LAO Contact
Natalie Gonzalez

February 25, 2025

California State University

Introduction
Overview
Core Operations
Enrollment
Capital Fellows

Brief Covers the California State University (CSU). This brief analyzes the state’s budget plan relating to CSU’s core operations and enrollment. Under the 2025‑26 budget plan, CSU receives $9.1 billion in total core funding. Of this amount, about 60 percent comes from state General Fund ($5.4 billion) and 40 percent from student tuition revenue ($3.7 billion).

Under Plan, State Support for CSU Declines but Tuition Revenue Increases. The budget plan includes a $375 million ongoing General Fund reduction for CSU. CSU’s $375 million reduction is partly offset by a $75 million restoration and $178 million in targeted General Fund augmentations, mostly for pension and retiree health cost increases. Altogether, ongoing General Fund support for CSU decreases by $122 million (2.2 percent) in 2025‑26. After accounting for a projected increase in student tuition revenue, ongoing core funding for CSU would increase by 0.7 percent.

Budget Plan Also Includes Deferred Augmentation. The administration has a compact with the CSU’s Chancellor to provide CSU with 5 percent annual base increases from 2022‑23 through 2026‑27. The budget plan, however, defers the 2025‑26 increase ($252 million) until 2027‑28. As part of the deferral arrangement, the state would plan to provide CSU with one‑time back payments in 2026‑27 and 2027‑28.

CSU’s Spending Priorities Exceed Available Funding. A couple of years ago, CSU’s operating cost increases (particularly compensation costs) began outpacing its new funding. The same misalignment arises under the 2025‑26 budget plan. In response, CSU has begun making budget adjustments, including instituting hiring freezes and reducing nonessential expenses. Though CSU does not yet know how it would respond to the deferral, it would face more disruptive budget adjustments if it increased spending in 2025‑26 and then the deferred payments were eliminated or postponed. The state has not yet indicated how it would pay for the deferral.

CSU Is Directed to Grow Enrollment Without Additional State Funding. The 2024‑25 Budget Act directed CSU to increase resident undergraduate enrollment by 6,338 full‑time equivalent (FTE) students in 2024‑25. CSU reports that it is exceeding that expectation—growing by an estimated 9,326 resident undergraduate FTE students. The 2025‑26 budget plan sets expectations that CSU grows by an additional 10,161 FTE students in 2025‑26 (and again in 2026‑27). Yet, no associated state funding is provided to support that additional enrollment.

Recommend Signaling More Realistic Budget Expectations for CSU. Given the state is projected to face operating deficits over the next three budget years, the Legislature could face the difficult decision of either cutting other ongoing state programs to make room for CSU’s augmentations, or, alternatively, forgoing or further postponing those augmentations. Rather than instituting deferrals, we recommend the Legislature wait until the given budget year to make changes to CSU’s funding. This would provide a more accurate funding expectation for CSU and would be a more prudent and sustainable approach for both CSU and the state.

Recommend Holding CSU’s Resident Enrollment Target Flat for 2025‑26 and 2026‑27. Given the lack of funding, we recommend the Legislature hold CSU’s resident enrollment expectation flat at its existing 2024‑25 level for the next two years. By holding enrollment flat, CSU would avoid having to make further budget adjustments, such as larger classes or fewer course offerings, to accommodate the higher costs associated with enrollment growth.

Introduction

Brief Focuses on the CSU. CSU is one of California’s three public higher education segments. Its 23 campuses provide undergraduate and graduate education. CSU focuses on academic degrees through the master’s level, but it also provides doctoral degrees in certain, primarily applied, fields. This brief is organized around the 2025‑26 budget plan for CSU. The first section provides an overview of that plan. The next two sections focus on CSU’s core operations and enrollment, respectively. The final section discusses the Governor’s proposal to increase ongoing state support for the Capital Fellows program, which CSU’s Center for California Studies administers.

Overview

CSU’s Budget Is $13.4 Billion in 2024‑25. As Figure 1 shows, CSU receives funding from various sources. The state generally focuses its budget decisions around CSU’s “core funds,” or the portion of its budget supporting its academic mission. Core funds at CSU primarily consist of state General Fund and student tuition revenue, with a very small share coming from state lottery revenue. Core funds typically comprise approximately 70 percent of CSU’s budget. Between 2023‑24 and 2024‑25, ongoing core funds per student increased 1.3 percent at CSU. The average annual growth rate of ongoing core funds per student has been approximately 3 percent over the past ten years. The remainder of CSU’s revenue comes from various noncore sources including housing fees, parking fees, and extended education charges.

Figure 1 - CSU Receives Funding From a Few Key Sources

Ongoing Core Funding Increases by $66 Million (0.7 Percent) Under 2025‑26 Budget Plan. As Figure 2 shows, the slight increase in ongoing core funding is the net result of higher tuition and fee revenue coupled with a decrease in General Fund support. For 2025‑26, CSU estimates tuition and fee revenue will increase by $188 million (5.4 percent). General Fund support decreases by a net of $122 million (2.2 percent). The increase in tuition and fee revenue is due to both higher tuition charges and enrollment growth. Because expected enrollment growth (1.7 percent) outpaces the increase in core funding, ongoing core funding per student decreases by 0.9 percent.

Figure 2

CSU’s 2025‑26 Core Funds Increase Comes From Tuition Revenue

(Dollars in Millions, Except Funding Per Student)

	2023‑24 Actual	2024‑25 Revised	2025‑26 Proposed	Change From 2024‑25
	2023‑24 Actual	2024‑25 Revised	2025‑26 Proposed	Amount	Percent
Ongoing Core Funds
General Fund^a	$5,391	$5,526	$5,403	‑$122	‑2.2%
Tuition and fees^b	3,267	3,477	3,665	188	5.4
Lottery	83	76	76	—^c	—^c
Totals	$8,741	$9,078	$9,144	$66	0.7%
FTE students^d	391,268	401,300	407,936	6,636	1.7%
Funding per student	$22,339	$22,622	$22,416	‑$206	‑0.9
^aIncludes funding for pensions and retiree health benefits. ^bIncludes funds used for student financial aid. ^cLess than $500,000 or 0.5 percent. ^dReflects total combined resident and nonresident enrollment. The 2025‑26 number incorporates CSU’s planned resident enrollment growth.
FTE = full‑time equivalent.

Reduction in State Support Is the Net Result of a Few Factors. As the top part of Figure 3 shows, the Governor’s budget includes a total of $178 million ongoing General Fund to cover various expected CSU cost increases. The state covers a large share of CSU’s expected cost increases for its California Public Employees’ Retirement (CalPERS) contributions, as well as all of its cost increases for retiree health benefits. Additionally, the Governor’s budget includes ongoing General Fund augmentations of $1.3 million to fund salary increases for the Capital Fellows program, $345,000 to provide drug test devices to every on‑campus health center as required in recently enacted legislation, and $158,000 for certain increases in technology charges. More than offsetting these targeted increases is a $300 million reduction in base support. This reduction is pursuant to Control Section 4.05 of the 2024‑25 Budget Act, which applies reductions of up to 7.95 percent to state operations broadly across state government. In the box below, we discuss the impact of Control Section 4.05 on CSU in comparison to other state agencies.

Figure 3

CSU Has Net Decrease in General Fund Support Under Budget Plan

General Fund Changes, 2025‑26 (In Millions)

Targeted Increases
Pension cost increase	$136
Retiree health benefit cost increase	41
Capital Fellows (salary increase)	1
CENIC cost increase	—^a
Drug testing devices at campuses	—^b
Subtotal	$178
Base Reductions
Ongoing reduction	‑$375
Restoration of one‑time reduction	75
Subtotal	‑$300
Total	‑$122
^aThe 2021‑22 budget agreement included a five‑year plan for covering higher CENIC charges. The annual funding increase in 2025‑26 is $158,000. ^bBudget proposes $345,000 ongoing General Fund to support the costs of recently chaptered legislation that requires CSU to provide drug testing devices at every on‑campus health center.
CENIC = Corporation for Education Network Initiatives in California.

Control Section 4.05 Impacts CSU Differently Than Other State Agencies

CSU Differs From Other State Agencies in Significant Ways. As discussed in The 2025‑26 Budget: Higher Education Overview, CSU was included in the Control Section 4.05 reductions, but it differs in some notable ways from other state agencies. One difference is that the state designates all CSU appropriations as “state operations,” with none designated as “local assistance.” This means all university spending at both the system and campus levels are designated as state operations. Applying a flat percentage reduction to state operations funding for CSU, therefore results in a much more sizeable cut—one that is likely to have a direct impact on campuses. In contrast, the state is not applying an across‑the‑board reduction to other agencies’ local assistance programs. From this perspective, CSU is more adversely impacted by Control Section 4.05. Another notable difference, however, is CSU generates substantial nonstate revenue through student tuition. Anticipated growth in tuition revenue more than offsets the reduction in state funding, leaving CSU’s total ongoing core funding increasing slightly in 2025‑26. A third notable difference is that the state does not directly authorize each employee position at CSU, as is typically the case with state agencies. Instead, the CSU Board of Trustees has this authority. This is why CSU was excluded from the vacant positions sweep imposed by Control Section 4.12 of the 2024‑25 Budget Act.

Budget Plan Defers Base Increase. In May 2022, the administration announced a compact with CSU’s Chancellor to provide the university system with 5 percent annual base increases from 2022‑23 through 2026‑27. The compact is not codified, and state budget plans have not strictly adhered to it. Whereas state budget plans provided more than 5 percent General Fund increases to CSU the first two years of the compact, the plan included less than 5 percent increases in 2024‑25. Specifically, over the past three years, ongoing General Fund support for CSU has increased 9.4 percent, 6.9 percent, and 2.5 percent, respectively. For 2025‑26, the state budget plan includes a net General Fund reduction for CSU rather than a base increase. The budget plan, however, has a component that defers a $252 million (about 5 percent) General Fund base augmentation for CSU from 2025‑26 until 2027‑28. As part of the deferral arrangement, the state would provide CSU with one‑time back payments of $252 million in 2026‑27 (to cover 2025‑26 costs) and 2027‑28 (to cover 2026‑27 costs).

Core Operations

In this part of the brief, we first provide background on CSU’s core operations. Next, we describe the state’s multiyear budget plan for CSU, followed by CSU’s spending priorities based on that plan. Then, we assess the impact of the plan and make an associated recommendation.

Background

In this section, we first discuss CSU’s sources of core funding. We then discuss CSU’s largest operating cost pressures.

Funding

Share of CSU Costs Covered by General Fund Has Increased Over the Past Decade. Since 2013‑14, CSU has primarily relied on state General Fund augmentations to cover increases in its operating costs. From 2013‑14 to 2024‑25, the state provided CSU with General Fund base increases every year except in 2020‑21. During the same period, CSU increased tuition twice (in 2017‑18 and 2024‑25). As a result, the General Fund has been comprising a growing share of CSU’s core funds. Whereas we estimate the General Fund comprised 50 percent of CSU’s ongoing core funds in 2013‑14, it comprises 61 percent in 2024‑25.

CSU Began Implementing Tuition Increases in 2024‑25. CSU’s tuition levels have long been lower than its peers nationally. In 2023‑24, CSU’s resident undergraduate tuition and fees were approximately $2,171 (22 percent) lower than the national average of comparable public institutions. Until recently, CSU has not had a tuition policy guiding its annual tuition levels. A CSU work group focused on fiscal sustainability, however, recently identified a significant gap between the system’s costs and its revenues. One of the work group’s recommendations was that CSU adopt a tuition policy that provides for gradual and predictable increases. The CSU Board of Trustees adopted such a tuition plan in September 2023. Under the plan, tuition increases by 6 percent annually for all students, beginning in 2024‑25 and extending through 2028‑29.

CSU Reports a $138 Million Budget Gap in 2023‑24 and $218 Million Gap in 2024‑25. In both 2023‑24 and 2024‑25, CSU received increases in its state General Fund support, along with increases in its total core funding. As CSU typically does, it allocated a portion of its General Fund base increase in 2024‑25 to campuses for employee compensation. The amounts allocated to campuses for employee compensation, however, fell short of actual employee compensation costs. CSU indicates it did not have sufficient funding after accounting for health care premium increases, insurance premium increases, maintenance and operations of new facilities, enrollment growth, and other state‑required initiatives to cover the full cost of compensation increases. As a result, CSU is in the midst of addressing a budget deficit. Campuses are responsible for covering these shortfalls from their existing budgets. CSU shared that campuses are addressing the shortfalls through measures such as implementing personnel reductions and restructuring, deferring capital renewal projects, and reducing non‑essential expenses such as travel and professional development.

CSU’s Reserves Have Increased but Remain Below Its Target. Like many other universities (as well as public and private entities more generally), CSU maintains reserves. CSU commits part of its reserves for outstanding financial commitments and planned one‑time activities (such as launching a new academic program or designing a new capital project). CSU also leaves some of its reserves purposefully uncommitted to prepare for economic uncertainties, including recessions. CSU’s systemwide reserves policy sets a target to maintain uncommitted reserves worth between three and six months of expenditures. As of June 30, 2024 (the most recent data available), CSU had $2.4 billion in total core reserves, of which $777 million was uncommitted. As Figure 4 shows, CSU’s uncommitted core reserves have generally increased over the past five years, reaching 1.1 months of expenditures in 2023‑24. Nonetheless, its reserve level remains below the system’s target.

Figure 4 - CSU's Uncommitted Core Reserves Have Increased but Equate to Less Than One Month of Operating Expenses

Cost Pressures

CSU’s Largest Operating Cost Is Employee Compensation. Similar to many other state agencies, the bulk of CSU’s operating costs are for employee salaries and benefits. In 2023‑24, 75 percent of CSU’s core spending was for these purposes. That year, CSU reported spending $6.4 billion on compensation packages for faculty, staff, and management. Nearly every year, CSU faces at least some pressure to raise employee salaries, while also having to cover certain pension and health care cost increases.

CSU Has About 46,000 FTE Employees. Of these employees, about 45 percent are faculty, about 45 percent are staff, and the remaining 10 percent are managers and executives. As Figure 5 shows, CSU’s workforce grew steadily from fall 2014 through fall 2019, before declining during the pandemic (fall 2020 and fall 2021). CSU’s workforce rebounded in fall 2022 and fall 2023, reaching its highest level ever in fall 2023. Because student enrollment declined throughout the pandemic years, the number of FTE students per FTE employee decreased from 9.4 in fall 2018 to 8.4 in fall 2023. In fall 2024, CSU’s workforce declined by 1.8 percent, contributing to an increase in its FTE students per FTE employee ratio (8.8).

Figure 5 - Size of CSU's Workforce Has Fluctuated

Most CSU Employees Are Represented by a Labor Union. Eight unions represent various groups of CSU employees. The largest union representing CSU employees is the California Faculty Association (CFA). CFA represents professors, lecturers, counselors, librarians, and coaches. As Figure 6 shows, CFA employees account for half of CSU’s overall salary base. The second largest union is the California State University Employees Union (CSUEU). CSUEU represents support staff in various roles, including in the areas of administration, technology, and health services. CSUEU employees account for nearly 25 percent of CSU’s overall salary base. The remaining six unions at CSU represent student services staff, skilled trades workers, and graduate students, among other workers. Collectively, these employees account for approximately 10 percent of CSU’s overall salary base. Managers and executive staff, who comprise approximately 15 percent of CSU’s salary base, are not represented by a union.

Figure 6

Two Unions Comprise the Majority of CSU’s Workforce

Key Information About CSU Unions

	Percent of CSU Payroll	Percent of CSU Employees	General Salary Increases
	Percent of CSU Payroll	Percent of CSU Employees	2023‑24	2024‑25
California Faculty Association^a	49%	46%	5%	5%
California State University Employees Union	23	23	5	5
Academic Professionals of California	6	6	5	5
Teamsters 2010	2	2	5	—^b
United Auto Workers	1	14	5	5
Statewide University Police Association	1	1	5	5
Union of American Physicians and Dentists	0.3	0.1	5	5
International Union of Operating Engineers	0.02	0.02	5	5
^aAgreement also includes 2.65 percent service salary increases for faculty below certain salary levels, along with increases in the minimum salary for certain faculty positions, in 2023‑24 and 2024‑25. ^bIn lieu of GSI, a salary step structure is being implemented beginning in 2024‑25. Employees will receive regular salary increases based on their length of service in their classification.
Note: Data shown for “Percent of CSU Payroll” and “Percent of CSU Employees” is for 2023‑24. Table excludes Executives & Management Personnel Plan, Confidential Classes, Excluded Classes, non‑represented student employees, other intermittent or casual employees, and faculty teaching in extension, special sessions, and summer sessions.

Most Employee Salary Levels Are Determined Through Collective Bargaining. Whereas the Legislature ratifies collective bargaining agreements for most represented state employees, state law authorizes the CSU Board of Trustees to ratify collective bargaining agreements for CSU’s employees. These collective bargaining agreements determine salary increases for represented employees. The agreements also often indirectly guide salary increases for CSU’s nonrepresented employees. Over the past decade, CSU employees generally have received salary increases in all years except 2020‑21 (when the state reduced General Fund support for CSU in response to a projected budget shortfall due to the COVID‑19 pandemic).

CSU Has Negotiated Salary Increases for 2024‑25. As Figure 6 also shows, CSU has agreements with all of its unions for 2024‑25. (CSU does not yet have an agreement with the CSUEU Student Assistants bargaining unit, which was established last year.) All unions, except Teamsters 2010 (representing employees in skilled crafts such as painters, electricians and carpenters), are receiving a 5 percent general salary increase in 2024‑25. Teamsters 2010 has implemented a salary step structure where employees will receive regular salary agreements based upon their length of service. All agreements have been ratified. As is typical practice, CSU is also providing a comparable (5 percent) salary increase to its nonrepresented employees in 2024‑25.

CSU Is Directly Responsible for Certain Pension Costs. CalPERS administers pension benefits for CSU and most other state employees. The CalPERS Board sets employer contribution rates for pensions as a percentage of payroll. The state and CSU each pay a portion of the total employer contribution. The state’s contribution is determined by applying the employer contribution rate to CSU’s 2013‑14 payroll level. CSU’s contribution is determined by applying the employer contribution rate to any payroll growth above that level. The state adopted this arrangement in 2013‑14 to provide CSU with a stronger fiscal incentive to contain staffing costs. CalPERS contributions rates increased every year from 2011‑12 through 2019‑20, rising from 18.2 percent to 31 percent over that period (for Miscellaneous Tier 1 state employees). Since that time, rates have been more variable, as the state, in some years, has applied certain supplemental payments toward CalPERS costs, which have temporarily lowered rates.

CSU Contributes to Employee Health Benefits. CalPERS also administers CSU’s health benefits. Each year, CalPERS negotiates with health plan providers to establish premiums for the plans offered to CSU’s employees. Pursuant to state law, CSU’s contribution to employee health benefits is based on the average premium of the most popular health plans. When premiums increase, CSU covers the associated cost for its active employees. In contrast, the state covers the cost for retirees’ health benefits. As Figure 7 shows, CSU’s total spending on employee health care costs has been increasing over time, reaching $717 million in 2023‑24. As Figure 7 also shows, the rate at which costs have increased has varied notably over the last decade, with annual increases as low as 1.2 percent and as high as 10 percent.

Figure 7 - Health Care Costs Have Been Increasing, Some Years Much More Than Others

CSU Covers Certain Financial Aid Cost Increases With Tuition Revenue. Another cost pressure for CSU is student financial aid. CSU administers an institutional financial aid program called the State University Grant (SUG) program. Currently, the SUG program provides tuition coverage to about 140,000 students with financial need. CSU sets aside a portion of its tuition revenue to cover SUG costs. In 2017‑18, SUG spending increased by 6 percent due to a tuition increase. Spending on SUG remained flat until 2024‑25. In 2024‑25, CSU increased SUG spending by $59 million (8.4 percent) due to another a tuition increase and enrollment growth. CSU is spending $760 million on SUG in 2024‑25.

CSU Issues University Bonds to Finance Capital Projects. State law authorizes CSU’s Board of Trustees to issue university bonds to debt finance capital projects. Historically, CSU has used university bonds primarily to finance self‑supporting facilities. Since 2014‑15, university bonds have been the main source of financing for CSU’s state‑supported facilities. Under the new approach, CSU issues university bonds for academic capital projects, then pays the associated debt service from its main General Fund appropriation. In 2024‑25, CSU committed 5 percent of its operating budget ($440 million) to debt service.

CSU Has High Capital Renewal Cost Pressures. Many of CSU’s academic facilities are at least 40 years old. As facilities age, their building components (such as roofs and heating systems) eventually reach the end of their useful life and need to be replaced. When campuses do not address these capital renewal needs as they emerge, they create backlogs known as deferred maintenance. CSU currently has $8.2 billion in deferred maintenance.

CSU Has Other Operating Costs. CSU also has ongoing costs related to various other operating expenses, including providing maintenance services for new campus facilities, upgrading technology and equipment, and covering rising insurance and utilities costs. In 2024‑25, costs for operations and maintenance of new facilities increased by $13 million, and liability and property insurance premiums increased by $23 million.

2025‑26 Budget

In this section, we begin by discussing CSU’s identified funding for 2025‑26, followed by CSU’s spending priorities given available resources.

Funding

CSU’s Tuition Revenue Scheduled to Increase in 2025‑26. CSU estimates it will collect an additional $188 million in student tuition revenue in 2025‑26. Most of this increase is due to the planned rise in CSU’s tuition charges. Tuition charges are set at $6,450 for resident undergraduate students in 2025‑26, reflecting a $366 increase from 2024‑25. CSU estimates generating an additional associated $164 million. CSU plans to use $55 million (33 percent) of this additional revenue to provide larger tuition awards through its SUG program. (In addition, the California Student Aid Commission budget includes $37 million ongoing General Fund to pay for higher associated Cal Grant costs for CSU students in 2025‑26. Many CSU students with financial need receive full tuition coverage under the Cal Grant program.) CSU expects to generate $24 million in new tuition revenue from planned enrollment growth in 2025‑26.

Total Core Funding Increases Slightly in 2025‑26. Despite the increase in tuition revenue, total core funding for CSU increases only slightly in 2025‑26. This is because of the net reduction in General Fund reduction of $122 million. As a result of changes in both student tuition revenue and state General Fund support, 2025‑26 ongoing core funding for CSU is expected to increase by only $66 million.

Spending

CSU Indicates It Will Limit Spending Increases to Nondiscretionary Costs. Given funding increases are not covering all of its identified spending priorities, CSU indicates it will prioritize paying for certain costs it deems nondiscretionary. As Figure 8 shows, these nondiscretionary costs total $164 million. The largest of these costs is for health care. CSU’s health care premiums in 2025 are increasing 7.8 percent. The next largest cost increase is in SUG spending. When CSU increases its tuition charges, it intends to fully cover the higher charges for most SUG recipients. (Neither state nor federal law requires CSU to increase SUG spending in this way, but CSU’s practice has been to cover the higher charges.) Given its budget shortfall, CSU indicates it plans to forego increasing spending for its other priorities.

Figure 8 - CSU Plans to Prioritize Nondiscretionary Cost Increases

Pension Contribution Rates Are Expected to Increase in 2025‑26. Figure 8 excludes a couple of CSU cost increases—relating to pensions and retiree health care—because the state covers them. Specifically, the Governor’s budget includes a $136 million increase to cover most of the employer contribution towards CSU’s pension costs and $41 million for retiree health care costs. The Governor’s budget assumes that employer CalPERS pension contribution rate increases in 2025‑26 are particularly high. Under the Governor’s budget, the employer contribution rate for the largest CSU employee group (miscellaneous) would be 32 percent of pay—5.6 percentage points higher than the rate in 2024‑25. The employer contribution rate for other CSU employees (peace officers and firefighters) would be 49 percent of pay—18 percentage points higher than the rate in 2024‑25. These larger‑than‑normal annual rate increases are due mainly to the 2024‑25 rates being temporarily depressed (as a result of certain assumptions relating to a 2023‑24 Proposition 2 debt payment that the state applied toward CalPERS costs in 2024‑25).

CSU Has Some Contingent Salary Agreements in Place for 2025‑26. CSU has salary agreements with three unions (CSUEU, Teamsters 2010, and the Statewide University Police Association) that extend through 2025‑26. All three unions have implemented a salary step structure where employees will receive regular salary increases based on their length of service in their classification. These agreements have been ratified, but the salary agreements are all contingent upon the state providing a specified amount of support to CSU in 2025‑26. If implemented, these agreements would result in compensation increases totaling approximately $70 million in 2025‑26. Given CSU does not receive a General Fund augmentation in 2025‑26 under the budget plan, CSU likely would not implement the associated salary increases. As of this writing, 2025‑26 compensation increases have not yet been determined for the remaining unions, as well as nonrepresented employees.

CSU’s Budget Gap Likely to Grow in 2025‑26. CSU’s budget gap (between available funding and spending) began in 2023‑24, grew in 2024‑25, and is on track to grow further in 2025‑26. After accounting for the estimated increase in core funds in 2025‑26, together with nondiscretionary core spending increases (including pensions and health care), we estimate CSU would have a $276 million budget shortfall. This shortfall does not account for any of CSU’s remaining spending priorities (such as salary increases).

Assessment

In this section, we discuss the impact of the budget plan both on CSU and the state.

Impact on CSU

Impacts of the Budget Plan Will Be Felt Differently Across Campuses. CSU’s expected budget shortfall in 2025‑26 will put pressure on campuses to make further budget adjustments. Campuses likely will implement some ongoing spending reductions, with some campuses potentially also drawing down some of their reserves. Campuses with smaller reserves could see more notable spending reductions. Given employee compensation is CSU’s largest operating cost, campuses could look into hiring freezes, leaving positions open or eliminating positions. If faculty positions are left open, students could see larger class sizes and fewer course offerings. If staff and administrative positions are left open, students could see an impact on their support services. If salary increases are not implemented, CSU might see some negative impact on employee recruitment and retention, particularly if CSU’s compensation packages become less competitive relative to peer organizations. Though campuses with strong enrollment growth and larger reserves likely would feel less of an impact on their budgets, CSU has shared that all campuses would be impacted in some way.

Impact on the State

Budget Plan Calls to Increase CSU Funding Significantly in 2026‑27 Despite Projected Deficit. As Figure 9 shows, the budget plan includes a 2.2 percent decrease in General Fund support for CSU in 2025‑26, followed by a 9.6 percent increase in 2026‑27. The large increase in 2026‑27 is due to the deferral arrangement. The state has set forth no plan as to how it would pay for such a large CSU augmentation while facing a deficit. Given the state budget plan does not include a base increase for CSU in 2025‑26, it is unlikely the state could afford such an increase in 2026‑27 (absent a change in the state’s fiscal condition or new budget solutions). Were CSU to raise its spending in 2025‑26 on the assumption it would receive state payment in 2026‑27, and then state payment were not forthcoming, CSU would face more disruptive spending choices at that time. From either the state’s or CSU’s perspective, we do not see strong justification for adopting such a risky and imprudent approach. Typically, when facing deficits, the state initiates efforts to contain costs, not increase them.

Recommendation

Figure 9

Deferral Plan for CSU Sets Unrealistic Expectation of Large Increase in 2026‑27

Reflects Multiyear Assumptions of Deferral Plan, General Fund (Dollars in Millions)

	2025‑26 Year 4^a	2026‑27 Year 5^a	2027‑28
Ongoing Changes
Base reduction	‑$375	—	—
Two‑year deferral of year 4 base increase^b	—	—	$252
Anticipated year 5 base increase	—	$265	—
One‑Time Back Payments
Base costs	—	$252	$252
One‑Time Adjustments^c	$75	—	‑$252
Totals	$5,403	$5,921	$6,173
Change from previous year	‑2.2%	9.6%	4.3%
^aIn 2025‑26, the Governor will be entering year 4 of his compact with the CSU Chancellor. The fifth and final year of this compact is 2026‑27. A new governor will take office in 2027‑28. ^bThe Governor proposes to defer the year 4 base increase from 2025‑26 to 2027‑28. In 2026‑27, he proposes to provide a one‑time back payment to 2025‑26. In 2027‑28, he proposes to provide a one‑time back payment to 2026‑27, while also providing the deferred base increase. ^cIn 2025‑26, reflects the restoration of $75 million one‑time reduction applied in 2024‑25. In 2027‑28, reflects removal of prior‑year, one‑time back payment.

Recommend Removing Deferral to Signal More Realistic Budget Expectation. Both our office and the administration project that the state will face large operating deficits in 2026‑27 and 2027‑28 (as well as in 2028‑29). Given these projected deficits, increasing spending on CSU in upcoming years would require a like amount of other budget solutions. Next year, the Legislature might face the difficult decision of either cutting other ongoing state programs to make room for CSU’s base increase or, alternatively and more realistically, forgoing the base increase. Rather than instituting deferrals, we recommend the Legislature wait until the given budget year to make changes to CSU’s base funding. This would provide a more accurate funding expectation for CSU and would be a more prudent and sustainable approach for both CSU and the state.

Enrollment

In this section, we first provide background on CSU enrollment and cover recent enrollment trends. Then, we describe the state’s 2025‑26 enrollment expectations for CSU, followed by CSU’s enrollment growth plans. Finally, we assess CSU’s enrollment situation and provide a recommendation for the Legislature to consider.