Although the state has provided significant investments in the CSU over the past two years, it is important to point out several remaining fiscal challenges the university system still faces.
Staff and Faculty Compensation Studies
The Budget Act of 2021 included funding for the Chancellor’s Office to evaluate the existing salary structure for CSU non-faculty, represented staff employees. The study, executed by consulting firm Mercer, found that median salaries in the CSU lagged market median salaries for most employees. Mercer recommended changes to increase median salaries and implement a salary step structure with initial ongoing costs of $287 million in year one and over $50 million additional each year thereafter for the implementation of salary steps. The CSU and employee unions advocated together for state funding to support the implementation costs of the study. However, the Budget Act of 2022 did not include funding for this item.
In December 2021, the CSU initiated a faculty employee salary study. The work is underway, and the study findings and recommendations are expected in 2023. The study’s recommendations could include solutions that require additional funding. The CSU may request in Spring 2023 additional funding for these purposes.
Future collective bargaining agreements between the CSU and employee bargaining units are required to implement recommendations of the Mercer staff study and any similar recommendations that might be made based on the results of the faculty study. The CSU will require additional, ongoing funding beyond the amount requested in this plan to implement any cost-creating recommendations of either study.
Changes to Federal and State Financial Aid Programs
Recent changes to federal and state fi nancial aid programs could impact access to the CSU and put financial pressure on the State University Grant program. Financial aid programs complement one another to provide maximum fi nancial support for students. Program changes have cascading effects that must be considered and potentially addressed. Several of the approved changes will streamline processes, remove barriers, and expand access. But these changes come with certain tradeoffs, such as a lower income eligibility threshold, removal of non-tuition awards for all CSU students, and a drop in aid for transfer students. As the CSU strives to maximize access to aid and balance the federal and state changes, the CSU will be pressed to change or expand the State University Grant institutional aid program to make up some of the losses in the state financial aid programs. The financial implications are
currently unknown.
Energy
Across the 23 campuses, the CSU estimates recent energy cost increases of approximately $15.4 million. The war in Ukraine, other geopolitical dynamics, and market conditions are some of the many complex factors contributing to energy cost increases. However, it is not yet clear if the recent energy cost increases are permanent and require base, ongoing funding or are temporary one-time funding obligations. The CSU will monitor conditions and continue analyzing the situation over the coming months to determine the appropriate funding source to address these required operational costs.
Minimum Wage
In January 2022, the California minimum wage reached $15 per hour. Senate Bill 3 of 2016, which raised the state’s minimum wage to $15 per hour over consecutive years, includes a provision for the state to adjust the rate in subsequent years for inflation. Due to high rates of inflation, it is likely that the minimum wage will increase to $15.50 in January 2023. The estimated annualized cost of the increase on CSU campuses is $3.9 million.
Retirement Benefits (Beyond State-Funded)
Beginning with the 2013-14 fiscal year, the legislature placed a limit on the state’s obligation to adjust CSU retirement funding due to annual changes in CalPERS rates. CalPERS employer contribution rates increased significantly for 2022-23. While rates are estimated to drop again in the next few years, the increase is a significant financial burden to the CSU. It is estimated that the unfunded cost to the CSU will be $28 million in 2022-23 and will require the reprioritization of existing onetime campus resources to fund this required cost until rates drop again in the next few years.
Although the state’s statutory obligation to adjust retirement funding based on annual rates set by CalPERS continues (Government Code Section 20814), the salary base applied to the
incremental rate change is fixed at the CSU 2013-14 pensionable payroll level in the state budget. Final 2021-22 pensionable payroll for the CSU was $738 million (32 percent) above the 2013-14 frozen pensionable payroll level. The retirement increase amount above the frozen payroll level is an unfunded cost for the CSU, and it continues to increase each year when pensionable payroll or retirement contribution rates increase.
This practice is problematic and unsustainable. Throughout the years that this budget practice has been in effect, the state or students ultimately covered the unfunded liability above frozen pensionable payroll because retirement costs are required and unavoidable. The CSU must balance the need to serve students with the level of funding available to the university, particularly as tuition rates have remained relatively constant.
Additional Information - Retirement Adjustment
Unfunded 2022-23 Compensation
Following two years without salary increases, nearly all CSU employees received, at minimum, a seven percent general salary increase over 2021-22 and 2022-23. However, the CSU did not receive sufficient funding in the Budget Acts of 2021 and 2022 to cover all necessary budget priorities during the two fiscal years. Consequently, it is estimated that campuses will be required to redirect approximately $44 million from existing campus budgets to cover some of these new compensation costs. The commitment to fair and competitive employee compensation requires budgetary tradeoffs and nearly all other operating budget request priorities will only receive some or none of the new funding in 2022-23 (enrollment growth is the exception). For example, the CSU is unable to fully invest in the Graduation Initiative 2025 or finance some of our highest priority academic facilities and infrastructure projects as identified by the CSU’s five-year
capital plan.