Last month, as faculty members in the California State University system advocated for pay increases, a longstanding conflict came to a head over a sore subject in higher education: institutional finances.
Both the faculty union and administrators fought hard to frame competing visions of the university system’s financial health, a key battlefront in a labor dispute that led to Cal State’s first systemwide faculty strike. Union leaders argued that Cal State had plenty of cash on hand to raise faculty salaries by 12 percent, which they had demanded due to inflation and California’s high cost of living. University officials said the system needed to stash away money for emergency reserves and couldn’t afford the raises. Meeting the faculty’s demands, administrators said, would lead to cuts that directly affect students.
After a one-day work stoppage, the faculty union reached an agreement that includes increasing the pay floor for faculty, a 5-percent raise retroactively effective from July 2023 and an additional 5-percent hike this July that is contingent on state funding not being reduced. (Gov. Gavin Newsom, a Democrat, said he’ll maintain Cal State’s funding this year, but the state has a $68-billion deficit to plug.) Union members will vote on the agreement next week. Some faculty members are upset, saying that Cal State could have done more.
Many of the talking points at Cal State are becoming common nationwide as colleges navigate enrollment declines and other challenges: Administrators talk of planning for near-term headwinds and growing compliance requirements, while faculty members raise allegations of ballooning administrator pay, among other things.
So, is Cal State in a financially stable position? The Chronicle interviewed more than a dozen Cal State faculty members and administrators, and outside experts in college finance to better understand its trajectory. Given that the question concerns the largest university system in the country, things quickly got complicated.
“The simple answer is yes. The more nuanced answer is no,” said Dean O. Smith, a professor emeritus at the University of Hawaii and an expert on university finances.
As Smith sees it, the picture has gotten muddled between two distinct framings. The faculty union is right that the university has consistently run surpluses in the last decade. But Cal State is also right to be concerned about having the money it needs to meet its goals in an uncertain future.
The genuine disagreement, then, is about what those goals should be, and how much uncertainty the future holds.
A $1.5-Billion Disagreement
At the heart of the debate is a report released by a work group — composed of Cal State administrators, a faculty member, and an alumnus — that the system’s then interim chancellor, Jolene Koester, convened last May. The report identified a 14-percent gap between “costs and expenditures,” estimated at $1.5 billion, and recommended that Cal State raise tuition. The system’s board did so last fall: Tuition will rise 6 percent each year for the next five years.
In recent months, Cal State officials used the narrative of a $1.5-billion deficit to explain why the university couldn’t afford the pay raises that the faculty union was asking for.
That led to confusion, administrators acknowledged in interviews, that there was a large deficit between the university’s income and expenditures, rather than income and cost — that is, what the university thinks it needs to spend in the future. “When you use a number, sometimes it sticks,” said Ryan Storm, assistant vice chancellor for system budget at Cal State.
“They project this horror story for the last 10 years. And then it turns out there’s a surplus,” every time. “It feels like this frustrating game.”
A lot of people thought Cal State was saying it was broke, Storm said, when actually “we are in the black. We’re fine.” The report “was more of an exercise for us to understand what we would love to invest in,” Storm said. “What is the goal? What can we strive for?”
Storm and other administrators outlined core goals for the university like student needs, instruction, and infrastructure. But they also emphasized the university’s other obligations.
The university has to comply with state laws, no matter what its financial status might be, said Jeni Kitchell, Cal State’s executive budget director. “There’s certain things we’re going to do regardless of if we get money,” Kitchell said. That includes Title IX compliance, directives to increase graduation rates, and other regulations that affect higher ed.
Cal State’s enrollment has also been down for some years, which has led administrators to plan more conservatively, though the system’s operating-budget plan for 2024-25 predicts a slight reverse in the trend.
Ahead of the systemwide faculty strike last month, the importance of emergency funding was a focus in Cal State’s messaging. Running a vast public university comes with inherent uncertainty, officials said.
Leora D. Freedman, Cal State’s vice chancellor for human resources, said in a recent news conference that, of the $2.5 billion in reserves, Cal State is only able to use $766 million, which amounts to about one month of discretionary emergency funding. That’s well below what she calls a “national best practice” of having three to six months of discretionary emergency funding, which Smith and other finance experts confirmed.
Shoring up reserves is smart planning, said Dennis Jones, former president of the National Center for Higher Education Management Systems, or NCHEMS, a consulting firm. If a college tries to “balance their checkbook by continuously taking money out of” their savings account, Jones said, then “pretty quick, the savings account is dry.”
‘This Frustrating Game’
Faculty members told The Chronicle that they understand the need to prepare for the future. But many said they don’t trust Cal State administrators’ approach. Thomas J. Norman, a professor of management at Cal State Dominguez Hills and at-large member of the Academic Senate’s executive committee, said he has become more skeptical of Cal State’s predictions of its future costs.
“They project this horror story for the last 10 years. And then it turns out there’s a surplus,” every time, he said. “It feels like this frustrating game.”
A state auditor chastised Cal State in 2019 for storing $1.5 billion in undisclosed outside accounts and not accounting for the money in its budgetary projections. In language that may sound familiar, Cal State called the money “one-time dollars” that could not be used for ongoing costs.
Many faculty members who spoke with The Chronicle believe that the system has become too focused on reserves and bond ratings — which determine the interest rates that institutions can get on loans — instead of investing in education.
“Cal State’s budget includes saving a huge chunk of money,” above and beyond what’s necessary, said Kate E. Ozment, an associate professor of English at California State Polytechnic University at Pomona. “Say you’re saving like 20 percent of your annual salary, and then you’re always broke all the time.”
The faculty union commissioned its own financial analysis of Cal State last fall to support their argument for increased pay. That document isn’t directly comparable to Cal State’s working-group report that pointed to a $1.5-billion deficit and aimed to project future costs. The union-commissioned report, written by Howard Bunsis, an accounting professor at Eastern Michigan University, is instead an examination of past spending.
Bunsis’ report asserts that Cal State ran an annual cash surplus over the past eight years, equaling an average of $780 million — more than enough to pay for the 12-percent pay increase the faculty union asked for, which the union estimates would cost about $364 million. The report also says that Cal State has over $6.5 billion in unrestricted assets, contradicting administrators’ claims. (Storm, one of those administrators, said that Bunsis misunderstood how things work in California.)
Bunsis has been tapped by faculty groups across the country to assess institutional budgets, often to make a case for preserving academic programs that are on the chopping block.
By at least one measure, some faculty members said, Cal State seems to have plenty of cash on hand: The system reported that it had $7.9 billion in investments in 2023, including $3.9 billion in a “liquidity portfolio,” which the university can use to meet “immediate” operating needs if it chooses.
Another point of frustration for faculty is that there seems to be plenty of money to pay for a growing cadre of administrators. Stephen McFarland, chair of labor studies at Cal State Dominguez Hills, said that the number of administrative staff has been increasing, and tenured faculty have been declining — a trend that’s played out nationally.
“It seems to be just a trend towards neglect of the core function of the university,” McFarland said. Faculty wages have grown half as much as administrators’ over the past decade, according to a CalMatters analysis. Employee pay makes up about half of the operating budget.
‘Never Enough Money’
Cal State’s stakeholders — including lawmakers, students, unions, and trustees — all have different ideas of what the university system should and shouldn’t be doing, said Storm, Cal State’s assistant vice chancellor for system budget. “There is never enough money to cover everything on that list that we put out there in our operating-budget plan,” he said.
That leads to painful decisions, Storm said. “ We can’t give salary increases to all employees that expand the amount beyond what we have in revenue.”
Many of those decisions will come down to enrollment, tuition, and state support. With over 50 percent of its operating funds coming from state support, Cal State is an outlier in public higher ed. But the state’s financial trouble could be a near-term problem.
In 2022, the Cal State system entered a compact with Governor Newsom to increase state funding by 15 percent over the next three years, in exchange for raising enrollment and graduation rates.
Because of the state’s big deficit, the first increase was deferred to 2024-25. Through some creative accounting, the university system will borrow the 5-percent increase this year, and then receive a 10-percent increase in state funding in 2026-27, which some faculty members argue puts the university in a precarious position. The National Education Association found that between 2008 and 2020, state funding for colleges fell $1,500 per student, adjusted for inflation. State funding accounted for 34 percent of college budgets in 2017 according to the Pew Charitable Trusts.
Ultimately, budgeting for the future comes down to choices. Administrators and faculty often disagree on what those choices should be.
