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A Bad Budget That Could Have Been Worse

February 20, 2009

It's all about perspective. When you've been staring down the barrel of a potential loss of hundreds of millions of dollars in operating funds, tens of thousands of need-based student grants, and more, even cuts that would look deep in a normal year suddenly don't look quite so disastrous.

That was the view around much of California higher education Thursday, as administrators, faculty leaders and student groups absorbed the news of a statewide budget deal that, after months of bitter negotiations and threats of even greater calamity, would raise taxes and significantly cut spending on many state services, including higher education.

The compromise, which was designed to eliminate a nearly $42 billion shortfall in the state's budget for the 2008-9 and 2009-10 fiscal years, inflicts significant pain on the three massive higher education systems: the University of California, California State University, and the California Community Colleges.

It would cut $115 million in state operating support through 2010 from the University of California and slash a planned contribution on UC's behalf to the state retirement system, to the disappointment of university officials. Cal State would lose about $165 million in state funds for 2008-9 and 2009-10 and, for the second straight year, forgo new money (promised in a "compact" between the university systems and Gov. Arnold Schwarzenegger) to fund enrollment growth and finance the state's higher education compact. And the California Community Colleges would lose $40 million for cost of living adjustments and defer hundreds of millions of dollars in formula funds to the future.

The budget compromise would also impose 10 percent increases in tuition (which Californians insist on calling "fees") on students at UC and Cal State and, by not funding enrollment increases at the two university systems, effectively lock out more than 12,000 students next fall.

But the final deal also avoided some of the direst outcomes envisioned during the weeks of impasse between legislative leaders and Schwarzenegger over how best to close the gap, with Democrats and the Republican governor insisting that tax increases were necessary and many Republican legislators pressing for deeper spending cuts. Most significantly, perhaps, the compromise restored $87.5 million that Schwarzegger's original budget had proposed slashing from the Cal Grants need-based financial aid program, and it includes $185 million in new funds to allow for 3 percent enrollment growth at the California Community Colleges.

So even as they bemoaned the cuts and expressed concern about the longterm viability of California's ability to fund higher education at its traditionally high level, college leaders in the state acknowledged that it could have been worse. "I am compelled to note that the proposed cuts to the university, while serious, do not appear to be disproportionate," Mark G. Yudof, president of the University of California, wrote in a letter to its regents on Tuesday. "Indeed, I believe the Governor and the Legislature have helped to protect the university's base budget from potentially even deeper cuts."

Community college officials went so far as to describe the resolution as a "good one under the circumstances," as Erik Skinner, vice chancellor for fiscal policy at the California Community Colleges, put it to colleagues in a memo Thursday. "It is clear that the state leaders who negotiated this budget deal placed a very high priority on protecting the capacity of the community colleges to meet surging enrollment demand. The relatively modest cuts to the community colleges and the provision of $185 million in growth funds for the budget year are proof that state leaders value the indispensable role that the colleges are playing during these difficult times."

Perhaps no statement in Skinner's memo is more true than this one: that the combination of tax increases, spending cuts, and hefty borrowing in the budget package affects every sector of California's economy and society and gives "every constituency something to hate." The three higher education systems, which together educate about 3.3 million students -- almost 20 percent of all U.S. college students -- have not been spared.

The state's two university systems had already imposed significant reductions in their budgets and, in the case of Cal State, frozen all construction projects because of the deterioration of the state's economy and midyear budget cuts imposed for the current, 2008-9 academic year. Both Cal State and UC have noted that they are already serving thousands more students than the state is paying them to educate, at a cost of $122 million at the University of California alone.

As the state's political leaders dickered in recent weeks over a solution to the escalating financial mess, California had to stop construction projects and delay tax rebates, and it risked far worse. The stalemate escalated worries among college leaders that significantly deeper cuts would be required, and that Republican legislators would go to the mat to oppose tax increases that would require state spending to be decimated.

Some of the eventual cuts will cause pain, especially if they are not remedied in the long term. The University of California had sought funds to allow it to restart making employer contributions to the state's retirement fund, but $20 million for that purpose was cut from the budget compromise. Because of the downturn in the financial markets, the retirement fund is now underfunded, which could hurt current and future employees if that does not change.

“We are very disappointed that the state is not recognizing its responsibility to support employer contributions to the UC Retirement Plan, as it does for contributions to CalPERS on behalf of CSU and the community college system," said Paul Schwartz, a UC spokesman.

Olgalilia Ramirez, director of legislative affairs for the California State Student Association, which represents students at Cal State, said her members appreciated state leaders' agreement to abandon proposed cuts in Cal Grants that would have reduced aid for thousands of low and middle income students. But the combination of the increase in tuition -- which will be the eighth straight year of such increases, totaling as much as 135 percent since 2002 -- and the failure to provide money to support more enrollments are combining to threaten the state's traditional promise of accessible higher education, she said.

"There's been a promise here that any person who was qualified to go to CSU would be given a spot," said Ramirez. "For the first time we're seeing that not occur. It's a sad thing to admit."

 

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