BILL ANALYSIS                                                                                                                                                                                                    

                                                                  AB 67
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          Date of Hearing:   April 17, 2013

                                  Mike Gatto, Chair

                     AB 67 (Olsen) - As Amended:  April 1, 2013 

          Policy Committee:                              Higher  

          Urgency:     Yes                  State Mandated Local Program:  
          No     Reimbursable:               


          This bill requires the California State University (CSU), and  
          requests the University of California (UC), to freeze  
          undergraduate tuition and fees through 2016-17.  Tuition and  
          fees could be increased in each fiscal year, however, if state  
          General Fund support does not increase by at least:

          1)5% in 2013-14.
          2)5% in 2014-15.
          3)4% in 2015-16.
          4)4% in 2016-17.

           FISCAL EFFECT  

          The bill creates significant cost pressure in two ways. First,  
          to avoid fee increases, there is pressure to provide the minimum  
          amount of state funding increases specified in the bill for each  
          of the next four years.  (Each 1% of GF increase is around $25  
          million.) Second, to the extent either segment is underfunded  
          (see comment #2), there will be pressure to increase state  
          support for UC and CSU to an even greater extent to compensate  
          for unavailability of additional fee revenue due to the freeze.


           1)Background and Purpose  . Student fee revenue works  
            interchangeably with the state GF support to fund the core  
            instructional program of UC and CSU. State funding essentially  
            subsidizes the amount paid by students. From 2007-08 through  
            2011-12, state support for the two segments declined  
            significantly. This resulted in fee increases over this time  


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            period totaling 84% at UC (from $6,636 to $12,192) and 97% at  
            CSU (from $2,772 to $5,472).

            As a result of additional state revenues made available by  
            voter-approval of Proposition 30 in 2012, there is no fee  
            increase for the 2013-14 academic year. Moreover, the Governor  
            has proposed a multi-year funding plan that would increase GF  
            support to both segments by 5% in 2013-14 and 2014-15 and by  
            4% in 2015-16 and 2016-17. This plan assumes no further fee  
            increases over this time period.

            AB 67 essentially mirrors the Governor's proposal-predicating  
            a freeze on fees each year with the state funding increases at  
            least equal to those specified by the Governor. The author  
            believes this freeze is necessary to create a predictable fee  
            environment for students going forward. 

           2)Opposition  . UC notes that it is not pursuing a tuition  
            increase in 2013-14, "even though this decision will eliminate  
            $125 million from our approved spending plan." UC indicates  
            that the state GF augmentations proposed by the Governor cover  
            only the state's portion of the university's budget needs,  
            noting that since the tuition-funded portion of UC's budget is  
            now considerably greater than the state-funded portion, "it is  
            not reasonable to assume that more than half the core  
            operating budget can withstand several years of no revenue  
            adjustment." UC estimates that, without new resources, it  
            faces a significant budget gap by 2016-17, and that while it  
            continues taking steps to generate efficiencies and  
            alternative revenues, it cannot cover the remaining gap  
            without moderate increases in both state funding and tuition  
            and fees.

           3)CSU  expresses concerns similar to UC, and also notes that it  
            has a deferred maintenance backlog approaching $1 billion as  
            well as significant underfunding of ongoing maintenance.   
            Given these and other cost pressures, CSU indicates that the  
            Governor's modest formula for growth, coupled with a tuition  
            freeze, could result in reduced access for students.

           4)Legislative Analyst's Office (LAO) Analysis and  
            Recommendation  . In its review of the Governor 2013-14 budget  
            the LAO notes that (a) tuition at CSU is still the lowest  
            among its 15 public university comparison institutions and  
            tuition at UC is slightly above the average of its four public  


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            comparison institutions, and (b) despite the almost doubling  
            of tuition in recent years, when financial aid is taken into  
            account, the net price for UC and CSU has increased only  
            slightly for about 75% of all students. (The net price has  
            increased more significantly for UC students with family  
            income above $110,000 and CSU students with family income  
            above $75,000, as they are less likely to qualify for  
            financial aid.) The LAO also indicates that average student  
            debt for those UC and CSU graduates with any debt is about 25%  
            below the national average.

            The LAO argues that, while a tuition freeze would assist  
            current students, based on an almost 30-year trend of boom and  
            bust in tuition level adjustments, it would be to the  
            detriment of future students who would likely experience  
            increased volatility. The analyst instead recommends a policy  
            that bases tuition and fees on a share of educational costs at  
            each segment.

           5)Why a Freeze  ? The rational for enacting a four-year statutory  
            freeze is unclear. A fee policy allowing for modest increases  
            would still be predictable and would allow families to plan  
            for their college expenses. Moreover, given the impact of  
            recent budget reductions, in reduced class offerings for  
            example, the state and students could benefit from a modest  
            increase if the additional revenues were to provide direct  
            services that allowed more students to get the courses they  
            need to expedite completion of their educational goals. As an  
            example, just a one or two percent undergraduate tuition  
            increase at CSU (about $55 - $110) would generate over $10  
            million to $20 million in additional revenue that could be  
            used to benefit students.

            After several years of significant annual tuition increases, a  
            brief pause for a few years seems reasonable, but this would  
            be an opportune time for the Legislature to consider enacting  
            a rational, long-term fee policy for public higher education  
            in California.
           Analysis Prepared by  :    Chuck Nicol / APPR. / (916) 319-2081