State Cash Report

The story of fiscal 2025-26, the year that ended last June 30th, was one of underestimating state revenues, as the latest report from the state controller illustrates.*

On the other hand, disbursements were more or less accurately forecast when the state budget for 2025-26 was enacted and overestimated at the time of the May revise.

The state still has a significant reserve of cash in various accounts, so the prospect of the state handing out IOUs anytime soon, as in the Great Recession, is nil. All of this can be seen on the table below:

We don't yet have the budgetary summary numbers from the Dept. of Finance for the current year 2026-27. Xavier Becerra, the de facto incoming governor (since California no longer elects statewide Republicans) will spend his first 6 months under the Newsom-enacted budget. The budget he will present in January 2027 for 2027-28 will largely have been put together by the Newsom team, given the pressures of timing. So, if he has very different priorities from Newsom with regard to UC - and there is no indication that he has - that would be a surprise. Surprises, if they occur for UC, are more likely to occur from changes in economic activity and the stock market than from political turnover in Sacramento.

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*https://www.sco.ca.gov/Files-ARD/CASH/June2026StatementofGeneralFundCashReceiptsandDisbursements.pdf.

You have to read between the lines

University of California President James B. Milliken... issued the following statement on the 2026–27 final state budget:

I am grateful to Governor Newsom and the state legislature for their ongoing support of the University of California reflected in this budget. As the state continues to deal with a difficult financial environment, we share a fundamental belief with California leaders that our university is an engine for social and economic mobility, scientific and medical discovery, and patient care that serves every California community. 

The 7% increase from the state goes a long way toward fulfilling the compact and providing the funding necessary to educate and invest in our students. 

__________________________________

Translation: "Goes a long way toward fulfilling the compact" = Less than the "compact" promised.

__________________________________

This is especially important given the sustained attacks against UC and funding cuts by the federal government over the past 18 months. I want to specifically acknowledge and thank Governor Newsom for his unwavering support for the university throughout his tenure. His final budget again demonstrates his belief in the value of public higher education in California and in our hundreds of thousands of students, faculty, and staff.

Source: https://www.universityofcalifornia.edu/press-room/uc-statement-2026-27-final-state-budget.

"Budget" passed by deadline

As we noted yesterday, June 15 was the (midnight) budget deadline for the legislature to pass a "budget." And it did so. However, as we also noted, the budget that was passed isn't the final version. Talks continue with the governor, with the primary sticking points involving spending on health care issues (and not about higher education or UC). Meanwhile, the governor's attention is being diverted by an investigation by the feds which he forcefully argues is politically motivated. However, there is just enough stuff about his wife's nonprofit activities to open the door to more revelations. The governor yesterday released a kind of preemptive Checkers speech (Google It!) in which he demanded that the feds leave his wife and kids out of it.*

In short, there is likely to be more drama in Sacramento, budget and nonbudget, but with little ultimate effect on next year's UC budget.

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*The speech may be seen at:

https://ia601802.us.archive.org/14/items/newsom-may-june-2026/newsom%206-15-2026%20FBI%20investigation.mp4. 

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More information on the budget negotiations is at:

https://www.sacbee.com/news/politics-government/capitol-alert/article316141655.html.

More on the Assembly

Last week, we took note of an upcoming Assembly meeting on June 11. Yesterday, we referred to one aspect of that meeting pertaining to UC admissions and the SAT/testing issue. As we also noted yesterday, yours truly could attend the full meeting due to medical issues. However, there was a segment on external political developments affecting UC as well as AI which has both political and academic implications.

Provost Newman expressed concern with regarding proposed federal policy that would require political evaluation of grants. She also noted that despite UC's various court victories, the flow of federal funding for research has not resumed.

There was a separate segment on state matters. Both houses of the legislature were proposing state budgets for next year that would be more generous to UC that the May Revise. What the final deal will be remained open. There was some language in the proposed bills that made funding contingent on some immediate changes in admission that can't happen since the admissions cycle for fall has already occurred. Apart from the proposed state research bond ballot measure which UC is supporting, it is also trying to be included in a proposed state housing bond.

The midnight state budget deadline approaches

To meet the constitutional deadline, the legislature has until midnight tonight to pass a "budget." The Senate version of what is currently under consideration can be found at the link below:

https://sbud.senate.ca.gov/system/files/2026-06/legislatures-version-of-the-budget-summary.pdf

You will note, if you go to that link, that the higher ed proposals deal with the community colleges for the most part, not with UC.

The Assembly version has more detail. See:

https://abgt.assembly.ca.gov/system/files/2026-06/floor-report-of-the-2026-27-budget-june-11-2026.pdf

Below is the summary for UC:

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University of California

• Provides $254.3 million ongoing General Fund for the fifth and final year of the Governor’s Compact funding of the UC. Also includes $96.3 million for partial funding of the fourth year, as expected based on the 2025 budget agreement.

• Extends the repayment of a one-time 3 percent funding reduction of $129.7 million included in the 2025 budget by one year from 2026-27 until 2027-28.

• Maintains a 2025 Budget Act agreement to defer the 2025-26 compact’s $240.8 million ongoing General Fund to support a 5% base increase until 2027-28. As part of the deferral arrangement, the state would plan to provide UC with one-time back payments in 2026-27 and 2027-28.

• Maintains a 2024-25 Budget Act agreement to defer $31 million ongoing General Fund to continue the 5-year program to replace nonresident students with California students at the Berkeley, Los Angeles and San Diego campuses until 2027-28.

• Provides $1.5 million General Fund to support the First Star Academy Youth Cohorts at UC campuses, as proposed in the May Revision.

• Includes $9 million one-time to continue the Cal-Bridge program.

• Adds $750,000 one-time for the ENLACE program.

• Provides $3.4 million one-time for the University of California Menopause Centers of Excellence.

• Includes $5 million one-time for the UCLA Center for Reproductive Health, Law, and Policy.

• Adds $3.6 million one-time to expand Prime RX program at UC San Diego.

• Appropriates $1.8 million one-time to UC Berkeley for the ACCESS optometry program.

• Includes $3 million one-time to UC San Diego for a workforce development initiative.

• Adds $6.5 million one-time to UC for the Voting Right’s Program.

• Provides $6.5 million one-time to UCLA for the Ralph J. Bunche Center

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In essence, various pet programs are listed for additional funding. Various deferrals continue. As noted in prior postings, even if a budget is passed, revisions are possible as the Democratic legislative leaders continue to negotiate with the governor.

This too shall pass...

In order for the Legislature to pass a "budget" by June 15 - the constitutional deadline, it actually had to have something available to pass yesterday, June 12, to meet legislative rules. Something was made available which you can find at:

https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202520260AB109.

If you go to the above link, you will find endless language appropriating funds for various purposes. To see the UC portion, search for "6440-001-0001" and keep scrolling down. (There are also scattered other references to UC elsewhere in the budget.) Once the legislature has passed the budget bill - probably along with associated "trailer bills" that relate to the budget, it has done its constitutional duty. The governor, however, could in principle remove items using his line-item veto. But in today's world of one-party rule, it is more likely that further discussion will occur between the Democratic leaders and the governor with further adjustments to the budget forthcoming before July 1.

The Budget Process

After having received the governor's May Revise budget proposal for 2026-27, the two houses of the legislature have been formulating their own versions. Under the state constitution, the legislature must pass a budget by June 15 or be penalized. But it is left to the legislature to define what a "budget" is, thanks to court decisions. So it is possible for discussions with the governor to continue after that date, if the legislature passes something labeled a budget. 

Because Democrats dominate the legislature, it is essentially Democrats that matter in the process. Senate Democrats have produced a budget document that is mainly a shopping list of proposals without a complete tabular presentation. It appears from the document that reserves will be falling under their plan (i.e., the budget is in deficit). 

The higher ed portion doesn't mention UC and mainly concerns adjustments for community colleges. It does contain an increase in the Middle Class Scholarship program which has some benefit for UC indirectly. You can find the Senate Democrats' document at:

https://sbud.senate.ca.gov/system/files/2026-05/may-28-2026-foundation-for-the-future-senate-version-of-the-budget_0.pdf.

In theory, the legislature could pass a budget and the governor could veto it. That is not going to happen. The governor could use his line-item veto to trim some elements. However, what is more likely to occur is that the two houses and the governor will get together, reconcile differences, and then enact a budget, even if the actual process extends beyond June 15.

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.

Celebrating Bond

Bill authorizing $23 billion bond to fund California scientific research clears key Senate committee

UC Office of the President 

Senate Bill 895, legislation authored by Sen. Scott Wiener and sponsored by the University of California to help fund scientific research, passed the Senate Natural Resources and Water Committee on a 5-2 vote yesterday. As UC faces one of the most significant disruptions to its research enterprise in its 158-year history, this bipartisan legislation would place a $23 billion bond to fund scientific research across California on the November 2026 ballot.

If passed by voters, the measure would help preserve research central to protecting jobs, sustaining lifesaving medical advancements, supporting the health of California communities and maintaining the state’s global leadership in innovation. Prior to the hearing, researchers and faculty submitted over five dozen letters on behalf of the University, and the UC Advocacy Network sent more than 5,000 emails to lawmakers in support of SB 895 and the critical research funding the bill would provide...

Full news release at https://www.universityofcalifornia.edu/press-room/bill-authorizing-23-billion-bond-fund-california-scientific-research-clears-key-senate.

Bond - Part 2

Bill to place a $23 billion bond to fund scientific research in California on the November ballot clears Senate Health Committee

UC Office of the President

University of California-sponsored legislation, SB 895 by Senator Scott Wiener, passed the Senate Health Committee on a 9-2 vote... March 25. As UC faces one of the most significant disruptions to its research enterprise in its 158-year history, this bipartisan legislation would place a $23 billion bond to fund scientific research across California on the November 2026 ballot. If passed by voters, the measure would help preserve research central to protecting jobs, sustaining lifesaving medical advancements, supporting the health of California communities and maintaining the state’s global leadership in innovation.

“In all my time at UC, I have never seen a more precarious situation for scientific research and greater challenges to our economy, our workforce development, and most importantly our public health,” Kim Elaine Barrett, Ph.D., vice dean for Research at the UC Davis School of Medicine, said at yesterday’s hearing. “Research at UC generates as much as $55.2 billion in economic activity every year — medical breakthroughs alone generate approximately $13 billion in economic activity across California. California has been a leader in scientific inquiry and should invest in its ability to protect jobs, health care, and the economic future of our state.”

Prior to the hearing, over five dozen letters from researchers and faculty were submitted on behalf of the University and over 2,500 emails were sent to lawmakers in support of SB 895 and the critical research funding the bill would provide...

Full news release at https://www.universityofcalifornia.edu/press-room/bill-place-23-billion-bond-fund-scientific-research-california-november-ballot-clears.

Want something to worry about?

The Legislative Analyst's Office has looked back at periods when the stock market dropped suddenly to see what happens to income tax revenue. There has been concern that the AI boom might turn into a bust, similar to the dot-com boom and then bust. When you look back at that period, income tax revenue dropped sharply, but with a lag. (Taxes are paid on past earnings.) Revenues did not recover for a prolonged period:

The adverse consequences of such an event on UC's budget are evident. So, if you want to worry about something, you can add this to your menu.

The LAO report is at https://lao.ca.gov/LAOEconTax/Article/Detail/852.

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And there's this:

https://www.nytimes.com/2026/03/16/opinion/financial-crisis-private-credit-ai-iran-taiwan.html

LAO on UC

The Legislative Analyst's Office (LAO) goes to work after the governor presents his January budget analyzing the key features of the proposal and suggesting alternatives. Basically, in broad terms, the LAO seems upset that UC spending in real terms is rising - which would seem to be the expected result of the legislature's insistence on increasing enrollment. The LAO has never been keen on multiyear "compacts" (even though these are often pushed aside in periods of budget stringency). To save money, it suggests less substitution of residents for out-of-state students (who pay higher tuition). But squeezing out-of-state enrollment to make more spaces for Californians seems to be a major legislative commitment. In any case, LAO seems to want to achieve lower state spending on UC by one means or another.

LAO acknowledges problems UC faces with regard to its conflict with the federal government, but seems to believe that maybe - in the end - the budgetary implication will turn out to be less dire than initially expected.

Excerpt from the LAO report on UC:

Over the Past Ten Years, UC Spending Has Outpaced Inflation. Over this period, core spending grew at an average annual rate of 4.3 percent, compared to inflation growing by 3.3 percent. This faster growth reflects increases both in student enrollment and underlying cost drivers. UC’s largest cost driver is employee compensation, accounting for about 75 percent of UC spending in 2024‑25. Growth in employee compensation has been mostly driven by the expansion of UC’s workforce.

Recommend Reducing or Eliminating Base General Fund Increase. The Governor proposes a $351 million (7 percent) base increase for UC in 2026‑27 and assumes UC generates $273 million in additional tuition revenue. Given the state’s fiscal outlook, the Legislature could provide a smaller base increase aligned with inflation. Alternatively, it could provide no base increase to help manage the structural deficit and reduce pressure for more significant reductions over the coming years. Even without a base increase, UC’s core funding would grow by 3.5 percent.

Recommend Using Available One‑Time Funding to Retire Payment Deferral. In 2025‑26, the state began deferring a $130 million General Fund payment from one fiscal year to the next. If one‑time funding becomes available, we recommend the Legislature make retiring this payment deferral a high priority. Retiring the deferral would return UC’s state payments to their regular schedule, eliminate the associated debt obligation, and reduce state budgetary pressures in the out‑years.

Recommend Removing Out‑Year Commitments. Under the Governor’s budget, the state commits to providing UC with a one‑time back payment of $241 million in 2027‑28, followed by a 3 percent ongoing base increase of $144 million in 2028‑29. We recommend removing these out‑year commitments. The Legislature could determine each year how much support to provide UC in light of overall fiscal conditions and its budget priorities.

Recommend Funding Enrollment in 2026‑27 at Original Target, Separately From Base Increase. The Governor’s budget maintains the original resident undergraduate enrollment target established in the 2025‑26 Budget Act for 2026‑27, a level that UC expects to exceed by more than 3,000 students. Given the projected budget deficits and moderating demographic pressures, we recommend the Legislature maintain the original target set for 2026‑27. We further recommend the Legislature fund enrollment growth separately from, and in addition to, any base increase to enhance transparency and accountability. For 2027‑28, we recommend holding enrollment flat to help UC avoid the potential negative programmatic impacts of adding students without associated funding.

Recommend Pausing the Nonresident Replacement Plan. The Governor’s budget provides $61 million ongoing General Fund to replace a certain number of nonresident students with resident students at three high‑demand campuses. We recommend an alternative that funds the same number of resident students while leaving the number of nonresidents flat. This alternative costs $36 million less than the Governor’s proposal. Given all three high‑demand campuses have added resident students beyond replacing nonresidents the past few years, they appear to have associated physical capacity.

Full LAO report: https://lao.ca.gov/Publications/Report/5143.

LAO Counsels Legislature to Save Added Revenue

As blog readers will know, Gov. Newsom's January budget proposal was based on more optimistic revenue forecasts than the Legislative Analyst Office was providing. But then current revenue seemed to be outpacing both the governor and the LAO forecast.

The LAO has not retreated from the idea that the outyears still contain a structural deficit, but it concedes that there is likely to be more revenue by the time of the May Revise than forecast. So it now is counseling the Legislature to put away the above-forecast revenue into reserves, i.e., save for a rainy day.* Note that some of the above-forecast revenue automatically ends up in K-14 due to Prop 98.

Whether saving for a rainy day will appeal to the legislature is another matter. As we have noted in prior postings on this blog, UC should be pushing to get its share.

One thing to note in that regard is that the LAO takes the view that paying down debt is an alternative to saving for a rainy day. And, in listing various debts the state has, it includes the deferral of a payment due under the "compact" with UC to 2027-28. Translated: The legislature could consider not deferring the payment and allocating the money now. That appears to be the position taken by UC President Milliken we noted yesterday.

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*https://lao.ca.gov/Publications/Report/5133.

Compact Thanks

UC President Milliken is still thanking the governor but also asking the legislature for full "compact" funding. (See below.) That's wise. But the problem with the compact is that the legislature was not a party to it. Still, as we have been noting, revenue has been coming into the state treasury ahead of forecast estimates. So, making hay while the sun shines is appropriate.

UC President James B. Milliken urges state lawmakers to fuel economic growth through strategic investments in UC

UC Office of the President, News Release

In remarks... to the California State Assembly Budget Subcommittee on Education Finance, UC President James B. Milliken expressed gratitude for Gov. Newsom’s January budget proposal, which includes $350 million in ongoing funding and a $130 million deferral restoration for the University. President Milliken acknowledged the vital role of state support for UC and advocated for a fully funded state compact to support the University’s record-breaking California resident enrollment.

President Milliken’s remarks acknowledged ongoing uncertainty with federal funding for UC. If UC were to lose federal research funds, the University would need $4 billion to $5 billion annually to sustain reduced core operations and research. President Milliken emphasized UC’s profound impact on California’s economy as the University continues to work with state and legislative partners ahead of the May budget revision.

Below are some key highlights from President Milliken’s remarks, as delivered: 

“(T)alent is universal — but opportunity is not. Higher education, particularly public higher education, is the best vehicle we know of to match talent with opportunity. When we’re successful, we achieve something truly meaningful. We become the best engine of social and economic mobility there is. We are able to change the trajectory of not only an individual, but of families and communities.”   

“The work that our community colleges, CSU, and UC do is changing the lives of hundreds of thousands of Californians every day.”  

“UC’s health locations served patients from 99% of California ZIP codes last year; our research generates four inventions a day, fueling California’s leading industries; and the University employs more than 265,000 people, contributing $82 billion to the state’s economy. The breadth and depth of UC is unparalleled in higher education.”   

“The federal government continues to reduce its support of higher education and research. Federal policy changes and reductions to financial aid and student opportunity programs continue to threaten our ability to serve all Californians.”  

“Despite the declining federal support, UC’s impact continues to grow. We reached a remarkable milestone this past fall, enrolling more than 300,000 students for the first time in our history. This includes over 200,000 California resident undergraduates, also a record.” 

"The Governor is proposing an important step to fund both the final year of the Compact payment and a portion of the fourth-year payment. I’m hopeful we can build on this year’s progress to receive the full Compact funding.” 

“This proposal is a very positive first step. I’m grateful for the unwavering commitment the Governor and you, our legislative leaders, have shown to the students in the university that serves so many Californians.”  

“As stewards of UC in this critical moment in history, the Board of Regents, our talented faculty and staff, and I plan to meet the challenges together, guided by the values that have shaped UC across generations.”

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Source: https://www.universityofcalifornia.edu/press-room/uc-president-james-b-milliken-urges-state-lawmakers-fuel-economic-growth-through.

Get It While You can

The state controller's cash report is out for the first seven months of fiscal 2025-26 and - guess what? - revenues are running ahead of the forecast made at the time the current state budget was passed to the tune of $15 billion. Indeed, revenues are running ahead of the updated forecast made last month when the governor made his budget proposal for next year to the tune of $6.9 billion.

Now, we all know that much of this overage seems to be fueled by AI spending, which filters into tax revenues by way of the stock market and capital gains. And we all know that it could be a bubble and that - if it is - revenues will slump when it bursts, i.e., we could have a repeat of the dot-com boom/dot-com bust. If that happens, revenues will drop and a crisis will occur. 

We know, in addition, that the Legislative Analyst's Office keeps warning of a "structural" budget problem in the years to come. And blog readers will know that even with the governor's optimistic forecast for the economy, we are currently running a deficit (total reserves of the general fund are being drawn down).* We know from the dot-com boom/bust episode that if the state is not socking away a lot of cash at the peak of the cycle, a downturn will be especially painful.

With all of that knowledge, however, it is unlikely that the legislature is going to accept austerity now when it sees extra revenue coming in. And the governor, who is running for president and is termed out, seems unlikely to want to play Dr. No. If he can just make it to next January without a fiscal mess developing, he can say it didn't happen on his watch, and leave whatever problems that follow to his successor. 

So, the best advice yours truly can give to UC lobbyists is "Get It While You Can" - because every other interest group will be seeing what I see.

Or direct to https://www.youtube.com/watch?v=mtj9w2gYzV4.

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*https://uclafacultyassociation.blogspot.com/2026/01/the-no-hassles-while-im-in-office-state.html.

Watch the Regents Meetings of Jan. 21, 2026

We are catching up with the Regents meeting of last week. Note that we already covered the termination of a tenured UCLA faculty member.* And we covered the previous day earlier this week.** The Board meeting began with public comments. Topics included UC-Davis women's sports, Teamster bargaining, AFSCME bargaining, grad student support especially international students/use of emergency funds, AI-generated sexual abuse, rent increases by a firm owned by Brookfield Investments, non-cooperation with Trump administration, essential needs of undocumented students, demand to divest from Blackrock and Blackstone, student mental health, Native American remains repatriation, antisemitism, termination of a tenured faculty member, Turning Point and other protests, support for a science center, and NIL for athletes who are injured. There was a brief AFSCME demonstration at one point.

Following public comments, the student president of UCSA discussed various topics including transfer students being below the targeted percentage and concerns about the proposed new faculty disciplinary process. The grad student president raised the issue of sharing of student data with the feds and rent burdens. Thereafter, a new UC-Santa Cruz fundraising campaign was endorsed. Then the above-mentioned faculty termination hearing was held.

At Finance and Capital Strategies, there was a report on the governor's January budget proposal which we have discussed previously. It was noted that the proposal was based on optimistic revenue projections which might not work out. It was also noted that there was potential in the legislature for bonds to finance research and capital projects. Regent Cohen raised the issues of the longer-term fiscal outlook, i.e., beyond the upcoming year. Regent Park asked whether there was a mechanism for developing a new compact with whoever was elected governor in November 2026. (The current compact expires after 2026-27.) 

At Academic and Students Affairs, professional tuition requests were approved for selected programs. Then the proposed faculty discipline process was approved. Coming up with a new process was mandated by the legislature. The new version was approved by the Academic Council. The consultation process with faculty and the Regents was noted. Under the new process, there are specified time limits for the various steps, a systemwide faculty pool so that there will always be faculty available to staff the process, and more precise language and definitions. The new process was approved. Regent Leib requested a report on the process after two years. Then the full board endorsed the various committee endorsements.

As always, we preserve Regents meetings since the Regents have no policy on duration of retention. You can find links to the meeting below:

General site for January 21: https://archive.org/details/1-regents-board-1-21-2026

Full board (initial meeting): https://ia600306.us.archive.org/22/items/1-regents-board-1-21-2026/1-Regents%20Board%201-21-2026.mp4

Finance & Capital Strategies, Academic & Student Affairs, final board session: https://ia800306.us.archive.org/22/items/1-regents-board-1-21-2026/2-Regents%20Finance%20and%20Capital%20Strategies%2C%20Academic%20and%20Student%20Affairs%2C%20Board%201-21-2026.mp4

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*https://uclafacultyassociation.blogspot.com/2026/01/its-hard-to-keep-lid-on-part-10.html; https://uclafacultyassociation.blogspot.com/2026/01/its-hard-to-keep-lid-on-part-9-and-now.html.

**https://uclafacultyassociation.blogspot.com/2026/01/watch-regents-meetings-of-january-20.html.

Bubble Worries

As we have noted on this blog, state revenues have come in ahead of projections thanks - it appears - to capital gains tax receipts related to AI-related stock.

The governor based his January budget on good revenue news continuing and was criticized by the Legislative Analyst and others for not taking account of the possibility that an AI bubble will burst, or at least the good revenue news won't continue.

If you want to worry about all of that, and what it could mean for the UC budget, consider this from the Washington Post:

Big Tech is taking on record levels of debt, marking a new chapter in the artificial intelligence boom as names like Oracle, Alphabet and Meta pour big money into massive data centers and the energy systems needed to run them.

Technology companies issued a record $108.7 billion in corporate bonds in the last three months of 2025, according to data from Moody’s Analytics. That’s the largest total for any quarter and roughly double that of the previous three months. And the trend is extending into 2026: Some $15.5 billion in bonds were issued in the first two weeks alone.

For now, investors are assuaged by the eye-popping cash flow numbers from major tech companies. In the past 20 years, Big Tech companies including Google, Microsoft, Meta, Amazon and Apple have built what are arguably the most profitable business models in history. In the third quarter, Google brought in just over $100 billion, with a margin of over 30 percent. All five are trillion-dollar companies, as are such AI darlings as Nvidia, Broadcom and TSMC.

But some economists and business analysts say the massive new bonds are spreading risk throughout the economy, with hundreds of billions being spent on a technology whose profit-making potential is not yet clear.

“It’s a lot of debt, and a lot of it all of a sudden,” said Mark Zandi, chief economist for Moody’s. When companies are funding risky ventures with debt “it does put the broader financial system at risk. If the financial system is at risk, then the broader economy is.” ...

Full story at https://www.washingtonpost.com/business/2026/01/23/ai-corporate-debt-record/.

UC Should Cash the Check Quickly

The Legislative Analyst's Office - LAO - has provided a (critical) review of the governor's recent budget proposal for 2026-27 [excerpt]:

...In the budget summary and presentation, the Governor and administration officials have acknowledged the downside risk to the state’s revenue picture. For example, in the budget summary, the administration points out that:

(1) much of the revenue surge is attributable to investor enthusiasm around artificial intelligence,

(2) history suggests these gains are not sustainable, and 

(3) the dominant risk to the budget is the stock market and asset price declines. 

…But Governor Proposes No Material Actions to Address Downside Risk... 

Full review at https://lao.ca.gov/reports/2026/5101/2026-27_Budget_Overview_011226.pdf.

As we noted in our posting on the budget proposal, it is basically focused on avoiding problems for now and getting the governor to the end of his term without having to take drastic measures. His successor, whoever that turns out to be, will have to clean up, if that proves to be necessary, and the governor will be able to pursue his presidential ambitions and say it didn't happen on his watch.

Note that the governor deviated from his past practice and left it to his finance director to handle the news conference at which the budget proposal was unveiled. He thus avoided the kind of nasty questions that the LAO has asked. Reporters did ask the finance director questions about budget sustainability, but the answer was we plan to look at such unpleasant matters in the May Revise.

Yours truly would advise UC to cash the check as quickly as possible.

The No-Hassles-While-I'm-in-Office State Budget Proposal

As blog readers will know, Gov. Newsom decided his big final speech should be the State of the State address and left the budget presentation yesterday to his finance director Joe Stephenshaw.

You will read in news coverage that the budget is "balanced." That is California budget-speak. Budgets that pull down reserves are not balanced in common English usage and the proposal pulls down reserves. It essentially relies on the extra revenue (compared with estimates made when the current budget was enacted) that has accumulated as added reserves in the general fund (GF).

It pulls down that reserve in the general fund by around $21 billion and puts about $3 billion in the "rainy day" fund (Budget Stabilization Account or BSA). The Public School reserve is also largely drained. The bottom line is a deficit of about $18 billion. All of these estimates are based on underlying economic forecasts which verbally acknowledge that the added revenue is coming largely from capital gains in the stock market associated with the AI boom, but don't directly reflect what might happen if the boom becomes a bust. 

In addition, the current year - when you sum up all the reserves associated with the general fund - shows a deficit of over $5 billion. Total spending next year rises over 5%, i.e., more than inflation is likely to be. We show these results on the table below:

Source: https://ebudget.ca.gov/2026-27/pdf/BudgetSummary/SummaryCharts.pdf. To estimate surpluses and deficits in the Public School, Safety Net, and BSA, I used estimates from the enacted budget of the current year (2025-26) from https://ebudget.ca.gov/2025-26/pdf/Enacted/BudgetSummary/SummaryCharts.pdf. Those estimates may differ from what the Dept. of Finance now has by a bit, but not enough to matter for the general story.

---

During the presentation news conference, Finance Director Stephenshaw repeatedly emphasized that the Legislative Analyst's Office (LAO) is using more cautious revenue estimates and that, if revenue problems arise from the stock market, the May Revise budget will take account of them.

What about UC's allocation? The official numbers show a general fund allocation this year of about $4.9 billion rising to $5.4 billion in the coming fiscal year. So it was unlikely there would be complaints from UC. There is a verbiage about the "loans" to UC that were made to avoid actual cuts and that the loans seem to roll over next year. It's hard to disentangle the details from the fuzzy description. But, again, UC was unlikely to squawk (as it did last year when cuts were on the agenda). Instead, there was the more usual thank-you for UC President Milliken:

UC statement on Gov. Newsom’s 2026–27 state budget proposal

UC Office of the President, January 9, 2026

I am deeply grateful to Governor Newsom and our legislative leaders for their steadfast support of the University of California. Despite ongoing financial challenges for the state, they have remained committed to California’s students. Working together, we’ve kept a UC education affordable and accessible, advancing opportunity across the state. We’ve enrolled a record-breaking 200,000 California undergraduates and provided the financial support that allows 64 percent of California students to graduate with no student debt. Our total student enrollment of 301,093 for fall 2025 is also a new record.

The budget introduced today by Governor Newsom continues to provide critical support for the University and our students. State support is more important than ever, as we face tremendous financial pressures stemming from rising costs and unprecedented federal actions. UC campuses rely on funding stability to serve students and maintain the academic and research excellence that has made UC the world’s greatest research university. An investment in UC is an investment in California’s future. I look forward to our ongoing partnership with Governor Newsom and the Legislature to ensure that our students have what they need to succeed at UC and beyond.

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

The bottom line on the budget proposal is that the governor does not want to deal with complaints and attacks from the legislature and the various state interest groups for the remainder of his term. How kind the gods of the stock market will turn out to be remains to be seen.

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You can see the budget presentation at:

https://ia800106.us.archive.org/0/items/newsom-1-1-2026-new-year/Finance%20Director%20Joe%20Stephenshaw%20presents%20Governor%27s%202026-27%20budget%20proposal%201-9-2026.mp4. (It starts at minute 2.)

Yesterday's State of the State: Little Concrete on Higher Ed

Yours truly watched the State of the State address of the governor to the legislature (because you probably don't want to spend almost an hour doing so). There was little more said than occurred in the news release that we noted yesterday about the governor's plan to consolidate state education policy. 

The governor had nice things to say about UC - Nobel prizes, etc. - but, again, said nothing about the what his budget proposal will contain. He did note, as blog readers will know, that state revenues were up compared to the forecast made last June when the current budget was enacted.

Since this was the governor's last State of the State, most of it was devoted to past accomplishments with promises of good things to come.

You can see the State of the State at the link below. The governor's remarks begin around minute 37.

https://ia800106.us.archive.org/0/items/newsom-1-1-2026-new-year/newsom%201-8-2026%20State%20of%20the%20State%20address.mp4.

Republican response at:

https://ia600106.us.archive.org/0/items/newsom-1-1-2026-new-year/Republican%20response%20to%20State%20of%20the%20State%201-8-2026.mp4.