees are by far the lowest in the country, and existing financial aid programs shield low– and moderate–income students from paying fees. Moreover, federal tax credit programs ensure that most fee–paying students will be reimbursed for the fees they pay, up to about $60 per unit. For this reason, the Legislature could increase fees beyond the $36 per unit proposed by the Governor as a way of leveraging more federal funds to support CCC programs.

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Hey LAO: Elvis said it best: Money Honey, If You Want to Get Along With Me: