POLICY WATCH – February 2025
In This Issue
Research Funding Cuts Could Cost Bay Area Billions
Beyond DEI - Why Psychological Safety is Essential in Today’s Workforce
Economic Mobility in CA - Is it Being Jeopardized by Cuts to the Cal State System? We Think So
Leaders of the North Bay Awards Luncheon, May 16th
Upcoming Events
Members in the News
As I write this Policy Watch, I believe many of you share NBLC’s focus on understanding the dynamics of the new administration in Washington, the evolving power structure, and how to navigate this shifting landscape. While numerous headlines generate significant attention, I am finding that judicial interventions often temper their immediate impact. We continue to monitor all impacts of new federal policies as they align with our workplan and remain prepared to speak out against particularly concerning developments. In this issue, we look at one of those concerning developments; how funding cuts in research could impact the Bay Area, and at the State level how cuts to the Cal State system could jeopardize our ability to recruit and retain a local workforce. We also take a look at why now, more than ever, it is crucial for employers to create a culture of safety and inclusivity in the workplace.
You will also learn more about NBLC’s upcoming events.
Best regards,
Joanne
How Research Funding Cuts Could Affect the North Bay and Cost the Bay Area Billions:
The new administration in Washington has proposed capping indirect costs associated with grants from the National Institutes of Health at 15%. That is the money that funds institutions beyond direct research: cleaning floors, maintaining buildings, keeping the lights on. The cap would mark a significant change, creating a billion-dollar shortfall in Bay Area universities' budgets over the coming years and weakening a crucial engine of the region’s economy
Reporters Jennifer Wadsworth and Noah Baustin, The San Francisco Standard share with us that, “Two-thirds of the almost 3,000 grants received by Bay Area educational institutions in the 2024 fiscal year had indirect cost rates of more than 15%, meaning they would have been subject to cuts under the new NIH directive. The median indirect cost rate among those institutions was 48%. The NIH currently reimburses University of California campuses an average negotiated indirect cost rate of 59%, according to a UC spokesperson. A judge blocked the order Monday following a lawsuit by 22 states, including California. But relief, like the court stay, is temporary.”
The authors spoke with several scientists that fear that the federal assault on research funding will continue as long as President Trump is in office, and that the impact of slashing billions in research grant funding would ripple far beyond university campuses. They explain, “The Bay Area is home to some of the institutions that receive the most NIH funding in the country. To understand the potential local impact of the Trump directive, The Standard analyzed last year’s NIH grant data. If the directive had come during the 2024 fiscal year, the $1.6 billion in federal grant funding for Bay Area education institutions would have been cut by $282 million. Last year, UCSF received nearly $815 million from the agency, more than any other U.S. academic institution except Johns Hopkins University. UCSF says it has been the top public university recipient of NIH funds for nearly two decades. Under the new rules limiting indirect costs, its grant funding would have been cut by $138 million.”
Wadsworth and Baustin continue, “The $613 million Stanford University received in NIH grants last year ranked it 10th in the country. It would have lost $114 million in 2024 if the cap had been in place. Stanford officials say future annual losses could reach $160 million.
Research institutes in the Bay Area were also significant recipients of NIH grant funding in 2024, taking in 316 grants worth $261 million.
Representatives of several institutes told The Standard they anticipate that they could lose funding under the new NIH directive; among them are the Buck Institute for Research on Aging (a potential $10 million loss), the Northern California Institute for Research and Education ($6.3 million), and the Palo Alto Veterans Institute for Research ($1.9 million).”
“While a federal judge has temporarily paused the funding cuts, the threat comes at a vulnerable time for the Bay Area’s economy. Nonprofits, another cornerstone of the region’s workforce, are already in the crosshairs of a series of executive orders.”
“Meanwhile, Bay Area business has struggled to recover from the pandemic, with round after round of tech layoffs and restaurant closures.
Amid the turmoil, the education and healthcare sectors have been rare “green shoots” in the economy, continuing to flourish despite the inclement conditions, according to Abby Raisz, research director of the Bay Area Council Economic Institute.”
“Biotech, life sciences — these have been real bright spots of our economy,” said Raisz. “We’re definitely seeing a lot of growth in those sectors, and we want to encourage that growth to continue.”
If the sector stagnates, or reverses course, it could have serious implications for the local workforce. UCSF is San Francisco’s second-largest employer, with a staff north of 29,000, representing more than 5% of all city employment.
Ted Egan, San Francisco’s chief economist, said that if funding cuts force layoffs at UCSF or other major universities, “that would have ripple effects that would hurt the entire economy.”
The NIH funding is “a very big part, not just of California’s sort of economic accounting, but it’s an ingredient to California’s competitiveness,” he said. “You don’t have innovation unless you have people first working on research to produce new ideas.”
“Heather Pierce, a senior director at the Association of American Medical Colleges, warned that NIH funding cuts would stop crucial research in its tracks.”
“Every bit of scientific progress that’s federally funded impacts every person, every community,” Pierce said. “Everyone should care about these cuts.”
Beyond DEI: Why Psychological Safety is Essential in Today’s Workforce:
While there are numerous bold headlines, it seems every day, announcing major policy changes from Washington, judicial rulings often swiftly overturn them. An example of this was the executive order that was signed the first day in office directing federal agencies to cut all funding for equity-related programs. A second order required federal contractors to certify that they do not promote diversity, equity, and inclusion (DEI) efforts.
On February 21st, a federal judge blocked President Donald Trump's executive orders aimed at ending government support for diversity, equity, and inclusion (DEI) programs. On Friday, U.S. District Judge Adam Abelson in Baltimore issued a preliminary injunction preventing the administration from canceling or altering federal contracts related to equity initiatives. Abelson ruled that the orders likely violate the Constitution, including free speech rights.
As noted by the Associated Press last Friday, “Efforts to increase diversity have been under attack for years by those who contend the measures threaten merit-based hiring, promotion and educational opportunities for white people. However, supporters say the programs help institutions meet the needs of increasingly diverse populations while addressing the lasting impacts of systemic racism. Their purpose was to foster equitable environments in businesses and schools, especially for historically marginalized communities. Although researchers say DEI initiatives date back to the 1960s, more were launched and expanded in 2020 during increased calls for racial justice.”
Even though these recent Executive Orders were largely blocked by the courts, Diversity, Equity, and Inclusion (DEI) programs are still under heightened scrutiny. As private sector employers face pressure to discontinue long-standing initiatives, it is more important than ever for businesses to carefully evaluate their approach.
I came across this perspective, By Cindy Barth – Contributing Writer, The Business Journals, Feb 4, 2025, that I thought you may find interesting.
Barth writes, “We may be just a few weeks into 2025, but your company’s diversity, equity and inclusion initiatives already are navigating two key challenges: the continuous effort to enhance DEI practices and strategies, and a shifting perception of their importance.
Consider: In 2025, one in eight companies plan to eliminate or reduce their DEI programs due to political climate changes, economic pressures or a lack of measurable return on investment, according to a Jan. 21 report by Resume.org.
However, despite rollbacks by some, the need for inclusive workplaces remains as urgent as ever, said Wysa CEO Jo Aggarwal. That’s because as top leadership shifts focus, managers on the ground face a pressing challenge of how to foster diverse, equitable and supportive work environments in an era of uncertainty. For Aggarwal, the DEI programs currently under attack are creating a bigger issue: workers’ mental and emotional health. “I'm not as worried about DEI and the companies walking away from it as I am about our move toward a culture of saying there is only one way to be and we don't want another point of view,” Aggarwal said. “If we tell our workers that we don't want you to be any different from what we consider to be normal, that will have a repercussion on innovation, productivity and psychological safety.”
Although a growing number of American workers are expressing more negativism toward corporate diversity, equity and inclusion programs, 2024 data shows that DEI programs actually are considered highly effective for businesses.
In fact, statistics show that companies prioritizing diversity, equity and inclusion often experience increased employee engagement, higher retention rates, improved innovation and even a higher stock price — with around 64% more engagement among employees who believe their company values diversity.
Additionally, 76% of job seekers consider a company's DEI commitment when evaluating job offers, while companies with strong DEI practices see a significant increase in employee engagement and a 27% reduction in turnover.
To talk about the rapid changes underway, the potential ramifications and what companies can do to ensure their inclusive culture remains intact, Bizwomen talked with Aggarwal about the impacts workers will face if their company backs away from its DEI programs.
Please read the interview by clicking the link here.
Economic Mobility in California- Is it Being Jeopardized by Cuts to the Cal State System?:
The Good News from a California State University, Press Release, dated February 20, 2025, is that California State Universities (CSUs) are delivering on the promise to lift people up by empowering students from all backgrounds to achieve a college education that enhances their lifelong earning potential.
“A new four-year college index affirms the California State University’s (CSU) strength in elevating students’ socio-economic trajectory through higher education. The California Mobility Index (CMI), announced today by the College Futures Foundation, places CSU institutions at the top of the list for delivering on the promise of economic mobility for California learners from low- and moderate-income backgrounds.
Unlike traditional ranking systems of postsecondary institutions, the CMI focuses specifically on the proportion of low- and moderate-income students California institutions enroll and the return on investment they provide this demographic. This is calculated using data from the U.S. Department of Education to measure two factors: 1) the “Price-to-Earnings Premium” for low- and moderate-income students (students whose families earn $0-$75,000 annually) and 2) the proportion of these students enrolled at the institution. All 23 campuses in the CSU system appear in the index, with the CMI’s top nine all from the CSU. Additionally, 13 CSU campuses were among the top 15 institutions ranked.
As the largest system of four-year higher education in the country with universities spanning the State of California, the CSU serves a critical role in empowering students from all backgrounds to earn a college degree that leads to greater lifetime earnings. Nearly one-third of CSU students are the first in their families to attend college and more than half of students are from historically underrepresented communities.”
The Reality (Bad News) is that : The Governor Proposes to Cut $375 million from the Cal State Budget.
Mikhail Zinshteyn, CalMatters Higher Education reporter helps us recognize how underfunding the CSU system could strain California's workforce.
Zinshteyn writes, “For all the math taught at college, the California State University system is stumped over an arithmetics problem it has less than five months to solve: How to keep operating when the governor has proposed cutting $375 million from its budget. Without the money, the nation’s largest public four-year university system — enrolling more than 460,000 students — is likely due for a lot of subtraction: fewer professors teaching students due to layoffs and employment contracts that aren’t renewed, gutted academic programs and cancellation of majors that students are already enrolled in.“
We all know that this is already happening at Sonoma State University where Emily F. Cutrer, Sonoma State’s interim president had to make difficult decisions and take drastic steps of laying off tenured faculty, ending majors and totally shuttering the university’s NCAA Division II intercollegiate athletics. These decisions have sparked strong opposition from the campus community and raised serious concerns among our local County Supervisors prompting them to write a letter to Cal State’s leadership.
“These actions will have far-reaching consequences not only for the university and its students, but also for the broader Sonoma County community, our local economy and the ability of businesses and public institutions — including county government — to recruit and retain a skilled workforce,” said the letter.
NBLC agrees.
Zinshteyn continues, “and that’s all before the planned spending cuts Gov. Gavin Newsom outlined in his proposed 2025-26 budget in January. The final budget is due by late June. It also comes at a time in which the system overall grapples with the reality that it hasn’t been able to afford itself since 2021, due to a mix of rising labor and insurance costs and greater student needs, plus a drop in enrollment after the COVID-19pandemic.”
If the reductions were to hold, what’s happening at Sonoma State “is the first of what we will see at every Cal State University campus,” said Sen. John Laird, a Democrat from Santa Cruz, who chairs the subcommittee on education finance. He made those comments during a Senate budget committee hearing in late January that began reviewing the governor’s budget proposal, which includes the $375 million cut.
In an interview last week, Laird said the cut is “untenable.” On paper, it amounts to a nearly 8% cut to Cal State’s support from the state budget, but with the system’s growing labor expenses and inflation, he views that as closer to a 10% to 12% cut. He said his top priority this year is ensuring those cuts never strike Cal State or the University of California, which faces identical planned reductions.
Less money would also undermine the Legislature’s and governor’s ongoing efforts to enroll more new California residents. It would “prohibit new enrollment… and that’s just not acceptable,” Laird told Calmatters.
Newsom’s proposed cuts reflect a larger budget problem for the state. Last year lawmakers and the governor closed a $47 billion projected deficit in part by cutting most state agency budgets by 7.95%. Lawmakers were able to persuade Newsom to delay those cuts to UC and Cal State by a year to give the systems more time to prepare. Newsom’s proposed budget for next year basically maintains the university cuts he and lawmakers agreed to last June. The system has been in a state of panic over these planned reductions since last summer.
As for finding money in budget negotiations this year to stave off the cuts partially or fully, the odds seem stacked against Cal State. Last month Newsom’s Department of Finance issued a letter saying that the recent Southern California fires and projected deficits of several billion dollars after 2025-26 “underscores the need for continued vigilance to strengthen budget resiliency and fiscal stability to protect and preserve essential programs.”
Julia Lopez, a Cal State trustee, attempted to translate that jargon in lay terms: “Don’t expect things to be much better in May. In fact, you may even plan for further cuts in May, and certainly don’t start anything new,” she said at January’s trustees meeting. The governor seeks only about $570 million in new spending, underscoring just how fragile that balanced budget calculus is. The costs of natural disasters, including the Los Angeles area fires, and a dropoff in federal support for the state could wreck California’s budget plans.
Laird’s counterpart in the Assembly, Chula Vista Democrat David Alvarez, said in an interview that some cuts may be necessary but the hit both systems would be taking under this plan is unfair. “I’m just being realistic about our budget situation.” He noted that the cuts to Cal State and the UC would represent 40% of all the reductions to the state budget in Newsom’s January budget. That’s because the two campuses receive a combined $10 billion in direct state funding, so an 8% cut bites off a much larger amount than it does for agencies with smaller operating budgets. Alvarez called the planned reductions to UC and Cal State “disproportionate.”
The issue is now a major concern for the leaders of the Legislature’s powerful budget committees. On Monday the chairperson of the Joint Legislative Budget Committee sent a letter to the director of the finance department echoing Alvarez’s points. “A cut this significant will undoubtedly result in cuts to direct services for students and possible layoffs or furloughs,” wrote Sen. Scott Wiener, a Democrat from San Francisco.
The 2025-26 budget can only be finalized through negotiations between legislative leaders and Newsom. Laird said he “will work over the next five months to try to make sure that the Senate leadership agrees with me.”
The 23 campuses together generate $7 of economic activity for every dollar the state spends on Cal State, a system report calculated in 2021. The ripple effect includes campus and student spending on goods, wages, housing and construction.
Seventeen campuses have cut a combined 1,200 workers between fall 2023 and fall 2024 while six campuses added almost 400 employees. San Francisco State posted the highest losses, with 180 employees. That amounts to 7% of workers, said campus president Lynn Mahoney, at the trustees meeting last month.
Despite $164 million in extra revenue this year from recently approved higher tuition, the system’s finance team projects a deficit of $375 million due to ever-growing costs for student financial aid as well as campus insurance, utilities, employee health care and the loss in state support. It’s an amount equal to the annual operating budget of Fresno State, which enrolls about 24,000 students. The system has also been relying partly on one-time reserves to plug budget shortfalls the past two years.
“There will be zero new funding for compensation increases” if the state cuts go through next year, said Ryan Storm, an assistant vice chancellor at Cal State overseeing the system’s budget planning, at the trustees meeting last month. “There will be no new funding for mental health services for our students or our facility improvements,” he added later in his remarks. About three-quarters of the system’s operating budget is spent on salary and benefits.
And that budget shortfall is on top of another fiscal blow to the system: the delay of about $250 million in promised funding from Newsom as part of his annual “compact” with Cal State to grow state support in exchange for higher student enrollment and improved graduation rates.
All told, Cal State is looking at around $620 million in less funding than it would get for 2025-26 were the state to live up to its end of the compact deal and avoid the budget cut. The system’s operating budget is about $8.6 billion — a mix of state support and tuition revenue.
Cal State leaders are adamant about lobbying lawmakers to prevent the cuts, from alumni groups to presidents appealing to their state representatives, said Greg Saks, who heads external relations and communications for the system, at the January trustees meeting. “
Upcoming Events:
Business Edge Briefing: Unspoken Truths From the Startup Trenches
Wednesday, March 26, 2025
11:00 AM - 12:00 PM
Leaders of the North Bay. Friday, May 16th, Flamingo Resort, Santa Rosa.
Members in the News:
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College of Marin Hosts a Career Fair
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