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Tidal Wave II: Enrollment Growth and Fiscal Constraint

The two most pressing issues facing California higher education now are the projected increase in student enrollment and a problematic state economy. Either alone would have significant implications for collaborative activity; their convergence presents an almost unprecedented challenge to state and higher education leaders.

“TIDALWAVE II”

The Master Plan promised higher education opportunity to all motivated and qualified Californians, but this promise will be difficult to keep given the probable future, when a “tidal wave” of potential students is expected. As noted earlier, this expectation of enrollment growth is in large part responsible for new state and segmental interest in transfers. The most recent (February 2000) enrollment projections of the coordinating agency estimate that more than 700,000 additional students will seek enrollment in California higher education by the year 2010—and these on top of the 2.2 million enrolled today. According to this projection, approximately 529,000 (or 76%) of these new students will enroll in the community colleges, many expecting to transfer to a four-year campus after completing two years (CPEC 2000b).

Current projections estimate that each of the public segments will experience substantial growth: 36% for the community colleges, 37% at the state university, and 32% at the university (CPEC 2000b). Many of these new students will come from populations that have been traditionally underrepresented in higher education and may require special, often costly, attention at the campuses. If, as we hope, efforts to attract them are successful, then the added expenses will compound the already serious problems of accommodation. Accommodating 700,000 additional students is a formidable task, even in the best of economic times, and now the economic outlook is problematic as well. Aneed for collaboration to help meet high enrollment growth may be compounded by state fiscal constraints.

FISCAL CONSTRAINTS

Every state economy has its ups and downs that impose relatively short-term fiscal constraint on funding for higher education. In the abstract, the best time for institutions to collaborate is in times of fiscal crisis. When state funding for higher education levels off or is reduced in a fiscal crisis—as in most states it almost always is—public institutions of higher education are expected to “do more with less” or at least to provide the same services with stable or diminished state funding. Collaborative sharing of resources could make state monies go further. Reality, however, is different. In this section, we emphasize California’s experience with short-term fiscal constraints, but note also that in a longer-term perspective, the intersection of enrollment growth with projected state revenues poses problems for many states.

In the early 1990s, California suffered an unexpected recession. The state did recover and enjoyed an unprecedented economic boom for the rest of that decade. Yet that recession was longer and more severe than any California had seen since the Great Depression. For higher education, the state’s fiscal crisis at that time meant that state general fund appropriations for higher education dropped for three consecutive years, from 1992 to 1994.

The state’s response to the recession was to shift its revenue shortfalls to state programs, including the institutions of higher education. The responses of the segments and their campuses focused on self-preservation, not collaboration. The Master Plan prohibition of tuition—a charge for instructional costs—had already been eroded by the increasing number and cost of student fees for other services, but finally, because of the recession, it was quietly abandoned, after 30 years. California reduced the number of students enrolled in public higher education by about 200,000 students, or 10% (callen 1995a, 1995b; Martinez and Nodine, 1997). In 1997, a group of higher education and state political leaders met to analyze that response. Robert Zemsky, head of one of the sponsoring organizations, summarized the conclusions of the group:

Both within themselves and in their relation to one another, the three sectors of the state’s public higher education system are functioning largely as before. . . There was not a drawing together in search of ways to pool downsized public appropriations to determine how the state’s higher education systems could best serve the needs of the state and its citizens despite their newly limited resources. Instead, each sector and its institutions responded primarily in ways that preserved its own values and purposes—even at the expense of its external constituencies. (California Higher Education Policy Center 1997)

In 2001, California appears to face another round of fiscal difficulty, one brought on by high energy prices, an ailing technology industry, and a foundering national economy. And this round coincides with the onset of the tidal wave of additional students. The governor’s recent response to reduced state revenues was to decrease the incremental funding set out in the partnerships with the university and the state university, the partnerships that included the commitments of state government and the public universities to improving transfer. These reductions halved partnership funding from four to two percent, reducing the university’s budget increase by an estimated $89.8 million, and the state university’s augmentation by an estimated $70.2 million (California State Department of Finance 2001b). The response of the segments to these reductions is as yet unclear.

These conditions make clear that for the long term, collaboration among the four higher education segments will be essential. In every state, to our knowledge, funding for higher education is largely discretionary—that is, the share of state expenditures to higher education is subject to “crowding out” by mandatory entitlements and formula funding of other state services, such as Medicaid, corrections, public safety, and elementary and secondary education (Callan and Finney 1999, 8–9, 35).

The longer term implications of this competition between higher education and other state services was probed in a report by the late Harold Hovey in 1999. His report examines higher education’s fiscal prospects by projecting both state revenues and state expenditures for eight years for all 50 states. Hovey concluded that increases in state revenues would not be sufficient to fund current levels of state services. He viewed the “crowding out” factor—higher education’s discretionary budgetary status—as more than simply a statutory, bookkeeping phenomenon. Rather, he attributed higher education’s financial position to the widely held political perception that, unlike other state agencies, higher education has great flexibility through separate budgets and reserves, through salary and programmatic controls, and of course, through the ability to maintain and even increase spending by shifting costs to students and families via tuition.

Short-term fiscal constraints, such as that of the early 1990s, are no longer simply isolated storms that briefly disrupt an otherwise smooth voyage. Rather they are warnings of a likely future of more difficult and chronic fiscal difficulties—of prolonged bad weather. Higher education leaders should start now to build collaborative arrangements that will help them weather the harsher climate to come.

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© 1998 The National Center for Public Policy and Higher Education