The May Revise

As noted in prior postings, yours truly is traveling so our analysis of the governor's May Revise budget was delayed. However, last Thursday, May 14th, the governor presented his revised budget proposal for the coming fiscal year, 2026-27. He will be termed out in January 2027 when the budget year is a little over 50% over, and his successor will have to deal with the rest of the year and come up with a budget plan for 2027-28.

The governor spent about an hour going over his proposal of which about 13 minutes was more devoted to his non-campaign for president in 2028. He then took about an hour for Q&A. 

Usually, in our past reviews of such proposals, we start with the macro and then go to the micro, i.e., UC. But let's do it in reverse this time. What about UC?

SIGNIFICANT BUDGET ADJUSTMENTS

• Base Funding Augmentation—The May Revision maintains the proposed increase of $254.3 million ongoing General Fund, representing a 5-percent base increase for the fifth and final year payment of the Compact. The May Revision also maintains the proposed increase of $96.3 million ongoing General Fund to provide partial funding of the fourth year Compact payment as scheduled in the 2025 Budget Act.

• Compact Funding Deferral—The May Revision maintains the planned one-time deferral of the 2025-26 Compact investment of $240.8 million, representing a 5-percent base increase in the fourth year of the Compact, to 2027-28. The May Revision also maintains the planned one-time 2025-26 deferral of $31 million to offset revenue reductions associated with the replacement of 902 nonresident undergraduate students enrolled at three campuses with an equivalent number of California resident undergraduate students, from 2025-26 to 2027-28.

• One-Time Base Deferral—The May Revision maintains the proposed delay of a one-time repayment of $129.7 million, representing a deferral of a one-time 3-percent base increase from 2025-26, from 2026-27 to 2027-28.

• Foster Youth Support Services—An increase of $1.5 million one-time General Fund to support First Star Academy Youth Cohorts at UC campuses.

Source: https://ebudget.ca.gov/2026-27/pdf/Revised/BudgetSummary/HigherEducation.pdf.

Translation: We have a multi-year "compact" with UC but we won't actually pay what is due. Instead, we will keep deferring part of what is due to the future when there will be some new governor and a new legislature and they might or might not honor it. Compact is not the same as contract. The latter is enforceable. The former isn't.

Of course, everyone understands this point. But the game is played by UC thanking the governor and then seeking more from the legislature. From UC President Milliken:

I’m deeply grateful to Gov. Newsom for his thoughtful leadership and sustained support of the University of California over the years. The UC funding included in the May revision will help ensure that the university remains affordable and accessible to California students. As the University of California faces ongoing federal funding uncertainty and increasing operational and labor costs, state funding for UC is more important than ever.  

We will continue to advocate for the resources necessary to help our hundreds of thousands of students succeed, and to support the faculty and staff who deliver the teaching, research, and patient care that Californians expect and deserve. I look forward to working with Gov. Newsom and the Legislature in the coming weeks to achieve a state budget that fully funds UC and improves the lives of every Californian.

Source: https://www.universityofcalifornia.edu/press-room/uc-statement-gov-newsoms-2026-27-revised-budget-proposal.

How effective will the UC advocacy be? The governor's May Revise for UC is about what the proposal was in January, with some tidbits added.* So the governor wasn't much affected. We will have to see what the legislature does in the next few weeks.

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*See https://ebudget.ca.gov/budget/m/2026-27/Department/6440.

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What about the macro?

Enough extra revenue (revenue above projections) came in thanks to AI and stock market gains to lead to a modest surplus for the current fiscal year.** Next year, however, total reserves fall rather than rise, i.e., a deficit. That isn't what the governor said during his presentation. But that is what his numbers say.

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**There are various reserve accounts associated with the General Fund (GF). Yours truly had to estimate the changes in the Public School and Safety Net accounts using figures for 2024-25 as enacted to calculate the change in those accounts to 2025-26. LAO, which has more access to data, reports a slight deficit for the current year rather than a small surplus:

https://ebudget.ca.gov/reference/MultiYearProjection.pdf. 

LAO also reports projected deficits out to 2029-30:

https://lao.ca.gov/Publications/Report/5187.

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NOTE: The governor's May Revise news conference can be seen at:

https://ia601802.us.archive.org/14/items/newsom-may-june-2026/newsom%205-14-2026%20May%20revise.mp4.