State Budget Punishes University of California's President's Office

by | June 14, 2017

By Melody Gutierrez

Gov. Jerry Brown and legislative leaders announced a budget deal Tuesday that strips University of California President Janet Napolitano's office of some of its financial autonomy, limits the authority of the embattled Board of Equalization, increases tax credits for the poor and saves the Middle Class Scholarship program at public universities.

The budget deal includes a plan for spending money from new tobacco taxes approved under Proposition 56 in November. That revenue would go toward increasing payments by up to $325 million for doctors and up to $140 million for dentists who see Medi-Cal patients.

Consumer groups said those increases are desperately needed to restore access to medical services for the poor.

Another $50 million from the tobacco taxes would fund family planning services, such as Planned Parenthood, and $27 million would be spent on rate increases for intermediate-care facilities for developmentally disabled people.

"This budget keeps California on a sound fiscal path and continues to support struggling families and make investments in our schools," Brown said in a statement.

The proposed $125.1 billion general fund budget for the fiscal year beginning July 1 is slightly bigger than the current year's $122.3 billion budget. The state's general fund pays for basic state services such as education, prisons and social-service programs.

The budget deal includes:

--A $6 billion payment to CalPERS, the pension plan for state and government workers, in hopes of reducing the state's unfunded liabilities and saving $11 billion in payments over the next 20 years.

--An expansion of the state's Earned Income Tax Credit so that more people qualify for the benefit by including taxpayers who are self-employed and by raising the income eligibility from $14,000 a year to $22,300 a year.

--A rejection of Brown's plan to phase out the Middle Class Scholarship program at the University of California and California State University. Instead, the scholarship program would be kept and Cal Grants would increase to cover rising fees at campuses.

--An addition of $1.8 billion to the state's budget reserve, bringing the total this year to $8.5 billion.

--An increase of $1 billion in public-school funding since Brown's first budget proposal in January. Total K-12 and Community College spending would be $74.5 billion in the next fiscal year.

Lawmakers have to approve most elements of the deal by Thursday. When passed, the budget bills would then head to Brown for final approval.

Included in one of the budget bills pushed by Democratic leadership is language that would help an Orange County Democrat fight a recall effort. State Sen. Josh Newman of Fullerton is facing a recall campaign after his vote in April to increase gas taxes and vehicle fees to pay for the state's roads and bridges.

Language in a budget bill would increase the time it takes to qualify a recall for the ballot, which proponents of the Newman recall called an abuse of power and said they will challenge. By adding the change to a budget bill, the longer timelines would go into effect immediately and potentially help Newman keep his seat.

Assembly Speaker Anthony Rendon, D-Paramount (Los Angeles County) defended the effort to help Newman, saying the Legislature is committed to oversight and that includes monitoring procedures for recalls. He said this year's budget extends that oversight to the UC President's Office and Board of Equalization.

"We have talked repeatedly about the need for oversight," Rendon said. "We take our accountability role seriously."

The main budget bill, AB97, sends $296.4 million for Napolitano's office in the upcoming fiscal year that begins July 1 and another $52.4 million for UC Path, the university's payroll and human resources system.

In the past, the state gave that money to campuses, which were then charged campus assessment fees by Napolitano's office. That indirect state funding gave the president's office exclusive control over how to spend that money. Under the deal, the state would instead directly send money to Napolitano's office and require UC to eliminate the campus fees, so that lawmakers could oversee and control how that money is spent. UC opposed the change, which would be for one year. Lawmakers could decide during budget negotiations next year whether to continue the oversight of Napolitano's budget.

Lawmakers moved to wrest control of spending by Napolitano's office after a state audit found a litany of problems there, including hidden funds and misleading accounting practices. The budget bill also includes other strings on the president's office, such as barring it from providing supplemental retirement payments for new senior administrators.

The state would withhold $50 million in funding if UC doesn't fix financial problems the state auditor identified in the review.

"After the findings of the auditor, we decided to take action," said Assemblyman Phil Ting, D-San Francisco. "We will be providing greater oversight."

Lawmakers also imposed significant reforms on the Board of Equalization, the state's tax collector. The agency will see most of its authority and staff stripped away and given to a to-be-created California Department of Tax and Fee Administration.

The tax board -- made up of four elected board members and the state controller -- will continue to oversee property-tax assessments, assess taxes on insurers and collect taxes on alcohol because those duties are enshrined in the state Constitution. Tax appeals and sales-tax collection would move to the new state department, along with many of the Board of Equalization's 4,700 staff members.

Lawmakers said the agency was the "picture of dysfunction," pointing to long waits for taxpayers to get resolutions and an audit that found the agency misallocated tens of millions of dollars without explanation.

"Something had to be done to restore public trust," said state Sen. Richard Roth, D-Riverside.

Board of Equalization member and state Controller Betty Yee recommended the changes earlier this year, saying the agency has lost the public's trust after audits highlighted poor accounting and spending on events seemingly unrelated to collecting taxes.

Board member George Runner, however, blasted the changes, saying they were not properly vetted.

"This last-minute budget power grab would strip California taxpayers of their right to bring their tax appeals before their elected peers," Runner said in a statement. "In its place the bill would establish yet another unelected and costly tax bureaucracy."

(c)2017 the San Francisco Chronicle