Reconcile Yourself to the State Budget

You might as well reconcile yourself because you won't find a reconciliation from any official source between the governor's accrual budget (released in late June) and the state controller's cash budget (released today).

In theory, there are advantages to accrual accounting over cash accounting in judging performance, whether of a state budget or a corporation.  Accidents of timing of receipts and expenditures can distort the results for any given period.  For example, there really is no difference in a check arriving on June 30 or July 1.  But if you are on a July 1-June 30 fiscal year and look at cash flows rather than accrual, it will make a seeming difference.

That's the theory.  In practice, accrual opens the door to cosmetic adjustments as practiced in California state budgeting for the general fund (the operating budget for the state).  The fiscal year that just ended on June 30, 2013 began with a negative reserve in the general fund as the controller (cash) saw it of -$9.6 billion, as you can see on the table below.  Yet the governor (accrual) tells us that the reserve was -$1.7 billion.  The gap between them of well over $7 billion is large.  But you will find no table to reconcile the reports from any official source.  At the end of the fiscal year, the unreconciled gap had narrowed.  The controller still put the reserve as of June 30, 2013 for the general fund in negative territory (-$2.4 billion) while the governor shows it as slightly positive ($0.9 billion). 

             Controller    Governor      Absolute

$billions          Cash     Accrual    Difference

- - - - - - - - - - - - - - - - - - - - - - - - -

Beginning

GF Balance        -$9.6       -$1.7          $7.6

Inflow*           103.4        98.2           5.2

Outflow**          96.3        95.7           0.6

Surplus***         +7.2        +2.5           4.6

Ending

GF Balance         -2.4        +0.9           3.3

- - - - - - - - - - - - - - - - - - - - - - - - -

*Refers to “revenue and transfers” in governor’s budget and “receipts” in controller’s budget.

**Refers to “expenditures” in governor’s budget and “disbursements” in controller’s budget.

***Inflow minus outflow.

Note: Details differ from totals due to rounding.

- - - - - - - - - - - - - - - - - - - - - - - - -
Now neither version of the budget suggests some imminent danger.  The California economy is recovering and the governor got his temporary tax increases under Prop 30.  Both factors are bringing in more state revenue.  Moreover, even with a negative reserve in the general fund, other state funds currently provide a comfortable cushion.  The controller can borrow from these other funds - outside the general fund - to cover short-term state cash needs.  We are far removed at present from the situation we experience only a few years ago when the state had to hand out IOUs instead of paying its bills.

However, for cosmetic reasons, the governor wanted a positive general fund reserve at the end of the just-concluded 2012-13 fiscal year so that we could "sleep well" as he put it in signing the 2013-14 budget.  And his outgoing finance director delivered.  Any harm done?  Not immediately.  But over time, the notion that the state budget is conveniently adjustable undermines public confidence.  When there is a budget crisis in the future - and at some point there will be one - impressions that the numbers aren't real is a Bad Thing.
---
The governor's budget summary can be found at http://www.dof.ca.gov/documents/FullBudgetSummary.pdf.  The controller's budget can be found at http://sco.ca.gov/Files-ARD/CASH/fy1213_june.pdf.

Vim and Vigor on UC Online Higher Ed

From the Sacramento Bee Capitol Alert blog:

Jerry Brown says UC, CSU leaders pledged to pursue online ed 'vigorously'

Gov. Jerry Brown said today that he vetoed his own budget proposal to earmark $20 million for online education at the University of California and California State University systems only after leaders of those institutions assured him they would pursue online course offerings on their own.
"I had an agreement from both the segments that they would carry out online vigorously," Brown told reporters at an event in Sacramento. "As the leader of both governing boards, I'm actively engaged with both the University of California and the Cal State."...

Full story at http://blogs.sacbee.com/capitolalertlatest/2013/07/jerry-brown-says-uc-csu-leaders-pledged-to-pursue-online-ed-vigorously.html

Wow!  All that vigor!

No Mandate for Online Ed at UC: Let's Pretend!

Our post last night that the governor line-item vetoed his own $10 million mandate in the new state budget for online courses at UC is correct in a literal sense. But what appears to have happened is that UC - which doesn't like overt mandates which challenge its constitutional autonomy - agreed that it would spend $10 million on online ed anyway if the governor would just remove the mandate language.

From Inside Higher Ed today: ...“We’ve made a commitment to provide the $10 million, so it’s not going to affect our plans,” said Steve Montiel, a spokesman for the UC president's office...

Full story at http://www.insidehighered.com/quicktakes/2013/06/28/california-governor-removes-strings-money-ed-tech

In effect, without the mandate UC can pretend to decide freely to do what the governor wants. So in the spirit of the deal, let's pretend:

Online Ed Earmarked Money Line-Item Vetoed

Michael Meranze, in commenting on the previous post, noted that among the items vetoed by the governor was language that earmarked $10 million at UC for online ed courses.  As readers will know, that earmark was in the budget bill at the request of the governor.  Other quasi-earmarks were also vetoed.  The actual language doesn't delete dollars from the UC budget - which is why I missed it in the prior post.  It just deletes specifications for how dollars are to be used.  The veto language reads:

Item 6440-001-0001

—

For support of University of California. I revise this item by deleting Provisions 6, 8, 10, 11, 12, 13, 14, 15, and 16. I am deleting Provisions 6, 8, 10, 11, 12, 13, 14, and 15 because the requirements included in these provisions that the University of California expend funds for various purposes create cost pressures and unnecessary restrictions. Eliminating these earmarks will give the University greater flexibility to manage its resources to meet its obligations, operate its instructional programs more effectively, and avoid tuition and fee increases.
----

UPDATE: The Sacramento Bee Capitol Alert blog has the story at:
http://blogs.sacbee.com/capitolalertlatest/2013/06/jerry-brown-vetoes-own-budget-proposal-on-online-education.html

----

As it turns out, the governor conferred with UC president Yudof about his (the governor's) mercurial behavior concerning online ed.  We have obtained a kind of transcript of the gubernatorial explanation:

Budget Signed: Smile But Then Scroll Down

It was generally all smiles and laughter at the state budget signing this morning as the photo above shows.  Contrast that photo with the one below at the 2011 budget signing when the governor had to sign a budget - after getting no GOP support for putting a tax measure on the ballot - that assumed a phantom $4 billion in revenue to make things seem in "balance."  No smiles there.

In any case, there appear to be no surprises for UC in the budget. [But see the updated post above on the governor's veto of his own online education proposal.]  The governor line-item vetoed a small appropriation for a building at UC-Merced but the veto message says the funds are contained in another bill.  UC gets an addition to its budget of $125.1 million with stipulations about reporting certain performance measures and not raising tuition.  There are supposed to be some kind of limits on the capital budget but what appears to be involved are state-funded projects.  Such limits seem unlikely to affect projects such as the UCLA Grand Hotel which are funded initially by non-state sources but may lose money in the future that will have to come from somewhere.

The official budget figures are as below (in billions of dollars - figures may not add up due to rounding):

                2012-13      2013-14
-------------------------------------
Reserve
at beginning
of year           -$1.7        +$0.9

Revenue &
transfers*        $98.2        +97.1

Expenditure       $95.7        +96.3

Surplus**         +$2.5        +$0.8

Reserve
at end of
year              +$0.9        +$1.7   
-------------------------------------
*Note: "Transfers" = a term of art that can hide mischief.
**Difference between inflow and outflow.   

Note that the current year (soon to end) shows a bigger surplus than the coming one. There is some borrowing from the cap and trade program in the upcoming year assuming the governor's May Revise proposal is still intact.  Without counting such borrowing as de facto revenue, the upcoming surplus and reserve would be in more razor thin than they are.  Any economic bump in the road could derail this train.  So hold your applause until next June.

In short, to continue our mixed metaphors, the rainy day fund reserve won't protect us from much more than a sprinkle.  We will have to rely on the smiles in that case:

The State Budget Will Be Signed Tomorrow

From the governor's office:

Governor Brown to Sign State Budget Tomorrow

6-26-2013

SACRAMENTO – Governor Edmund G. Brown Jr. will be joined tomorrow by Senate President pro Tem Darrell Steinberg and Assembly Speaker John Pérez as he signs the Budget Act of 2013 (AB 110) in Sacramento.
The Governor will also sign ABX1 1 (Pérez) and SBX1 1 (Hernandez-Steinberg), which, in accordance with the federal Affordable Care Act, will help ensure health care coverage for Californians.
When: Tomorrow, Thursday, June 27, 2013 at 11:00 a.m.Where: California State Capitol, Governor's Council Room, Sacramento, CA 95814
NOTE: Immediately after the signing event, Department of Finance officials will hold a briefing to discuss details of the 2013-14 state budget. The briefing will be held in the Department of Finance conference room, located in Room 1145 of the State Capitol. Both the signing ceremony and the briefing are open to credentialed media only. The signing ceremony will be webcast at: www.calchannel.com.

Source: http://www.gov.ca.gov/news.php?id=18113
====
We're not expecting surprises regarding the UC budget.  But we will report on what happens. Meanwhile, we will await tomorrow:

On Fathers' Day, Blame it on Dad

Hiram Johnson

It's a bit of an historical stretch to blame California's dysfunctions on Dad. And it may seem funny to do it after the legislature passed a budget on time as per our earlier post.  However, commentator Joe Mathews does blame Gov. Hiram Johnson's father for the dysfunctions of the state's initiative system. Hiram Johnson was the reform governor elected in 1910 who brought in "direct democracy," the initiative, referendum, and recall (along with women's suffrage and workers' compensation insurance).

From Mathews (excerpt):

Why is California so hard to govern? One reason is that we’re suffering from daddy issues, and this Father’s Day is as good a time as any to confront them. The daddy in question is Grove Johnson, father of one of our most revered governors, Hiram Johnson, who served from 1911 through 1917. Johnson is the governor who convinced Californians to adopt the ballot initiative process in 1911. Many of us revere that process, but it has its problems. And we never address those problems, because our media keep repeating a bogus story: A century ago, the noble and sainted Hiram Johnson created the initiative process to give the people of California the power to fight the railroad and other powerful interests. But over a century, we Californians—and especially our special interests and rich people—have corrupted the people’s process into something Johnson never intended. This tale is bunk, for two reasons. First, the problems of today’s initiative process (big money, interest-group domination, and public confusion) were present—and much rued—from the very beginning. Second, the biggest flaw of the initiative process—the flaw that makes California so hard to govern today—was not the fault of today’s Californians. It was introduced by Johnson himself. Yes, Johnson sabotaged the initiative process. But how—and why? The answer lies in the story of a toxic relationship between father and son...

To find out more, go to the full article at http://www.zocalopublicsquare.org/2013/06/13/the-bad-dad-who-cursed-california/inquiries/connecting-california/

What Hiram never sang for his father:

And for a more patriotic view of dad, we offer:

Budget Enacted - Details & Vetoes to Come

The legislature has passed a state budget which now goes to the governor for signature (he will) and line-item vetoes (some will likely be made).  Thereafter, there should be formal releases of the details by the Dept. of Finance and the Legislative Analyst's Office (LAO).

In the meantime, the Sacramento Bee has a summary of highlights.  It includes for higher ed:

Proposes an average 5 percent general fund increase to California State University, the University of California and community colleges. No fee increases are envisioned through 2016-17. Authorizes scholarships, beginning in the 2014-15 academic year, for UC and CSU students whose families earn as much as $150,000 a year. Rejects governor's January proposal to cap the number of credits students can take at the resident tuition rate.

Read more here: http://www.sacbee.com/2013/06/16/5500148/california-democrats-wrap-up-state.html#storylink=cpy

The full article/summary is at http://www.sacbee.com/2013/06/16/5500148/california-democrats-wrap-up-state.html

Middle-class scholarships to UC, CSU likely

But not this year!

So says the headline in the San Francisco Chronicle: [excerpt]

The "Middle-Class Scholarship" proposed by Assembly Speaker John Pérez, D-Los Angeles, would offer tuition discounts for students from families earning $80,000 to $150,000 a year. The program would start in the 2014-15 school year, with partial scholarships costing the state $107 million from its general fund. The state would increase spending on the program each year until it was fully implemented in 2017-18, at a cost of $305 million - assuming 75 percent of eligible students apply. Tuition discounts would decrease as family income rises...

Full story at http://www.sfgate.com/education/article/Middle-class-scholarships-to-UC-CSU-likely-4597581.php

Of course, there are students that might not want to wait a year:

UPDATE: The LAO was not keen on this particular plan but was not asked:
http://www.sacbee.com/2013/06/14/v-print/5496173/perez-tuition-aid-plan-not-best.html

Gov. Jerry Brown's university plan is left unfinished in budget

That's what the headline in the LA Times says.  It goes on to say: [excerpt]

The final spending plan does not include the governor’s proposal to tie new money for public universities to specific requirements like improving graduation rates and increasing the number of transfer students from community colleges. Nor will the plan automatically cut funding if tuition is increased. The changes emerged after negotiations with lawmakers and officials at the University of California and California State University, who resisted much of Brown’s proposal. For now, universities will simply be required to track nine different benchmarks...

Full story at http://www.latimes.com/news/local/political/la-me-pc-jerry-brown-california-universities-20130612,0,6175034.story

Some background music while you read the full article is conveniently provided below:

Want a Riverside Med School? Legislature Says (Commands?) Do It Yourself

There has been ongoing agitation from UC-Riverside and UC for the state to put up money for a med school.  As bits and pieces about the state budget leak out, it appears that the legislature has not provided extra money but instead has told UC to take it out of its general allocation.  Apparently, the legislature doesn't view this matter as a suggestion; more of a command.

From the Riverside Press-Enterprise:
The Legislature’s budget conference committee late Monday altered the funding mix for a school of medicine at UC Riverside, eliminating a $15 million augmentation but directing the UC system to allocate money to the school from its budget. The compromise means the school will finally get the state money it has sought unsuccessfully since 2010. It effectively saves the state general fund $15 million. And most importantly, it has the support of the Brown administration, which did not include any money for the medical school in its January spending proposal or May revision...

Full story at http://blog.pe.com/2013/06/10/medical-school-no-new-money-but-uc-told-to-allocate/

Of course, the Regents and UCOP could assert their constitutional autonomy but the legislature might object:

Deal Reportedly Reached on the State Budget Between Legislature and Governor

From the governor's website:

Governor Brown Issues Statement on Budget

6-10-2013: SACRAMENTO – Following action from the Joint Legislative Conference Committee on the Budget this evening, Governor Edmund G. Brown Jr. issued the following statement:
 
“The Legislature is doing their job and doing it well. It looks like California will get another balanced budget and, very importantly, educational funding that recognizes the different needs of California’s students.”

Source: http://gov.ca.gov/news.php?id=18087

The Sacramento Bee indicates that a) the deal is based on the governor's more conservative revenue estimates as compared to the Legislative Analyst's numbers* and b) there is (some) money for higher ed scholarships.  Although the article doesn't say so, we have noted in prior posts that there appeared to be no difference between the governor's May Revise and the legislative proposals when it came to the basic UC budget.  Apparently, some minor points have yet to be resolved.  But based on the info so far, it seem as though there won't be what we called in a recent post "Saturday Night Fever" - this coming Saturday night being the constitutional deadline for the legislature to enact a budget.

The Bee article is at http://www.sacbee.com/2013/06/11/5486878/gov-jerry-brown-democratic-leaders.html

It's always a good idea to await the budget numbers.  However, it is likely that the folks in the legislature will have a more enjoyable Saturday night than if they had to stay late to do the budget:

*Note that the rejection of the estimates from the Legislative Analyst's Office (LAO) is something of a blow to that office.  The initial budgets of the assembly and senate were based on LAO figures, as we have noted in earlier posts.  On the other hand, thanks to Prop 98, if in fact more revenue comes in than projected by the governor, a good bit will end up in K-14.  It won't all be tucked away in the reserve.

Legislative Deadline for State Budget is Saturday

This week is deadline week for the legislature to pass a state budget.  The formal deadline is midnight, Saturday, June 15.  As we have noted in earlier postings, there is unlikely to be any budget surprise for UC.  Possibly, there could be some funding beyond the governor's May revise proposal for student scholarships and Cal Grants.  As previously noted, most of the inconsistencies between the assembly and senate budgets involve K-14 and social programs.  The two houses are using a more optimistic projection of revenues than the governor. 

Nonetheless, as negotiations proceed, they could reach a fever pitch by Saturday night:

UC History: Post-Meeting

Then-Governor Ronald Reagan holds news conference after a contentious Regents meeting in 1968.

Is that clear?

Some advice from the Legislative Analyst's Office to the legislature:

Amend BBL in Item 6440-001-0001 to Clarify 2013-14 Enrollment Target for UC

The Legislature expects the University of California to enroll a total of 211,499 state supported full-time equivalent students during the 2013-14 academic year. This enrollment target shall not include nonresident students and Resident students and eligible nonresident students who are exempt from paying resident tuition shall count toward this enrollment target whereas students paying nonresident tuition and students enrolled in non-state supported summer programs shall not count toward the target. This enrollment target expresses the Legislature’s intent that the University serve no fewer students in 2013-14 than in 2012-13. The University of California shall report to the Legislature by May 1, 2014 on whether it has met the 2013-14 enrollment goal...

Source: http://www.lao.ca.gov/handouts/Conf_Comm/2013/UC-CSU-Enrollment-Growth-060413.pdf

We get the message!

But how many students did you want?

And if it's not perfectly clear, it might help to know that BBL = budget bill language.

The Three State Budgets

Last Friday, there was a legislative hearing on the current three versions of the state budget for 2013-14.  There is the governor's "May Revise" proposal and two separate proposals by the state assembly and the state senate.  The two legislative versions rely on a revenue forecast by the Legislative Analyst's Office (LAO) which projects higher tax receipts than the governor's Dept. of Finance (DOF).  However, the two legislative proposals use the extra revenue differently.

From the UC perspective, there is no significant direct effect on the operating budget regardless of which budget is enacted.  However, the assembly version provides for additional scholarship and Cal Grants funding so students have an interest in the final outcome.  The hearing was not exactly a clash of the titans but you can hear testimony I extracted by the Chief Deputy Director of DOF and the Legislative Analyst (excerpt) explaining their differences at the link below.

Not quite

A key point is that due to Prop 98 - which earmarks funding for K-14 by formula - extra revenue (such as seen by LAO) tends to be sopped up by that sector.  The governor's position is that the state should be cautious since revenue projections depend heavily on capital gains tax receipts which in turn reflect the volatility of financial markets.  Maybe the extra revenue that seemed to appear recently will prove to be a temporary blip, etc.  The Legislative Analyst acknowledges that concern but he notes that the risk that the extra revenue will evaporate is largely dealt with in the two legislative proposals by making K-14 spending partly contingent on the actual arrival of the funding and by putting some of the money into the reserve.  It might be noted that if there were an outright economic downturn, none of the proposals would avert a return to a budget crisis.

The governor has a line-item veto and so could trim spending if the legislature enacts a budget he considers excessive.  He could also veto the entire budget and throw the issue back to the legislature.  In theory, the Democrats in the legislature could override such actions using their two-thirds supermajority.  Whether all Dems would go along in that situation is uncertain.  Minority Republicans now support the governor's cautious approach.  The legislature must enact a budget by June 15 or forfeit pay for each day thereafter that they haven't done so.  However, it is essentially up to the legislature to determine what defines an enacted budget.  So there will surely be something by June 15 although there may be loose ends to tie up beyond that date.

You can hear the DOF and LAO testimony below:

The LAO prepared a summary of the three budget proposals for the hearing available at:
http://lao.ca.gov/handouts/Conf_Comm/2013/Conference-Overview-53113.pdf

New Tax Graveyard

The governor and the legislative leaders have been tamping down expectations that the Democrats - with a 2/3 "supermajority" in the legislature would be enacting new taxes.  For one thing, the supermajority is shaky at best.  One Democratic seat in the Senate recently became a GOP seat in a special election.  Some of the Democrats were elected in swing districts under the new top-2 primary system and might not vote with the majority on a tax increase.

Today's Capitol Alert blog of the Sacramento Bee reports:

Measures aimed at creating new taxes on Californians were held by the Senate Appropriations Committee today, making it extremely unlikely that taxes on cigarettes, soda, strip clubs, plastic bags or oil extraction will become law this year...

Full story at http://blogs.sacbee.com/capitolalertlatest/2013/05/tax-bills-fail-to-advance-out-of-california-senate-committee.html

Although there will be some debate about exactly how much revenue the state can expect in 2013-14 as the final budget is put together, it's unlikely that revenue will be enhanced by new taxes.

And as for those tax bills:

Read more here: http://blogs.sacbee.com/capitolalertlatest/2013/05/tax-bills-fail-to-advance-out-of-california-senate-committee.html#storylink=cpy

Need for Improvement

From the Sacramento Bee's Capitol Alert blog:

Not a single member of the California Legislature earned an A from the tough graders at the University of California Student Association, who released their first-ever legislative scorecard at the regents meeting in Sacramento Wednesday. Not Sen. Marty Block, a former professor who chairs the Senate Education Committee. Not even Sen. Leland Yee, who holds a doctorate in psychology and takes every possible opportunity to publicly bash university management. "As students we get a lot of grades, and we're turning the table on legislators," said Justin Chung, a grad student at UC Irvine...

Full story at http://blogs.sacbee.com/capitolalertlatest/2013/05/no-as-for-state-lawmakers-from-uc-students.html

The report card is at https://www.dropbox.com/sh/593wtmj1qneatyj/5uxez7YI9u/2012%20Higher%20Education%20Report%20Card.pdf

But for those legislators with bad grades, there is hope:

Read more here: http://blogs.sacbee.com/capitolalertlatest/2013/05/no-as-for-state-lawmakers-from-uc-students.html#storylink=cpy

Appy days are here again

From an article in today's Sacramento Bee describing Governor Brown's visit to the Regents yesterday afternoon:

...UC President Mark Yudof said many factors influence the time it takes for students to graduate, including how much pressure their parents put on them, how much they have to work to afford tuition and how complex the requirements are for their majors of study.

Brown suggested that perhaps technology – "a little app," he said – could help students by alerting them of their progress toward graduation...

Source: http://www.sacbee.com/2013/05/16/5424543/uc-regents-cool-to-gov-browns.html

Clearly, an app't suggestion from the governor with no l'apps of his sound judgment.

The recording of the afternoon session of May 15 was not available at the time of this posting on the Regents' website.  However, we get the theme of the governor's remarks:

Listen to Remarks of UC Academic Senate Chair Robert Powell on Pending State Mandate of Online Courses

Yesterday, we posted some of the Regents' morning meeting.  Because of the disruption during the public comments period, the meeting was halted and the transmission was discontinued.  When it came back, it took me a few minutes to get the recording going and some of the remarks by Academic Senate Chair Robert Powell were missed.  However, they are now available and I have posted them (audio with still picture) at the link below.

Much of Prof. Powell's remarks deal with Academic Senate opposition to the bill pending in the state legislature that would mandate online courses.  He also spoke about pension funding and competitive pay.

Note: I remain concerned about the long-term archiving of recordings (video or audio) of Regents meetings.  The January and March 2013 meetings now seem to be available, although I couldn't find them yesterday.  (See the prior post.).  It is unclear if they will disappear after a year.

You can hear Prof. Powell's statement at the link below: