2004/05 Support Budget

2004/05 Support Budget

2004/05 Support BudgetThe 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).

2004/05 Support BudgetThe 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.

State Funding Student Fee Revenue and CSU Funding Deficiency per FTES

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

2004/05 Support BudgetIn 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.

2004/05 Support BudgetEmployer-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.

2004/05 Support BudgetIn 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

2004/05 Support BudgetThe 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.

2004/05 Support BudgetA 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.

2004/05 Support BudgetIn 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.

Enrollment Growth

2004/05 CSU Priority Funding Requirements

2004/05 Support BudgetInstitutional 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.

Additional Outreach to Replace 2003/04 Funding Loss

2004/05 Support BudgetFunding 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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Jo Ann Lumsden
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Last Updated: December 8, 2003