Cal State, facing a budget hole, will borrow $144 million

The California State University system will seek a $144 million state loan that will have one year to pay back without interest, though current projections show the system will have to add to its deficit to pay off the debt.

Cal State’s chief financial officer says the loan will be used to offer one-year bonuses to faculty and staff. Although salaries vary widely across the system, the additional $144 million is roughly a 3 percent increase in total pay for Cal State workers, including executives. State law says the loan must be repaid by next July.

Despite months of hesitation, the system today took the first step to request the loan and will likely receive the money in 60 days or less, Cal State’s interim chief financial officer, Patrick Lentz, said in an interview. The process involves approval by state lawmakers, who are likely to support the move.

State lawmakers granted the loan to Cal State after cutting state funding to the system by $144 million this year. Cal State has 22 campuses and enrolls 460,000 students.

The system’s largest union, the 30,000-strong California Faculty Association, welcomed the decision, but said more work is needed to bring back faculty whose contracts were voided as many campuses struggle with shrinking budgets. The union’s contract is expiring, but negotiators from the union and California state management have not met since April.

“We’ll take this as a victory, but we have so much work to do, and I hope this gives the leadership an opportunity to come to the table with us and negotiate honestly,” said Elaine Bernal, a professor in the Department of Chemistry and Biochemistry at Cal State Long Beach and a senior member of the faculty association.

“The one-time investment is great, but we really need to focus on the long-term investment,” she said.
The Legislature intends to increase state spending for Cal State in 2026-27 by just $101 million — much lower than previous promises by Gov. Gavin Newsom of about $250 million — so the system will effectively be shortchanged by $43 million after it pays off the loan, Lentz said. The decision to take the loan came “after careful consideration, conversations with the chancellor, conversations with our board of trustees,” Lenz said.

Money at CSU is chronically tight. Since 2023, the system has been struggling with ongoing deficits that have led to hundreds of degree and course abbreviationsfewer faculty and a hiring freeze. Then the system said it was spending $1.5 billion less than he needs to adequately educate his students.

In the last two years, this figure has been increased by several hundred million dollars as costs increase for campus utilities, insurance, health benefits, and more. The deficits persist even after the system in 2024 began increasing tuition annually; the added costs outweigh the new revenue from charging students more. However, most students they don’t pay tuition because of the state and systemic financial aid.

Despite these fiscal pressures and likely new spending to replace the Trump administration cuts to federal education subsidiesLentz said the system’s leaders want to spend the money on workers.

The unions wanted a loan

The zero-interest loan has been a source of intrigue and scrutiny since July as unions representing California state workers pressured the system to agree to borrow the money so universities could offer pay increases for workers. Unions and some lawmakers argued the system was fully funded because the state budget gave CSU the option to take on the loan, which should trigger language in the collective bargaining agreement that says current raises would kick in if the system received an increase in state funding.

But California state officials say even if they take the loan, not new or current funding — that’s money they have to pay back in a year — so the system isn’t obligated to raise wages as those contracts dictate.

Lentz reiterated that point during an interview, even after indicating that the system would pick up the loan.

“Clearly, anything that is one-time is not ongoing,” he said of the loan. So any increase “will only be for the 12 months of the budget year”. But the state may be sending more money into the system than lawmakers and Newsom signaled in the annual budget agreement they approved in June, Lentz said. He also suggested that CSU could negotiate more time to repay the loan.

“There’s a long way to go in this process and there are a lot of unknowns,” he said.

How CSU got here

That the loan even exists is itself an example of curious budget tactics by lawmakers and Newsom. Last year, they passed a state budget that gave a modest increase in state funding to the state of California with a warning of massive cuts of $375 million this July — which equates to about 8 percent of what the state spends to support CSU.

After half a year of fierce advocacy by California state officials, students and workers, the final 2025-26 budget approved in June applied a cut of just 3 percent to CSU, with a promise that the cut — $144 million — would be recovered in the 2026-27 budget year, which begins next July. To help Cal State manage its finances this fiscal year, the state said the system could borrow $144 million this year and pay it back by the end of June 2026.

The loan option was extended to numerous state agencies, including the University of California.

System budget leaders, including Lenz, in July caution expressed over borrowing, because if the state’s budget picture remains shaky — it already projects billions of dollars in deficits — then lawmakers may decide to apply additional cuts to CSU. This means the system will be in greater deficit and on the hook for a loan they cannot repay.

The fiscal malaise could have been worse. In 2022, Newsom promised the CSU and the University of California five years of increased budget support totaling more than $1 billion for each system in new, ongoing funding. But due to the limitations of the state budget, this so-calledcompactt” is only partially funded.

New funding pain points are likely on the horizon. Congressional Republicans and President Donald Trump have approved spending plans that Newsom says will drive out millions of low-income Californians outside public health insurance. If the state plans to pay for that care, budgets for other agencies, especially those that can raise tuition, may have to cut.