Cal State System Could Face Additional $500 Million Deficit Amid Scaled-Back State Aid and Salary Increases

Half a billion dollars.

That’s how much more California State University’s budget gap will grow in two years under Gov. Gavin Newsom’s proposed spending plan for next year. This fiscal chasm may prompt hiring freezes, raid precious reserves and bring larger class sizes and fewer courses.

“We have to do less with less,” Cal State trustee member Christopher J. Steinhauser said. “We are going to have fewer programs, fewer positions. And anyone listening to this meeting, if they think that we can do this without doing that, they’re really kidding themselves.”

Senior finance officers from Cal State’s chancellor’s office debuted the sobering figures at last week’s board of trustees meeting. The forecasted deficit could change — legislators and Newsom have until late June to finalize a state budget that could include more money for the university.

Protecting Cal State, community college and University of California ongoing funding from cuts “wherever possible” is a priority, said David Alvarez, a Democratic assembly member from Chula Vista and chair of the Assembly’s budget subcommittee on education, last week.

“We got to stick with the commitments we’re making to the students of California in the budget,” said Greg Wallis, a Republican assembly member from Rancho Mirage, at the same hearing.

But if Newsom’s May budget update becomes law, Cal State would face a three-year operating deficit of $831 million through 2025–26 — more than $500 million greater than what was estimated last September, said Ryan Storm, an assistant vice chancellor at Cal State overseeing the system’s finances, at a trustees meeting last week.

Budget math

The yawning gap is the result of two forces: Newsom heavily scaling back his promises of growing financial support for Cal State due to the state’s multibillion-dollar deficit and ever-increasing labor costs fueled by recent 5% pay hikes to much of the system’s roughly 60,000 unionized workers.

Other expenses include nearly $80 million in higher health care premiums to provide insurance to its employees in 2024–25.

Newsom’s May spending plans for Cal State, the UC and other state agencies are complex, prompting the Legislative Analyst’s Office to call them “opaque and unnecessarily complicated.”

After a mix of cuts in 2024–25 and far less new spending in 2025–26 than initially promised, Cal State would see new state revenues that are $470 million less than they anticipated last fall, according to summary tables Storm showed the trustees. A promise to backfill faculty raises to end a strike earlier this year added roughly $30 million to the system’s budget gap.

Cal State was already projecting a three-year budget gap of more than $300 million last September. That was even with the assumption of nearly $500 million more in state support through 2026 and roughly $200 million more in new tuition revenue after the board approved tuition hikes of 34% across five years starting this fall.

Half a billion dollars is equivalent to the entire operating budget of San Diego State University, among the system’s largest campuses.

Campus strategies

Presidents of the 23 campuses at Cal State gathered in April to quantify what the budget shortfall of more than $800 million would mean for student learning and hiring decisions. It was more of a thought exercise than an implementation plan. The presidents and system leadership assumed no new state spending in the next two years — despite Newsom’s May plans. It also assumed workers would get raises in 2024–25 but not in 2025–26.

Campuses are considering increasing class sizes, reducing the number of available courses to reflect student demand and bringing down the number of part-time faculty and lecturers — actions that some campuses undertook this spring to close a combined $138 million budget gap. Other potential cost-cutting measures include leaving various positions unfilled, not replacing staff and faculty who retire and early-retirement programs at some campuses.

So far, the system is not recommending layoffs, but it expects the various hiring freezes and unfilled vacancies will lead to “a reduction of about 450 faculty and staff positions through 25–26,” Storm said last week.

The campuses also intend to use more than $500 million in reserves through 2025–26, depleting 22% of the system’s one-time funds intended for emergencies.

The April meeting also calculated a projected 2026–27 systemwide deficit of more than $200 million — the cost equivalent of 12,500 classes taught, 1,500 faculty or 1,100 managers, representing a quarter of all the managers at Cal State.

Effect on classes

Cal State trustees in March learned that campuses cut or suspended 137 academic programs and other areas of study in 2024 — a huge jump compared to 2023 and 2022, when only a combined 47 were cut or put on pause. This occurred “in light of changing enrollment patterns, workforce trends, and resource constraints,” staff wrote to the trustees. The number of new programs is also down. Campuses regularly create additional academic offerings in response to new industries and business trends. In 2024, central office staff projected 30 new programs — below the average of about 60 in the past two years.

Assembly budget staff reported last week that Cal State officials warn “that timely services for students could lessen and class sizes could grow in the next two years” if the system receives less funding than anticipated.

In January, when campuses were planning for a smaller budget gap in 2024–25, Long Beach State’s president, Jane Close Conoley, told CalMatters that it was planning to address its then-projected roughly $10 million deficit in various ways:

• Not replacing its usual churn of 30 to 35 faculty retirements a year, savings of roughly $5 million
• Not filling open staff positions — savings of roughly $2 million to $2.5 million.
• Travel freezes, putting off purchases of equipment and pulling from reserves were other options.

In other instances, professors who’ve been running labs or research projects may be asked to drop those efforts and teach classes.

“So, another way we save money is to say, ‘It’s a great idea, but no, you have to teach,’” Conoley said.

A small glimmer of hope is that enrollment seems to be rebounding systemwide, which will generate more revenue for the system and help stanch the projected fiscal bleeding. The system enrolled the equivalent of 7,500 more full-time students this college year. By 2025–26, the system projects to grow its full-time enrollment by 4%, or nearly 14,000 — a change of fortune after Cal State experienced student declines the previous two years.

The system is also expecting one-time state money of $240 million to ride out the next few years, Storm said, part of a promise that Newsom made in January and affirmed in May.

But some campuses may see even less funding next year when administrators begin rerouting millions of dollars from campuses with declining enrollment to those that are growing — a plan conceived early last year. Less money could further impair the ability of campuses to attract new students, some in the system fear.