A Quick Review of the May Revise and an Inadvertent Lesson on Online Education

As per our previous post this morning, the governor’s May Revise budget was released today in a presentation by the governor and his finance director.  But before we get to the numbers and issues relating to UC’s budget, yours truly cannot resist the following observation:
There is nothing per se about online education in the latest summary document that accompanies the May Revise.  (More budget details will come out in the days to come.)  However, the online transmission of the news conference was a fiasco of jerky images, frozen audio, and total breaks in the transmission.  The effort in real time to tune in online finally ended with the message below. Yours truly was using a reasonably fast connection.  Apart from the image failure, also below is a link to how the audio (didn’t) come across.  We can assure the governor that whatever UC does online, it is better than what was provided by his office today.  Folks in the legislature might also take notice.
And here is a sampling of what the live-stream of the media conference sounded like:
OK.  With that matter out of the way, below in a table are the summary budget numbers.  Despite the $4+ billion in apparently windfall money that came in(see earlier posts), the estimates of the reserve in the general fund at the beginning and end of the current fiscal year 2012-13 and the coming year (2013-14), are about the same as in the governor’s January budget.  The surpluses shown for each of the two years are about the same.  So that means that the $4+ billion dissipated somewhere.  Much of the dissipation presumably went to K-14 under Prop 98.  When asked, the director of finance said some of the windfall was allocated to different years.  Since no one seems sure exactly how the $4+ billion arose (i.e., what made taxpayers up their estimated income tax payments), exactly how one would know what years to which is should be allocated is an interesting question.
As far as I know, most of the questions put by the media reps to the governor and finance director focused on higher ed.  (I say “as far as I know” because – as noted above – the transmission was broken and failed.)  There was much more interest in the governor’s proposal for formulas to allocate funding to K-12 and what exactly happened to the $4+ billion.  (There was a question on the dropping of the limit on student credits in higher ed.)
Below is a general summary of the budget proposal in billions of dollars.  Note that revenue and “transfers” (transfers is a word that permits budget mischief) drop next year because – in part – the $4+ billion was a one-time event.  The governor also suggested that the underlying general economic forecast has been made less optimistic than it was in January because of sequesters and slowdowns in foreign economies.  A less optimistic economic forecast produces fewer dollars.
             2012-13     2013-14
– – – – – – – – – – – – – – – – –
Reserve        -$1.6       +$0.9
Revenue &
“Transfers”    $98.2       $97.2
Spending       $95.7       $96.4
Surplus*       +$2.5       +$0.9
Reserve        +$0.9       +$1.7
– – – – – – – – – – – – – – – – –
Note: Details need not add to total due to rounding
*Surplus = Revenue & Transfers minus Spending.
The document released summarizing the budget has the following excerpt on UC and CSU:
Multi‑Year Stable Funding Plan
University of California and California State University. The May Revision builds upon the multi‑year stable funding plan for higher education proposed in the Governor’s Budget. It prioritizes higher education by providing new funds to begin reinvesting in the public universities, with the expectation that the universities will improve the quality, performance, and cost effectiveness of the educational systems.
The plan is rooted in the belief that higher education should be affordable and student success can be improved.
Funding Stability
The Governor’s Budget increased the General Fund contribution to each institution’s prior‑year funding base. Each segment will receive up to a 20‑percent increase in General Fund appropriations (about $511 million each) over a four‑year period (2013‑14 through 2016‑17), representing about a 10‑percent increase in total operating funds including tuition and fee revenue.
[Editorial note 1 from yours truly: Tuition and state appropriations are roughly equal nowadays.  So a 20% increase in state funding and a zero increase in tuition end up being something like 10% in the core operating budget.]
[Editorial note 2: The change in the budget occurs over 3 years, not 4.  Ten percent over 3 years is a little more than 3% per annum.  Exactly what inflation rate is assumed in the budget over that period is not clear.  But we are probably talking about a real (inflation adjusted) increase of 0.5-1.0% per annum.]
The plan includes a freeze on UC and CSU resident tuition from 2013‑14 to 2016‑17 to ensure that the universities stay affordable for students and their families, and to a void high student debt and tuition levels.
Student Success
The plan expects UC and CSU to achieve the following priorities: improve graduation rates; increase the number of transfer students from community colleges; increase the number of degrees completed, particularly by low‑income students; and reduce the cost per degree. The multi‑year funding plan increases funding and strengthens accountability to encourage UC and CSU to become more affordable and to maintain quality and access over the long term. The Administration will continue working with the Legislature, the segments, and other stakeholders to strengthen the accountability plan.
To improve student success, the Governor’s Budget proposed capping the number of units students can take while receiving a state General Fund subsidy at UC, CSU, and the community colleges.
Given concerns that were raised, the Administration is withdrawing the proposal for this year and focusing on alternative incentives to increase cost‑effectiveness.
A reminder is in order: What the governor proposes is not necessarily what the legislature enacts.  And what the legislature enacts is not necessarily the final budget because the governor has line-item veto powers.  Under the current budgetary rules in the state constitution, the legislature must enact a budget by June 15 or lose a day’s pay for each day it is late.  Finally, a budget can be based on assumptions that don’t work out as the year progresses.  The ex poste budget is not necessarily the same as the ex ante budget.
UPDATE: When we talked about mischief in the budget, here is an example.  The budget includes borrowing from the cap and trade fund.  Borrowing is thus being treated as if it were revenue.  Note that if borrowing were revenue, no budget would ever be out of balance.  Why was this done?  Probably for cosmetic reasons so that the reserve at the end of the coming year in the May Revise would not be lower than it was in the January proposal.  For info:
UPDATE: Here is an easy to use audio recording of the news conference just below the two photos from the event: