Sunday, March 22, 2020
University Cash, Makarechian, and Deck Chairs
What is the cash position of the state? Thanks to Jerry Brown's "rainy day" fund plus the good economic climate until recently, the state's cash position is good. If you count all "unused borrowable resources" (which include cash in the various reserve funds plus cash in other state funds that can be internally borrowed), the state finished last year with cash on hand at roughly a third of expenditures.
As of February, the latest figure available and mainly pre-coronavirus crisis, the state had about $43 billion in unused borrowable resources. Normally, the net inflow of cash between February and the end of the fiscal year on June 30 would produce another roughly $12 billion. However, the state has followed the federal government and moved the April tax due date to July. And you can bet that those filing estimated taxes for 2020 will reduce their estimates of what they will likely earn this year. Payroll deductions will reflect the mass layoffs now occurring. By July, when income taxes are now due, there may be postponement requests and people simply unable to pay. The other taxes that feed into the state - mainly sales and corporate taxes - are also headed downward in a likely scenario.
The notion that the state will "buy out" the planned tuition increase (consideration of which has now been postponed once again) is becoming more dubious by the minute. And let's not even think about what the stock market decline has done to the funding ratio of the UC pension. (It is noteworthy that the Investments Committee did not meet in conjunction with the larger Regents meeting. No future special meeting of that committee is currently scheduled on the Regents website.)
It is hard to estimate what the state's burn rate for cash will be in the months to come. In the 2001 dot-com crash, the state went from a comfortable cash reserve to a crisis in a couple of years - ultimately leading to the recall of the governor. The burn rate could be a lot faster this time.