BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
969 (Liu)
Hearing Date: 05/27/2010 Amended: 04/28/2010
Consultant: Dan Troy Policy Vote: ED 8-0
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BILL SUMMARY: SB 969 would make a variety of changes relating
to resident undergraduate fee policy at the California State
University (CSU) and the University of California (UC). In
major part, this bill would:
Limit fees to 40 percent and 30 percent of the total
cost of education for that academic year for resident
undergraduates at UC and CSU, respectively.
Limit annual fee increases in a given year to the
percentage change in the annual average value of the
federal Implicit Price Deflator for State and Local
Government Purchases of Goods and Services (Index), as
specified. This is the same index that is used for the
statutory K-12 COLA.
Prohibit fee increases from taking effect until six
months after the adoption of those increases, as January 1,
2011.
Require the segments to develop a rational and
transparent policy for adjusting fees, in consultation with
student representatives.
Require notification to students of upcoming fee
increases and of available financial aid.
Require the California Postsecondary Education
Commission to annually review and report on the
institutional compliance an implementation of these
policies.
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Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
Fee containment Unknown, but
significant pressure to General
to keep pace with the cost of
higher education, commencing in
2011-12 fiscal year
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STAFF COMMENTS: SUSPENSE FILE. AS PROPOSED TO BE AMENDED.
Since the 1996 sunset of the Maddy-Dills Act, the state has
lacked a clear policy on higher education fees. The Maddy-Dills
Act required fees to be (1) gradual, moderate and predictable,
(2) limited fee increases to not more than 10 percent a year,
and (3) fixed at least ten months prior to the fall term in
which they were to become effective. The policy also required
sufficient financial aid to offset fee increases. However, even
with this policy, when the state faced serious budgetary
challenges the statute was "in-lieued" in order to provide the
institutions some flexibility in dealing with the lack of state
General Fund support.
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SB 969 (Liu)
The difficult budget situation in recent years has led to sharp
growth in student fees at both UC and CSU. Fees at CSU rose 10
percent in both the 2007-08 and 2008-09 fiscal years and an
additional 32.1 percent in 2009-10. At UC, the fees increased
by 8.1 percent in 2007-08, 7.4 percent in 2008-09, and by 25.7
percent for the 2009-10 fiscal year. The trend has been that
the fees increase dramatically when the state faces difficult
budget times and grow slowly, if at all, during relatively good
years for the state's general fund. This means that families
face higher costs of education at the same time they face
financial struggles at home and more moderate costs during times
of strong employment and income growth. While the Cal Grant
program, federal aid, and institutional support is available to
help provide access to higher education for families meeting
specified eligibility criteria, the lack of a clear fee policy
clearly presents challenges for many students and their
families. This bill attempts to address that challenge by
outlining a long-term, predictable fee policy for UC and CSU.
While estimates of the future costs of this bill can't be
estimated with complete certainty, it is likely that the bill
would have a major impact on the state's General Fund resources.
The bill places two main limits on the capacity to raise fees:
1) a hard cap on the percentage of the cost of education that
can be made up of fees (40 percent for UC and 30 percent for
CSU), and 2) a prohibition on raising fees beyond the COLA
(Index) in any given year.
Keeping up with the required percentages creates an obligation
for the state to continually provide General Fund increases
proportionate to the increase in fees. As the General Fund
share of costs is roughly twice as much as the share of fee
revenue, this obligation is significant.
Keeping pace with the cost of higher education inflation may
also pose a challenge. The Higher Education Price Index (HEPI)
has exceeded most consumer and price indices in recent years.
If the state intends to keep pace with the growing cost of
higher education, the state would have to take on higher and
higher shares of that cost. For example, for the 2009-10 fiscal
year, the Legislative Analyst's Office estimates that UC will
have $1.371 billion in fee revenue and $2.596 billion in General
Fund (GF) support. The GF share of the combined total is 65.4
percent. If the average cost of education grows annually at 4
percent (somewhat less than the 10-year average) for five years
while the index grew at 2.5 percent, the state's share of the
cost would grow to 67.9 percent. The state's share will grow as
long as the average cost of education continues to outpace the
index (assuming federal support does not increase sharply to
compensate), as the bill would limit the capacity for fees to
keep up with costs. In this scenario, the cost to the state
would likely be well over $100 million annually just to keep
pace with the growth in higher education costs at UC. Note that
the state is not required to keep pace with HEPI, so this cost
may more accurately be described as a pressure than an
obligation.
The requirement that fee increases not go into effect for six
months may have significant impacts during difficult and
unpredictable budget cycles. For example, CSU
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SB 969 (Liu)
indicates that a six-month delay in fee increases would have
cost the system $177 million in revenue during the 2009-10
fiscal year.
Further, the bill may also have some unintended consequences.
If fee revenues were at the specified maximum percentage and the
state were forced to decrease support due to a difficult budget,
the segments would be required to lower fees so as not to exceed
the capped percentage. This could result in a decrease in
enrollment and/or the quality of education offered.
Author's proposed amendments would:
Limit fee increases to the percentage change in
California per capita personal income over the preceding
fiscal year.
Delay implementation until July 1, 2011.