BILL ANALYSIS Ó AB 67 Page 1 Date of Hearing: April 17, 2013 ASSEMBLY COMMITTEE ON APPROPRIATIONS Mike Gatto, Chair AB 67 (Olsen) - As Amended: April 1, 2013 Policy Committee: Higher EducationVote:11-0 Urgency: Yes State Mandated Local Program: No Reimbursable: SUMMARY 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. COMMENTS 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 AB 67 Page 2 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 AB 67 Page 3 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