Sources of Revenue

The 2006/07 California State University Trustees’ Support Budget is based on revenue assumptions derived from the Compact Agreement for Higher Education, a six-year agreement with the governor, the University of California, and the CSU that was signed in May 2004. Beginning in 2005/06 and through 2010/11, the governor agreed to build the budget with General Fund dollars for base budget increases in general operations, enrollment, long-term budget needs, and mandatory cost obligations for debt service and annuitant benefits. The agreement also assumes undergraduate state university fees would increase by no more than 10 percent each year.

The compact is highly beneficial to the CSU in that it provides a stable financial base to plan for future needs and goals. In exchange for this pledge of funding, the CSU will be accountable for addressing long-term goals for enrollment, student fees, and academic program quality. The CSU will provide the state with student and institutional outcome data that addresses program efficiency, utilization of systemwide resources, and student progress.

The revenue components of the compact agreement include the following for 2006/07:

• 3% General Fund Increase For General Operations ($75,803,000)
  The compact agreement calls for a 3 percent General Fund increase for general operations from 2005/06 to 2006/07. Each year, the base increase is calculated using the prior year General Fund allocation with adjustments for retirement costs and the removal of lease revenue bond payments and deferred maintenance expenditures.
  
  For 2006/07, the 3 percent General Fund increase for general operations was calculated as follows:
  
  
  


• 2.5% Enrollment Increase ($52,660,000)
  For 2006/07, the compact agreement calls for a 2.5 percent enrollment increase that will yield an additional 8,306 Full-time Equivalent Students (FTES) at the CSU.The compact agreement affords the university the ability to rebound from previous reductions in enrollment due to drastic budget cuts. In 2006/07, the CSU will be budgeted to serve 340,527 FTES.
  
  Growth enrollment is funded using the marginal cost of instruction methodology developed by the Department of Finance, the Legislative Analyst’s Office, the University of California, and the CSU. The current methodology identifies the marginal cost of instruction to be $8,592 per FTES in 2006/07. The state share of the marginal cost of instruction total is $6,340 per FTES, which assumes student fees will fund 26.2 percent of total cost.
  
  Supplemental Report Language of the Budget Act of 2005 requests the CSU, the Department of Finance, the Legislative Analyst’s Office, and the University of California to review and propose modifications to the current methodology for the 2006/07 budget. The CSU has identified several shortcomings in the current methodology and is working with the participants to address these portions of the formula in need of change. These changes include updating the salary rate for hiring new faculty, revising the student-to-faculty ratio, and decreasing the unit load for full-time graduate students from 15 to 12 units. At the time of publication of this document, discussions were being held regarding this issue. The CSU will continue to participate in these discussions to advocate the university’s needs in the revision of this methodology.



• Revenue from Student Fee Increases ($79,504,000)
  As called for in the compact agreement, the CSU proposes to raise the fees for undergraduate students by 8 percent, from $2,520 to $2,724 per full-time student, for an increase of $204 per academic year. Post-baccalaureate students participating in a teacher credential program will have their State University Fee rate increase by 8 percent, from $2,922 to $3,156, for an increase of $234 per academic year. For all other postbaccalaureate and graduate students, the State University Fee rates will increase by 10 percent, from $3,102 to $3,414, for an increase of $312 per academic year.These fee increases will generate approximately $79.5 million in additional revenue to support the budget plan developed for 2006/07.
  
  Even with the proposed increase in undergraduate fee rates for 2006/07, the CSU still ranks among the lowest among the public comparison institutions used by the California Post-Secondary Education Commission (CPEC) for faculty salary and student fee comparisons. In 2005/06, the CSU was the lowest among the 15 comparison institutions, at almost $3,000 less than the comparison average and over $100 less than the closest university. Even with the 8 percent increase for 2006/07, the CSU will remain $2,800 less than the average among the 15 comparison institutions and only $98 more than the closest university from 2005/06.
  
  
• Revenue from Enrollment Growth ($27,482,000)
  Revenue associated with a 2.5 percent increase in FTES enrollment is projected to generate $27.5 million in new student fee revenue at the rates proposed for 2006/07. The compact agreement calls for the university to set aside 20 percent to 33 percent of new state university fee revenue for financial aid. In 2006/07, the CSU will set aside one-third of all new state university fee revenue from fee increases and one-third of the student fee portion of the marginal cost of instruction for financial aid to cover fee increases for the CSU’s neediest students. The increase in funding for financial aid will also provide for an additional 5,086 new State University Grants awards.