Bloomberg News

Californians Dislike Cuts as Revenue Projected to Trail Budget

November 18, 2011

College Students Brace for More

Nov. 17 (Bloomberg) -- Almost three-quarters of Californians say the state doesn’t spend enough on higher education, according to a new survey, even as revenue forecasts raise the likelihood of more cuts to colleges and universities.

A majority of California voters believe the state’s academies are headed in the wrong direction and disapprove of both Governor Jerry Brown, 73, and the Legislature’s handling of higher-education issues, according to a Public Policy Institute of California poll, which preceded the latest revenue forecast.

That projection, from Legislative Analyst Mac Taylor, said state revenue will trail budget estimates by $3.7 billion this year. A shortfall of that size would trigger automatic cuts to social services, public safety and schools, as well as colleges and universities. Decisions on such cuts may be made next month.

“Because of the fact that we are on very shaky financial ground, the public hearing of more cuts will increase the idea that we don’t have our priorities in place,” Mark Baldassare, the nonprofit institute’s president, said yesterday in a telephone interview on the poll. “We’re not funding one area of the budget that is critical to the state’s long-term future.”

Five University of California campuses -- Berkeley, Los Angeles, San Diego, Davis and Santa Barbara -- ranked among the top 10 public universities in the U.S. in U.S. News and World Report’s 2012 Best Colleges rankings. Berkeley was first and UCLA was second.

Threats to System

Cuts in aid threaten the affordability and quality of the 10-campus system, university officials have said. This year’s $86 billion budget sliced $650 million from that system as well as the 23-campus California State University organization.

For the first time, tuition revenue at about $2.97 billion outpaced state higher-education support of $2.37 billion, the University of California said Nov. 9 in a statement. Combined, the schools have about 630,000 students.

Each system faces another $100 million in automatic budget cuts if state revenue misses projections by $1 billion or more.

“We know that, sadly, these trigger cuts are likely,” said Joey Freeman, 20, a Berkeley junior and student-government leader, at a briefing in Sacramento, the state capital. “This is not a time when we can afford further cuts to higher education and further increases in tuition.”

Cal State trustees yesterday approved a 9.1 percent tuition increase, in part to offset the loss of state funds. Full-time tuition will rise to $5,970.

Survey Results

Among adults surveyed, 74 percent say the state isn’t spending enough on higher education, compared with 21 percent who say funding is adequate or too generous, the policy institute in San Francisco said in the poll released yesterday. Also, 62 percent said the college and university systems are headed in the wrong direction.

Just 29 percent of likely voters approve of Brown’s handling of higher education, while 53 percent disapprove, the poll showed. Almost half, 47 percent, approve of Brown’s job performance, while 38 percent disapprove, the survey said.

About 71 percent of likely voters disapprove of the Legislature’s handling of higher education, and 70 percent disapprove of its job performance, the survey showed.

The telephone poll of 2,503 adults, including 1,161 likely voters, Oct. 28-Nov. 8 had a margin of error of plus or minus 3.1 percentage points for all respondents and 3.6 percentage points for voters.

Polled Before Projections

The survey concluded before the first of several forecasts showed state revenue falling short of budget targets, including the latest delivered yesterday by the nonpartisan Legislative Analyst’s Office. That document also projected a $13 billion gap heading into the fiscal year that starts July 1.

In addition to higher education, funding for in-home care for the elderly and developmentally disabled would each drop $100 million under the first round of automatic cuts. A second round of reductions may lop seven days off the school year to save $1.54 billion and end $248 million in student busing aid.

To balance the 2012 budget, lawmakers reduced spending by $12 billion. The Legislature, led by Democrats, and Brown also counted on higher revenue, including $4 billion that the governor said the rebounding economy would deliver. After the first several months of the fiscal year, however, revenue has trailed estimates by all accounts.

“Our economy’s sluggish growth means a tax windfall is unlikely, and not a penny of the estimated $4 billion has been collected,” Controller John Chiang said in a statement. Ana Matosantos, Brown’s finance director, acknowledged for the first time that the automatic cuts were probable.

Widening Gulf

The widening gap between actual and estimated revenue means the most-populous state probably will cut deeper into higher education, social services and public safety, Chiang said.

“The governor and lawmakers were smart to backstop their hopeful budget projections with mid-year cuts, but they may not have gone far enough,” he said.

The Finance Department is developing its own revenue estimate. The governor, a Democrat, will use whichever forecast is higher to decide as soon as next month on making the cuts.

“Some level of trigger cuts will likely occur,” Matosantos said in a statement. Taylor told reporters he wouldn’t be surprised if the governor’s projection differs from his forecast by as much as $2 billion.

By the end of the fiscal year, the state’s deficit will reach $3 billion, even after the automatic cuts, Taylor said in his report. Combined with a projected $10 billion operating deficit in fiscal 2013, he forecast a $13 billion gap that Brown and lawmakers will need to close in the year that begins July 1.

‘Difficult Cuts’

“Eliminating the state’s persistent, annual deficit will require more difficult cuts in expenditures and/or increases in revenues,” Taylor said in the document.

The California jobless rate was 11.9 percent in September, above the 9.1 percent national level and up from 11.7 percent in June. Unemployment hasn’t been less than 11 percent since April 2009 in the Golden State.

Cuts affecting home health care and increases in fees for community college students would take effect Jan. 1 if revenue trails the budget’s forecasts by $1 billion. A $2 billion deficit would trigger reductions in school aid Feb. 1, under the formula in the spending plan.

California Treasurer Bill Lockyer has lauded the trigger mechanism as an important assurance to Wall Street investors who buy the state’s bonds. It helped the state borrow $5.4 billion in September to bolster cash flow, because the debt must be repaid before the end of the fiscal year, he has said.

“We have a mechanism if the revenue projections don’t pan out,” Tom Dresslar, a Lockyer spokesman, said last month. “We are not going to be the old California where we are flailing around in a political maelstrom for months on end. We now have a system in place to deal with revenue shortfalls.”

California tax-exempt bonds yielded 118 basis points more than similar top-rated securities yesterday, Bloomberg indexes show, matching the smallest difference since Oct. 20. The cost of protecting $10 million of California bonds against default for 10 years yesterday, a measure of perceived risk, was $259,7000 a year, down from $286,300 reached on Oct. 4. A basis point is 0.01 percentage point.

--Editors: Ted Bunker, Pete Young.

To contact the reporters on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net; James Nash in Sacramento at jnash24@bloomberg.net.

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net


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