Governor’s 2026-27 Budget Proposal Bolsters Higher Ed Funding Amid Fiscal Constraints

Each January, the Governor proposes a budget that opens the conversation with the Legislature and the public about California’s fiscal priorities. In this analysis, we summarize key higher education budget proposals, highlight their implications, and raise questions for further consideration.

Proposal Aims to Protect Core Higher Education Commitments Amid Growing Fiscal Concerns

In Governor Newsom’s 2026-27 $349 billion proposed budget, we see proposed increases in higher education amid growing fiscal uncertainty. The proposal aims to protect core commitments across higher education, workforce preparation, and student financial aid. It provides some of the promised funding for California’s three public higher education segments in line with the Governor’s multi-year compact agreements and roadmap, though it also defers significant amounts to future years. The budget proposal maintains and, in some cases, bolsters funding in  core higher education and workforce programs as well as initiatives that break down silos among education, workforce, and economic development systems. 

This year’s budget proposal comes amid the state’s mounting fiscal constraints. California is looking at multi-year deficits even as the state’s revenues have grown. The 2026-27 budget proposal defers substantial promised higher education and workforce funding into future years, shifting risk to future years amid even more economic and revenue uncertainty, projected cost growth and potential federal reductions and changes that could impact the stability of California’s higher education system and economy.

The Governor’s Proposal Provides Increased Funding for Higher Education While Deferring Portions of the UC and CSU Compact Agreements

The Governor’s budget proposes over $50 billion for the state’s three higher education segments and the California Student Aid Commission (CSAC), drawing from state General Fund, local property tax revenues, and other state funds.

University of California and California State University: The proposal includes a 5 percent ongoing base increase as planned for the fifth year of the compact agreements. The proposal would make a partial payment toward previously deferred funding and would defer the outstanding fourth-year compact payments to 2027-28.  

For the UC, the Governor proposes $5 billion, which includes: 

• A $351 million ongoing increase ($254 million for compact year 5 and $96 million for part of compact year 4)
• A deferral of $305 million ongoing to 2027-28 ($145 million for partial of compact year 4, $130 million for a base funding deferral from 2025-26, and $31 million for increased California resident enrollment across three campuses)
• $130 million in one-time funding to allow UC to pay back a loan that offset a 2025-26 base funding deferral.  The state provides authority for an additional zero interest loan in 2026-27. 

For the CSU, the Governor proposes $6 billion, which includes: 

• A $366 million ongoing increase ($265 million for compact year 5 and $101 million for compact year 4)
• A deferral of $396 million ongoing to 2027-28 ($252 million for compact year 4 and $144 million for a base funding deferral from 2025-26)
• $144 million in one-time funding to allow CSU to pay back a loan that offset a 2025-26 base funding deferral. The state provides authority for an additional zero interest loan in 2026-27. 

California Community Colleges: The Governor’s 2026-27 proposal includes increased funding for California Community Colleges, largely driven by the Proposition 98 General Fund. Current tax revenues have increased the Proposition 98 minimum funding guarantee by $11 billion in 2026–27  (see sidebar for more on Proposition 98).

Because Proposition 98 funds must be allocated to K-12 and community colleges, the Governor proposes directing a portion towards a one-time Student Support Block Grant, which could be used flexibly by campuses to address student needs, including food, housing, child care, financial aid, mental health services, and job placements. The proposal also includes cost-of-living adjustments (COLA) for community colleges following the Student Centered Funding Formula (SCFF) and in alignment with the Roadmap, along with enrollment growth funding, which is aligned with the CCC’s heightened enrollment growth last year and projections for continued enrollment growth this year. The proposal provides for full repayment of prior deferrals for the community college system.

For the CCC, the Governor proposes $15.4 billion, which includes: 

• An increase of $241 million ongoing funding to provide a 2.41 percent COLA for SCFF apportionments
• $31 million ongoing COLA for select categorical programs, including Adult Education, Educational Opportunity Program, Disabled Students, Apprenticeship, and CalWORKs Student Services
• $87 million ongoing for enrollment growth over two years ($55 million for 1% enrollment growth in the current year (2025-26) and $32 million for 0.5% growth in 2026-27)
• $408 million one-time to fully repay prior year SCFF deferrals as required by Proposition 98
• $100 million one-time Proposition 98 General Fund in the community colleges’ Student Support Block Grant
• $100 million one-time from the K12 Student Support and Professional Development Discretionary Block Grant to expand access to college and career pathways, including through dual enrollment
• $37 million one-time, with $2 million ongoing, Proposition 98 General Fund to expand Credit for Prior Learning at community colleges
• $53 million ongoing and adding a COLA for Calbright College, the state’s online community college

Budget Proposal Includes Funding to Support Coordination, Affordability, and Workforce Development

Coordination across education, workforce, and economic development systems: Despite fiscal uncertainty, the Governor’s proposed budget preserves several funding areas that advance coordination (a long-standing priority for California Competes). The proposal continues the state’s commitment to breaking down silos among education, workforce, and economic development systems by maintaining ongoing funding for the California Education Interagency Council, the Cradle-to-Career Data System, and by restoring funding for the California Education Learning Lab. Proposed funding in systems coordination include: 

• $2 million ongoing funding for the California Education Interagency Council
• $15 million ongoing for the Cradle-to-Career Data System
• $4 million ongoing funding to restore the California Education Learning Lab

Higher education and workforce alignment: The proposal maintains commitments to core workforce programs, such as the CCC Strong Workforce Program and the Golden State Pathways Program. It offers some new, one-time funding for apprenticeships through the community colleges and the Labor and Workforce Development Agency. However, the fate of several programs remains unclear, as prior one-time funding commitments have ended. Proposed allocations in workforce development include: 

• $290 million for the CCC Strong Workforce Program
• $4 billion in current and prior years Proposition 98 General Fund funding for college and career pathway focused TK-12 programs, including the Golden State Pathways Program, Dual Enrollment, and various career technical education grant programs 
• $18 million one-time funding for Apprenticeship Training Grant augmentation for the Department of Industrial Relations (DIR) to fund grants for approved construction and related trades apprenticeship programs (part of a four-year commitment, with $18 million in 2027–28 and $18 million in both 2028–29 and 2029–30)

College affordability:  The budget proposal maintains funding for Cal Grant, the state’s need-based financial aid program, but reduces the Middle Class Scholarship, cutting the amount of support student awardees receive from 35 percent of their total need to 17 percent. Proposed 2026-27 funding changes in college affordability include:

• $4 billion ongoing to maintain current levels of Cal Grant funding 
• $541 million ongoing cut to the Middle Class Scholarship program

While the State’s Revenue Picture is Strong in the Near-Term, the Budget Proposal Faces a Structural Deficit And Ongoing Uncertainty

California’s near-term revenue outlook is strong, but this comes with important caveats. The state has over $20 billion in budgetary debt and faces structural budget deficits for the foreseeable future, with costs estimated to rise faster than revenues in the years ahead.

State revenues remain highly sensitive to market conditions, particularly capital gains and the performance of the technology sector. At the same time, federal policy and other external forces—including evolution of AI’s impact on the economy along with new and potential changes to federal student aid, research funding, health and nutrition programs, and other basic needs support—create additional fiscal risk for campuses and students.

Because the state is constitutionally required to balance its budget annually—and because a significant share of state revenues is already committed to state and federal obligations–the state has limited flexibility to respond to large-scale funding disruptions. Together, the structural deficits and external uncertainty complicate the state’s fiscal outlook.

Critical Questions as the Budget Process Moves Forward

What stands out in this year’s higher education proposals is the Governor’s effort to make good on past promises and support postsecondary institutions that are facing rising costs and an increased uncertainty to their federal funding. Proposed state funds aim to support higher education institutions, student financial aid, and growing institutional fixed costs. But, this is just the opening chapter of the 2026-27 budget negotiations. Between now and when the budget is passed by the legislature and signed by the governor, assumptions will be tested, numbers will move, and priorities will sharpen.

As the budget conversation unfolds, several questions are at the forefront of our minds:

Higher Education Funding and Sustainability

• Will the state continue to protect ongoing base funding for higher education as pressures mount? 
• How can California further position itself to buffer students and institutions from external volatility? 
• In what ways should higher education funding models evolve to better reflect student need, enrollment shifts, and institutional stability?

ROI and Systems Alignment

• How can California deepen coordination across education, workforce, and social service systems so that dollars translate into clearer career pathways and stronger outcomes? 
• How can the state maximize financial aid and other public investments to bring more Californians closer to debt-free college and career pathways? 
• How can California demonstrate higher education’s return on investment not only for individual students, but for the state’s economic competitiveness and fiscal health?

California Competes looks forward to working with the Administration and Legislature in the months ahead to support their efforts to ensure the state budget translates into equitable opportunity, economic mobility, and a stronger future for the state and shared prosperity for Californians.