No state budget surprises

There were no surprises for UC in the budget signed by Gov. Brown today relative to previous information. The governor made minor vetoes, none affecting UC. However, the $25 million for UC contingent on adding 5,000 students is explicit. In contrast, as noted in a prior posting, UC prez Napolitano interprets the budget to mean UC can discuss with the legislature exactly what the provision means.  The language related to UC is on pp. 21-22 of the budget document.*

As noted in prior posts, budget accounting is now complicated by the fact that some revenue is taken off the top and diverted by formula to the rainy-day fund. So there are two reserves: the regular reserve in the general fund and the rainy-day fund. It’s best to combine the two into total reserves and add back the revenue diverted to the rainy-day fund into total revenue. (Revenue shown below is actually revenue and “transfers,” a mischievous category that adds a minor distortion.)

Let’s first review what happened in the 2014-15 year that is soon to end.  Reserves at the beginning of that year (7/1/14) and the end (6/30/15) were estimated at various points of time: ($millions)

Fiscal 2014-15               Beginning   Ending   Deficit

---------------------------------------------------------

Enactment of 2014-15 budget:    $3,903   $3,010     -$893

January 2015 budget message:    $5,100   $3,029   -$2,071

May Revise 2015 message:        $5,589   $3,965   -$1,624

Enactment of 2015-16 budget:    $5,589   $4,029   -$1,560

---------------------------------------------------------

While it may be a surprise to some, readers of this blog will have known all along that the current fiscal year (2014-15) was always estimated to be in deficit, although the amount varied.

In contrast, the 2015-16 budget just enacted was always planned to be in surplus. The chart below shows the revenue and spending estimates for the current year and next year:

$millions                FY2014-15  FY2015-16

---------------------------------------------

Beginning reserves:         $5,589     $4,029

Revenues:                +$112,913  +$116,887

Expenditures:            -$114,473  -$115,369

Total deficit/surplus:     -$1,560    +$1,518

Ending reserves:            $4,029     $5,547

---------------------------------------------

The ratio of end-reserves to spending rises from 3.5% for the current year to 4.8% for next year. The volatile personal income tax accounts for almost two thirds of total revenue. As has been pointed out in prior posts, such levels of reserves provide little cushion for an unexpected downturn. We have also pointed out in prior posts that there is a problematic pension deal embedded in the budget and the multi-year features of that deal seemed to be contradicted by legislative language that denies any obligation for UC pension funding beyond 2015-16. 

Note: It appears that the final budget language dropped the explicit language ruling out a future commitment to the pension. The language passed allocates one-year's worth of funding but makes no future commitment for the rest of what was promised as part of the Committee of Two deal. No mention of the future is better than explicitly stating that there is no future obligation. But it still lacks any future commitment.** [SEE CORRECTION BELOW]

---

*http://www.dof.ca.gov/documents/FullBudgetSummary-2015.pdf
**Assembly Bill No. 93

CHAPTER 10

An act making appropriations for the support of the government of the State of California and for several public purposes in accordance with the provisions of Section 12 of Article IV of the Constitution of the State of California, relating to the state budget, to take effect immediately, budget bill.

[Approved by Governor  June 24, 2015. Filed with Secretary of State  June 24, 2015. ]…

6440-004-0001—For support of University of California ........................				96,000,000
	Schedule:
	(1)	5440-Support ........................	96,000,000
	Provisions:
	1.	The funds appropriated in this item shall be released to the University of California only upon certification by the Director of Finance that the Regents of the University of California have approved a retirement program that limits pensionable compensation consistent with the limits specified in the Public Employees’ Pension Reform Act of 2013.

http://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201520160AB93

CORRECTION: IT HAS BEEN BROUGHT TO MY ATTENTION THAT ANOTHER COMPANION BILL - SB 97 - STILL CARRIES THE OBJECTIONABLE LANGUAGE WHICH RETURNS US TO THE ORIGINAL PROBLEM OF A ONE-YEAR ALLOCATION AND AN EXPLICIT STATEMENT THAT THERE IS NO FURTHER OBLIGATION:

SEC. 85.

 Item 6440-004-0001 of Section 2.00 of the Budget Act of 2015 is amended to read:

6440-004-0001—For support of University of California ........................							96,000,000
	Schedule:
	(1)	5440-Support ........................				96,000,000
	Provisions:
	1.	The funds appropriated in this item shall be released to the University of California only upon certification by the Director of Finance that the Regents of the University of California have approved a retirement program that limits pensionable compensation consistent with the limits specified in the Public Employees’ Pension Reform Act of 2013.
	2.	The funds appropriated in this item shall be used only for unfunded liabilities of the University of California Retirement Plan, in excess of current base amounts, to satisfy the requirements of clause (ii) of subparagraph (B) of paragraph (1) of subdivision (b) of Section 20 of Article XVI of the Constitution of the State of California.
	3.	Upon release of the funds, the Regents of the University of California shall submit a report to the Director of Finance and, in conformity with Section 9795 of the Government Code, to the Legislature demonstrating that the funds have been used to supplement and not supplant funding otherwise available to pay for unfunded liabilities of the University of California Retirement Plan.
	4.	This appropriation does not constitute an obligation on behalf of the state to appropriate any additional funds in subsequent years for any costs of the University of California Retirement Plan. The Legislature shall determine the amount of additional funds, if any, to be appropriated in subsequent years for costs of the University of California Retirement Plan.

.
http://leginfo.legislature.ca.gov/faces/billTextClient.xhtml;jsessionid=e331f2a98adfe924fcadabf64eed?bill_id=201520160SB97