Budget Insights: State Budget Continues to Prioritize Higher Education

State Maintains Most Prior Budget Efforts as California’s Fiscal Climate Tightens

The governor and legislature finalized a $311 billion budget deal, addressing a $32 billion shortfall while maintaining $38 billion in reserves to help the state withstand future revenue shortfalls. Budget decisions were complex given federal debt limit uncertainties, higher interest rates, job losses in high-wage sectors, major regional bank failures, and delayed state tax filing. The final budget delays, reduces, borrows, and shifts funding to manage the shortfall. By leveraging these budget solutions, the state largely maintains prior year investments in higher education. Legislators made some lamentable but understandable cuts, and we remain hopeful these investments may return in future years.

While the majority of the adjustments to the higher education budget were anticipated, as noted in our May Revision analysis, below we highlight the major budget provisions that align with California Competes’s policy priorities to reimagine a higher education system that serves all Californians.

Sustained Investments for Higher Education Access, Attainment, and Equity 

The higher education budget totals $40 billion, including $1.12 billion in new spending to cover base growth and cost of living adjustments. Funding continues as planned in the compacts for University of California (UC) and California State University (CSU), and the California Community Colleges (CCC) Roadmap, which were adopted last year. The compacts and roadmap point to priorities for increasing enrollment, completion, intersegmental coordination, online education, and equity yet lack critical accountability mechanisms to help achieve those goals. Predictable funding is a positive step, yet we still encourage the governor and legislature to consider the questions we raised when the compacts and roadmap were introduced. 

• Base Growth for UC and CSU: The budget provides a 5 percent base increase to the UC and CSU as outlined in the compacts, reflecting a $216 million increase for UC and a $227 million increase for CSU. Funding helps institutions cover anticipated increases in undergraduate enrollment, particularly for California residents and transfer students. 
• Cost of Living Adjustment for CCC: The budget allocates $678 million to the CCC for a historic increase of 8.22 percent, aiming to improve degree and credential attainment, time to completion, and transfer rates to UCs and CSUs by 2026.

Changes to Student Housing Investments May Impact College Affordability for Adult Learners

In better budget years, the state invested in two programs to finance the construction of affordable student housing, a key cost consideration, particularly for the millions of adult learners who care for dependents and cover college costs on their own. Established in 2021, the Higher Education Student Housing Grant Program (HESHG) aimed to provide colleges with grants to expand student housing. In 2022, the legislature offered institutions one-time no-interest loans for the construction of affordable student and faculty housing projects through the California Student Housing Revolving Loan Fund Program. As institutions pay back the loans, another round of funding would be allocated to new projects. 

This year’s budget revises these large investments to address budget shortfalls, as summarized in the following bullets.

• Higher Education Student Housing Grant Program: To shift the costs of the housing to a future date while still maintaining the goal of having the housing be built sooner than later, the budget shifts $2.25 billion in grants to institutional or local revenue bonds.¹ The state plans to cover the cost of the debt, providing $164 million in ongoing general funds to pay  institutions’ financing costs. It remains unclear if this shift to bond financing will impact the viability of projects or the number of affordable units each project will maintain. Analysts predict future cost increases to the state given unpredictable fluctuations in interest rates. We urge close monitoring of project progress to ensure swift construction of much-needed units for low-income students. 
• California Student Housing Revolving Loan Fund Program: To address revenue shortfalls, the budget reduces the student and faculty housing revolving loan from $900 million to $200 million. Three-quarters of the loans will be distributed to UC and CSU and one-quarter to the CCC.  

New and Continued Funding Pave Way for Accessible and Quality Online Education  

The final budget and Senate Bill 117, the higher education trailer bill language, recognize the growing demand for and use of online education as well as the need for a comprehensive study to ensure online and hybrid offerings are accessible and high quality.  These investments reflect the value of providing accessible pathways to usher the state towards an equitable and agile system of learning.

• CCC Online Education Study: The budget allocates $500,000 in one-time funding to the CCC Chancellor’s Office to outsource a comprehensive study of online and hybrid education. Researchers will answer critical questions related to the nature and value of online and hybrid courses at community colleges. SB 117 ensures researchers consider student outcomes for different student populations, such as first-generation students, returning students, students with some college but no degree, and other historically underrepresented populations in postsecondary education. 

• Calbright College: The budget funds $15 million for Calbright College, California’s first exclusively online community college built for working adults. This funding helps the college continue on its 7-year implementation plan to increase enrollment, completion, and add new workforce partnerships and certificates. 

Data and Research Investments Encourage Higher Education Coordination

California faces a degree and credential shortage, and if the state intends to close that gap and maintain its economic foothold, it must advance a coordinated and informed plan for student success and completion. Two critical efforts to improve higher education data collection, research, reporting, and coordination receive funding. 

• Cradle-to-Career Data System: The budget funds over $15 million for the continued development of the Cradle-to-Career Data System (C2C), which will link existing education, social services, and workforce information to create a shared, comprehensive picture of how Californians are progressing from early childhood to career. Connecting data across sectors allows stakeholders, including students and their families, educators, policymakers, and researchers, to make informed decisions that will strengthen education and career pathways for all Californians. 
• Basic Needs Cost of Living Adjustment (COLA) & New CalFresh Reporting: The budget adds a COLA to the three segments’ Basic Needs Centers for a total investment of $82.4 million ($15.8 million UC, $26.3 million CSU, and $43.3 million CC). Additionally, the segments must include in their annual report to the legislature the number of campuses operating data sharing agreements with their respective county CalFresh agency and the number of students receiving CalFresh benefits. The effort is modeled after Compton College’s successful data sharing program. These investments can improve coordination of programs and services to support student access, as many students do not receive CalFresh benefits despite being eligible. 

Workforce Alignment and Pathway Programs Gain and Lose Funding 

This year’s budget strengthens education-to-workforce pathways for nurses, teachers, and school counselors, while making cuts for apprenticeship programs and expiring the Golden State Education and Training Grant Program (GSETG). 

• Golden State Education and Training Grant Program: The budget claws back the $480 million allocated in 2021 to provide scholarships for students who lost their jobs during the pandemic. The GSETG program was cut due to low participation and limited staffing capacity at the California Student Aid Commission. California Competes was hopeful that this program would begin to modernize postsecondary systems and build pathways to higher education for those beyond high school seniors. However, the slow rollout served to underscore the seismic changes needed, and it fell prey to a tight budget year. 
• Apprenticeship Innovation Fund: The budget reduces the Department of Industrial Relations’ three-year fund of $175 million by $40 million. If there is sufficient General Fund in January 2024, this reduction will be restored. The funds are used to invest in and expand non-traditional apprenticeships to meet the needs of more employers and create additional earn-and-learn pathways for job seekers. 
• CCC Growing, Educating and Maintaining the Nursing Workforce: The budget invests $60 million per year for five years, starting in 2024-25, to expand nursing programs. This funding is subject to future legislation and could help California address its nursing shortage. 
• Teacher and School Counselor Residency Grant Program: The 2022-23 budget provided $184 million over five-years for local educational agencies (LEAs) to grow or create new residency programs that recruit and retain a workforce reflective of their local community. The 2023-24 budget increases the allocation for LEAs from $25,000 to $40,000 per candidate in a residency program, of which $20,000 is used as a minimum stipend or salary for the resident. 

Looking Ahead

Moving from last year’s $100 billion surplus to this year’s $32 billion deficit required principled decision making that would keep the state on track to meet ambitious higher education goals. These swings are part and parcel of budgeting in California because of our heavy reliance on volatile corporate and income tax revenues. The good news is that the state has increased its resiliency against these swings by limiting new spending and maintaining reserves. The bad news is we are not out of the woods yet, and analysts predict more years of budget contraction.

Lean years make it more important to focus on core commitments that advance student success and support those most in need. California Competes will continue to analyze and advocate for fiscally-pragmatic investments in education and workforce development that strengthen our economy and allow our residents and communities to thrive.