Thursday, January 5, 2012

Someone let the cat out of the bag on the state budget

Normally, the governor's budget proposal (reminder - it is a proposal, not an enacted budget) would be made public January 10.  Someone in the governor's entourage apparently goofed and posted it on the web today.  So there was a hasty unveiling without the usual leaking of bits and pieces for days before January 10.

As it happens, yours truly is about to go to Chicago for three days so only a rough perusal of the budget was possible.  But here are some highlights.  First, take a look at the chart on the left.  The dark part of the bars are what folks mean by deficits in normal English parlance.  That is not necessarily the language spoken in Sacramento.  But what the dark bars tell you is that without changing anything with regard to revenue or spending, there would be about $5 billion deficit (outflow > inflow) in the next budget year that would gradually decline with (assumed) economic growth.  However, each year of deficit adds to the debt in the general fund, which is not supposed to be in debt.

The numerical table of "problem definition" tells us that the budget is roughly in balance for the current year that started last July 1.  But there is a debt overhang inherited from the past which the governor would like to pay off.  Paying off such past debt means - again using common English parlance - running a surplus.  The faster you want to pay off the debt, the more of a surplus you need.  The governor would like all of it gone by the end of the next fiscal year which starts July 1, 2012.  But note that there is always the issue of how fast you should go in paying off past debt.  The Legislative Analyst has pointed out this issue in prior years.

The governor's solution is in part temporary tax increases he will propose in a ballot initiative that will appear in November 2012.  Signatures will have to be obtained since it is clear he will not get a 2/3 vote in the legislature to put such a proposal on the ballot.  Some of that revenue - assuming the initiative passes - would show up in the current year.  So the rough balance above becomes a surplus for the current year.  And there is a larger surplus for the coming year.

But what if voters do not pass the tax increases?  Then there will be a trigger - as there was in the current year.  And guess what?  UC would be cut $200 million relative to the proposal for next year.

Note that there is a footnote on the trigger table which effectively says the governor expects a UC tuition increase.  The proposed UC budget - assuming the initiative passes - raises the UC budget by almost $300 million.  (You can find the UC budget on page 149 of the budget summary - see link below.)  So the $200 trigger cut, if it happens, still leaves an added $100 million, net.

Again, a reminder that a proposal is not an enactment.  The legislature will hold hearings.  There will be a "May revise" of the budget unless there is speedy enactment of a budget.  And there could be much drama before a budget enactment occurs.

If you would like to see the governor's official budget proposal, go to:

Update: There is a statement from UCOP on the budget at  It pegs the increase to UC at $90 million.  Given my trip to Chicago, I can't reconcile that figure with the $300 million cited above.  But here is the statement:

OAKLAND — Patrick Lenz, UC vice president for budget and capital resources, made the following statement today (Thursday, Jan. 5) regarding Gov. Jerry Brown's proposed state budget for 2012-13:  

We're gratified that Gov. Brown is proposing an additional $90 million in funding for the University of California — an ongoing increase that the governor said can be used to address costs of employee retirement. We applaud the governor's willingness to grant UC leadership maximum flexibility in navigating these fiscal times, and also his recognition that, after a 20-year hiatus, the state has a responsibility to resume paying for a portion of retirement costs.

The administration's focus on protecting higher education from further budget reductions is a welcome relief, and the governor's stated desire for a long-term state investment is encouraging. It appears the governor is moving in the right direction after cuts totaling $750 million this year alone.

His proposal is only the first step toward a state budget for 2012-13. We will continue to make the case that public higher education is not a cost but the best investment an innovative state like California can make.

We will continue to seek out and implement administrative efficiencies that already are saving hundreds of millions of dollars a year — savings that go straight to our core mission. We also are working hard to identify alternative revenue sources that could help us preserve quality and access.

Finally, we intend to press forward with the governor and legislature to develop a long-term plan that would give the university much-needed financial stability, help the families of students and benefit Californians in every part of the state.

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