Preliminary May Revise Review

The governor released his May Revise budget proposal this morning. As usual, we caution blog readers about news accounts or official statements containing such words as "deficit" or "shortfall."

The big news is that as compared with January, there is little overall change. One factor that may have limited change is that as we have noted in our regular reviews of California weekly claims for unemployment insurance, signs of an actual recession are hard to perceive. Moreover, the income tax due date has been moved to October, so it is harder than usual to make judgments about future revenue. Normally, we would have April tax collections (with the income tax due date in April) as a data point on where revenue is going.

Finally, as was pointed out in the news conference for the May Revise, the state has ample cash on hand to avoid any need to go to the outside financial market to borrow short term to cover costs.

Below we summarize the budget for fiscal year 2023-24 which begins on July 1. There is a proposed overall deficit of around $15 billion when all reserves associated with the general fund are considered as compared with $18 billion in January. You will be told that the budget is "balanced" in news accounts. But in both the January and the May proposals, more money is going out than coming in, i.e., a deficit in the common usage of that word. Still, projected reserves at the end of 20223-24 are projected to be around 19% of expenditures. That's less than the projected 24% for the end of the current year, but still a large cushion by historical standards.

Source: https://ebudget.ca.gov/2023-24/pdf/Revised/BudgetSummary/SummaryCharts.pdf.

===

As for UC's budget, as expected there is little change from January. Some infrastructure is being shifted to UC bond financing with debt service on the borrowing to be paid by the state. About $4.8 billion of general fund spending is proposed. The following adjustments are noted:

SIGNIFICANT ADJUSTMENTS

• Shift Financing Approach for the UC Berkeley Clean Energy Campus Project and UC Merced and UC Riverside Campus Expansion Projects—Shift $498 million in current and planned General Fund support for the UC Berkeley clean energy campus project and UC Merced and UC Riverside campus expansion projects from General Fund to UC-issued bonds, and an increase of $33.3 million ongoing General Fund to support the underlying debt service on those bonds.

• Shift Financing Approach for UC Affordable Student Housing Grants—Shift approximately $437 million in current and planned General Fund support for UC affordable student housing grants from General Fund to UC-issued bonds, and reflect an increase of $30 million ongoing General Fund to support the underlying debt service on those bonds.

• Support for UC Division of Agriculture and Natural Resources — A shift of $4.8 million from UC's main appropriation to provide continued support for UC Agriculture and Natural Resources. This is roughly equivalent to 5 percent of the base increase provided at Governor's Budget less resources provided for enrollment growth.

• Ralph J. Bunche Center — An increase of $5 million one-time General Fund to support the Ralph J. Bunche Center for African-American Studies at UCLA.

• UC Riverside School of Medicine — An increase of $2 million ongoing General Fund to support the UC Riverside School of Medicine.

• UC Global Entrepreneurs—An increase of $2 million one-time General Fund to pilot an entrepreneur in residence project for foreign born entrepreneurs and UC students in support of job creation and fostering global talent for innovation in areas of need. This complements recent investments in immigrant talent and opportunity through efforts for youth, college students, workers and those pursuing professional licenses and entrepreneurship.

• Graduate Medical Education Backfill — An increase of $1.2 million ongoing General Fund to offset declining Proposition 56 revenue for a statewide grant program and maintain $40 million in total ongoing for graduate medical residency slots.

Source: https://ebudget.ca.gov/2023-24/pdf/Revised/BudgetSummary/HigherEducation.pdf.

The language about UCLA using a specific transfer mechanism seems to have disappeared.

A reminder that ultimately budgets are enacted by the legislature and that the May Revise is a proposal. There could be changes from what the May Revise contains. The governor has a line-item veto but because the Democrats dominate the legislature, the eventual deal tends to be worked out without use of such vetoes.