The 2023-24 Budget: University of California

2023-24 BUDGET The 2023-24 Budget: University of California GABRIEL PETEK | LEGISLATIVE ANALYST | FEBRUARY 2023 SUMMARY Brief Covers Governor’s Budget Proposals for the University of California (UC). This brief analyzes the Governor’s budget proposals relating to UC’s core operations, enrollment, and certain capital outlay projects. It also analyzes a proposal to impose certain new requirements on UC Los Angeles (UCLA) relating to transfer students. Recommend Legislature Link UC’s Base Funding Increase to Spending Priorities. The Governor’s main proposal for UC is a $216 million (5 percent) ongoing General Fund base increase—the second of five annual base increases included in his multiyear compact with UC. The Governor does not designate the base increase for any particular purposes, and the amount is not connected to UC’s identified operating cost increases. We recommend the Legislature take a more transparent budget approach by determining which of UC’s operating cost increases it wishes to support in 2023-24 and providing funding designated for those particular purposes. Legislature Could Revisit UC’s Enrollment Growth Funding and Targets. The 2022-23 Budget Act provided UC with $51.5 million ongoing General Fund to grow enrollment by 4,730 resident undergraduate students in 2023-24 over 2021-22. UC expects to grow by 4,197 students in 2023-24 (533 students below the target). As budget solutions, the Legislature could recognize associated General Fund savings of $8.6 million in 2023-24 and $51.5 million in 2022-23 (given UC expects to serve no additional students this year). We recommend the Legislature also set enrollment targets for 2024-25, thereby helping to influence UC’s admission decisions next year. We recommend the Legislature adopt the Governor’s proposed $30 million ongoing General Fund to continue implementing the state’s plan to reduce nonresident undergraduate enrollment at high-demand campuses, opening up more slots for resident undergraduates. Recommend Revisiting Certain UC Capital Projects. In response to the state’s projected budget deficit, the Governor proposes to delay a total of $366 million in one-time funding for four UC capital projects until 2024-25. Rather than delaying funding, we recommend the Legislature revisit whether to proceed with two of the projects. Those two projects (at UCLA and UC Merced) are in very early planning phases, have spent no state funds to date, lack key project information or lack justification (based on enrollment projections), and are not urgent. For the UC Riverside project, we recommend weighing it against UC’s other capital priorities. If the Legislature determines this project is the most pressing priority, we recommend it consider financing the project using university bonds. Lastly, for the UC Berkeley project, we recommend the Legislature obtain a more comprehensive project plan before proceeding, as the need for additional state funding moving forward could be considerable. Recommend Rejecting Transfer Proposal for UCLA. The Governor proposes trailer bill language requiring UCLA to participate in the Transfer Admissions Guarantee (TAG) program and Associate Degree for Transfer (ADT) program. The proposed language makes $20 million of the campus’s ongoing core funding contingent on meeting the new requirements. We recommend the Legislature reject this proposal and instead consider whether to require all UC campuses to participate in the TAG and ADT programs. We also recommend the Legislature have a broader discussion regarding whether it would like to develop a performance-based budgeting model for UC. www.lao.ca.gov 1 2023-24 BUDGET INTRODUCTION Brief Focuses on UC. UC is one of California’s through the doctoral level. This brief is organized three public higher education segments. In contrast around the Governor’s 2023-24 budget proposals to campuses at the other two segments—the for UC. The first section of the brief provides an California State University (CSU) and the California overview of the Governor’s UC budget package. Community Colleges (CCC)—UC’s ten campuses The remaining four sections focus on core are research universities. Nine of UC’s campuses operations, enrollment, certain capital projects, and enroll undergraduate, graduate, and professional certain transfer programs, respectively. This brief school students across a range of disciplines, is part of our series of higher education budget whereas a tenth campus enrolls graduate health analyses. The 2023-24 Budget: Higher Education science students only. Campuses offer degrees Overview was our first brief in this series. OVERVIEW UC Budget Is $46.9 Billion in 2022-23. $256 million (5.9 percent), whereas tuition and fee Though having the lowest level of state support, revenue increases by $194 million (3.8 percent). the fewest campuses, and the least student In 2023-24, tuition revenue is expected to grow enrollment, UC has the largest budget of the three both due to increases in tuition charges for public highest education segments—with total certain students and enrollment growth. Under funding greater than the CSU and CCC budgets the Governor’s budget, we estimate ongoing core combined. As Figure 1 shows, UC receives funding per student increases 3.1 percent. funding from a diverse array of sources. The state generally focuses Figure 1 its budget decisions around UC’s UC Receives Funding From Many Sources “core funds,” or the portion of UC’s budget supporting undergraduate $46.9 Billion in 2022-23 and graduate education and certain state-supported research and Other outreach programs. Core funds at Core Funds UC primarily consist of state General Private General Fund Fund and student tuition revenue. A small portion comes from other sources, such as overhead funds Federal associated with federal and state Tuition and Fees research grants. Between 2021-22 Other and 2022-23, ongoing core funds per student increased 6 percent at UC. Sales and Services Ongoing Core Funding Increases by $450 Million (4.6 Percent) Under Medical Centers Governor’s Budget. As Figure 2 shows, more than half of the increase comes from the General Fund, with a smaller increase from student Noncore Funds tuition and fee revenue. Specifically, ongoing General Fund increases by 2 LEGISLATIVE ANALYST’S OFFICE 2023-24 BUDGET Governor Proposes Base Funding Increase for UC. Though Figure 2 the Legislature did not codify the Largest Portion of UC Core Fund Increase Governor’s multiyear budget compact Comes From General Fund with UC, the Governor is proceeding with the second year of it. Under this Ongoing Core Funds (Dollars in Millions) compact, the Governor has agreed Change From 2022-23 to propose 5 percent base funding 2021-22 2022-23 2023-24 Actual Revised Proposed Amount Percent increases for UC annually through 2026-27. Accordingly, for 2023-24, the General Fund $4,011 $4,374 $4,630 $256 5.9% Governor is proposing to provide UC Tuition and fees 5,017 5,081 5,276 194 3.8 Lottery 53 46 46 —a —a with a $216 million (5 percent) ongoing Other core fundsb 207 301 301 — — General Fund augmentation. This is Totals $9,288 $9,802 $10,252 $450 4.6% the largest of the Governor’s proposals FTE studentsc 289,913 288,664 292,891 4,227 1.5% for UC. Funding per student $32,036 $33,956 $35,003 $1,047 3.1 a Amount is less than $500,000 or 0.05 percent. Governor Proposes Other b Includes a portion of overhead funding on federal and state grants and a portion of patent royalty Funding Increases and Funding income. Delays for UC. As Figure 3 shows, c Reflects total resident and nonresident enrollment in undergraduate, graduate, professional, and health science programs. the Governor’s budget includes FTE = Full-time equivalent. various other UC proposals. Notably, the Governor proposes $30 million ongoing General Fund to continue implementing the state’s plan to Figure 3 reduce nonresident undergraduate Governor Proposes Funding Increases and enrollment at three high-demand Funding Delays for UC UC campuses (Berkeley, Los Angeles, General Fund Changes, 2023-24 (In Millions) and San Diego) by 902 full-time equivalent (FTE) students, in turn Ongoing Funding Increases increasing resident undergraduate Base increase (5 percent) $216 enrollment on those campuses by Nonresident enrollment reduction plana 30 the same amount. The appropriation UC Riverside medical school project (debt service) 7 Graduate medical education 4 backfills UC for the loss of associated Total $256 nonresident tuition revenue. Beyond One-Time Initiatives these additional resident slots, UC is UC Fire Advisors $2 planning for growth of approximately Total $2 4,200 resident undergraduates, to Funding Delays be funded from within its budget. UCLA Institute for Immunology and Immunotherapyb -$100 The Governor’s budget also includes UC Riverside and UC Merced campus expansion projectsc -83 UC Berkeley Clean Energy Campus Projectc -83 $2 million one-time funding for UC Fire Total -$266 Advisors—the second consecutive year a In 2023-24, UC would reduce its nonresident undergraduate enrollment at three campuses the state would be providing funding (Berkeley, Los Angeles, and San Diego) by a total of 902 students. It would backfill these slots with for this purpose. (As part of the state’s the same number of additional resident undergraduate students. b The state originally scheduled $200 million in 2022-23, $200 million in 2023-24, and $100 million wildfire prevention and forest resilience in 2024-25 for this project. The Governor now proposes to provide $100 million in 2022-23, $100 efforts, it is funding UC personnel million in 2023-24, and $300 million in 2024-25. c The state originally scheduled $83 million in 2022-23, $83 million in 2023-24, and $83 million in who provide information to community 2024-25 for these projects. The Governor now proposes to retain $83 million in 2022-23 but delay members on how Californians can the $83 million in 2023-24 and provide $166 million in 2024-25. protect homes, landscapes, and property from wildfire damage.) Beyond these funding increases, the Governor’s www.lao.ca.gov 3 2023-24 BUDGET budget proposes delaying funding for several the new policy was 2022-23. In 2023-24, tuition and capital projects. Though no new state funding is systemwide fee rates are set at $13,752 for new involved, the administration also has a proposal undergraduate students and $13,104 for continuing requiring the UCLA campus to participate in certain undergraduate students, reflecting a $648 transfer programs. (4.9 percent) increase for new students. In 2023-24, UC Generates Additional Revenue From UC estimates generating an additional $147 million Tuition Increases. In July 2021, the Board of in revenue from tuition increases. It plans to Regents adopted a new tuition policy. Under use $58 million of this additional revenue for the policy, tuition is increased annually for new institutional student financial aid. (In addition, the undergraduates and all graduate students, while California Student Aid Commission budget includes remaining flat for continuing undergraduates. $46 million in higher associated Cal Grant costs Tuition increases generally are based on a for UC students in 2023-24. This Cal Grant cost three-year rolling average annual change in the increase is entirely offset by Cal Grant reductions California Consumer Price Index, with a cap of associated with overall caseload.) 5 percent. The first year of tuition increases under CORE OPERATIONS In this section, we provide background on UC’s supporting student financial aid programs, and core operating costs and how UC generally covers covering other operating expenses and equipment these costs. Next, we describe the Governor’s (OE&E). Each year, campuses typically face proposed base funding increase for UC. We then pressure to increase employee salaries at least at assess the Governor’s proposal and make an the pace of inflation. Certain other operating costs, associated recommendation. including health care and utility costs, also tend to rise over time in step with sector-specific cost Background trends. In addition, UC is responsible for setting UC Has Considerable Flexibility in Managing its pension contribution rates, and it expects to Its Operating Costs. UC has more control than increase these rates over the next several years, most state agencies over its operating costs. primarily as a result of weaker-than-expected Of UC’s core-funded compensation, more than stock market performance. Though operational 90 percent is associated with employees who are spending grows in most years, UC has pursued not represented by a labor union. The Board of certain actions to contain this growth. For example, Regents directly sets salaries and benefits for these over the past several years, UC has achieved employees. UC negotiates salaries and benefits operational savings through changing certain with its represented employee groups. As with procurement practices. CSU, the Legislature does not ratify UC’s collective UC Covers Its Operating Cost Increases From bargaining agreements. UC also has more control Three Main Sources. In most years, the state than other state agencies in that it operates its own provides additional ongoing General Fund support retirement system—the UC Retirement Plan (UCRP). to cover some of UC’s operating cost increases. UC’s Largest Operating Cost Is Since 2013-14, the state has provided UC with Compensation. As with most state agencies, UC General Fund base increases in all years but one. spends the majority of its ongoing core funds (about (In 2020-21, the state reduced General Fund 68 percent in 2021-22) on employee compensation, base support due to a projected shortfall, but it including salaries, employee health benefits, retiree restored funding the following year.) UC sometimes health benefits, and pensions. Beyond employee supplements General Fund increases with compensation, UC faces other annual costs, such additional systemwide tuition and fee revenue. as paying debt service on its systemwide bonds, 4 LEGISLATIVE ANALYST’S OFFICE 2023-24 BUDGET Though it raised systemwide tuition rates only once lost revenue, salaries and benefits, and information between 2013-14 and 2020-21 (in 2017-18), UC is technology. Under current federal guidance, in the midst of implementing its new tuition policy campuses have until June 30, 2023 to spend the that raises systemwide tuition rates for certain remaining $88 million in relief funds. It is expected students annually. Thirdly, UC relies on various that campuses will be able to expend the remaining alternative fund sources to help cover some of its funds by this date. operating cost increases. In particular, UC relies Proposal on nonresident supplemental tuition revenue and investment earnings to increase its budget capacity. Governor Proposes Unrestricted General In recent years, UC also has been estimating the Fund Base Increase. The Governor proposes amount of operational savings it achieves through a $216 million (5 percent) ongoing General Fund changing certain procurement practices and other increase for UC in 2023-24. Budget provisional efficiencies. It has identified these freed-up funds language indicates that the funds are available “to as an additional alternative source of support for support operational costs” at UC. core operations. Assessment Share of Costs Covered by General Fund Unrestricted Base Increase Lacks Has Been Increasing. As the state has provided Transparency and Accountability. The Governor’s UC with regular General Fund base increases and proposed unrestricted base increase for UC lacks tuition charges have remained flat most years transparency, as the funds are not designated over the past decade, the General Fund has been for particular purposes. Compounding this comprising a growing share of UC’s core funds. uncertainty, the Board of Regents does not adopt Whereas we estimate the General Fund comprised a corresponding spending plan until after final state 43 percent of UC’s ongoing core funds ten years budget enactment. Though UC’s fall 2022 budget ago, it comprises 46 percent today. Despite this request provides some indication of how UC could increase, ongoing General Fund support per use the proposed funds, no statutory language student has not kept pace with inflation since requires UC to spend the base increase consistent 2017-18. Though ongoing General Fund support with that preliminary plan. For all these reasons, per student in 2022-23 was 22 percent higher the Legislature does not have assurance that the than in 2017-18 (rising from $12,471 to $15,151) in proposed augmentation will be spent in ways that unadjusted terms, it was 3.8 percent lower when are aligned with its priorities. Furthermore, the adjusted for inflation. state has not put in place a funding formula or Campuses Have Largely Spent Federal Relief accountability system for UC that is akin to the one Funds. Between March 2020 and March 2021, in place for CCC, which provides fiscal incentives the federal government enacted three pieces of to achieve certain outcomes. (Under the CCC legislation providing COVID-19 relief funds to higher Student Centered Funding Formula, community education institutions. All associated funding was colleges effectively earn funds by achieving deposited into the Higher Education Emergency certain enrollment and performance outcomes.) Relief Fund (HEERF) and made directly available Though the Governor’s compact describes some to campuses. UC campuses received a total performance expectations, no clear mechanism of $1.4 billion in HEERF funds. Of this amount, exists to increase or decrease UC’s funding in UC campuses were required to spend at least response to its outcomes. $605 million on student financial aid. Any remaining Amount of Governor’s Proposed Base funds were available for a broad range of Increase Is Arbitrary. The 5 percent annual base institutional expenses associated with COVID-19. increases proposed in the Governor’s compact As of November 2022, UC campuses had spent are not tied to projections of UC’s operating costs. $1.3 billion (94 percent) of the total relief funds Since the initial agreement was made last year, new they received. Aside from student financial aid, the information has become available on UC’s cost largest categories of expenses were replacement of www.lao.ca.gov 5 2023-24 BUDGET increases as well as the state’s budget condition. by 1 percentage point, with the total employer rate Each year of the compact moving forward, new rising from 15.4 percent to 16.4 percent in 2023-24. information will continue to emerge. Typically, the UC projects a 4 percent increase in its health Legislature desires to use the most recent and care costs for active employees and retirees. UC accurate information available to guide its budget also projects cost increases for OE&E and debt decisions instead of relying on arbitrary increases service. Altogether, we estimate these operating previously proposed by the administration. cost increases exceed UC’s available core fund Proposed General Fund Augmentation Does increases by approximately $40 million. UC Not Fully Cover UC’s Projected Cost Increases. indicates it would respond to any operating shortfall Figure 4 shows the $406 million in 2023-24 through operational savings and redirections of operating cost increases that UC identified in its existing resources. fall 2022 budget plan. UC is planning for faculty UC Is Likely to Face Heightened Salary and other nonrepresented staff salary increases. Pressures in 2023-24. Though UC already has In addition, it already has 2023-24 contracts in 2023-24 contracts in place for its represented place for its represented employee groups, with groups, it has yet to make salary decisions for its most groups receiving salary increases in the nonrepresented faculty and staff, who comprise range of 3 percent to 5 percent. UC’s employer the vast bulk of UC’s workforce. In 2023-24, UC is contribution rate for UCRP also is set to increase likely to face significant pressure to provide these employees with salary increases. Over the past year, both inflation and wage growth (across the Figure 4 nation and in California) were at their highest levels UC Has Identified Many Cost Pressures in several decades. These trends could continue into 2023-24. The decisions UC ultimately makes in Proposed Changes for Core Operations, 2023-24 (In Millions) this area will affect its operating balance. Governor’s Budget Includes No Funding Core Operations for Capital Renewal. Though the Governor’s Faculty compensation $97.4 budget includes no capital renewal funding, UC Retirement contributions 72.7 requested $1.2 billion in one-time state funds for Nonrepresented staff compensation 69.0 Operating expenses and equipment 55.4 this purpose in its fall 2022 budget request. UC Faculty merit program 37.1 estimates it needs this amount annually to keep Represented staff compensation 37.0 its capital renewal backlog from growing. UC’s Health benefits for active employees 24.3 capital renewal backlog is currently estimated at Health benefits for retirees 6.8 Debt servicea 6.0 $7.3 billion (not including seismic upgrades). UC’s Total Cost Increases $405.7 backlog of projects has been growing as emerging Funding projects outpace funding. Absent a plan to address General Fund $252.0b these capital renewal needs, project backlogs very Tuition and fee revenue 58.3c Alternative fund sources 54.6d likely will continue to grow—leading to higher costs Total Funding Increases $364.9 and greater risk of programmatic disruptions. (We Operating Shortfall -$40.8e discuss the universities’ capital renewal needs in a Reflects debt service on certain academic buildings. more detail in our recent brief, Addressing Capital b Reflects Governor’s proposed 5 percent base increase, $30 million for Renewal at UC and CSU.) nonresident enrollment reductions, and $6.5 million in higher debt-service costs. c Reflects revenue from tuition and fee rate increases net of institutional Recommendation student financial aid and after accounting for the loss of nonresident supplemental tuition resulting from the nonresident enrollment reduction Build Base Increase Around Identified plan. d Consists of $30 million in investment earnings, $13.8 million in Operating Cost Increases. We recommend the procurement savings, and $10.8 million in additional tuition revenue Legislature decide the level of base increase to from nonresident enrollment growth. e Reflects estimated shortfall. Assumes enrollment growth below the provide UC by considering the operating cost existing state-funded level generates no new state costs. increases it wants to support in 2023-24. Given the 6 LEGISLATIVE ANALYST’S OFFICE 2023-24 BUDGET state’s projected budget deficit, we recommend more difficult for UC, as those reductions could considering the proposed 5 percent base begin to affect salary increases for nonrepresented increase an upper bound. With the General Fund employees. Though smaller salary increases likely augmentation that the Governor proposes, together are unpalatable, UC does not appear to be having with additional revenue from tuition increases and special difficulty attracting and retaining most of its alternative fund sources, UC could cover most of its faculty and staff. For example, UC faculty salaries projected cost increases. However, it would need to on average are higher than most public universities find some savings. For example, it might consider engaging in a similar level of research. In addition, revisiting its projected OE&E spending. UC included faculty separations have remained about the same $55 million for projected OE&E cost increases in over the last ten years. Finally, given UC’s sizable its spending plan, which is about $15 million more and growing capital renewal needs, the Legislature than our estimate of UC’s budget shortfall. Further could consider reallocating some proposed funding downward spending adjustments would become for this purpose. ENROLLMENT In this section, we first provide background on year). Setting an out-year target allows the state the state’s approach to funding enrollment growth to better influence UC’s admission decisions, at UC. Next, we cover recent UC enrollment trends. as campuses typically have already made their Then, we describe the Governor’s enrollment admission decisions for the coming academic year proposals, assess those proposals, and make before the enactment of the state budget in June. associated recommendations. State Recently Adopted a Nonresident Enrollment Reduction Plan for UC. Recently, Background the state acted to limit the number of nonresident State Typically Sets Enrollment Targets and undergraduates at UC, with the intent to make Provides Associated Funding. Over the past two more slots available for resident undergraduates at decades, the state’s typical enrollment approach for high-demand campuses. Specifically, the 2022-23 UC has been to set systemwide resident enrollment Budget Act directed UC to reduce incoming targets. These targets typically have applied to nonresident undergraduate enrollment at the overall resident enrollment, giving UC flexibility Berkeley, Los Angeles, and San Diego campuses by to determine the mix of additional undergraduate a total of 902 FTE students and increase resident and graduate students. If the overall systemwide undergraduate enrollment by the same amount. target has reflected growth (sometimes the state The budget act provided UC with $30 million leaves the target flat), the state typically has General Fund to backfill for the loss of associated provided associated General Fund augmentations. nonresident tuition revenue. If UC does not meet Augmentations have been determined using an the reduction target, provisional language directs agreed-upon per-student funding rate derived from the administration to reduce UC’s appropriation the “marginal cost” formula. This formula estimates proportional to any shortfall. The 2022-23 actions the cost to enroll each additional student and were intended to be the first year of a multiyear shares the cost between state General Fund and plan (stretching through 2026-27) to reduce anticipated tuition revenue. nonresident undergraduate enrollment at those Two Important Recent Modifications to three campuses down to no more than 18 percent State’s Enrollment Growth Approach. In recent of total undergraduate enrollment. (The 18 percent years, the state has set enrollment growth targets cap applies to all UC campuses, but only those only for undergraduates and has set those targets three campuses currently are notably above the one year in advance (for example, setting a target cap.) The planned reductions are spread evenly in the 2021-22 budget for the 2022-23 academic over each year of the phase-down period. www.lao.ca.gov 7 2023-24 BUDGET State Set Resident Enrollment Target for UC Expects Resident Undergraduate 2023-24. Specifically, the state set an expectation Enrollment in 2022-23 to Decline Slightly. in the 2022-23 Budget Act that UC grow by Though 2022-23 enrollment data has not yet a total of 7,632 resident undergraduate FTE been finalized, UC has made initial systemwide students in 2023-24 above the 2021-22 level. estimates based on enrollment levels in the This amount consists of three components. summer and fall of 2022. UC estimates 2022-23 First, it includes 4,730 additional students to be resident undergraduate enrollment will be funded at a state marginal cost rate of $10,886. 195,597 students—263 students (0.1 percent) The budget act provided $51.5 million to fund this below the level in 2021-22. As Figure 6 shows, group of students. Second, it includes another UC is expecting enrollment in fall through spring 2,000 students (reflecting roughly 1 percent terms to be up slightly, but more than offset by additional growth). UC is to cover the cost of these the enrollment drop it experienced in the summer students from the base increase it receives in 2022 term. The drop in summer 2022 enrollment 2023-24. Third, it includes 902 additional resident could reflect a strong labor market, together students due to the planned replacement of with fewer online courses offerings compared nonresident students. The cost to cover these to summer 2021. (Enrollment spiked in summer students is to be provided through the nonresident 2020 in the midst of the pandemic, likely because reduction plan. students had more opportunities to study online State Funded UC for Prior “Over-Target” and fewer summer employment opportunities. Enrollment. In addition to the new enrollment Summer enrollment since then has declined.) targets set for UC, the 2022-23 Budget Act funded UC for students it had enrolled over previous Figure 5 state targets. Specifically, the Enrollment Trends Vary Among Campuses budget act provided $16 million for Cumulative Percent Change in Headcount Undergraduate Enrollment, 1,500 undergraduate FTE students UC enrolled over target from Fall 2017 to Fall 2022 2018-19 through 2021-22. Irvine Recent Trends Recent Enrollment Trends Santa Cruz Have Varied Among Campuses. Los Angeles As Figure 5 shows, enrollment Davis trends varied widely among campuses over the past five Santa Barbara years. From fall 2017 to fall Berkeley 2022, the cumulative change in UC Average undergraduate students ranged from a 16 percent increase at the Merced San Diego campus to a 2.2 percent Riverside decrease at the Irvine campus. San Diego While final 2022-23 campus-level data is not yet available, roughly -5 5 10 15 20% half of campuses (Davis, Irvine, Santa Cruz, and San Diego) saw a decline in student headcount in the fall 2022 term. 8 LEGISLATIVE ANALYST’S OFFICE 2023-24 BUDGET Some Key Factors Underlie Systemwide 2021, then dropped by approximately 230 students Undergraduate Trends. Freshman enrollment the (0.3 percent) in fall 2022. Since fall 2020, enrollment past three years at UC has been more volatile than in UC’s master-degree programs has grown the most normal—growing 1.6 percent in fall 2020, growing (29 percent), followed by professional programs 11 percent in fall 2021, and falling 6.1 percent in fall (11 percent). Enrollment in doctoral programs has 2022. UC attributes the large increase in fall 2021 to remained about flat (down 0.2 percent). (In fall 2022, the elimination of standardized testing requirements, doctoral programs comprised 45 percent of UC’s coupled with the suspension of the statewide total graduate enrollment, professional programs eligibility index due to COVID-19-related grading comprised 41 percent, and master-degree programs policies. (The statewide eligibility index is a formula comprised 14 percent.) used by UC to determine which students are in the Governor’s Proposals top 9 percent of California high school graduates.) Both of these factors, in turn, contributed to a Governor Set Forth Resident Undergraduate large increase in applications. Compared to these Enrollment Targets Under Compact. The trends, transfer enrollment is on a clearer trajectory Governor’s compact includes a multiyear plan to of decline, with a decline of 1.1 percent in fall 2021, expand resident undergraduate enrollment at UC. followed by a decline of 9.1 percent in fall 2022. Specifically, the administration proposes that UC These declines reflect the lagged effect of declines grow resident undergraduate enrollment by around in community college enrollment the past couple 1 percent each year (roughly 2,000 FTE students) of years. Regarding continuing through 2026-27. The top portion of Figure 7 shows students, retention rates are down slightly (about 1 percentage point), Figure 6 as is average credit load (by less UC Enrollment Drop in 2022-23 than 0.5 units per term). Attributable to Decline in Summer Enrollment Graduate Enrollment Has Resident Undergraduate Full-Time Equivalent Students Followed a Similar Trend as Undergraduate Enrollment. Change From 2021-22 2020-21 2021-22 2022-23 Similar to undergraduate enrollment, Actual Actual Estimated Amount Percent graduate enrollment significantly Fall through spring 177,643 176,636 177,947 1,311 0.7% increased in fall 2021, then leveled Summera 22,432 19,224 17,650 -1,574 -8.2 off in fall 2022. Specifically, total Totals 200,075 195,860 195,597 -263 -0.1% graduate enrollment grew by nearly a Summer term is treated as the first term of a fiscal year. For example, summer 2022 is counted toward 2022-23. 5,000 students (7.5 percent) in fall Figure 7 UC Has a Modified Enrollment Plan Resident Undergraduate Full-Time Equivalent Students 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27 Cumulative Actual Estimated Projected Projected Projected Projected Growtha Compactb 195,861 — 203,493 205,493 207,493 209,493 13,632 Change over prior year — — 7,632 2,000 2,000 2,000 — Annual percent change — — 3.9% 1.0% 1.0% 1.0% — UC Planc 195,861 195,597 199,794 203,027 206,260 209,493 13,632 Change over prior year — -264 4,197 3,233 3,233 3,233 — Annual percent change — -0.1% 2.1% 1.6% 1.6% 1.6% — a Reflects total growth from 2021-22 through 2026-27. b Reflects compact as modified by the 2022-23 Budget Act. Change in 2023-24 is compared to 2021-22 level. c Reflects projected enrollment growth in 2023-24 as identified by UC. From 2024-25 through 2026-27, remaining planned growth is evenly distributed. www.lao.ca.gov 9 2023-24 BUDGET the original compact enrollment targets for UC, as to 913 FTE students, which exceeds the state modified by the 2022-23 Budget Act (which funded reduction target of 902 FTE students. Though higher growth in 2023-24). Under the compact, UC UC exceeded the overall reduction target for would not receive additional funds for enrollment the fall term, one campus reduced nonresident growth over the period, but instead it would need undergraduate enrollment only slightly. Specifically, to accommodate the higher costs from within its the smallest decline occurred at the Berkeley 5 percent annual base augmentations (discussed in campus (88 students), with the Los Angeles the “Core Operations” section of this brief). campus declining by 406 students and the Governor Also Set Forth Graduate Enrollment San Diego campus declining by 498 students. Targets Under Compact. In addition to resident Of the three campuses, Berkeley has the highest undergraduate enrollment targets, the compact percentage of nonresident undergraduate specifies that UC is to grow graduate student enrollment (23.7 percent of total undergraduate enrollment (resident and nonresident enrollment enrollment in fall 2022). Given the Berkeley campus combined) by a total of about 2,500 students experienced the smallest decline in fall 2022, it over the same time period. To meet this goal, UC will need even greater reductions over the next plans to increase total graduate enrollment by several years to meet the 18 percent campus cap 625 FTE students in 2023-24. Over the remaining by 2026-27. As intended, the three campuses years of the compact, UC plans to continue increased their resident undergraduate enrollment growing total graduate enrollment by 625 FTE in fall 2022—growing by a combined 1,711 students, students annually—reaching the cumulative more than backfilling for the reduction in goal of 2,500 additional graduate students by nonresident undergraduates. 2026-27. UC is to cover the cost of this enrollment 2023-24 Resident Undergraduate Enrollment growth also from within its 5 percent annual Target Will Most Likely Not Be Met. UC has base augmentations. revised its resident undergraduate enrollment Governor Proposes to Continue Implementing plans to account for the slight drop in 2022-23 the UC Nonresident Enrollment Reduction Plan. systemwide enrollment as well as the expectation Whereas the Governor’s budget does not earmark that it will not meet its budget act enrollment funding to meet the resident undergraduate or target for 2023-24. As the bottom part of Figure 7 graduate enrollment targets mentioned above, shows, UC expects to grow by 4,197 FTE resident it includes $30 million ongoing General Fund to undergraduate students (2.1 percent) in 2023-24, continue reducing nonresident enrollment at the short of the 7,632 FTE student target. (The Berkeley, Los Angeles, and San Diego campuses 4,197 FTE students is a point-in-time estimate from by a total of 902 FTE students in 2023-24. The UC, which will be refined in the coming months.) $30 million is intended to replace lost nonresident UC effectively plans to speed up growth in supplemental tuition revenue as well as lost base subsequent years—growing at 1.6 percent rather tuition revenue that supports financial aid for than 1 percent each year. Under this modified plan, resident students. The Governor’s budget proposes UC would reach the ultimate compact enrollment to retain provisional language that would reduce target by 2026-27. this appropriation proportionally were UC to fall Different Set of Considerations for Graduate short of the reduction target. Enrollment. In contrast to undergraduate enrollment, access has not been the primary focus Assessment of the state when deciding whether to support UC Is Likely to Meet 2022-23 Nonresident graduate enrollment growth. Rather, the focus has Undergraduate Enrollment Target. Compared been on workforce needs—both within the UC to the fall 2021 term, nonresident undergraduate system and in the state. Existing workforce demand headcount in the fall 2022 term declined at the likely varies for academic doctoral, academic Berkeley, Los Angeles, and San Diego campuses master’s, and professional graduate students, by a total of 992 students. This reduction equates with some graduate programs (including certain 10 LEGISLATIVE ANALYST’S OFFICE 2023-24 BUDGET health care programs) in higher demand than might arise. As enrollment data is finalized, if total others. Beyond these workforce considerations, 2022-23 enrollment is 198,000 students, then UC UC campuses also often seek to grow graduate might still expect to receive funding if it grows back enrollment proportionate to undergraduate to 200,000 in 2023-24. The Legislature, however, enrollment. This practice ensures campuses have might have expected UC to grow beyond its an adequate number of teaching and research previously funded level of 200,000 students. These assistants to accommodate the higher level of types of situations can be avoided if the state sets undergraduate courses and faculty workload. expectations regarding both enrollment growth Over the last five years, the ratio of total UC targets and resulting funded enrollment levels. undergraduate students to graduate students Recommendations has consistently been about five to one. The level of growth identified in the Governor’s budget is Consider Adding a Budget Solution Related consistent with maintaining that ratio. to Lower-Than-Expected Enrollment. As we discuss in The 2023-24 Budget: Overview of the Legislature Has More Time to Influence Governor’s Budget, we recommend the Legislature 2024-25 Enrollment Levels. As UC already plan for the risk of a larger budget problem by is making its 2023-24 enrollment decisions, developing a larger set of potential budget solutions the Legislature has less ability to influence its than the Governor has proposed. Given UC expects enrollment level that year. The Legislature could, enrollment growth in 2023-24 to be below the level however, send an early signal to campuses about funded in the 2022-23 Budget Act, the Legislature its enrollment expectations for 2024-25. In setting may wish to consider adding an associated an enrollment target for 2024-25, the Legislature budget solution. Specifically, the Legislature could likely would want to consider certain demographic, reduce 2023-24 funding by $8.6 million to align academic, and economic factors. The number of with UC’s planned 2023-24 enrollment level. (The high school graduates next year, for instance, is $8.6 million in savings is based on a $10,886 state projected to increase by 0.6 percent, potentially marginal cost rate for the estimated 790 student spurring some demographically driven growth shortfall.) If the Legislature wanted to go further among new students in 2024-25. At this time, other in aligning UC’s funding with enrollment, it also factors such as application volume, retention rates, could adjust UC’s funding in 2022-23. Specifically, average unit load, and the job market are uncertain it could reduce UC enrollment growth funding by for 2024-25. $51.5 million in 2022-23, as UC does not plan to Setting Funded Enrollment Level Is Helpful enroll any of the additional associated students Budget Practice. Over the past few years, this year. the state has set an enrollment growth target for UC (for example, 2,000 additional resident Set Resident Undergraduate Enrollment undergraduates), without specifying the associated Target in 2024-25. To help influence UC’s future enrollment decisions, we recommend the total funded enrollment level (for example, a total Legislature set a resident undergraduate enrollment of 202,000 resident undergraduates). Such an target for 2024-25. Based the factors discussed approach can lead to confusion and unintended earlier, the Legislature could consider any number consequences. This is particularly the case of options, ranging from holding enrollment flat to when the baseline level of enrollment comes in funding moderate growth. Regardless of the exact notably lower or higher than expected. Take, for growth target, we recommend the Legislature also example, a stylized case in which the Legislature specify an expected enrollment level for 2024-25. at the time of budget enactment believes 2022-23 Such an approach clarifies legislative intent, enrollment will be 200,000 and provides UC thereby improving transparency, and enhances enrollment growth funding to serve an additional accountability. Lastly, though we recommend 2,000 students in 2023-24. If the Legislature has setting enrollment targets for UC one year in not specified its expectation that UC enroll a total advance, we recommend providing associated of 202,000 students in 2023-24, disagreements www.lao.ca.gov 11 2023-24 BUDGET enrollment growth funding the same year the Seek Better Information on How UC Will additional students enroll. This is because the bulk Cover Cost of Graduate Enrollment Growth. of the costs incurred to educate new students If the Legislature has specific workforce priorities begins the year those students enroll, rather than a that entail graduate enrollment growth, it could full year earlier. set a target for 2024-25. That said, the Legislature Approve Continued Implementation of could continue its current approach of not setting Nonresident Reduction Plan. We recommend a graduate enrollment target if it has no specific the Legislature approve the Governor’s proposed graduate student-related priorities. Regardless of $30 million to continue implementing the state’s which of these options it takes, we recommend nonresident undergraduate enrollment reduction the Legislature ask UC to provide further plan for UC. The proposal is consistent with documentation on how it intends to cover the state law and recent state budget actions. associated cost of enrolling additional graduate The nonresident enrollment reduction plan students. As graduate academic students do not continues to serve the state’s objective of tend to cover their full associated education costs, freeing up slots for resident undergraduates at enrolling more graduate students could worsen high-demand campuses. UC’s projected operating shortfall (discussed in the “Core Operations” section of this brief). CAPITAL OUTLAY FUNDING DELAYS In this section, we first provide background UC Has Identified Many Capital Projects. on capital outlay at UC. Next, we describe the Under state law, UC is to submit a capital outlay Governor’s proposed budget solutions relating plan to the Legislature annually by November 30 to four UC capital projects. Then, we assess the that identifies the projects proposed for each package of proposed budget solutions and make campus over the next five years. UC’s most recent associated recommendations. plan (Capital Financing Plan 2022-2028) covers the current year (2022-23) and the next five years Background (through 2027-28). This plan identifies $23.2 billion State Funds Academic Facilities and in projects proposed for this period, subject to Infrastructure at UC. Traditionally, the state available funding. The total amount consists of has funded UC’s academic facilities, including $10.2 billion in academic facilities and infrastructure classrooms, laboratories, and faculty offices. projects, $6.6 billion in self-supporting projects, It has also funded certain campus infrastructure, and $6.4 billion in medical center projects. such as central plants, utility distribution systems, State Funds UC Capital Projects in Two Ways. and pedestrian pathways. In addition to these The main way the state funds UC’s academic state-supported assets, UC has self-supporting facilities and infrastructure is through supporting facilities, including student housing, parking debt-service payments. As of 2013-14, state law structures, certain athletic facilities, and student allows UC to sell university bonds to finance its unions. These types of facilities generate their own academic facilities. UC uses the proceeds to fee revenue, which covers associated capital and cover the cost of projects, then repays the bonds operating costs. The UC system also operates over time (typically 30 years). UC may use its several medical centers, which provide clinical care main General Fund appropriation in the annual for patients, train medical school students and state budget act, along with other available funds, residents in clinical environments, and support the to make these payments. In state law, UC may university’s health science research. Most medical use up to 15 percent of its main General Fund center funding comes from clinical revenues, appropriation for debt service on state-approved primarily generated from Medi-Cal, Medicare, and capital projects. This debt-financing approach is private insurance. particularly common for larger projects, such as 12 LEGISLATIVE ANALYST’S OFFICE 2023-24 BUDGET projects to renovate, replace, or construct an entire one-time General Fund provided for four UC facility. A second way the state funds UC’s capital capital projects until 2024-25. Figure 8 lists the projects is by providing cash up front. Particularly four projects, along with the associated one-time when the state has a budget surplus, it can use this funds that would be delayed under the Governor’s approach to fund deferred maintenance, seismic proposal. The Governor includes these funding safety, and energy efficiency projects—projects delays as part of his overall package of solutions to that tend to be narrower in scope and lower in cost address the state’s budget deficit. relative to entire renovations or new facilities. Assessment Last Year, the State Funded Many UC Capital Projects With Up-Front Cash. In 2022-23, the Projects Generally Do Not Address UC’s state had a significant budget surplus. In addition, Highest Capital Outlay Priorities. Some of the capital projects identified in UC’s Capital the state appropriations limit (SAL) constrained how Financing Plan 2022-28 are critical and urgent. the state could use the budget surplus. One way Those projects address deficiencies with existing the state addressed its SAL requirements was facilities and infrastructure that could otherwise by spending the surplus on purposes, such as present life safety concerns or disrupt campus capital outlay, that could be excluded from the operations. In contrast, most the projects identified limit. Specifically, the 2022-23 Budget Act provided for delays under the Governor’s proposal do $366 million one-time General Fund to UC for four not address these types of deficiencies with specific capital projects, along with $125 million existing space. Three of the four projects add new one-time General Fund for deferred maintenance, space. Moreover, adding new space increases seismic safety, and energy efficiency projects ongoing operations and maintenance costs, and across the system. it creates future capital renewal costs as building Governor’s Proposal components age. To date, UC has not provided Governor Proposes to Delay Funding for documentation identifying how those additional Four Projects. Since the enactment of the costs would be covered for these new projects. 2022-23 Budget Act, the state budget condition Little Information Is Available on the has deteriorated. The state now faces a budget Institute for Immunology and Immunotherapy problem. To reduce near-term spending, the (Institute). Based on information provided by Governor proposes to delay a total of $366 million UC, the four projects identified for delays are Figure 8 Governor Proposes to Change Funding Schedule for Four UC Capital Projects (In Millions) 2022-23 2023-24 2024-25 Totals Original Funding Schedule UC Los Angeles, Institute for Immunology and Immunotherapy $200.0 $200.0 $100.0 $500.0 UC Berkeley, Clean Energy Campus Project 83.0 83.0 83.0 249.0 UC Riverside, campus expansion 51.5 51.5 51.5 154.5 UC Merced, campus expansion 31.5 31.5 31.5 94.5 Totals $366.0 $366.0 $266.0 $998.0 Modified Funding Schedule UC Los Angeles, Institute for Immunology and Immunotherapy $100.0 $100.0 $300.0 $500.0 UC Berkeley, Clean Energy Campus Project 83.0 — 166.0 249.0 UC Riverside, campus expansion 51.5 — 103.0 154.5 UC Merced, campus expansion 31.5 — 63.0 94.5 Totals $266.0 $100.0 $632.0 $998.0 Difference -$100.0 -$266.0 $366.0 — www.lao.ca.gov 13 2023-24 BUDGET in early project phases. Of the four projects, listed this project as its top funding priority. the proposed Institute is in the earliest phase. UC Riverside has justification for the additional According to UC, the Institute would be an space. In UC’s most recent utilization report independent research institute funded through a (using data from fall 2018), UC Riverside was using public-private partnership and classified for federal its existing classroom space at 104 percent of tax purposes as a California nonprofit public benefit legislative standards and its laboratory space at corporation. UCLA and the Institute founders are 121 percent of legislative standards. Moreover, currently negotiating the terms of the public-private since fall 2018, total campus enrollment (headcount) partnership. To date, UC has spent no state has increased approximately 2,900 students (or nonstate) funds on the project. Additionally, (12 percent). The project is expected to address standard project information on the scope, some of the campus’s existing space shortages. schedule, cost, ownership, and operations of the Though no state (or nonstate) funds have been proposed facility have not yet been provided to the spent on the project to date, the campus expects to state. Without this information, the Legislature is encumber $6.8 million over the next several months unable to assess the project and compare it with for preliminary plans. other budget priorities. Moreover, unlike the other Many Key Details Missing for Berkeley new projects the state funded in 2022-23, UC did Clean Energy Campus Project. UC’s Capital not add this facility to its Capital Financing Plan Financial Plan 2021-27 included a $360 million 2022-28. While UC did identify capacity constraints state-eligible energy project for the Berkeley for the UCLA health facilities, the Institute was campus that was not yet funded. UC’s Capital not mentioned as a project to alleviate those Financial Plan 2022-28 includes the $249 million capacity constraints. the state authorized for the project last year, but it Merced Campus Expansion Project Does also identifies $700 million in state-eligible project Not Serve Immediate Need. UC Merced plans to costs not yet funded. In response to our questions, add an academic facility that would provide new UC clarified that the project likely will entail many classrooms, faculty offices, and research space. phases, with the total cost currently estimated at The project remains in an early planning phase, $700 million. Given the plan, it appears UC would with no state or nonstate funds spent on the project be requesting substantial additional state funding to date. The project also lacks justification at this for the project in the out-years. It is not clear how time, as UC Merced very likely does not have the much energy savings the campus will generate enrollment demand over the next several years from the various phases that could offset project to support an expansion project. UC Merced costs. If the campus is choosing to go beyond state has indicated that it likely will need additional clean-energy requirements, it also raises the issue academic facility space once its enrollment reaches of which entity should pay for those associated 12,500 students. If UC Merced continued growing costs. Furthermore, supporting such a costly at the same pace over the next five years as it project at one campus likely will create significant has over the past five years, its enrollment would cost pressure for similar projects at other UC reach 10,377 students by 2027-28, still far below campuses, and do so at a time the state is facing the level needed to justify the expansion project. projected budget deficits. Riverside Campus Expansion Project Has Delays Could Result in Higher Overall Project Stronger Justification. UC Riverside plans to Costs. If the Legislature wanted to delay funding add an Undergraduate Teaching and Learning for any of the four projects, the overall cost of those Facility that would provide up to 78,000 assignable projects likely will increase due to construction cost square feet for general assignment classrooms, escalation. Construction costs in California were specialized teaching spaces, and teaching assistant an estimated 9.3 percent higher in December 2022 preparation spaces. UC estimates the project than December 2021. This rate of increase was would add approximately 900 classroom seats. historically high, but some amount of construction In UC’s Capital Financial Plan 2021-27, UC Riverside cost escalation is expected most years, including 14 LEGISLATIVE ANALYST’S OFFICE 2023-24 BUDGET over the next couple of years. The four affected Recommend Adding UC Merced Campus UC capital projects are in different parts of the Expansion to Budget Solutions List. We state, such that the exact effect of funding delays recommend the Legislature further expand on each project’s costs very likely will vary. its budget solutions list by removing funding For example, construction cost escalation last for the UC Merced expansion project given its year was 10.4 percent in Los Angeles compared lack of justification at this time. Specifically, we to 8.4 percent in San Francisco. (This most recommend removing the entire $94.5 million recent variance differs from the trends over the General Fund scheduled for the project from past several decades, in which construction cost 2022-23 through 2024-25, as any smaller amount escalation tends to be somewhat higher in San likely would be insufficient to cover proposed Francisco than Los Angeles.) project costs. Were enrollment at UC Merced to Proposed Funding Is Not Linked to Project grow substantially over the next several years and Milestones. Typically, the state tries to keep the campus’s existing space to reach and exceed General Fund authorizations linked to the progress legislative utilization standards, the campus could of capital projects. This approach substantially resubmit the project to the Legislature for funding reduces programmatic and fiscal risks to the consideration at that time. state, as important discoveries can be made Sweep 2022-23 Funds for These Two Projects in early project phases that notably affect both If Proceeding With Them. Neither the Institute nor design and constructions costs. Linking funding to the UC Merced project have demonstrated they will sequential project phases also facilitates legislative use their first round of funding in 2022-23. Were the oversight throughout the life of a project. Under Legislature to decide to maintain authorization for the Governor’s funding delay proposals, funding these projects, we recommend the Legislature for the four UC projects is not connected to key still sweep the associated 2022-23 funding (and phases. Importantly, most of the four projects likely 2023-24 funding, as the Governor proposes). retain substantially more funding than needed to Leaving large amounts of funding with projects that cover the cost of reaching key milestones (such as are not ready to use the funding raises risks and completing working drawings or the design phase) opportunity costs for the state. The state could in 2023-24. minimize these risks and mitigate opportunity costs by better aligning funding with project phases. Recommendations That is, the Legislature could provide the first Recommend Adding Institute to Budget allotment of funding in 2024-25 (or thereafter) when Solutions List. Given the deterioration in the the projects have demonstrated they could spend it. state’s budget condition, together with projected Consider Financing UC Riverside Project out-year deficits, we recommend the Legislature With University Bonds. If the Legislature were to expand its budget solutions list by removing funding conclude that the UC Riverside campus expansion for the Institute. Specifically, we recommend the project is one of UC’s most pressing capital needs, Legislature remove the entire $500 million General it could consider debt-financing the project, with Fund scheduled to be provided for the Institute UC selling university bonds. Most capital projects of from 2022-23 through 2024-25. Given the lack this scale are debt-financed, with costs effectively of information about the project, the benefit of spread over many years consistent with a facility’s any smaller amount of funding for the project useful life. Using such an approach, the state remains unclear. Were more information to become would save a total of $154.5 million General Fund available about the project in future years and from 2022-23 through 2024-25. Moving forward, it the project were to show stronger justification could provide UC with additional General Fund to relative to UC’s other pressing capital needs, the cover the associated debt service, or, as it does Legislature could reconsider the project at that with most similar UC capital projects, it could have time, funds permitting. UC cover the cost from within its base budget. www.lao.ca.gov 15 2023-24 BUDGET We estimate annual debt service on the project more information about the project. Specifically, we would be approximately $10 million. Debt-financing recommend the Legislature request a full financial a project raises overall costs substantially due to plan for the project that, at a minimum, identifies the interest payments, with total project costs likely to total state cost, total nonstate cost, annual cost by at least double. A small portion of this increased fund source by year, projected energy savings, and cost, however, might be offset by proceeding with projected climate-related benefits. If the Legislature the budget in the budget year and avoiding some concludes that UC has a sound, comprehensive potential cost escalation that would otherwise financial plan for the project, it then could decide occur were the project delayed. how best to finance the state share. Given the scale Gather More Information About the Berkeley of the project, the Legislature could consider having Clean Energy Campus Project. Before deciding UC sell university bonds. As mentioned above, what approach to take with the Berkeley project, we this is the typical approach used for projects of recommend the Legislature request UC to provide this scale. NEW TRANSFER REQUIREMENTS FOR UCLA In this section, we provide background on the UC Has Goal to Enroll One Transfer Student options students have for transferring to a UC for Every Two Freshmen. For many decades, UC campus. Next, we describe the Governor’s proposal has aimed to achieve a certain mix of upper-division to place certain new transfer requirements on the and lower-division students. Specifically, UC aims UCLA campus. We then assess the Governor’s to have 60 percent of undergraduate instruction proposal and make an associated recommendation. at the upper-division level and 40 percent at the lower-division level. To this end, UC aims to enroll Background one transfer student to every two freshmen. Simplifying the Transfer Process Has Over the past 15 years, UC generally has been Been a Longstanding Legislative Priority. making progress toward this goal, with its The Legislature has enacted many policies over freshman-to-transfer ratio declining from 2.5 in the years intended to simplify the transfer process, 2008-09 to 2.1 in 2021-22. reduce excess course units (which often arise as a Transfer Students Must Meet Certain result of transferring from community colleges to Academic Criteria to Be Eligible for UC universities), and reduce students’ time-to-degree. Admission. Community college students Toward these ends, the Legislature has directed the generally must complete certain UC-transferable, segments to take steps toward streamlining their lower-division courses with a minimum grade point lower-division course requirements. Most recently, average (GPA) of 2.4. If a campus has more transfer the Student Transfer Achievement Reform Act applicants than slots, it uses UC’s comprehensive of 2021 requires UC, CSU, and CCC to develop review policy to select students for admissions. a single lower-division general education set of (This process is very similar to the process used courses that would meet all three segments’ when a campus has more freshman applicants than academic standards. (The new set of courses slots.) Under comprehensive review, when reviewing would apply only to general education, not major an applicant, campuses may consider courses, preparation. As a result, important differences still grades, honors classes, completion of special would remain among UC and CSU in terms of their projects, and academic accomplishments in light of transfer admission requirements.) The 2022-23 the student’s life experiences, among other factors. Budget Act provided $65 million one-time Eligible transfer students who are not accepted to Proposition 98 General Fund to help the community their campus(es) of choice are redirected to the UC colleges in implementing the most recent round of Merced or UC Riverside campus. transfer reforms. 16 LEGISLATIVE ANALYST’S OFFICE 2023-24 BUDGET Transfer Students Have Additional Options the campus would need to (1) enact and maintain for Being Admitted to UC. One longstanding policies to participate in the TAG program as well option is the TAG program. Students choosing the as (2) create and maintain pathways for students TAG option submit a supplemental TAG application transferring with an ADT. By March 31, 2024, the to their UC campus of choice. As long as they campus would need to submit a report to the meet the course and GPA requirements, they are Director of Finance indicating its commitment to guaranteed admission into their campus of choice. meeting these requirements. Six UC campuses participate in the TAG program, Governor Links Requirement With Campus’s with three campuses (Berkeley, Los Angeles, Base Funding. The Governor does not provide and San Diego) not participating. A more recent a General Fund augmentation to UC for meeting admission option is UC Transfer Pathways. Under the new transfer requirements at the Los Angeles this option, students complete a specific set of campus, but he proposes trailer bill language courses in their major of choice. Pathways are making $20 million of that campus’s ongoing offered in 20 of UC’s most popular majors. All nine core funding contingent on it meeting the new general UC campuses participate in this program, requirements. Based upon the UC Office of the though campus GPA requirements vary. President’s determination, if the campus does not UC and CSU Transfer Pathways Are Different. meet the new requirements, UC is to redirect the UC Transfer Pathways do not have complete $20 million to the other nine UC campuses using its overlap with CSU’s transfer pathways. Many regular campus allocation model. students transferring to CSU take a different Assessment pathway, which involves obtaining an ADT. The ADT was developed collaboratively between the CCC UCLA Does Relatively Well on Enrolling and CSU. Under the ADT process, students and Graduating Transfer Students. In 2022-23, complete 60 units of lower-division, major-specific UCLA expects to enroll approximately 3,300 new coursework at community colleges, then transfer transfer students—more than any other UC campus. and complete 60 units of upper-division coursework (UC San Diego expects to enroll the next largest at a CSU campus. The ADT is specifically designed group of new transfer students, approximately to enable students to graduate with a bachelor’s 2,700.) Even more importantly, UCLA has the lowest degree from a CSU campus in a coordinated ratio of freshmen to transfer students. The UCLA 120-unit, four-year academic program. The ADT is ratio is 1.53—much better than the systemwide offered in many academic subject areas. target rate of two freshmen to one transfer student, as well as notably lower than any other Compact Contains Certain UC Transfer campus. (UC Davis has the next best ratio, 1.90.) Expectations. The Governor’s expects UC to Furthermore, transfer students at UCLA graduate meet a 2:1 freshman-to-transfer ratio. UC’s first at higher rates than the system overall. At UCLA, compact progress report (released in November 74 percent of transfer students graduate within 2022) identified several strategies it plans to use two years, increasing to 91 percent graduating to achieve this goal. These strategies include within three years—compared to 63 percent and expanding the number of UC Transfer Pathways and 85 percent, respectively, systemwide. expanding support programs for transfer students from underrepresented groups. No Compelling Justification for Singling Out UCLA. UCLA is one of four campuses Proposal (together with Davis, Irvine, and San Diego) that Governor Proposes to Require UCLA to already meets the compact goal of having a Participate in Certain Transfer Programs. The freshman-to-transfer ratio of 2.0 or below. Together administration proposes to place certain new with its relatively good transfer and graduation requirements on the UCLA campus with the goal rates, the campus does not show evidence of of facilitating community college students’ ability requiring special rules to promote better transfer to transfer to the campus. Specifically, by 2025-26, access or outcomes. Moreover, UCLA is not www.lao.ca.gov 17 2023-24 BUDGET anomalous in its participation in transfer programs. Recommendation Two other UC campuses do not participate in Recommend Rejecting Proposal and the TAG program, and no UC campus currently Considering More Holistic Approach. For all participates in the ADT program. UC Transfer the reasons discussed above, we recommend the Pathways, for which all nine UC general campuses Legislature reject this proposal. We recommend participate, effectively are UC’s alternatives to the Legislature consider whether it would like to CSU’s ADT pathways. require all UC campuses to participate in the TAG Governor’s Approach Sets Very Poor Policy and ADT programs. If the Legislature is interested Precedence. The Governor proposes linking in pursuing these new requirements, we encourage base funding to a very narrow set of outcomes at it to coordinate with UC on how best to navigate a single campus. Such an approach is particularly the associated transitions. In the case of both the myopic. It also is of questionable design in TAG and ADT programs, affected UC campuses terms of promoting appropriate incentives. would need to make important changes to their The Governor’s approach focuses solely on admission requirements. We also recommend inputs (participating in certain transfer programs) the Legislature have a broader conversation rather than outcomes, which is counter to the regarding whether it would like to develop a basic notion of performance-based budgeting. performance-based budgeting model for UC. Moreover, the Governor’s approach violates the If the Legislature is interested in linking funding to basic tenet of fairness in that it potentially punishes performance, we recommend it focus on a set of a single campus for not doing certain things, while key expectations and apply the model to all UC other campuses acting in the same ways would campuses. As with the funding model the state experience no state repercussions. uses for CCC, the Legislature could consider having both access and outcome components embedded in the model, along with further incentives to serve underrepresented students. 18 LEGISLATIVE ANALYST’S OFFICE 2023-24 BUDGET www.lao.ca.gov 19 2023-24 BUDGET LAO PUBLICATIONS This report was prepared by Ian Klein, and reviewed by Jennifer Pacella and 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. 20 LEGISLATIVE ANALYST’S OFFICE