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Econ 240 C. Lecture 13. Part I. CA Budget Crisis. CA Budget Crisis. What is Happening to UC? UC Budget from the state General Fund. UC Budget. Econ 240A Lab Four New data for Fiscal Year 2004-05 Governor’s Budget Summary 2004-05 released January 2004 http://www.dof.ca.gov/.

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Econ 240 C


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    1. Econ 240 C Lecture 13

    2. Part I. CA Budget Crisis

    3. CA Budget Crisis • What is Happening to UC? • UC Budget from the state General Fund

    4. UC Budget • Econ 240A Lab Four • New data for Fiscal Year 2004-05 • Governor’s Budget Summary 2004-05 • released January 2004 • http://www.dof.ca.gov/

    5. CA Budget Crisis • What is happening to the CA economy? • CA personal income

    6. Log Scale

    7. CA Budget Crisis • How is UC faring relative to the CA economy?

    8. CA Budget Crisis • What is happening to CA state Government? • General Fund Expenditures?

    9. CA Budget Crisis • How is CA state government General Fund expenditure faring relative to the CA economy?

    10. Long Run Pattern Analysis • Make use of definitions: • UCBudget = (UCBudget/CA Gen Fnd Exp)*(CA Gen Fnd Exp/CA Pers Inc)* CA Pers Inc • UC Budget = UC Budget Share*Relative Size of CA Government*CA Pers Inc

    11. What has happened to UC’s Share of CA General Fund Expenditures? • UC Budget Share = (UC Budget/CA Gen Fnd Exp)

    12. UC Budget Crisis • UC’s Budget Share goes down about one tenth of one per cent per year • will the legislature continue to lower UC’s share? • Probably, since competing constituencies such as prisons, health and K-12 will continue to lobby the legislature.

    13. What has happened to the size of California Government Expenditure Relative to Personal Income? • Relative Size of CA Government = (CA Gen Fnd Exp/CA Pers Inc)

    14. California Political History • Proposition 13 • approximately 2/3 of CA voters passed Prop. 13 on June 6, 1978 reducing property tax and shifting fiscal responsibility from the local to state level • Gann Inititiative (Prop 4) • In November 1979, the Gann initiative was passed by the voters, limits real per capita government expenditures

    15. CA Budget Crisis • Estimate of the relative size of the CA government: 6.00 %

    16. CA Budget Crisis: Pattern Estimate of UC Budget • UC Budget = UC Budget Share*Relative Size of CA Government*CA Pers Inc • Political trends estimate • UC Budget = 0.035*.060*1266.4 $B =$ 2.66 B estimate • Governor’s proposal in January: $ 2.67 B

    17. Econometric Estimates of UCBUD • Linear trend • Exponential trend • Linear dependence on CAPY • Constant elasticity of CAPY

    18. Econometric Estimates • Linear Trend Estimate • UCBUDB(t) = a + b*t +e(t) • about 3.0 B • Too optimistic

    19. Econometric Estimates • Logarithmic (exponential trend) • lnUCBUDB = a + b*t +e(t) • simple exponential trend will over-estimate UC Budget by far

    20. Econometric Estimate • Dependence of UC Budget on CA Personal Income • UCBUDB(t) = a + b*CAPY(t) + e(t) • looks like a linear dependence on income will overestimate the UC Budget for 2004-05

    21. Econometric Estimates • How about a log-log relationship • lnUCBUDB(t) = a + b*lnCAPY(t) + e(t) • Estimated elasticity 0.855 • autocorrelated residual • fitted lnUCBUDB(2004-05) = 1.22342 • $3.40 B • actual (Governor’s Proposal) = 0.98228 • $2.67B

    22. Econometric Estimates • Try a distributed lag Model of lnUCBUDB(t) on lnCAPY(t) • clearly lnUCBUDB(t) is trended (evolutionary) so difference to get fractional changes in UC Budget • likewise, need to difference the log of personal income

    23. Identify dlnucbudb

    24. Identify dlncapy

    25. Estimate ARONE Model for dlncapy

    26. This is a satisfactory model

    27. Estimate ARONE Model for dlncapy(t) • Orthogonalize dlncapy and save residual • need to do transform dlnucbudb • dlnucbudb(t) = h(Z)*dlncapy(y) + resid(t) • dlncapy(t) = 0.714*dlncapy(t-1) + N(t) • [1 - 0.714Z]*dlnucbudb(t) = h(Z)* [1 - 0.714Z]*dlncapy(t) + [1 - 0.714Z]*resid(t) • i.e. w(t) = h(Z)*N(t) + residw(t)