Thursday, May 14, 2015

Quick Reads on the May Revise Budget

Here are some key elements of the budget generally after a quick read. Budgetary accounting is now more complicated because there is a regular reserve in the general fund and a rainy day fund created by voters under Prop 2. One way to look at what is happening in a macro sense is to track the sum of the two reserves. If the combination of the reserves is falling, the state is paying out more than it is taking in (a deficit). If the sum of the reserves is rising, the reverse is happening (a surplus). There is also the question of how well the reserves would cushion an economic downturn.

In the governor's May Revise, there is an estimate of what is happening in the current fiscal year as well as a projection for 2015-16 which he is proposing. Both are forecasts since even the current year is not over yet. At the start of the current year (7/1/14), there was a reserve total of $5.6 billion which is projected to fall to $4.0 billion at the end of the year (6/30/15). That decline is a deficit of -$1.6 billion. In the coming year, the reserve rises back to $5.5 billion. That increase, with rounding, is a surplus of +$1.6 billion. As a ratio to projected spending, the combined reserve at the end of the coming year will be a bit under 5%. That is small and would easily be absorbed if there were an economic downturn. So the state remains in a precarious fiscal condition, despite the fact that more revenue than forecast last January has come in so far.

Now let's get provincial and focus on UC. According to the governor, what is in the May Revise is in accord with an agreement he has with UC prez Napolitano. That is what he said. But, as blog readers will know, the UC prez has been campaigning to have friends of UC pressure the guv to give more to UC. So exactly what the deal is remains to be seen, or whether there is a real deal. At the upcoming Regents meeting, that issue will have to be clarified.

The deal - as depicted by the guv - raises some major issues. It extends the tuition freeze, contrary to what the Regents proposed last fall. But it does have some extra money, particularly to pay down the unfunded liability of the UC pension. However, that money comes with a pension cap of $117,020 for new hires starting July 1, 2016. The Regents would have to agree to the cap or, according to the state finance director, the money for the pension will not be forthcoming. That cap, given UC faculty pay levels salaries, is problematic, to say the least. If it develops, there would have to be a major revamp of the pension system for new hires, probably a combination of defined benefit and defined contribution pensions. In short, what the UC prez agreed to, if she did, is a Big Deal.

There are other components for UC including some kind of cost comparison of similar courses across campuses, use of technology, a better system of transfers from community colleges, etc. The May Revise proposal is at:

Higher ed is summarized on page 6. There is more detail on UC on pages 28-34.

You can see the news conference of the governor and his finance director by going to the Calchannel's "on demand" option and selecting it. Go to 

UPDATE: The UC prez says she is in accord with the guv but wants "advocacy" aimed at the guv to continue. ??? She doesn't mention the pension cap explicitly which - as noted above - is a Big Deal involving a potential major revamp of the retirement system. See below for her email:

Dear Friends and Colleagues:

I am very pleased to share with you the good news that the University has reached an agreement with Governor Brown to increase State support for UC. The agreement is part of the Governor’s revised State budget proposal known as the “May Revise.” It provides UC with significant new revenue and stable funding that allows us to hold resident tuition at its current level for the next two years, with predictable tuition increases pegged generally to the rate of inflation beginning in 2017-18.

In exchange for State funding provided for the University’s pension plan, UC would implement certain retirement benefit changes for future UC employees. These changes would be subject to consultation with UC Regents, faculty, staff, union leaders and other stakeholders. In addition, nonresident supplemental tuition and professional degree supplemental tuition would generally be increased in accord with the November budget resolution adopted by The Regents.

The Governor and I also agreed to expand a series of programmatic innovations already underway or under development on UC campuses to help campuses improve student success and use resources as efficiently as possible.

With this agreement, the Governor has recognized the need to reinvest in UC as well as the imperative to provide students, their families, and the University with a reliable way to budget for the cost of a UC education.

It is critical to note, though, that while this agreement provides the University fiscal stability and much-needed revenue, it does not fund California student enrollment growth­ – so our work is not done. The Governor’s budget proposal now moves to the Legislature for consideration, and we will continue our discussions with legislators about ways to secure additional permanent funding to enroll more California students.

Below is a summary of the agreement, which I will be discussing with the full UC Board of Regents at their meeting next week.

I want to thank the thousands of UC students, faculty, staff, alumni and others who have joined our efforts in advocating for increased State funding for UC. Your voices have been instrumental in helping to bring about this historic agreement, and I sincerely appreciate your partnership. Please keep up your advocacy – we are not at the finish line!

We will keep you informed of the results of our upcoming discussions with the Legislature as we move toward a final State budget, which is expected next month.

Yours very truly,
Janet Napolitano

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