University of California committee previews fiscal challenges, plans to renew tuition stability plan

The University of California’s Financing & Capital Strategies Committee received a preliminary budget briefing on the projected fiscal year 2026–27 shortfalls and a preview of a proposed renewal to the systemwide tuition stability plan.

Nathan, system finance staff, told the committee this year will be “the final year of the university’s compact with Governor Newsom and the legislature,” and said the system is contending with lower-than-expected state appropriations, federal actions affecting UC-specific funding and rising operating costs that together are squeezing campus budgets.

Why it matters: committee members were told that a confluence of lower state support, enrollment growth and potential federal research and health-care funding cuts could reduce per-student core funding and force campuses to choose between preserving educational programs and covering mandatory compensation and benefit increases.

System-level picture Nathan and his colleague Kain (system finance staff) outlined four revenue pressures: volatile state funding, dependence on federal research and medical reimbursements, enrollment growth that outpaces per-student funding and sharply rising operating costs. Nathan said federal support to UC totaled roughly $17,000,000,000 in the most recently audited fiscal year and that roughly $10,000,000,000 of that supports patient care reimbursed through Medicare and Medi‑Cal. He said federal research grants and indirect cost recovery together exceed $5,000,000,000, and student financial aid exceeds $1,700,000,000.

Kain told the committee the five‑year compact produced predictable support in early years but that state funding has been “unpredictable,” noting that fiscal 2024–25 included a net reduction and that current-year state funding is lower than the prior year. He said that while undergraduate enrollment exceeded the compact’s target (the transcript cites a target of 206,588 FTE vs. actual 210,635 FTE in 2024–25), the extra students have not been matched by commensurate state funding, reducing core funding per student for two consecutive years.

UC San Diego details Chancellor Khosla described how those system trends are materializing at UC San Diego. He said the campus counted about $362,000,000 in indirect cost recovery in fiscal 2025 and around $334,000,000 in nonresident tuition, and called those significant revenue sources that could shrink if federal research budgets are cut. “We are projecting to go from $360,000,000 to $200,000,000 over the next 3 years,” Khosla said when describing an assumed reduction in indirect-cost recovery under current federal budget proposals. He said the campus has already absorbed $70,000,000 of reductions this year and that, after accounting for projected tuition and state changes, it faces mandatory expense increases that could create a multi‑year structural deficit (Khosla cited a projected $43,000,000 gap for the next year and discussed larger cumulative shortfalls when combined with this year’s deficits).

Capital funding and AB 94 Committee presenters flagged capital funding as a persistent problem. Nathan said the system has not had a statewide general obligation bond for UC capital since 2006 and no lease revenue bond for system capital since 2011. He described Assembly Bill 94 (AB 94) as a state financing mechanism that has enabled about $2,500,000,000 of capital financing in the past decade, but he cautioned that AB 94-driven debt is serviced from operating budgets and thus crowds out operating funding.

Tuition Stability Plan renewal Committee members were briefed on the tuition stability plan (TSP), a cohort‑based tuition policy that limits annual increases for incoming cohorts and routes a portion of additional tuition revenue back to financial aid. System staff said 2026–27 is the final year of the plan’s first five‑year term and that they will return to the Regents in November with a proposed renewal and several modifications: (1) preserve a 5% cap on proposed tuition changes to incoming cohorts, (2) allow campuses to “bank” amounts above 5% to apply to future cohorts and (3) reduce the share of new tuition increases required to return to aid (the staff presentation proposed lowering the return-to-aid percentage from current levels while noting that the plan has increased financial aid and reduced average debt at graduation). Staff also proposed switching the inflation measure used in the plan from California CPI to the Higher Education Price Index (HEPI) plus an additional percentage buffer to better match UC cost structures.

Student observer and affordability concerns Isha, the committee’s new student observer and a UC San Diego rising senior, emphasized protecting investments in student services and housing and keeping return-to-aid mechanisms that support low‑ and middle‑income students. “Making sure that support for expanding financial aid via the tuition stability plan … stays in place is very important,” Isha said.

Committee direction and next steps Chair Regent Michael Cohen (Financing & Capital Strategies Committee chair) and staff said the TSP renewal will be brought back as an action item for the November Regents meeting with refined options on the cap, banking mechanism and return-to-aid percentage. Committee members asked staff for additional material: a fuller systemwide estimate of the projected Medicare/Medi‑Cal reimbursement impact, granular modeling of return‑to‑aid scenarios (including impacts on foster and undocumented students or those with extraordinary financial need), and updated modeling showing debt-at-graduation outcomes by income band as cohorts graduate.

Votes and formal actions The committee approved the minutes and later approved the consent agenda. Both motions were moved and seconded and adopted by roll call. The transcript records members voting “aye” during both roll calls; the committee clerk confirmed a quorum before the first vote and announced the consent items had been approved.

Staff and presenters scheduled the TSP renewal for a formal vote at the November meeting and committed to providing the additional data committee members requested.