LAO On Brown's Budget and On UC

The Legislative Analyst's Office (LAO) typically comments whenever a governor presents a budget proposal. Today, the LAO released its comments on the budget for 2017-18 that Brown presented earlier this week.

As expected, the LAO projects a higher inflow of revenue than Brown, based mainly on personal income taxes and revenue that might come from capital gains. There is a great deal of uncertainty about capital gains when it comes to taxation. The gains are only taxable when they are realized, i.e., when stock that has appreciated is sold. So the fact that the stock market has generally rise recently - while a positive factor in estimating revenues - is not a sure indicator. If the market is going up, California stockholders might choose to hold on to their stocks rather than sell them.

In any event, at this point, we are several months away from the May Revise budget that the governor will release. So while there will be hearings in the legislature, there will be no budget enactment until after the May Revise.

The LAO commented specifically on the UC budget. It followed its usual inclination to want the legislature to have a voice in what UC does. (LAO is a creature of the legislature.)

Governor Sends Unclear Message Regarding Tuition Increases. 

As in recent years, the Governor’s budget assumes UC and CSU do not raise resident tuition. Unlike recent years, however, he does not condition his proposed General Fund increases on the segments holding resident tuition levels flat. Both UC and CSU have indicated an interest in increasing resident tuition for 2017-18 (2.5 percent at UC and about 5 percent at CSU). The Governor has not taken a formal position on these proposals, though his Budget Summary declares that “any tuition increases must be viewed in the context of reducing the overall cost structure at UC and improving graduation rates at CSU.”L

Legislature Has Key Role in Crafting UC’s and CSU’s Budgets. 

The Legislature has a key role in setting state higher education priorities, examining the universities’ budgets, and making associated spending decisions. Every year, the Legislature fundamentally decides (1) the total level of cost increases to support and (2) how to cover those cost increases. Some years, the Legislature has decided to cover all spending increases using state General Fund support, explicitly “buying out” tuition increases or otherwise holding student tuition levels flat. Other years, both state General Fund support and tuition levels have been raised. In still other years, state General Fund support has fallen or been held flat, with tuition levels rising to cover cost increases. In the coming months, the Legislature will have an opportunity to decide what UC and CSU cost increases to support for 2017-18 and how best to cover those cost increases.

The full LAO report is at http://lao.ca.gov/reports/2017/3528/budget-overview-2017.pdf