The 2025-26 Budget: California Student Aid Commission

2025-26 BUDGET The 2025-26 Budget: California Student Aid Commission GABRIEL PETEK | LEGISLATIVE ANALYST | FEBRUARY 2025 SUMMARY Brief Covers the California Student Aid Commission (CSAC). This brief provides an update on Cal Grant and Middle Class Scholarship (MCS) cost estimates, as well as analyzes the Governor’s budget proposals for California College of the Arts (CCA) and CSAC’s state operations. Governor’s Budget Includes Baseline Augmentation for Cal Grants. The Governor’s budget revises 2024-25 Cal Grant spending upward by $14 million (0.6 percent) relative to the enacted level. From the revised 2024-25 level, the Governor’s budget increases Cal Grant spending by $109 million (4.5 percent), bringing total program spending to $2.6 billion in 2025-26. Though the administration’s cost estimates appear reasonable at this time, they likely will change between now and the May Revision due to various factors. Notably, CSAC could learn more over the coming months about how the continued rollout of the revised federal financial aid application and changes in application deadlines are affecting program costs. MCS Funding Decreases Under 2025-26 Budget Plan. MCS awards reflect a certain percentage of students’ remaining cost of attendance after accounting for their available resources (including any gift aid they receive). MCS awards are expected to cover 35 percent of a student’s remaining cost of attendance in 2024-25. The 2025-26 budget plan reduces funding for MCS by $110 million ongoing, while also removing $289 million in previous one-time funding for the program. As a result of these actions, total MCS funding would decline from $925 million in 2024-25 to $527 million in 2025-26. At the reduced funding level, CSAC estimates that MCS awards will cover 18 percent of students’ remaining costs of attendance in 2025-26. Recommend Rejecting Proposal for $20 Million One-Time Funding for CCA. CCA is a nonprofit, private college based in San Francisco. The proposed $20 million would be on top of $2.5 million in one-time General Fund the state provided to CCA in 2024-25. CCA is currently facing a $20 million budget deficit. Though we recognize CCA’s difficult financial situation, it is not the only campus in the state facing budget challenges. Certain California State University (CSU) campuses are in somewhat similar situations. Under the 2025-26 budget plan, state support for CSU and the University of California (UC) is being reduced. Given supporting private schools is not part of the state’s core mission, we recommend rejecting this proposal. The school, however, recently announced that it had received $45 million in philanthropic donations, which will help alleviate its fiscal challenges. Recommend Approving Chief Information Security Officer (CISO) Position but Holding Off on Operating Expenses and Equipment (OE&E) Request. The Governor’s budget has two proposals relating to CSAC’s state operations. The first proposal is $230,000 ongoing General Fund for a CISO position. Given CSAC houses a large amount of personal and sensitive information and has experienced increasing financial aid fraud attempts, we recommend approving this position. The second proposal is $1.4 million one-time General Fund in 2025-26 and $3 million ongoing General Fund in 2026-27 for general operational support. CSAC indicates it will use the funds to support currently authorized but unfilled positions and cover rising operational costs due to inflation. Before taking action on this proposal, we recommend the Legislature request that CSAC provide additional clarity on what workload it is currently unable to cover and what the associated programmatic implications are of not undertaking that work. www.lao.ca.gov 1 2025-26 BUDGET INTRODUCTION Brief Focuses on CSAC Budget. CSAC for (1) Cal Grants, (2) MCS, (3) CCA, and (4) state administers many of the state’s student financial operations. The Governor also has proposals aid programs. This brief is organized around the relating to Golden State Teacher Grants and College Governor’s 2025-26 budget proposals for CSAC. Corps (a financial aid program that California The first section provides an overview of CSAC’s Volunteers administers), which we plan to cover in budget. The remaining sections cover proposals forthcoming publications. OVERVIEW CSAC Programs Rely Heavily on State Funding. a $110 million reduction in ongoing General Fund Historically, CSAC’s student financial aid programs support for the MCS program, together with the were supported entirely with state General Fund. expiration of $289 million in one-time funding provided Several years ago, the state began supporting for that program in 2024-25. The Governor’s budget some of these financial aid costs with federal proposes $50 million one-time General Fund to Temporary Assistance for Needy Families (TANF) support another year of Golden State Teacher Grants funds. From 2020-21 through 2024-25, the amount (which we analyze in a forthcoming publication). It also of TANF support has held steady at $400 million includes $20 million one-time General Fund to provide (approximately 10 percent to 15 percent of CSAC’s general fiscal support for CCA (a private, nonprofit total funding). In 2024-25, state General Fund college in San Francisco). Lastly, it contains various comprised nearly 90 percent of CSAC funding. The smaller changes to CSAC’s state operations. small remainder of CSAC support comes from various other fund Figure 1 sources, including reimbursements Ongoing General Fund Support for CSAC Is Flat from other departments. in 2025-26 Governor’s Budget Provides (In Millions) $3.2 Billion in Total Funding for CSAC in 2025-26. As Figure 1 Change From 2024-25 2024-25 2025-26 shows, the proposed 2025-26 Revised Proposed Amount Percent funding level for CSAC is $335 million Spending (9.4 percent) lower than the revised Local assistance 2024-25 level. The lower funding Cal Grants $2,453 $2,562 $109 4.5% level is due to a large decrease in Middle Class Scholarships 925a 527 -398 -43 Golden State Teacher Grantsb 116 50 -66 -57 one-time funding. Ongoing funding California College of the Artsb 3 20 18 700 increases by a net of only $1 million. Other programs 39 38 -0.1 -0.3 Federal TANF funding remains flat Subtotals ($3,535) ($3,198) (-$337) (-9.5%) at $400 million. State operations $23 $26 $2 9.3% Totals $3,558 $3,223 -$335 -9.4% Governor’s Budget Includes Funding Several Changes to CSAC General Fund $3,135 $2,802 -$333 -11% Spending. The largest CSAC Ongoing 2,729 2,730 1 —c spending increase in the Governor’s One-time 406 72 -334 -82 budget is a $109 million ongoing Federal TANF $400 $400 — — General Fund augmentation to cover Other funds and $23 $21 -$2 -7% higher anticipated Cal Grant costs reimbursements in 2025-26. Consistent with the a Includes $289 million in one-time funds. budget agreement the state made b One-time initiatives. c Below 0.1 percent. last year, the budget plan includes CSAC = California Student Aid Commission and TANF = Temporary Assistance for Needy Families. 2 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET CAL GRANTS In this section, we first provide background on the Most Cal Grants Are Entitlements, but Cal Grant program and then discuss cost estimates Some Are Awarded Competitively. For more for this program. than 20 years, the state has provided Cal Grants as entitlements to recent high school graduates Background as well as transfer students under age 28. Cal Grant Program Is the State’s Largest In 2021-22, the state also began providing Cal Financial Aid Program. The Cal Grant program is Grants as entitlements to community college intended to help students with financial need cover students, regardless of their age and time out college costs. The program offers multiple types of of high school. The state currently provides Cal Grant awards. As Figure 2 shows, the amount approximately 162,000 new entitlement awards of aid students receive depends on their award type annually. The state also provides a limited number and the segment of higher education they attend. of competitive awards (13,000 new awards annually) Cal Grant A awards cover full systemwide tuition to students who do not qualify for an entitlement and fees at public universities and a fixed amount award—typically older students attending of tuition at private universities. Cal Grant B awards four-year universities. provide the same amount of tuition coverage as Cal Grant A awards in most cases, while also providing Figure 2 an “access award” for nontuition expenses such as Cal Grant Amounts Vary by Award Type, food and housing. Cal Grant C awards, which are Sector, and Student Characteristics only available to students enrolled in career technical Maximum Annual Award Amount, 2024-25 education (CTE) programs, provide lower amounts of tuition and nontuition coverage. Across all award Amount types, larger amounts of nontuition coverage are Tuition Coverage available to students with dependent children as well Cal Grant A and Ba as current and former foster youth. UC $14,436b Cal Grants Have Financial and Academic Nonprofit institutions 9,358 WASC-accredited for-profit institutions 8,056 Eligibility Criteria. Students apply for Cal Grant CSU 6,084 awards by submitting a Free Application for Federal Other for-profit institutions 4,000 Student Aid (FAFSA) or California Dream Act Cal Grant C Application. To qualify for an award, students must Private institutions $2,462 meet certain income and asset criteria. These criteria Nontuition Coveragec vary by family size and are adjusted annually for Cal Grant A inflation. For example, in the 2024-25 award year, Students with dependent children $6,000 Foster youth 6,000 a dependent student from a family of four must Cal Grant B have an annual household income of no more Students with dependent children $6,000 than $131,200 to qualify for a Cal Grant A or C and Foster youth 6,000 no more than $69,000 to qualify for Cal Grant B. All other students 1,648 In most cases, students must also meet a grade Cal Grant C Students with dependent children $4,000 point average (GPA) requirement. The specific GPA Foster youth 4,000 requirement varies by award type. Most award types Other CCC students 1,094 require a minimum high school GPA of 2.0 or 3.0 or a Other private-institution students 547 minimum community college GPA of 2.0 or 2.4. a Cal Grant B recipients generally do not receive tuition coverage in their first year. b Reflects award amount for new UC students. Award amounts for continuing students are based on the tuition levels set in the year the student first enrolled at UC. c Students attending private for-profit institutions are ineligible for “students with dependent children” and “foster youth” awards. WASC = Western Association of Schools and Colleges. www.lao.ca.gov 3 2025-26 BUDGET Cost Estimates a lower growth rate compared to the increase of 6.9 percent from 2023-24 to 2024-25. We Governor’s Budget Reflects Small Prior-Year summarize the projected changes for 2025-26 by and Current-Year Revisions to Cal Grant segment and award type in our Cal Grant Spending Spending. From the 2024-25 Budget Act level, and Cal Grant Recipients tables. The higher the Governor’s budget revises prior-year Cal Grant spending reflects a 1.3 percent projected increase spending downward by $38 million, reflecting in recipients and a 3.2 percent projected increase in underlying downward adjustments to nearly all average Cal Grant award amounts, primarily due to Cal Grant program components. The Governor’s UC’s and CSU’s planned tuition increases. (Under budget adjusts current-year Cal Grant spending CSAC’s estimates, $48 million of the Cal Grant upward by $14 million (0.6 percent). This increase spending increase in 2025-26 is attributable to brings estimated Cal Grant spending in 2024-25 to covering higher tuition costs at UC and CSU.) $2.5 billion—$158 million (6.9 percent) higher than the revised 2023-24 level. Cost Estimates Will Be Updated at May Revision. CSAC prepared the Cal Grant cost Two Factors Explain Higher Current-Year estimates underlying the Governor’s budget Spending. The upward revision to in October 2024. In the spring, CSAC plans 2024-25 spending since budget enactment is the to update its estimates based on more recent net result of many underlying changes. Whereas the program data for 2024-25. The administration is estimated costs of certain program components expected to update its Cal Grant spending levels declined, they increased in two areas. Anticipated at the May Revision accordingly. Though the spending increased for (1) Cal Grant A and B administration’s cost estimates for 2024-25 and entitlement awards and (2) Cal Grant C awards. 2025-26 seem reasonable at this time, CSAC is still CSAC believes the increase in entitlement costs studying how certain factors are affecting program are being driven by a higher share of renewal costs. In particular, CSAC is still examining how awards, which have a higher average cost than the Better FAFSA (explained in the nearby box) has new awards (in part because some new recipients impacted the number of financial aid recipients and do not receive tuition coverage their first year). their financial aid packages. For Cal Grant C, CSAC attributes the increase to a change in its outreach strategies. Whereas CSAC Application Deadline Extended for 2025-26 previously used a much more targeted outreach Award Year. In January 2025, CSAC used its approach (sending Cal Grant C applications only administrative authority to grant students attending to students who marked they were enrolled in a schools within Los Angeles and Ventura Counties a CTE program on their FAFSA), it blanketed many one-month application extension (to April 2, 2025) more students in 2024-25 (as the Better FAFSA due to the wildfires in those vicinities. In February stopped asking that particular question). CSAC, 2025, CSAC extended the April 2 extension to all in turn, expects more paid Cal Grant C recipients students in California. The deadline was extended in 2024-25. to all students given the delays in the 2025-26 FAFSA rollout. The 2025-26 FAFSA became Governor’s Budget Reflects Further available on December 1, 2024 rather than its Spending Increases in 2025-26. From the traditional date of October 1. revised 2024-25 spending level, the Governor’s budget further increases Cal Grant spending by $109 million (4.5 percent) in 2025-26. This is 4 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET Financial Aid Application Changes Better FAFSA Was Launched for the 2024-25 Financial Aid Cycle. To apply for many types of federal, state, and institutional financial aid, students fill out a federal application. Over the years, many concerns have been expressed about the length and complexity of this form, known as the Free Application for Federal Student Aid (FAFSA). In response to these concerns, the U.S. Department of Education recently made significant changes to shorten and simplify the form. Specifically, the number of questions on the form were reduced and the transfer of certain data from tax filings was streamlined. The updated form is known as the Better FAFSA. The department released the new application form for the 2024-25 award year on December 30, 2023 (about three months later than usual). Given the delay, the state extended California’s student financial aid priority deadline for Cal Grants to May 2 and for Middle Class Scholarships (MCS) to July 2, 2024. Agencies Are Still Determining Impacts of Initial Better FAFSA Implementation. In addition to the delayed launch, students and their families experienced various technical difficulties as they filled out the new form. The California Student Aid Commission (CSAC) notes these challenges may have impacted high school students applying for financial aid in 2024-25 given they were completing the form for the first time. The number of new high school entitlement awards did decrease by 7.4 percent (6,146 recipients) in 2024-25 compared to the prior year. This decrease might be partly attributable to the FAFSA delay and technical difficulties (and partly attributable to a decline in high school graduates). In addition to first-time filers, certain families, particularly those in which one or more parents do not have a social security number, experienced heightened issues completing the new form. CSAC and the higher education segments are still determining the extent to which aid offers and payments for these families were affected. Pell Grant Recipients and Aid Increased Notably. Under Better FAFSA, the U.S. Department of Education revised the process for determining a student’s aid eligibility. The new formula, known as the Student Aid Index, changes how family assets, size, and number of children in college impacts a student’s financial need. These changes were projected to increase the number of students eligible for Pell Grants. CSAC reports that the number of Cal Grant-eligible applicants who were also eligible for Pell Grants increased by 9.8 percent in 2024-25 compared to the prior year. CSAC also reports the average Pell Grant award received by University of California (UC) and California State University (CSU) students receiving an MCS award in 2023-24 compared to 2024-25 increased notably. Specifically, the average Pell Grant award increased $860 (25 percent) for UC MCS recipients and $764 (22 percent) for CSU MCS recipients. These increases likely are due mainly to the FAFSA changes. MIDDLE CLASS SCHOLARSHIPS In this section, we first provide background Background on the MCS program. We then provide a State Revamped MCS Program in 2022-23. 2024-25 program update and end by describing the The state created the original MCS program in 2025-26 budget for the program. the 2013-14 budget package to provide partial tuition coverage to certain UC and CSU students. www.lao.ca.gov 5 2025-26 BUDGET (During the Great Recession, UC and CSU from part-time work earnings; and, in some cases, significantly raised tuition, partly in response a parent contribution. The parent contribution only to declines in state funding.) Originally, awards applies to dependent students with a household were for students who were not receiving tuition income of more than $100,000. Students who are coverage through the Cal Grant program or other from lower-income households have no required need-based financial aid programs. In 2022-23, the parent contribution and generally are eligible for state implemented a new set of rules for the MCS more gift aid (including federal Pell Grants and program. The new program focuses on total cost Cal Grant B awards for nontuition coverage). of attendance (rather than only tuition). Under the This calculation determines the student’s remaining new program, students may use their awards for costs. Next, CSAC determines what percentage nontuition expenses, such as housing and food. of each student’s remaining costs it can cover As Figure 3 shows, the spending for the program based on the annual state appropriation for the and number of recipients increased sharply in program. Awards cover the same percentage of 2022-23 with the launch of the new MCS program. remaining costs for each student, except foster MCS Award Amounts Are Calculated Based youth receive awards that cover 100 percent of on Total Cost of Attendance. As Figure 4 shows, their remaining costs. calculating each student’s award amount involves Award Amounts Have Varied Over the Years several steps. Starting with a student’s total cost of and Across the Segments. Given MCS awards attendance, CSAC deducts the student’s available cover a percentage of a student’s remaining cost resources, consisting of other need-based gift aid; of attendance, award amounts depend each year non-need-based gift aid; a student contribution on the amount of funding and number of recipients. Figure 3 MCS Spending and Recipients Increased Significantly in 2022-23 (Dollars in Millions) Spending $900 350,000 800 300,000 700 250,000 600 200,000 500 400 150,000 300 100,000 200 Recipients 50,000 100 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23a 2023-24 a From 2014-15 through 2021-22, the program served only UC and CSU students, and it provided only partial tuition coverage. Beginning in 2022-23, CCC students in bachelor's degree programs also became eligible for awards, and awards became based on total cost of attendance. MCS = Middle Class Scholarships. 6 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET As Figure 5 shows, the average award amount has fluctuated over Figure 4 the years. The award amount also Middle Class Scholarships Are Calculated Using has varied across UC and CSU, Multicomponent Formula and more recently at CCC. (CCC Illustrative CSU Dependent Student With $110,000 Household Income students in bachelor’s degree Living Off-Campus, 2024-25 programs became eligible for the MCS program in 2022-23.) Award Calculation Awards Are Available to a Cost of attendance $34,717 Broader Group of Students. Federal, state, and institutional need-based gift aida -6,084 The revamped MCS program Student contribution from work earnings -8,154 33 percent of parent contribution from federal SAIb -4,807 generally maintains the income Student’s Remaining Costs $15,672 and asset ceilings of the original Percentage based on annual appropriationc 35% program, adjusted annually for Award Amount $5,485 inflation. The maximum annual a The amount also includes any private grants and scholarships, institutionally awarded merit-based household income to qualify for an aid, as well as institutionally awarded emergency housing and other basic needs emergency grants that are in excess of the sum of the student contribution and parent contribution. award is $226,000 for dependent b Only applies to dependent students with a household income of more than $100,000. c State law requires CSAC to determine what percentage of each student’s remaining costs to cover students in 2024-25. However, each year based on the annual appropriation for the program. The program is estimated to cover the program, in its current form, about 35 percent of each student’s remaining costs in 2024-25. now serves considerably more SAI = Student Aid Index and CSAC = California Student Aid Commission. low-income students than the original program. This is because Figure 5 Average Award Amounts Have Fluctuated Throughout the Years Average MCS Award Amount by Segment $6,000 CSU UC CCC 5,000 4,000 3,000 2,000 1,000 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 Note: The MCS program provided partial tuition coverage to higher-income students through 2021-22. Beginning in 2022-23, MCS award amounts became linked to total cost of attendance, rather than tuition costs only, and became available also for lower-income students. CCC students in bachelor's degree programs became eligible for the program in 2022-23. MCS = Middle Class Scholarships. www.lao.ca.gov 7 2025-26 BUDGET students receiving tuition coverage through Cal cost of living. When more students qualify for MCS Grants or other need-based financial aid programs awards, CSAC has to spread out funding over a are now eligible for MCS awards to help cover larger pool of students. nontuition expenses. Of MCS recipients in 2024-25, Most Students Are Being Notified About 55 percent also received Cal Grants. As Figure 6 Award Amount After Enrollment Decisions. shows, more than half of students who received Campuses typically provide students with their MCS awards in 2023-24 had a household income financial aid offers in the spring, as students are of $50,000 or less, and almost 80 percent had a making their admission decisions. As part of household income of $100,000 or less. Students these offers, some campuses indicate a student with lower household incomes, however, tended to may receive an MCS award and provide an initial receive smaller award amounts because they were estimate of the award amount. Many campuses, receiving more gift aid from other programs. however, have been reluctant to include such Various Program Factors Impact Award information given award amounts are unknown Coverage. Each year, all the underlying inputs to at that time. The data CSAC needs to estimate the MCS formula change (including enrollment, award amounts (enrollment rosters from each of total cost of attendance, and the assumed work the campuses) is not available until about August. earnings). The cost of attendance tends to increase, In turn, campuses typically have been notifying reflecting UC and CSU tuition increases as well as students of their MCS award amount in the fall. rising nontuition expenses (such as housing and As the academic term has begun by then, MCS food). Yet, these increases in cost of attendance awards may likely not impact students’ college are partly offset by increases in students’ available admission decisions. To date, it is unclear if the resources, including other gift aid and work awards are impacting the number of hours students earnings. Beyond these changes, the MCS income work or the level of debt they incur. ceiling is adjusted annually based on changes to Figure 6 MCS Program Serves Many Low-Income Students but at Lower Award Amounts 2023-24 MCS Recipients 80,000 $5,000 Number of Recipients Average Award Amount 4,500 70,000 4,000 60,000 3,500 50,000 3,000 40,000 2,500 2,000 30,000 1,500 20,000 1,000 10,000 500 $25,001 $50,001 $75,001 $100,001 $125,001 $150,001 $175,001 $200,001 $0 or Less $1 to 25,000 to 50,000 to 75,000 to 100,000 to 125,000 to 150,000 to 175,000 to 200,000 to 217,000 Household Income MCS = Middle Class Scholarships. 8 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET 2024-25 Program Update 35 percent. CSAC, the administration, and the Legislature are currently working on solutions to CSAC Reports an Unexpectedly Large address this shortfall. Number of MCS Award Recipients for 2024-25. The 2024-25 Budget Act provided $926 million 2025-26 Budget Plan ($637 million ongoing, $289 million one time) for the CSAC Estimates Awards Will Cover MCS program. In October 2024, CSAC estimated 18 Percent of Students’ Remaining Costs that the appropriation amount was sufficient to in 2025-26. Consistent with last year’s budget cover 35 percent of students’ remaining costs. agreement, the 2025-26 budget plan reduces MCS As of February 2025, CSAC shared it is seeing an funding by $110 million ongoing General Fund, unexpectedly large increase in MCS recipients in bringing ongoing funding down from $637 million 2024-25. Specifically, CSAC is anticipating 79,495 to $527 million. Additionally, the $289 million in more recipients in 2024-25 (29 percent) compared one-time funding provided in 2024-25 expires. to 2023-24. Originally, CSAC estimated a 12 percent Based on CSAC’s preliminary estimates, the increase. Although CSAC is continuing to examine 2025-26 funding level would be sufficient to cover why the number of MCS recipients increased so 18 percent of each student’s remaining costs. sharply in 2024-25, it believes it may be partly due This estimated award coverage, however, could to last year’s application deadline extension (from change at the May Revision, as it was estimated its normal deadline of March 2 to July 2, 2024). before CSAC saw the larger-than-expected Given the number of expected recipients has increase in 2024-25 recipients. increased, CSAC anticipates needing an additional $103 million to keep 2024-25 award coverage at CALIFORNIA COLLEGE OF THE ARTS In this section, we provide background on CCA Enrollment Has Been Declining. CCA, discuss the Governor’s proposal to provide As Figure 7 shows, CCA enrollment has been the college with $20 million one-time General declining since fall 2016. After many years of Fund, assess the proposal, and provide having its enrollment hover at approximately a recommendation. 1,800 students, CCA enrollment declined notably at the onset of the pandemic and has continued Background to decline. In fall 2024, CCA enrolled a total CCA Is a Private, Nonprofit College Based in San Francisco. CCA specializes in the study of Figure 7 art, architecture, design, and writing. It opened in Berkeley in 1907, relocated to Oakland in 1922, and CCA Enrollment Has Been Declining opened a second campus site in San Francisco Total Full-Time Equivalent Students, Fall Term in 1996. Serving as a two-campus institution for more than two decades, CCA is currently 2,500 transitioning down to a one-campus institution, retaining only its San Francisco site. After a notable 2,000 capital campaign, CCA added a large new facility 1,500 at the San Francisco site in 2024. CCA offers 22 1,000 undergraduate and 10 graduate programs. Though data on its graduates is limited, CCA shared that 500 many of its graduates remain in California and work at organizations such as KQED Arts & Culture; 2016 2017 2018 2019 2020 2021 2022 2023 2024 SFMOMA; Pixar; and the Institute of Contemporary CCA = California College of the Arts. Art, San Diego. www.lao.ca.gov 9 2025-26 BUDGET of 1,280 full-time equivalent (FTE) students— Assessment approximately 650 FTE students (34 percent) CCA Recently Received a Large Donation fewer than in fall 2016. Approximately half of CCA to Address Budget Gap. On February 14, 2025, students are California residents, with the other half CCA announced it had raised nearly $45 million coming from other states and countries. in new philanthropic donations. The largest single School Is Facing an Operating Deficit. CCA component was a $22.5 million donation from has been facing a continual budget deficit since the Jen-Hsun and Lori Huang Foundation, with 2021. The deficit has grown from $4.9 million in the remainder coming from current and former 2021 to $11.4 million in 2023, with a slight decrease trustees; alumni; and members of San Francisco’s to $5.8 million in 2024. CCA is projecting a arts, culture, and technology communities. The $20 million deficit in 2025. This is the largest deficit school indicates that these funds “will bridge the the school has experienced over the past decade. college into the next fiscal year, address its current One factor driving this deficit is the school’s deficit, and position the college both to continue enrollment decline, which is resulting in a loss of its strong fundraising work and pursue its path to associated tuition and fee revenue. CCA has also long-term sustainability.” increased spending in areas such as institutional CCA Is Not the Only Campus Facing Budget financial aid. As a result, operating expenditures Challenges. CCA indicates the demographic are outpacing operating revenue, leading to sizable decline in the college-age population over the budget gaps in the past five years. In prior years, last decade has impacted it, similarly to how CCA has relied on philanthropic donations to help those demographic declines have impacted fill these gaps. other small, regional higher education campuses CCA Received State Support in 2024-25. across the state and country. In California, CSU The state provided $2.5 million one-time General has identified seven campuses that are more than Fund to support CCA in 2024-25. CCA shared that 10 percent below their enrollment targets. Most it is using this funding for scholarships. Current of these campuses are looking at downsizing annual undergraduate tuition is $59,376. The while simultaneously searching for new enrollment estimated total cost of attendance for students opportunities. CSU has expressed concerns more living off campus is $93,624. About 78 percent of generally given its systemwide budget shortfalls in students receive some type of financial aid. (CCA’s 2023-24 and 2024-25. Both CSU and UC currently undergraduate tuition level is slightly higher than are expressing concerns given the 2025-26 state a few other private art schools in the state and budget plan includes funding reductions for them. notably higher than one.) Both university systems indicate they have begun taking associated actions, including hiring freezes, Proposal eliminating positions, and cutting back on spending Governor Proposes Providing $20 Million for student services. One-Time State Funding for CCA in 2025-26. The State Is Positioned to Support Public Higher Governor’s budget includes $20 million one-time Education Institutions. The intent of California’s General Fund to provide the school with a second Master Plan for Higher Education is for the state to year of general fiscal support. The administration provide funding, monitor performance, and maintain indicates the state funding would help the school mission differentiation among California’s public as it continues to address its operating deficit. higher education segments (UC, CSU, and the The school indicates the state funding is part of California Community Colleges). Though the state is its two-year, $100 million investment strategy to not legally prohibited from providing fiscal support stabilize the school’s financial foundation and to private higher education institutions, it is not in ensure long-term sustainability. The school’s plans the state’s scope of responsibility and has been include addressing its immediate budgetary needs done very rarely. By doing so, the state increases and redesigning academic programs to attract the likelihood that other private institutions submit more students. The administration indicates it has funding that could lead to uncontainable cost no plan to provide further state funding for the pressure and exposure moving forward. college beyond 2025-26. 10 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET Recommendation is making to regain fiscal sustainability, the state is not in a fiscal position to support the school. Recommend Rejecting Proposal. Given CCA This is especially the case given the state is in the is not part of the state’s typical scope of fiscal midst of reducing funding in other higher education responsibility, and the college recently attained a areas, including for public universities facing similar large amount of donor support, we recommend challenges, and it is projected to have significant the Legislature reject the proposal to provide the operating deficits in the coming years. school with state funding. Though we recognize CCA’s difficult financial situation and the efforts it STATE OPERATIONS In this section, we first provide background California Dream Act Service Incentive Grant and on CSAC state operations. We then describe Cal-HBCU Transfer Grant. Beyond these programs, the Governor’s two proposals relating to CSAC the state approved one-time funding in 2021-22 for state operations—an unallocated augmentation a five-year Golden State Teacher Grant initiative. for general operational support and a targeted (That same year, the state approved one-time augmentation for a new staff position focused on funding for two other financial aid initiatives, but it cybersecurity. Next, we analyze these proposals subsequently ended those initiatives and rescinded and make associated recommendations. associated unspent funding.) In administering these programs, CSAC works with financial Background aid administrators at colleges and universities, CSAC’s Mission Is to Administer State counselors and other staff at local educational Financial Aid Programs. CSAC administers agencies, and students across California. In certain state financial aid programs and provides 2023-24, CSAC processed a total 2.2 million related technical assistance. As discussed earlier in financial aid applications. the brief, the largest of these programs are the Cal CSAC’s Staffing Has Grown Over the Past Grant and MCS programs. CSAC also administers Ten Years. As Figure 8 shows, the number a few smaller financial aid programs, including the of authorized permanent positions at CSAC Figure 8 Number of CSAC Positions Has Increased Over the Past Decade Number of Authorized Permanent Positions 180 160 140 120 100 80 60 40 20 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 Note: Excludes temporary positions. CSAC = California Student Aid Commission. www.lao.ca.gov 11 2025-26 BUDGET increased from 114.5 in 2014-15 to 153.5 positions 2024-25—about 1 percent of its annual operating in 2024-25. Many of CSAC’s new positions in budget. As part of this reduction, the administration recent years have been to support administrative swept a portion of one position (0.7 position). workload associated with program expansions, Initially, the administration swept five vacant along with additional cybersecurity, research, positions, but it subsequently restored position and policy support. Most recently, in 2023-24, authority for 4.3 positions. All five positions initially CSAC received eight new permanent positions swept were IT positions, primarily on CSAC’s for these kinds of purposes. When the state has application development team. CSAC notes that added new authorized positions, it has added these positions were vacant given recruitment and associated funding. For example, in 2023-24, the budget challenges. state augmented CSAC’s state operations budget Proposals $1.1 million for the additional positions, along with a few hundreds of thousands of dollars for other Governor Proposes Unallocated things (new high school toolkits and additional Cash Augmentation for CSAC’s State Operations. for College efforts). CSAC received $23 million in The Governor’s budget includes $1.4 million state operations funding in 2024-25, primarily from one-time General Fund in 2025-26 for CSAC’s the General Fund. state operations. The administration indicates its intent to provide $3 million ongoing General Fund CSAC Has Vacant Positions It Cannot Fill Due in 2026-27 to further assist CSAC with its operating to Lack of Funding. Currently, CSAC has 145 filled costs. CSAC indicates the $1.4 million in one-time positions. CSAC shared it cannot fulfill its workload funding will be sufficient to cover costs in 2025-26, with this number of positions. Though CSAC has but the larger amount of ongoing funding is needed 8.5 vacant positions, it states that it does not have to cover expected cost increases the following year. adequate funding to fill these positions. CSAC notes The administration indicates CSAC has discretion it would need additional ongoing funding to hire and in deciding how to use the proposed funds. If the retain full-time staff for these positions. state commits to providing the ongoing funding in CSAC’s Operational Costs Have Been 2026-27, CSAC indicates it would use the 2025-26 Increasing. In addition to concerns regarding and 2026-27 funds to support existing authorized workload, the department shared that its costs for but unfilled positions, along with covering OE&E have been increasing at a rate that outpaces cost increases relating to consulting services, available funding. CSAC cites cost increases for equipment, facilities, and other operating expenses. subscription services, information technology (IT), data centers, consulting services, facilities, and Governor Proposes Targeted Augmentation staff training and travel. These cost increases are for a Chief Information Security Officer (CISO). The Governor’s budget includes $230,000 ongoing primarily driven by higher prices due to inflation. General Fund to provide CSAC with a CISO Administration Recently Applied Small position. The request for this position is part of Reduction to CSAC State Operations Budget. CSAC’s ongoing work to protect student data and To balance the 2024-25 budget, the state address cybersecurity risks. The responsibilities authorized reductions in agencies’ state operations of the CISO include addressing identified funding. Reductions of up to 7.95 percent were cybersecurity gaps and issues of concern, ensuring unallocated. Additional reductions were associated CSAC is compliant with certain cybersecurity with eliminating certain vacant positions. CSAC expectations, developing CSAC’s Information was included in this package of state operations Security Office, and leading fraud detection and reductions, but the administration used its prevention programming. discretion to reduce CSAC significantly less than the authorized maximums. In total, CSAC received a $245,000 ongoing General Fund reduction in 12 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET Assessment Recommendations CSAC Has Yet to Provide Clear Explanation Withhold Recommendation on Unallocated for How It Would Use Unallocated Augmentation Pending More Specific Workload Augmentation. Despite the notable increase in Justification. We recommend the Legislature its authorized permanent positions over the past withhold action on the proposed unallocated ten years and the associated funding increases, increase to OE&E funding given the lack of clarity CSAC believes it has inadequate funding to fulfill regarding how CSAC will use the additional its current workload. However, it has not clearly funding to address operating costs and staffing identified its workload gaps to determine where shortages. We recommend the Legislature request staffing problems are occurring. Instead, its the department to answer, at a minimum, the budget change request focused on addressing following questions: the department’s shortfall in OE&E funding, • What workload is CSAC currently unable which is largely driven by inflationary pressures. to cover? Though CSAC provided documentation showing • What are the programmatic implications of not how OE&E costs have been increasing, it did not being able to perform this work? include detail on how additional funding would • How much additional funding is needed be allocated to cover both rising OE&E costs and to address each of the identified staffing shortages. workload issues? Cybersecurity Is Critical to CSAC’s Mission. CSAC houses a significant amount of personally If CSAC provides clear answers to these questions identifiable and sensitive information. It is CSAC’s by early May, the Legislature could consider responsibility to ensure this information is protected approving an associated augmentation as part and address any threats that may compromise of its budget closeout activities. Alternatively, student data. In addition, CSAC has seen an CSAC could take more time to examine where increase in financial aid fraud attempts. Therefore, its workload gaps are most pronounced and to protect students and families, as well as mitigate submit a new budget change request for the potential financial aid fraud, CSAC has invested 2026-27 budget cycle. in security software and consulting services, Request for CISO Is Reasonable, Recommend as well as instituted two full-time cybersecurity Approving. CSAC maintains a large and growing positions in 2023-24. CSAC’s investment in volume of sensitive data on students and their cybersecurity is also part of its mission to position families. In recent years, CSAC’s cybersecurity itself as compliant with Cal-Secure. Cal-Secure is needs have increased due to the state’s new a roadmap created by the administration in 2021 cybersecurity priorities and requirements, as well to enhance and improve the state’s role in the as more financial aid fraud attempts. Though CSAC cybersecurity space, including ensuring the state has two authorized positions for cybersecurity has effective cybersecurity defenses. While CSAC staff, it lacks a leadership position dedicated has a Chief Information Officer, it has never had a to cybersecurity. The administration and CSAC CISO to lead these efforts. have provided a reasonable list of job duties and associated workload justifying the proposed position. In addition, a review by the California Department of Technology concludes CSAC faces some IT risk. Therefore, we recommend approving the proposal. www.lao.ca.gov 13 2025-26 BUDGET 14 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET www.lao.ca.gov 15 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. 16 LEGISLATIVE ANALYST’S OFFICE