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Brown’s final California budget stashes billions in reserve

Gov. Jerry Brown details his final California budget

California Governor Jerry Brown speaks to members of the press about the 2018 state budget.
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California Governor Jerry Brown speaks to members of the press about the 2018 state budget.

In his 16th and final year as governor, Jerry Brown is using a surplus to stash away billions of dollars in reserves that would help his successor weather a recession while boosting some of his signature programs.

He’s proposed a $190.3 billion spending plan on Wednesday that accelerates funding for his 2013 education law and uses new gas tax revenue to fund $4.6 billion in new transportation projects.

The centerpiece of his plan, though, is a $5 billion jolt to the state’s so-called rainy day fund, which he championed with a 2014 ballot initiative to steady California’s boom and bust finances.

For the first time, the rainy day fund would hold 10 percent of California’s general fund revenue. That would give the state $13.5 billion to use in a fiscal emergency by June 30, 2019.

“We have the piggy bank waiting for the next governor and when the recession happens, he or she will be able to spend that money … and get through the recession with a minimum amount of pain,” Brown said.

Brown characterized his budget as cautious, both because of the recession that he believes is looming and the prospect of the Republican Congress cutting social services in the wake of its vote for a tax cut last month that could swell the federal deficit by $1.4 trillion over a decade.

Michael Cohen, Brown’s finance director, cited that uncertainty when he described the administration’s decision to boost the state’s reserves rather than pay down debt or increase funding for ongoing services.

Cohen said the state won’t understand the full impact of the new tax law until next year, after it sees how high-earning Californians adapt to the loss of popular deductions they used to lower their taxes. The new law capped mortgage interest deductions and eliminated a deduction that let residents of high-tax states write off some of their state and local taxes.

If those changes entice many high-earning Californians to leave the state, Brown warned, the state budget would start to be pinched because its revenue depends heavily on income taxes paid by its wealthiest residents.

“People with higher incomes pay a lot more money, and some of them may be tempted to leave,” he said. “This was an assault by the Republicans in Congress against California and New York and New Jersey,” he said, listing states that made heavy use of the deductions.

He’s using some of that money to speed up the full funding of his 2013 education plan, the Local Control Funding Formula. His budget would hand schools $3 billion for the program, which they can use to augment resources for needy students. He’s also setting aside $120 million to create a new online community college program that would provide opportunities to working adults.

The budget earmarks some funds for improvements to emergency services, too. The state has spent almost $900 million fighting disasters like wildfires in this budget year. The next budget projects a return to normal, with about $500 million for unexpected contingencies.

It also sets aside almost $100 million for new flood control projects. Cal Fire would get a $127 million to buy new helicopters, set up a year-round air tanker base at McClellan Airfield and open a new training center in Ventura County.

Some other one-time expenses include $134.3 million to replace voting systems for all of the state’s 58 counties and $40.3 million to help the 2020 U.S. census get an accurate tally of California residents.

Democratic leaders praised Brown’s caution in filling the rainy day fund even as some of them signaled that they may open discussions on different spending priorities.

“I look forward to working with the governor on additional measures to keep the state on strong economic footing, including increasing the state’s Earned Income Tax Credit, expanding health care to cover all Californians, and ensuring all students have access to affordable higher education,” said Assemblyman Phil Ting, D-San Francisco, chairman of the Assembly Budget Committee.

Other advocates hinted they’d lobby for more funding. Anthony Wright, executive director of Health Access California, said he’d urge lawmakers to reverse some lingering “grievous cuts” to social services they made during the recession. The union that represents California State University professors held a demonstration outside the Capitol urging more higher education funding, and lobbyists who represent public schools said they’d nudge Brown to deliver more funding to his local control program.

Republicans, meanwhile, called the surplus a sign that Californians are overtaxed. In particular, they said the surplus showed the gas tax that went into effect on Nov. 1 was unnecessary. It aims to collect $52 billion over a decade.

The surplus is “graphic proof that Californians paid too much tax last year,” said Assemblyman Jay Obernolte, R-Hesperia, the senior Republican on the Assembly Budget Committee.

Brown’s flush funds were a stark contrast from the dire budget he faced when he took office for his second stint as governor eight years ago, when the Great Recession had hobbled general fund revenue by $15 billion, compelling budget cuts and furloughs for state workers.

His office projects general fund revenue of $132 billion for the upcoming budget year, $40 billion more than the state collected eight years ago.

Lawmakers probably have even more money to dole out. Brown’s budget did not commit revenue it expects to collect from new cannabis taxes, although Cohen said the state alone anticipates receiving $600 million in the upcoming year.

Brown was flanked by two charts, one showing that his budget assumed that the current economic expansion would match the longest period of growth in the state’s history, a 120-month run that began in April 1991.

The other described California government’s recent history of over-extending itself. The state recorded deficits throughout Gov. Arnold Schwarzenegger’s tenure and in the first years of Brown’s terms.

He pointed to the one that showed the long economic expansion and said he enjoyed that run. “What’s out there,” he said, pointing to the edge of the chart that picks up after his term, “is darkness, uncertainty, decline and recession, so ‘Good luck, baby.’”

Gov. Jerry Brown presented his latest state budget proposal at the California Capitol on Jan. 10, 2018.

Adam Ashton: 916-321-1063, @Adam_Ashton. Sign up for state worker news alerts at sacbee.com/newsletters.

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