The Reality of Governor Newsom's Budget

A few things have happened since California Gov. Gavin Newsom proposed an austerity budget in January. 

State tax receipts came in higher than expected (though they will not rise next year).

A recall campaign collected signatures amounting to the required 12 percent of registered voters, so Newsom is now running for governor. 

Joe Biden's American Rescue Plan sent the state $27 billion.

And Biden's three big Plans far outstripped anything California Democrats have offered the state since Grey Davis was recalled in 2003, leaving them paddling in Biden's wake. 

Needing to get out in front of Biden's quasi-New Deal advance, and to show some post-pandemic achievement, on May 14th Newsom announced his "generational" state budget, a "historic, transformational budget."  Here of course we welcome with open arms Newsom's recognition that solving California's problems means massive government spending, since it is true. The K-12 increases are especially welcome, as are those trying to reduce the state's long epidemic of houselessness. 

Yet like Biden, Newsom sees a narrowed function for four-year colleges and universities, and is funding them accordingly, meaning meagerly.

The press did find his historic numbers hard to follow.  Writing in the LA Times, John Myers noted the range of the proposals 

The governor’s list of spending priorities, which rely on a surprise cash infusion spread over several years that is projected to ultimately top $100 billion, is dizzying: money to house those who are homeless, support entrepreneurs, train workers, educate students and connect them to the internet, fix roadways, prevent wildfires and strengthen California’s power grid.

He then added politely, "It could be some time before the numbers outlined by Newsom can be fully reconciled. The governor frequently uses unorthodox ways to measure state spending, lumping together dollar amounts that span multiple years." The $100 billion in economic assistance translates into a budget increase of $40 billion in the current year--still an excellent increase, but one that should be defined correctly.

Reconciliation will involve a couple of simple moves. One is to separate multi-year from single-year numbers. Myers does that in contrasting the headline $100 billion with the annual $40 billion.

The other move that's especially relevant to higher ed budgeting is separating ongoing from one-time funds. The former commits the state to program building over time. The latter does not. 

UC's president and Board of Regents chair issued a statement to say, "The University of California is deeply grateful to Gov. Newsom for proposing the largest state investment in UC’s history: more than $807 million."  In his press conference (around minute 52 in the version helpfully archived by Dan Mitchell) Newsom correctly describes the permanent investment as an increase in $506 million. It's better than the $136 million he proposed in January. But as with all these budget announcements, don't read the headline, read the top line (in the slide at the top).

Here's the table that Newsom's Department of Finance published, in the Higher Education section of the May Revision.

The second row of figures is UC's Ongoing General Fund. Newsom and legislative Democrats cut UC's general fund during the pandemic year; later they decided to give it back, but not until the following year (2021-22). 

We can redo the table so that it tracks only the state's permanent commitment to UC, in the form of ongoing general funds.  I give the one-time general fund restoration back to the year to which it belongs--2020-21.  

UC Ongoing General Fund	2019-2020	2020-2021 (with cut retroactively restored)	2021-2022	2 year cumulative change
	$3,724.3 M	$3,766.0 M	$3972.1	6.65%

The one-year increase is 5.5 percent. Note that UC's GF allocation still falls short of the magic $4 billion ceiling it's been trying to break through for twenty years (in unadjusted dollars, so the real problem is worse--I discussed this issue in "Shortfall," covering the history that made Newsom's January budget such an affront).  

This increase is obviously better, but you don't get to break the $4 B barrier by restoring a cut to permanent general funds one year late. More importantly, an average annual increase of a bit more than 3¼ percent does not qualify as "the largest state investment in UC history."  It doesn't justify the "huge budget boost" trumpet blast in this LA Times headline, or the statement cosigned by UC president Drake and board chair Pérez.

There are other commitments, all one time, where the main money goes to 2 things: workforce preparedness and student housing.  

State underfunding has helped turn student housing into a scandal of private development, one that has led to overpricing, blown open this March when UCSD housing announced average rent increases for doctoral and professional students of 31 percent. Newsom proposes $4 billion (over 2 years) for a "low-cost student housing grant program focused on expanding the availability of affordable student housing." The money may well go to subsidize the private developers that helped cause the affordability problem--details are sparse.  It's a major problem, but would best be solved by the state restarting continuing allocations to capital projects, which it ended around 2006.

For the workforce, Newsom proposes $1 billion (over 2 years) "to establish the Learning-Aligned Employment program, which would promote learning-aligned, long-term career development for UC, CSU, and CCC students." The money would form a permanent endowment.  Again there are no details: much better student advising is not mentioned, but employer partnerships are, so it may turn out to be a state subsidy for apprenticeship programs. 

Newsom proposes little or nothing in core needs.  Deferred Maintenance, a problem totaling tens of billions, gets $325 million in one-time funding, which for DM is a contradiction in terms. UCLA's Asian American Studies Center gets $5 million in one-time funding to research "the prevention of hate incidents." He recommends $40 million more than that for the animal shelter medicine program at Davis. 

A better way to fight racist hate crimes would be to fully fund critical ethnic studies, gender, queer, and trans studies, political theory, sociology, history, and the other non-STEM fields that study these issues systematically and have long offered detailed solutions. That is not happening, and I will return to this issue a bit later this year.

Newsom's thinking aligns with Biden's and the national party in a few important ways. They both continue the decades-old drift toward giving public funds to students rather than to institutions.  Student money escapes the instructional and (non-sponsored) research core, whose complexity and costs keep rising, but whose growth in operating money does not keep up. 

Second, they are using higher ed as a kind of renewed welfare state. Newsom knows it is politically hard to address the state's housing affordability crisis with a massive public housing program for working- and middle-class people, but politically easy to subsidize private developers to build public housing for students.  The public colleges' working poor would be affordably housed for a few years. 

The same goes for health and related social services (legal support for undocumented students, food security, transition support for formerly incarcerated students).  I favor this full suite of public support systems--it's the point of the Real College movement--but want them to be integrated into the society at large, funded through progressive taxation of the overall population, and not used as a substitute for funding advanced education.  

Third, Newsom and Biden see higher education as workforce training for economic growth. They also tie that mainly to community colleges rather than to four-year degrees.  Newsom bundles his two biggest one-time programs into an aggregate with a largish headline number that must be shared by the 3 segments, and which treats the segments and their students as the same.  Newsom is joining Biden in demoting four-year colleges and universities, which is an anti-progressive trend that universities will need to fight.

This budget is a lot better than a cut. But it's not the New New Deal.  I'd feel better about where it might lead had president Drake and board chair Pérez described it accurately and set out ongoing needs.  But they did not.  

Here's an update of the January chart, for context.