Media Teleconference 5/5/09

Moderator: Ladies and gentlemen, thank you for standing by. Welcome to the Press Conference call. At this time all participants are in a listen-only mode. Later, we will conduct a question and answer session. Instructions will be given at that time. I would now like to turn the conference over to our host, Claudia Keith. Please go ahead.

Claudia Keith: Good morning, everybody. This is Claudia Keith, public affairs here at the Chancellorís office. We appreciate you joining us today. Iím going to introduce the folks that will be participating in the press teleconference.

Just a couple of housekeeping things, as the operator said weíll have two speakerís kind of give a summary of the board items and talk about the budget and student fees, and then weíll open it up for questions. Just to facilitate when weíve got a number of participants you will press, I think sheís been giving instructions on how to get into queue for questions. The operator then will say, ďThis is Sue SmithĒ from whatever publication, whatever media outlet who has a question and then you can give your question. So hopefully weíll get everyoneís questions answered that way and it will be orderly.

So, I want to introduce Chancellor Charles Reed. He is the head of our California State University system, and Robert Turnage, who is our assistant vice chancellor for budget at the system office. Robertís going to start it off by giving a short summary of the board item thatís going before our board next Tuesday on student fees as well as the budget outlook, so Iím going to turn it over to Robert.

Assistant Vice Chancellor of Budget Robert Turnage: Thank you very much, Claudia. We are going to be going to the board next week with a number of recommendations on fees and really is something that comes out of the context of the budget, which is as we do at every board meeting weíll be reporting on the status of that as well. But itís no surprise Iím sure to any of you that the stateís budget is really, for the last year, been in a crisis mode and there have been successive rounds of cuts on state programs, including the California State University.

In the midst of this crisis, the legislature and the governor did adopt a budget for the coming fiscal year back in February; an unusually early development and already one thatís beginning to look a little shaky based on the latest revenues to the state. But that budget that was adopted by the governor and the legislature back in February assumed that our system would be raising fees by 10%, which in the case of our undergraduate full-time students would be $306. That is an action that needs to be actually taken by our board. So based on that budget weíre going to be going to the board next week and recommending a 10% increase in the fee for undergraduates and for our graduate students and also for our teacher credential program participants. In each case, itís a 10% increase. And as I said, for undergrads who attend on a full-time basis that would be $306 per year.

Now, I think itís very important to understand, again, the context of the budget, the fact that we are really highly dependent on the revenues that are generated from student fees and weíre becoming increasingly so over time. In the last decade, if you adjust for inflation and you measure on a basis of per student, the funding that the stat has provided the CSU per student for the last decade has declined by 25%. So when you have that as a backdrop, that fundamental trend, and you have the need to serve students and to serve them with a quality academic program, you have to turn to fees as a secondary resource, and thatís what we have been doing.

I think itís also important to understand that we have very strong financial aide programs in place; that we strive to protect as much as possible the affordability of the university for our students, particularly for our financially-needy students. And as part of that policy, one-third of the revenue that would be raised from this fee increase is going to be set aside to be given as grants to financially-needy students. That will enable us to offset, dollar-for-dollar, the entire fee increase for a very large number of students. In fact, we have among our undergraduate students we have about 105,000 undergraduate students who are going to be getting what we call the state university grant. Thatís going to offset, dollar-for-dollar, the increase. In fact, it offsets dollar-for-dollar the entire state university fee, of which with this increase will be $3,354.

We also, in addition to those 105,000, we have over 62,000 undergraduates who receive Cal Grants from the student aide commission. And again, same situation, completely offsets the entire fee and the entire fee increase. We have over 15,000 undergraduates who receive waivers of fees based on various programs. And then if you also include graduate students who receive either grants or fee waivers, we have over 200,000 of our students who are going to be completely protected dollar-for-dollar on this increase. So, I think, again, we strive to do everything we can to maintain affordability.

If you look at our overall universe of financial aide recipients, 80% of them are going to be covered in this way with grants or waivers. The other 20% are going to have their fee increase covered by additional loans or work study arrangements; other forms of financial aide. And even when you look at the sticker price that even more affluent students are going to be paying, again, itís $3,354 for a full-time undergrad, if you include the various campus-based fees that the different campuses have, on average what you would be talking about would be $4,155. That would be the sticker price for all the fees for a full-time undergraduate student on our system. And if you compared that to the public university systems that are part of our comparison group, that this is not a comparison group that we put together, itís a comparison group that many years ago was selected by the California post-secondary education commission, so a neutral third-party, if you look at that $4,155 is way below any of our comparison institutions. So we are remain a very affordable university. So thatís some background on the fee recommendation weíll be making.

There is, also, in next weekís agenda item there will be a separate item that deals with some special resource needs that we have in our graduate MBA programs, where in order to maintain quality and accreditation we are going to recommend a surcharge to be provided for the MBA programs. That surcharge would be $210 per semester unit and $140 per quarter unit. With that increase weíre going to redirect 25% of the money thatís raised into additional financial aide.

So, I just wanted to provide some basic background statistics for you and then turn it over to the Chancellor.

Chancellor Charles B. Reed: Robert, thank you and as Robert said, next week at the board of trusteeís meeting I will be making a recommendation to the trustees to increase our overall fees for the California State University students for the 2009/2010 academic year 10%. And as Robert said, thatís $306 or $153 per semester.

Let me talk a little bit about the stateís economy and the budget outlook on a short-term basis and also I want to kind of end up talking about why I believe California needs to make a long-term investment in higher education. Iíll briefly just add a little bit more to what Robert said about financial aide. I also want you to know that beginning back in September and then again in January, I instituted several belt-tightening measures for all of our campuses in our Chancellorís office and Iíll share that with you.

The budget outlook, I was in Sacramento yesterday and met with the legislative leadership most all day. Californiaís economy continues to decline. Unemployment continues to increase. Revenue and tax collections continue to be under-collected based upon projections from last November and December. It appears that for the 2009/2010 budget, right now that there could be as much as a $10 billion deficit; $8 billion you all have already written about, the LAO announced that about 4-5 weeks ago, but since that time the income tax collections, sales tax collections, and corporate tax collections have been down approximately $2 billion. So thatís ten.

On May 19, there will be a vote on Propositions 1A through 1E. Our board of trustees did take a position of supporting those initiatives because in the short-run they help the budget and help fund California State University. If those initiatives fail that will add somewhere between $6-8 billion to Californiaís deficit. That would make it $16-18 billion, which would be a big number. We all know that everybody will be cut, especially higher education since we are a discretionary part of the budget. I understand that these are tough times financially and everybody has to do their share, but we have about 460,000 students to educate and thatís what I really worry about.

Next week, raising student fees is a difficult choice, but we have to make that choice in order to serve the 460,000 students and maintain as much quality as we possibly can. As Robert said, about half or a little more than half of all of our students will receive some type of financial aide and many, if not most of those students, will not pay any fees at all, as Robert reported. One of the things that I know is that students who receive need-based financial aide, 80% of those students in the C-issue will not pay any fee. Weíre able to say that if a student in the CSU comes from a family who makes $75,000 a year or less will not pay any fees. Now that is what I consider one of the best financial aide programs in the United States. The legislature and the governor and our board have supported those financial aide programs for years since I have been here. We have put 1/3 of our fee revenue back into financial aide, and I think that is a great public policy.

We also this year are fortunate in that the Obama administration has increased Pel Awards for most needy students. The Pel Award is going to increase this year to $5,350 and approximately 130,000 of our students, the CSU is the largest recipient of Pel Awards in the United States. We will take in a little more than $81 million more for our Pel students in this next year. And the year following, they will go from $5,350 to $5,500, which is about $25 million more in year two.

Our fees now are among the lowest in the United States. They are the lowest among our peer comparison institutions. When I first came to California, Nevada used to be at the bottom of the barrel, and so Nevada has passed us and now fees in Nevada are $1,000 more per year than they are in the California State University.

As I indicated to you back in September, we saw this economy declining rapidly and again in January, and we put in several belt-tightening restrictions like travel restrictions at our campuses. We have deferred making maintenance work on our facilities. We have put in place a hiring freeze in the Chancellorís office and on the campuses, so that unless it is a very necessary position, we are not filling those positions. I have frozen salaries for vice presidents, presidents, vice chancellorís and the chancellor. So weíre looking at our budget and every place that we can anticipate savings weíre trying to put that in place.

We will be reducing our overall budget for 2008/2009, the year weíre in, and 2009/2010 by approximately $600 million. And so those are pretty heavy cuts when you have 460,000 students.

Yesterday, as I said, was C-issue advocacy day in Sacramento, and one of the things that I said yesterday was I want the public policy folks in the legislature and the governor, the state chamber types, local government to step back on the long-term and ask a question. That is, what kind of California do we want? Do we want an educated California that has a good economy, good communities or do we want to go the other direction? The Public Policy Institute estimates that by the year 2025, California, at the current rate, will be one million workers short of having a bachelorís degree in order to be economically competitive on a worldwide basis. I think you all know that President Obama has set a goal that by 2020, America will have the best educated workforce in the world and we will have more people with a bachelorís degree than any other country on a proportionate basis. Well, if weíre going to get there, there needs to be some long-term investment in higher education.

Let me stop there and ask Claudia to kind of open it up for your questions.

C. Keith: Operator, if you could go to the question and answer mode. Just a couple of things to note, we have Allison Jones here who is our assistant vice chancellor for student academic support for Christianís on financial aide. I also wanted to let you know, a lot of the information on financial aide, a link to the board items and a whole host of other information is on our Web site. You can get there by going to our home page at And click on Budget Central, weíll be updating with a lot of information, but thatís a good place to start.

With that, weíll open it up for questions.

Moderator: Thank you. Our first question comes from Matt Krupnick with Contra Costa Times.

M. Krupnick: I was wondering if the chancellor could talk about, since the state was basically assuming that the university would raise fees even before the latest crisis, they had been sort of assuming a fee increase for a lot of years now, do you feel a sort of hopelessness about the situation youíre in where youíreÖstudents year after year?

Chancellor Reed: Matt, I donít feel hopelessness. Itís a reality that the world is in an economic downturn. California is in an economic meltdown and you need revenue in order to operate these institutions and to serve 460,000 students. I feel very comfortable making this kind of a recommendation in the sense that we know weíre going to serve almost 460,000 students; weíre going to do it with as much quality as we can; and weíre providing for the neediest students as much financial aide as any university system that I know of in the country.

Moderator: Our next question comes from Ruben Moreno with La Opinión Newspaper.

R. Moreno: Good morning. I have a couple of questions. Would the university be considering to decrease the fees once the deficit in the state is over? My second question is maybe for Allison Jones, itís regarding the financial aide provided by the Ö Do students have to pay back the money once they get the BA or is it free money?

Chancellor Reed: Ruben, Iíll answer your first question about decreasing fees. That has happened only 2 times in the 12 years that I have been here. Although there have been times where the fees have not been increased, about three years ago, Governor Schwarzenegger put in his budget and the legislature agreed the replacement for any fee increase from the general fund money. Back in the early, I guess, Ď99/2000, the governor recommended a fee decrease and filled the hole with state general funds. That doesnít happen very often, but it could in the future if the budget is healthy, the economy is good and the revenue is there.

Assistant Vice Chancellor of Student Academic Support Allison Jones: Ruben, on the financial aide question, when it was described earlier about the fact that those receiving need-based aide, 80% would not pay any fee increase, that fee increase is actually covered through grant assistance. That is funding that the student does not ever need to repay or to work or earn. It represents an increase in the federal Pel grant that the chancellor described as the state university grant, which is the California State University where we put 1/3 of the fee increase revenue generated back into our own grant program, and the continuing commitment of the state of California to increase the Cal Grant program to offset the fee increase. With the last component being then the fee waivers that Robert Turnage referenced earlier.

So weíre talking about a gift or grant aide. That is, there is no repayment responsibility for those students.

R. Moreno: What is the increase for the students getting Master degrees, $210?

Chancellor Reed: Thatís for the MBA. The increase is $210 per semester unit.

R. Moreno: Thank you.

Moderator: Our next question comes from Terry Chea with Associated Press.

T. Chea: How will CSU be impacted if those five ballot measures fail to pass on May 19th? What kind of additional cuts do you think students and faculty can expect to see if they donít pass?

Chancellor Reed: The consequences of the initiatives failing for the first year is approximately $6 billion. If we are currently in a deficit situation of $10 billion, then thatís where the $16 billion overall state budget deficit will be. What we at the CSU are doing is weíre looking to the 19th of May and May 28th is when the governor will issue the May revise. Weíre trying to anticipate those reductions and we are looking at all the different alternatives that we will have to reduce our budget.

T. Chea: Can you say more specifically what kind of options are on the table?

Chancellor Reed: Let me just say that when you have a budget that is as large as ours, with 80% of our budget being tied up into personnel, weíve got to look at different personnel decisions. Then two, as Iíve indicated, weíre going to be cutting back as much as we can on our expense items, like travel, large purchases, maintenance, repair, all of those different functions will be looked at and be available to be reduced

T. Chea: Do you have any estimate about how big of a budget cut, what percentage CSU might face?

Chancellor Reed: No, we donít, because we donít have the information that we need and thatís one of the tough things about where we are is not having the information to base your plans on. We anticipate that that will not occur until after the 28th of May.

T. Chea: But I guess personnel might be the area that....

Chancellor Reed: ...percent of your budget is tied up in personnel, weíll certainly have to give that a hard look.

Moderator: Our next question comes from Jim Doyle with SF Chronicle.

J. Doyle: With the state budget in a crisis mode, or what you described as a meltdown, and more planned fee increases for students and cutbacks for the number of CSU instructors, why does our salary greatly exceed the salaries set for the governor of California? And have you considered taking a salary cut?

Chancellor Reed: Jim, the board of trustees make a decision about my compensation, so thatís not my responsibility. So that is the responsibility of the board of trustees.

J. Doyle: A followup question, the CSU has an in-house governmental affairs unit in Sacramento that costs more than one million dollars a year to run. Why did the CSU pay hundreds of thousands of additional dollars a year to private lobbyists in Sacramento?

Chancellor Reed: The CSU needs coverage for a lot of different policy matters and budget matters that constantly come up in Sacramento and I want the CSU represented to the very best level that we can.

J. Doyle: Thank you, sir.

Moderator: Our next question comes from David Hasmeyer with San Diego Union Tribune.

D. Hasmeyer: Iím curious, when the UC system imposed its fee increases, the president discussed some of the increases being offset by tax credits. Throughout all of your discussion of the various financial aides that will be made available to Cal State students has there been any thought to potential tax credits?

Chancellor Reed: The answer to that is yes. We estimate, and itís only an estimation because you have to, the tax credit business is a complicated business. Itís not immediate; it would be next year. Families would have to on their federal income tax apply for the tax credit. We estimate that the tax credit for our studentsí families would approximate about $30 million, or thereabouts, if they apply for that. So Iím being corrected by Allison Jones saying itís $33 million.

Again, many of the families of CSU students come from middle and lower income groups and the tax credit is not as beneficial, shall we say, to those groups. But yes, to the extent possible we are going to educate students and their families to apply for the tax credit and we estimate that the families will get back about $33 million.

D. Hasmeyer: A quick followup. Address the students. Weíve heard the talk of the financial aide, but the reality is thereís still going to be a burden imposed on the students. So assume that Iím a 21-year old junior at SCSU whoís on my own without parental support, working for myself, tell me why this is going to be good. Tell me why itís important that I understand this and that I pay this?

Chancellor Reed: Well, I think you as an individual will benefit more than most people in society in California. Number two, youíre going to have to figure out how to support yourself by being able to raise the $153 a semester or $306 for the year. You can put that I think into your budget because you will know that when you graduate and get a baccalaureate degree that your estimated compensation for your lifeís work will be over a million dollars more than somebody who graduated from high school. So you as an individual will benefit by that, not counting all of the other extensive good that comes with a college degree.

So economically it is one great investment on an individualís part. And when you look around the country, look at Penn State, if you were a Pennsylvania citizen youíre going to pay $14,000 a year to go to Penn State. Look at the University of Virginia, Ohio State, the University of Michigan, I could go on and on, California supports their students as well or better than any other state that I know.

Moderator: Our next question comes from Josh Keller with Chronicle of Higher Education.

J. Keller: You announced earlier that you would be cutting enrollment systemwide about 10,000 students. My first question is, have those enrollments actually been carried out, do you expect enrollments to actually decrease by 10,000 systemwide? And secondly, do you believe any further enrollment cuts may be necessary? What would be a determinant factor in that kind of decision?

Chancellor Reed: Two parts to your question. Enrollment for 2009/2010, we did try to reduce our overall enrollment by 10,000 students. I think I can report to you that we failed at that. We believe that when we open up in August for the 2009/2010 year, we will have reduced our enrollment by only 3,000 to 4,000 students. And the reason for that is there is so much pressure back on us for eligible students who want to come to the CSU, the economy is driving students back to us because they canít get jobs. Some students who had not finished are coming back. Others are coming back to complete their degree. And also, weíre having more students stay with us because they donít want to leave because they canít get a job. And so all of those combinations I guess have made us a failure in a sense that we will only reduce our overall enrollment by about 3,000 to 4,000 students.

Going forward, thatís a part of our annual budget and enrollment planning. We will pretty much know where our budget for 2009/2010 is going to be and what 2010/2011 will be bringing us. So weíll make that decision, Josh, next August or September, or this coming August or September, about the 2010/2011 admissions. If we see continued decline overall with our budget, then Iím going to have to figure out how to constrain our enrollment.

Moderator: Our next question comes from Gale Holland with the L.A. Times.

G. Holland: I wondered if you had done any projections whether this increase is going to drive students out of your system and into the community colleges. And also, the plan that you have underway or the study that youíre making with the other system heads, have you come up with any idea how the community college is going to accommodate extra students.

Chancellor Reed: Those are good questions and theyíre tough questions. I would anticipate, but I have no hard data, that there will be some, a few, students who will make a decision that it is less expensive for them to attend their local community college and they will do so. We did not see any decline in our overall applications for admission. Thatís why we did not reduce our enrollment by the 10,000 that we had anticipated. We have looked back as far as 1990 and we have not been able to get the data to say that with a fee increase we see a decline in our enrollment, and the reason is is because of the generous financial aide program to the neediest students in California thatís in place. And in almost 200,000 of those students will not see or feel any fee increase. So when you have a system that provides that kind of financial aide, you donít see what happens in other states.

Your second part of the question about the system heads, the transfer initiative, itís early, early on. Theyíve had one meeting, but we will continue to participate and do the very best that we can. That is an area of efficiency that California as a state Ė UC, CSU Ė can certainly benefit from if we can work out a much more friendly, smoother system of transfer. And there, Gale, what would happen is students will take less credit hours to degree and get out sooner and pay less, and thatís the idea.

Moderator: Our next question comes from Laurel Rosenhall with Sacramento Bee.

L. Rosenhall: I was wondering if you could address this. I hear on the one hand I hear you saying that the state isnít funding the universities for the demand that there is from the public and that the state should, for its own greater good, invest in higher education. At the same time it sounds like youíre saying that this fee increase really wonít be so bad that many students wonít pay it at all. And for those who will pay it, itís a good investment in their future. So I was just wondering, in your mind, what is the appropriate amount that fees should go up every year given that everything gets more expensive every year? And what is the appropriate balance between the obligation of the state government and the obligation of individuals?

Chancellor Reed: Let me just say this, thatís almost an impossible question to answer in this sense. You canít anticipate how much something needs to go up unless you can look at the total picture. What I am saying is that the CSU is a good investment and a good deal, and we do cover most of the fee increase with the financial aide policies and the federal government Pel programs that are in place.

Overall, I would just tell you that for the last 25 years I have worked off of a general public policy that the state ought to fund or pay approximately 75% of the cost of oneís undergraduate education, and the individual who benefits pay 25%. Now, I think weíre about 22%, 23% and the state is picking up a little greater than 75%, but thatís an overall kind of general policy question.

The other thing is I have to recognize reality. California is broke and California government doesnít have the revenue to fund all of the different responsibilities and obligations that they have. Therefore, if I see that we need to do something to help the CSU serve more students and do it with quality, then thatís a tough decision that you have to make and recommend.

L. Rosenhall: So if right now students are paying about 22%...

Chancellor Reed: I think 22% or 23% the last time I looked.

L. Rosenhall: So actually the contribution of students and families should be going up according to your model, continue to go up.

Chancellor Reed: Again, I donít want to go there. Iím just giving you a general perception. If youíre in Pennsylvania, itís like 50/50. If youíre in Virginia, itís about 80/20, so different places have come up with different models. That comes from the 1970s when the Carnegie Commission made a recommendation.

Moderator: There are no further questions. Please go ahead.

C. Keith: I want to thank you all very much for participating. Again, thereís a lot of the information on our Web site on the home page in Budget Central. Thank you.

Moderator: Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconferencing. You may now disconnect.