Capitol Alert

How will the GOP tax plan affect Jerry Brown’s final budget for California?

Gov. Jerry Brown shows a paper during a workshop on climate change at the Casina Pio IV at the Vatican on Nov.4, 2017.
Gov. Jerry Brown shows a paper during a workshop on climate change at the Casina Pio IV at the Vatican on Nov.4, 2017. The Associated Press

Before he terms out of California’s highest office, Gov. Jerry Brown has one more budget to negotiate – a deal that may be complicated by actions taken far outside the state’s borders.

Republicans in Congress are in the final stages of a massive overhaul of the federal tax code, which they are eager to pass before Christmas. It could have profound implications for Californians’ pocketbooks, particularly if the cherished deduction for state taxes is eliminated, but the impact on California’s overall fiscal health is not yet clear.

Amid the uncertainty, Brown and his administration are preparing a 2018-19 budget proposal, to be released by Jan. 10. Finance Department spokesman H.D. Palmer said they are “making final decisions recognizing that circumstances may change.”

“Until or unless there is a change in federal law that has been approved by the Congress and signed by the president, we generally budget based on the current law,” he said.

Changes to the tax code are not the only contingency that Brown must consider. Palmer pointed out that Congress has yet to reauthorize funding for the Children’s Health Insurance Program, which provides coverage for children whose families earn too much to qualify for Medicaid. The program expired on Sept. 30.

California receives more than $2 billion annually from CHIP to enroll about 1 million children in Medi-Cal. Palmer estimates that money will run out in January. Without federal support, which compromises at least two-thirds of the program’s funding, the state will have to find another way to pay for it.

“We plan for uncertainties like this by being prudent on the expenditures side and building up a significant fiscal reserve,” Palmer said.

The Brown administration is preparing a letter detailing its concerns with the proposed tax overhaul that it will send to California’s congressional delegation this week, as Senate and House representatives meet to combine their versions of the bill.

Some observers have suggested that California could offset the impact of the GOP plan by shifting the state tax burden for residents from income taxes to payroll taxes or even to property taxes, for which they can also take a federal deduction that is maintained in the current bill. Brown, however, has shot down that idea as implausible, since it would mean changing Proposition 13.

All of this could tamp down even more than usual on the fiscally cautious Brown’s appetite for new spending. So how are legislative Democrats, who have pushed recently for the state to expand its commitment to policies like subsidized child care and debt-free college, responding? Assemblyman Phil Ting, the San Francisco Democrat who chairs the Assembly Budget Committee, will release an outline of his priorities at 1:30 p.m.

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WORTH REPEATING: “When voters collect tens of thousands of signatures to trigger a recall election against a politician, they deserve to see that recall election held expeditiously.” – Republican Carl DeMaio, on the possibility that Brown will delay a recall election of Democratic Sen. Josh Newman of Fullerton

CELEBRATIONS: Happy birthday to Rep. Anna Eshoo, D-Menlo Park, who turns 75 today.

Alexei Koseff: 916-321-5236, @akoseff

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