The California State University system and its affiliated operations are facing an uncertain financial future amid the coronavirus pandemic, having already suffered more than $300 million in revenue losses and unanticipated expenses as students left campus this spring and classes switched to online.
The budget hole, detailed in an information item for Tuesday’s CSU trustee meeting, provides a first public glimpse into how the pandemic is affecting the fiscal stability of the 23-campus system, which enrolls about 480,000 undergraduate students.
The precarious financial picture for CSU comes as the state’s other four-year public university system, the ten-campus University of California, also faces its own massive costs and losses associated with the pandemic.
How the systems will close the gaps is unclear. Both are in line to receive hundreds of millions in federal stimulus dollars and each is expected to ask the state to increase its funding but that is far from certain given the state’s own fiscal uncertainty.
CSU spokesman Michael Uhlenkamp said he expected the trustees to discuss the issue during their meeting on Tuesday, “so any comment right now related to the direction the university will take would be speculative.”
Of the $337 million in total revenue losses and extra costs facing CSU, $173 million comes from losses associated with the system’s “enterprise programs,” which include services like on-campus housing and on-campus parking since students largely left campuses and got refunds for expenses paid. An additional $50 million is due to campus operations costs like cleaning and online learning. The remaining $114 million is from revenue losses felt by independent nonprofit organizations that are affiliated with CSU, such as student organizations and campus bookstores.
“If existing conditions persist into the summer and fall, one of the many challenges the CSU could face is the potential for additional, significant and precipitous revenue drops,” the agenda item states.
The system’s total revenue losses and unanticipated costs amount to a small portion of the system’s operating budget of about $7 billion, and much of the initial losses could be offset by federal stimulus money that the system is set to receive. Still, it is likely only the beginning of the fiscal problems the system will face. Higher education revenues from the state budget could drop significantly because of a decline in economic activity, and there could be further revenue losses for the system if students aren’t back on campus in the fall and if enrollment declines.
“Campuses are taking steps to mitigate these impacts. They are analyzing their operations, their liquidity, and adjusting their costs to best respond to the effects of the virus,” the agenda item states.
The UC system, which operates several medical centers in addition to its 10 campuses, also faces financial challenges. In March, that system was hit with $558 million in unexpected costs and revenue losses, UC President Janet Napolitano wrote in a letter to state leaders last month. About $310 million of those losses and unexpected costs come from the 10 campuses, while the rest is attributed to revenue losses and new costs at the system’s five medical centers.
“As the world’s largest public research university system, UC is confronting many of the worst impacts of the virus all at once. We are a health care system saving lives; a research enterprise seeking cures and a vaccine; an education system quickly transitioning to remote instruction; and an employer working hard to protect our workforce in the face of an economic downturn,” Napolitano wrote in the letter.
Both systems have provided refunds to students for unused housing, parking and other fees but have resisted calls to give back tuition fees.
Across CSU, all 23 campuses transitioned to distance learning in March, as the coronavirus continued to spread. Since then, Cal Maritime, which specializes in marine engineering and transportation, has received special approval to resume in-person classes, which are mostly conducted aboard ships.
Most students across the system have since vacated on-campus housing and have stopped using on-campus parking, as have most employees.
The $50 million in operating expenses since March stem from new costs — such as for cleaning — and expenses associated with shifts to online instruction. CSU warns that while the $50 million is equal to less than 1% of the system’s annual operating budget, “there is significant risk to operations in the future.”
“State tax revenue will suffer and support of the university could be reduced later this year while at the same time costs will be increasing,” the agenda item states. “This is creating tremendous fiscal and enrollment planning challenges for system and campus leaders.”
Much of the initial losses could be offset by federal stimulus dollars. The system is set to receive $525.3 million from the federal Coronavirus Aid, Relief and Economic Security (CARES) Act, the stimulus package Congress approved in March. Half of that funding, or $262.7 million, must be used for emergency grants to students, while the other half must be used to cover the system’s coronavirus-related expenses.
Additionally, some of the nonprofit organizations experiencing revenue losses are eligible for loans available through the Small Business Administration’s Paycheck Protection Program as part of the CARES Act. So far, CSU-affiliated nonprofit groups have been awarded $34.8 million in those loans.
But further financial problems are likely on the horizon for CSU.
In January, Gov. Gavin Newsom’s proposed budget included an additional $199 million in recurring aid for the system for 2020-21 on top of its annual state aid. In light of reduced economic activity and massive state spending that threatens to deplete the state’s reserves, Newsom’s administration is reevaluating that proposal along with all other proposals included in his budget. The report to the CSU trustees called the reevaluation “a striking development.” It noted that in January when Newsom proposed the extra funding, “prospects for continued economic growth were good.”
The governor’s March outlook was dramatically different, the trustee report notes. “In March, the governor’s administration shared that the severe drop in economic activity could have an immediate impact on tax revenues affecting the 2019-2020 fiscal year, and will impact the 2020-2021 fiscal year and beyond.”
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