The 2022-23 Budget: Overview of the Governor's Higher Education Budget Proposals

2022-23 BUDGET The 2022-23 Budget: Overview of the Governor’s Higher Education Budget Proposals Summary Governor Has Multifaceted Higher Education Budget Package. The Governor’s 2022-23 budget includes a total of $4.2 billion in new General Fund spending for the California Community Colleges (CCC), California State University (CSU), University of California (UC), and California Student Aid Commission. The Governor’s major proposals include approximately 5 percent base increases for each segment, enrollment growth, and one-time funding for deferred maintenance projects. The Governor also recently announced entering multiyear agreements with each segment. Under his “compacts,” the universities would continue to receive annual 5 percent base increases through 2026-27, linked with certain performance expectations. Additionally, UC would implement annual tuition increases beginning in 2022-23. No outyear funding commitments are made for community colleges under the Governor’s “roadmap,” but they too would be expected to meet certain performance expectations. Segments Face Specific Budget Challenges in 2022-23. The community colleges face large pension rate increases (largely due to previously provided pension relief ending). All three segments face heightened salary and operating cost pressures given inflation has been increasing at a historically fast pace. Among the universities, we expect CSU to have the greater fiscal challenge, as the proposed base increases fall short of covering our projections of its core operating cost increases. In contrast, the proposed base increases for UC, when coupled with higher revenue from tuition increases, exceed projected core operating cost increases. Governor’s Budgetary Approach Sidesteps Legislature. The Governor’s approach of working directly with the segments to build multiyear budget agreements and establish performance expectations has fundamental problems. The Legislature has authority to set the segments’ funding levels and decide what conditions to attach to that funding. Moreover, the Governor’s list of expectations is long, has odd inconsistencies across the segments, is missing key cost estimates, and lacks enforcement mechanisms. Legislature Has Other Budget Options. We continue to recommend the Legislature link state funding increases with clear spending priorities. For the community colleges, the Legislature could consider redirecting some funds proposed for new activities toward addressing core underlying cost drivers, including rising pension costs. For CSU, the Legislature could consider a somewhat higher base increase for 2022-23 among its spending priorities. For both CCC and CSU, the Legislature might explore tuition options as a way to avoid the steep spikes and long plateaus of past state tuition practices, expand budget capacity, create more predictability for students, and foster equity across student cohorts. For CSU and UC, the Legislature might consider extending the time the universities have to meet prior enrollment targets, as both universities experienced lower-than-anticipated enrollment in 2021-22. Lastly, revenues permitting, the Legislature could provide more funding for maintenance projects, as all three segments have large maintenance backlogs. GABRIEL PETEK | LEGISLATIVE ANALYST JANUARY 2022 www.lao.ca.gov 1 2022-23 BUDGET INTRODUCTION Brief Focuses on Three Public Higher focuses on a key area of the Governor’s higher Education Segments. This brief provides a education budget package—base increases, high-level summary and initial assessment of the performance expectations, enrollment growth, Governor’s budget proposals for higher education. tuition, and facility maintenance, respectively. In each The brief focuses on the three public higher of these sections, we provide more detail on the education segments—the California Community Governor’s associated proposals and our initial Colleges (CCC), the California State University (CSU), assessment of them. and the University of California (UC). The bulk of state Additional Higher Education Budget Analyses higher education spending is for these segments. Are Forthcoming. This brief is the first of several The brief also provides high-level coverage of the budget products relating to higher education that our California Student Aid Commission (CSAC), which office plans to release. Most notably, we will release administers most of the state’s college financial separate briefs over the coming weeks that delve aid programs. more deeply into the budget of each of the higher Brief Is Organized Around Major Budget education segments. Our EdBudget website already Proposals. The first section of the brief provides has been updated to include many higher education an overview of the Governor’s higher education budget tables reflecting the Governor’s proposals. proposals. Each of the remaining five sections OVERVIEW Governor Proposes Significant Increases UC (7.7 percent), and CCC with the lowest increase in Ongoing Support for Higher Education. (4 percent). Of the $20.3 billion, $7.8 billion is As Figure 1 shows, the Governor’s 2022-23 Proposition 98 General Fund for CCC, with the budget includes a total of $20.3 billion in General remainder non-Proposition 98 General Fund. Fund support for the three segments and CSAC. (Unless otherwise noted, the CCC amounts cited The proposed 2022-23 funding level is $1.8 billion throughout this brief reflect Proposition 98 General (9.6 percent) higher than the 2021-22 level. All three Fund, whereas the CSU, UC, and CSAC amounts segments and CSAC see year-over-year funding reflect non-Proposition 98 General Fund.) increases. CSAC sees the greatest increase (nearly 30 percent), followed by CSU (10 percent), Figure 1 Governor’s Budget Increases Ongoing Higher Education Funding Significantly Ongoing General Fund (Dollars in Millions) Change From 2021-22 2020-21 2021-22 2022-23 Actual Revised Proposed Amount Percent CCCa $7,392 $7,528 $7,827 $299 4.0% CSUb 4,026 4,597 5,064 467 10.2 UC 3,465 4,010 4,318 308 7.7 CSAC 1,994 2,356 3,059 703 29.8 Totals $16,878 $18,491 $20,268 $1,777 9.6% a Reflects Proposition 98 General Fund that counts toward the minimum guarantee. The state may choose to spend a portion of this amount for one-time purposes. b Includes funding for pensions and retiree health. 2 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET Total Core Funding Grows More Moderately. two-thirds is associated with CCC and CSAC All three segments receive core funding from proposals (combined), with the remaining one-third sources other than the state. For CCC, the largest associated with CSU and UC proposals (combined). nonstate fund source is local property tax revenue. Of the $1.9 billion in new spending proposed for For CSU and UC, the largest nonstate fund source one-time purposes, approximately half is for CCC, is student tuition revenue. Accounting for all core with the remainder split between university and funding gives a more comprehensive view of the CSAC proposals. segments’ funding situations. As Figure 2 shows, Governor Has Many Higher Education total core funding grows 4.4 percent for CCC, Spending Priorities. Figure 4 on the next page 6 percent for CSU, and 4 percent for UC. At CCC, shows the Governor’s major ongoing and one-time total core funding grows at a slightly higher rate than proposals for each segment and CSAC. Under the state General Fund due to relatively high projected Governor’s budget, each of the three segments growth in local property tax revenue. At CSU and receives ongoing base increases, enrollment UC, total core funds grow more slowly than state growth funding, and augmentations for foster General Fund, reflecting that student tuition revenue youth support programs. In addition, CCC receives grows little at UC and not at all at CSU. ongoing program augmentations for various More Than Half of New Higher Education purposes, including part-time faculty health care Spending Is Ongoing. As Figure 3 on the and technology. For CSAC, the Governor’s budget next page shows, 55 percent of the Governor’s includes ongoing augmentations for the revamped proposed new spending in higher education is for Middle Class Scholarship program (consistent with ongoing purposes, with 45 percent for one-time last year’s budget agreement) and higher Cal Grant purposes. Of the $2.3 billion in new spending caseload. Each of the three segments receives proposed for ongoing purposes, approximately one-time funding for facility maintenance projects. Figure 2 Total Core Funding Increases More Moderately Ongoing Core Funds (Dollars in Millions) Change From 2021-22 2020-21 2021-22 2022-23 Actual Revised Proposed Amount Percent CCC General Funda $7,392 $7,528 $7,827 $299 4.0% Local property taxa 3,374 3,546 3,766 220 6.2 Student fees 446 446 448 1 0.3 Lottery 275 273 273 —b -0.1 Subtotals ($11,487) ($11,794) ($12,313) ($519) (4.4%) CSU General Fund $4,026 $4,597 $5,064 $467 10.2% Student tuition and fees 3,277 3,163 3,163 — — Lottery 65 73 73 —b —b Subtotals ($7,368) ($7,833) ($8,300) ($467) (6.0%) UC General Fund $3,465 $4,010 $4,318 $308 7.7% Student tuition and fees 4,935 5,295 5,443 148 2.8 Lottery 43 51 50 —b -0.1 Otherc 395 395 395 — — Subtotals ($8,838) ($9,750) ($10,207) ($456) (4.7%) Totals $27,694 $29,378 $30,820 $1,442 4.9% a Reflects Proposition 98 funds. b Less than $500,000 or 0.5 percent. c Includes a portion of overhead on federal and state grants and a portion of patent royalty income. www.lao.ca.gov 3 2022-23 BUDGET Figure 3 More Than Half of Proposed New Higher Education Funding Is for Ongoing Purposes General Fund, 2022-23 CSU UC UC One-Time One-Time New Ongoing CCCa $ P 1 u . r 9 p B o i s lli e o s n CCCa Funds O Fu n n g d o s ing CSU $ P 2 u . r 3 p B o i s lli e o s n CSAC CSAC a Reflects new Proposition 98 funds. One-time funds consist of funds to "settle up" the minimum guarantee in 2020-21 and 2021-22 as well as some funds scored to the 2022-23 minimum guarantee that are designated for one-time purposes. CSAC = California Student Aid Commission. Figure 4 Proposed Higher Education Funding Increases Are Spread Across Many Areas General Fund Changes, 2022-23 (In Millions) CCCa CSU UC CSAC Ongoing Spending Base increases for operations $462b $374c $201 — Enrollment growth 25 81 99 — Foster youth programs 10 12 6 — Health insurance for part-time faculty 200 — — — Student Success Completion Grantsd 100 — — — Technology security 25 — — — Middle Class Scholarship expansion — — — $515 Cal Grant caseload adjustments — — — 188 Other 21 —e 3 —e Subtotals ($843) ($467) ($308) ($703) One-Time Initiatives Deferred maintenancef $388 $100 $100 — Climate-action initiatives — 133 185 — Student retention and enrollment strategies 150 — — — Health care pathways for English learners 130 — — — Common course numbering 105 — — — Technology security 75 — — — Transfer reform implementation 65 — — — Learning-Aligned Employment Programg — — — $300 Golden State Teacher Grantsh — — — 98 Other 70 1 10 1 Subtotals ($983) ($234) ($295) ($399) Totals $1,826 $701 $603 $1,102 a Reflects new Proposition 98 funds available over the 2020-21 through 2022-23 period. b Includes cost-of-living adjustment for apportionments ($409 million) and select categorical programs ($53 million). c Includes 5 percent base increase ($211.1 million) plus base increases for pension and retiree health care costs ($162.5 million). d Reflects caseload increase linked to CCC Cal Grant Entitlement Expansion enacted last year. e Less than $500,000. f CCC also may use proposed funding for water conservation projects, instructional equipment, and library materials, among various other facility and infrastructure purposes. UC and CSU also may use proposed funding for energy efficiency projects. g Reflects second year of two-year plan (per 2021-22 budget agreement). h The 2021-22 Budget Act appropriated $500 million for this purpose. The budget act included language specifying that no more than $100 million was to be spent annually from 2021-22 through 2025-26. Amount shown reflects anticipated spending in year two. 4 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET The universities also receive one-time funding Figure 5 related to the Governor’s climate-related priorities. Several Higher Education Proposals The colleges receive additional one-time funding for various purposes, including implementing Are Excluded From SAL student enrollment and retention strategies as well New General Fund Exclusions, 2022-23 (In Millions) as developing a new common course numbering system. For CSAC, most of its one-time initiatives, Proposal like its ongoing augmentations, implement budget Affordable student housing grant program $750 agreements reached last year. In addition to all of CCC deferred maintenancea 109 these proposals, the Governor’s budget includes CSU deferred maintenanceb 100 UC deferred maintenanceb 100 $750 million to implement the second year of the CSU Bakersfield Energy Innovation Centerc 83 state’s three-year initiative to create more affordable CSU University Farms facilities and equipmentc 50 student housing units across the segments. Total $1,192 Some Higher Education Spending Is a Reflects Proposition 98 General Fund. In addition to amount shown, the Governor excludes an associated $182 million in 2021-22 and Excluded From State Appropriations Limit. $97 million in 2020-21. CCC also may use proposed funding for water As Figure 5 shows, the Governor excludes a total conservation projects, instructional equipment, and library materials, among various other facility and infrastructure purposes. of $1.2 billion in new higher education spending in b Funds also may be used for energy efficiency projects. 2022-23 from the state appropriations limit (SAL). c The Governor classifies this proposal as a climate-action initiative. (The California Constitution imposes a limit on the SAL = state appropriations limit. amount of revenue the state can appropriate each year. The state can exclude certain capital outlay No Proposals for Addressing Unfunded appropriations from the SAL calculation. In our Retirement Liabilities or Providing Pension report, The State Appropriations Limit, we cover Relief. In recent years, the Governor has had SAL issues in more detail.) If the Legislature were various budget proposals relating to education to reject any of the specified higher education pension funding. These proposals have included proposals, it very likely would need to replace the making supplemental payments toward pension associated spending with proposals that still can systems’ unfunded liabilities as well as giving be excluded from SAL or used for other SAL-related community college districts immediate pension purposes, thereby allowing the state to continue relief by subsidizing their rates in 2019-20, 2020-21, meeting its overall SAL requirement. Conversely, and 2021-22. Though employer contribution rates were the Legislature to augment funding for any of for most pension systems are expected to rise the higher education proposals shown in Figure 5, notably in 2022-23, the Governor does not have any it then could consider rejecting a like amount of the such proposals this year. Governor’s other SAL proposals (whether inside or outside of the higher education area). BASE INCREASES Governor Proposes Budget-Year Base pension costs.) Though the CCC base increase is Increases for Each Segment. The Governor connected to a measure of inflation consistently proposes base increases for each of the used by the state to adjust apportionment funding, segments—5.33 percent for CCC and 5 percent for the university base increases are not linked with CSU and UC. In dollar terms, these augmentations any such measure. The universities’ augmentations amount to an additional $409 million in ongoing also are not linked to any specific, documented CCC support, $211 million for CSU, and operating cost increases. The three segments can $201 million for UC. (In addition to this base use base increases for any operating cost, including increase, the Governor’s budget provides CSU with employee salaries and benefits, utilities, supplies, $162 million ongoing for its retiree health care and and equipment. www.lao.ca.gov 5 2022-23 BUDGET Governor Also Proposes Future Base Unlike UC, the Proposed Budget-Year Base Increases for the Universities. The Governor Increase for CSU Falls Short of Projected recently announced his interest in establishing Operating Costs. We also compare the Governor’s multiyear “compacts” with CSU and UC. Under these proposed base increases for the universities to compacts, the Governor proposes to provide CSU their operating cost increases. For this analysis, and UC with 5 percent annual base increases over we assume annual salary growth of approximately each of the next five years. Whereas the Governor 3 percent, growth in annual health care costs of proposes enrollment growth funding on top of the 5 percent, and growth in OE&E of approximately base increases in 2022-23, the universities would 3.5 percent, together with estimated changes in be required to accommodate 1 percent annual CSU’s and UC’s pension and debt-service costs. enrollment growth within their base increases over the For 2022-23, projected operating cost increases remainder of the compact period (2023-24 through exceed CSU’s ongoing base increase by more 2026-27). For CCC, the Governor recently announced than $50 million. In contrast, projected operating his interest in establishing a multiyear “roadmap,” cost increases at UC are lower than the Governor’s but this roadmap does not commit to future base proposed base increase by about $20 million. increases for the colleges. Future base funding would In Outyears, Additional Tuition Revenue be specified in subsequent Proposition 98 packages. Also Puts UC in More Advantageous Position. Community Colleges’ Base Increase Needed Figure 6 compares how CSU and UC fare across Partly for Pension Cost Increases. To get a sense all the years of the proposed compact (2022-23 of how far the Governor’s proposed base increases through 2026-27). At CSU, the Governor’s proposed would stretch, we compare them to the segments’ base increases consistently fall short of meeting key operating costs. For the community colleges, the projected cost increases (including the proposed Governor’s proposed base increase is substantial. 1 percent enrollment growth). In contrast, at UC, the A 5.33 percent cost-of-living adjustment (COLA) for Governor’s proposed base increases consistently apportionments would be among the highest COLA exceed projected cost increases (including the rates the colleges have ever received. Community proposed 1 percent enrollment growth). The main colleges’ pension rates, however, also are increasing difference between the universities is that UC raises in 2022-23 at an unusual pace (approximately 2 or tuition revenue above the Governor’s proposed 3 percentage points, depending upon the pension base General Fund augmentation. Without this system). The relatively high rate increases are due additional tuition revenue, UC too would fall short of to previously provided state pension relief ending, meeting projected cost increases. combined with long-term plans by the pension Legislature Has Various Budget Options. systems to continue paying down large unfunded Given the implications of the above analyses, the liabilities. (The funding conditions of state pension Legislature may want to consider some different systems improved with stock market gains the past budget options than those proposed by the couple of years, but sizeable unfunded liabilities Governor. Overall, we continue to recommend remain.) Though the state’s pension boards will not the Legislature take a more transparent budget adopt final rates until spring 2022, we expect CCC approach—one that links state funding increases will need to use approximately 40 percent (roughly with clear spending priorities. For the community $170 million) of the proposed apportionment COLA colleges, the Legislature could consider redirecting to cover higher pension costs. Out of the remaining some of the funds the Governor proposes for new 60 percent, colleges must cover any health care cost activities, including new one-time activities, toward increases as well as increases in utilities and other addressing colleges’ core underlying cost drivers, operating expenses and equipment (OE&E). While including rising pension costs and unfunded most community colleges likely will have sufficient pension liabilities. For CSU, the Legislature could funds to offer some level of salary increases, such consider a somewhat higher base increase for increases might not be able to keep pace with 2022-23 among its spending priorities, if revenues inflation, given inflation also has been increasing at a allow. In the outyears, the Legislature could historically fast pace. consider the potential benefits of tuition increases 6 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET Figure 6 in helping all the segments cover core cost drivers. (We discuss Projected Operating Cost Increases at CSU tuition issues in more depth later Exceed Proposed Funding Increases in this brief.) Projected Operating Cost and Core Fund Increases (In Millions) Compacts Historically Have Not Been Accurate Guide for the $1,400 Future. We caution the Legislature 1,200 against putting too much stake 1,000 in the Governor’s outyear 800 600 commitments to the universities. 400 Former governors rarely been able 200 to sustain their compacts over 2022-23a 2023-24 2024-25 2025-26 2026-27 time. In some cases, changing economic and fiscal conditions Enrollment Growth General Fund in the state have led governors Other Operations Tuition Revenue to suspend their compacts. For Compensation example, in 2009-10, Governor Schwarzenegger proposed Projected Operating Cost Increases at UC eliminating all of his higher Lower Than Proposed Funding Increases education compact funding “as part of solutions to address the Projected Operating Cost and Core Fund Increases (In Millions) fiscal crisis.” Though compacts sometimes are thrown off course $1,800 1,600 by adverse state fiscal conditions, 1,400 they also can be altered due to 1,200 improved state fiscal conditions. 1,000 800 For example, in 2015-16—a 600 year of notable state revenue 400 200 growth—the Legislature approved ongoing funding increases beyond 2022-23a 2023-24 2024-25 2025-26 2026-27 those proposed under Governor a In 2022-23, the Governor proposes to provide CSU and UC with enrollment growth funding on top of their base Brown’s compact. increases. PERFORMANCE EXPECTATIONS Governor Sets Many Expectations for the by the segments. For example, all the segments Segments. The Governor’s 2022-23 Budget have initiatives with graduation and equity goals that Summary specifies a total of 55 expectations for the are the same or similar to those in the Governor’s segments (15 for CCC, 22 for CSU, and 18 for UC). compact. Other expectations, however, are driven As part of his multiyear CCC roadmap and university primarily by the administration. For example, compacts, the segments would have up to five years the Governor would like the universities to use a to meet most of the expectations. As Figure 7 on common integrated admissions platform, a common the next page shows, these expectations focus on learning management system, and a common tool student access, student success and equity, college for measuring equity gaps. Though the Governor affordability, intersegmental collaboration, workforce lists his expectations in his budget summary, he alignment, and online education. Some of the does not intend to have them codified. Moreover, expectations build off existing initiatives developed to date, the administration has set forth no specific www.lao.ca.gov 7 2022-23 BUDGET Figure 7 Governor Has Long List of Higher Education Expectations Expectations Specified in Governor’s 2022-23 Budget Summary CCC CSU UC Access Increase resident undergraduate enrollment annually X X Maintain minimum proportion of new transfer students X X Increase graduate enrollment X Student Success and Equity Increase student completions rates by specified amounts X X X Decrease average units to completion and time to completion X Increase number of students transferring to CSU and UC X Annually publish specified student completion rates X Advance re-enrollment campaigns and establish retention goals X Expand credit opportunities in intersessions and summer sessions X Provide every student access to digital degree planner X Close specified achievement gaps for underrepresented and Pell Grant students X X X Close equity gaps in dual enrollment programs X Affordability Create debt-free pathway for every undergraduate student X Reduce textbook and instructional material costs X X Increase proportion of new tuition revenue set aside for financial aid X Include student housing projects in capital campaigns X X Intersegmental Collaboration Fully participate in implementation of the Cradle-to-Career data system X X X Support campuses in adopting a common learning management system X X X Develop common tool to identify trends to address equity gaps X X X Support efforts to establish common integrated admissions platform X X X Workforce Alignment Increase percentage of high school students completing a semester of college credit through dual admission X Establish baseline for prior-learning credit and launch new direct-assessment competency-based education X programs Increase percentage of completing students earning a living wage X Establish/expand programs in early education, education, health care, and climate action fields X Establish coordinated educational pathways for high school students in education, health care, technology, and X X X climate action fields Develop new transfer pathways in education, health care, technology, and climate action fields X X Increase number of early education degree pathways available to students X Increase number of students enrolling in early education, education, STEM, and social work fields X Increase number of students graduating with early education, education, STEM, and academic doctoral degrees X Establish goal to enable all students to participate in at least one semester of undergraduate research, X X internships, or service learning Double opportunities for students who want research assistantships or internships X Online Education Increase online course offerings above pre-pandemic levels X X Increase concurrent online enrollment X Expand digital tools for students to access online learning materials X STEM = science, technology, engineering, and mathematics. 8 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET repercussions were a segment to miss one or more of Compact Undermines Legislative Authority. the expectations. The Department of Finance (DOF) Though the inconsistencies in the expectations and indicates that the administration reserves discretion lack of cost data are troubling, more troubling is the to propose smaller future base increases were a Governor’s overall approach of building a compact. segment not to demonstrate progress in meeting The Governor’s approach of working directly with its expectations. each of the segments to build multiyear budget Odd Inconsistencies in Expectations Across agreements and establish performance expectations Segments. As described by DOF, the administration has the fundamental problem of sidestepping the established his expectations in coordination with legislative branch of government. The Legislature is each of the three segments individually. This responsible both for enacting annual state budgets segment-specific development of the expectations and crafting policy aligned with those budgets. might account for the odd inconsistencies evident Throughout the upcoming 2022-23 budget process in the list. One of the major oddities is that some (as with any annual budget process), the Legislature expectations apply to only one rather than all of the will set the segments’ funding levels and decide what segments. For example, the Governor expects only conditions to attach to that funding. Moreover, the UC to offer its undergraduates a debt-free college Legislature can identify areas of common interest pathway by 2030. Only CSU is expected to establish with the Governor and segments and then work with retention goals for continuing students, and only CCC them collaboratively over the coming months to make is expected to increase the percentage of completing progress in these areas. students who go on to earn a living wage. Another Linking Expectations to Appropriate oddity is that some of the expectations are much Repercussions Requires More Deliberation. more ambitious for some segments. For example, If the Legislature is interested in creating additional the Governor has no expectation that community ways to improve the segments’ performance colleges reduce their textbook and instructional through stronger fiscal hooks, then it likely would material costs, whereas he expects CSU “to reduce need to dedicate substantial time and deliberation the cost of instructional materials by 50 percent by to the endeavor. Over the years, the Legislature 2025” and UC “to eliminate textbook costs for all has considered many ways of incentivizing the lower-division undergraduate courses.” segments to improve their outcomes, ranging Key Cost Data Is Missing. Typically, when the from requiring performance reporting to creating state wants to accomplish a policy objective, it categorical programs linked to specific improvement specifies the objective in statute, estimates the cost objectives to developing new funding formulas with of achieving the objective, and provides funding performance components. One of the more notable to meet the objective. In contrast, the Governor’s and recent of these efforts occurred in 2018-19 55 expectations are not linked directly with cost when the Legislature adopted a new budget formula estimates. For example, the Governor provides no that linked a portion of apportionment funding to estimate of the amount it would cost UC to provide community colleges’ performance. As with this new every undergraduate a debt-free education pathway budget formula, past legislative efforts have entailed or the amount it would cost CSU to ensure “every complex deliberations about what performance to student has access to appropriate technology measure, how to measure it, what benchmarks to set, for online learning.” Especially given some of the and what enforcement mechanisms to institute. The expectations likely have high costs, the segments Governor’s CCC roadmap and university compacts could face difficult fiscal choices in meeting foray into some of these areas (such as what to expectations within their base funding allotments. measure), but other areas (such as enforcement and These choices could become even more difficult fiscal repercussions) remain unaddressed. were a segment to have its base funding reduced unexpectedly due to not meeting one or more of its goals. Moreover, some of the choices the segments ultimately might make could run counter to legislative priorities. www.lao.ca.gov 9 2022-23 BUDGET ENROLLMENT Governor Has 2022-23 Enrollment Growth did not experience enrollment declines in 2020-21. Proposals for Each Segment. For CCC, the They too, however, are expected to experience Governor’s budget includes $25 million to cover declines in 2021-22. The decline is expected to be 0.5 percent systemwide enrollment growth, especially notable at CSU—with enrollment among equating to 5,500 additional full-time equivalent its new freshmen, transfer students, and continuing (FTE) students. The Governor’s budget includes students all down. $81 million (above base funding) for CSU to serve Pandemic Continues to Make Enrollment an additional 9,434 FTE resident undergraduate Planning More Challenging. When the Legislature students, reflecting a 2.8 percent increase, and set enrollment targets for the segments last year, it it includes $68 million (also above base funding) did not expect to see enrollment levels continuing for UC to serve an additional 6,230 FTE resident to be soft at all the segments. At the time, many undergraduate students, reflecting a 3 percent legislators expected enrollment would rebound increase. The university proposals are intended to in 2021-22 with the resumption of on-campus align with enrollment growth expectations set forth in operations. The enrollment drops the segments are the 2021-22 Budget Act. experiencing in 2021-22 could be an indication of All Three Segments Are Seeing the continuing challenge in managing enrollment Lower-Than-Anticipated Enrollment in 2021-22. during unusual times. As the Legislature assesses As context for understanding the Governor’s the Governor’s enrollment proposals and considers enrollment proposals, we looked back at enrollment its enrollment priorities for the coming year, we trends over the past several years. As Figure 8 encourage it to keep in mind the heightened shows, community college enrollment has continued uncertainty of these times, along with the segments’ to drop throughout the pandemic. These drops accompanying enrollment planning challenges. have been attributed to various factors, including Universities Could Need More Time to Meet more parents staying home to provide child care, Enrollment Targets. In response to the heightened public health concerns, and disinterest among uncertainty, the Legislature could consider giving the some students to taking courses online, as well universities an additional year to meet the enrollment as rising wages and an improved job market. In targets set last year. The Legislature also could contrast to community colleges, the universities Figure 8 Drops in 2021-22 Enrollment Across All Segments Likely Linked to Pandemic Resident Undergraduate Full-Time Equivalent (FTE) Students 2017-18 2018-19 2019-20 2020-21 2021-22 Actual Actual Actual Actual Estimated CCCa 1,188,872 1,177,205 1,149,078 1,062,572 1,009,443b Change from prior year -11,666 -28,128 -86,506 -53,129 Percent change from prior year -1.0% -2.4% -7.5% -5.0% CSU 349,004 348,210 352,693 353,262 340,470 Change from prior year -794 4,483 569 -12,792 Percent change from prior year -0.2% 1.3% 0.2% -3.6% UC 185,416 189,489 193,792 200,075 199,358 Change from prior year 4,073 4,303 6,283 -717 Percent change from prior year 2.2% 2.3% 3.2% -0.4% a Reflects total credit and noncredit FTE students. b Reflects LAO estimate. Preliminary data for 2021-22 are not yet available. Early signals indicate CCC enrollment continues to drop, potentially more than is shown here. 10 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET specify a target enrollment level for each university. a target enrollment level (rather than only a growth Last year, the state took a different approach by target) would eliminate such potential ambiguity setting the baseline year and growth expectation but for both the segment and the state while providing not the total expected enrollment level. This approach greater assurance that state enrollment growth can lead to unintended consequences. For example, funding would be used to enroll additional students if enrollment growth for CSU were measured from its beyond the level already recognized by the state. lower 2021-22 level, then the Governor’s proposal (If community colleges do not meet their enrollment would result in CSU receiving an augmentation even target and the associated funds are not needed though it would be expected to serve fewer students for certain other state-specified purposes, then in 2022-23 than it had a few years earlier. Setting the funds revert.) TUITION Governor’s Compact Assumes UC’s Tuition more than inflation over the 2022-23 through 2025-26 Plan, Does Not Have Similar Plans for Other period, as the cohort-model phases in. For CSU, the Segments. The Governor’s compact with UC Governor’s budget assumes no tuition increase in assumes the university implements the new tuition 2022-23. Similarly, the Governor proposes no tuition policy recently adopted by the Board of Regents. (enrollment fee) increase for community colleges. Beginning in 2022-23, this policy applies annual UC’s Tuition Plan Reflects More Rational Policy tuition increases to all academic graduate students Than State’s Past Tuition Practices. Implementing and uses a cohort model in applying higher charges UC’s new tuition policy would be a notable departure to incoming undergraduate students, with charges from previous tuition practices. As Figure 9 shows, held flat for continuing undergraduate students. the state’s experience to date has been to have Annual tuition increases are tied to inflation steep tuition increases during economic recessions (the California Consumer Price Index), except (in the early 1990s, early 2000s, and Great Recession undergraduate charges would increase somewhat Figure 9 Tuition Changes Lack Rational Policy Basis Percent Change in Systemwide Undergraduate Tuition and Fees From Prior Year 100% 80 CCC 60 40 UC 20 CSU -20 1987-88 1990-91 1993-94 1996-97 1999-00 2002-03 2005-06 2008-09 2011-12 2014-15 2017-18 2020-21 www.lao.ca.gov 11 2022-23 BUDGET period) while leaving tuition flat throughout most level in 2020-21 approximately $1,600 (18 percent) years of economic recoveries. Such practices lower than that of its peers. CCC tuition has been tend to work counter to families’ fiscal situations, and remains much lower than other public two-year with household income tending to weaken during colleges, with the average tuition of its peers about recessions and improve during recoveries. As a result four times higher. of such practices, student cohorts enrolling in college Encourage Legislature to Explore Tuition Policy during recessions tend to pay a higher share of their Options for CSU and CCC. The state might explore education costs than student cohorts enrolling during tuition policy options for CSU and CCC for two recoveries. By raising charges more gradually and reasons. One reason is to have a more rational tuition predictability, UC’s new tuition policy has the potential policy that avoids the tuition spikes and plateaus to overcome the main weaknesses of these previous that have characterized state tuition practices over state tuition practices. the years. A more rational policy could raise tuition UC Tuition Relatively High, CSU and CCC charges gradually and predictably, with tuition Tuition Relatively Low Compared to Peers. charges potentially held flat only during economic Although the Governor’s compact assumes tuition recessions when family incomes are stagnating or increases only for UC, UC already has relatively high declining. Another reason to consider a tuition policy tuition charges compared to other public research for CSU and CCC would be to expand their budget universities. As Figure 10 shows, UC’s undergraduate capacity. With additional tuition revenue, CSU and tuition level 20 years ago was about the same as CCC could cover additional high priorities—potentially other public research universities in the country, allowing for more enrollment growth, graduation but began diverging during the Great Recession initiatives, and student support programs. Given the notably and remains higher. In 2020-21, its annual time needed to consult with affected groups and undergraduate tuition level was approximately $2,500 develop new policies, beginning to explore tuition (20 percent) higher than the average of its peer options now could allow the segments to put any new institutions. By comparison, CSU has remained below policies in place for the 2023-24 academic year. other public master’s universities, with its tuition Figure 10 UC Charges Are Relatively High, CSU and CCC Charges Are Relatively Low Compared to Peers Average Annual Tuition and Fee Charges for Full-Time Resident Undergraduate Studentsa - $16,000 UC 14,000 12,000 Other Public Research Universities 10,000 Other Public Master's Universities 8,000 CSU 6,000 Other Public Two-Year Colleges 4,000 2,000 CCC 2001-02 2003-04 2005-06 2007-08 2009-10 2011-12 2013-14 2015-16 2017-18 2019-20 a Reflects actual charges assessed each year, not adjusted for inflation. 12 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET FACILITY MAINTENANCE Governor’s Budget Funds Deferred Legislature Could Prioritize Deferred Maintenance Projects at All Three Segments. Maintenance for More Funding. Providing The Governor proposes to provide CCC with funding for deferred maintenance projects helps to $388 million one time for facility maintenance, water address a large and growing problem in the state. conservation projects, instructional equipment, As the Legislature assesses the Governor’s other and library materials, among various other facility one-time proposals and receives updated revenue and infrastructure purposes. The Governor information in May, it could consider providing proposes to provide CSU and UC each $100 million more funding for this purpose. (Funding for these one time for deferred maintenance and energy types of projects generally is SAL-excludable.) efficiency projects. If the Legislature were to consider providing more Segments Have Large and Still Growing funding for deferred maintenance, it could weigh Deferred Maintenance Backlogs. Over the the needs of the higher education segments against past seven years, the state has designated some those of other state agencies. Many other state one-time funding for deferred maintenance agencies also have large maintenance backlogs projects at the segments. From 2015-16 through (though departments vary in their documentation of 2021-22, the state provided more than $2 billion deferred maintenance needs). for these projects. Despite this state funding, the segments’ backlogs continue to grow. CSU’s backlog, for example, grew from an estimated $3.6 billion in 2016-17 to $5.8 billion in 2021-22. Currently, all three segments report sizeable backlogs. Beyond CSU’s $5.8 billion backlog, CCC reports a $1.2 billion backlog and UC reports a $7.3 billion backlog. www.lao.ca.gov 13 2022-23 BUDGET 14 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET www.lao.ca.gov 15 2022-23 BUDGET CONTACT LIST Jason Constantouros University of California (916) 319-8322 Jason.Constantouros@lao.ca.gov Lisa Qing California State University (916) 319-8306 California Student Aid Commission Lisa.Qing@lao.ca.gov Paul Steenhausen California Community Colleges (916) 319-8303 Paul.Steenhausen@lao.ca.gov LAO PUBLICATIONS This report was prepared by Jennifer Pacella and reviewed by Anthony Simbol. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, California 95814. 16 LEGISLATIVE ANALYST’S OFFICE