The 2026-27 Budget: University of California

analysis full 2026-27 BUDGET The 2026-27 Budget: University of California GABRIEL PETEK | LEGISLATIVE ANALYST | FEBRUARY 2026 SUMMARY Brief Covers the University of California (UC). This brief reviews core funding and spending trends at UC, then analyzes the Governor’s budget proposals relating to UC’s core operations and enrollment. The final section covers federal funding for UC and the implications of recent federal developments. Over the Past Ten Years, UC Spending Has Outpaced Inflation. Over this period, core spending grew at an average annual rate of 4.3 percent, compared to inflation growing by 3.3 percent. This faster growth reflects increases both in student enrollment and underlying cost drivers. UC’s largest cost driver is employee compensation, accounting for about 75 percent of UC spending in 2024-25. Growth in employee compensation has been mostly driven by the expansion of UC’s workforce. Recommend Reducing or Eliminating Base General Fund Increase. The Governor proposes a $351 million (7 percent) base increase for UC in 2026-27 and assumes UC generates $273 million in additional tuition revenue. Given the state’s fiscal outlook, the Legislature could provide a smaller base increase aligned with inflation. Alternatively, it could provide no base increase to help manage the structural deficit and reduce pressure for more significant reductions over the coming years. Even without a base increase, UC’s core funding would grow by 3.5 percent. Recommend Using Available One-Time Funding to Retire Payment Deferral. In 2025-26, the state began deferring a $130 million General Fund payment from one fiscal year to the next. If one-time funding becomes available, we recommend the Legislature make retiring this payment deferral a high priority. Retiring the deferral would return UC’s state payments to their regular schedule, eliminate the associated debt obligation, and reduce state budgetary pressures in the out-years. Recommend Removing Out-Year Commitments. Under the Governor’s budget, the state commits to providing UC with a one-time back payment of $241 million in 2027-28, followed by a 3 percent ongoing base increase of $144 million in 2028-29. We recommend removing these out-year commitments. The Legislature could determine each year how much support to provide UC in light of overall fiscal conditions and its budget priorities. Recommend Funding Enrollment in 2026-27 at Original Target, Separately From Base Increase. The Governor’s budget maintains the original resident undergraduate enrollment target established in the 2025-26 Budget Act for 2026-27, a level that UC expects to exceed by more than 3,000 students. Given the projected budget deficits and moderating demographic pressures, we recommend the Legislature maintain the original target set for 2026-27. We further recommend the Legislature fund enrollment growth separately from, and in addition to, any base increase to enhance transparency and accountability. For 2027-28, we recommend holding enrollment flat to help UC avoid the potential negative programmatic impacts of adding students without associated funding. Recommend Pausing the Nonresident Replacement Plan. The Governor’s budget provides $61 million ongoing General Fund to replace a certain number of nonresident students with resident students at three high-demand campuses. We recommend an alternative that funds the same number of resident students while leaving the number of nonresidents flat. This alternative costs $36 million less than the Governor’s proposal. Given all three high-demand campuses have added resident students beyond replacing nonresidents the past few years, they appear to have associated physical capacity. www.lao.ca.gov 1 analysis full 2026-27 BUDGET INTRODUCTION Brief Focuses on UC. UC is one of California’s science students only. This brief analyzes the three public higher education segments. Under 2026-27 budget plan for UC. The first section of the state law, UC is to provide undergraduate and brief provides an overview of UC’s budget and the graduate education, including doctoral programs planned changes for 2026-27. The second section and professional programs in law and medicine. focuses on UC’s core operations, whereas the third It also is to serve as the primary state-supported section focuses on enrollment. The final section academic agency for research. The UC system of the brief covers the importance of federal funds consists of ten campuses. Nine of UC’s campuses in UC’s operations and the implications of recent enroll students across a range of disciplines, federal developments for UC. whereas one campus enrolls graduate health OVERVIEW UC Budget Is $61.6 Billion in 2025-26. Of the (4.5 percent) is additional tuition and fee revenue. three public higher education segments, UC has Under the Governor’s budget, UC’s other, smaller the largest budget, with total funding greater than sources of core funding are assumed to remain flat. the California State University (CSU) and California Community Colleges (CCC) combined. As Figure 1 shows, UC receives funding Figure 1 from a diverse array of sources. State budget decisions typically focus on UC Receives Funding From Many Sources UC’s “core funds.” Core funds consist $61.6 Billion in 2025-26 primarily of student tuition and fee revenue and state General Fund. A small Other State portion comes from lottery funds, a Core Funds share of patent royalty income, and overhead funds associated with federal Tuition and Fees and state research grants. Core funds Private comprise approximately 20 percent General Fund Other of UC’s total budget. UC uses core Federal funds for undergraduate and graduate instruction as well as general campus operations. UC’s “noncore funds” include revenue from its medical centers, sales and services, federal research grants, Sales and Services and philanthropic support, among Medical Centers other sources. Ongoing Core Funding Increases Noncore Funds Notably Under Governor’s Budget. As Figure 2 shows, ongoing core funding increases by $806 million (7.1 percent) in 2026-27. Of this amount, $533 million is additional ongoing General Fund support (an 11 percent increase) and $273 million 2 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET Figure 2 UC’s Two Main Core Fund Sources Increase Notably Under Governor’s Budget (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 Tuition and feesa $5,822 $6,000 $6,273 $273 4.5% General Fund 4,858 4,853 5,386 533 11.0 Lottery 56 61 61 — — Other core fundsb 488 488 488 — — Totals $11,224 $11,402 $12,208 $806 7.1% FTE Studentsc 300,027 304,258 301,127 -3,131 -1.0% Ongoing Core Funding Per Student $37,410 $37,475 $40,541 $3,066 8.2 a Includes funds that UC uses for tuition discounts and waivers. b Includes a portion of overhead funding on federal and state grants and a portion of patent royalty income. c An FTE student equates to 30 credit units for an undergraduate and 24 credit units for a graduate student. Student counts include resident and nonresident students. FTE = full-time equivalent. Governor Proposes Base Figure 3 Increases and Some One-Time Research Funding. As Figure 3 Governor Has Several UC Proposals shows, the Governor proposes Reflects Governor’s Budget, 2026-27 (In Millions) $573 million in new General Fund support for UC in 2026-27. Of this Ongoing Spending amount, $541 million is for ongoing Base increase (5 percent) $254 Base restorationa 130 augmentations and $32 million Base increase (2 percent delayed from 2025-26)b 96 is for one-time research-related Nonresident enrollment replacementc 61 purposes. (The budget for UC also Subtotal ($541) includes the removal of $8.1 million One-time Spendingd in ongoing debt service for an Jordan Syndrome research $13 California Institutes for Science and Innovation 10 intersegmental student housing UC and CSU Collaborative for Neurodiversity and Learning 8 project that was shifted to being California Institute on Law, Neuroscience, and Technology 1 supported by Proposition 2 funds.) Subtotal ($32) The largest ongoing proposals are Total $573 for providing UC with unrestricted 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. base increases. The Governor b The 2025-26 Budget Act included intent language to provide UC with this augmentation. also proposes $61 million ongoing c Consists of $30 million for 2026-27 and $31 million delayed from 2025-26. General Fund to complete d Reflects amount UC reports as still available for each initiative. implementation of a plan to replace some nonresident students with undergraduate enrollment by about 3,000 full-time more resident students at three high-demand equivalent (FTE) students (1.4 percent) in 2026-27. campuses. Although the administration proposes The one-time research funds are related to to provide UC broad discretion over the additional reappropriating some unspent funds from four 2026-27 ongoing funding, UC would be expected research initiatives the state authorized several to cover the costs of enrollment growth within its years ago. The Governor proposes extending the base increase. The Governor’s budget maintains expenditure period to give these research initiatives the expectation that UC increase resident more time to spend their original allocations. www.lao.ca.gov 3 analysis full 2026-27 BUDGET CORE OPERATIONS In this section, we first discuss UC’s core UC Tuition Charges and State Support funds and the extent to which UC relies on Historically Move in Opposite Directions. For state support and tuition revenue for its core most of the past 30 years, neither the state nor UC operations. We then highlight notable spending had a tuition policy. Partly as a result, changes in trends over the past decade. Next, we describe tuition charges tended to move contrary to changes the Governor’s proposals relating to UC’s base in state General Fund support. As Figure 5 shows, budget, assess those proposals, and make UC tuition and fee levels have had long flat periods associated recommendations. generally corresponding to years of economic growth and increasing state contributions. These Funding Trends periods tend to be followed by steep tuition UC’s Reliance on State Support Has increases generally corresponding to economic Increased Somewhat Over Past 15 Years. UC’s slowdowns or recessions, when state contributions ongoing core funding primarily consists of state tend to fall. General Fund and tuition and fees, with smaller UC Began Implementing a Tuition Policy in shares from lottery funds and federal contract 2022-23. In 2021, the Board of Regents approved and grant overhead. State General Fund support a new tuition policy that took effect in 2022-23. has fluctuated over time—generally rising during Under this policy, tuition increases annually for new economic expansions and falling during recessions. undergraduates and all graduate students, while As Figure 4 shows, the General Fund share of UC’s continuing undergraduates pay a flat rate for up to total core funding has increased from 37 percent six academic years. Annual increases are generally in 2011-12 to 43 percent in 2025-26. As the based on a three-year rolling average of changes state share has increased, the tuition share had in the California Consumer Price Index, with a decreased—falling from 57 percent in 2011-12 to 5 percent cap. In November 2025, the Regents 52 percent in 2025-26. extended and revised the policy. The revised policy Figure 4 State Support Has Accounted for Less Than Half of UC's Core Funds Over Past 15 Years Fund Source as a Share of Total Core Funding 60% Tuition 50 General Fund 40 30 20 10 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 Note: Total core funds include lottery, a portion of overhead funding on federal and state grants, and a portion of patent royalty income. Tuition includes systemwide tuition and fees. 4 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET Figure 5 UC Historically Has Raised Tuition Charges When State Support Drops Annual Percent Change 50% 40 Tuition charge 30 20 10 -10 General Fund -20 -30 1991-92 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 25-26 Note: General Fund includes ongoing and one-time funding. Tuition charge reflects rate for a full-time resident undergraduate. allows for tuition increases of up to 1 percentage UC Also Relies on Three Other Ways to point above inflation as long as the rate remains Support Core Operations. Beyond state support below the 5 percent cap. Beginning in 2027-28, and tuition revenue, UC relies on three other much if the approved rate increase is less than the smaller sources of support for its core operations. 5 percent cap, UC also may carry forward the UC places its pooled cash in investment accounts unused portion and apply it in a future year (as long and uses some of the annual investment earnings as the 5 percent cap is not exceeded each year). to support core operations. UC also receives The revised tuition policy is scheduled to be in overhead revenue associated with federal contracts effect from fall 2026 through July 2033. and grants—known as federal indirect cost UC Plans to Increase Tuition Charges by recovery—that helps support campus research 4.4 Percent in 2026-27. In 2026-27, systemwide infrastructure and certain central administrative tuition and fees are set at $15,588 for new resident costs. UC also regularly seeks to contain growth undergraduate students, reflecting an increase of in its operating costs. One way it regularly realizes $654 (4.4 percent) from 2025-26. UC also is raising operational savings is through negotiating discounts its nonresident supplemental tuition charge. The and rebates from vendors and service providers. supplemental rate for nonresident undergraduates UC Reserve Levels Generally Have Tracked (which is in addition to the base rate for resident With Broader Fiscal Factors. As Figure 6 on students) is set at $39,270. The supplemental rate the next page shows, UC core fund balances as rises by $1,668 (4.4 percent) from 2025-26. These a share of its annual core fund expenditures have rate increases reflect the policy to increase charges been as low as 1.8 percent in 2008-09 and as high by 1 percentage point above the rolling three-year as 23 percent in 2012-13. UC reserves dropped average change in the California Consumer notably at the onset of the Great Recession. UC Price Index. reserves climbed the subsequent few years, likely in part due to heightened economic uncertainty. www.lao.ca.gov 5 analysis full 2026-27 BUDGET out-years. As a result, budget Figure 6 makers will likely have to make difficult decisions in the coming UC Core Fund Balances Have Fluctuated Notably Over Time years to realign state spending Core Fund Balances as a Share of Annual Core Fund Expenditures with available revenues. As part of that process, the Legislature 25% may have to contemplate how to prioritize amongst competing 20 state spending priorities. UC Spending Has 15 Outpaced Inflation Over Past Ten Years. As Figure 7 10 shows, UC’s core spending has grown faster than inflation 5 over the past ten years. Over this period, core spending grew 2007-08 2009-10 2011-12 2013-14 2015-16 2017-18 2019-20 2021-22 2023-24 at an average annual rate of 4.3 percent compared to an average annual inflation rate of 3.3 percent over the same During the following years of economic expansion period. In 2024-25, UC’s actual core spending and reduced economic uncertainty, UC reserve was 9.3 percent higher than it would have been levels declined. UC reserves also were impacted had spending simply kept pace with inflation since by the infusion of federal stimulus funding and 2015-16. This faster growth reflects both increases one-time state funding provided in 2021-22 and in student enrollment and increases in underlying 2022-23, with levels growing somewhat over cost drivers. The remainder of this section those years. In 2023-24 (the most recent year examines these cost drivers in greater detail. for which UC has reported data), UC reserves Trends in enrollment are covered in the “Enrollment” declined from 17 percent to 15 percent of annual section of this brief. core fund expenditures—equating to just under two months of reserves. Within this core fund Employee Compensation as a Share of UC’s balance, UC campuses retain some funds Budget Has Grown. Employee compensation specifically to respond to economic uncertainties. has been and remains UC’s largest operating Systemwide, very little (1.6 percent in 2023-24, expense. As Figure 8 shows, salaries and benefits less than six days of reserves) is earmarked for this accounted for about three-fourths of UC spending purpose. The remainder is committed to various in 2024-25. Over the past decade, the share of planned activities, including faculty recruitment, spending devoted to compensation has increased, capital outlay planning, and launching new rising from 65 percent in 2015-16. At the same academic programs. time, the shares of UC spending devoted to student financial aid and other operating expenses have Spending Trends declined slightly. From 2015-16 through 2024-25, UC’s Spending Is Driven by a Few Major Cost UC spending increased at an average annual rate Pressures. In addition to understanding UC’s of 5.9 percent for salaries and 5.3 percent for reliance on state support and tuition revenue, it is benefits. This trend in employee payroll growth is important to understand UC’s spending trends and comparable to that experienced at other similarly core cost pressures. Understanding UC’s spending classified institutions. As discussed next, this trends is especially important when the state faces growth in overall compensation at UC reflects both challenging fiscal situations. As discussed in The expansion in the size of its workforce and increases 2026-27 Budget: Overview of the Governor’s in average salaries and benefit costs over time. Budget, the state faces projected deficits in the 6 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET Figure 7 UC’s Workforce Has Grown Notably Over Time, UC Core Spending Has Increased at a Faster Rate Especially Nonfaculty Than Inflation Over the Past Ten Years Staff. In April 2025, UC (In Billions) employed more than 145,000 FTE campus employees, excluding $12 medical centers. UC staffing 11 levels have generally increased over time. Over the 10 past decade, overall staffing Actual Spending growth has outpaced 9 enrollment growth. Between 2015-16 and 2024-25, UC’s 8 FTE workforce increased Inflation-Simulated Spending 7 by an annual average of 2.4 percent, while its 6 FTE enrollment rose by 1.9 percent. As a result, 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 the student-to-employee ratio declined slightly Note: The blue line shows actual spending each year. The red line reflects the 2015-16 over the period (from 2.2 spending level grown at the rate of inflation over the period. to 2.1). Faculty, however, grew at a slower rate than enrollment over this period. Figure 8 Faculty FTE increased by 1.5 percent annually over the Employee Compensation Is past decade, contributing Reaching Nearly 75 Percent of UC’s Budget to an increase in the Expenditures by Expense Category (Dollars in Billions) student-to-faculty ratio from 14.0 to 14.6. Though UC’s $12 workforce grew notably over much of the past ten 12% 10 years, UC implemented a 14% systemwide hiring freeze beginning April 1, 2025. 8 21% Although campuses retain 18% some discretion in how 6 16% the freeze is applied, it is expected to constrain faculty 4 19% and staff hiring through 53% the 2026-27 academic 2 46% year. Recruitments for the 2026-27 cycle may proceed on a limited basis where 2015-16 2024-25 positions address critical needs or are supported by Facuty and Staff Salaries Employee and Retiree Benefits specific funding sources. Financial Aid Equipment, Utilities, and Other www.lao.ca.gov 7 analysis full 2026-27 BUDGET Growth in UC Salary Spending Has Been period, reaching more than $665 million in 2024-25 Driven Mostly by Workforce Expansion. Over (growing at an average annual rate of 5.2 percent the past decade, UC spending on faculty salaries over this period). In 2024-25, UCRP’s funded status increased by an annual average of 4.4 percent, (comparing assets to liabilities) was 85 percent while spending on nonrepresented staff salaries and is expected to reach 90 percent in 2025-26. increased 5.6 percent. As a group, represented UCRP’s funded status has tended to be better than employees (including various other staff positions other California state retirement plans. The increase and union-represented academic employees) saw in UCRP’s funded status is primarily due to their salaries increase by 6.7 percent each year over strong investment returns in recent years. The UC the last ten years. After accounting for workforce employer contribution rate, however, remains growth, salary growth largely matched inflation, somewhat below the rate needed to fully fund the with little to no growth in inflation-adjusted wages pension system. for core-funded employees over the past decade. Health Care Costs Are Growing but Stable Rising Pension Costs Are Due to Both as a Share of Spending. UC offers a range of Workforce Expansion and Rate Increases. health plans for UC employees and retirees, with Whereas many state employees participate in the premiums set annually for the respective plans. California Public Employees’ Retirement System or The premium costs that UC covers for employees the California State Teachers’ Retirement System, depends on an employee’s income level, with UC employees participate in the University of lower-paid employees receiving a higher share California Retirement Plan (UCRP). The UC Board of their premium costs covered. UC’s health of Regents manages UCRP. Each year, the Board care spending generally has increased over of Regents determines how much UC contributes time, growing from $532 million in 2015-16 to an to its pension program. For the last ten years, estimated $781 million in 2024-25 (up 4.4 percent the UC employer contribution rate has increased on average each year). While health care costs at gradually, from 14.6 percent of payroll in 2015-16 UC are growing, these costs as a share of UC’s total to 16.71 percent in 2024-25. As Figure 9 shows, core expenditures have remained fairly stable over annual program costs have steadily grown over this the past decade, hovering around 7 percent. Figure 9 UC Pension Costs Continue to Rise Employer Contribution Costs and Funded Status (Dollars in Millions) $800 100% UCRP Funded Status 90 700 80 600 70 UCRP Costs 500 60 400 50 40 300 30 200 20 100 10 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 UCRP = University of California Retirement Plan. 8 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET Financial Aid Spending Has Increased in budget includes an additional 2 percent increase Tandem With Enrollment Growth and Tuition ($96 million) associated with the 2025-26 compact Increases. Beyond employee compensation, payment that was postponed to 2026-27 under UC faces several other ongoing cost pressures. last year’s budget agreement. The administration The largest of these is institutional student financial proposes to give UC discretion in allocating this aid. UC sets aside a portion of new tuition revenue additional funding in 2026-27. generated by tuition increases and enrollment Governor Proposes to Continue Deferral growth to support its institutional aid programs. Arrangement for One More Year. The In 2024-25, UC’s institutional aid totaled about Governor’s budget continues the payment deferral $1.5 billion, representing 14 percent of core arrangement adopted last year for UC. In 2025-26, funding. Over the past decade, institutional aid the state deferred a $130 million General Fund spending has grown notably, driven in part by payment from 2025-26 to 2026-27, while allowing increases in student enrollment and in part by UC to take a no-interest General Fund cash loan increases in tuition charges (for which a portion to cover costs in the meantime. UC requested is dedicated to institutional aid). Institutional aid and received this cash loan in fall 2025. Under spending, however, has not grown as fast as the Governor’s proposal, the state would extend employee compensation (which has grown at more this approach by deferring another $130 million than twice the rate of institutional aid). payment from 2026-27 to 2027-28 and again Debt Service Has Been Hovering at Around offering a short-term, no-interest cash loan to UC. 4 Percent of Core Spending. UC typically The administration intends to retire the deferral in borrows to undertake major capital projects. 2027-28, resulting in a one-time General Fund cost It carries debt mostly from former state general of $130 million at that time. The deferral is intended obligation bonds and, beginning in 2013-14, from to have no programmatic effect on UC. university bonds. In 2013-14, the state initiated a Governor Retains Out-Year Funding new policy intended to provide UC with greater Commitments. Under the Governor’s budget, ability to manage its facilities, more predictability the state would continue to make two additional in facility financing, and more incentive to contain out-year funding commitments to UC. The state costs. Specifically, the state gave UC authority to would commit to providing UC with a one-time back sell its own university bonds for state-approved payment of $241 million in 2027-28 to address the academic capital projects and use its main General base increase that it did not receive in 2025-26, Fund appropriation to cover the associated debt followed by a $144 million ongoing increase service. Under this system, the expectation is that in 2028-29, reflecting the remaining 3 percent UC undertake capital projects regularly, as UC no base increase from the postponed 2025-26 longer has to depend on periodic, voter-approved compact payment. bonds. Total UC debt service on state-approved UC Anticipates Receiving Additional Revenue academic facilities and certain student housing From Tuition and Other Sources in 2026-27. UC facilities increased from $324 million in 2015-16 to has identified a total of $308 million from nonstate $503 million in 2024-25. sources that it plans to use for its core operations in 2026-27. Most notably, UC estimates it will generate Proposals $273 million in additional tuition and fee revenue. (Of Governor’s Budget Includes Ongoing this amount, UC has earmarked $95 million for its Increase in State Support for UC in 2026-27. systemwide program that provides student financial The Governor proposes to increase ongoing base aid.) In addition, UC intends to use $20 million General Fund support for UC by $351 million from its investment earnings for its core operating (7 percent) in 2026-27. This increase reflects two costs in 2026-27. UC also anticipates generating components. First, the Governor’s budget includes $15 million in freed-up funds from procurement a 5 percent base increase ($254 million) for UC in savings and other operational efficiencies that it will 2026-27, reflecting the fifth-year base increase of use for its core operations in 2026-27. his multiyear compact. Second, the Governor’s www.lao.ca.gov 9 analysis full 2026-27 BUDGET UC Will Use Additional Funding for Its Despite Large Increase in State Support, Spending Priorities. Under the Governor’s budget None Is Designated for Capital Renewal. The assumptions, after restoring UC’s General Fund Governor gives UC full discretion in deciding how base support for the payment deferral, UC would to spend the proposed $658 million in additional have $658 million in total additional core funding core funding. Neither the Governor nor UC’s budget for new spending priorities in 2026-27. With this plan identifies spending any of this funding for additional funding, UC likely would: capital renewal projects. UC, however, is carrying an estimated capital renewal backlog of $9.1 billion. • Provide salary increases for nonrepresented When projects are not done on time, project costs and represented employees. We estimate can increase in the future and the likelihood of each 1 percent increase in payroll would cost programmatic disruptions due to failing building $55 million in 2026-27. components increases. • Cover health benefit and pension cost Governor Presents No Plan for How to Honor increases. UC estimates benefit costs will Out-Year Commitments. The Governor’s budget increase by $134 million. UC estimates its continues to make out-year funding commitments health care costs will grow by 8.2 percent, to UC in fiscal years when the state is projected while its employer contribution rate to UCRP to have deficits. Despite making these out-year will be 17.2 percent of payroll, up from funding commitments, the administration does 16.5 percent of payroll in 2025-26. not identify corresponding funding sources or • Cover the cost associated with enrollment budgetary offsets to support these commitments. growth, particularly for the hiring of additional Absent a clear plan for how the state would faculty and support staff. We estimate accommodate these costs alongside other General each 1 percent increase in resident Fund priorities, the out-year commitments might undergraduate enrollment would have a be delayed further, not made at all, or necessitate total marginal cost (state and student shares budget solutions in other areas. combined) of $54 million in 2026-27. • Increase student financial aid by $99 million Recommendations primarily to account for enrollment growth and Recommend Reducing or Eliminating Base tuition increases. General Fund Increase. When facing fiscal • Pay for nonpersonnel operating cost increases uncertainty and ongoing budget shortfalls, the (such as for utilities and insurance). Legislature typically considers ways to contain • Potentially launch a few, small new initiatives. state spending. The Governor, however, proposes to increase UC spending significantly. In addition, Assessment the Governor’s budget does not specify how the proposed ongoing augmentations to UC’s base Unrestricted Base Increase Lacks funding would be supported in future years. Transparency and Accountability. The Given this context, if the Legislature wishes to Governor’s proposed base increase for UC clouds continue providing base increases to UC despite transparency and accountability, as the funds are the challenging budget outlook, it could consider not earmarked for specific purposes. UC’s 2026-27 approving smaller increases that are more closely Budget Plan for Current Operations, presented aligned with current inflationary benchmarks—such to the Board of Regents in November 2025, as the 2.41 percent base increase proposed for outlines UC’s spending priorities, but the amount community colleges. Alternatively, the Legislature requested is higher than proposed by the Governor. could consider eliminating the proposed base Moreover, no statutory language requires UC to increase for UC to help manage the state’s allocate the base increase consistent with this plan. structural deficit and reduce pressure for more Furthermore, the Legislature could have different significant reductions in later years. Even without priorities—for example, prioritizing compensation the proposed 7 percent base General Fund increases, enrollment growth, or the building up of increase, UC’s core funding would increase UC’s reserves for economic uncertainties differently 3.5 percent in 2026-27, and UC would be able to than the Board of Regents. 10 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET cover some of its spending priorities. This growth Recommend Using Available One-Time rate is slightly below the average annual rate of Funding to Retire Payment Deferral. If one-time growth in UC’s total core funding over the past ten funding becomes available, we recommend the years (4.3 percent). Legislature make retiring this payment deferral a Recommend Earmarking a Share of Any high priority. Retiring the deferral would return UC’s Ongoing Base Increase for Capital Outlay. If state payments to their regular schedule, eliminate UC were to receive a base General Fund increase the associated debt obligation, and reduce state and designate none of it for capital improvements, budgetary pressures in the out-years. its facility conditions would worsen and backlog Recommend Removing Out-Year of projects would continue to grow. To mitigate Commitments. We recommend removing the this issue, we recommend the Legislature adopt state’s out-year funding commitments to UC in provisional budget language earmarking some 2027-28 and 2028-29. Eliminating these out-year share of any approved base increase for capital augmentations would reduce projected state renewal projects. For example, earmarking around deficits in 2027-28 and 2028-29 without requiring 10 percent of a base increase would allow UC to programmatic cuts or tax increases. Rather than undertake some capital renewal projects while still making commitments in advance, the Legislature retaining the preponderance of any base increase could determine each year how much ongoing for other spending priorities. Undertaking at least support it can afford to provide UC in light of overall some capital renewal projects would help reduce fiscal conditions and competing budget priorities. the risk of higher project costs in the future. ENROLLMENT In this section, we first provide background compared to 14 percent of UC undergraduates on UC enrollment. Next, we cover enrollment (of which 53 percent were international students). trends. We then discuss the state’s enrollment UC Enrolls a Mix of Freshmen and Transfer expectations for UC in 2026-27. Finally, we Students. Besides aiming to enroll a mix of assess UC’s enrollment situation and make resident and nonresident students, UC seeks to associated recommendations. enroll a certain mix of new incoming freshmen and transfer students. Specifically, UC aims Background to enroll two resident freshmen for every one UC Enrolls a Mix of California Resident resident transfer student. In 2024-25, the average and Nonresident Students. In 2024-25, of the freshman-to-transfer ratio was somewhat higher approximately 300,000 FTE students enrolled than the target—at 2.2 systemwide. Most UC at UC, 83 percent were California residents campuses did not meet the 2:1 ratio in 2024-25 and 17 percent were nonresidents (domestic despite a recent rebound in community college and international). Compared to the two other enrollment and resident transfer applications. segments, UC enrolls a notably larger share of The only campuses to meet the 2:1 target in nonresident students. (In 2024-25, nonresidents 2024-25 were Los Angeles, San Diego, and Irvine. comprised 5.4 percent of CSU FTE students and State Typically Sets Resident Enrollment an estimated 3 percent of CCC FTE students.) Targets. Over the past two decades, the state’s Nonresident students comprise a larger share typical enrollment approach for UC has been to of graduate enrollment than undergraduate set systemwide resident enrollment targets. These enrollment at UC. In 2024-25, 32 percent of UC targets have typically applied to total resident graduate students were classified as nonresidents enrollment, giving UC flexibility to determine the (of which 80 percent were international students), mix of undergraduate and graduate students. www.lao.ca.gov 11 analysis full 2026-27 BUDGET Recently, the state has departed from this practice campuses, but only the Berkeley, Los Angeles, and by setting enrollment growth targets only for San Diego campuses currently are above that cap.) undergraduates. The state also has departed from To help the three campuses achieve this goal, the historical practice by setting enrollment growth state has provided UC with ongoing General Fund targets not only for the budget year but also augmentations of about $30 million each year. budget year plus one. The state made this change These augmentations are intended to backfill the in an effort to better align its targets with UC’s associated lost nonresident supplemental tuition admissions cycle. UC completes its admissions revenue and cover the higher financial aid costs for cycle for the coming fall term before the state resident students. The state paused this funding enacts the annual budget each June. Setting an in 2025-26 but retained the expectation that UC enrollment growth target for budget year plus one replace 902 FTE nonresident students with resident allows the state to influence UC’s planning for students at the high-demand campuses. the next admissions cycle, prior to UC making its Trends admission decisions. In the 2025-26 Budget Act, the state set UC resident undergraduate enrollment UC Enrollment Has Grown Over the Past targets for 2025-26 and 2026-27. Decade. As Figure 10 shows, UC enrollment has increased every year but one (2022-23) over the State Typically Provides Associated past decade. Total enrollment has grown by nearly Enrollment Growth Funding. If the state sets 47,000 students (18 percent), an increase equivalent an enrollment growth target for UC in the budget to the current total enrollment of UC Los Angeles. year (sometimes the state leaves the target flat), Undergraduate enrollment has grown faster the state has usually provided associated General than graduate enrollment. From 2015-16 through Fund augmentations. Augmentations have been 2024-25, undergraduate enrollment increased calculated using an agreed-upon per-student by 21 percent, whereas graduate enrollment funding rate derived from the “marginal cost” increased by 8 percent. As a result, the share of formula. This formula estimates the cost to enroll undergraduates has grown slightly (from 80 percent each additional student and shares the cost to 82 percent of overall enrollment), as the share of between the state General Fund and student tuition graduate students has declined (from 20 percent to revenue. In 2025-26, the total marginal cost per 18 percent). Undergraduate enrollment growth has student is $23,531, with a state share of $12,885. varied somewhat across UC campuses. Over the Due to budget constraints, the state did not provide last decade, UC Merced added the fewest number General Fund support for enrollment growth at of undergraduates but grew at the fastest rate. UC UC in 2025-26. Los Angeles grew at the slowest pace. State Has Directed UC to Reduce Shares of Resident, Domestic, and Nonresident Undergraduate Enrollment. International Students Have Changed The state has also acted to limit the number of Somewhat. From 2015 through 2024, UC added nonresident undergraduates at high-demand about 37,000 undergraduates, nearly 31,000 of UC campuses, with the intent to make more whom were residents. Resident undergraduates slots available for resident undergraduates. grew at about the same rate as nonresident Specifically, the state has directed UC to reduce undergraduates. As Figure 11 shows, the most nonresident undergraduate enrollment at the notable change among undergraduates over this Berkeley, Los Angeles, and San Diego campuses period was a decrease in the share of international by a combined 902 FTE students each year and students, which was largely offset by a higher share increase resident undergraduate enrollment by of domestic nonresidents. In contrast, the most the same amount. The nonresident enrollment notable change among graduate enrollment was the reduction plan began in 2022-23 and is intended to growing share of international students. The shares extend through 2026-27. By 2026-27, UC campuses of both resident and domestic graduate students are to have nonresident students comprise no declined over the period. more than 18 percent of their total undergraduate enrollment. (The 18 percent cap applies to all UC 12 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET Figure 10 UC Enrollment Continues to Rise Full-Time Equivalent Students 300,000 Graduate Undergraduate 250,000 200,000 150,000 100,000 50,000 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 Figure 11 International Students Have Dropped as Share of Undergraduate Enrollment but Grown as a Share of Graduate Enrollment Fall Headcount Undergraduate Enrollment Graduate Enrollment 250,000 60,000 9% 7% 50,000 200,000 10% 5% 24% 30% 40,000 150,000 8% 8% 30,000 100,000 85% 84% 20,000 68% 62% 50,000 10,000 2015 2024 2015 2024 International Nonresident Domestic Resident www.lao.ca.gov 13 analysis full 2026-27 BUDGET Composition of UC Undergraduate 212,503 FTE students. Under the compact, UC is to Student Body Has Changed Somewhat Over fund much of this growth (2,066 FTE students) from Past Decade. As Figure 12 shows, the share within the proposed base increases. The rest is of Hispanic/Latino students at UC rose from funded through the nonresident replacement plan. 26 percent in fall 2015 to 31 percent in fall 2024, In contrast to past state practice, the Governor while the share of White students declined from does not set enrollment growth expectations at UC 26 percent to 21 percent. The share of Asian for budget year plus one (2027-28). students remained stable, while the share of Governor’s Budget Resumes General Fund African American students rose slightly. The share Support for Nonresident Enrollment Reduction of resident undergraduates receiving Pell Grants Plan. The Governor’s budget includes $61 million (a proxy for low income) declined from 46 percent ongoing General Fund support for the nonresident in fall 2015 to 43 percent in fall 2024. Regarding undergraduate replacement plan—effectively academic preparation, the share of freshmen doubling up funding in 2026-27 (given the pause in enrolled with a weighted high school GPA of 4.0 or funding in 2025-26). Provisional budget language above increased from 53 percent to 66 percent over continues to direct UC to replace 902 FTE students the period. combined at the three high-demand campuses in 2026-27. (The 902 additional resident FTE Figure 12 students are included in the overall 2,968 resident FTE student growth target.) Under the UC Student Body Is Ethnically Diverse Governor’s proposal, the expectation effectively Fall Resident Undergraduate Headcount would be that all UC campuses reach the statutory 18 percent cap (of nonresidents to total 200,000 4% Other undergraduate enrollment) in 2026-27. 180,000 5% African American Assessment 160,000 5 4 % % 21% White UC Undergraduate Resident Enrollment 140,000 Has Grown Much More Quickly Than 26% 120,000 Underlying Demographic Trends. Between 100,000 31% Hispanic/Latino 2015-16 and 2024-25, UC resident undergraduate 26% enrollment grew at an average annual rate of 80,000 2.1 percent, substantially outpacing underlying 60,000 demographic drivers. Over the same period, the 40,000 39% 39% Asian number of California public high school graduates increased only 0.4 percent annually, while the age 20,000 18 to 24 population declined (-0.3 percent). These demographic factors appear to have impacted 2015 2024 the other public higher education segments—with resident undergraduate enrollment growing at an average annual rate of only 0.3 percent at CSU and enrollment declining at CCC. Proposals Undergraduate Applications Increased Substantially With the Removal of Standardized Governor Maintains 2026-27 Enrollment Testing. Figure 13 illustrates a sharp rise in Expectations but Sets No Target for 2027-28. applications following UC’s May 2020 decision The 2025-26 Budget Act set a resident to drop standardized testing from its admission undergraduate enrollment expectation for UC process. First affecting applicants for the fall in 2026-27. Specifically, UC is to add 2,968 FTE 2021 term, total undergraduate applications rose students (a 1.4 percent increase) in 2026-27, by 16 percent from the previous fall. Domestic bringing resident undergraduate enrollment to 14 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET Figure 13 Undergraduate Applications Increased Substantially in 2021 Applicants by Residency Status, Fall Term 300,000 250,000 International 200,000 Nonresident Domestic 150,000 100,000 Resident 50,000 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 nonresident applications rose the most—by 7 percent in 2015-16 to 8.4 percent in 2024-25. 44 percent. By fall 2025, the number of applications (Admission rates have declined at the three remained far above the 2020 level. This sustained highest-demand campuses, though this too can increase in applications notably expanded the pool largely be attributed to more applications rather of potential enrollees, even as growth in California’s than reduced access. Resident undergraduate high school population was modest. enrollment has continued to grow at all three of the Some Trends Signal That UC Enrollment highest-demand campuses.) Pressures Have Weakened. Typically, a large UC Expects to Exceed Its Resident increase in applications would be followed by a Undergraduate Enrollment Target in 2025-26. drop in admission rates. Systemwide admission The 2025-26 Budget Act set the expectation that rates at UC, however, increased over the past UC grow its resident undergraduate enrollment by decade, with admission rates for resident 2,947 FTE students (1.4 percent) in 2025-26, for a undergraduates increasing from about 60 percent total level of 209,535 FTE students. Based on data to nearly 70 percent. Higher systemwide admission from the summer and fall 2025 terms, UC estimates rates are an indication that enrollment pressures that its resident undergraduate enrollment will be are easing. Consistent with this trend, UC now up 8,144 FTE students (3.9 percent) in 2025-26, enrolls a larger share of California public high for a total level of 214,732 FTE students. This school graduates than ever before—rising from level of growth even exceeds the 2025-26 Budget www.lao.ca.gov 15 analysis full 2026-27 BUDGET Act enrollment target set for UC in 2026-27— undergraduate enrollment notably beyond the 212,503 FTE students. UC is planning to apply replacement of nonresident students (enrolling the excess growth in 2025-26 toward its 2026-27 more than 4,500 new resident students in addition enrollment target. UC is accommodating the cost of to the replaced nonresident students). Moreover, this enrollment within its core budget. other available evidence indicates the three A Confluence of Factors Might Be Negatively campuses do not face insurmountable physical Impacting Academic Programs. UC exceeded capacity constraints. Over the past five years, all the state’s 2025-26 enrollment growth target three campuses have initiated and/or completed substantially, even though the state did not provide housing projects adding several thousand beds. UC with a notable base General Fund increase Furthermore, UC classroom and laboratory in 2025-26. UC also increased enrollment while utilization reports indicate the three campuses are simultaneously implementing a systemwide hiring not using these facilities up to legislative standards. freeze (since March 2025). Together, these factors Less Costly Option Exists for Funding More appear to have begun impacting course offerings, Resident Undergraduates. The nonresident course availability, and class sizes, at least at some replacement plan effectively funds resident campuses. (To gain a better understanding of these undergraduate growth at an implied cost of current impacts, the Legislature could request UC $33,902 per student, which is much higher than share applicable data during spring hearings.) the state share of the marginal cost ($14,419 in UC Expects to Miss Its Nonresident 2026-27). At the marginal cost rate, the state could Undergraduate Enrollment Reduction Target meet its current goal of enrolling 902 additional in 2025-26. Despite substantially exceeding its resident undergraduates for just under $13 million— 2025-26 resident undergraduate enrollment target, substantially less than the $31 million provided UC anticipates that it will not meet the target annually under the replacement plan. of replacing a combined 902 FTE nonresident Recommendations students with resident students at the Berkeley, Recommend Maintaining Original Target Los Angeles, and San Diego campuses. Compared for Undergraduate Resident Enrollment in to 2024-25, nonresident undergraduate enrollment 2026-27. We recommend the Legislature maintain is expected to decline by 22 FTE students at the UC resident undergraduate enrollment target of Berkeley and 169 FTE students at Los Angeles 212,503 FTE students for 2026-27, as established but increase by 265 FTE students at San Diego in the 2025-26 Budget Act and proposed by the (for a new increase of 74 FTE students). Whereas Governor. This level reflects what the Legislature the Berkeley and Los Angeles campuses reduced deemed the state would be able to afford and nonresident undergraduate headcount as a share of sustain over time, even with its projected budget their total undergraduate headcount, the San Diego deficits. UC could accommodate the cost of any campus increased it. None of the three campuses students above the state target within its budget, has yet reduced nonresident undergraduate or it could manage its enrollment down to the enrollment below the 18 percent cap. state target in 2027-28. Several factors, including Nonresident Replacement Plan Is Based key demographic factors and rising systemwide on Questionable Assumption. The state’s admission rates, suggest more accelerated nonresident enrollment reduction plan is premised enrollment growth is not critical at this time. on the assumption that the Berkeley, Los Angeles, Moreover, faster enrollment growth in the near and San Diego campuses lack the capacity term could exacerbate existing issues with course (particularly in terms of housing or instructional offerings, course availability, and class sizes. space) to enroll additional resident undergraduates Recommend Earmarking Funding for without reducing nonresident enrollment. Available Enrollment Growth in 2026-27. Consistent with evidence, however, does not clearly support historical legislative practice, we recommend the this assumption. During the first four years of Legislature fund enrollment growth at UC apart the plan, all three campuses increased resident 16 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET from and on top of any base increase to provide support implementation and the replacement greater transparency and accountability. Relative to target was met. As resident enrollment grows the Governor’s budget, the Legislature effectively while nonresident enrollment remains flat, the could shift funding from the unrestricted base Legislature’s statutory objective of reducing increase and designate it for enrollment growth. nonresident enrollment to 18 percent of We recommend the Legislature fund UC enrollment undergraduate enrollment still will be reached, growth using the marginal cost formula. Based on though it would take somewhat longer. Of the the 2026-27 marginal cost state rate, the ongoing Governor’s proposed $61 million for the nonresident General Fund cost of adding 2,968 resident replacement plan, this recommendation yields undergraduate FTE students (1.4 percent) is $36 million ongoing General Fund savings. (Our $43 million. (Under this recommendation, none of recommendation effectively redirects $13 million the additional students are funded at the higher to fund 902 resident FTE students at the 2026-27 nonresident-replacement rate.) marginal cost rate and $12 million to fund Recommend Pausing the Nonresident 902 resident FTE students at the 2025-26 marginal Replacement Plan. Given the state’s projected cost rate.) Achieving budgetary savings in this way budget deficits, along with the evidence that could help the state address its structural deficit the three high-demand UC campuses can without major programmatic implications. accommodate more resident students (beyond Recommend Holding Enrollment Flat in replacing nonresident students), we recommend 2027-28. Given the sizeable projected deficit in pausing the implementation of the nonresident 2027-28, we recommend holding UC’s enrollment replacement plan. In tandem, we recommend expectations flat for that year. If UC were to capping nonresident undergraduate enrollment continue enrolling additional students without at the Berkeley, Los Angeles, and San Diego state support, it could experience more negative campuses at their respective 2024-25 levels—the programmatic impacts. last year for which the state provided funding to FEDERAL FUNDS In this section, we provide background on the federal funding that UC receives, then discuss some Figure 14 of the potential major impacts of Federal Funding at UC Has Increased Over the Last Decade recent federal actions on UC. (Dollars in Billions) Overview $25 40% Federal Funding Comprises Federal Funding as a Share of UC Budget About One-Third of UC’s Budget. 35 20 As Figure 14 shows, federal funding 30 at UC has grown over the past 25 15 decade, reaching $19.2 billion in 2024-25. Federal funding at UC 20 grew more quickly than inflation. 10 Federal Funding (2024-25 Dollars) 15 Even after adjusting for inflation, 10 the average annual growth rate 5 5 over this period was 5 percent. The rest of UC’s budget also grew 2011-12 2013-14 2015-16 2017-18 2019-20 2021-22 2023-24 2025-26 over the period, such that federal www.lao.ca.gov 17 analysis full 2026-27 BUDGET funding hovered around one-third of UC’s total student support, and outreach programs, among operating budget. The exact percentage, however, various other purposes. As Figure 15 also shows, has fluctuated somewhat. The federal share has UC receives substantially more federal funding than been as low as 29 percent of UC’s budget (in CSU and CCC—nearly six times more. In contrast 2018-19 during the first Trump Administration) to UC, the vast majority of federal funding for CSU and as high as 36 percent (in 2024-25 during the and CCC is for student financial aid. Biden Administration). Federal funds must be used UC Medical Centers Rely Heavily on Federal for specified purposes and are not fungible with Health Care Funding. Among other types of core funds. patients, UC medical centers serve patients Federal Funding Supports UC in Three Main participating in the federal Medicare and joint Areas. The federal government provides support to federal-state Medicaid programs. The Medicare UC primarily for (1) health care delivery and training, program generally serves adults age 65 and older, (2) research, and (3) student financial aid. As whereas the Medicaid program serves low-income Figure 15 shows, more than half of federal funding people. The costs for the Medicaid program at UC is for health care delivery and training, mainly in California—also known as Medi-Cal—are at UC’s five medical centers. About one-quarter of covered by a mix of federal and state payments. In federal funding is for research. All ten UC campuses 2024-25, UC received $11.2 billion in Medicare and receive some federal funding for research annually. Medi-Cal reimbursements. (This EdBudget table About 10 percent of federal funding is for student summarizes federal funding provided to UC for financial aid, namely for student loans and Pell patient care and other key purposes.) As Figure 16 Grants. The remaining funding is for training, shows, among UC’s five medical centers, UC San Francisco (UCSF) received the most in Medicare and Medi-Cal Figure 15 reimbursements ($3.6 billion). This is because UCSF serves UC Receives Significantly More the largest number of patients. Federal Funding Than CSU and CCC Among all its patient care revenue, 2023-24 UCSF relies least on Medicare and Medi-Cal reimbursements, Patient Care at Teaching Hospitals Student Financial Aid whereas UC Irvine relies most Research & Development Other heavily on those reimbursements. The remainder of UC’s patient care UC CCC revenue comes largely from private $17.4 Billion $2.5 Billion insurance plans. 18% UC Campuses Rely Heavily 9% on Federal Research Funding. In 2024-25, UC received $4.8 billion 82% 10% in federal research funding (and an additional $1.8 billion for the CSU management and operations 57% $2.9 Billion of three Department of Energy 24% 10% national laboratories). Federal 11% research funding comprised 55 percent of UC’s total research 79% funding systemwide in 2024-25. UC’s institutional funding—drawn from gifts, endowments, General Fund, and other sources— 18 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET accounts for about 22 percent of total research funding. (UC Figure 16 also receives research funding Medicare and Medi-Cal Reimbursements Account for from nonprofit organizations, Nearly Half of Medical Centers’ Patient Care Revenue other state agencies, and private 2024-25 (In Billions) businesses.) As Figure 17 shows, some UC campuses received much more federal research funding than other UC campuses. San Francisco Whereas UCSF and UC San Diego each received nearly $1 billion in Los Angeles federal research funding, six other UC campuses each received San Diego Private Insurance Plans less than $500 million. While Medi-Cal most federal agencies provide Davis Medicare some research funding to UC campuses, the National Institutes Irvine of Health (NIH) accounts for 1 2 3 4 5 6 7 8 $9 over 40 percent of UC’s federal research funding. NIH funding is particularly concentrated on campuses with medical centers. Federal Financial Aid Figure 17 Represents One-Third of Student Financial Aid at UC. Federal Funding Comprises More Than In 2024-25, UC received nearly Half of UC Research Funding $2 billion in federal funding Grant and Contract Funding, 2024-25 (In Millions) for student financial aid. (This EdBudget table summarizes Systemwideª federal financial aid funding provided to UC students.) More Merced than half of this amount consisted Santa Cruz Federal Funding of student loans to undergraduate Other Riverside and graduate students, while grants and gift aid—primarily Pell Santa Barbara Grants—totaled over $700 million. Irvine Overall, federal aid accounted for nearly one-third of the total Berkeley financial aid received by UC Davis students, with the remainder Los Angeles provided by the state and UC. The relative importance of federal San Diego aid varies across campuses, San Francisco ranging from 38 percent of total financial aid at UCSF (driven 500 1,000 1,500 $2,000 largely by graduate student a Systemwide research programs and specialized multicampus initiatives managed by the borrowing) to 27 percent at UC Office of the President. UC Berkeley. www.lao.ca.gov 19 analysis full 2026-27 BUDGET Impacts of Recent Federal Actions Short-Term Risks to UC’s Federal Research Funding Appear More Limited Than Initially Recent Federal Developments Have Anticipated. Several federal actions taken in early Important Implications for UC Medical Centers. 2025 to reduce research funding subsequently Recent federal policy changes will reduce the have been paused or reversed by court decisions. amount of federal reimbursements at all UC Moreover, later congressional actions have medical centers. (This handout summarizes these further reduced the likelihood of significant federal policy changes.) Among the most notable federal research reductions. In particular, recently changes are tighter Medi-Cal eligibility rules and enacted federal budget legislation rejects most of lower federal payments for patient care. These the originally proposed research cuts, provides changes are expected to reduce the number of NIH funding above its 2025 level, and does not people receiving Medi-Cal benefits, increase impose a cap on indirect cost recovery. As a result, uncompensated emergency-room care, and lower near-term funding risks for UC research appear the federal payments medical centers receive for more limited than initially expected. Consistent with patient care. UC medical centers could respond this assessment, currently available expenditure to these federal developments potentially by and award data indicate that UC’s total federal absorbing the impact within their budgets (that is, research funding has not declined substantially reducing their annual margins) or adjusting their to date relative to prior-year levels (though costs (for example, by reducing staff and scaling there have been operational disruptions). As of back certain types of low-revenue-generating January 2026, UC estimates 389 research awards medical services). UC medical centers have varying totaling $173 million had been canceled, while capacities to absorb the impact. The federal policy 1,272 research awards totaling $832 million had changes are scheduled to go into effect over been reinstated. (A notable share of the reinstated time, with the first set of changes taking effect as awards involve UC Los Angeles. The nearby box of October 2026. Over the coming years, more describes the federal investigations that led to the information will become available on the fiscal initial freezing and subsequent releasing of research impacts of these changes. grants at that campus.) Federal Investigations Were Linked to Research Funding UC Los Angeles (UCLA) Was a Focus of Federal Investigations. Following campus protests in 2024, the federal government initiated civil rights investigations at certain campuses across the country, including at some UC campuses. The investigations stemmed from allegations that these campuses did not adequately address antisemitic harassment and discrimination connected to the protests. The federal interactions with UCLA ultimately went beyond the actions taken at other UC campuses. Below is a time line of key developments in the UCLA situation. • On July 29, 2025, the federal Department of Justice issued a notice concluding UCLA had violated certain civil rights provisions. • Also in late July 2025, federal agencies suspended nearly $600 million in UCLA research grants citing concerns related to alleged antisemitism, along with broader policy issues involving the university’s admissions and diversity, equity, and inclusion practices. • In August 2025, the Trump Administration sought a $1.2 billion penalty and package of policy changes from UCLA to settle the civil rights allegations and release the frozen research funding. • In November 2025, a federal judge issued a preliminary injunction blocking the Trump Administration from pursuing the proposed UCLA payment and constraining the use of broad funding threats as coercive leverage. • In February 2026, reports emerged indicating the federal administration dropped its appeal. 20 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET Graduate and Professional Programs Face out-of-pocket costs and increased reliance on the Greatest Impact of Federal Student Aid private loans. (This handout covers how the new Changes. H.R. 1 makes major changes to federal student loan caps could affect medical school student aid programs. Figure 18 describes the students in California.) Given strong demand major changes. Among the most notable changes for UC’s graduate and professional programs, are new annual and lifetime caps on graduate and UC would be more likely to experience a shift in professional student borrowing, along with the student composition—toward a higher share of elimination of Graduate PLUS (Grad PLUS) loans for higher-income students—than an overall decline new borrowers. (Grad Plus loans allow students to in enrollment. borrow up to the full cost of attendance minus other Federal Student Aid Changes Would Have aid.) These changes would disproportionately affect More Modest Effects on Undergraduates. students in high-cost graduate and professional Although H.R. 1 makes several changes affecting programs, particularly in medicine, law, and health federal student aid for undergraduates, their sciences, where borrowing sometimes exceeds the overall impact on UC undergraduate students is new federal caps. In 2023-24, about 20 percent expected to be more modest than for graduate of UC students in professional programs had and professional students. Changes to Pell Grad PLUS loans, and most of these students Grant eligibility are expected to affect relatively borrowed above the new loan caps. (The Grad small numbers of UC students. In 2023-24, PLUS borrowing rate is higher among law-school only 74 undergraduates received Pell Grant aid students, at 35 percent.) With the elimination of exceeding their cost of attendance. Changes in the Grad PLUS loans, some students could face higher new Student Aid Index thresholds, however, could Figure 18 H.R. 1 Makes Major Changes to Federal Student Aid Programs Changes Take Effect July 1, 2026, Unless Otherwise Noted Policy Area Key Changes Graduate and Graduate PLUS (Grad PLUS) Eliminates Grad PLUS for new borrowers. Professional Students Direct Loan annual limits Sets annual caps: $20,500 (graduate); $50,000 (professional). Direct Loan program limits Adds program caps: $100,000 (graduate); $200,000 (professional). Undergraduate Parent PLUS Adds annual cap ($20,000 per dependent student) and lifetime cap Students ($65,000 per dependent student). Pell Grant eligibility Students become ineligible for Pell Grants if: • Their nonfederal grants and scholarships cover full cost of attendance. • Their Student Aid Index is greater than twice the maximum Pell Grant award. Workforce Pell Grant Creates a Workforce Pell Grant program for short-term academic and training programs meeting defined criteria. All Students Federal student loan lifetime cap Establishes $257,500 lifetime borrowing cap, excludes Parent PLUS and Grad PLUS debt. Direct Loan program eligibility Uses an earnings-based accountability measure to determine an academic program’s eligibility for future participation in the federal Direct Loan program. Repayment plans, For new loans, borrowers generally limited to two options: a new new borrowers standard option (fixed payments) or the RAP income-based option. Repayment plans, Current borrowers can remain in some existing plans, but borrowers current borrowers on certain income-driven repayment plans must transition to the new standard or RAP plans by July 1, 2028. Annual loan caps, Requires proration of annual loan amounts for students enrolled less part-time students than full time. RAP = Repayment Assistance Plan. www.lao.ca.gov 21 analysis full 2026-27 BUDGET somewhat reduce Pell participation, particularly financial aid. Under the H.R. 1 regulations, the among moderate-income families near the eligibility median earnings of undergraduate-program margin. In addition, new caps on Parent PLUS graduates four years after completion must exceed borrowing are likely to have a small systemwide the median earnings of people ages 25-34 with impact, as only 6 percent of UC undergraduates only a high school diploma. Similarly, median relied on Parent PLUS loans in 2023-24. However, earnings for graduate-program completers must for the subset of families that depend heavily on exceed the median earnings of people ages 25-34 Parent PLUS to bridge financing gaps, the new whose highest attainment is a bachelor’s degree. limits could increase unmet need, shift borrowing Programs with lower earnings are most at risk of toward private loans, or constrain enrollment losing federal financial aid. UC believes the new choices. (We cover recent federal changes earnings rule likely will have a very small overall relating to the federal Minority-Serving Institution impact. It estimates the new rules could affect up designation and their significance for UC campuses to 2,000 undergraduate students (mostly enrolled in the nearby box.) in arts and humanities programs), about 3,800 New Federal Accountability Rules Increase professional-degree and master’s students (mostly Regulatory Risk for Certain UC Programs. in education, social work, and fine arts programs), H.R. 1 also introduces a new program-level and fewer than 200 academic doctoral and medical earnings accountability rule. Under the new students. Repercussions for failing the new rule, programs that do not meet an earnings measure will not occur for several more years. threshold risk losing access to federal student Many UC Campuses Have Special Federal Designations All UC Campuses Hold at Least One Federal Minority-Serving Institution (MSI) Designation. MSI designations identify colleges and universities that enroll substantial proportions of students from historically underrepresented racial or ethnic groups and meet specific other statutory eligibility criteria (such as enrolling a high portion of students with financial need). MSI categories include, among others, the Hispanic-Serving Institution (HSI), Historically Black Colleges and Universities, Asian American and Native American Pacific Islander-Serving Institutions (AANAPISI), and Native American-Serving Nontribal Institutions. Designations are reassessed annually by the U.S. Department of Education. Campuses may gain or lose MSI designations as their student demographic and financial characteristics change. Currently, all nine UC general campuses hold the AANAPISI designation. Five UC campuses also have the HSI designation (Irvine, Merced, Riverside, Santa Barbara, and Santa Cruz). MSI Designations Provide Eligibility and Priority for Certain Federal Programs. Having an MSI designation makes institutions eligible for certain federal grant programs, which primarily support student success and institutional capacity. Beyond these MSI-specific programs, the designation can also provide advantages in broader federal competitions, including access to set-asides, waived cost-sharing requirements, and priority consideration. MSI institutions may also be attractive partners in large, multi-institution research grants, particularly in programs that emphasize workforce diversity. Recent Reductions in MSI Grant Funding Are Expected to Have Limited Fiscal Effects on UC. In September 2025, the U.S. Department of Education discontinued roughly $350 million in MSI grant funding nationwide, resulting in the cancellation of some MSI grants at UC campuses. Despite these cancellations, the systemwide fiscal effect on UC is expected to be small. In 2024–25, UC received only an estimated $12 million to $15 million in MSI grant funding. Though the systemwide impact is small, some UC campuses will be impacted by the loss of MSI funding they had been using for student success initiatives and/or research. 22 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET www.lao.ca.gov 23 analysis full 2026-27 BUDGET LAO PUBLICATIONS This report was prepared by Florence Bouvet, and reviewed by Jennifer Pacella and Ross Brown. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, California 95814. 24 LEGISLATIVE ANALYST’S OFFICE