Revenue Increases | 1998-1999 Support Book 2 | Fiscal Year Budgets | Budget | CSU
CSU Budget Office

1998-1999 Support Book 2 Documentation

Revenue Increases

There are seven areas of revenue increase identified in the 1998/99 Support Budget.

I. General Fund Four Percent Compact Increase

After initially providing a 2.5% General Fund increase in its first year, the Governor's four-year higher education funding compact established in January, 1995 calls for annual base budget increases of four percent in CSU appropriations for each of the subsequent three fiscal years. The four percent calculation is based on prior year appropriations received by the university, excluding appropriations received for lease revenue bond payments and payments on borrowing for deferred maintenance. Funding for these items are provided annually at cost under the terms of the compact and are therefore not included in the four percent calculation.

For 1998/99, an additional adjustment is required in the CSU base funding level. CSU employer contribution rates for retirement programs were reduced in July 1997 and result in a $5.1 million cost savings. These savings revert to the state. Consequently, the CSU base funding level for 1997/98 is reduced by an equivalent amount prior to the four percent compact calculation.

Four Percent Compact Calculation
1997/98 Final Budget Appropriation $1,885,057,000
Less Appropriations for:
Lease Bond Payments -56,039,000
Deferred Maintenance Borrowing -4,187,000
Retirement Contribution Rate Reduction -5,092,000
Net 1997/98 Base Budget Appropriations $1,819,739,000
Net Appropriations x 4% = Compact Increase $72,790,000

II. General Fund Lease Bond Payments Increase

The 1997/98 Budget Act appropriated $56 million for lease bond payments. This appropriation was supplemented with $1.5 million from surplus funds in capital project accounts and $6.7 million in reappropriations from 1996/97. Thus, total funding provided for lease bond payments in 1997/98 was $64.2 million. The current projection for lease bond payments in 1997/98 has been lowered to $60. 8 million. The $3.4 million projected savings from 1997/98 will be reappropriated for 1998/99 costs.

It is estimated that $70 .6 million will be required for lease bond payments in 1998/99. Total funding for CSU bond payments provided in 1997/98 must be increased by $6.4 million in new General Fund support to satisfy this requirement.

The 4-year funding compact provides separate funding for increases in debt service payments on bonds financing capital projects. Funding required for 1998/99 will be determined ultimately by the State Treasurer's Office and the Department of Finance.

III. General Fund Revenue in lieu of Ten Percent Fee Rate Increase

During the early 1990s, when state appropriations to CSU were reduced significantly below historical levels, the State University Fee was increased above the levels mandated by state fee policy to offset partially the General Fund reductions. When the state's economy began to improve in 1994/95 and CSU appropriations increased for the first time in three years, the State University Fee increase returned to the maximum level allowed by state fee policy. The following year, the Governor incorporated the maximum fee rate increase in his compact proposal for higher education in order to return predictability to student financial planning and preserve affordability. In recognition of the healthy growth in the state's economy during the compact years and the financial burden shared by the university and students during the state's recession, the Governor and legislature provided supplemental General Fund support under the compact to eliminate the need for student fee increases in the 1995/96, 1996/97 and 1997/98 fiscal years. With enactment of AB 1318, which reduces undergraduate fees by 5% and freezes graduate fees at current levels, the 1998/99 budget plan is premised on the state continuing its fee buyout provisions of the past three years and fully funding the 1998/99 fee revenue requirements of the compact.

4-Year Compact Fee Revenue Requirement

Fee Revenue Chart

IV. Enrollment Growth over 1% Compact Commitment

CSU's ability to fulfill successfully the compact's enrollment commitment and achieve the institutional reforms necessary to sustain enrollment growth that exceeds compact targets justifies expansion of the one percent enrollment growth target funded under the compact.

Last year, the number of full-time equivalent students (FTES) swelled 7,000 over the 1% compact growth target of 255,501 FTES. This year, 1997/98, enrollment is projected to exceed the 1% compact growth target of 258,000 FTES by a comparable amount. In the next seven years, it is projected CSU will need to serve an additional 69,000 FTES. Accommodating enrollment growth over the 1% compact growth commitment places financial pressure on other aspects of campus budgets. One-year, stop-gap measures that helped support current excess enrollment growth included one-time carryforward funds, fee revenue from additional students, campus productivity measures and adjustments in the delivery of classroom instruction and teaching services.

In the long-term, these adjustments are insufficient to offer educational services on a continuing basis. One-time funds by their very nature are temporary, unpredictable and unreliable for enrollment planning purposes. The fee rate reduction and freeze in fee rates required by AB 1318 means the revenue from additional students will provide fewer and fewer dollars towards the cost of excess enrollment. The competing needs for campus productivity savings - deferred maintenance, moving expenses, space rental, price increase, library books, and ancillary programs which previously received state funding - means the level of enrollment demand CSU is experiencing cannot be absorbed by productivity gains alone. And although CSU faculty have shouldered a considerable amount of the pressure from excess enrollment, this situation cannot continue with only one-time supplemental funding and short-term shifts in CSU resources.

To help meet projected enrollment demand for 1998/99 and reduce the short-term pressures on limited campus resources, CSU is requesting state support for an additional 3% enrollment growth above the compact commitment. An additional 3% growth, or 7,740 FTES, would increase the 1998/99 funded enrollment level at CSU to 268,400 FTES. Based on the marginal cost calculation developed at the request of the Legislature in cooperation and agreement with the Department of Finance, Legislative Analyst's Office and the University of California, $39.6 million in General Fund support is requested. This funding will be supplemented with $9.9 million in fee revenue based on the marginal cost calculation.

Additional Enrollment Request
Marginal Cost of Instruction $6,389
Less: Fee Revenue (20% of Marginal Cost Calculation) -1,278
Net General Fund Support $5,111
Additional 1998/99 Enrollment Growth over Compact 7,740
Net General Fund appropriations requested (7,740 FTES x $5,111) $39,559,140

The marginal cost of instruction is based on average funding per FTES - discounted for fixed costs - provided for the programs of instruction, academic support, student services, and institutional support. The methodology recognizes the cost of instructional equipment based on annual depreciation replacement costs but excludes financial aid and physical plant operations. The cost for instructional faculty included in the marginal cost total is based on compensation for entry level faculty at step 5 on the CSU salary scale.

The 20 percent calculation for projected fee revenue is based on historical CSU funding trends.

V. Conveyance of Camarillo State Hospital and Developmental Center

To open an expanded off-campus center on the site of the Camarillo State Hospital and Developmental Center, $11.8 million will be needed to fund 1998/99 operations and renovation costs. CSU has identified $4.9 million of its resources, plus an additional $400,000 from projected lease and development revenues from that portion of the site not required for CSU use, to offset these costs. The remaining $6.5 million is requested from the state to complete conveyance of the property. It is the minimum requirement of state funding needed. The Camarillo conveyance is another joint project between the state and CSU for the effective reuse of surplus property.

Revenue Loss Chart

VI. Revenue Restoration for AB 1318 Fee Rate Reduction

AB 1318 reduces fee levels for undergraduate resident students by five percent for the 1998/99 academic year. The rate reduction reduces CSU fee rates by $78 for full-time and $42 for part-time undergraduate students. Fee rates for graduate students will remain at 1997/98 levels. AB 1318 includes $19.4 million to restore revenue loss resulting from the rate reduction.

Revenue loss for CSU base enrollment of 258,000 FTES totals $19.2 million. The loss is calculated on the basis of what CSU would be budgeted to receive at current fee rates and what is projected to be received at reduced fee levels.

Budgeted enrollment growth of one percent in 1998/99 would result in an increase of 2,580 FTES for a total of 260,580 FTES. The increased enrollment would have generated additional revenue of $4.8 million over the 1997/98 base enrollment level had the state not reduced resident undergraduate fee rates. As a result of the fee reduction, CSU projects fee revenue from 1% compact enrollment growth of $4.7 million - a $154,000 revenue loss. When added with the $19.2 million revenue loss on base enrollment, total General Fund restoration required for AB 1318 implementation is $19.4 million.

VII. Enrollment Growth Revenue Increase

Student enrollment growth of 2,580 FTES will generate an additional $4.7 million in State University Fee revenue, after reducing undergraduate fee rates by 5% in accordance with AB 1318. Of the $4.7 million revenue increase, $1.6 million will be set aside for financial aid in accordance with CSU budget policy.

Enrollment Growth Chart

In addition, CSU has requested enrollment funding for 7,740 FTES above the 1 percent compact funding commitment. Revenue associated with this additional enrollment has been calculated at the marginal cost of instruction standard. Of the $9.9 million projected increase, one-third of the additional fee revenue, $3.3 million, will be set-aside for the CSU State University Grant program.

Enrollment Growth Above Compact Revenue Increase
Marginal Cost of Instruction $6,389
Less: Fee Revenue (20% of Marginal Cost Calculation) -1,278
Net General Fund Support $5,111
Additional 1998/99 Enrollment Growth over Compact 7,740
Projected Fee Revenue (7,740 x $1,278) $9,891,720

State University Fee

Stability and predictability are the main tenets of the CSU's State University Fee policy. These beliefs have been the rule, not the exception, in recent years. The stabilized fee rates come in large part as an outcome of the state's implementation of the Governor's four year funding compact established in 1995/96. Prior to this compact, the state's fiscal problems resulted in general fund appropriation reductions amounting to $208 million from 1990/91 to 1993/94. Under the terms and conditions of the funding compact, the CSU and its core constituents - students and their families, faculty, and staff have benefited tremendously.

Prior to the compact, reductions in state appropriations required cutting back historical levels of funding support and increasing state university fee rates - from $780 in 1990/91 to $1,584 in 1994/95. As the graph below indicates, since the compact has been in place State University Fee rates have stabilized. In 1998/99, fee rates will be reduced by 5 percent for resident undergraduates students. As the state's economy improved, the Governor and Legislature provided CSU with the funding needed to maintain fee levels at their 1994/95 levels.

Between 1990/91 and 1997/98, CSU's maximum State University Fee rate has grown from a low of $780 in 1990/91 to $1,584 in 1994/95 (where it has remained for four years). In October 1997, the state reduced the maximum fee rate for resident undergraduates by five percent (to $1,506) for the 1998/99 academic year. The legislative vehicle for the reduction, AB 1318, provided funding of $19.4 million to restore the loss of CSU base revenue. As requested by the legislature when AB 1318 was crafted, the $19.4 million General Fund requirement is based on no reduction in CSU State University Grant funding previously provided from fee revenue.

Fee Levels Chart

History of State University Fee - 1990/91 to 1998/99
Year State University Fee Amount of Change Annual Percent Change
1990/91 $ 780 - -
1991/92 $ 936 $156 20%
1992/93 $1,308 $372 40%
1993/94 $1,440 $132 10%
1994/95 $1,584 $144 10%
1995/96 $1,584 0 0
1996/97 $1,584 0 0
1997/98 $1,584 0 0
Undergraduate $1,506 $ -78 -5%
Graduate $1,584 0 0

State support for no growth in State University Fee rates during the compact years (1995/96 through 1998/99) has resulted in CSU mandatory fee rates ranked the lowest among the 15 public institutions used for national comparison purposes.

97/98 Fee Levels

Fee Level Comparison Chart

The table above shows CSU mandatory fee data relative to its public comparison institutions for the past three years. In each of the three years, CSU fee rates have ranked consistently among the lower third of the comparison institutions and for the past two years they have been the lowest among comparison institutions. It should be noted that the fee rates shown include campus-based mandatory fees. For CSU, mandatory fees for 1997/98 were - on average - $362 above the State University Fee level of $1,584./p>