Brown's proposal urges corrective action in light of uncertain financial future

[aesop_image imgwidth=”500px” img=”” credit=”Infographic by Denny Cristales | Signal Tribune” align=”right” lightbox=”on” caption=”Source: State of California
Since 2000, balanced budgets in the state have been quickly followed by huge deficits, according to the governor’s office.” captionposition=”right” revealfx=”off”] [aesop_character name=”Cory Bilicko” caption=”Managing Editor” align=”left” force_circle=”off”] Gov. Edmund G. Brown released his budget this week, calling it the “most difficult” one the state has faced since 2012.
In his introduction to the proposed budget, Brown said that the “surging tide” of revenue increases in recent years appears to have turned, and the state is now facing a budget deficit of $2 billion.
“While this amount pales in comparison to the $27-billion deficit we faced in 2011, it demands our attention,” Brown wrote. “Small deficits can quickly mushroom into large ones if not promptly eliminated. While rolling back some planned spending increases, my proposed budget protects our most important achievements— more money for education, an earned income tax credit for working families, the rising minimum wage, the extension of health care to millions and the paydown of our long‑term liabilities.”
The governor added that, in all likelihood, even worse financial news is coming, either from the start of the next inevitable recession or from changes at the federal level.
“This uncertainty about the future makes acting responsibly now even more important,” Brown wrote.
According to the budget proposal, as the state’s economy has recovered from the last recession, the past four budgets have greatly expanded government spending and California has paid down its budgetary borrowing and addressed some long‑standing problems, such as implementing plans to restore fiscal health to its retirement benefit plans and improving the state’s water system.
State revenues that had surged during several years of recovery are now starting to lag expectations, and, therefore, the budget, which had remained barely balanced even in the best revenue years, is now facing a multi-billion-dollar deficit unless action is taken.
The budget proposes a number of fixes to regain balance for 2017‑18 and future years based on current projections. According to Brown, it prioritizes the protection of the most significant achievements of the last four years: steady growth for education, the creation of the state’s first earned income tax credit, a minimum wage that will responsibly increase to $15 per hour and the expansion of healthcare coverage to millions of Californians.
“To protect these priorities, the budget proposes to pull back on a variety of one‑time spending commitments made in last year’s budget and temper anticipated spending increases,” states the proposal’s introduction. “While rebalancing the budget is the immediate task at hand, the state must continue to plan for and save for the next recession. By the time the budget is enacted in June, the economy will have finished its eighth year of expansion, three years longer than the average recovery. The best way to protect against future cuts is to continue to build up the state’s Rainy Day Fund. Under Proposition 2, the fund’s balance will reach 63 percent of its constitutional target in the coming year.”
The budget will fall out of balance without corrective action, the proposal states, adding that the fiscal stability from a balanced budget and a recovering state economy have provided a welcome break from the deficits of the last 10 years. However, in the last 17 years, the state’s short periods of balanced budgets have been followed by major budget shortfalls.
Compared to the 2016 Budget Act signed in June, the two main factors behind the deficit are a revenue forecast that is $5.8 billion lower than anticipated and a current‑year shortfall in the Medi‑Cal program.
If not for the passage of several ballot measures last November, the deficit would be billions worse, according to state officials. Some of those measures include Proposition 52 (hospital fee), Proposition 56 (tobacco tax) and Proposition 57 (prison reform). Proposition 55’s extension of temporary income-tax rates on the wealthiest in the state will start to help balance the budget in the next fiscal year.
Assemblymember Patrick O’Donnell (D-Long Beach), who represents the 70th District, praised the governor’s fiscal responsibility but called for continued support of California’s students.
O’Donnell, a teacher who chairs the Assembly Education Committee, said in a statement Tuesday that the governor’s proposal reflects a shared desire for a fiscally prudent budget.
“This includes increasing the state’s Rainy Day Fund to nearly $8 billion along with plans for paying down the state’s debts and liabilities,” O’Donnell wrote. “However, fiscal restraint must not be shouldered by California’s students or come at the cost of their education.”
The Assemblymember detailed three major elements in protecting students.
The first of these is to make sure Proposition 98 is the floor rather than the ceiling.
“While the governor’s proposal allows K-12 per-pupil spending to keep pace with enrollment growth and inflation, the Legislature will want to examine proposed accounting changes to Prop. 98,” O’Donnell said.
The second element O’Donnell promoted is to move forward with the school bond program.
“I agree with the governor that the school bond program needs improvements, but voters approved Proposition 51, and the State should avoid any hurdles to the allocation of these funds,” O’Donnell said. “These facilities impact the health and safety of students.”
O’Donnell also wants to maintain the Middle Class Scholarship, which provides undergraduate students, including students pursuing a teaching credential, with family incomes and assets up to $156,000 a scholarship to attend University of California (UC) or California State University (CSU) campuses.
“I strongly oppose the elimination of the Middle Class Scholarship,” O’Donnell said. “Keeping college affordable is vital to our state’s economic future. Ending the Middle Class Scholarship will only result in more crushing student debt and additional financial challenges for working-class families.”
In a statement this week, Assembly Budget Committee Vice Chair Jay Obernolte (R-Hesperia) said he is pleased that Brown is proposing a responsible spending plan in light of the economic uncertainties facing California, but he said the budget should focus on fixing existing state programs that are failing before committing more money to new programs.
“We need to help Californians learn job skills for the 21st century, fix the state’s failing Denti-Cal program, invest in repairs to California’s crumbling infrastructure and solve the housing crisis that is causing California’s poverty rate to be the highest in the nation,” Obernolte said. “These are the real issues facing people across our state, and they should be a priority in any budget discussion.”
He added that, unfortunately, the budget also continues to ignore the state’s out-of-control pension debts and retiree health care liabilities.
“These debts are growing larger by the day, and they steal resources from vital programs like education, health care and public safety,” Obernolte said. “Any truly balanced budget must address these threats to our financial stability.”
Californians Against Higher Taxes (CAHT), a statewide coalition of more than 200 organizations and companies as well as more than 5,000 individual taxpayers, this week criticized the fact that Brown’s budget called for extending the cap-and-trade auction program.
In an emailed statement Jan. 10, CAHT said the auction program has generated more than $4 billion from businesses and consumers that is now being spent on questionable programs that are not directly benefiting the fight against climate change in the state.
“All along, we have opposed the revenue-generating mechanism under cap-and-trade because it is a tax that was never authorized by a two-thirds vote of the Legislature, and whose revenue is being spent on programs that don’t quantifiably reduce emissions,” said Beth Miller, spokesperson for CAHT. “Now, the governor is proposing to extend the auction program through a two-thirds vote, without calling it what it is— a tax.”
Also critical of cap-and-trade this week was the National Federation of Independent Business/California.
“Our small businesses have serious concern with codifying the extension of cap-and-trade beyond 2020,” wrote NFIB California State Executive Director Tom Scott, in a statement Tuesday. “This tax on small business and consumers puts additional cost pressures on our struggling job creators in a state that only contributes 1 percent to global greenhouse gas emissions. California gains nothing for our environmental climate or business climate by pushing our jobs and emissions to neighboring states.”
Scott said Brown’s proposal affirmed the sentiment that small-business owners have been expressing for some time— that California is on the verge of an economic downturn.
“The compounding pressures of a $15 state minimum wage, protected leave mandates and mounting environmental regulations have all caused small-business owners great anxiety, which puts a drag on hiring and economic growth,” Scott said. “In the face of a $2-billion budget deficit, our focus should be on supporting small business to grow the economy to sustainably improve the health of our state finances.”
Board of Equalization Member George Runner said the governor’s continued call for fiscal restraint makes sense but the state is still vulnerable to the boom-and-bust dangers of the past, especially since California voters chose to extend tax increases on high-income earners.
“A real threat to Gov. Brown’s desired legacy of fiscal conservatism will be legislative Democrats who wish to spend more money on government programs, now that they command a super-majority in both houses,” Runner said. “That’s why it’s disappointing to see Brown use his final years as governor to call for a gas-tax hike, especially at a time when fuel prices are on the rise. A better plan to fix our roads would be to cut government waste, eliminate the bloated high-speed rail project and better prioritize existing dollars. Rather than add new programs, we should use the additional revenue to correct mistakes of the past such as the illegal fire fee and the state’s confusing fuel tax swap.”


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