Gov. Jerry Brown unveiled his revised budget on Friday the 13th, which implies that he’s not superstitious.
However, amid signs of a cooling economy – and therefore flattening revenue – Brown’s run of fiscal luck may be ending, and he knows it.
“Things don’t last forever,” Brown told reporters – to whom he had given copies of Aesop’s fable about the thrifty ant and the profligate grasshopper. “The surging tide of revenue has begun to turn as it always does.”
Brown’s revision cuts projected 2016-17 revenue by $1.9 billion, reflecting a shortfall in current revenue, and he’s telling his fellow Democrats in the Legislature to cool hopes of raising health and welfare spending, saying it would “spend money you don’t have.”
“To me it’s so obvious,” he said, pointing to the likelihood of an economic downturn and implying that liberal legislators don’t want to see it. “We’ve got to get ready for a deficit (and) I’m going to be very resolute on this budget.”
When Brown returned to the governorship five years ago, the economy was emerging from the worst recession since the Great Depression, and that, coupled with a temporary tax hike he sponsored in 2012, has produced a cornucopia of money that Brown has concentrated on schools, debt retirement and reserves.
Unions, health care advocates and other groups are sponsoring an extension of the 2012 measure’s income tax hikes on high-income Californians, but Brown pointedly refused to say Friday whether he supports or opposes it, only repeating that he meant it to be temporary.
But he warned that income taxes, especially those on the most affluent Californians, tend to be even more volatile than the economy as a whole, calling it a “zig-zag reality” that bounces against spending commitments to create deficits.
The tax extension, if passed by voters in November, would keep the budget in balance, unless there’s another recession, Brown said, but without it the state could see deficits circa 2019 even without a recession.
“I’m prepared to manage with it, I’m prepared to manage without it,” Brown said.
Underlying the budget are signs of an economic slowdown, particularly in the technology-heavy San Francisco Bay Area, which has largely generated the big revenue surge.
Venture capital investment in the region has flattened, its red-hot real estate market has cooled, tech companies are shedding employees and the global economy has been sluggish, even in China.
Brown rightfully notes that the recovery he inherited has already lasted longer than the average post-recession expansion and therefore, his budget introduction warns, “The next recession is getting closer – even if we cannot tell exactly when it will hit.”
Brown’s “very resolute” attitude on holding down non-school spending and building reserves creates conflict with liberal legislators and their constituent interests, such as unions and advocates for health and welfare services to the poor.
They had been counting on 2016 to be the year in which the service cuts imposed during the depths of recession and that Brown has largely maintained – except for schools – would vanish and new spending, especially for child care and early childhood services, would begin.
Brown, however, is clearly contemplating the last few years of his second governorship and his place in the history books, and the last thing he wants is to hand his successor a budget awash in red ink.
That, as he certainly remembers, is how his first governorship ended in 1983.