Preliminary Overview of the Brown Budget

The Brown budget, based on its budget documents, can be rearranged to break down the problem into manageable pieces. I cannot disentangle “revenue and transfers” – a mischievous term because of the word “transfers” – from what we think of as revenues (taxes, fees, and a few miscellaneous sources). Moreover, the “fund balance” in the general fund is not quite the same as a reserve. (To get the reserve, subtract $770 million from every entry below labeled “fund balance” on the tables.) But the breakdown below will help. (Apologies for odd formatting that the blog program creates.)

Highlights

First, Brown did not follow the strict Budget from Hell strategy. Instead, his budget assumes voters will approve extension of temporary tax increases for 5 years. These increases were enacted in Feb. 2009 and an extension was rejected by the voters in May 2009. The governor’s explanation was that to give the voters a Budget from Hell would open him up to the accusation that he was holding a gun to their heads. He was asked why voters would approve tax extensions now when they rejected them in the past. Essentially, he talked about context.

Second, the governor sidestepped certain controversies about how to get the issue on the ballot to voters. (See earlier posts on this blog about the 2/3 problem.)

Third, the governor is proposing a total abolishing of Community Redevelopment Agencies as part of a mechanism for freeing up some property tax from which the state would benefit, at least for a year. There will be well-financed howls. The funding for such agencies is protected by an earlier ballot proposition, but the legal argument apparently is that the state can totally abolish them – in which case there are no agencies for the proposition to protect. Look for lawsuits. (There are also concerns about bonds previously issued by the agencies. Assurance was given that these bonds would be safe and paid off.) The governor also said he would protect K-12, but that meant protecting the nominal dollar allocation – which is less that Prop 98 would normally provide. Will CTA and other education unions go along? Even if they go along grudgingly, will they help finance a campaign for approval of tax extensions?

Fourth, as you can find in a previous post, he is taking $500 million from UC. (And another $500 million from CSU.) Presumably, this cut is from what UC would get given its enrollment. Brown is advocating pay cuts for state employees under his direct jurisdiction. Would UC keep its employees exempt, were that to occur?

In short, lots of political and legal questions are raised by the budget plan. And there is not a lot of time for getting the issue before the voters.

A video of the media conference is available at https://www.calchannel.com/channel/viewvideo/1939

Numbers

Let’s look at what the governor said would happen if we did nothing. Nothing would include spending on autopilot plus the expiration of the temporary tax increases. Note that some of the expiration of these temp-taxes has occurred as of Jan. 1, so we are talking about a reinstatement.

No Change (Spending Autopilot; Tax Increases Expire)

……………………………………………………..Current Year….Next Year

$ Billions……………………………………………….2010-11…….2011-12

——————————————————————————————

Fund Balance Beginning………………………………….-$5.3……………-$7.4

Revenue & Transfers………………………………………..90.7…………….83.5

Expenditures…………………………………………………..92.8…………….100.7

Surplus or deficit………………………………………………-2.1……………..-17.2

Fund Balance End…………………………………………….-7.4……………..-24.7

———————————————————————————

Proposal Including Spending Cuts & Tax Extensions

…………………………………………………….Current Year….Next Year

$ Billions………………………………………………2010-11…….2011-12

—————————————————————————————–

Fund Balance Beginning………………………………….-$5.3…………..-$3.4

Revenue & Transfers………………………………………..94.2…………..89.7

Expenditures…………………………………………………..92.2…………….84.6

Surplus or deficit………………………………………………-2.1…………….+5.1

Fund Balance End…………………………………………….-3.4……………..+1.7

Details need not add to totals due to rounding.

So what has happened here? We had a debt from past deficits of over $5 billion in the general fund which was handled by borrowing, internal and external. This current year, we continue to run a deficit adding to the debt. But with the proposal, we have a little bit of spending reduction and more revenue from the extension of the expired temp-tax (the income tax) as of Jan. 1. So the current year deficit is reduced. If we did nothing, we would run a major deficit next year due to tax expiration and programmed spending increases. There is still a revenue & transfer reduction from this year to next, even with the proposal. Some of that may reflect the sale of state office buildings that was in the current budget but is on hold. I don’t know the full story, however. There is also a nominal spending reduction of over 8%. So in inflation-adjusted terms, the cut is over 10%.

As more comes out, I will post the new info. In the meantime, be prepared for the usual confusing media stories talking about such undefined terms as shortfalls, gaps, holes, and “the” problem.

The actual budget document is at http://www.ebudget.ca.gov/pdf/BudgetSummary/FullBudgetSummary.pdf

UPDATE: UC President Yudof issued a statement to UC faculty and employees in response to the budget plan:

January 10, 2011

Colleagues:

I wanted to reach out to each of you personally today to share the news
that the Governor’s proposed budget for the 2011-12 fiscal year includes
deep cuts to the University of California. While this news is not a
surprise given the state’s financial crisis, I recognize that it means
additional sacrifice for all members of the UC community, who have
already sacrificed much.

You are the heart and soul of this University, and it will take all of
us, working together, to find a way to meet these cuts while still
maintaining the core academic and research mission. I will share with
you more specific budget information as we get it and to seek your
participation as we work through this difficult situation centrally and
on the campuses. Clearly, it’s time for us to engage Californians in a
discussion of exactly what UC means to the future of this state, and
thus I am forwarding you the below response to the Governor’s budget I
have issued.

Sincerely yours,

Mark G. Yudof

—-
Monday, January 10, 2011
University of California Office of the President

In response to Gov. Brown’s proposed budget, released today, University
of California President Mark Yudof issued the following open letter to
California:

This is a sad day for California. In the budget proposed by Gov. Brown,
the collective tuition payments made by University of California
students for the first time in history would exceed what the state
contributes to the system’s general fund. The crossing of this threshold
transcends mere symbolism and should be profoundly disturbing to all
Californians.

Early and enduring support for the University of California has been
critical to the state’s success, seeding the world’s eighth largest
economy, shaping its society and serving its citizenry in myriad other
ways. California emerged as the Great Exception, to borrow Carey
McWilliams’ phrase, in large part because of this investment, made
across generations by all California taxpayers in the service of a
common good.

Undeniably, the governor’s hand has been forced. He has produced, as he
calls it, a tough budget for tough times, and the university will stand
up and do all it can to help the state through what is a fiscal,
structural and political crisis. There can be no business as usual.

To that end, I will be giving each of the system’s 10 chancellors
specific budget reduction targets and asking them to develop and report
back to me within six weeks their plans for meeting them. We will do the
same at the system’s central office. I then will go to our governing
Board of Regents with a detailed scenario of what steps would be
required to absorb a $500 million reduction – a reduction that will take
the state’s annual per student contribution to $7,210, compared to the
$7,930 to be paid by students and their families.

Precision is difficult with a reduction of this magnitude, but every
effort will be made to protect the quality that has made the University
of California – and the state it serves – the envy of the world. My
intent is to preserve the core academic and research mission as much as
possible. My preference at this point, and my sense of where the Board
of Regents stands on this issue, is to not seek an additional fee
increase; that said, I cannot fully commit to this course until the
Board and I have assessed the impact of permanent reductions on
campuses. I also will attempt to maintain, if feasible, the programs of
financial aid that are so crucial to our public mission of serving all
qualified California students, regardless of family income level.

But let me be blunt: This won’t be easy, and all possible remedies must
be considered. The cuts the governor proposes will require sacrifice,
pain and courage. Already we are working hard to streamline
administrative functions, looking to create $500 million in savings
within the next few years. While we are striving to realize the savings
as quickly as possible, it still won’t be enough. With the governor’s
budget, as proposed, we will be digging deep into bone. The physics of
the situation cannot be denied – as the core budget shrinks, so must the
university.

All of this comes at a time when more California students than ever are
applying to attend a University of California campus. My hope is that
going forward, Californians will begin to ponder the implications of
declining state support for their university. The proposed budget will
reduce taxpayer investment by an additional 16.4 percent; in just 20
years state support, as measured on a per-student basis and adjusted for
inflation, will have declined by 57 percent. Rising tuition and fees
have made up only half of this shortfall. The cost of producing a credit
hour actually has decreased; it’s the students’ co-pay, if you will,
that has risen.

The governor in his inaugural address invoked the irrepressible
California spirit. He quoted from the crossing journals of his
great-grandfather, who endured many hardships as he trekked to
California in 1852. It is interesting to note that, even as the
governor’s ancestor embarked on this journey, newly arrived Californians
already were making the case for an educated populace that would ensure
prosperity long after the gold mines were played out.

“We hope for a better time; for a time when our people will call
California by those good old words ‘Our Commonwealth’,” proclaimed The
Pacific newspaper, in an Oct. 10, 1851 editorial. “… When we have
reached this condition, teachers will be welcomed, schoolhouses,
academies and colleges will be built and filled, and the means of a
varied and large education provided.”

It continued: “Whatever difficulty and discouragement may now surround
the effort to make California as rich in mind as she is in gold, they
are to diminish. The institutions profitable for wisdom, as well as all
other institutions which mark the progress, character, honor and virtue
of a State, are to be here. It is only a question of time….”

Now, 160 years later, California must take up the question of whether it
wishes to turn back from the wisdom and foresight of these earliest
Californians. With the advantage of hindsight, it should be abundantly
clear: The stakes are as high today as they were back then.

UPDATE: Prof. Michael Meranze’s analysis of the higher ed elements of the budget is at
http://utotherescue.blogspot.com/2011/01/browns-budget-preliminary-look.html

UPDATE: UC Implications at http://californiawatch.org/dailyreport/what-brown-s-500-million-cut-means-uc-budget-8000