Gov. Jerry Brown emphasized frugality in Tuesday’s budget proposal, which in any other year would simply be the cautious governor being cautious.
But this is the year of Donald Trump. Although Trump is not named in the documents released Tuesday, he is between the line items, and then some. The governor’s proposition to save “some biscuits for a rainy day,” isn’t just an ode to his dearly departed dog Sutter. Brown also is undoubtedly hedging against whatever might emerge from the new administration.
More immediately, Brown assumes there will be a slight slowdown in job growth and tax collections. That requires prudence, a wise path, although the proposed $179 billion budget for the 2017-18 fiscal year does represent a slight increase above the current budget.
A governor’s January budget proposal is, as always, the most educated guess about how much we collectively will pay in taxes in April. However, this year, more than many, there’s reason to worry about what might come out of Washington.
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The incoming president-elect is between the line items, and then some.
The governor’s proposal relies on more than $20 billion in federal aid used to provide health care coverage to 5 million Californians who rely on the Affordable Care Act and on the expansion of Medi-Cal, programs Trump and Republicans are contemplating cutting.
The budget makes no reduction, for now, in either program. But Brown and Finance Director Michael Cohen said in news conferences that the state will bird-dog the new administration as its plans become clearer.
Perhaps the biggest threat to California’s economy – and thus the budget – is the possibility that Trump might retreat on the nation’s commitment to free trade. The budget document notes that $165 billion worth of goods were exported from California ports in 2015, from farm products and electronics to transportation equipment and chemicals.
California’s largest trading partners are Mexico and Canada, the nation’s partners in the North American Free Trade Agreement, which Trump denounces, and China, which Trump accuses of unfair trading practices.
“Changes to existing free trade policies could cause prices to spike, and could lead to job losses as the economy adjusts,” the budget states. “This would particularly hurt lower-income workers, who would face higher prices on the goods they buy.”
Trump aside, there are other reasons for caution.
If policymakers fail to slow down spending, Brown said, there would be a $1.6 billion deficit because of what he believes will be slowing tax collections and job growth. And so the governor proposes to trim the rate of increase in public school spending by $1.6 billion, though education still would receive a 3 percent increase to $73.5 billion. The governor proposes other savings by withholding housing and state building construction funds, and limiting the rate of increase on state-funded child care.
The proposed spending slowdown would come even though voters approved Proposition 55 in November. That will generate as much as $9 billion annually by taxing the income of individuals who earn $250,000 or more. However, that measure is not a new tax. Rather, it extends what was supposed to be a temporary tax hike approved in 2012 on high-earners.
The governor allocates another $1.7 billion from an increased tax approved in November on tobacco and e-cigarettes. That spending was restricted by the initiative. Because of its provisions, the governor is earmarking $178.5 million for tobacco prevention, the biggest boost ever for the program. It will save lives.
There’s much more in the budget including proposed tax and fee hikes to generate $4.3 billion for roads and transportation; criminal justice changes to combat recidivism; and improvements to recycling.
It all will play out in months to come as legislators dig through the proposal. But given vagaries of the economy and Donald Trump, Brown is smart to start by urging that legislators keep spending on a tight leash.