Brown Projects Economic Slowdown, Deficit In New Budget Plan
Gov. Jerry Brown has proposed scaling back state spending, forecasting sluggish revenues that would otherwise leave California with a $2 billion budget deficit, as well as possible federal changes from Republican lawmakers that could have uncertain effects on funding.
Brown kicked off budget negotiations at the state Capitol Tuesday by introducing an initial proposal that would cut planned growth in spending from the state’s General Fund. Brown has warned for years about the looming threat of another economic slowdown, and Tuesday, he suggested it may be beginning. His Department of Finance estimates state revenue will fall $6 billion below last year’s predictions, due to a slowdown in sales, personal income, and corporate taxes.
The budget does not assume changes to federal spending, including money the state receives under Obamacare. But, Brown noted a repeal, as Republican lawmakers and President-elect Donald Trump have proposed, would remove billions of dollars from the California budget.
“We’re in very uncertain times. Anybody that thinks they can predict future finances, the economy—we’re really subject to a lot of unpredictability,” Brown said. “So that’s the point, whether it’s a new administration and what they might do with money that would usually flow to California, or the economy itself, I think it is time for precaution.”
Brown proposes making up much of the projected $2 billion deficit by scaling back—but not removing—planned increases to education spending. The administration says per-pupil spending would still increase. The plan also would end a state-funded scholarship for students at state universities, after most of the current students graduate.
That, in particular, drew criticism from Democratic lawmakers, even as they generally praised the spending plan.
“Clearly, we cannot spend revenue that we do not have but we need to continue to move forward,” said Assembly budget chair Phil Ting in a statement. “We believe in making responsible investments in the success and security of our people.”
The plan would eliminate money from another priority of Democratic lawmakers.
The administration would save an extra almost $1 billion by recapturing affordable housing funding it did not spend last year, after negotiations with lawmakers broke down, as well as unspent funds for state building improvements.
While the plan would flatten General Fund spending—the state’s main piggy bank—to a level roughly the same as this year’s, total state spending would increase by about $8 billion.
Budget director Michael Cohen says the extra revenue would come from extra fees collected, including from hospitals after voters-approved Proposition 52, and from an increase in the gas tax. Brown is once again proposing an increase to the gas tax to fund the repair of transportation infrastructure—a deal the Legislature has failed to reach in the past two years, but which Democratic lawmakers call another priority.
Republican Senate leader Jean Fuller criticized the governor’s budget.
“We’re sorry that the spending is continuing to grow, and that the deficit hasn’t been downwardly adjusted more, but we approve of the fact that we’re not increasing taxes,” Fuller says. “And we are a little worried that a mild recession—even a mild recession could throw this budget out of balance.”
State Lawmakers Name Transportation Deal As One Of Top Priorities
Governor's Budget Estimates State Will Gain Billions From Cap-And-Trade Program
The governor’s budget continues to estimate California will gains billions of dollars from its cap-and-trade program, but with a caveat this year.
The program makes money by auctioning pollution credits to companies, which allow them to emit greenhouse gases. But last year, proceeds fell far short of estimates.
State finance director Michael Cohen is not scaling back this year’s projections, as a result. He says if the Legislature can clear up concerns about the program ending, it will continue to bring in money.
"We’re seeking a two-thirds vote to extend the program to eliminate any possible uncertainty," says Cohen. "Once that passes we would be in position to allocate $2.2 billion of cap-and-trade."
In other words, the governor’s proposal requires lawmakers to extend the program beyond 2020, before they can choose where to spend a share of the funds.
Governor's Budget Proposal Draws Mixed Praise From State Lawmakers
Brown Proposes Medicaid Budget Increase, Decries Possible Affordable Care Act Repeal
Gov. Jerry Brown has proposed more funding for the state's version of Medicaid despite talks that the Affordable Care Act may be repealed under the new administration.
Brown presented the state's newest budget Tuesday as questions about the future of Obamacare remain largely unanswered.
He says repealing the ACA would be difficult and disruptive.
"I don't think that there's a politician in American history that could ever imagine taking away health insurance from 20 million Americans,” Brown says. “That's very bold and a move that I don't think is very consistent with decency and being a very smart political leader."
Enrollment of the Medi-Cal population will grow to 4.1 million Californians. The state’s General Fund will allot $1.6 billion to the program, up from $888 million last year.
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