LAO blasts governor’s compact, budget plan

    In a critical report calling Gov. Arnold Schwarzenegger’s funding compact with public universities a form of “autopilot spending,” the state’s nonpartisan policy analyst’s office has urged the Legislature to set next year’s higher education budget below the levels requested by the governor.

    Source: Legislative Analyst’s Office
    Schwarzenegger’s university budget plan

    The 900-page breakdown of the governor’s proposal, released last month by the state’s Legislative Analyst’s Office, also accuses the University of California and California State University of diverting millions of dollars meant for increasing student enrollment into other programs over the last two years.

    “Rather than allowing for an annual review to reassess budget assumptions, the governor’s compact seeks automatic spending increases for UC and CSU,” the LAO study states. “We believe the Legislature should reject the compact’s autopilot approach and continue to use the annual budgetary process to allocate resources to the segments.”

    When he released his plan in January, Schwarzenegger criticized budget formulas and autopilot spending, including the Proposition 98 funding guarantee for public schools.

    However, the governor’s budget spokesman, H.D. Palmer, said the compact with the two universities, which guarantees the systems a three-percent budget increase this year that will grow to five percent in three years, is not the kind of formula Schwarzenegger had in mind.

    “This kind of funding commitment is definitely affordable,” Palmer said, pointing out that the growth is still less than the annual increase in the state’s revenue, which averages between six and seven percent. “We recognize that higher education in the state is integral to the state’s economic well-being. Even as we are continuing to work our way out of the state’s worst economic crisis in recent memory, the governor believes that the commitment to funding higher education growth is important, and that’s why the governor’s budget fulfills the commitment he made to [UC] President [Robert C.] Dynes and [CSU] Chancellor [Charles B.] Reed.”

    The report has also drawn criticism from the UC Office of the President, which said the LAO did not take into account major cuts the university has worked through in recent years.

    “We completely disagree with it,” UCOP Communications Director Brad Hayward said. “We believe the compact is a critical tool for helping the university recover from the budget cuts of the last several years. That is the critical factor missing from the LAO analysis: There is no recognition of what we have gone through in this four-year period.”

    In a separate recommendation, the LAO also urged lawmakers to include a provision in the state’s budget requiring the universities to refund taxpayers if they enroll a smaller-than-expected number of students. Since 2003, both the CSU and UC systems have used such leftover money to “backfill” state cuts in other university programs, the analyst’s report stated.

    Most of this diversion was carried out by CSU administrators, according to LAO higher education analyst Anthony Simbol, though UC staff also misspent money earmarked for enrolling an extra 800 students.

    Hayward strongly denied the charge, saying that any state money was “put to the purpose for which it was intended.”

    In addition, the state analyst said the two-and-a-half-percent UC enrollment growth called for by the governor was excessive. Instead, the LAO recommended that the Legislature approve only a two-percent hike. That level is enough, it said, to pay for annual growth in the size of graduating high school classes and also to cover a moderate increase in the rate of college participation.

    That recommendation was disputed by Hayward, who said the university could not understand which data the LAO used for its estimate.

    The LAO estimate does not account for demographic numbers collected by the federal government that project rapid increases in minority populations over the next half a decade, according to UC Students Association President Jennifer Lilla. In addition, the numbers do not figure in increased college participation that will result from the millions the university has invested in academic preparation programs or outreach, she said.

    “What they were doing basically sort of smells of putting your head in the sand — to not expect growth to change and rates of participation to change,” Lilla said.

    Though critics can attack his agency’s numbers, Simbol said, his office relied on the best data the state had, which he said were far more scientific than the arbitrary formulas used by the university to estimate changes in population.

    “They don’t have a demographic model,” he said. “We haven’t seen anything that’s based on demographics.”

    As for outreach, Simbol said he has seen no evidence that academic preparation lead to increases in rates of college participation.

    Even if the governor’s estimate of student numbers is right, the report also objected to the amount Schwarzenegger wants to give the university to pay for each additional student.

    In 1995, lawmakers approved a formula to calculate how much the state should pay UC administrators for new students. This “marginal rate” is less than the normal per-student price tag because it relies on savings from the same economic logic that explains why consumers can pay less buying in bulk: Each additional student does not affect the university’s fixed costs, like the number of administrators, so having more students decreases the average cost for each one.

    The governor’s Department of Finance estimated a marginal rate of $7,588 for new students, but was unable to justify the numbers to the LAO, which used the 1995 methodology to come up with $7,180.

    “We believe that the funding growth that we provided in this budget was the product of discussion that the governor and the administration had with the leadership of the UC and CSU,” said Palmer, who is the deputy director of external affairs at the Department of Finance. “We agreed that this was the appropriate level of funding to provide.”

    In fact, Schwarzenegger’s number is probably not high enough, Hayward said, since it relies on outdated faculty salaries, and because larger annual growth in student numbers means the population is no longer increasing “at the margin.”

    “We believe, if anything, it’s too low, even though we were understanding of the state’s budget situation and willing to accept the figure in the governor’s budget,” he said.

    In contrast to the LAO’s findings, the Democrat-dominated Legislature has generally accused Schwarzenegger of underfunding higher education. Under state law, the Legislature and the governor must agree on a state budget by the beginning of July.

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