Additional Budget Considerations

The CSU’s overall revenue streams remain under significant pressure. When the final budget does not include sufficient revenue, the universities are underfunded, creating significant cost pressures. An underfunded budget requires the universities to redirect funding from existing programs, services and priorities such as the Graduation Initiative to fund required operating cost obligations. The year-over-year effect of this practice creates significant financial stress, as was reported by the Sustainable Financial Model Workgroup. Each university is taking a hard look at costs and how to balance available resources with rising costs, unfunded mandates and underfunded compensation increases.

The system has continual and growing cost pressures: an increased need to expand high-cost degree offerings, inflation, increased salary and benefit costs for staff and faculty and unfunded mandates, as well as infrastructure needs. Not only are there existing pressures, the CSU will have to contend with emerging items that are creating new fiscal constraints.

Although the state has provided significant investments in the CSU over the past three years, it is important to point out several remaining fiscal challenges the university system still faces.

Operational and Strategic Changes

To address some of the CSU’s most critical operational and strategic challenges, several changes were recommended by Interim Chancellor Koester’s strategic workgroups (e.g., Black Student Success, Graduation Initiative, Strategic Enrollment Planning, and Faculty and Staff Excellence). These changes are needed to successfully implement and deliver on the key initiatives identified by the groups which will eventually be shaped by Chancellor García. Fiscal support will be necessary for launching these as well as other emerging initiatives.​


With continuing high inflation rates, there is pressure during the collective bargaining process to provide CSU employees with a general salary increase in 2023-24 that is at least commensurate with these high rates. However, the CSU did not receive sufficient funding in the Budget Act of 2023 to cover all necessary budget priorities. Consequently, it is anticipated that campuses will be required to redirect tens of millions of dollars from existing campus budgets to cover some of these new compensation costs. A more definitive estimate of these costs will be known at the conclusion of the collective bargaining process. This follows a similar redirection of approximately $44 million from campus budgets to cover 2021- 22 and 2022-23 compensation costs. The CSU’s commitment to fair and competitive employee compensation requires budgetary tradeoffs, which could result in nearly all other operating budget priorities receiving only some or none of the new funding in 2023-24 (enrollment growth is an exception).

An evaluation of the existing salary structure for CSU non-​​faculty, represented staff employees was completed in 2022. The study, executed by consulting firm Mercer, found that median salaries in the CSU lagged market median salaries for most employees and recommended changes to increase median salaries and implement a salary step structure with initial ongoing costs of $287 million and over $50 million more each year thereafter.

In December 2021, the CSU initiated a faculty employee salary study. The study’s findings and recommendations are expected in 2023. The recommendations could include solutions that require additional funding. 

Future collective bargaining agreements between the CSU and employee bargaining units are required to implement recommendations of the staff and faculty studies. The CSU will require additional, ongoing funding beyond the amount in this plan to implement any cost-creating recommendations of either study.

Changes to Federal & State Financial Aid Programs

Several forthcoming changes to federal and state financial aid programs will require corresponding changes to most aspects of CSU’s policies, procedures, processes and systems used to award student aid. The changes could ​significantly impact the awards provided to CSU students and put financial pressure on the State University Grant program. Financial aid programs complement one another to provide maximum financial 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 develop an implementation plan that provides flexibility, tools, resources, administrative capacity and infrastructure required by our universities to comply with the changes. The financial implications are currently unknown.

Minimum Wage

In January 2023, the California minimum wage reached $15.50 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, the minimum wage will increase to $16 in January 2024. The estimated annual​ized cost of the increase on CSU campuses is $3.7 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, which created an ongoing significant financial burden to the CSU. Although rates are remaining the same for 2023-24, the unfunded cost to the CSU is estimated at almost $19 million in 2023-24. If offsetting funding cannot be found, campuses will have to reprioritize existing one-time resources to fund this required cost.

The state’s statutory obligation to adjust retirement funding based on annual rates set by CalPERS continues (Government Code Section 20814). But the salary base applied to the incremental rate change is fixed at the CSU 2013-14 pensionable payroll level in the state budget. Final 2022-23 pensionable payroll for the CSU was $971 million (42%) 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.​