Apart from the
excitement and drama revolving around the governor’s conflict with UC over its
tuition/funding proposal, what can we say about the general condition of the state
budget? Let’s look at the table below,
taken directly from the governor’s official budget document.
Regular Rainy
Total Change
$Billions Reserve Day
-------------------------------------------
June 30, 2014 $5.1 $0 $5.1
--
June 30, 2015 $1.4
$1.6 $3.0 -$2.1
June 30, 2016 $1.5
$2.8 $4.3 +$1.3
-------------------------------------------
Source: Governor’s Budget Summary, 2015-16,
When folks talk about the
budget, they generally mean the state’s General Fund, effectively the operating
budget of the state. You can consider
the General Fund to be the state’s checking account. At the start of each fiscal year (end of the
prior fiscal year), there is a balance in the account. If during the year, more goes out than comes
in, the balance will be reduced. If more
comes in than goes out, the balance will rise.
In ordinary parlance, one might call the change in the balance a “deficit”
in the first case and a “surplus” in the second case.
Last November, the governor
asked the voters to approve a new formula for a separate “rainy day” fund (a
fund that actually goes back to Governor Schwarzenegger’s economic recovery
proposals of 2004 but which was ineffective in tucking away money for a rainy
day). Voters went along with the
Governor Brown and approved a new formula for putting money aside.
The existence of a rainy day
fund that is actually accumulating money makes it necessary to combine the
regular reserve and the rainy day fund to see if, overall, more is coming into
the General Fund in the course of a year than is going out. We have to sum the two reserves to see what
the total is, or is projected to be. And
that is what the table above does.
According to the governor’s
estimate, the General Fund had a regular reserve of $5.1 billion at the start
of the current 2014-15 fiscal year. (It
might be noted that back in June when the estimate was made for budgetary
enactment, the regular reserve was estimated to contain $3.9 billion. So an extra amount of over a billion dollars seems
to have appeared. Why? Not clear. But let’s put that issue aside.) The governor now says that the general fund’s
reserve will fall to $1.4 billion at the end of this fiscal year, but some of
that drawdown involves a transfer of $1.6 billion to the rainy day fund. So total reserves, as the table above
indicates, will drop to $3 billion.
Put another way, despite all
the talk of surpluses, there is a deficit of over $2 billion this year. Now one could argue there is some prepayment
of debt that might be considered an offset.
True, but however you look at it, there is less cash on hand to deal
with any future adverse event.
What is the projection for next
year? The combined reserve will rise to
$4.3 billion, so – because total reserves are rising – there is a surplus
projected for next year. Since the
budget proposes spending of over $113 billion next year, the reserve is under
4% of expenditures. The governor
acknowledges that the condition of the budget is precarious and, indeed, a 4%
reserve wouldn’t be much of a cushion in the face of an economic downturn.
Given this analysis, what can
we say about the above-mentioned conflict with UC over its tuition/state
funding plan? The governor, as blog
readers will know, has shown no enthusiasm for new taxes or for extension of
the Prop 30 temporary taxes when they expire.
Whenever there is a call for new spending on some program – not just UC –
he talks about the state living within its means. He wants some committee to explore cost
saving at UC, but does he really think over the long haul, given the
constraints (importantly including his own) that UC can go along without
tuition increases?
The numbers won’t sustain that
view. So, indeed, create a committee. And – a suggestion! - perhaps Anne Gust Brown
ought to be on the committee proposed by the governor. She is a past
corporate executive. Corporate
executives are not big on the notion of paying people via “psychic income.” She doesn’t have the governor’s longstanding personal “issues”
with UC which go back to his first iteration as governor in the 1970s and 80s. But the governor clearly listens to her
views.
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