California’s Budget Cuts and Declining Births Pose Funding Challenge for Higher Education

With the state’s fertility rate at a new low, colleges ‘are entering an era of fiscal uncertainty,’ a report says.
California’s Budget Cuts and Declining Births Pose Funding Challenge for Higher Education
People walk through Sproul Plaza on the UC Berkeley campus in Berkeley, Calif., on March 14, 2022. (Justin Sullivan/Getty Images)
Micaela Ricaforte

Facing a statewide budget deficit and a projected decline in young people, California’s higher education systems may see funding decline in the future, according to a May report by the nonpartisan Public Policy Institute of California.

During the COVID-19 pandemic, the state’s University of California (UC), California State University (CSU) and community college systems saw growth in per-student funding due to an “unusual convergence of events”—namely, enrollment fell as federal pandemic aid flowed in.

However, a statewide budget deficit causing significant cuts to the systems—along with the number of college-age students predicted to plateau and then fall in the next decade—puts funding in jeopardy, according to the report.

“California’s higher education systems are entering an era of fiscal uncertainty,” the May report stated. “As the state looks to turn the page after the pandemic and establish a more stable funding model, significant challenges lie ahead in the near term.”

The population of young people is projected to “stagnate or decline in the coming decade, which could negatively impact tuition, an increasingly substantial funding component for the four-year institutions,” according to the report.

California’s birth rate—that is, births per 1,000 residents—is at its lowest level in more than 100 years, according to a report on California’s birth rate that the Public Policy Institute of California published in December 2023.

The number of births has fallen from a peak of 613,000 in 1992 to 420,000 in 2021, according to the report.

California’s total fertility rate—the number of births a woman will have in her lifetime—is now the lowest since records have been kept.

While a rate of 2.1 children per woman is necessary to maintain a population at its current level, California’s fertility rate has fallen from 2.15 in 2008 to 1.52 in 2020.

This means the number of young people in the next two decades will dramatically decrease.

The declining birth rate and projected dwindling number of young people means the state’s higher education system will have less enrollment and therefore less funding from tuition, since the systems’ two main sources of funding are tuition and state appropriations, the report said.

Meanwhile, the extra $10 billion in federal pandemic relief funding for the state’s higher education systems has been exhausted, according to the report.

Additionally, the state has predicted an estimated $28 billion budget deficit for the 2023-24 school year, which means both university systems are taking a budget slash for the next two years.

The University of California said anticipated state budget cuts would reduce its annual revenue by $125 million for the 2024-25 fiscal year.

University officials confirmed the cuts—which amount to about 2.5 percent of its annual state revenue—during a regents board meeting May 13.

The one-time cut will be restored to the system during the 2025-26 school year under Mr. Newsom’s plan to reconcile the current deficit.

The UC system, which has 10 campuses across the state, would also get a 2 percent budget increase in 2025-26 under the governor’s proposal—less than the 10 percent increase he pledged in January.

State funds accounted for about 11 percent of UC’s estimated $47 billion operating budget in the 2022-23 school year, according to a budget summary from the system.

Similarly, Cal State University—the state’s other public university system with 23 campuses across the state—will see a onetime funding reduction of $75 million in 2024-25 that Mr. Newsom is promising to restore the following year.

CSU was also promised a 10 percent budget increase for the 2025-26 fiscal year but will now receive only a 2 percent increase.

State funding makes up 55 percent of CSU’s operating costs, according to a 2024-25 budget summary from CSU.

The report suggests the state should focus on funding programs that improve graduation rates and should track the investments to better understand where to concentrate funds.

“The pandemic has shown that the state and its higher education institutions can be nimble and innovate to adjust to major disruptions,” the report stated. “Moving forward, rethinking how to serve students and offering varying cost models could help California reach its goals of a more educated populace, a thriving economy, and improved economic mobility.”