This report describes the effects of the recession in the early 1990s on institutions of higher education in California including large budget cuts, student tuition increases, enrollment reduction of 200,000, growth in student loans, and lack of state policy. This report recommends that a new compact between the state, the colleges and universities, and the students and their families. California policymakers and citizens are urged to: (1) create a public compact of shared responsibility to maintain opportunity and quality in higher education; (2) expand the use of existing campuses and facilities; (3) utilize the capacity of California's independent colleges and universities through student financial aid programs, rather than building more public institutions; (4) increase student fees modestly to contribute to the support of additional undergraduate students; (5) eliminate mediocre quality and low priority programs and reallocate resources to those of highest quality and priority; (6) accelerate student learning before and during college; (7) establish an incentive fund to encourage cost-effective use of electronic technology for instruction; (8) base college admissions on assessment of achievement; (9) assess student learning; (10) assess the knowledge and teaching skills of new teachers; and (11) deregulate colleges and universities. A supplement explains specific strategies for each recommendation and describes shared responsibility approaches taken at other institutions. (Contains 18 references.) (JLS)