UCLA Faculty Association: A preliminary look at the governor's January budget proposal

Wednesday, January 11, 2023

A preliminary look at the governor's January budget proposal

The governor released his budget proposal for 2023-24, the fiscal year beginning on July 1. It is important to ignore just about anything you see in news reports concerning surpluses, deficits, and “shortfalls.” The state, as it always has, has fuzzy definitions of the first two terms and “shortfall” is not a word one finds in accounting textbooks; it can mean just about anything.

Below we use the commonly-used English language meanings of surplus and deficits. A surplus is a situation in which more revenue comes in than spending goes out. A deficit is a situation in which less revenue comes in than revenue goes out. Usually, at the state level, these terms are applied to the “General Fund,” a fund that you can think of as the state’s checking account from which it pays day-to-day expenses. Note that coming in and going out are phrases that connote FLOWS, events that take place over time. California budgets on an annual basis. If the inflows just equal the outflows, we say – again, using common English meanings – that the budget is balanced. So, balance is also a flow concept.

Just as with a checking account, at any moment in time, the General Fund will have a reserve in it. If you look at the reserve at the end of the fiscal year and subtract the reserve as it stood at the beginning, you will also see the surplus or deficit by simple arithmetic. Reserves act as a cushion for the inflows and outflows which may occur at different times. The reserve is a STOCK concept rather than a flow concept because it exists at a moment in time. State budget-speak often confuses stocks and flows. In addition, descriptions of allocations to programs in the state budget are sometimes fuzzy about years. Sometimes, allocations are for more than a single fiscal year and sometimes not.

Over time, the state has created what you can think of as savings accounts associated with the General Fund. These are other sources of reserves that for historical and accounting reasons in effect divide the reserves into different buckets. Apart from the General Fund reserve, there is the Public School account, the Safety Net account, and the Budget Stabilization Account (with the last sometimes referred to as the “rainy day” fund). If you want to know whether the state is running a net surplus or deficit, you need to calculate whether the sum of all reserves is rising during a fiscal year (a surplus) or falling (a deficit).

Now that we have these basic concepts, let’s apply them to the governor’s proposal. But keep in mind, actual budgets must be approved by the legislature and then signed by the governor in June. So, the legislature may have its own ideas about budgeting. And it is traditional for the governor to come back to the legislature in May with a revised budget proposal known as the “May Revise” which will reflect updated economic projections and political readings of what can be enacted.

The table below summarizes the governor’s plan:

Source: https://ebudget.ca.gov/FullBudgetSummary.pdf.

The first thing to note is that the budget proposal for 2023-24 is not “balanced,” whatever you may read in the news. When we combine the four reserves – General Fund reserve, Public School reserve, Safety Net reserve, and Budget Stabilization Account – we see that total reserves are projected to decline by a bit over $12 billion, i.e., a deficit of that amount. Put another way, revenues going into the General Fund and the reserve accounts will be less than spending out of those accounts to the tune of about $12 billion.

Until we get better historical data, we can’t be precise about what the projection for the current year 2022-23 is, but it looks as if there is a deficit this year on the order of around $30 billion. The General Fund reserve is dropping by $31 billion and the other reserves – based on some data from last year – don’t rise much to offset the decline. (These numbers are not on the table.)

Note also that the governor is proposing a nominal cut in spending from around $240 billion this year to $224 billion next year. So, although at his news conference, he kept emphasizing the preservation of various programs, somewhere there is a nominal cut of around $16 billion. Given inflation, the real cut is larger than that.

What about UC in all of this? According to the budget, “ongoing” spending at UC will rise from $4.4 billion to around $4.6 billion, a 5.9% nominal increase. But “one time” spending drops substantially so the total allocation to UC drops from around $5.0 billion to $4.7 billion, a 5.9% decline in nominal terms (and, of course, more when inflation is taken into account.)

The budget also requires UCLA to participate in a program to facilitate transfers from community colleges. It is unclear why UCLA in singled out among all the campuses for this treatment.

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