California will challenge Trump threat to university funding

University of California, Los Angeles

California Gov. Gavin Newsom called President Donald Trump's threat to cut $1 billion in University of California research funding a political shakedown.

Newsom joined California's legislative Jewish Caucus co-chairs Sen. Scott Wiener and Assembly member Jessie Gabriel and other state leaders in condemning what they called the Trump administration's assault on academic freedom by demanding that the University of California pay more than $1 billion in exchange for restoring frozen medical and science grant funding.

Trump targeted east coast schools earlier this year claiming those universities failed to protect Jewish students during violent anti-Semitic pro-Palestine demonstrations fueled by the war between Israel and Hamas. He also has threatened university research there and in California over claims of anti-Semitism, the illegal use of race in admissions and for policies that allow transgender athletes to compete according to their gender identity.

In the past two weeks, the Trump administration has suspended $584 million in grants and on Friday demanded a $1 billion settlement.

University of California President James Milliken said in a statement Friday "a payment on this scale would completely devastate our country's great public university system."

"This isn't about protecting Jewish students — it's a billion-dollar political shakedown from the pay-to-play president. Trump has weaponized the Department of Justice to punish California, crush free thinking, and kneecap the greatest public university system in the world," state leaders said in a joint statement.

The university has taken "aggressive, concrete steps to crack down on the vile scourge of anti-Semitism on campus, and we are confident Chancellor Julio Frenk remains committed to this critical work," they said.

The state, which has already sued the Trump administration 37 times since he took office in January, will take legal actions to protect funding, Newsom said.

California's two massive university systems — the University of California and California State University — are also being pressured by cuts to Medicaid included in the Republican spending and tax cuts bill.

Trump's actions come against a backdrop of an already struggling sector.

Four Orrick, Herrington & Sutcliffe partners penned a column for The Bond Buyer outlining the pressures facing higher education, which they described as an existential financial crisis facing a number of higher education institutions.

S&P Global Rating has a negative outlook on highly regional, less-selective institutions that lack financial flexibility; and its ratings downgrades have outpaced upgrades by 2.2:1 and negative outlooks have exceeded positive outlooks by a margin of 3:1.

Moody's Ratings assigned a negative outlook to higher education in March, pointing to actions taken by universities in response to threatened cuts to research from the federal government including hiring freezes, spending cuts, shrinking research efforts and rescinded offers to Ph.D. candidates.

The research cuts — some of which initially targeted east coast schools like Columbia and Harvard — pressure large and elite schools that were somewhat sheltered by their size from enrollment drops and sector-wide pressures hitting smaller universities harder.

According to a January Fitch Ratings report, the UC system's total bonded debt, which includes debt equivalents from pension and lease obligations, was about $30.5 billion at fiscal year-end 2024.

Lead managers Jefferies and Bank of America are slated to price $1.5 billion in general revenue bonds on Aug. 19 for the UC Regents. UC's general revenue bonds carry ratings of Aa2 from Moody's and AA from S&P and Fitch. All assign stable outlooks.