California Competes’s Takeaways from the Governor’s May Revise Budget 2022–23

Governor’s May Revise Budget 2022–23

Governor Newsom’s May Revise doubles down on the budget priorities from his January Proposal. Cautious of future economic downturns, Governor Newsom mostly allocates the discretionary portion ($49.2 billion) of the historic $97.5 billion surplus to one-time spending.

The budget investments aim to create seamless pathways through education and into the workforce and make notable allocations to modernize higher education, including California Competes’s priorities of credit for prior learning, competency-based education, work-based learning, and growing programs in high demand fields. If enacted and implemented with fidelity, these investments could help widen access to higher education, improve completion, strengthen California’s workforce, and meet the demand for educated workers. Although this proposal makes choices that support students and reform systems, it falls short of increasing financial aid for the most vulnerable students, many of whom are older students and the Californians we need to pursue or return to higher education.

Released in tandem with the May Revise, the governor’s office released greater detail on the compacts with the University of California (UC) and California State University (CSU) and roadmap with the California Community Colleges (CCC) announced in January. The agreements point to priorities on increasing enrollment, completion, intersegmental coordination, online education, and equity.

Building off our analysis of the January Budget proposal, we explore what is in the May Revise, along with the compacts and roadmap made public last Friday.

Seventy Percent Postsecondary Credential Attainment Goal Remains the North Star

The governor’s budget and the accompanying higher education agreements aim to set a path forward for the state to reach a 70 percent postsecondary credential attainment goal, originally proposed in 2021. Since California Competes’s inception, we have called for the state to set such a statewide goal and a strategy for achieving it, and we appreciate the governor’s direction towards this. Achieving this ambitious goal will address California’s need for an educated workforce and citizenry while increasing the quality of life for individuals and families. Both through the funding in the budget and through the compacts and roadmap agreements with the segments, the administration has focused attention on increasing the number of Californians that can access college and successfully reach their educational goals.

More Detail on Public Higher Education Agreements

The governor reached agreements with the public higher education segments—compacts with the UC and CSU and a roadmap with the CCC. (And it’s worth noting that the legislature was not engaged in the development of these contracts, which raises a whole set of questions beyond the scope of this analysis.) The education compacts with the UC and CSU and the roadmap with the CCC draw on the access, completion, and equity themes contained in each of the systems’ own plans—UC 2030CSU’s Graduation Initiative 2025, and the CCC Vision for Success. The agreements at the UC and CSU are paired with 5 percent annual base funding increases, which, if executed, will provide predictability to the systems in their budget process. Proposition 98 funding to community colleges increased by 9 percent over the January budget proposal; included among the changes are an increase in cost-of-living adjustments, investments in technology and innovation, a block grant for pandemic-related issues, and various programmatic investments. As we stated in our analysis of the January budget, California Competes supports the emphasis on the predictability of resources, which should allow the systems to make systemic changes that put student success and well-being at the forefront and ideally lead to the increases in educational attainment that are vital for the state economy. Early feedback from the Legislature suggests they do not think 5 percent annual increases are sufficient to keep pace with institutional cost pressures and soaring inflation. However, the state should move cautiously to increase funding in any one given budget year given the volatility of state revenues. It is preferable to have moderate and predictable funding increases over wild swings in funding allocations from year to year which challenge system planning efforts. And we continue to question how to ensure such compacts are carried out in practice, as California has not had great success with them in the past.

The newly released compacts provide more granularity on expectations of the segments and prioritize:

  • increasing enrollment, completion, online education, and equity

  • investments in workforce alignment

  • improving intersegmental coordination

Priority on Increasing Enrollment, Completion, Online Education, and Equity

At the UC and the CSU, the agreements outline undergraduate enrollment increases of 1 percent per year for the next 5 years and continued support for both freshman and transfer enrollment. However, the agreements do not address some of the current enrollment bottlenecks in high demand campuses, and the legislature has expressed frustration that last year UC did not increase enrollment as much as legislators envisioned in the budget1.

The agreements also aim to increase the number of online courses offered. Many students have embraced this modality, and our research on adult demand and student parents found that flexible approaches to learning help students with work and family obligations. The focus on online education could help the UC and CSU meet enrollment targets and the CCC recover declining enrollments by opening access to new populations of students who prefer distance learning and easing demand on physical capacity.

The agreements also focus on increasing student success. Each segment’s approach and timeframe ties into its existing plans for increasing student success, which is efficient but also means they each have different timeframes and structures, making monitoring progress towards a statewide goal more challenging (see table 1 below for a comparison of key aspects). For example, each agreement has a different timeline: the CCC roadmap includes closing equity gaps by 2026, while the CSU uses 2025 and the UC uses 2030. Also, the public universities use different graduation metrics: the UC and CSU agreements specify four-year graduation rate targets, but the CSU agreement also includes six-year graduation rate targets. The agreements also set different standards for improving completion: the CCC agreement aims to increase the current completion rate by 20 percent, the UC sets a specific target of 70 percent completion for transfer students, and the CSU goal is based on completion rates at similar institutions.

While these differences in approach have a unified goal to increase completion and close equity gaps, the use of different metrics and different timelines may add confusion to the process and make it more difficult to compare progress toward the statewide goal. While it’s critical to elevate segment-specific contexts in the setting of these agreements, it’s also important that they clearly connect to statewide goals.

Table 1. Segment agreements share overarching goals but significant differences exist in the details

*The compacts also include eliminating equity gaps for disabled students, but these targets will be established once reliable data is collected.

Investments in Workforce Alignment and Preparation

Several investments in the budget align with California Competes priority to align higher education systems with the needs of the workforce. Our research has shown a looming gap in the number of individuals with a college credential and the demand for educated workers. The budget and the agreements continue the emphasis from January in creating clear pathways to high demand fields. Highlights include:

  • The UC and CSU compacts aim to improve labor market shortages by increasing science, technology, engineering, and mathematics (STEM) and education graduates by 25 percent by 2026–27.

  • The UC and CSU are also charged with collaborating with the community colleges to create transfer pathways in high demand and state priority areas of technology, education, healthcare, and climate action fields with a goal of creating a 2+2 model for transfer students (completing 2 years at a community college and 2 years at a four-year college).

  • The agreements also charge the segments with creating dual enrollment courses in STEM, technology and education fields that will transfer seamlessly to the UC and CSU, promoting pathways from K–12 to higher education in these high need fields.

  • UC and CSU compacts also note they will increase internship opportunities so that all students can participate in at least one internship, which will give students valuable workplace skills and experience.

Outside the agreements, the budget proposal includes a $300 million one-time investment in a program that provides grants to students working part-time jobs aligned with their major, the Learning-Aligned Employment Program. This appropriation fulfills the $500 million commitment to the program, which was launched in last year’s budget.

Improving Intersegmental Coordination

The governor continues to take steps towards improved intersegmental coordination, despite the state not having an independent coordinating entity. The agreements promote these objectives through two significant strategies: improving the transfer process, along with expanding higher education data and reporting.

Making Transfer More Seamless

Transfer is perhaps California’s most consequential higher education coordination function. The higher education agreements specify intersegmental cooperation to smooth transfer pathways for students, building off of legislation enacted last year. The agreements focus on three key aspects:

  • Requiring the segments to support the adoption of a common learning management program,

  • Establishing an integrated admissions platform, and

  • Creating data sharing agreements to support transfer.

In addition, the budget proposal provides additional funding for the CCC to develop a common course numbering system across all general education courses and transfer pathway courses and provides additional funding for mapping intersegmental course pathways between systems. This funding is in addition to funding provided in last year’s budget. The governor also proposes funding to integrate the independent higher education institutions in the course articulation platform used by the public systems (ASSIST). This funding will improve matriculation to private, nonprofit colleges by expanding the ASSIST system that is already in use by public higher education institutions.

These moves taken together will help community college students be better informed about their transfer choices, will increase the number of courses taken at a community college that count toward a bachelor’s degree, and also allow for easier understanding of which courses transfer. Allowing students to transfer between institutions and avoid duplicating coursework is a valuable step in increasing student success and reducing costs to both students and the state. California Competes has long argued for more robust coordination between the higher education systems, and the reforms in the budget and agreements are a step in the right direction.

Intersegmental Cooperation and Data Sharing

The agreements require all segments to participate in the Cradle-to-Career Data System, and annual reports will also contain information about intersegmental participation and associated outcomes. The swift and successful launch of the Cradle-to-Career Data System will be a critical step towards not just higher education coordination, but coordination across publicly-funded programs and supports for Californians from, well, cradle to career. The requirement to report annually about intersegmental participation and outcomes will help to call attention and raise the priority of higher education coordination—an issue oftentimes on the radar of only experts in the field.

Small Steps Towards Accountability via Reporting Requirements

The agreements lay out annual reporting as the centerpiece of their accountability function. The annual reports will include what actions the system has taken to achieve the goals, the progress toward each goal, and planned action for the next year. The agreements specify that the systems will track progress toward equity goals on a public dashboard, such as the Student Success Dashboard. While the agreements do not require that the systems use the same tool, hopefully information will be provided in a parallel format that will make looking across the systems easier. The annual reporting will improve transparency in activities and progress, but unlike the CCC Student Centered Funding Formula, funding is not contingent on making progress toward the goals. Instead, these reports will likely serve as fodder for conversations between the segments and the governor and legislature each year around policy and budget requests.

To be clear, agreements go both ways. How can the governor and legislature hold the segments accountable for what they lay out in their plans? And how can segments ensure that the governor and legislature hold up their end of the bargain—namely, the multi-year funding commitments? Given California’s past with higher education compacts, the cautious economic outlooks, and the difficulty making significant reforms in higher education, California policymakers and education leaders should be ready to navigate these challenges, as they are sure to come. The LAO has noted that the agreements do not make this reporting a legal requirement and there are no direct consequences if the systems fail to report, or if they report that they are not meeting the targets outlined in the agreements. Adding a legal reporting requirement would increase accountability and the transparency of information. We appreciate that these annual reports will provide transparency towards the segments’ plans and progress, but we still have the same concerns expressed in our analysis of the January budget proposal.

No Further Funding for Cal Grant Reform or Student Housing

While the revised budget continued investments in students, the support was uneven and failed to consistently prioritize high need students. Significant new funding was provided to reduce costs for students from middle-income families through the Middle Class Scholarship program, and the governor is supporting a debt-free path to a UC education. The budget also includes funding for the Student Equity and Achievement Program at the CCC, which can be used for emergency financial assistance to students and provides substantial institutional resources to the colleges. Additionally, the budget proposal includes $20 million one-time to support emergency student financial assistance grants to eligible undocumented (AB 540) students at the CCC.

However, no additional funding was provided for the Cal Grant Reform Act (AB 1746), which, if enacted, would increase financial aid for students and aims to make Cal Grants more coherent and aligned with the federal Pell Grant. Funding for the Cal Grant Reform Act would have an outsized benefit for community college students and older students, as it indexes the Cal Grant 2 award amount to inflation to ensure that it does not lose value over time, eliminates grade point average (GPA) requirements (GPA verification is a barrier for students, particularly those further out from high school), guarantees awards to those that qualify for a Pell Grant, and removes age-related requirements for older students who enter directly into the CSU and UC. Moreover, under AB 1746, students could use awards to help offset nontuition expenses such as housing, food, childcare, and transportation, which could be a game changer for students struggling with California’s high cost of living and may be trying to balance their education with the need to provide for their families. This lack of investment is a missed opportunity; many community college students and adult learners have the least access to financial aid to support the total cost of college. We encourage the governor to rethink this priority as we aim to grow enrollments and will need to enable a wider concept of who California’s college students are.

While the budget continues funding for the Student Housing Grant Program funded in the 2021 budget, it makes no additional investments in student housing. The agreements note that the segments should increase affordability of on-campus housing but contain no benchmarks or goals associated with housing. As California Competes noted in our previous analysis, college affordability is a major barrier to student access and success, and adults and parenting students face even more cost barriers that are often excluded from budget calculations. Investing in creating more student housing, particularly family-friendly student housing, is a prudent use of one-time funds, which are in abundance this year. Not only should the housing be structured to address the needs of today’s students and the students California needs to enroll, like Californians with dependent children, but it must also not limit housing to those as a specific institution. Today’s students attend multiple institutions and need stable housing. As such, California must build college housing from a more regional vantage point, allowing students to stay in their residence when they transfer institutions in the same community.

Furthermore, the number of applications to the first round of the Student Housing Grant Program far exceeded the available dollars, showing that the systems are willing to build more affordable housing if given the necessary resources. The state received 113 applications associated with a total funding request of $3.3 billion ($1.3 billion more than the total funding allotted for the program). The housing shortages were also evident this year at UC Berkeley, where a neighborhood group sought to limit the institution’s enrollment because of lack of housing. The Legislature has expressed support for more funding for student housing; the Senate’s Budget Plan provides an additional $1.5 billion for the Student Housing Grant Program split evenly between the systems. Hopefully, the final budget the state will include more funding for building affordable, family-friendly college housing.

Investments Benefitting Student Parents

Student parents (and prospective student parents) may see increased support, as recommended in our blog series on addressing the needs of student parents:

  • $2.7 billion in rental assistance for low-income families

  • $157 million to waive preschool fees for state-subsidized preschool and childcare development services through June 2023

  • Increases the number of children who will qualify for transitional kindergarten

  • Funding for renovations and repairs to some childcare facilities.

These investments can provide relief to student parents who are struggling with childcare and housing costs. However, the budget did not include investments to create new childcare centers on college campuses, which has been associated with higher levels of student-parent success, and does not include increases to the childcare provider payment rates, which could help address the childcare provider shortage.

Is More Fiscal Caution Warranted?

The Legislative Analyst’s Office’s preliminary analysis of the May Revise recommends much more caution than the governor’s proposal offers. The LAO notes the governor’s budget has significantly reduced reserves and calls on the legislature to allocate more of the surplus to building the reserves back. It notes this action is particularly critical given that it forecasts a fiscal cliff in 2023–24 (which could be minimized with greater reserve contributions) and identify markers of a coming recession. California’s most recent experiences with our state’s budget volatility has left us with historic surpluses. However, California will surely face dramatic deficits in the future, perhaps near future—deficits that would impact the agreements analyzed in this blog, higher education more broadly, and Californians in their day-to-day lives. Regardless of where one lands in how much should be put in reserves and how conservative to be towards future volatility, the governor and legislature must be prepared for multiple scenarios and design them to center the needs of our state.

Key Questions Moving Forward

That said, there is much to like in both the May Revise budget and the higher education agreements, and California is moving towards keeping a closer eye on ensuring that resources are used wisely and where they will have the most impact. As the state moves forward, we advise the governor and legislature to consider the following questions:

  • Will the goals set in the agreements get the state to the 70 percent postsecondary credential attainment goal?

  • What is the link between funding levels and the goals outlined in the CSU and UC? What will be the process for renegotiating funding levels if either system fails to meet the outcomes they set out? In other words, what does accountability look like (a perennial question in higher education)?

  • Given current inflationary pressures and, simply, the labor contracts higher education segments have already locked into, are the 5 percent increases really an incentive (or even enough to keep the lights on)?

  • What are the expectations for tuition increases at the four-year colleges? The UC agreement supports the UC’s cohort based tuition plan but the CSU agreement does not have expectations for whether the CSU will hold tuition flat or raise tuition. Tuition levels impact student affordability and state funding of financial aid. Tuition revenue is also a key component of overall institutional funding and the lack of detail on this key component obscures the true increases to system level revenues.

  • What is the legislature’s role with the agreements, given that the agreements have been negotiated between the segments and the governor’s office?

  • How will California navigate the looming fiscal cliff and certain budget volatility that doesn’t result in historic surpluses? How can we minimize the impact on current students and the Californians we need to go to or return to college?

California Competes will keep an eye out for the segments’ annual reports and plans to analyze them to understand their contribution to meeting statewide goals and opportunities to strengthen the segments’ plans.

We look forward to continuing to partner with the governor’s office and the legislature as they refine the budget plan. With a historic surplus, now is the time to double down on investments in higher education, which are a proven strategy for economic vitality and resilience against future crises, while also making smart decisions to protect our state’s most vulnerable when our budget outlook is less rosy.

1Some assemblymembers noted that the original enrollment target of 6,000 new students was not met and that there were different interpretations of which enrollment counted toward this benchmark (whether to include nonresident enrollments). The assemblymembers expressed support for having a specific defined enrollment target enumerated instead of a general percentage increase that is not well defined. Assembly Subcommittee 2 on Education Finance, Hearing 5/17/2022

2Research from the California Community College Chancellor’s Office also shows increased demand for online course modalities: “Many districts found that overall, students show a higher demand for online courses. Evidence indicates that this may be due to the population of students served by community colleges, which includes a much higher share of working adults and students with dependent children, who struggle to balance work and family responsibilities with an in-person class schedule.” California Community Colleges 2021 Report: Student Centered Action & Response Course Section Offerings and Plans for Future Instruction

3California State Senate, Senate Budget Subcommittee #1 hearing on 5/18/2022

4The proposal has an outsized effect on community college students because it makes all students that meet certain income thresholds eligible for an access award. While the expansion of the Cal Grant access awards eliminated the competitive awards at the community colleges, there are still barriers that prevent all community college students from accessing financial aid. For example, changes to GPA rules could be impactful as the Commission currently denies state aid to an average of approximately 165,000 students every year because they cannot verify their high school GPA as required by law.

5Under the proposal the Cal Grant 2 and 4 award amounts would be greater for students with dependent(s) under the age of 18 and current or former foster youth, who would continue to qualify for a $6,000 enhanced access award. The proposal establishes an expectation that the UC and CSU will use institutional aid to offset nontuition expenses for students at the four-year colleges. California Student Aid Commission,

6The legislature and the governor were able to enact legislation preventing the enrollment freeze from taking effect, but the situation illustrates the serious concern that lack of housing is for both students and surrounding communities. Los Angeles Times, “Gov. Newsom signs law to stop UC Berkeley enrollment cuts,” March 14, 2022,

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