Cal State is still in the red despite tuition increase and spending cuts

By Mikhail Zinshteyn | CalMatters

California State University says it’s short $2.3 billion, a staggering budget gap that’s grown sharply since the system first revealed two years ago that it didn’t have the money to properly educate its students.

How the nation’s largest public four-year university system will generate that revenue is anyone’s guess, as annual tuition increases of 6% that kicked in last year and an influx of state taxpayer support have been insufficient to pay for Cal State’s growing labor, energy and education expenses.

The details of that cumulative gap were unveiled at the bimonthly Cal State Board of Trustees meeting this week.

More state support is increasingly unlikely, as California budget experts forecast multi-billion-dollar budget shortfalls worsened by severe federal cuts to major public safety-net programs, like Medicaid, and possible federal cuts to public research and financial aid.

The funding shortfall, which doesn’t include billions of dollars in building maintenance backlogs, is a large portion of the system’s roughly $9 billion operating budget.

“This growing gap demonstrates why we need immediate action to achieve financial sustainability,” said Jeni Kitchell, an assistant vice chancellor for finance of Cal State. “We cannot sustain our current level of funding, especially while operating from a position of underfunding.”

The system fought off a $375 million proposed cut to its state allocation this year, instead receiving a $144 million cut — a 3% reduction in its state support. Lawmakers are offering Cal State a zero-interest loan to make up for that cut and promised to restore the money next year.

Already Cal State has cut more than 1,200 staff positions across the system in the past two years, reduced student support staff by 7% and terminated 1,400 courses during a period of ongoing budget deficits.

Without an infusion of cash, the system will have to shift money from some of its initiatives — including improving graduation rates — just to cover mandatory costs, such as health care, insurance, utilities, financial aid and agreed-upon union raises, Cal State leaders said. In such a scenario, system documents show, campuses may have to continue the cost-cutting they’ve implemented, which has included layoffs, reducing job categories, cutting courses and leaving job vacancies unfilled.

This year’s budget gap is $164 million.

State promises of more funding ‘violated’

Some Cal State trustees said they are frustrated that Gov. Gavin Newsom delayed his promises of five years of increasing state support, which was supposed to total more than $1 billion. Only three years of that compact have been funded to date; the fourth, which was supposed to kick in this year, will instead be spread out between 2026 and 2028, lawmakers and Newsom decided in the most recent state budget deal. Lawmakers didn’t signal a fifth year of compact funding, though they may in next year’s budget deal.

“We were promised a five-year compact,” said Jack McGrory, a Cal State trustee. He argued that Cal State trustees approved 10% or more in salary increases for workers the past two years based on those promises. “We did rely on the promise, and the promise was violated, and that’s the story that we have to tell, and it’s unfortunate, and it’s going to put our relationships with the unions and our employees in a really bad situation,” McGrory added.

If the compact money or the $144 million state spending cut aren’t restored, Cal State won’t be able to grow student enrollment at a time when more high school graduates are completing the courses needed to be eligible for Cal State admissions. The system currently enrolls 460,000 students.

“How do we enroll more students if we do not have the resources to hire more faculty, to provide more staff support,” add mental health counselors and more free-food programs for Cal State’s largely low-income students, asked Patrick Lenz, the interim chief financial officer of Cal State.

Cal State has been trying to slow its spending. The chancellor’s office is cutting its budget by $18 million, or 8%, trustees learned at this week’s meeting. Several campuses in the Bay Area are consolidating their administrative offices to lower expenses. And last fall the system approved the merging of two campuses to avoid millions of dollars in new spending.

Unions say they’re owed raises

Meanwhile, thousands of employees are in a dispute with Cal State leadership over whether their union contracts guarantee them raises this year. The contracts say that if lawmakers fully fund the Cal State system, some of its workers get raises.

Cal State’s leadership says that because state lawmakers cut the system’s funding by $144 million, they can’t give raises. Unions say because the state is allowing Cal State to borrow that money as a zero-interest loan, the system is fully funded. Cal State says borrowing money isn’t the same as being fully funded by the state. System leaders also lack confidence that the state will repay the system for that 3% cut next year. If the money doesn’t appear next year, Cal State is stuck with a loan that adds to their budget crisis.

At least two state lawmakers are siding with unions. “Damn it, we are here to send a clear message. Do you hear us? Because guess what, if they don’t get what they deserve, we’re going to shut the s— down,” said Assemblymember Mike Gipson, a Democrat from Gardena, at a press conference outside the system’s headquarters Tuesday morning. He was addressing Cal State’s chancellor and other leaders who were assembled yards away for their meeting.

“With everything going on with ICE, we don’t need to add additional pressure on not only the students but the faculty here. They’re already traumatized. Our state is already traumatized,” Gipson added.

Assemblymember Al Muratsuchi, a Democrat from Torrance, said he stands in “solidarity” with union workers to “to call on the chancellor and the trustees to keep your promise.”

The California State University Employees Union, with 35,000 clerical, custodial and student assistant members, says that the raises they think they’re owed are worth $30 million more than what Cal State plans to give them.

Erin Foote, a vice president for organizing for the union, said in an interview that Cal State leaders should partner with the union in pushing for legislation or a ballot measure to ensure Cal State and University of California have guaranteed funding. “It costs millions of dollars to run a revenue measure, and we would need the CSU to be our partner,” Foote said.

Cal State’s cash reserves are at $760 million — enough to operate the system for a month.

How Cal State’s budget shortfall grew

How did Cal State’s cumulative funding gap grow from $1.5 billion to $2.3 billion since 2023? Chancellor’s office staff point to these latest budget realities:

• $143.8 million: the amount of Cal State’s cut in state support this year
• $310.5 million: the growth in labor costs
• $322 million: the budget shortfalls at Cal State’s campuses the past three years

In that same time, Cal State’s revenue grew, but not by enough to cover the increase in costs. State funding that goes to the system’s operating budget — the corpus of money to pay for its education mission — grew from $4.5 billion to $4.87 billion last year. State support is Cal State’s largest source of funding for its operations. And the system’s tuition revenue jumped from $3.24 billion to $3.53 billion. Combined, those are increases of almost $700 million, according to the system’s financial transparency portal.

Next year is projected to be more of the same fiscal hurt.

Cal State budget officials say that the system will incur $365 million in new, mandatory costs in 2026-27, including $63 million in increased staff health care premiums and about $160 million in wage increases. That amount doesn’t include growing enrollment by the 3,500 students that the compact requires, which would cost $56 million.

For Cal State to afford the new, mandatory expenses, the state would need to return the 3% cut and a portion of the compact funding the system was supposed to get this year. None of that is a sure bet.

The funding they can rely on is new tuition revenue: students will be charged another 6% increase next fall.