Capitol Alert

California budget deal builds reserve, changes welfare rule

Brown 'resolute' on limiting new spending as revenue growth slows

Gov. Jerry Brown once against struck a cautionary tone as he unveiled his May budget revision on Friday, May 13, 2016. Video courtesy of the California Channel.
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Gov. Jerry Brown once against struck a cautionary tone as he unveiled his May budget revision on Friday, May 13, 2016. Video courtesy of the California Channel.

Gov. Jerry Brown and the Legislature have reached agreement on a budget for the coming fiscal year that repeals a long-criticized rule limiting welfare payments for people who have more children, as well as making an optional $2 billion deposit into the state’s rainy-day reserve.

The $122.2 billion general fund pact includes $100 million more for child care and preschool programs in the coming year. Talks continue, meanwhile, on ways to increase housing affordability and fund programs paid for out of the state’s cap-and-trade program.

After years of unsuccessful attempts, abolishing the maximum family grant rule emerged as a budget priority this year for legislative leaders, the legislative women’s caucus, and advocates for the poor, who took to Twitter with frequent #RepealMFG posts.

Ending the rule, which prohibits increases in assistance for any child born into a family that had been receiving aid for at least the 10 previous months, will cost the state an estimated $100 million in the first year.

Details of the pact emerged shortly before the Legislature’s budget-writing committee, which last met a week ago, convened Thursday evening to begin acting on the different components of the package. The session followed days of closed-door negotiations between legislative leaders and administration officials.

“We have a lot to be proud of,” Assemblyman Phil Ting, D-San Francisco, the chairman of the Assembly Budget Committee, said as the conference committee met.

The agreement, several days before Wednesday’s constitutional deadline for the Legislature to pass a spending plan for the year beginning July 1, marks an earlier-than-usual settling of budget differences between the Democrat-controlled Legislature and Brown’s office. Last June, the Legislature first approved its own spending plan before negotiations yielded a final agreement with Brown.

Talks on a budget package picked up after Brown released his revised spending plan May 13. The Assembly and Senate soon produced their own budgets, and last week a conference committee began reconciling differences between the houses’ proposals while leaders worked to hash out a final deal with Brown’s office.

Here are some of the other main features of Thursday’s budget package:

▪ Reserves: Brown wants lawmakers to sock away more money as a hedge against an economic downturn in the near future, and he called for an optional $2 billion contribution to the rainy-day reserve created by Proposition 2, the constitutional amendment approved by voters in 2014. The deal includes the money.

“Is it going to be a hard sell? Yeah,” Brown said last month of his proposal. “I’m going to be pretty resolute on this budget. I want people to know that. We do need reserves.”

▪ Affordable housing: Brown and lawmakers have been on the same page to borrow against the state’s 1 percent mental health services tax on millionaires to help build affordable housing for the mentally ill. But neither house embraced Brown’s proposal to limit local government’s land-use authority over proposed developments that include affordable housing. Similarly, neither Brown nor the Senate had signed on to the Assembly plan to spend $650 million on various affordable housing programs.

Negotiations continue on the housing package, with talk of a possible compromise of $400 million in one-time affordable housing money along with the changes sought by Brown.

▪ Cap-and-trade: Recent budgets have paid for high-speed rail and programs focused on such issues as forest health and water efficiency with revenue from the state’s cap-and-trade program, with almost $3.1 billion in cap-and-trade spending in Brown’s revised budget.

But the program has been thrown into uncertainty after the latest auction of pollution credits yielded just $10 million, a fraction of the more than $500 million generated by previous auctions. The Legislature’s nonpartisan fiscal analyst has warned that the state might collect much less cap-and-trade money in the coming fiscal year.

Talks continue on the cap-and-trade provisions of the budget.

▪ Jail construction: Brown’s budget included $250 million from the general fund for local jail construction. But the governor’s proposal found little support from lawmakers. Both the Assembly and Senate wanted to divert the money to other programs, such as mental health and substance abuse treatment, law enforcement training and reducing teen pregnancies.

Thursday’s pact includes $270 million for jail construction, but funded by lease revenue bonds instead of the general fund. The compromise disappointed some criminal-justice advocates. “Really disappointed to see $270 mil in funding for new jail construction,” Natasha Minsker of the ACLU posted on Twitter.

▪ Child care: Brown’s revised budget included $3.6 billion for child care and child development programs. Assembly and Senate leaders wanted more.

The final agreement includes an additional $100 million to help pay for minimum wage increases for child care providers, as well as some additional preschool slots. That amount will grow annually, along with the minimum wage, to an estimated $527 million in 2019-2020, officials said.

“An investment in child care is prudent, keeps children learning and parents working and prevents costly academic interventions later on,” said state Sen. Hannah-Beth Jackson, D-Santa Barbara, who leads the women’s caucus.

▪ Office infrastructure: Brown wanted to put $1.5 billion in a new fund to pay for three state building projects in the capital, including the renovation or replacement of the state Capitol Annex.

Thursday’s agreement includes $1.3 billion for the plan. Details have yet to emerge about what might happen with the annex, which houses the governor’s suite as well as most lawmakers’ offices.

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