| 2004/05 Support Budget
 The
California State University (CSU) prepares for the 2004/05
fiscal year in an environment of declining state General Fund
support and increasing costs for mandatory obligations that
cannot be postponed or ignored. As the table below highlights,
State support to CSU based on the Partnership Agreement established
after the 1990-93 economic recession has been unfunded by
$357.6 million over the past three years. In addition, reductions
in CSU base levels of State General Fund support total $421
million over this period, and no recognition has been given
to $40.7 million in additional mandatory costs the CSU had
to accommodate by whatever financial means were available
to fund compensation contracts, health care premium costs,
workers’ compensation, property insurance and new space
obligations in each of those three years (some of these areas
of mandatory cost shortfalls are reflected in the Partnership
Funding Shortfall).
 The
CSU needs requires revenues to address budget year need, but
funding budget year need is not the complete solution. Since
fiscal year 2001/02, the university has been operating with
a structural deficit of over $819.4 million. These deficits
are primarily the result of under funding and program reductions
caused by statewide general fund budget shortfalls and budget
decisions at the state level. As the following chart indicates,
each year the structural deficit grows creating a larger gap
between actual and needed funding. This deficit cannot be
ignored when pursuing the ideal of providing a quality education
to the citizens of California.
Student fee increases that have raised undergraduate fees
to $2,046 and graduate fees to $2,256 per academic year have
been used to address a portion of the funding shortfalls,
but cannot be the long-term solution to our structural deficit.
The university will continue to improve and streamline operations
to insure resources are dedicated to its core instructional
programs. However, CSU cannot reduce program costs further
given the shortfalls in our budget without serious impact
to current enrollment levels.
Despite the current trend of declining General Fund revenue,
the Board is obliged to request from the Governor and Legislature
the funding needed to address the university’s most
critical obligations for 2004/05.
A total of $57.5 million is required to:
- Complete funding of the compensation agreement negotiated
with the faculty through collective bargaining in 2002,
with active support from the Legislature;
- Fund the budget year cost of a 15% increase in health
insurance premiums that will go into effect in January 2004;
- Staff and support utilities for 431,000 square feet of
new classroom and office space that is scheduled to open
on 17 campuses;
- Fund the cost of a 41% increase in workers’ compensation
insurance, 60% increase in disability insurance, and 10%
increase in property insurance; and
- Support cost increases projected for natural gas, electricity
and water/sewer associated with energy transmission to campuses,
increased consumption to support campus-generated power,
and increased utilities rates.
Mandatory Costs
 In
order to preserve the instructional integrity of CSU academic
programs and provide the services students need to succeed,
the university cannot redirect resources from these activities
to fund mandatory cost obligations. Over the past three years,
CSU has used one-time funds, expenditure deferrals, budget
efficiencies, cost avoidances and a variety of other financial
tools to cover unfunded mandatory costs. The university has
exhausted its ability to fund these costs without jeopardizing
“authentic access:” ensuring that students who
are enrolled get the courses they need and the services that
will enable them to graduate in a timely manner. New General
Fund dollars are needed for the following purposes:
Compensation ($9.5 million) This cost is
related to the final year of the collective bargaining agreement
negotiated with the CSU faculty union, with the support of
the Legislature, in Spring 2002. The final provision of the
agreement calls for a 2.65% service salary increase for eligible
employees effective June 30, 2004. The funds identified in
this request represent the 2004/05 permanent budget costs
needed to implement this contract provision.
 Employer-Paid
Health Insurance Premiums ($26 million) The California
Public Employees Retirement System (CalPERS) administers CSU
health care benefits, and benefit costs are negotiated with
health care providers each year. These costs are shared by
the CSU and its employees, with CSU funding a significant
portion of these costs. CSU currently spends over $145 million
for employee health benefits. CSU’s cost for CalPERS
health insurance premiums has increased significantly over
the past several years. In 2003 the rates increased by 28.6%
or $32.2 million, and another 15% increase has been projected
for 2004. Because these rate increases occur in January, during
the middle of the current fiscal year, CSU must absorb the
initial half-year cost. The 2004/05 CSU Support Budget funding
request of $26 million addresses the permanent budget year
cost for the January 2004 premium rate increase.
New Space ($3.1 million) CSU continues to
manage resources to maintain its ongoing maintenance budget
for existing facilities. As new space comes online, additional
resources must be identified to adequately care for the facilities
and make them operable for our students, faculty, and staff.
New space for instruction and support functions (430,000 square
feet) will come online in 2004/05 at a cost of $3.1 million.
This space includes instructional classrooms, laboratory space,
instructor offices, and office space for academic and administrative
support functions. The costs are based on the maintenance
required for these buildings, including costs for utilities,
regular building maintenance, custodial, landscape and administrative
support.
Insurance Premiums ($15 million) The CSU,
like many other private and government entities, face rising
premium costs across the board. Insurance premiums for workers’
compensation, liability, disability, and property insurance
continue to rise each year. The CSU Risk Management Authority
(CSURMA) was established in 1995-96 to administer risk management
programs and hold campuses accountable for their risk related
liabilities. Systemwide funds in the amount of $14.2 million
were permanently allocated at that time to create the fund
pool, with all increased costs to maintain the pool paid through
campus premium assessments. As of 2003/04, the risk pool had
grown to $55.9 million, a 300% increase in costs since 1995/96.
 In
2004, the CSU anticipates a $13.9 million increase in workers’
compensation costs alone, even with efforts that have reduced
the number of claims. Campuses have had to absorb the majority
of this cost within their existing budgets. CSU has attempted
to partially offset these costs with supplemental funds from
the Partnership Agreement, but these efforts have been mitigated
by the state’s inability to fund the system at Partnership
Agreement funding levels. It is anticipated risk management
insurance premiums will increase by $15.0 million in the coming
fiscal year.
Energy ($3.9 million) Over the next five
years, the CSU expects an increase of $19.0 million in utility
costs. Based on current market forecasts and increased consumption,
the university is forecasting a $750,000 increase for electricity,
$2.5 million increase for natural gas, and $700,000 for water
and sewer costs in 2004/05.
Additional Partnership Funding
 The
overarching mission of the California State University is
to work productively for the State of California and to provide
quality undergraduate and graduate instruction. CSU graduates
are vital to California’s economic prosperity. Based
on statistics from the U.S. Census Bureau, they are likely
to earn nearly twice as much over their lifetimes than high
school graduates. Their additional earnings translate into
higher tax revenues and decreased reliance on government financial
support, and their education leads to greater productivity
and creates a stronger, highly technical workforce.
CSU has the largest student body, most diverse student population,
and some of the most affordable student fees anywhere in the
country. The university graduates over 77,000 students each
year into California’s workforce, and prepares the most
students in fields that make California work: engineering,
computer science, business, agriculture, nursing, and education.
 A
key reason for CSU’s most recent success has been the
Partnership Agreements developed with the Governor every four
years to establish a predictable framework from which to identify
the resources needed to address the critical areas of the
university’s Master Plan mission. The Partnership Agreement
was used to grow the university from the economic recession
of the early 1990s, and later was instrumental in creating
the budgetary environment that reestablished the state’s
commitment to funding demand-driven enrollment access, emphasized
a strong commitment to teacher education, encouraged innovations
in the use of technology and the coordination of technological
advances to improve the delivery of instruction and preparation
of students, promoted bond-financed capital construction and
streamlined processes for efficiently managing capital outlay
funds, and made progress on limiting growth in the CSU faculty
salary lag and the structural budget deficiencies that drain
resources from the university’s educational priorities.
The current state budget crisis creates significant challenges
for CSU and has already threatened the integrity of the Partnership
Agreement. As previously indicated, the Partnership funding
shortfall totals $357.6 million. As a result, the university
is retrenching in areas of funding that are critical to the
success of its students and educational programs. If the university
is to continue its progress in its Master Plan mission to
create and maintain a learning centered university dedicated
to ensuring higher education opportunities to the top one-third
of California’s high school graduates and sustaining
a vibrant, highly skilled workforce for California’s
economy, then the State should reaffirm its commitment to
the Partnership Agreement. Although there are several aspects
of the previous four-year agreement that should be modified
as we look to the challenges facing the university in the
years ahead, a recommitment to the basic principles of the
current agreement will enable the university to address several
key areas, described in further detail in the Appendix, that
preserve the quality of CSU’s educational programs.
 In
addition to the Mandatory Cost requirements, the cost to the
State for this renewed Partnership commitment to quality is
$181.8 million, which would be supplemented with $24.7 million
in student fee revenue from enrollment growth. CSU would use
this income to meet its Partnership commitment to make the
courses needed for students’ progress to degree available
in sufficient numbers to improve students’ time-to-degree.
The university would also make progress on keeping employee
salaries competitive to sustain recruitment efforts that improve
the number of tenured/tenure track faculty and to promote
retention of highly talented and skilled employees. These
Partnershipbased funds would help address our continuing efforts
to satisfy on-going maintenance needs and reduce, on a net
basis annually, CSU’s total deferred maintenance backlog.
They would also provide resources that support progress in
eliminating structural deficiencies in library materials,
and increase technology access, training and support that
makes for more efficient, productive operations. CSU also
would reestablish its responsibility for working with the
K-12 community to reduce the percentage of high school graduates
requiring remedial instruction in English and math to 10 percent
of all incoming CSU freshmen by 2007.
2004/05 CSU Priority Funding
Requirements
 Institutional
quality requires a core commitment of funding support from
the state—which CSU previously achieved through the
Partnership Agreement—and also support for critical
areas of funding need that are linked to the accountability
commitments by which the university’s success in meeting
its Master Plan mission is measured. To meet the university’s
commitment to improve access and transition of students from
high school to college, improve the quality of teacher preparation
and meet teacher demand, improve transfer and articulation,
improve institutional productivity and efficiency, and improve
the academic experience of students, CSU has identified four
areas of urgent need, outlined below and in further detail
in the Appendix.
 Funding
for these activities and facilities restore the quality of
educational services to minimal standards lost when CSU received
budget reductions that had a negative fiscal impact of more
than $300 million on program funding in 2003/04. Additionally,
it recognizes the cost of campus efforts to bring university
operations to areas of demand that lack convenient access
to main campus instructional services. This funding also addresses
actions encouraged by the Legislature that would increase
the ratio of tenured and tenure-track faculty at CSU. Further,
it responds to legislative concerns that students enter CSU
better prepared for university-level coursework and calls
for greater collaboration of statewide outreach activities
between the university and other agencies.
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