Monday, May 14, 2012

The Governor's May Revise Budget (including audio)

Governor Jerry Brown presented his May Revise budget for 2012-13 at a news conference earlier today.  It was followed by a question-and-answer session with state Finance Director Ana Matosantos.  In general terms, the May Revise followed the format of the original January proposal in that it included the assumption that voters would approve a tax initiative in November and that, if they didn’t, there would be trigger cuts.  Since January, as readers of this blog will know, revenues came in below forecast levels and a revised tax initiative was negotiated.  In addition, the state has been prevented from making certain cuts by court decisions and failure to win waivers from the federal government.

The table below summarizes the general fund budget.  Note that surpluses and deficit are properly defined in the table as inflow minus outflow.  The “balance” in the general fund is a stock, not a flow.  Surpluses and deficits are properly flow concepts, not stocks.  Time periods are indicated.  These simple and basic practices are often not followed in descriptions of the state budget.

            General Fund Budget

$ billions         No Change in Policy
                  2011-12      2012-13
Balance             -$2.5        -$6.9

Revenue &
Transfers            83.2         88.1

Expenditures         87.6         96.2

Surplus or
Deficit              -4.4         -8.1

End of Year
Balance              -6.9        -15.0
             Under Governor’s May Revise
                  2011-12      2012-13
Balance             -$2.8        -$2.5

Revenue &
Transfers            86.8         95.7

Expenditures         86.5         91.4

Surplus or
Deficit             +0.3          +4.3

End of Year
Balance             -2.5          +1.8
Note: The $0.3 billion discrepancy between the 2011-12 starting balances in the no-policy-change version and the version with the governor’s proposed policy is not explained.  It presumably involves some allocation of the tax proposal or other elements of the proposal back to the 2010-11 year.

In essence, the governor’s proposal would convert a deficit of over $4 billion in the current year to a roughly balanced budget.  He would ten run a surplus of over $4 billion to end the coming year with a modest positive balance in the general fund.  His tax initiative would raise an estimated $8.5 billion but only $5.6 billion would go into the general fund.  The remainder would go to local governments for law enforcement, in part because the governor continues his policy of “realignment” which shifts state prisoners to local jails.

For UC, as can be seen below, one difference is that the trigger – which in January would have been a cut of $200 million for the university – is now $250 million.  There continues to be reference as to how the university can use some of its funding, if it wants to, for pension contributions.  But as prior posts have noted, UC was always free to do so.  There is some reference in the budget document to UC contributing that same amount as CSU gets from the state for CalPERS.  But again, as has been pointed out on this blog, absent some larger understanding with the governor and the legislature, it is not clear that UC gets a net addition to its budget.

There is a link below where you can hear the audio of the news conference.  There is a brief reference to higher ed cuts if the trigger fires at around minute 19.  At around minute 23, the governor says he is pursuing his public pension proposals.  At around minute 27, he says in answer to a question that if the proposal by the assembly speaker to close a corporate tax loophole and use the money for higher ed scholarships reached his desk he would sign if.  A follow-up question asks how that willingness squares with his pledge of no new taxes without voter approval.  The governor then recants and notes that such a proposal is very unlikely to be passed and that he will deal with it if it ever gets to his desk.

The Q&A session with Finance Director Matosantos begins at around minute 29.

The governor’s press release on May Revise is at:

The May Revise is at:

Audio of the news conference can be heard at:


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