The governor released his May Revise budget proposal earlier
today, live-streamed on the web. We noted in a prior post that the news
conference would feature various charts on easels. And as the images above
suggest, if you like charts, you would not have been disappointed. As usual,
the event was split between the governor and his finance director (for
technical questions from reporters).
As in prior such events, the governor emphasized volatility
in tax receipts – mainly due to the income tax and capital gains – and the
possible danger of some future recession. He took no position on a ballot
initiative that would extend Prop 30’s top-bracket income tax increase.
There appear to be no changes in the January proposals for
UC’s budget in the coming fiscal year (2016-17).
Understanding of the budget situation is now made more
difficult because of the presence of the “regular” reserve in the general fund
and the creation – under Prop 2 – of a rainy day fund. Under Prop 2, some
revenue that would otherwise go into the general fund is siphoned off into the
rainy day fund. So a full understanding of the overall budget situation
requires addition of the two funds. It is the sum of the two that describes the
condition.
Thus, it is possible for the general fund to be said to have
a deficit and yet the overall budget can be in surplus if the growth in the
rainy day fund exceeds the decline in the regular reserve. Below we provide the
numbers, assuming everything happens according to the governor’s estimates,
projections, and spending desires. The documentation is at http://www.ebudget.ca.gov/FullBudgetSummary.pdf.
The general fund next year has a deficit of $2.1 billion but
the rainy day fund rises by $3.3 billion. So the overall budget is in surplus
by a modest $1.2 billion. Total reserves (regular + rainy day) rise from 7.1%
of spending to 7.7% of spending. It is nonetheless true that a recession could
easily wipe out the total reserves in a short period of time.
Change in
$millions
2015-16 2016-17 Reserves
-----------------------------------------------
Starting
Regular
Reserve $3,444
$4,829
+$1,385
Revenue*
117,000 120,080
Spending
115,615 122,155
Surplus or
Deficit in
Regular
Reserve**
+1,385 -2,075
Ending
Regular
Reserve
4,829 2,754 -2,075
-----------------------------------------------
Ending
Rainy Day
Fund
3,421 6,713
+3,292
-----------------------------------------------
Sum of
Ending
Reserves
8,250 9,467 +1,217
As % of
Spending 7.1%
7.7%
-----------------------------------------------
*Revenue = revenue and transfers
**Revenue (and transfers) minus spending
Budget Director Michael Cohen
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