The 2025-26 Budget: California State University

2025-26 BUDGET The 2025-26 Budget: California State University GABRIEL PETEK | LEGISLATIVE ANALYST | FEBRUARY 2025 SUMMARY 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. www.lao.ca.gov 1 2025-26 BUDGET INTRODUCTION Brief Focuses on the CSU. CSU is one of 2025-26 budget plan for CSU. The first section California’s three public higher education segments. provides an overview of that plan. The next two Its 23 campuses provide undergraduate and sections focus on CSU’s core operations and graduate education. CSU focuses on academic enrollment, respectively. The final section discusses degrees through the master’s level, but it also the Governor’s proposal to increase ongoing state provides doctoral degrees in certain, primarily support for the Capital Fellows program, which applied, fields. This brief is organized around the CSU’s Center for California Studies administers. OVERVIEW CSU’s Budget Is $13.4 Billion in 2024-25. As Core funds typically comprise approximately Figure 1 shows, CSU receives funding from various 70 percent of CSU’s budget. Between 2023-24 sources. The state generally focuses its budget and 2024-25, ongoing core funds per student decisions around CSU’s “core funds,” or the portion increased 1.3 percent at CSU. The average annual of its budget supporting its academic mission. Core growth rate of ongoing core funds per student has funds at CSU primarily consist of state General been approximately 3 percent over the past ten Fund and student tuition revenue, with a very years. The remainder of CSU’s revenue comes from small share coming from state lottery revenue. various noncore sources including housing fees, parking fees, and extended education charges. Ongoing Core Funding Increases by Figure 1 $66 Million (0.7 Percent) Under 2025-26 Budget Plan. As Figure 2 shows, the slight increase in CSU Receives Funding ongoing core funding is the net result of higher From a Few Key Sources tuition and fee revenue coupled with a decrease in $13.4 Billion in 2024-25 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 Noncore a net of $122 million (2.2 percent). The increase in Funds tuition and fee revenue is due to both higher tuition Othera charges and enrollment growth. Because expected enrollment growth (1.7 percent) outpaces the increase in core funding, ongoing core funding per General Fund student decreases by 0.9 percent. Federal Fundsb 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 Lottery $178 million ongoing General Fund to cover various Tuition and Fees expected CSU cost increases. The state covers Core a large share of CSU’s expected cost increases Funds for its California Public Employees’ Retirement (CalPERS) contributions, as well as all of its cost a Includes revenue from housing fees, parking fees, extended education charges, increases for retiree health benefits. Additionally, and fees for other noncore programs. b Primarily for student financial aid. the Governor’s budget includes ongoing General Fund augmentations of $1.3 million to fund salary 2 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET increases for the Capital Fellows Figure 2 program, $345,000 to provide drug test devices to every on-campus CSU’s 2025-26 Core Funds Increase Comes From health center as required in Tuition Revenue recently enacted legislation, and (Dollars in Millions, Except Funding Per Student) $158,000 for certain increases in technology charges. More than Change From 2024-25 offsetting these targeted increases 2023-24 2024-25 2025-26 Actual Revised Proposed Amount Percent is a $300 million reduction in base support. This reduction is pursuant Ongoing Core Funds General Funda $5,391 $5,526 $5,403 -$122 -2.2% to Control Section 4.05 of the Tuition and feesb 3,267 3,477 3,665 188 5.4 2024-25 Budget Act, which applies Lottery 83 76 76 —c —c reductions of up to 7.95 percent Totals $8,741 $9,078 $9,144 $66 0.7% to state operations broadly across FTE studentsd 391,268 401,300 407,936 6,636 1.7% state government. In the box on Funding per student $22,339 $22,622 $22,416 -$206 -0.9 the next page, we discuss the a Includes funding for pensions and retiree health benefits. b Includes funds used for student financial aid. impact of Control Section 4.05 c Less than $500,000 or 0.5 percent. on CSU in comparison to other d Reflects total combined resident and nonresident enrollment. The 2025-26 number incorporates CSU’s planned resident enrollment growth. state agencies. FTE = full-time equivalent. Budget Plan Defers Base Increase. In May 2022, the administration announced a Figure 3 compact with CSU’s Chancellor to provide the CSU Has Net Decrease in General Fund university system with 5 percent annual base Support Under Budget Plan increases from 2022-23 through 2026-27. The General Fund Changes, 2025-26 (In Millions) compact is not codified, and state budget plans have not strictly adhered to it. Whereas state Targeted Increases budget plans provided more than 5 percent General Pension cost increase $136 Fund increases to CSU the first two years of the Retiree health benefit cost increase 41 compact, the plan included less than 5 percent Capital Fellows (salary increase) 1 increases in 2024-25. Specifically, over the past CENIC cost increase —a Drug testing devices at campuses —b three years, ongoing General Fund support for Subtotal $178 CSU has increased 9.4 percent, 6.9 percent, and Base Reductions 2.5 percent, respectively. For 2025-26, the state Ongoing reduction -$375 budget plan includes a net General Fund reduction Restoration of one-time reduction 75 for CSU rather than a base increase. The budget Subtotal -$300 plan, however, has a component that defers a Total -$122 $252 million (about 5 percent) General Fund base a The 2021-22 budget agreement included a five-year plan for covering higher CENIC charges. The annual funding increase in 2025-26 is augmentation for CSU from 2025-26 until 2027-28. $158,000. As part of the deferral arrangement, the state b Budget proposes $345,000 ongoing General Fund to support the costs of recently chaptered legislation that requires CSU to provide drug would provide CSU with one-time back payments testing devices at every on-campus health center. of $252 million in 2026-27 (to cover 2025-26 costs) CENIC = Corporation for Education Network Initiatives in California. and 2027-28 (to cover 2026-27 costs). www.lao.ca.gov 3 2025-26 BUDGET 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. CORE OPERATIONS In this part of the brief, we first provide CSU Began Implementing Tuition Increases background on CSU’s core operations. Next, we in 2024-25. CSU’s tuition levels have long been describe the state’s multiyear budget plan for CSU, lower than its peers nationally. In 2023-24, CSU’s followed by CSU’s spending priorities based on that resident undergraduate tuition and fees were plan. Then, we assess the impact of the plan and approximately $2,171 (22 percent) lower than the make an associated recommendation. national average of comparable public institutions. Until recently, CSU has not had a tuition policy BACKGROUND guiding its annual tuition levels. A CSU work group focused on fiscal sustainability, however, recently In this section, we first discuss CSU’s sources identified a significant gap between the system’s of core funding. We then discuss CSU’s largest costs and its revenues. One of the work group’s operating cost pressures. recommendations was that CSU adopt a tuition Funding policy that provides for gradual and predictable Share of CSU Costs Covered by General Fund increases. The CSU Board of Trustees adopted Has Increased Over the Past Decade. Since such a tuition plan in September 2023. Under the 2013-14, CSU has primarily relied on state General plan, tuition increases by 6 percent annually for Fund augmentations to cover increases in its all students, beginning in 2024-25 and extending operating costs. From 2013-14 to 2024-25, the state through 2028-29. provided CSU with General Fund base increases CSU Reports a $138 Million Budget Gap in every year except in 2020-21. During the same 2023-24 and $218 Million Gap in 2024-25. In both period, CSU increased tuition twice (in 2017-18 and 2023-24 and 2024-25, CSU received increases in its 2024-25). As a result, the General Fund has been state General Fund support, along with increases comprising a growing share of CSU’s core funds. in its total core funding. As CSU typically does, Whereas we estimate the General Fund comprised it allocated a portion of its General Fund base 50 percent of CSU’s ongoing core funds in 2013-14, increase in 2024-25 to campuses for employee it comprises 61 percent in 2024-25. compensation. The amounts allocated to campuses 4 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET for employee compensation, Figure 4 however, fell short of actual CSU's Uncommitted Core Reserves Have Increased employee compensation But Equate to Less Than One Month of Operating Expenses costs. CSU indicates it did not have sufficient funding after accounting for health Reserves in Millions of Dollars care premium increases, $900 1.2 Reserves in Months of Expenditures insurance premium 800 increases, maintenance and 1.0 operations of new facilities, 700 enrollment growth, and other 600 0.8 state-required initiatives to cover the full cost of 500 0.6 compensation increases. As a 400 result, CSU is in the midst of addressing a budget deficit. 300 0.4 Campuses are responsible 200 for covering these shortfalls 0.2 from their existing budgets. 100 CSU shared that campuses are addressing the shortfalls 2019-20 2020-21 2021-22 2022-23 2023-24 through measures such as implementing personnel reductions and restructuring, Cost Pressures deferring capital renewal projects, and reducing non-essential expenses CSU’s Largest Operating Cost Is Employee such as travel and professional development. Compensation. Similar to many other state agencies, the bulk of CSU’s operating costs are CSU’s Reserves Have Increased but Remain for employee salaries and benefits. In 2023-24, Below Its Target. Like many other universities 75 percent of CSU’s core spending was for these (as well as public and private entities more purposes. That year, CSU reported spending generally), CSU maintains reserves. CSU commits $6.4 billion on compensation packages for faculty, part of its reserves for outstanding financial staff, and management. Nearly every year, CSU commitments and planned one-time activities (such faces at least some pressure to raise employee as launching a new academic program or designing salaries, while also having to cover certain pension a new capital project). CSU also leaves some of and health care cost increases. its reserves purposefully uncommitted to prepare for economic uncertainties, including recessions. CSU Has About 46,000 FTE Employees. CSU’s systemwide reserves policy sets a target Of these employees, about 45 percent are faculty, to maintain uncommitted reserves worth between about 45 percent are staff, and the remaining three and six months of expenditures. As of 10 percent are managers and executives. As June 30, 2024 (the most recent data available), Figure 5 on the next page shows, CSU’s workforce CSU had $2.4 billion in total core reserves, of grew steadily from fall 2014 through fall 2019, before which $777 million was uncommitted. As Figure 4 declining during the pandemic (fall 2020 and fall shows, CSU’s uncommitted core reserves have 2021). CSU’s workforce rebounded in fall 2022 and generally increased over the past five years, fall 2023, reaching its highest level ever in fall 2023. reaching 1.1 months of expenditures in 2023-24. Because student enrollment declined throughout Nonetheless, its reserve level remains below the the pandemic years, the number of FTE students per system’s target. 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). www.lao.ca.gov 5 2025-26 BUDGET agreements determine salary Figure 5 increases for represented employees. The agreements Size of CSU's Workforce Has Fluctuated Fall Term Counts of Full-Time Equivalent (FTE) Employees also often indirectly guide salary increases for CSU’s FTE Employees nonrepresented employees. 48,000 10.5 Over the past decade, CSU 46,000 employees generally have FTE Students Per FTE Employee 10.0 received salary increases in all 44,000 9.5 years except 2020-21 (when 42,000 the state reduced General Fund 40,000 9.0 support for CSU in response to 38,000 8.5 a projected budget shortfall due to the COVID-19 pandemic). 36,000 8.0 CSU Has Negotiated 34,000 7.5 Salary Increases for 2024-25. 32,000 As Figure 6 also shows, 30,000 7.0 CSU has agreements with 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 all of its unions for 2024-25. Note: Due to data limitations, chart excludes student employees (represented and nonrepresented) and temporary staff. (CSU does not yet have an agreement with the CSUEU Student Assistants bargaining Most CSU Employees Are Represented by a unit, which was established Labor Union. Eight unions represent various groups last year.) All unions, except Teamsters 2010 of CSU employees. The largest union representing (representing employees in skilled crafts such CSU employees is the California Faculty Association as painters, electricians and carpenters), are (CFA). CFA represents professors, lecturers, receiving a 5 percent general salary increase counselors, librarians, and coaches. As Figure 6 in 2024-25. Teamsters 2010 has implemented shows, CFA employees account for half of CSU’s a salary step structure where employees will overall salary base. The second largest union is the receive regular salary agreements based upon California State University Employees Union (CSUEU). their length of service. All agreements have been CSUEU represents support staff in various roles, ratified. As is typical practice, CSU is also providing including in the areas of administration, technology, a comparable (5 percent) salary increase to its and health services. CSUEU employees account nonrepresented employees in 2024-25. for nearly 25 percent of CSU’s overall salary base. CSU Is Directly Responsible for Certain The remaining six unions at CSU represent student Pension Costs. CalPERS administers pension services staff, skilled trades workers, and graduate benefits for CSU and most other state employees. students, among other workers. Collectively, these The CalPERS Board sets employer contribution employees account for approximately 10 percent of rates for pensions as a percentage of payroll. CSU’s overall salary base. Managers and executive The state and CSU each pay a portion of the total staff, who comprise approximately 15 percent of employer contribution. The state’s contribution CSU’s salary base, are not represented by a union. is determined by applying the employer Most Employee Salary Levels Are Determined contribution rate to CSU’s 2013-14 payroll level. Through Collective Bargaining. Whereas CSU’s contribution is determined by applying the Legislature ratifies collective bargaining the employer contribution rate to any payroll agreements for most represented state employees, growth above that level. The state adopted this state law authorizes the CSU Board of Trustees arrangement in 2013-14 to provide CSU with a to ratify collective bargaining agreements for stronger fiscal incentive to contain staffing costs. CSU’s employees. These collective bargaining CalPERS contributions rates increased every year 6 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET Figure 6 Two Unions Comprise the Majority of CSU’s Workforce Key Information About CSU Unions General Salary Increases Percent of CSU Percent of CSU Payroll Employees 2023-24 2024-25 California Faculty Associationa 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 a Agreement 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. b In 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. from 2011-12 through 2019-20, rising from 18.2 percent to 31 percent over that period (for Miscellaneous Tier 1 Figure 7 state employees). Since that time, Health Care Costs Have Been Increasing, rates have been more variable, as Some Years Much More Than Others the state, in some years, has applied certain supplemental payments toward CalPERS costs, which have Health Care Costs in Millions of Dollars temporarily lowered rates. $800 12% CSU Contributes to Employee 700 Health Benefits. CalPERS also Year-Over-Year 10 Change in Health Care Costs administers CSU’s health benefits. 600 Each year, CalPERS negotiates with 8 health plan providers to establish 500 premiums for the plans offered 400 6 to CSU’s employees. Pursuant to state law, CSU’s contribution 300 to employee health benefits is 4 based on the average premium 200 of the most popular health plans. 2 100 When premiums increase, CSU covers the associated cost for its active employees. In contrast, the 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 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 www.lao.ca.gov 7 2025-26 BUDGET $717 million in 2023-24. As Figure 7 also shows, for operations and maintenance of new facilities the rate at which costs have increased has varied increased by $13 million, and liability and property notably over the last decade, with annual increases insurance premiums increased by $23 million. as low as 1.2 percent and as high as 10 percent. CSU Covers Certain Financial Aid Cost 2025-26 BUDGET Increases With Tuition Revenue. Another cost In this section, we begin by discussing CSU’s pressure for CSU is student financial aid. CSU identified funding for 2025-26, followed by CSU’s administers an institutional financial aid program spending priorities given available resources. called the State University Grant (SUG) program. Currently, the SUG program provides tuition Funding coverage to about 140,000 students with financial CSU’s Tuition Revenue Scheduled to need. CSU sets aside a portion of its tuition revenue Increase in 2025-26. CSU estimates it will to cover SUG costs. In 2017-18, SUG spending collect an additional $188 million in student tuition increased by 6 percent due to a tuition increase. revenue in 2025-26. Most of this increase is due Spending on SUG remained flat until 2024-25. to the planned rise in CSU’s tuition charges. In 2024-25, CSU increased SUG spending by Tuition charges are set at $6,450 for resident $59 million (8.4 percent) due to another a tuition undergraduate students in 2025-26, reflecting increase and enrollment growth. CSU is spending a $366 increase from 2024-25. CSU estimates $760 million on SUG in 2024-25. generating an additional associated $164 million. CSU Issues University Bonds to Finance CSU plans to use $55 million (33 percent) of Capital Projects. State law authorizes CSU’s this additional revenue to provide larger tuition Board of Trustees to issue university bonds to debt awards through its SUG program. (In addition, the finance capital projects. Historically, CSU has used California Student Aid Commission budget includes university bonds primarily to finance self-supporting $37 million ongoing General Fund to pay for higher facilities. Since 2014-15, university bonds have associated Cal Grant costs for CSU students in been the main source of financing for CSU’s 2025-26. Many CSU students with financial need state-supported facilities. Under the new approach, receive full tuition coverage under the Cal Grant CSU issues university bonds for academic program.) CSU expects to generate $24 million in capital projects, then pays the associated debt new tuition revenue from planned enrollment growth service from its main General Fund appropriation. in 2025-26. In 2024-25, CSU committed 5 percent of its Total Core Funding Increases Slightly in operating budget ($440 million) to debt service. 2025-26. Despite the increase in tuition revenue, CSU Has High Capital Renewal Cost total core funding for CSU increases only slightly Pressures. Many of CSU’s academic facilities in 2025-26. This is because of the net reduction are at least 40 years old. As facilities age, their in General Fund reduction of $122 million. As a building components (such as roofs and heating result of changes in both student tuition revenue systems) eventually reach the end of their useful and state General Fund support, 2025-26 ongoing life and need to be replaced. When campuses do core funding for CSU is expected to increase by not address these capital renewal needs as they only $66 million. emerge, they create backlogs known as deferred Spending maintenance. CSU currently has $8.2 billion in deferred maintenance. CSU Indicates It Will Limit Spending Increases to Nondiscretionary Costs. Given CSU Has Other Operating Costs. CSU also has funding increases are not covering all of its ongoing costs related to various other operating identified spending priorities, CSU indicates it expenses, including providing maintenance will prioritize paying for certain costs it deems services for new campus facilities, upgrading nondiscretionary. As Figure 8 shows, these technology and equipment, and covering rising nondiscretionary costs total $164 million. insurance and utilities costs. In 2024-25, costs 8 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET state covers them. Specifically, Figure 8 the Governor’s budget includes a $136 million increase to cover CSU Plans to Prioritize Nondiscretionary Cost Increases most of the employer contribution (In Millions) towards CSU’s pension costs and $41 million for retiree health care Nondiscretionary Cost Increasesa costs. The Governor’s budget Health care premiums $60 assumes that employer CalPERS State University Grants (tuition increases) 55 pension contribution rate increases Utilities 32 in 2025-26 are particularly high. Liability and property insurance premiums 10 Under the Governor’s budget, Maintenance of new facilities 7 the employer contribution rate Total $164 for the largest CSU employee Other Spending Prioritiesb group (miscellaneous) would be Faculty and staff compensation pool $296 32 percent of pay—5.6 percentage Enrollment growth 56 points higher than the rate Capital projects 25 in 2024-25. The employer Graduation Initiative 20 contribution rate for other CSU Title IX and NAGPRA compliance programsc 11 employees (peace officers and Student University Grants (enrollment increases) 8 firefighters) would be 49 percent of Artificial Intelligence Initiative 7 pay—18 percentage points higher Student basic needs and mental health 5 than the rate in 2024-25. These Beyond Completiond 2 larger-than-normal annual rate Total $430 increases are due mainly to the 2024-25 rates being temporarily a This list excludes pension cost increases ($136 million) and retiree health cost increases ($41 million), as the state provides funding for these costs. depressed (as a result of certain b Reflects CSU's spending priorities were additional funding to be available. assumptions relating to a 2023-24 c Federal Title IX focuses on preventing and rectifying sex-based discrimination and harassment occurring within Proposition 2 debt payment that education entities. Federal NAGPRA resolves and restores the rights of Native American, Alaska Native and Native Hawaiian lineal descendants and tribes to the ancestral remains, associated burial objects, sacred objects, and the state applied toward CalPERS objects of cultural patrimony held at CSU. costs in 2024-25). d A new CSU initiative to improve CSU's effectiveness at helping place its bachelor-degree graduates in their career field or graduate school. CSU Has Some Contingent NAGPRA = Native American Graves Protection and Repatriation Act. Salary Agreements in Place for 2025-26. CSU has salary The largest of these costs is for health care. CSU’s agreements with three unions health care premiums in 2025 are increasing (CSUEU, Teamsters 2010, and the Statewide 7.8 percent. The next largest cost increase is in University Police Association) that extend through SUG spending. When CSU increases its tuition 2025-26. All three unions have implemented a charges, it intends to fully cover the higher charges salary step structure where employees will receive for most SUG recipients. (Neither state nor federal regular salary increases based on their length of law requires CSU to increase SUG spending in service in their classification. These agreements this way, but CSU’s practice has been to cover the have been ratified, but the salary agreements higher charges.) Given its budget shortfall, CSU are all contingent upon the state providing a indicates it plans to forego increasing spending for specified amount of support to CSU in 2025-26. its other priorities. If implemented, these agreements would result in Pension Contribution Rates Are Expected compensation increases totaling approximately to Increase in 2025-26. Figure 8 excludes $70 million in 2025-26. Given CSU does not receive a couple of CSU cost increases—relating to a General Fund augmentation in 2025-26 under pensions and retiree health care—because the the budget plan, CSU likely would not implement www.lao.ca.gov 9 2025-26 BUDGET the associated salary increases. As of this writing, less competitive relative to peer organizations. 2025-26 compensation increases have not yet been Though campuses with strong enrollment growth determined for the remaining unions, as well as and larger reserves likely would feel less of an nonrepresented employees. impact on their budgets, CSU has shared that all CSU’s Budget Gap Likely to Grow in 2025-26. campuses would be impacted in some way. CSU’s budget gap (between available funding and Impact on the State spending) began in 2023-24, grew in 2024-25, and is on track to grow further in 2025-26. After Budget Plan Calls to Increase CSU Funding accounting for the estimated increase in core funds Significantly in 2026-27 Despite Projected in 2025-26, together with nondiscretionary core Deficit. As Figure 9 shows, the budget plan includes a 2.2 percent decrease in General spending increases (including pensions and health Fund support for CSU in 2025-26, followed by a care), we estimate CSU would have a $276 million 9.6 percent increase in 2026-27. The large increase budget shortfall. This shortfall does not account for in 2026-27 is due to the deferral arrangement. any of CSU’s remaining spending priorities (such as The state has set forth no plan as to how it would salary increases). pay for such a large CSU augmentation while ASSESSMENT facing a deficit. Given the state budget plan does not include a base increase for CSU in 2025-26, it In this section, we discuss the impact of the is unlikely the state could afford such an increase budget plan both on CSU and the state. in 2026-27 (absent a change in the state’s fiscal Impact on CSU condition or new budget solutions). Were CSU to raise its spending in 2025-26 on the assumption it Impacts of the Budget Plan Will Be Felt would receive state payment in 2026-27, and then Differently Across Campuses. CSU’s expected state payment were not forthcoming, CSU would budget shortfall in 2025-26 will put pressure on face more disruptive spending choices at that time. campuses to make further budget adjustments. From either the state’s or CSU’s perspective, we do Campuses likely will implement some ongoing spending reductions, with some campuses potentially also drawing Figure 9 down some of their reserves. Deferral Plan for CSU Sets Unrealistic Expectation of Campuses with smaller reserves Large Increase in 2026-27 could see more notable spending Reflects Multiyear Assumptions of Deferral Plan, General Fund reductions. Given employee (Dollars in Millions) compensation is CSU’s largest operating cost, campuses could 2025-26 2026-27 look into hiring freezes, leaving Year 4a Year 5a 2027-28 positions open or eliminating Ongoing Changes positions. If faculty positions Base reduction -$375 — — Two-year deferral of year 4 base increaseb — — $252 are left open, students could Anticipated year 5 base increase — $265 — see larger class sizes and fewer One-Time Back Payments course offerings. If staff and Base costs — $252 $252 administrative positions are left One-Time Adjustmentsc $75 — -$252 open, students could see an impact Totals $5,403 $5,921 $6,173 on their support services. If salary Change from previous year -2.2% 9.6% 4.3% increases are not implemented, a In 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. CSU might see some negative b The 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 impact on employee recruitment one-time back payment to 2026-27, while also providing the deferred base increase. and retention, particularly if CSU’s c In 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. compensation packages become 10 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET not see strong justification for adopting such a risky in upcoming years would require a like amount of and imprudent approach. Typically, when facing other budget solutions. Next year, the Legislature deficits, the state initiates efforts to contain costs, might face the difficult decision of either cutting not increase them. other ongoing state programs to make room for CSU’s base increase or, alternatively and more RECOMMENDATION realistically, forgoing the base increase. Rather than instituting deferrals, we recommend the Legislature Recommend Removing Deferral to Signal wait until the given budget year to make changes More Realistic Budget Expectation. Both our to CSU’s base funding. This would provide a more office and the administration project that the accurate funding expectation for CSU and would be state will face large operating deficits in 2026-27 a more prudent and sustainable approach for both and 2027-28 (as well as in 2028-29). Given these CSU and the state. projected deficits, increasing spending on CSU ENROLLMENT In this section, we first provide background on critical part of this transfer pipeline. Nearly half CSU enrollment and cover recent enrollment trends. of community college students who transfer to a Then, we describe the state’s 2025-26 enrollment four-year institution transfer to a CSU. Over time, expectations for CSU, followed by CSU’s enrollment roughly half of CSU’s incoming undergraduates growth plans. Finally, we assess CSU’s enrollment have been transfer students, with the other half situation and provide a recommendation for the being freshmen. Legislature to consider. State Budget Typically Sets Enrollment Growth Expectations for CSU. In most years, Background the state sets enrollment growth expectations Most CSU Students Are California Residents. for CSU in the annual budget act. These growth Approximately 95 percent of students at CSU are expectations apply to resident students. In some California residents, with the remainder of students years, the state sets expectations for total CSU coming from other states or countries. The share of resident enrollment. In other years, its sets resident students has hovered at about 95 percent expectations only for resident undergraduates, over the past ten years. Of resident students, with no expectation for resident graduate students. approximately 90 percent are undergraduates and CSU tracks a running total of these growth 10 percent are postbaccalaureate and graduate expectations, which it commonly refers to as students. Though the share of resident students its enrollment target. CSU’s enrollment target is high systemwide, some variation exists among in 2024-25 is 390,598 resident FTE students. campuses. In 2023-24, the CSU Stanislaus CSU does not track this target separately for student body had the highest share of resident undergraduates and graduate students. FTE students (99 percent), whereas CSU San State Sometimes Sets Enrollment Luis Obispo had the lowest share (84 percent). Expectations for Budget Year Plus One. CSU Is Important Part of Transfer Pipeline. Historically, the state set an enrollment expectation Since at least the 1960s, the state has wanted for CSU in the budget year (for example, to provide an opportunity for Californians to setting a 2016-17 enrollment expectation in the obtain a university education, if they so desire. 2016-17 Budget Act). More recently, the state To this end, any student (regardless of their high has set enrollment expectations for CSU in the school performance) who successfully completes budget year and budget year plus one. This a course of study at a community college may change has reflected an effort by the state to transfer to a university for their upper-division better align its enrollment expectations with CSU’s coursework. The state considers CSU a particularly www.lao.ca.gov 11 2025-26 BUDGET admissions cycle. As CSU has already made many Historically, many campuses have chosen to offer of its admission decisions for the coming academic these summer courses as self-supported, while year by the time the Legislature enacts the annual others have offered them as state-supported. budget in June, setting budget-year expectations (Of the self-supported FTE enrollment in 2023-24, can be too late to have a notable impact on CSU 40 percent was generated in the summer term.) behavior. In contrast, setting an expectation for Each campus sets its own fees for self-supported budget year plus one allows the state to have more summer courses. Based on a review of campus influence over CSU actions for the next academic websites, these fees are different from but not year. Setting enrollment expectations for budget consistently higher or lower than the tuition year plus one, in turn, gives CSU campuses charged for comparable state-supported courses. more time to adjust their enrollment management Students in both types of summer courses have practices to meet any new enrollment expectations opportunities to receive financial aid, but those set for them. opportunities tend to be greater for students in State Funds Enrollment Growth According state-supported courses. to Per-Student Formula. Typically, the state Recent Trends supports resident enrollment growth at CSU by providing a General Fund augmentation based CSU’s Enrollment Is Rebounding From on the number of additional students CSU is to Pandemic Declines. As Figure 10 shows, CSU’s total resident enrollment was generally trending enroll. The per-student funding rate is derived upward from 2014-15 through 2020-21. CSU using a “marginal cost” formula. This formula then experienced notable declines in its resident estimates the cost of the additional faculty, support enrollment in 2021-22 and 2022-23. In 2022-23, services, and other resources required to serve CSU enrolled approximately 30,000 fewer resident each additional student. Those costs are shared FTE students than a couple of years earlier. between state General Fund and student tuition CSU resident enrollment has been rebounding revenue. In 2024-25, the total marginal cost per these past two years, though estimated resident student is $15,774, with a state share of $10,995. enrollment in 2024-25 remains nearly 13,000 FTE The formula calculates one rate that applies to all students below CSU’s 2020-21 peak. resident enrollment, whether at the undergraduate or graduate level. Whereas the state subsidizes the CSU Reports Exceeding Its 2024-25 State cost of educating resident students, nonresident Enrollment Expectation. Despite its enrollment students are charged a higher tuition rate that is being below its 2020-21 peak, CSU reports that intended to cover the full cost of their education. it is exceeding the state enrollment expectation set for it in the 2024-25 Budget Act. The CSU Also Offers Self-Supported Courses. 2024-25 Budget Act directed CSU to increase Like the other public higher education segments, resident undergraduate enrollment by 6,338 FTE CSU offers some self-supported courses (also students, bringing its resident undergraduate referred to as extended education or professional enrollment level to 339,946 FTE students. This and continuing education). Self-supported courses growth expectation is relative to CSU’s actual generally charge student fees intended to cover enrollment level in 2023-24. CSU reports that it the full cost of offering them, without any state exceeded the 2024-25 state budget expectation— subsidy. Self-supported course offerings include an growing by 9,326 FTE students, for total resident array of academic courses, professional certificate undergraduate FTE students of 342,935 resident programs, and personal enrichment courses undergraduate FTE students. When combined offered throughout the year. In 2023-24, CSU with postbaccalaureate and graduate enrollment, enrolled 22,100 FTE students in self-supported CSU estimates enrolling a total of 380,073 resident courses. These students are not counted toward FTE students in 2024-25—an increase of 10,166 state enrollment targets. students (2.7 percent) from the previous year. Many Summer Courses Have Been Self-Supported. All CSU campuses offer some academic courses during the summer. 12 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET Figure 10 Over Past Decade, CSU Enrollment Has Seen Ups and Downs Enrollment for Resident Full-Time Equivalent Students 400,000 390,000 380,000 370,000 360,000 350,000 340,000 330,000 320,000 310,000 300,000 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25a a Reflects CSU's January 2025 estimate of 2024-25 enrollment level. Fall Headcount Increased for New Freshmen, transfer students (linked with declines in community Transfers, and Continuing Students. Though college enrollment during the pandemic years). the 2024-25 college year is still underway, CSU Though enrollment for new transfer students is has fall 2024 headcount data broken down by higher than previous years, it is still 10 percent certain student groups. Based on that data, the below pre-pandemic levels. Figure 11 also shows number of new resident freshmen enrolling at CSU the number of continuing undergraduates in fall increased 0.3 percent over the previous year, as 2024 increased 0.9 percent from the previous year. Figure 11 shows. This is CSU’s largest incoming This is the first year that the number of continuing freshman cohort to date by a couple hundred undergraduates has increased since the pandemic. students. New transfer students increased at a The decline in retention rates seen during the substantially higher rate (6.4 percent). This large pandemic may be reversing. increase comes after three years of declines in new Figure 11 CSU Experienced Growth Among All Student Groups in Fall 2024 Resident Headcount, Fall Term Change from 2023 2022 2023 2024 Amount Percent Undergraduate New freshmen 61,272 64,125 64,301 176 0.3% New transfer students 48,006 47,613 50,641 3,028 6.4 Continuing students 277,960 273,080 275,523 2,443 0.9 Subtotal (387,238) (384,818) (390,465) (5,647) (1.5%) Postbaccalaureate/Graduate 46,420 45,194 47,028 1,834 4.1% Totals 433,658 430,012 437,493 7,481 1.7% www.lao.ca.gov 13 2025-26 BUDGET Some of Increase Is Due to Shifting More their targets. Specifically, beginning in 2024-25, Students From Self- to State-Supported CSU shifted a portion of funded slots away from Courses. As Figure 12 shows, state-supported eight campuses below their enrollment targets in summer FTE students nearly doubled in 2023-24 2023-24 to nine campuses above their enrollment relative to the previous year. CSU explains the targets. Figure 13 shows how many funded increase was due to campuses shifting certain enrollment slots were moved away from those summer courses from self- to state-supported. campuses. It also shows the nine campuses that That is, the increase in state-supported students gained funded slots under the plan. CSU intends to was largely offset by an accompanying decrease in continue implementing this plan in 2025-26. self-supported students. CSU indicates the courses Despite Recent Enrollment Increases, Most shifted to state-supported were generally academic Campuses Remain Below CSU’s Enrollment courses that students took to make progress Targets. Whether a campus meets its enrollment toward their degree. These include courses taken target depends on several key factors, including the by continuing students as well as new students number of students who apply, admission rates, yield participating in summer transition programs. rates, retention rates, and other aspects of student (Data is not available on the specific courses that and campus behavior. As Figure 14 on page 16 were shifted or the number of FTE students enrolled shows, 13 campuses are projected to be below in those courses.) Though not as pronounced, this their enrollment targets set by CSU for 2024-25. trend continued in summer 2024, with campuses Six of these campuses would need to increase shifting more students from self- to state-supported enrollment by more than 20 percent to reach their programs. While the number of self-supported 2024-25 targets. summer FTE students decreased by 9 percent, the Number of “Impacted” Programs Is number of state-supported FTE students increased Decreasing. Historically, some CSU campuses by 13 percent. and academic programs have been designated as CSU Began Implementing an Enrollment impacted, meaning they have more student demand Reallocation Plan in 2024-25. CSU allocates than enrollment slots. To manage student demand, its systemwide enrollment target and associated impacted campuses and programs adopt stricter funding among its campuses. For the past several admissions criteria than the minimum systemwide years, certain CSU campuses have been enrolling eligibility requirements. Campuses may apply the fewer students than their enrollment targets while stricter admissions criteria to applicants outside other campuses have been enrolling students in their local service area and/or applicants within excess of their targets. In response, CSU recently specific high-demand programs. Currently, five developed an enrollment reallocation plan. The plan CSU campuses (Fullerton, Long Beach, San Diego, entails CSU gradually shifting slots and associated San José, and San Luis Obispo) are impacted in all funding away from those campuses notably below undergraduate programs. Other campuses tend to their targets to those campuses notably above have at least a few programs impacted in 2024-25. Figure 12 CSU Shifted More Students From Self- to State-Supported Courses in Summer 2024 Summer Resident Full-Time Equivalent (FTE) Studentsa Change From 2023-24 2022-23 2023-24 2024-25 Amount Percent State-supported FTE students 5,660 11,157 12,642 1,485 13% Self-supported FTE students 13,050 8,345 7,600 -745 -9 Totals 18,710 19,502 20,242 740 4% a Reflects annualized FTE resident students across all student levels. Summer is the first term of the college year. For example, summer 2024 enrollment counts towards 2024-25. 14 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET 2025-26 and 2026-27 Figure 13 Enrollment Expectations CSU Reallocated Enrollment Slots and Budget Plan Sets Enrollment Funding Among Some of Its Campuses Expectations for Coming Years. The 2024-25 Budget Act set a 2024-25 Resident FTES Target Reallocation resident undergraduate enrollment expectation for CSU in 2025-26 Funded Enrollment Slots Lost Funded Enrollment Slots Gained (following recent state practice of Fullerton setting expectations for budget year plus one). The 2025-26 budget San Marcos plan maintains that expectation San Luis Obispo and adds an expectation for San Diego 2026-27. Specifically, the budget plan sets forth that CSU is to Long Beach grow its resident undergraduate Pomona enrollment by 10,161 FTE students, Los Angeles for a total associated level of 350,107 FTE students in 2025-26. It San José also sets forth that CSU is to grow Northridge by another 10,161 FTE students in 2026-27, for a total level of Maritime 360,268 FTE students. Though the Channel Islands budget plan does not contain any Monterey Bay enrollment growth funding for CSU in 2025-26, it maintains provisional Humboldt language permitting the Director of Sonoma Finance to reduce CSU funding for East Bay each student below the expected 2025-26 level. The provisional Chico language indicates the reduction San Francisco would be taken at the 2025-26 state marginal cost rate of $10,983. -1000 -800 -600 -400 -200 200 400 600 800 1000 Assessment Note: Reflects data reported by CSU in August 2024. Enrollment slots gained includes slots allocated due to funded enrollment growth in 2024-25. Countervailing Factors at FTES = full-time equivalent students. Work in 2025-26. Given CSU For example, many campuses are impacted experienced enrollment growth in in their Biological Sciences, Engineering, and 2023-24 and 2024-25, it could see further growth Nursing programs. Though some programs remain in 2025-26. The growth rate, however, might not impacted, eight campuses saw a decrease in be large due to certain countervailing factors. the number of impacted programs in 2024-25 On the one hand, the administration projects that compared to 2023-24. the number of high school graduates will decrease by 3 percent, leading potentially to a decrease in the incoming freshman class for fall 2025. On the other hand, recent upward trends in new transfer students and continuing students could persist into the budget year. www.lao.ca.gov 15 2025-26 BUDGET From 2017-18 through Figure 14 2021-22 (the most recent data available), the percent More Than Half of CSU Campuses Are Below Enrollment Targets Projected Resident Full-Time Equivalent Students Relative to Targets, 2024-25 of high school completers in California attending any college decreased from 68 Sonoma to 62 percent. Maritime Enrollment Growth Humboldt Continues to be Overstated Channel Islands Due to Shift in Summer East Bay Courses. When the San Francisco Legislature sets enrollment Chico growth expectations for CSU in the state budget, it intends San Bernardino for CSU to add more students. Dominguez Hills Though CSU is reporting Stanislaus higher state-supported Los Angeles enrollment in each of the Bakersfield past two years, part of these Fresno increases has come from Northridge shifting enrollment from self- to Long Beach state-supported courses rather than adding new Sacramento enrollment. Though the San José number of students shifted Monterey Bay from self- to state-supported San Diego courses is smaller in 2024-25 Fullerton compared to 2023-24 San Luis Obispo (745 FTE students shifted in San Marcos summer 2024 compared to Pomona 4,705 FTE students shifted the previous summer), the -40% -30 -20 -10 10 20% effect is still not adding Note: Reflects 2024-25 estimates reported by CSU in February 2025. new students but adding new state costs from Demographic Trends Are Likely to Limit shifting students formerly in self-supported Growth in Out-Years. Whereas CSU has seen courses into state-supported ones. increases in new freshmen over the past few years, Most CSU Campuses Are Already Meeting demographic trends could limit this growth moving Student Demand. In the past, a key reason the forward. Based on the most recent projections Legislature has funded CSU enrollment growth was from Department of Finance, the number of high to expand access to eligible students who might school graduates in California peaked in 2021-22. otherwise not be admitted. This issue is less of a As Figure 15 shows, the number of high school concern today. Over the past few years, admission graduates is projected to decline by 17,689 students rates have increased at nearly all CSU campuses. (4 percent) from 2024-25 to 2027-28. All else equal, Sixteen campuses had freshman admission rates of this would translate to smaller new freshman 90 percent or higher in fall 2024, compared to only cohorts in the out-years. This demographic three campuses in fall 2019. Transfer admission decline will not necessarily be offset by a higher rates have also increased over the past few years. share of high school graduates attending college. 16 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET Figure 15 High School Graduates Are Projected to Decline California Public High School Graduates 460,000 Projected 450,000 440,000 430,000 420,000 410,000 400,000 390,000 380,000 2010-11 2012-13 2014-15 2016-17 2018-19 2020-21 2022-23 2024-25 2026-27 In addition, fewer campuses and programs Under Budget Plan, No Funding Is Earmarked are impacted. for Enrollment Growth. As discussed in the CSU’s Enrollment Reallocation Plan Is “Core Operations” section, the state budget plan Realigning Funding With Actual Students reduces General Fund support for CSU by a net of Served. Though a majority of CSU campuses are $122 million. No funding is provided to cover the currently below their enrollment targets, some marginal cost of new resident enrollment. CSU has campuses are exceeding their enrollment targets. expressed concern about continuing to increase its In 2024-25, CSU began addressing this situation systemwide resident enrollment moving forward in by reallocating existing enrollment slots from the absence of additional state funding. campuses under their 2023-24 targets to those Recommendation exceeding their 2023-24 targets. Effectively, this reallocation moved funding internally within the Hold CSU’s Resident Enrollment Target CSU system to help support more enrollment Flat for 2025-26 and 2026-27. Given the budget plan does not provide CSU with additional state growth at growing campuses. Specifically, CSU General Fund support in 2025-26 and the state is moved funds from eight campuses below target facing a projected budget deficit in 2026-27, we to nine campuses above target. Seven out of the recommend the Legislature hold CSU’s resident eight campuses furthest from meeting enrollment enrollment expectation flat at its existing 2024-25 demand are located in Northern California, level for 2025-26 and 2026-27. Specifically, we whereas eight out of the nine campuses with recommend holding CSU’s total resident enrollment unmet enrollment demand are located in Southern expectation at 380,073 FTE students for both California. If these nine campuses continue to see of those coming years. If CSU were directed to enrollment demand in the next couple of years, enroll more students in the absence of associated but do not receive additional funding to support funding, it would need to make further budget enrollment growth, they likely will have to turn away adjustments, including further spending reductions more students. that, in turn, could begin to impact students. www.lao.ca.gov 17 2025-26 BUDGET As mentioned in the “Core Operations” section, reverse itself over the next two years given budget CSU is considering various budget adjustments, constraints. Importantly, though the state would including hiring freezes, which could result in not be providing systemwide enrollment growth fewer course offerings and larger class sizes. under this recommendation, CSU’s plan to continue Though CSU has experienced a decline in its implementing its enrollment reallocation plan would FTE student-to-FTE employee ratio over the past shift additional enrollment slots within the CSU several years (due to some enrollment declines system to the subset of campuses that have been coupled with more hiring), that trend is likely to experiencing enrollment growth. CAPITAL FELLOWS In this section, we discuss the Governor’s Each fellowship provides both experiential learning proposal to increase ongoing state support opportunities as well as career development for the Capital Fellows program, which CSU’s and mentorship. Fellows work 10 months in the Center for California Studies administers. judicial branch, 10.5 months in the executive We first provide background on the program branch, and 11 months in the Assembly and Senate. and discuss the Governor’s proposal. We then Fellows Must Meet Program Eligibility provide an assessment of the proposal and Requirements. To apply for the program, one offer a recommendation. must be at least 20 years old and have earned a bachelor’s degree. In addition, applicants Background must have a college grade point average of 2.5 Center for California Studies Is Funded or higher, an interest in state government and Within CSU’s Budget. Apart from CSU’s main public policy, and be authorized to work in the state General Fund appropriation, the state United States. The majority of Fellows are coming separately funds CSU’s Center for California straight out of an undergraduate program, Studies (the Center). The Center was founded in though some have at least a few years of prior 1982. It is overseen by CSU Sacramento in concert work experience. (Among its 2024-25 cohort, the with the CSU Chancellor’s Office. In 2024-25, the Center reports only 1.5 percent of Fellows held a Center received $5.6 million ongoing General Fund master’s degree.) In fall 2024, the Center received support. The Center has 12 authorized positions. 1,061 applications from 590 unique applicants for Center’s Primary Responsibility Is to the 2025-26 fellowship year. (Some candidates Administer the Capital Fellows Program. apply to more than one fellowship program.) The largest program the Center administers is the Funding for the Number of Fellows Increased Capital Fellows program. This program accounts for in 2024-25. For many years, the program funded $3.9 million (70 percent) of the Center’s ongoing 64 Fellows (18 Assembly, 18 Senate, 18 Executive, state General Fund support. and 10 Judicial Fellows). In 2024-25, the Center Capital Fellows Program Is a Hands-On received a $330,000 ongoing General Fund Learning Experience for Those Interested augmentation to support an additional seven in State Government. The core objective of Assembly Fellows, raising the number of Assembly the Capital Fellows program is to train young Fellows from 18 to 25. As a result, the Center professionals for a career in public service within currently has funding for a total of 71 Fellows. state government. The program consists of four Fellows Are Full-time, Salaried Employees. fellowship opportunities: Assembly, Senate, Fellows receive paid, full-time employment with Executive, and Judicial. Fellowships are structured a monthly salary of $3,253 ($39,036 annualized). similarly regardless of the branch of government. Assembly, Senate, and Executive Fellows are based in Sacramento while Judicial Fellows are placed 18 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET at superior courts across the state. All Fellows are risen to the minimum level for salaried employees, paid the same salary, regardless of where they are Fellows would have become eligible for overtime, based. Fellows also receive medical, dental and which is not the intent of the program.) Despite that vision benefits; a $875 one-time moving allowance; federal requirement being rescinded, the Center and student loan deferment. indicates a salary increase is still warranted to help Fellows Participate in Two Graduate Fellows afford rising living costs as well as keep the Seminars During the Fellowship. In addition to fellowship program competitive with comparable their work responsibilities, Fellows are required to programs in the state and country. complete six units of graduate coursework. During Assessment their time in the fellowship, Fellows enroll in two courses taught in person at CSU Sacramento. Housing Costs in Sacramento Are Rising. Apart from the Judicial Fellows, all other Fellows are The content of these courses is catered towards required to relocate to Sacramento (unless already each specific fellowship program (Assembly, living in the area). The Center has expressed Senate, Executive, and Judicial). Upon completion concern that the current salary for Fellows is of the two courses, Fellows receive a Certificate insufficient to cover housing and other living costs in Applied Policy and Government. The Center in Sacramento. From 2019 through 2023, the pays the tuition and fees for these seminars for median gross rent in Sacramento County increased all Fellows. at an average annual rate of 7.5 percent. In 2023, Capital Fellows Program Opens Doors Into the median gross rent in Sacramento County State Government. The program’s competitive was $1,702. Though Fellows may be able to find nature and high-quality training makes Fellows less expensive rent and share housing, spending upon completing the program sought-after $1,000 per month on rent and utilities would equate candidates for state government jobs. Participation to 31 percent of their paycheck. A household in the fellowship program provides a level of commonly is considered cost-burdened if they exposure and prestige that helps Fellows in the spend more than 30 percent of their income on next stage of their careers. The Center reports that housing costs. for the 2023-24 Capital Fellows cohort, 89 percent of the Assembly Fellows cohort and 83 percent of Salaries Are Not Adjusted for Inflation. Salaries for Fellows are not adjusted annually for the Senate Fellows cohort continued working for increases in cost of living. Every time the Center the Legislature upon completion of the fellowship. wants to increase salaries, regardless of the More than half of Executive Fellows continued amount, it must submit a new budget request to the working for the executive branch and 30 percent of state. The Center last raised salaries just a couple Judicial Fellows continued working for the judicial of years ago. In 2022-23, the Center raised Fellows branch following completion of the fellowship. salaries by 9.75 percent, up to the current level of Governor’s Proposal $3,253 per month. If adjusted annually based on Governor Proposes Increasing Salaries for the California Consumer Price Index (CA CPI), that Capital Fellows. The Governor’s budget includes a monthly salary rate would be $3,447 in 2024-25. $1.3 million ongoing General Fund augmentation for Candidates Have Expressed Concern the Capital Fellows program, bringing funding for Regarding Salary Amount. The Center shared the program up to $5.2 million. The augmentation with us that it does not have a problem with is to provide a 50 percent salary increase for receiving applications, but it does face challenges Fellows, bringing their monthly salary to $4,888 in getting candidates to accept offers. The Center ($58,656 annualized). The Center shared that cites that one reason candidates decline offers this request originally was tied to a new federal is due to the salary amount. Some candidates requirement, which has since been vacated. have also expressed concern regarding the (Specifically, a federal regulation would have salary amount during the application process and increased the salary threshold to be classified as have asked if there are other opportunities for salaried employees. Had the salary for Fellows not employment during their time in the fellowship. www.lao.ca.gov 19 2025-26 BUDGET However, the Center shared that it is difficult for A common entry-level position is a Legislative Aide fellows to work another job given the rigor and for a Capitol Office. Another entry-level position is full-time work required by the program. a District Representative for a District Office. These Fellows May Receive Some Additional positions require a bachelor’s degree and legislative Financial Assistance. Though it is challenging experience is preferred. The monthly salary range for Fellows to work another job during their time for both positions is $5,384 to $8,406 ($64,608 in the program, they can apply for a small amount to $100,872 per year)—66 percent to 2.5 times of additional financial assistance through the more than the Capital Fellows program. However, Timothy A. Hodson Capital Fellows Assistance unlike these positions, the fellowship program has Fund. The Fund was established in 2012 to provide non-monetary benefits such as networking and need-based financial support to Capital Fellows. experiential learning opportunities. In 2024, approximately $10,000 was granted to More Data Is Needed to Fully Analyze the 23 Fellows to help cover living expenses, providing Impact of Salaries on Program Demand. an average award of $500. Though the Center is seeing trends in candidates Comparable Fellowship Programs Have declining program offers for other opportunities and Higher Salaries. Though data is unavailable on applicants have expressed concerns regarding the what other programs candidates may choose salary amount, we do not have the data to conclude instead of the Capital Fellows program, one reason that the reason candidates are declining offers is driving their decision could be finding higher due to the salary amount. Without data on why salaries elsewhere. For example, the San Francisco candidates declined the program and information Fellows Program is also open to individuals with a on if they participated in another fellowship bachelor’s degree and requires less than five years program, it is difficult to know if increasing of work experience. Fellows spend 11.5 months salaries will lead to a meaningful increase in working full-time for the city and are paid a yearly accepted offers. salary of $69,000 to $107,000. Other fellowship Recommendation programs in the state also pay more but require a Recommend Increasing Salaries by master’s degree or past work experience. 10 Percent Instead of 50 Percent. Given all of Capital Fellows Intended to Reflect the the factors mentioned above, we recommend Diversity of California. The Center shared the Legislature raise salaries for Fellows by that legislators and courthouse representatives 10 percent. A 10 percent increase would raise expressed the importance of having Fellows salaries to $3,578 monthly ($42,936 annualized). represent districts across the state as well as This would help Fellows, some of the lowest-paid reflect different lived experiences. However, the state workers, afford the rising cost of living and program’s current salary level may be limiting potentially help to preserve an important pipeline participation to those candidates who (1) effectively into state government careers. Though a 10 percent can supplement the program’s wages with other increase is slightly above the current salary amount resources or savings to cover living expenses adjusted for the CA CPI, this increase is intended during their time in the program or (2) can to also help make the program more accessible continue to live at home (in Sacramento or near a and keep the program competitive. Raising courthouse). Moreover, some potential applicants, salaries to this level in 2025-26 costs a total of such as a primary caregiver, may be deterred from $253,000 additional ongoing General Fund, or applying due to the current salary level. In these about $1 million less than the amount included ways the current salary level could be narrowing the in the Governor’s original budget proposal. As a applicant pool, making it more challenging to find result, this approach would also commit fewer candidates that reflect the diversity of the state. ongoing General Fund resources at a time when the Recent Graduates Are Paid Higher Working state is facing projected budget deficits. Directly for a Capitol or District Office. Rather than participating in the Capital Fellows program, a candidate may seek to work directly for the state. 20 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET Recommend Adjusting Annually for Inflation measure. Having such as annual adjustment would Thereafter. In addition to raising the salary level keep salaries at least commensurate with changes in 2025-26, we recommend the Legislature adopt in living costs. Though the Center may still seek provisional language in the budget act authorizing future increases to Fellows’ salaries to ensure the an annual cost-of-living adjustment to begin program remains competitive, the frequency of in 2026-27. We recommend using the CA CPI such requests likely would be significantly reduced. (All Urban Consumers) as the annual inflationary www.lao.ca.gov 21 2025-26 BUDGET 22 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET www.lao.ca.gov 23 2025-26 BUDGET LAO PUBLICATIONS This report was prepared by Natalie Gonzalez, and reviewed by Jennifer Pacella and Ross Brown. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, California 95814. 24 LEGISLATIVE ANALYST’S OFFICE