The 2026-27 Budget: California State University

analysis full 2026-27 BUDGET The 2026-27 Budget: California State University GABRIEL PETEK | LEGISLATIVE ANALYST | FEBRUARY 2026 SUMMARY Brief Covers the California State University (CSU). This brief reviews key funding and spending trends at CSU, then analyzes the Governor’s budget proposals relating to CSU’s core operations and enrollment. CSU’s Spending Has Not Outpaced Inflation. CSU’s two main sources of core funding are state General Fund and student tuition revenue. General Fund has been growing as a share of CSU’s total core funding while the tuition share has fallen. CSU uses core funding for its core operations. From 2019-20 through 2024-25, core spending at CSU increased at an annual average rate of 3.6 percent, slightly lower than the rate of inflation. Over this period, CSU’s largest expense remained employee compensation (comprising 75 percent of core operating expenditures). Recommend Reducing or Eliminating Base Increases. The Governor proposes to increase ongoing base General Fund support for CSU by $366 million (7 percent) in 2026-27 and assumes CSU will collect an additional $201 million in student tuition revenue. Given the state is facing multiyear deficits, the Legislature could consider providing CSU with a smaller base increase that is more closely aligned with inflation or eliminating the base increase altogether. These options make the state’s structural deficit more manageable while helping sustain core programs moving forward and reducing pressure for future reductions. Absent the 7 percent base increase, CSU’s core funding would still increase by 4.2 percent. Recommend Removing Out-Year Funding Commitments. Under the Governor’s budget, the state would make two additional out-year funding commitments to CSU—a one-time back payment of $252 million in 2027-28 and a 3 percent ongoing base increase of $151 million in 2028-29. We recommend removing these out-year funding commitments. Rather than making commitments in advance, the Legislature could determine each year how much support it can afford to provide CSU in light of overall fiscal conditions and competing budget priorities. Recommend Using Available One-Time Funding to Retire Payment Deferral. The 2025-26 Budget began deferring a $144 million General Fund payment to CSU from one fiscal year to the next. When one-time funding becomes available, we recommend the Legislature make retiring this payment deferral a high priority. Retiring the payment deferral would return CSU’s state payments to their regular schedule, eliminate the associated debt obligation, and reduce state budgetary pressures in the out-years. Recommend Funding Lower Level of Enrollment Growth, Separately From Base Increase. The Governor’s budget maintains the enrollment expectation set forth in the 2025-26 Budget Act. CSU projects it will increase enrollment in 2026-27 but fall short of the state’s target. Thus, we recommend the Legislature set a lower target. We also recommend funding enrollment growth apart from and on top of any base increase to provide greater transparency and accountability. Though the Legislature may face difficult choices regarding what ongoing spending to prioritize in 2026-27, we think there is a rationale to prioritize funding for enrollment growth given CSU is already making some admissions decisions. Recommend Holding Enrollment Flat in 2027-28. In a departure from recent practice, the Governor does not propose an enrollment growth target for 2027-28. Given the sizeable projected deficit in 2027-28, we recommend holding enrollment expectations flat for CSU that year. This prevents CSU from being directed to enroll more students in the potential absence of associated funding, which could negatively impact students through larger class sizes, fewer course offerings, and less academic support. www.lao.ca.gov 1 analysis full 2026-27 BUDGET INTRODUCTION Brief Focuses on CSU. CSU is one of applied, fields. This brief is organized around the California’s three public higher education segments. Governor’s 2026-27 budget proposals for CSU. The Its 23 campuses provide undergraduate and first section provides an overview of CSU’s budget graduate education. CSU focuses on academic and the planned changes for 2026-27. The following degrees through the master’s level, but it also two sections focus on core operations and provides doctoral degrees in certain, primarily enrollment, respectively. OVERVIEW CSU’s Budget Is $14.9 Billion in 2025-26. CSU’s revenue comes from various noncore sources As Figure 1 shows, CSU receives funding from including housing fees, parking fees, and extended various sources. The state generally focuses its education charges. budget decisions around CSU’s “core funds,” or Ongoing Core Funding Increases by the portion of its budget supporting its academic $765 Million Under Governor’s Budget. mission. Core funds at CSU primarily consist of state As Figure 2 shows, ongoing core funding increases General Fund and student tuition revenue, with a by 8.1 percent in 2026-27. All core fund sources very small share coming from state lottery revenue. increase. Notably, General Fund support increases In 2025-26, core funds comprise approximately by $553 million (9.8 percent), and tuition and fee 65 percent of CSU’s budget. Between 2024-25 and revenue is estimated to increase by $201 million 2025-26, ongoing core funds per student increased (5.3 percent). The increase in tuition and fee 2 percent. The average annual growth rate of ongoing revenue is due to both higher tuition charges and core funds per student has been approximately enrollment growth. 3.8 percent over the past ten years. The remainder of Governor Proposes Unrestricted Base Increases for CSU. As Figure 3 shows, the Governor’s budget includes three Figure 1 components relating to CSU’s base CSU Receives Funding From a Few Key Sources General Fund support. Most notably, the budget provides two unrestricted $14.9 Billion in 2025-26 ongoing base increases totaling 7 percent. It also restores CSU’s base support for the one-time removal of $144 million for Noncore Funds the payment deferral initiated last year. Beyond these proposals, the Governor’s Otherª budget includes adjustments to retiree General Fund health benefits costs and certain pension costs. Additionally, the Governor maintains Federal Fundsb the enrollment expectations set forth in the 2025-26 Budget Act, which specify that CSU is to grow resident undergraduate Tuition and Fees Core Funds enrollment by 10,161 full-time equivalent Lottery (FTE) students (2.9 percent) in 2026-27. The Governor expects CSU to cover the a Includes revenue from housing fees, parking fees, extended education charges, and fees for other cost of this enrollment growth from within noncore programs. the proposed base increases. b Primarily for student financial aid. 2 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET Figure 2 CSU’s 2026-27 Ongoing Core Funding Increases by 8.1 Percent (Dollars in Millions, Except Funding Per Student) Change From 2025-26 2024-25 2025-26 2026-27 Actual Revised Proposed Amount Percent Ongoing Core Funds General Funda $5,479 $5,622 $6,175 $553 9.8% Tuition and feesb 3,527 3,790 3,991 201 5.3 Lottery 69 82 93 11 13.4 Totals $9,075 $9,494 $10,259 $765 8.1% FTE studentsc 402,506 412,940 419,950 7,010 1.7% Funding per student $22,545 $22,991 $24,429 $1,438 6.3 a Includes funding for pensions and retiree health benefits. b Includes funds used for student financial aid. c Reflects total combined resident and nonresident enrollment. The 2025-26 number incorporates CSU’s planned resident enrollment growth. FTE = full-time equivalent. Figure 3 Higher CSU Spending Is Primarily Due to Base Increases Ongoing General Funding Changes, 2026-27 (In Millions) Ongoing Spending Base increase (5 percent) $265 Base restorationa 144 Base increase (2 percent delayed from 2025-26) 101 Retiree health benefits cost increase 60 Pension cost adjustmentb -17 Total $553 a The 2025-26 Budget Act included a payment deferral from 2025-26 to 2026-27. The Governor’s budget backfills for the one-time reduction related to that payment deferral. b LAO estimate based upon CalPERS published rates. The administration intends to update its rates in the May Revision. www.lao.ca.gov 3 analysis full 2026-27 BUDGET CORE OPERATIONS In this section, we first discuss CSU’s sources of CSU Tuition Charges and State Support core funding and track how funding has changed Historically Move in Opposite Directions. For over time. We then discuss CSU’s cost pressures most of the past 30 years, neither the state nor CSU and track how they have changed over time. Next, had a tuition policy. Partly as a result, changes in we describe the Governor’s proposals relating to tuition charges tended to move counter to changes CSU’s base budget, assess those proposals, and in state General Fund support. As Figure 5 shows, make associated recommendations. CSU tuition and fee levels have had long flat periods generally corresponding to years of economic Funding Trends growth and increasing state funding. These periods CSU’s Reliance on State Support Has tend to be followed by steep tuition increases Changed Over Time. State General Fund support generally corresponding to economic slowdowns or for CSU has fluctuated over time, tending to recessions, when state funding tends to fall. increase during economic expansions and retract CSU Began Implementing Tuition Increases in during recessions. As Figure 4 shows, since 2024-25. CSU’s tuition levels have long been lower 2015-16, state General Fund as a share of CSU’s than its peers nationally. In 2024-25, CSU’s resident total core funding has been increasing—rising from undergraduate tuition and fees were approximately 49 percent in 2015-16 to 57 percent in 2025-26. $1,995 (20 percent) lower than the national average At the same time, revenue from tuition and fees of comparable public institutions. Until recently, has been declining as a share of CSU’s total core CSU has not had a tuition policy guiding its annual funding—falling from 50 percent in 2015-16 to tuition levels. A CSU work group focused on fiscal 42 percent in 2025-26. These trends are largely sustainability, however, identified a significant gap due to the state providing CSU with General Fund between the system’s costs and its revenues. One base increases in most years over that period while of the work group’s recommendations was that CSU increased tuition only three times (in 2017-18, CSU adopt a tuition policy that provides for gradual 2024-25, and 2025-26). and predictable tuition increases. The CSU Board of Trustees adopted such a policy in September 2023. Under the policy, tuition increases by 6 percent annually for Figure 4 all students, beginning in 2024-25 and extending through 2028-29. State General Fund Has Been Comprising a Larger Share of CSU's Core Funding Over Past Decade CSU’s Uncommitted Reserves Slightly Decreased in 2024-25. 70% Like many other universities (as well as public and private entities 60 General Fund more generally), CSU maintains 50 reserves. CSU commits part 40 of its reserves for outstanding Tuition financial commitments and 30 planned one-time activities (such 20 as launching a new academic 10 program or designing a new capital project). CSU also leaves 2015-16 2016-17 2017-18 2018-19 2019-20 2020-212021-22 2022-23 2023-24 2024-25 2025-26 some of its reserves purposefully uncommitted to prepare for Note: General Fund excludes funding for CSU retiree health benefit costs. Tuition includes systemwide tuition and fees. economic uncertainties, including 4 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET Figure 5 CSU Historically Has Often Raised Tuition Charges When State Support Drops Annual Percent Change 50% 40 Tuition charge 30 20 10 General Fund -10 -20 -30 -40 1990-91 92-93 94-95 96-97 98-99 00-01 02-03 04-05 06-07 08-09 10-11 12-13 14-15 16-17 18-19 20-21 22-23 24-25 Note: General Fund includes ongoing and one-time funding. It excludes retiree health benefit costs. Tuition charge reflects rate for a full-time resident undergraduate. recessions. As of June 30, 2025 (the most recent data available), CSU had $2.3 billion in total core Figure 6 reserves, of which $760 million was CSU’s Uncommitted Core Reserves Equate to uncommitted. As Figure 6 shows, About One Month of Operating Expenses CSU’s uncommitted core reserves grew notably from 2020-21 through 2023-24, before declining slightly $900 1.2 (by $17 million) in 2024-25. CSU’s Reserves in Months of Expenditures systemwide reserves policy sets 800 a target to maintain uncommitted 1.0 700 reserves worth between three and six months of expenditures. With 600 Reserves in 0.8 Millions of Dollars its system reserve equating to only 500 about one month of expenditures, 0.6 CSU continues to fall below its 400 target reserve. 300 0.4 Spending Trends 200 0.2 CSU’s Spending Is Driven by 100 a Few Major Cost Pressures. In addition to understanding 2020-21 2021-22 2022-23 2023-24 2024-25 CSU’s reliance on state support and tuition revenue, it is important to understand CSU’s spending www.lao.ca.gov 5 analysis full 2026-27 BUDGET trends and core cost pressures. Understanding As Figure 8 shows, compensation (including CSU’s spending trends is especially important salaries and benefits) continues to comprise the when the state faces challenging fiscal situations. bulk of CSU’s core operating costs (75 percent). As discussed in The 2026-27 Budget: Overview CSU’s next largest category of expenses is supplies of the Governor’s Budget, the state faces and services (including information technology [IT] projected deficits in the out-years. As a result, costs and contractual services, among other costs). budget makers will likely have to make difficult Student financial aid comprises 10 percent of decisions in the coming years to realign state CSU’s core operating expenses. The remainder of spending with available revenues. As part of that this section examines several of these cost drivers process, the Legislature may have to contemplate in more detail. how to prioritize amongst competing state CSU’s Workforce Has Decreased the Past spending priorities. Two Years. In fall 2025, CSU had approximately CSU’s Spending Generally Has Been Rising 45,000 FTE employees. Of these employees, With Inflation. CSU’s spending for its core 43 percent are faculty, 47 percent are staff, and operating expenses increased from $7.3 billion the remainder are managers and executives. in 2019-20 to $8.7 billion in 2024-25 (reflecting As Figure 9 shows, the number of employees a 19 percent increase). Though spending has reached its highest level in fall 2023 but has since increased, as Figure 7 shows, it has not outpaced declined. As the number of FTE employees has inflation. Specifically, in 2024-25, CSU’s actual core declined the past two years while enrollment has spending was slightly lower than it would have been increased, the number of FTE students per FTE had it simply kept pace with inflation since 2019-20. employee ratio has increased. In fall 2025, the ratio Overall, core spending at CSU has increased at an was up to 9.3. Though rising, the ratio in fall 2025 annual average rate of 3.6 percent over this period. was still slightly below what it had been in fall 2019. CSU’s Allocation of Spending Has Not From 2019-20 to 2024-25, CSU Has Provided Changed in Recent Years. Though CSU is Salary Increases Almost Every Year. State spending more today than it did in 2019-20, the law authorizes the CSU Board of Trustees to allocation of spending across its core operating ratify collective bargaining agreements for CSU’s expenses has remained virtually the same. employees. These agreements determine salary increases for represented employees and indirectly guide salary decisions for CSU’s Figure 7 nonrepresented employees. As Figure 10 CSU's Spending Grows Just Under Rate of Inflation on page 8 shows, represented employees Core Operating Expenditures (In Billions) account for approximately 90 percent of CSU’s workforce. CSU’s spending $10 for salaries increased by $805 million (23 percent) between 2019-20 and 9 2024-25, slightly outpacing inflation. Inflation-Simulated Spending 8 The bulk of this spending increase is Actual Spending due to salary increases. In 2023-24 and 7 2024-25, CSU generally provided 5 percent 6 salary increases. Salary negotiations for 2025-26 are currently open for all unions. 5 Nonrepresented employees, however, 4 received one-time salary increases in 2025-26 (equivalent to 3 percent of their 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 annualized salary as of November 2025). Note: The blue line shows actual spending each year. The red line reflects the 2019-20 Represented employees were also offered spending level grown at the rate of inflation over the period. Data exclude debt service this one-time increase. payments for university and state bonds. 6 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET Figure 8 Growth in Employee Health Benefit Spending Has Accelerated Over Last Few Compensation Remains CSU's Years. Increased spending on employee Largest Operating Cost health benefits is also contributing to rising Core Operating Expenditures (Dollars in Billions) compensation costs. The California Public Employees’ Retirement System (CalPERS) $9 1% administers CSU’s health benefits. Each year, CalPERS negotiates with health plan 10% 8 providers to establish premiums for the plans 2% 7 14% offered to CSU’s employees. Pursuant to 10% state law, CSU’s contribution to employee 6 health benefits is based on the average 13% 25% premium of the most popular health plans. 5 When premiums increase, CSU covers the 26% associated cost for its active employees. 4 In contrast, the state covers the cost for 3 retirees’ health benefits. As Figure 11 on 50% the next page shows, CSU’s total spending 2 49% on employee health care costs has been 1 increasing over time, reaching $779 million in 2024-25. Growth in health care costs has been particularly notable the past three 2019-20 2024-25 years (with the highest growth in 2023-24 at Salaries Supplies and Services Otherª 10 percent). Benefits Student Financial Aid Pension Contribution Rates Have a "Other" includes expenses such as maintenance, minor facility repairs, and Remained Relatively Flat in Recent overhead. Data exclude debt service payments for university and state bonds. Years. CalPERS additionally administers pension benefits for CSU and most other state employees. The Figure 9 CalPERS Board sets employer contribution rates for pensions Size of CSU's Workforce Has Fluctuated as a percentage of payroll. The Fall Term Counts of Full-Time Equivalent (FTE) Employees state pays costs for the employer contribution associated with 48,000 10.0 CSU’s 2013-14 payroll level. CSU FTE Students Per FTE Employee 46,000 FTE Employees pays the employer contribution 9.5 for any payroll growth above 44,000 that level. The state adopted 42,000 9.0 this arrangement in 2013-14 to 40,000 provide CSU with a stronger 8.5 38,000 fiscal incentive to contain staffing costs. CalPERS contribution 36,000 8.0 rates increased every year 34,000 7.5 from 2011-12 through 2019-20, 32,000 rising from 18 percent to 30,000 7.0 31 percent over that period 2019 2020 2021 2022 2023 2024 2025 Note: Due to data limitations, chart excludes student employees (represented and nonrepresented) and temporary staff. www.lao.ca.gov 7 analysis full 2026-27 BUDGET (for Miscellaneous Tier 1 state employees). In Spending Increases for Financial Aid Are 2020-21 and 2021-22, the state applied certain Primarily Due to Tuition Increases. CSU sets supplemental payments towards CalPERS costs, aside a portion of its tuition revenue to provide which lowered rates to 29 percent. Since then, rates financial aid to students, also known as institutional have generally stabilized around 32 percent. financial aid. The largest institutional financial aid program is the State University Grant (SUG) program. SUG generally covers Figure 10 the full cost of tuition for students Two Unions Comprise the Majority of CSU’s Workforce who have financial need (based upon Share of Employee Headcount and Payroll by CSU Union, Fall 2025 a federal calculation) but do not receive tuition coverage under the Percent of CSU CSU Cal Grant program (such as students Employees Payroll in their fifth or sixth year who have California Faculty Association 45% 50% used up their four years of Cal California State University Employees Union 23 23 Grant eligibility and some graduate Academic Professionals of California 6 6 Teamsters Local 2010 2 2 students). Currently, SUG provides United Auto Workers 15 —a grants to about 150,000 students. Statewide University Police Association 1 1 Of the $879 million spent on financial Union of American Physicians and Dentists —a —a International Union of Operating Engineers —a —a aid in 2024-25, 85 percent was for a Less than 0.5 percent. SUG. From 2019-20 to 2024-25, spending for institutional financial aid Note: Table excludes Executive and Management Personnel, Confidential Classes, Excluded Classes, nonacademic student employees, other intermittent employees, and faculty teaching in increased by $118 million (15 percent), extension, special sessions, and summer sessions. largely as a result of tuition increases. When CSU increases its tuition charges, it intends to fully cover the higher charges Figure 11 for most SUG recipients. Health Care Costs Have Been Increasing, CSU has raised tuition three Some Years Much More Than Others times over the last decade CSU Employer Contributions and has increased SUG spending to account for $900 12% those associated increases. Year-Over-Year Change in Health Care Costs Starting in 2022-23, the 800 state requires CSU to also 10 increase SUG spending 700 Health Care Costs in Millions of Dollars for enrollment growth. This 600 8 policy has also contributed to increased spending, 500 6 but less so than the 400 tuition increases. 300 4 Spending on Capital Renewal Has Been 200 Increasing at Same 2 100 Rate as Overall Budget. The main way CSU pays for large state-approved 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 capital projects is by issuing university bonds. 8 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET Since 2014-15, university bonds have been the back payment of $252 million in 2027-28 to address main source of financing for CSU’s state-supported the base increase that it did not receive in 2025-26. facilities. Under this approach, CSU issues It also would provide CSU with its remaining university bonds for academic capital projects, 3 percent ongoing base increase ($151 million) then pays the associated debt service from its associated with the 2025-26 compact payment main General Fund appropriation. From 2019-20 in 2028-29. to 2024-25, CSU’s debt service for state-approved CSU Anticipates Receiving Additional projects grew from $295 million to $365 million Tuition Revenue in 2026-27. CSU estimates it will (23 percent). (These amounts include debt service collect an additional $201 million in student tuition on university bonds as well as state bonds issued revenue in 2026-27. Almost 90 percent of this before 2014-15.) CSU’s overall core budget also increase ($176 million) is due to the planned rise generally increased over this period, such that debt in CSU’s tuition charges. Tuition charges are set service as a share of total core funding hovered at $6,838 for resident undergraduate students in around 4 percent. 2026-27, reflecting a $388 increase from 2025-26. Additionally, CSU expects to generate $25 million in Proposals new tuition revenue from planned enrollment growth Governor Proposes Base Increases for CSU. in 2026-27. Of all the additional tuition revenue, The Governor proposes to increase ongoing base CSU plans to use $67 million (33 percent) for SUG. General Fund support for CSU by $366 million (In addition, the California Student Aid Commission (7 percent) in 2026-27. This increase reflects two budget includes $53 million ongoing General Fund components. First, the Governor’s budget includes to pay for higher associated Cal Grant costs for a 5 percent base increase ($265 million) for CSU CSU students in 2026-27. Many CSU students with in 2026-27, reflecting the fifth-year base increase financial need receive full tuition coverage under the of his multiyear compact. Second, the Governor’s Cal Grant program.) budget includes an additional 2 percent increase CSU Plans to Use Additional Funding ($101 million) associated with the 2025-26 compact for Its Various Spending Priorities. Under payment that was postponed under last year’s the Governor’s budget assumptions, CSU has budget agreement. The administration proposes $621 million in new ongoing core funding. After to give CSU discretion in allocating this additional setting aside the portion dedicated for retiree health funding in 2026-27. and pensions, CSU likely would use this additional Governor Proposes to Continue Deferral funding to: Arrangement for One More Year. The 2025-26 • Provide salary increases. The cost budget deferred a $144 million General Fund of a 1 percent salary increase is payment to CSU from 2025-26 to 2026-27 but approximately $59 million. allowed CSU to receive a no-interest General Fund • Cover cost increases related to active loan in the meantime. CSU requested and received employee health benefits. Specifically, this cash loan in fall 2025. The Governor’s budget employee health premiums are expected to proposes to continue this arrangement, deferring increase by $21 million in 2026-27. $144 million from 2026-27 to 2027-28, along with offering another no-interest General Fund cash • Cover the cost associated with enrollment loan. The administration indicates it intends to retire growth, particularly for the hiring of additional the deferral in 2027-28, incurring an associated faculty and support staff. The total marginal one-time cost of $144 million at that time. cost (state and student shares combined) of increasing resident undergraduate enrollment Governor Maintains Out-Year Funding by 1 percent in 2026-27 is $58 million. Commitments. Under the Governor’s budget, the state would continue to make two additional • Provide more funding for student financial out-year funding commitments to CSU. The state aid. Specifically, CSU plans to designate would commit to providing CSU with a one-time $67 million for this purpose. www.lao.ca.gov 9 analysis full 2026-27 BUDGET • Cover cost increases for utilities, liability and Recommendations property insurance, and other inflationary cost Recommend Reducing or Eliminating Base pressures (including costs related to IT and Increases. When facing out-year deficits, the contractual services). Legislature typically considers ways to contain • Provide ongoing funding for debt service to growth in state spending. The Governor, however, address capital renewal needs. proposes to increase CSU spending significantly. In addition, the Governor’s budget does not specify Assessment how the historically large ongoing augmentations Unrestricted Base Increases Lack to CSU’s base funding would be supported in Transparency and Accountability. The Governor’s future years. Given this context, the Legislature proposed unrestricted base increase for CSU lacks could consider providing CSU with a smaller transparency and accountability, as the funds are base increase that is more closely aligned with not earmarked for specific purposes. Although current inflationary benchmarks—such as the base CSU’s 2026-27 Operating Budget Plan provides increase of 2.41 percent proposed for community some transparency by providing a spending plan, colleges. A smaller base increase would still there is no statutory language that requires CSU allow CSU to cover some of its increasing costs. to allocate the base increase consistent with this Additionally, it could provide more financial stability plan. Moreover, the Legislature could have different for CSU by mitigating the risk that the state would priorities—for example, prioritizing compensation be unable to maintain the higher base moving increases versus enrollment growth differently forward. Alternatively, the Legislature could than CSU. consider eliminating the proposed base increase for CSU altogether. This option makes the state’s Despite Large Increase in State Support, structural deficit more manageable to address, None Is Designated for Capital Renewal. CSU increases the chances that core programs could be is carrying an estimated capital renewal backlog sustained moving forward, and reduces pressure of $8.6 billion. If funding is not directed to address for a more significant reduction in future years. this backlog, more projects will be delayed and Even with no increase in state support, CSU core costs likely will increase as building components funding would increase 4.2 percent due primarily to degrade further and lead to more significant facility raising tuition charges, thereby still allowing CSU to issues. Though CSU has indicated that it plans to cover some of its spending priorities. This growth is allocate $25 million of its base increase for debt slightly above the average annual rate of growth in service to fund capital renewal needs, the Governor total core funding over the past ten years. gives CSU full discretion in deciding how to spend the proposed base increase. As a result, it could Recommend Earmarking a Share of Any redirect some or all of this funding elsewhere due to Ongoing Base Increase for Capital Outlay. competing spending priorities. If CSU were to receive a base General Fund increase and designate none of it for capital Governor Presents No Plan for How to Honor improvements, its backlog would continue to Out-Year Commitments. The Governor’s budget grow, and facility conditions would worsen. To continues to make out-year funding commitments mitigate this issue, we recommend the Legislature to CSU in fiscal years when the state is projected adopt provisional budget language earmarking to have substantial General Fund deficits. Despite some share of any approved base increase for making these out-year funding commitments, the capital renewal projects to help campuses make administration has offered no plan for how to meet progress on deferred maintenance and critical them (through new revenue, spending reductions facility renewals. For example, earmarking around in other areas, or other specific budget-balancing 10 percent of a base increase would allow CSU to actions). Without such a plan, CSU cannot be sure undertake some projects while still having capacity that the commitments will be honored, undermining to meet other spending priorities. the potential benefit of making the commitments in the first place. 10 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET Recommend Using Available One-Time Recommend Removing Out-Year Funding to Retire Payment Deferral. If one-time Commitments. We recommend removing the funding becomes available, we recommend the state’s out-year funding commitments to CSU in Legislature retire this payment deferral either 2027-28 and 2028-29. Eliminating these out-year this year or in the coming years. Retiring the augmentations would reduce projected state payment deferral would return CSU’s state deficits in 2027-28 and 2028-29 without requiring payments to their regular schedule, eliminate programmatic cuts or tax increases. Rather than the associated debt obligation, and reduce state making commitments in advance, the Legislature budgetary pressures in the out-years. could determine each year how much support it can afford to provide CSU in light of overall fiscal conditions and competing budget priorities. ENROLLMENT In this section, we first provide background State Budget Typically Sets Enrollment on CSU enrollment. Next, we cover enrollment Growth Expectations for CSU. In most years, trends. Then, we describe the state’s 2026-27 the state sets enrollment growth expectations enrollment expectations for CSU. Finally, we for CSU in the annual budget act. These growth assess CSU’s enrollment situation and make expectations apply to resident students. In associated recommendations. some years, the state sets expectations for total CSU resident enrollment. In other years, it sets Background expectations only for resident undergraduates, Most CSU Students Are California Residents. with no expectation for resident graduate students. Approximately 95 percent of students at CSU are (The state does not set enrollment expectations California residents, with the remainder of students for self-supported courses, but we cover a related coming from other states or countries. The share of issue in the box on the next page.) resident students has hovered at about 95 percent State Sometimes Sets Enrollment over the past ten years. Some variation exists among Expectations for Budget Year Plus One. campuses. In 2024-25, the CSU Stanislaus student Historically, the state sets an enrollment expectation body had the highest share of resident students for CSU in the budget year (for example, setting (99 percent), whereas CSU San Luis Obispo had the a 2016-17 enrollment expectation in the 2016-17 lowest share (85 percent). Budget Act). More recently, the state has set CSU Is Important Part of Transfer Pipeline. enrollment expectations for CSU in the budget Of resident students, nearly 90 percent year and budget year plus one. This change has are undergraduates (with the remainder reflected an effort by the state to better align its postbaccalaureate and graduate students). Since enrollment expectations with CSU’s admissions at least the 1960s, the state has wanted to provide cycle. As CSU has already made many of its an opportunity for Californians to obtain a university admissions decisions for the coming academic education, if they so desire. To this end, any student year by the time the Legislature enacts the annual (regardless of their high school performance) who budget in June, setting budget-year expectations successfully completes a course of study at a can be too late to have a notable impact on CSU’s community college may transfer to a university for their behavior. In contrast, setting an expectation for upper-division coursework. The state considers CSU a budget year plus one allows the state to have particularly critical part of this transfer pipeline. About more influence over CSU’s actions for the next 45 percent of CSU’s most recent incoming resident academic year. Setting enrollment expectations for undergraduate fall class were transfer students. The budget year plus one, in turn, gives CSU campuses rest of the incoming class entered as freshmen, with more time to adjust their enrollment management most having recently graduated high school. practices to meet any new enrollment expectations set for them. www.lao.ca.gov 11 analysis full 2026-27 BUDGET Self-Supported and State-Supported Courses CSU Offers Some Self-Supported Courses. Like the other public higher education segments, the California State University (CSU) offers some self-supported courses (also referred to as extended education or professional and continuing education). Self-supported courses generally charge student fees intended to cover the full cost of the courses, without any state subsidy. Self-supported course offerings include an array of academic courses, professional certificate programs, and personal enrichment courses offered throughout the year. In 2024-25, CSU enrolled 22,217 full-time equivalent (FTE) students in self-supported courses. These students are not counted toward state enrollment targets. Historically, many campuses have chosen to offer some of their summer courses as self-supported. Of the self-supported FTE enrollment in 2024-25, 36 percent was generated in the summer term. CSU Has Been Shifting Some Summer Courses From Self- to State-Supported. In recent years, CSU has shifted some of its summer courses from self-supported to state-supported. CSU indicates the courses shifted to state-supported were generally academic courses that students took to make progress toward their degree. These include courses taken by continuing students as well as new students participating in summer transition programs. Data is not available on the specific courses that were shifted or the number of FTE students enrolled in those courses. Enrollment Growth Continues to Be Overstated Due to Shift in Summer Courses. When the Legislature sets enrollment growth expectations for CSU in the state budget, it intends for CSU to add more students. CSU is reporting higher state-supported enrollment. However, part of this increase has come from shifting enrollment from self- to state-supported courses rather than adding new enrollment. As the figure below shows, summer enrollment increased in 2025-26, but the number of students in self-supported courses decreased (by 430 FTE). Though the decrease in the number of self-supported students in 2025-26 is smaller compared to the previous two years (4,705 FTE students in summer 2023 and 745 FTE students in summer 2024), CSU is still adding new state costs from shifting students formerly in self-supported courses into state-supported ones. Number of Summer State-Supported Students Has Been Increasing While the Number of Self-Supported Students Has Been Decreasing Resident Full-Time Equivalent (FTE) Students, Summer Terma Change From 2024-25 2022-23 2023-24 2024-25 2025-26 Amount Percent State-supported students 5,660 11,295 12,777 14,927 2,150 16.8% Self-supported students 13,050 8,345 7,600 7,170 -430 -5.7 Totals 18,710 19,640 20,377 22,098 1,721 8.4% a Reflects annualized FTE resident students across all student levels. Summer is the first term of the college year. For example, summer 2025 enrollment counts towards 2025-26. 12 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET CSU Also Has Enrollment Targets Under the CSU Anticipates Exceeding Its 2025-26 State Governor’s Compact. In addition to the enrollment Enrollment Expectation. The 2025-26 Budget Act targets set forth each year in the annual budget directed CSU to increase resident undergraduate act, CSU established a set of targets as part of enrollment by 7,152 FTE students, bringing its the Governor’s compact. Under the compact, resident undergraduate enrollment level to 349,999 CSU planned to increase resident undergraduate FTE students. This growth expectation is relative enrollment by 1 percent annually (from 2023-24 to to CSU’s actual enrollment level in 2024-25. CSU 2026-27). CSU does not track this target separately indicates it is on track to exceed the 2025-26 for undergraduates and graduate students. Under state budget expectation—growing by 10,063 the compact, CSU is to cover the cost of enrollment FTE students, for total resident undergraduate growth using part of its 5 percent annual base FTE students of 352,910. When combined with increases. In 2025-26, CSU kept its California postbaccalaureate and graduate enrollment, CSU resident student target flat at 390,598 FTE students estimates enrolling a total of 392,500 resident given there was no associated compact funding FTE students in 2025-26—an increase of 11,237 that year. students (2.9 percent) from the previous year. State Funds Enrollment Growth According Fall Headcount Decreased for New Freshmen to Per-Student Formula. Typically, the state but Increased for Transfers and Continuing supports resident enrollment growth at CSU by Students. Though the 2025-26 college year providing a separate General Fund augmentation is still underway, CSU has fall 2025 headcount based on the number of additional students CSU data broken down by certain student groups. As is to enroll. The per-student funding rate is derived Figure 13 on the next page shows, the number of using a “marginal cost” formula. This formula new resident freshmen enrolled at CSU decreased estimates the cost of the additional faculty, support 3 percent over the previous year. New transfer services, and other resources required to serve students increased by 1.8 percent. This is smaller each additional student. Those costs are shared than last year’s increase of 6.4 percent, which between state General Fund and student tuition came after three years of declines in new transfer revenue. In 2025-26, the total marginal cost per students (linked with declines in community student is $15,966, with a state share of $10,983. college enrollment during the pandemic years). The formula calculates one rate that applies to all Though enrollment for new transfer students is resident enrollment, whether at the undergraduate recovering, it is still below its fall 2020 peak. Overall, or graduate level. Whereas the state subsidizes the the number of CSU undergraduates increased cost of educating resident students, nonresident by 2.1 percent. This is higher than the increase in students are charged a higher tuition rate that is undergraduate students in fall 2024. The increase intended to cover the full cost of their education. is primarily driven by the increase in continuing students (3.3 percent). This is the second year Trends that the number of continuing undergraduates has CSU’s Enrollment Is Rebounding From increased since the pandemic. The increase in Pandemic Declines. As Figure 12 on the next continuing students is likely due to rebounding after page shows, CSU’s total resident enrollment was suppressed rates during the pandemic, as well as generally trending upward from 2015-16 through CSU’s strategic focus on increasing retention rates 2020-21. CSU then experienced notable declines in across student groups. its resident enrollment in 2021-22 and 2022-23. In Campuses Vary in How Close They Are to 2022-23, CSU enrolled approximately 30,000 fewer Their CSU-Determined Enrollment Targets. resident FTE students than a couple of years earlier. Beyond the budget-act targets and compact In recent years, CSU resident enrollment has been targets, CSU tracks an internal “funded” target rebounding. CSU is expected to be almost back at that it believes reflects the level of enrollment the its 2020-21 peak enrollment level in 2025-26. state has funded. It allocates associated enrollment slots across its campuses, with campus-specific www.lao.ca.gov 13 analysis full 2026-27 BUDGET Figure 12 CSU Enrollment Is Almost Back at Its Peak Level Resident Full-Time Equivalent Students 400,000 390,000 380,000 370,000 360,000 350,000 340,000 330,000 320,000 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26ª a Reflects CSU's estimate as of January 2026. Figure 13 CSU Experienced Growth for All Student Groups but Freshmen Resident Headcount, Fall Term Change From 2024 2023 2024 2025 Amount Percent Undergraduate New freshmen 64,125 64,301 62,354 -1,947 -3.0% New transfer students 47,613 50,641 51,574 933 1.8 Continuing students 273,080 275,523 284,652 9,129 3.3 Subtotals (384,818) (390,465) (398,580) (8,115) (2.1%) Postbaccalaureate/Graduate 45,194 47,028 50,023 2,995 6.4% Totals 430,012 437,493 448,603 11,110 2.5% targets based largely on previous enrollment with 13 campuses failing to meet their 2024-25 trends and projected enrollment demand. Whether CSU-determined enrollment targets, while a campus meets its CSU-determined enrollment 10 campuses exceeded them. target depends on several key factors, including CSU Began Implementing an Enrollment regional demographic trends, competition Reallocation Plan in 2024-25. To address these with other campuses, program offerings, and differences among campuses and work towards enrollment management practices. As Figure 14 realigning funding with enrollment, CSU began shows, enrollment trends vary among campuses, implementing an enrollment reallocation plan in 14 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET 2024-25. Under the plan, CSU is gradually shifting campuses (Fullerton, Long Beach, San Diego, slots and associated funding away from those San José, and San Luis Obispo) are impacted in campuses below their targets to those campuses all undergraduate programs. Other campuses above their targets. In 2024-25, CSU shifted tend to have at least a few programs impacted. approximately 3 percent of funded slots away For example, the Nursing Basic program is from 12 campuses below their enrollment targets impacted on all 16 campuses where it is offered. to 7 campuses above their enrollment targets. Though some programs remain impacted, there A total of 3,891 FTE students ($32 million) were has been a decrease in the number of programs reallocated that year. In 2025-26, CSU shifted impacted in recent years. From 2021-22 to 2025-26, another approximately 3 percent of funded slots the number of impacted programs across the CSU away from ten campuses below their targets to nine system declined from 333 to 233. campuses above their targets. A total of 3,397 FTE students ($32 million) are being reallocated this year. Figure 14 CSU intends to continue More Than Half of CSU Campuses Are Below implementing this plan in 2026-27—increasing the Their Enrollment Target reallocation percentage to Resident Full-Time Equivalent Students Relative to Targets, 2024-25 Actual approximately 5 percent. In addition to providing funding Sonoma through its enrollment Maritime Academy reallocation plan, CSU provided Channel Islands one-time funding of $20 million Humboldt to seven campuses in 2024-25 East Bay and $20 million to nine San Francisco campuses in 2025-26 that had Chico enrollment above their target. San Bernardino Number of “Impacted” Dominguez Hills Programs Is Decreasing. Stanislaus Historically, some CSU Los Angeles campuses and academic Fresno programs have been Bakersfield designated as impacted, Northridge meaning they have more Long Beach student demand than Sacramento enrollment slots. To manage San José student demand, impacted Monterey Bay campuses and programs adopt San Diego stricter admissions criteria Fullerton than the minimum systemwide San Luis Obispo eligibility requirements. San Marcos Campuses may apply Pomona stricter admissions criteria to applicants outside their local -30 -20 -10 10% service area and/or applicants within specific high-demand programs. Currently, five CSU www.lao.ca.gov 15 analysis full 2026-27 BUDGET Proposal Most CSU Campuses Are Already Meeting Student Demand. In the past, a key reason the Governor Maintains Enrollment Expectation Legislature has funded CSU enrollment growth was for 2026-27 but Sets No Target for 2027-28. The to expand access to eligible students who might 2025-26 Budget Act set a resident undergraduate otherwise not be admitted. This issue is less of a enrollment expectation for CSU in 2026-27. concern today. Over the past few years, admission Under those provisions, CSU is expected to add rates have increased at nearly all CSU campuses. 10,161 FTE students in 2026-27, bringing resident Fourteen campuses had freshman resident undergraduate enrollment to 360,160 FTE students. admission rates of 90 percent or higher in fall 2025, The Governor’s budget maintains this target. compared to only three campuses in fall 2019. The The Governor does not propose an enrollment systemwide fall 2025 transfer admission rate of growth target for 2027-28. 89 percent is slightly lower (0.8 percentage points) Assessment compared to the prior year, but it is still higher than CSU Intends to Increase Enrollment in previous years. For example, from fall 2015 to fall 2026-27 but May Fall Short of State Target. 2018, the average admission rate for California CSU expects to surpass the 2025-26 resident resident transfer students was 78 percent. undergraduate enrollment target set forth in the In addition, fewer programs are impacted. 2025-26 Budget Act by 2,911 FTE students. As a CSU’s Enrollment Reallocation Plan Is result, CSU will have to grow by fewer students to Realigning Funding With Actual Students reach its 2026-27 target. Specifically, CSU will have Served. Though a majority of CSU campuses to increase resident undergraduate enrollment by are currently below their enrollment targets, 2.1 percent (rather than 2.9 percent) in 2026-27. some campuses are exceeding their enrollment CSU, however, projects it will increase resident targets. In 2024-25, CSU began addressing this undergraduate enrollment by 1.4 percent. If the situation by reallocating existing enrollment slots projections hold, CSU would end up 2,210 FTE from campuses under their enrollment targets students below the 2026-27 state target. to those exceeding their targets. Effectively, this Demographic Trends Are Likely to Limit reallocation moved funding internally within the CSU Growth in Out-Years. One reason CSU might system to help support more enrollment growth at fall short of its existing enrollment growing campuses. target for 2026-27 is because of demographic trends. Whereas CSU Figure 15 has seen increases in new freshmen High School Graduates Are Projected to Decline over the past few years, the number California Public High School Graduates of new freshmen decreased in fall 2025. The administration also projects that high school graduates 460,000 Projected will decrease by 1.4 percent in 450,000 spring 2026, leading potentially to a 440,000 decrease in the incoming freshman 430,000 class for fall 2026. As Figure 15 420,000 shows, altogether from 2025-26 through 2028-29, the number of 410,000 high school graduates is projected 400,000 to decline by 1.5 percent. All else 390,000 equal, this would translate to 380,000 smaller new freshman cohorts in the out-years. 2010-11 2012-13 2014-15 2016-17 2018-19 2020-21 2022-23 2024-25 2026-27 2028-29 16 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET Recommendations at CSU apart from and on top of any base increase, as doing so provides greater transparency and Recommend Funding Lower Level of accountability. (Relative to the Governor’s budget, Enrollment Growth at CSU in 2026-27. Given the Legislature effectively could shift funding from the state’s projected deficits, the Legislature the unrestricted base increase and designate faces difficult choices regarding what ongoing it for enrollment growth.) We recommend the spending to prioritize in 2026-27. In making those Legislature fund CSU enrollment growth using difficult decisions, within the higher education the marginal cost formula. Based on the 2026-27 budget, we think there is a rationale to prioritize marginal cost state rate, the ongoing General Fund funding enrollment growth at CSU in 2026-27. cost of 1 percent growth in resident enrollment Providing funding for some enrollment growth (undergraduate and graduate combined) at CSU would recognize the admissions decisions CSU is $44 million. This is $38 million less than the cost already is in the midst of making. However, if the under the Governor’s budget assumptions. Legislature provides funding for enrollment growth, we recommend it set a lower growth target than Recommend Holding Enrollment Flat in established in the 2025-26 Budget Act. Setting a 2027-28. Given the sizeable projected deficit lower growth target would acknowledge that CSU in 2027-28, we recommend holding enrollment does not believe it can reach the higher proposed expectations flat for CSU that year. This prevents target. A lower growth target also would reflect CSU from being directed to enroll more students in the softer demographic pressures facing CSU. the potential absence of associated funding. Setting The state could, however, depart from its recent enrollment targets for CSU but then not providing practice of including only resident undergraduates associated funding could negatively impact in its target. Instead, it could fund 1 percent growth students through larger class sizes, fewer course of both resident undergraduate and graduate offerings, and less academic support. Though the students, which would better align with CSU’s state would not be providing systemwide enrollment statutory mission to serve both groups of students. growth under this recommendation, CSU could still provide enrollment funding to growing campuses Recommend Providing Enrollment Growth in 2027-28 by continuing to shift funding under its Funding Separately From Base Increases. enrollment reallocation plan. Furthermore, most Consistent with historical legislative practice, we campuses are already meeting student demand. recommend the Legislature fund enrollment growth www.lao.ca.gov 17 analysis full 2026-27 BUDGET 18 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET www.lao.ca.gov 19 analysis full 2026-27 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. 20 LEGISLATIVE ANALYST’S OFFICE