Notice, February 1997

Method Proposed for Bringing Long-Term
Stability to State's Funding of University

Gov. Pete Wilson unveiled his proposed 1997-98 budget for the University of California in January and it called for everything the University had requested two months previously, plus a couple of notable additions: a plan to have the state cover the general student fee increase UC said it needed to make ends meet next year, and an additional $1 million for outreach efforts, intended to increase access to UC education for a diverse group of K-12 students.

Perhaps the biggest news of the month, however, was that, with the support of the governor, UC has begun negotiations with the state to try to arrive at a methodology for stable, long-term state-funding of the University. Under a UC proposal that's being considered, both state support of UC and student fee increases at the University would be tied to growth in per capita personal income in California.

Under the proposal, student fees would rise in lock-step with the growth in personal income. Using economic projections supplied by the UCLA Business Forecast, UC budget officials have estimated that such income will rise by an average of 4.5 percent per year in the coming years. Meanwhile, the proposal calls for state support of UC to rise in accordance with the increase in personal income and the growth in student enrollments. Since enrollments are projected to rise by about 1.5 percent per year, the plan is estimated to result in state-funded increases of about 6 percent per year for UC.

If put into place, this plan would have several far-reaching consequences. If fees were to rise by no more than the growth in personal income, they would be predictable and, more important, effectively be frozen at current levels, when measured in terms of the ability of Californians to pay them. Assuming a steady state of fee increases by UC's public comparison institutions, this would mean that UC fees would remain, as they are, slightly under the levels charged by the comparison institutions. For UC, the plan would effectively set a floor on state support and provide UC with predictable levels of support over the long-term.

The plan could carry some pitfalls as well: It could leave the University vulnerable in times of low income growth and high inflation; and it may have the effect of setting not only a floor but a ceiling on state support of UC. Given the existence of such a formulaic budgeting procedure, would the Governor or legislature be likely to consider the kind of enormous budget increase that the University got, for example, in 1983?

Enactment of such a plan would almost certainly require the passage of legislation by the California Assembly and Senate. UC's Budget Director, Larry Hershman, told the UC Regents in January that his office is working with the Legislature, the governor and California State University in an effort to develop a framework for such a long-term policy.

The budget Gov. Wilson proposed for UC in 1997-98 calls for the University to receive a 6.1 percent increase in state general funds, when the $37 million the state would supply to "buy-out" a student fee increase next year is taken into account. In October, the University estimated it would need to raise general student fees by $330 per student to have a balanced budget; at that time UC also proposed an "Instructional Technology" fee of $40 per student. The proposal by the governor means that students would pay no additional fees in either category.

Over the objections of some Regents, UC's budget does call for an increase in the differential fees charged by some professional schools, as well as a $590 per student increase in non-resident tuition (bringing tuition for non-residents to $8,984 per year). UC has recognized, however, the negative impact that the latter increase could have on the University's ability to attract top foreign graduate students (who cannot be granted California residency). As a consequence, doctoral students who next year have been advanced to candidacy will have non-resident fees reduced by 75 percent for up to three years.