Legislature's Response to Governor's May Revise

The two houses of the legislature have now come up with an alternative version of the state budget for 2021-22 (the fiscal year that begins July 1) in response to the governor's May Revise.* Under the state constitution, the legislature must pass a budget by June 15. What a "budget" actually consists of is left to the legislature. So, what is enacted by that date may not really be the entire budget. (Were the legislature not to pass something called a budget by June 15, legislators would lose a day's pay for each day the budget was late.) Only a majority vote is needed unless tax increases are included. Effectively, legislative Republicans are cut out of the process, given the diminished condition of that party.

The governor could conceivably veto the entire budget (very unlikely) or he could use his line-item veto to delete particular expenditures. Past practice suggests that he will come to some deal with the legislative leaders so that any such line-item vetoes would be minor technical corrections (if there are any).

However, there are differences between what the governor proposed and assumed and what the legislature has proposed and assumed. (Note that "assumed" is an important word in budgeting since any budget involves a forecast of the economy and the revenue it will generate and of what various programs will costs.) Generally, the legislature has included a host of programs that may go beyond what the governor wants.

Below are the proposals that relate to higher ed and UC:

Under "Access to Higher Ed, Financial Aid & Path to Debt Free College":

Access to affordable higher education is a cornerstone of a strong middle class. While California has done a good job to keeping tuition low, and has been able to eliminate tuition entirely for the 55 percent of CSU and UC students that qualify for Cal Grants, non-tuition costs and out of date rules that shut out qualified students from Cal Grants has resulted in students relying on student debt.

The Legislature’s Version of the budget makes the biggest expansion to Cal Grants since its inception and reboots the Middle Class Scholarship to also supplement Cal Grant for the first time to cover non-tuition costs for students receiving Cal Grants.**

Here are the Details:

 Cal Grant Enrollment Expansion. Provides $488 million ongoing to end the age and time out of high school requirements that for too long have locked deserving students out of the Cal Grant program. This will begin in the upcoming school year with $154 million for 133,000 community college students and then expand to 40,000 CSU and UC students in the 2022-23 school year.
 Cal Grant B Access Award Increase. Provides $125 million ongoing to increase the Cal Grant Access Award from $1,600 to $2,000. The Access Award is a modest grant to help cover non tuition expenses. This will start with $44 million in the budget year to serve 240,000 Community College students, and expand to $125 million in 2022-23 to serve 170,000 CSU and UC students.
 Middle Class Scholarship Reboot. Provides $542 million beginning in 2022-23 to reboot the Middle Class Scholarship to expand to supplement non-tuition costs for Cal Grant students and to ultimately become Debt Free grant to eliminate the de facto requirement for lower and middle income students to rely on student loans to attend the CSU and UC.

The MCS 2.0 will close the gap between the full cost of attendance – including non-tuition costs – and resources provided by other financial aid, earnings from a part-time job and of the full cost of attendance and traditional between traditional financial and modest family contribution from families with over $100,000 annual income.

The $542 million is estimated to close the gap by 33 percent, with the intent to expand in future years to ultimately fill the gap by 100%, and finally provide debt free college. 

The Legislature’s Version also provides $180 million to increase resident enrollment at UC and CSU by more than 15,000 students, and launches a new program to replace nonresident students at UC Berkeley, UCLA and UC San Diego with California students.

Under "Infrastructure" and seemingly outside the general fund:

Higher Ed Facilities, Acquisition and Student Housing. Creates a new $4 billion fund for CSU and UC facilities and for student housing at Community Colleges, CSU, and UC. Specific projects funded through the new fund, called the Capacity and Affordable Student Housing (CASH) fund, will be approved through Legislative action beginning later this year and through future budget action.

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The legislature's document related to its proposal gives rounded figures. It assumes somewhat less revenue flowing into the general fund but appears to assume more revenue diverted into the various reserve accounts associated with the general fund. It also assumes a somewhat higher balance in the general fund at the end of the current fiscal year than assumed by the governor. Exactly what it assumes will be in the other reserve funds at the end of this year is not indicated. In the table below, we reproduce our tables from our previous analysis of the May Revise.*** And we add the legislature's version in the column on the right. 

We use our earlier estimates of what will be in the reserve funds at the end of this fiscal year except for the general fund. Since the legislature gives such an estimate for the reserve in the general fund, we use that figure. (We don't subtract "encumbrances" from reserves. So, our estimates of total reserves at the beginning and end of 2021-21 are higher than in the legislative document, although the net total deficit is unchanged since encumbrances are fixed.)

If the above explanation is making your eyes glaze over, we can summarize by saying that the legislature is more optimistic about the course of general revenue than the governor and thinks programs will cost less. So, in the end, the legislature boasts of more reserves a year from now than the governor projects.

Note: The legislature rounds its estimates to the nearest tenth of a billion leading to rounding error when compared to the governor's estimates (which are in millions). Given the likely magnitude of errors in any forecasting of budget revenues and expenditures, such rounding errors are trivial.)

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*https://calmatters.org/wp-content/uploads/2021/06/Legislatures-Version-of-2021-22-Budget-Summary.docx.pdf

**Note from yours truly: The Middle Class Scholarship was a pet project of now-Regent John Pérez when he was in the legislature. It was dismantled subsequently but is now proposed to be "rebooted."

***http://uclafacultyassociation.blogspot.com/2021/05/initial-analysis-of-governors-may.html.