CSSA Minutes: December 7, 2002
Dr. Debra S. Farar
Chair, California State University Board of Trustees
Richard P. West
Executive Vice Chancellor and Chief Financial Officer,
California State University
Patrick J. Lenz
Assistant Vice Chancellor, Budget Development,
California State University
Holiday Inn Financial District, Jade Room
Saturday, December 7, 2002, 2 PM
Richard West introduced himself by saying that he is the counterpart to Dave Spence, with responsibility for all nonacademic, non-personnel matters. Mr. West introduced Patrick Lenz, who hails from the community college system and has considerable experience with the legislature. Mr. West explained he had been asked to discuss the budget and said since he was invited to this meeting there have been significant developments. He said first he would present the background, then discuss the governor’s announcement of midyear cuts and comment on how the CSU’s situation compares to that of other state agencies.
The budget cycle starts in the fall; a proposal is made to the Trustees for the next year. As we work much in advance, there are many estimates, including health costs. The last couple of years we’ve had agreements with the governor. Those years were generally marked by 5% + enrollment growth. For each new student we have what’s called a marginal cost that reflects our negotiated agreement with the legislature re costs to educate each new student. The last couple of years, though, we’ve had about 2.7% more than we were funded for, and we have served those students.
This year’s budget didn’t fully fund the partnership agreement. We did get increases; we were able to fund enrollment but couldn’t staff and faculty the increases we wanted to give. We compromised in that area. CSU’s emphasis is to maintain access and quality. We did ask for funds to cover a 5% increase in enrollment and for our mandatory costs—costs we’d incur with same level of students and costs associated with union agreements and healthcare premiums. We had an increase in healthcare premiums of $70M dollars, + $70M more for worker’s comp. So we submitted that budget to the governor and negotiated with the Department of Finance prior to submission of the budget to the legislature. That’s a 6-month process that extends into August and September. Based on yesterday’s news of midyear budget cuts, however, we now expect our budget for 2003-2004 will not be funded.
But first let’s discuss the current year budget. Yesterday afternoon we got the governor’s recommendations for the current budget. Additional reductions of $10B are required to deal with a $25-30B deficit or about 30% of the state’s budget. We knew we had problems but the figures are much worse than we thought. We can’t get through this year without changes in this year’s budget, substantial reductions—for the CSU, an additional reduction of $59.6M on top of the $43M reduction we got when the budget was signed. In addition to that, we have unfunded increased health care costs of $18M for the current year.
So the context is a $59.6M mid-year reduction + $43M in old cuts +$18.5M health care premium increase + CFA negotiated increases. 70% of the state budget is education related, so it’s hard to reduce the budget without affecting education. In effect, you’re talking about education when you’re talking about the state budget. So put in those terms, CSU has been treated fairly. It will be hard to take the cuts mid-year but ours is a reasonable share of cuts given the magnitude of the problem. And we don’t know what’s in store for next year.
The next step in the process is that the cuts will be given to the legislature in special session. Mr. West doesn’t think there will be action before Christmas; there’s not sufficient agreement—there is partisan disagreement whether to raise taxes or reduce spending. If there’s any decision in January we’ll be ahead of the game. But there’s no way to avoid the cuts announced and get into next year.
Patrick Lenz began his remarks by observing it was deja vue all over again. He has worked with state budgets for 20 years. The last time this scenario arose was in the early 90s, when the deficit was only $14B. Up until then policy makers had had a limited student fee policy in place—in good years increases weren’t proposed; when times got tough, they were an option. In the early 90s there was a 60% fee increase at UC and CSU in 1 year. Then there was the benefit of not being in an election year and there were policy makers with institutional knowledge (no term limits) who wanted to protect education. That budget crisis was resolved with $5B in cuts, $6B in revenue increases and some in transfers. That was “low-hanging fruit.” As we got into the mid- and late 90s, higher education was the beneficiary; there was a recovery for higher education. There was an 8-year window with no increases and actually one decrease.
We now have a newly elected legislature—one-third is brand new and had nothing to do with this budget. They haven’t been through this before—in fact, no one’s had this kind of deficit before. Policy makers will look at what’s proposed. Some are saying there must be some revenue options in the mix—it can’t all be cuts. But because of the way electoral district lines have been drawn legislators will be entrenched in very safe districts. So the legislature will have to be educated. If CSU’s priority of access is to prevail, that’s going to take political will as well as resources.
Mr. West said a special session of the Board of Trustees has been called for December 16, 10 to noon, to discuss the budget and the announcement of midyear cuts and to consider recommendation from Dr. Reed for a 10% increase in student fees for the spring semester and winter quarter. That proposal would raise about $30M in the current year, of which one-third would go to financial aid and grants. The balance of $20M would help offset our unfunded costs. Given the pattern of decision making, how slow and difficult it is, it’s important to act now to establish what revenue options we have, knowing that next year will be even worse. A net reduction is expected for next year, in addition to everything we’re talking about now. A 15% increase will be proposed for graduate students; that reflects the reduction of 3-4 years ago. The increases are not our preference but from a financial officer’s point of view, a predictable source of revenue is preferable. 80% of our budget is from the general fund—so it’s unpredictable, uncontrollable. 90% of our money is in salaries. UC will make a similar recommendation, though theirs is even more explicit.
Trustee Farar began by saying she changed her whole life to come here today; that’s how much she cares. This is a very complex budget, and it’s unprecedented how bad it is. When she came to Fresno and talked to CSSA, she was sincere. She’s not a liar and she’s not stupid. The Trustees and this governor are committed to keeping fees low in order to insure the CSU’s mission of access. We are now the most diverse of universities, 53% diverse and 1st generation, and that’s what our low fees have done. One-third of this raise will open the door to even more students. If in good times we hadn’t lowered the fees we wouldn’t be in this position. It’s much worse than we imagined. We’re all very committed to the students: you’re the reason we’re here. We’ll still be the lowest in fees in the nation, and we have Cal Grant. We’ll make sure there is no financial barrier for any student to attend. We thought we could avoid this but we can’t: cuts of this magnitude put everything on the table. We will take your questions, listen to your concerns. We have shared governance in this system and protecting the university is the Trustees’ charge. Your charge is to protest this, and that’s what I expect you to do. Shared governance doesn’t mean everyone gets what they want. All the screaming and crying in the world won’t change this budget. We will try to preserve quality and access; we’re very passionate about that.
Emily Foster noted CSU administration is quick to look to students to get $20M. She asked will staff be cut, will there be cuts to other programs? Mr. West replied that for the $43M we knew about, we cuts lots of nonsalaried things. We thought those cuts would be one-time. Now we have been told those cuts are permanent, so salaries, staff will feel it. We’ve made a commitment to maintain courses and student services—that’s a priority. We are not planning for cuts to impact enrollment. It’s natural that fall is the highest enrollment term. There’ll be a falloff in the spring, and that will buy us a little time. We’ll try to maintain enrollment though that, too, may be jeopardized. Nanci Webber, Stanislaus, commented the one-third set aside won’t help nontraditional students who don’t get financial aid. Patrick Lenz said they will work with the campuses so the increase is a gradual payment over the semester, so that it’s prorated each month for those who don’t get financial aid. For those who do get Cal Grant, the Department of Finance has said it will fully fund Cal Grant entitlement along with increases. Trustee Farar commented the CSU is working to change the 24-year age limit for Cal Grants. Marivic Tolentino, San Diego, asked since financial aid has already been distributed, how will additional money be distributed? Mr. West responded that they haven’t yet talked to presidents but will expect that the $10M will be used to repackage financial aid. Not much federal money left; administration of financial aid owing to the increase will involve work for the campuses. Nanci asked a 2nd question: if it’s going to get worse next year, where is the budget problem going to stop? Mr. West responded he could only look to the past for an answer, a pattern. This budget is the worst ever in terms of fall in revenue. Different circumstances have led us to the same place. This budget is due to overspending based on nonpermanent revenue—capital gains recurred and we built our budget to spend to that level. No boom in economy can balance this budget. Mr. West thinks there have to be all kinds of tax increases—sales, income, capital gains. When he sees the January proposal he’ll have a better idea whether the problem will be resolved in 2004 or whether the solution is going to be postponed. From history we can deduce that it will take 2003-4 and 2004-5 before the budget will be balanced. If it takes beyond then, enrollment will be jeopardized.
Peter Ucovich, Sacramento, said the hardest part for students is to see fees increase and services be reduced. It’s hard to pay more and get less. He would like to ask the Chancellor’s Office to restructure the CSU system as part of the budget cuts. Ought students expect another increase next year? Mr. West responded that this state is not in balance; you cannot bring it into balance by cutting 100%, so there have to be revenue increases, including probably fees. Chico asked: will administrators/staff take some hits? Mr. West responded that all areas would be affected. Cuts will be patterned after those of the early 90s: cut less in instruction and student services, let the administrative staff get leaner, and let construction go. If we had a reduction of 20% we’d still be a huge organization. The nature of the process is that everyone wants cuts to occur somewhere else. It takes everyone who’s here to maintain this university. Yet there will be reductions.
Bruce Wolfe, San Francisco, posed 4 questions. Enrollment has been exceeded by 9000 FTES; if more students come in because there is more financial aid, will the legislature backfill that. Mr. West responded no. There is no money for that. We’re trying to preserve access. He believes enrollment will fall as it generally does in the spring. Then Bruce asked if the CSU had a plan for addressing this long-term. Students want a regular, predictable schedule of fee increases. Mr. West said we’d have a better idea when the January proposal is released; at this moment we don’t know if the January budget will solve the 30B deficit. The governor understands this is a multi-year problem; the state won’t penalize the CSU and under fund us. We’re not being penalized now. The legislature may feel differently. Bruce: if the legislature sees that fees can be raised, will it cut our budget with that expectation? Mr. West replied that that isn’t what happened in the early 90s and he doesn’t think it would happen now. He believes the legislature will recognize significant growth in student demand, which requires more funding. Bruce raised the question of the energy situation being at the heart of the situation; after all, we had a $9B surplus. If lawsuits against Enron prove positive, will they throw any money our way? Mr. West replied that the state borrowed $8B to cover its energy bill—so getting that back is the best we can hope for.
Caitlin Gill, Humboldt, said that if $10M were transferred now into state university financial aid, it would be gone in a second and wouldn’t match the need of financial aid recipients. The figure is wholly inadequate to cover needs—and there are tremendous costs associated with the repackaging. Lots of our students are ineligible; it’s the competitive side students benefit from and that’s the smallest part of the pie. Mr. West credited Caitlin’s assumptions and agreed with her analysis. Financial aid delivery has lots to be desired. The total needs of only a few students total are met, and even a fully packaged student carries lots of loans. He did not mean to represent that the $10M would cover all new need. There’s no other new source of money for the rest of the year. For the most needy, the CSU is trying to preserve access. We recognize the deficiencies of Cal Grant: we’d like to raise the age from 24, some of us like the competitive grant, and they tend always to be rationed. It’s a process by which it’s difficult to meet total need. $10M is not enough.
A comment was made about the rise in administrators’ salaries. Mr. West: doesn’t think salaries will be adjusted downwards, though some people may lose their jobs.
Andy Ramirez, Pomona, hears there will also be more taxes. Mr. West said he doesn’t know if in January tax increases will be proposed. (At this point Trustee Farar left the meeting.). He is not sure if the legislature would introduce a tax hike in a special session, though the Senate might.
Tommy Ishida, San Diego, asked about the 15% increase in fees for nonresident students already approved. Mr. West commented that we’re at full costs for nonresidents, which is policy ceiling, so he doesn’t foresee more fees being imposed this year. Next year he’s in a blind situation.
Chico asked about: areas aside from instruction where there are increases. Mr. West replied that we have to invest in instruction. This is a period where there are lots of retirements. We have increased the number of lecturers; and that’s compounded because of increased enrollments and retirements. There are artificial increases, then, in instruction spending. Now there will be emphasis on instruction and student services. You’ll see reduced expenditures on non-services areas. The cost per unit has gone down; that’s an anomaly as a result of hiring lecturers. There are 800 retirements per year now and we have to hire 800 just to keep up.
Cindi Newbold, Hayward, asked why, considering the 15% increase in nonresident fees in addition to this proposal, the budget solutions are disproportionate in their affect on students and even overlapping. She wanted to know if other student populations would be hit. She also commented that upon contracting for the coming quarter, she bought a service and paid the price set forth in the contract. How can that contract be broken? Mr. West responded: when the nonresident fee increase was proposed last spring, no mid-year budget reduction was foreseen. He said the cuts are not all being handled on the backs of students, not even disproportionately so; rather, the proposed increases are very modest. Cindi responded that they are disproportionate for some populations—some that will get hit now have already been hit with the nonresident fee increase. Mr. West replied that with regard to nonresidents, it’s the policy of the state that cost of education is the responsibility borne by the citizens of this state, but nonresidents aren’t citizens of this state. With regard to the difference between graduate and undergraduate, state policy as set forth in the Master Plan really deals with undergraduate education as the primary goal for access, so we can charge graduates a bit of a premium. He doesn’t know of any other group that would be treated differently. With regard to Cindi’s question re having agreed to a contract, he stated he is not a lawyer but believes that the Board of Trustees has the authority to change fees at any time.
Priscilla Ocen, San Diego, asked what was the first area Mr. West looked at upon getting notice of the governor’s cuts. Mr. West said the last area was students; CSU has already made all the one-time adjustments it’s possible to make. CSU hasn’t known until now what its final share would be. 80% of cuts are being taken somewhere else besides student fees. Priscilla also asked if there would be a sunset clause. Mr. West said he didn’t think so. Master Plan discussion recommends a fee policy that is predictable rather than driven by boom and bust. Mr. West expects that the proposed increase won’t be repealed. Ruth Christensen, Bakersfield, asked what is projected as revenue from the graduate increase. Mr. West said only about $5M. Ruth said that at Bakersfield students are mostly women, single parents; she asks where will the increases stop. Mr. West acknowledged that indeed the CSU student population is about 65% women. CSU is committed to low fees, but the question is how low can you keep them?
Bruce Wolfe, San Francisco, said that California historically has viewed educating its public in a way that is different from anyone else. He advocated recognizing that fact and not comparing ourselves to everyone else. We’re different and our constitution reflects that. How is the CSU going to help grad students? You need an MA for most secure jobs. If indeed a fee increase was the last thing considered, how will this $20M in revenue offset the $100M that’s still begging? Mr. West responded that the system would have to start looking at restructuring permanent workforce and services.
In response to the comment that the timing of the proposal is hard to swallow (during finals week for many of the campuses) Mr. West said he didn’t anticipate midyear cuts and that administrators feel the same angst as students: the state has reneged on us. But there it is.
Andy Ramirez, Pomona, pointed out that the cuts have been announced after the election, as have proposed increases. Education is taking the hit as the governor promised wouldn’t happen. Is anything sacred? Mr. West responded that for the rest of this year, our hope is to protect course sections and student services. Instruction is, at the moment, hands off. There will probably be pressure on outreach programs next year.
Jimmy Reed, Chico, asked what the Chancellor’s Office proposes if this increase passes and enrollment falls. Mr. West responded that, with the proviso that he’s already stated that enrollment backs off a bit every spring, he doesn’t expect that to happen. If it did happen CSU would try to analyze why. Lots of campuses have been increasing their fees. Next year there’ll be pressure on ALL state services. In the early 90s we lost students because we lost classes and we want to avoid that.