Econ 240 C

1. Econ 240 C Lecture 12

2. The Big Picture • Exploring alternative perspectives • Exploratory Data Analysis • Looking at components • Trend analysis • Forecasting long term • Distributed lags • Forecasting short term

3. The 2010-2011 CA Budget • Long Run Perspectives • Univariate trends • Bivariate relationships • Short Run

4. UC Budget $B nominal Vs. Fiscal Year

5. UC Budget Billions Nominal $ Vs. Fiscal Year: 1998-09 – 2010-11

6. ? 2001-02 Recession 1991-2 RECESSION

7. US Civilian Unemployment Rate

8. UC’s Share of California General Fund Expenditures

9. Relative Size of California Government

10. CA Budget Crisis • Estimate of the relative size of the CA government: 5.14 % • Estimate of UC’s Budget Share: 3.68% • UC Bud = 0.0368*0.0514*CAPY • UC Bud = 0.00189* 1597.2 $B • UC Bud = 3.021 $B for 2010-11 • UC Bud = 3.019 $B Governor’s proposal

12. Schedule 6 Fiscal Year: CA personal Income, CA General Fund Expenditures

13. Schedule 9: UC Budget, Gen. Fund Support

17. Salary by Major

18. Economic Concept of a Public Good • Consumption by one person does not leave less for the next person • National Defense • Safe Streets • Public Health • Flu shots • Measle vaccinations

19. Return to Education

20. The story based on a bivariate distributed lag model 07-08

21. Another Story Based On a Univariate ARIMA Model

22. Part I. CA Budget Crisis

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

24. UC Budget • Econ 240A Lab Four • New data for Fiscal Year 2008-09 • Governor’s Budget Summary 2008-09 • released January 2008 • http://www.dof.ca.gov/

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

29. Log Scale

30. Nov 1989 Berlin Wall Down

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

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

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

37. 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

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

42. 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.

43. 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)

44. 07-08

45. 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

46. CA Budget Crisis • Estimate of the relative size of the CA government: 6.50 % • Estimate of UC’s Budget Share: 3.00% • UC Bud = 0.03*0.065*CAPY • UC Bud = 0.00195* 1588.5 $B • UC Bud = 3.098 $B for 2008-09 • UC Bud = 3.494 Governor’s proposal

47. Forecasts of UC Budget, 08-09

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

49. Econometric Estimates • Linear Trend Estimate • UCBUDB(t) = a + b*t +e(t) • A lucky coincidence • Usually either too low or too high!

50. A Lucky Coincidence: 2 out of 10