Capitol Alert

Surplus swells as Gov. Jerry Brown’s last budget grows to $199 billion

Watch Gov. Jerry Brown defend his revised budget for California

Gov. Jerry Brown discusses his plans for California's surging budget surplus for 2018-19 at a press conference on Friday, May 11.
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Gov. Jerry Brown discusses his plans for California's surging budget surplus for 2018-19 at a press conference on Friday, May 11.

Gov. Jerry Brown is using a surging, $8.8 billion surplus in his 16th and final year leading the state to stash billions of dollars in reserves.

He wants to put almost all of the additional money — $7.6 billion of it — into two reserve funds that combined would hold $17 billion a year from now if trends hold.

He warned at a press conference Friday where he unveiled his final budget for the 2018-19 financial year that a recession could be just around the corner and the state should avoid long-term commitments that it might not be able to afford in a downturn.

“This is a time to save for our future, not to make pricey promises we can’t keep. I said it before and I’ll say it again: Let’s not blow it now,” Brown said.

His plans calls for $137.6 billion in general fund spending and $199.3 billion in total spending. Those sums reflect the dramatic turnaround in the state’s fortunes since Brown took office in the throes of a recession eight years ago.

This year’s tax revenue is coming in at almost $3 billion ahead of the schedule Brown projected in January, when his office predicted a $6 billion surplus.

Brown’s general fund budget eight years ago spent $91.5 billion — $46.5 billion less than he’s proposing for the next financial year.

Now, Brown says, the good times can’t last. The Department of Finance says the state is approaching its longest-ever economic recovery, coming close to the 10-year run that began in 1991.

The governor flashed charts that showed steep declines in tax revenue in recessions and warned the state is overdue for lean times. He pointed to peak revenue years that his predecessors Gray Davis and Arnold Schwarzenegger enjoyed, only to slash services a year later.

“Up here was Gray Davis,” Brown said, pointing to his chart. “He was really great, but he ended up down here. Arnold, he started feeling even greater, but he ended up down here.

“Life is very giddy at the peak, and those are the peaks, but I’m not giddy,” Brown continued.

Brown’s preference to pile money in reserves may put him at odds with lawmakers who are carrying plans that would spend an extra $1.5 billion fighting homelessness, another $1 billion on health care and hundreds of millions of dollars in additional spending for the University of California and California State University systems. The Democrat-controlled Legislature must pass a budget by June 15.

Brown’s budget steered some money toward those priorities, but not nearly in the sums that lawmakers say they want.

He proposed that some of the surplus will be used on one-time spending for infrastructure, including $2 billion for deferred maintenance at universities, courts and other state facilities. Another $359 million will go to cities to deal with homelessness and $312 million for mental health services, both to help counties provide services and to train mental health professionals.

Brown’s January budget draft put the state on a course to fill its so-called rainy day fund by July 1, 2019. By law, the fund can only hold a sum equivalent to 10 percent of general fund revenue— $13.8 billion next year.

If money continues to come in above that level, the state by law is supposed to spend any additional revenue on infrastructure, like roads, prisons and state offices.

Brown’s proposal calls for the state to direct another $3.2 billion into a separate budget reserve that is used for emergencies like natural disasters.

Legislative leaders shortly after Brown’s conference released statements suggesting they’re preparing to advocate for more spending. Some of them want to restore funding for social services that were cut during the recession.

“We are investing again in areas that we value, that we know are important, that we cut when the state was broke. Now that the state is $8 billion more in the black than we were eight years ago, of course it makes sense that we reinvest in those programs,” said Senate Budget Committee Chairwoman Holly Mitchell, D-Los Angeles, who wants to increase funding for poor, working families with children.

Sacramento Mayor Darrell Steinberg is working with Assembly Budget Committee Chairman Phil Ting on a proposal that would deliver even more money to help cities address homelessness. Steinberg was enthusiastic about Brown’s budget, calling the $359 million for homeless programs “the beginning of the dance” that would lead to additional funds.

“It’s a great first step, but we think that level of initial investment needs to be higher,” Steinberg said.

Assembly Republican Leader Brian Dahle of Bieber argued outside of Brown’s press conference that the state should save even more money, or lower taxes.

“We should give some money back to the taxpayer,” he said. “I’m suggesting that we lower taxes in general.”

California tax revenue depends heavily on income tax from high-earning households, and it’s vulnerable to volatile swings in a recession. Some lawmakers would prefer to find another way to save even more money than the rainy day fund allows, such as by creating another savings fundor setting aside money for future debt payments and pension obligations.

“There’s more than one way to save money for California. One is to put it away for the rainy day, which you have to do. The other is paying down debt. The liabilities continue to grow,” said Assemblyman Tim Grayson, D-Concord, who has submitted a bill that would create a new budget reserve. He’s concerned about the state’s two main public pension funds, which have about 70 percent of the assets they would need to pay the benefits they owe to retired workers and public employees.

Brown said he would look at the Democratic proposals but that proponents shouldn’t get their hopes up. “We’re already over-extended,” he said. “I’ll be very cautious in this year’s budget. … If you take all these needs — and there are a lot of them — it’s endless. … I don’t think the money is there.”