Assembly Budget Subcommittee No. 2 on Education Finance

Good morning. We will begin today's Assembly Budget Subcommitee hearing on higher education. Today is the day we'll talk about the University of California and the California State University system and their budget proposals. As we know, we are here in room and 447 just a quick announcement that we'll likely take a break between noon and 130 for our democratic caucus. So depending on the flow, there may be public comment before, or we may have to wait till after the lunch break.

So again, we will discuss the UC and the CSU today, two pretty much status quo budgets, except for the significant 5% increase for each segment, which is part of the governor's pledge to each system, along with some performance metrics which we certainly get into. As far as some of the overall top issues of this Subcommitee and the Assembly for the past decade, access to the University systems at CSU and UC, we have some good news and some bad news.

The good news is that one of our top priorities for UC over the years is increasing residence enrollment for California students. We had a multi year quest and author legislation and it know kind of a battle, but we came to an accord four or five years ago and we've since now made that even more beneficial for California residents. So we had a decrease in the number of nonresident students by 1000, part of our quest there, and adding 1700 California students in their place.

The other good news is that we are now committed with the Administration to have an annual amount of enrollment growth. In prior years, we had a battle every year to put money in there for enrollment growth. Now it's kind of De facto floor, and again, we see it as a floor. Potentially we can go above that. So those are the positive news.

The unfortunate news is that, as we heard from President Drake last month during an overview hearing, the UC wasn't quite as successful as increasing full time equivalent students, even though they were admitted in large part. He made the point that just basically the course load and the FTE numbers, even off by a fraction, did have an impact of having over a thousand fewer students at the UC.

We want to hear about update on that and how we can not have that happen again so we can essentially get more Californians, qualified Californians, into the UC system. We'll also be discussing other UC issues, including the governor's proposal to delay some capital projects and the idea to have UCLA adopt new transfer programs. We've already discussed this.

I think there is a better way to go about this, making it UC wide, but more importantly, having a seamless transfer system for students to go to either UC or CSU if they're community college students and wish to transfer. Lastly, for CSU, we are concerned about the drop of enrollment. CSU missed their enrollment by thousands of full time students and look forward to hearing from CSU as far as how they intend to grow in the future.

And we'll get an update on the Humboldt campus and their one time money we gave them in 2021. With that, let's get going with our agenda. Issue number one, the University of California Enrollment. Okay, we will start with Department of Finance LAO and then the University of California.

Good morning chair and Members Gabrielle Chavez with the Department of Finance. The University of California is suspected to enroll 292,891 students in 2023-24 of which 237,811 will be California's residents. System wide tuition and fees for undergraduate residents will be 13,752. And although the University is still experiencing the aftermath of the Covid-19 pandemic, which includes lower rates of transfer, students enrollment, summer enrollment decline, and students enrolling fewer units, which then lowers the count towards enrollment on an FDE basis.

Working on a plan to increase enrollment growth and we remain confident that the UC will achieve the compact goals. In following consultations with the segments, we believe the UC is working in good faith to achieve these goals. The Administration is closely monitoring enrollment and it expects the UC to grow residence undergraduate enrollment by 1% as indicated by the multi year compact. Happy to take any questions.

Okay, thank you LAO.

Thank you very much, Mr. Chair Members Ian Klein with the Legislative Analyst Office. Our comments on enrollment begin on page seven of your agenda, and we have a few comments here and recommendations that I'll go through briefly, the first of which is we are going to recommend the Legislature adopt a budget solution related to lower than anticipated resident undergraduate enrollment growth.

The 22-23 Budget act specified that UC was to grow undergraduate resident enrollment by a certain amount by 2023-24 of which 51.5 million was provided for them to accomplish this goal. Budget Bill Language also specified that if UC did not hit this target by 23-24 that funding could be reduced in accordance with what the actual enrollment level turned out to be. UCA has identified that it is not going to be hitting this enrollment target, and as such, we have calculated that difference.

They were provided 51.5 million to achieve this goal, to be roughly 8.6 million that could be saved if we were to align that funding with the actual enrollment amount. If the Legislature wishes to go further, it could also reduce that funding the 51.5 million completely, as UC does not anticipate it will enroll these students in the 23-24 year. There are future concerns with respect to UC enrollment.

This concerns high school graduation rates declining as well as mixed results with respect to transfer and retention of students. Given this uncertainty, we recommend that the Legislature specify the level of growth for 24-25. It can't currently be done for the 23-24 cycle as admission packages are already being produced. However, the 24-24 cycle is the first cycle upcoming cycle where the Legislature could influence this level of enrollment.

In setting enrollment expectations, the Legislature could use UC's planned enrollment growth as shown on page six of your agenda, or could adopt a higher or lower level than that. With respect to nonresident enrollment at UCLA San Diego and the Berkeley campus, we recommend you approve the $30 million General Fund augmentation. UC is likely to meet the 22-23 level, and this action is consistent with state law and recent budget actions.

With respect to graduate enrollment, the compact identifies that UC is to grow graduate enrollment by 2500 students by 2026-2027. Typically, graduate enrollment is based off of workforce needs in the states. The Legislature could set a target for 2024-25 if there are specific workforce priorities, or the current approach could still work if there are no current priorities.

However, we do recommend that the Legislature seek better information about how UC will cover the anticipated costs of the increase in graduate students, as these students typically don't cover their operating costs. This could further worsen UC's operating budget shortfall. Thank you very much. I'm happy to answer questions.

Thank you. Next, let's hear from the University of California.

Good morning, Chair McCarty and Members of the Committee. Thank you for having me here today. I'm Seya Vertan for the University of California. We're thankful to Governor Newsom for his commitment to the compact expressed in the budget introduction for the University we request that the Legislature support the governor's proposed budget for the University of California. We are committed to growing access for California students. We want a highly educated workforce that reflects California's population.

We recognize that economic security and educational opportunity are connected and that access to the University of California will give our future students the chance to pursue excellence. During the last year, when the majority of higher education institutions saw declines in Enrollment, our California undergraduate headcount increased by about 1800 in fall of 2022 compared to fall of 2021, but our FTE declined slightly.

While UC campuses had intended to increase student FTE for the current year, UC, along with other segments, is still experiencing effects from the pandemic, particularly when we look at summer enrollment, community college transfers, course taking activity, and first year retention for summer of 2022. That is the leading quarter for the 2022-23 year.

While summer enrollment was above the pre pandemic levels, it was still lower than prior year 2021 when students had fewer options to work or travel and were more likely to enroll in summer sessions. Incoming transfer enrollees also declined by over 2000 students for fall of 2022. This decline was due largely to the significant decline in community college students during the pandemic, which led to fewer students applying to UC and CSU. At the University of California, we also saw a decrease in the courses students were taking.

On average during the pandemic. Undergraduates took more courses when offerings were remote and there were limited options to do anything else. Because of that, the number of students didn't need to take as many courses to complete a degree. So between 2021 and 2021-22 the average student credit hours dropped between 0.3 and 0.4 units per quarter. While that doesn't seem like much spread over nearly 200,000 students that resulted in a decline in FTE.

Finally, the University has also been about 1% decline in both freshman and transfer retention rates. The campuses are currently looking into why this decline occurred, but we are hearing that some Pell and first generation students are having to stop out to work and care for family Members, and campuses are actively trying to support them to return to complete their degrees. All these factors combined led the University to have Flat Fte enrollment when we initially had plans to grow.

Looking into the future, the University's compact with the Governor calls for a 1% increase to the University of California's undergraduates annually for the next four years. This is in addition to the Budget Act of 2022, California undergraduate enrollment growth of 4730 fte that the Legislature already funded and the nonresident student replacement at Berkeley, LA and San Diego. Together, these proposals would significantly grow the University's enrollment over the next year. The University plans to increase enrollment in 2023-24 year by 4200.

California undergraduates, including nonresident replacement campuses, are starting to see improvements in unit taking activity that could yield greater fte, and we have seen some improvement in transfer first year retention rates, and we are working with campuses to increase summer opportunities as much as possible.

We are committed to achieving growth targets established in the Budget act of 2022, although doing so will take a bit longer than anticipated due to the pandemic related challenges, the Governor's Budget includes 30 million for the University to continue replacing nonresident students with California students at the UC Berkeley, UCLA and UC San Diego campuses. We appreciate this funding of the Legislature's directive and look forward to continuing the successful program for increasing undergraduate enrollment.

The University also has plans to grow graduate enrollment through the compact with the Governor and UC's 2030 capacity plan. The University is also requesting 1.8 million for the DDS Aspire program, which would provide the kind of highly specialized outreach and training to dental school students that we currently provide to medical students through the prime program. This program would allow for the addition of 42 dental students to the UC San Francisco campus.

Recognizing California's need to increase access to the University, President Drake established a council of Chancellor's working group to examine options to increase enrollment capacity through 2030. The 2030 capacity plan calls for the University to expand California undergraduate enrollment by over 17,000 California undergraduates by 2030. Half of this growth would take place at UC Berkeley, UCLA and UC San Diego, in part due to the nonresident replacement. UC Merced and UC Riverside would also grow significantly if they can construct new classroom space to educate the incoming students.

University, the Legislature and the Governor are all aligned in our interest to expand enrollment of UC. The University of California can grow, but it needs to be intentional about that growth to address California's needs. We are ready to open our doors to more students in a responsible way, reflecting California's population and workforce demand.

We also need funding ready to support these students when they arrive and look to the Legislature to approve the governor's proposed base budget to increase that support of the 23-24 proposed enrollment growth. Thank you. Ready to answer questions?

Okay, thank you. Questions from Committee Members. Mr. Alvarez, good morning.

Thank you. Thank you for the report. I'll probably have the same questions for both systems, but I'm just trying to make sure I understand the enrollment situation in the 22-23. We have a lower than expected enrollment at this point. Is that correct?

That is correct.

And the expected enrollment was 200,000.

We anticipated adding about 2500 students FTE and while we did grow our headcount because our students were taking fewer courses, our FTE actually dropped.

Tell me the number again. You were hoping to grow by 2588 and you remain flat?

That's correct, sir.

Thank you. And then in the current year, or sorry for budget year 23-24 your anticipated enrollment is still at the same level of 21-22?

No, we actually are hoping to grow by 4200 FTE.

So you're hoping to make up what you didn't gain in the current year and also grow the additional 1%?

Yes, we intend to grow by the compact amount to do the 900 student nonresident replacement and then grow by a little bit additional.

Let me ask the LAO, because the report says that your expectation is that they're not going to grow.

That's right. That's based off of what they had already submitted to what's included in the governor's proposal. As they had just mentioned, they're expecting growth of 4200. We believe that the compact identified that there was the 4700 that they previously mentioned they were supposed to grow for. This is outside of the compact. Then there was the compact 1% growth, which was a roughly 2000 FTE. And then additionally there was the 900 nonresident students that were to be replaced. So there were sort of those three components that we were looking at.

And is that how you calculated the 51.5 million from current year? 22-23. In terms of the enrollment growth, that did not happen.

So that 51.5 comes directly from the Budget Act. UC was provided 51.5 million to grow resident undergraduate students by 4730.

Okay.

By 23-24.

Given the number of rejections of students at the UC system, why are we not able to fully enroll to the expected numbers?

The University of California admits as many qualified students as we are able to. We have to balance our ability to admit students with the campus's readiness to have faculty and other instructional staff ready to teach courses. And so each major may have different demand for it. So there are some majors to which students want to go more than others that may have higher rejection rates because they haven't yet been able to hire faculty and grow those majors.

They also need the classroom space to be able to instruct the students. And so the campuses do try to grow responsibly. They also look at the amount of available student housing that they have so that they can responsibly receive those freshman applicants and transfer applicants who want to come to the campus, and they determine the amount of students they think they can take.

They make more admissions offers, expecting that students don't necessarily take all those admissions offers, and then that's how they determine the enrollment level for the next year.

I completely understand it's both an art and a science to try and do that, and it's a challenging task. But it now seems like it's at least a couple of years of lack of enrollment growth. And I understand you're hoping that you make up for it, but what exactly is going to happen at the UC to ensure that the enrollment growth occurs? And since you have begun the acceptance process for next school year, what are the actions that are being taken?

How are you analyzing classroom space, desired majors and all of that to make sure that we do grow by the expected growth.

The campuses have carefully analyzed how many students are going to be graduating, so how many students can be replaced. And then in the growth, they look at the amount of faculty that they have available to be able to teach those courses and how much they can stretch those majors. And we are confident that we can hit the 4200 student enrollment level, but we don't think that we can go much beyond that.

So if it's the number is 4200 of growth this year, which seems to be a little bit, perhaps different than was presented in the budget in January, has the LAO been able to analyze that and what that means in terms of the potential unutilized funds for enrollment growth?

Yes. Jennifer Pacella Ledge Analyst Office so just to echo what my colleagues said a moment ago, in 22-23 there's 51.5 million that the state provided in the 22-23 Budget act, and there's no additional students. UC has just conveyed that they expect a slight drop in 22-23. So that could be considered an option for you. In 23-24 they're suggesting they can grow 4200 students. States already provided them funding for about 4700 students.

We just looked at the differential being about 500 students less than that target. That's 8.6 million. That's another option for you. You can do both. You can take the current year option of 51.5 million and the budget year option of 8.6 million, and then you can monitor the situation in 24-25 the year that they're going to be planning for.

You could send a signal as to where you want them, and then you can monitor if they get there and provide some resources in the budget in 24-25 to Fund those students once they're there.

Okay, so it's clear to me now then underutilized 51.5 million in the current year, potentially 8.6. So what happens when these resources of this amount aren't utilized for the expected use from the Legislature, like enrollment growth? Does that get absorbed by the UC? Does it get returned to the General Fund?

What happens, sir, the budget act allowed the University to spend those funds on a one time basis on student advising and other student support services on our campuses to try to recover from the pandemic. So we used those funds for student support services on our campuses when we didn't have the enrollment. We were also allowed to do some pre hiring for faculty. So it takes us about a year to hire a faculty Member and we were allowed to prehire in anticipation of those students arriving.

So while we didn't get the students, we were able to put a stop to the decline in retention rates and we were able to hire some faculty so that we are ready for those 4200 students who will arrive next fall. And, sir, if I may just really quickly read some statistics for you. Since 2017, the UC has added about 11,000 California resident students.

So I just wanted to make certain that, you know, that we've been putting in some effort to grow and the Legislature has been really good about funding that enrollment growth, which has allowed us to do more steady enrollment growth.

Thank you. I appreciate that. I'd like to see more information and maybe ask the LAO. Look at the 51.5 million expenditure since apparently there was expenses made or programs that were where the funding was utilized. That would be helpful to understand where this stands. Thank you, Mr. Chair.

Yes. Mr. Muratsuchi has some questions, but let me just follow up on you, Mr. Alvarez, and those are some of the key issues that we start asking this fall, because I think if you follow the University, and I said this to President Drake, there's two stories that we always hear reading the LA Times, the Chronicle, whatever paper, record numbers of qualified students apply at a UC with way higher than a 4.0 GPA. That's story number one.

And a couple of months later, the same story usually LA Times by Teresa Watanabi comes out and says, record number of Californians denied. Right. And so that just is ingrained in our head. And that's the issue why we did the other actions. I mentioned the agenda because it's one of the top things we hear back home.

So it just begs the question, if we have too few students enrolling and we're rejecting a record number of qualified, why don't we just put some more of those qualified on the top and enroll more Californians? Like problem solved. But the President said, well, it's just because we had this slight drop in the FTE count, and that's because of a variety of reasons in the pandemic. So we didn't do more. And it's like art and science. I get that.

The key issue here is, was that a blip or a trend? If you're going to fix that the next year, that's fine. We lost that one year and we'll go and double up next year and enroll even more to make sure we don't lose that capacity for Californians. But if it's an ongoing trend, then you need to.