State budget delays have little direct effect on UC

California’s state budget is more than 20 days overdue,
yet financial analysts and University of California officials are
little more than perturbed about the delay.

Negotiations over the state budget between the
Legislature’s Democratic majority and Republican Gov. Arnold
Schwarzenegger have stalled, and several main issues remain on the
bargaining table.

Both the governor and Democratic leaders agree they’re
stuck on three major points ““ local government financing and
the repeal of two labor laws.

The contentions revolve around the funding of local governments,
outside contracting by school districts, and a law which allows
employees to sue employers for work place violations.

The major issue deals with local governance. The governor is
advocating a law prohibiting the state’s ability to take
local tax money after local governments contribute $2.6 billion.
Meanwhile, the Democrats want the ability to borrow money from
local governments twice every two years.

The outside contracting by school districts refers to a 2002 law
which stops schools from contracting outside private companies for
various jobs.

All three of the remaining issues have no direct effect on the
university and therefore officials are more focused on internal
budgetary decisions.

Although the university will likely absorb over $300 million in
budget cuts this year, the university’s top financial
official said he was optimistic about the UC’s budget
situation during the UC Board of Regents’ bimonthly meeting
on July 14.

Larry Hershman, the UC vice president of budget, said his
optimism was largely founded on the university’s May
agreement with Gov. Arnold Schwarzenegger. Known as the
“compact,” the agreement promises that the state will
cut the university funding by $372 million in exchange for
increases in state funding starting in 2005-2006.

The compact seeks to restore some predictability to a fluid
budget situation over the past couple years, but has come under
fire from critics.

Still, Hershman called the compact “critical” to the
future of the university and said it is an assurance from
“people who set priorities” that the UC will be funded
in the future.

“I do feel very confident that we will be able to maintain
our priorities,” he said.

Hershman pointed to an increase in state revenues last month as
a sign that the state’s economy was starting to recover.
Revenues in June totaled $8.8 billion, 10 percent higher than had
been projected, according to the office of the state
controller.

Hershman also said he expected a state budget to pass within a
couple weeks, if not a couple days.

Because of the compact, the state budget will likely hold little
surprise for the university. The regents have already increased
undergraduate in-state student fees by 14 percent and graduate
student fees by 20 percent in anticipation of the cut.

In addition, the university recently cut enrollment by 3,200
students and deferred admission to 5,700 students ““ the first
time the university was forced to deny admission to eligible
students.

Hershman said the compact should secure the funds necessary for
the UC to make up for the lost ground.

Financial analysts tend to agree that there is no need to be
concerned about the budget’s delay.

“There is no immediate effect on the state economy … the
governor has borrowed enough money under Proposition 57 passed last
March so that there is no cash shortage. That is, there is money to
pay the bills despite the fact that the state has not resolved its
chronic deficit,” said Dan Mitchell, a professor at the UCLA
Anderson School of Management, in an e-mail.

The budget’s delay will likely only have minor effects on
the economy, and because of the state’s fiscal structure
these effects will be minimal, professors at the Anderson school
also said.

The two ways the delay could possibly have an effect on the
economy are a decrease in consumer confidence and on minor
borrowing issues, said Steve Lippman, a professor at the Anderson
school.

“Right now it’s pretty much a non-issue … of
course, only if the delay lasts for another week or two,”
Lippman said.

University officials have shifted their focus from Sacramento,
and instead are focusing on the needs of students, staff, and
faculty.

The university’s top budget priorities are still funding
enrollment, dealing with cuts to outreach programs, and securing
funding to open UC Merced, the newest UC campus, in 2005, Hershman
said.

He also mentioned some proposals in the works for the
university’s 2005-2006 budget. The university is planning on
increasing enrollment by 5,000 students and increasing faculty
salaries by 3 percent, he said.

For university officials, change must come about internally.