Dan Walters

Gov. Jerry Brown sees downturn, proposes flat state budget

Ever since he returned to the governorship six years ago, Jerry Brown has preached fiscal caution, warning that the state would inevitably see another economic decline and plunging revenue.

Brown did it again Tuesday as he unveiled a preliminary 2017-18 budget that builds reserves and flattens spending to cope with a relatively small ($2 billion) projected deficit.

Citing soft revenue, particularly in all-important personal income taxes, Brown warned, “the downturn is inevitable.”

Of course it is, but whether it’s already occurring, or will occur sometime in the future, perhaps after he’s departed from the governorship two years hence, is very uncertain.

The $2 billion deficit projection is based on both current law and Brown’s assertion that revenue will be $5.8 billion less than previously forecast over the three years from 2015 to 2018.

However, the Legislature’s own budget analyst, Mac Taylor, has a different take, telling his bosses recently that he expects income taxes alone in 2017-18 to be $5 billion more than Brown projects for next year.

Disparate analyses of our notoriously volatile revenue system between Brown’s bean counters and the Legislature’s will likely be the focal point of conflicts between Brown and his fellow Democrats in the Legislature, who make no secret of their desire to spend billions more, particularly on social services and early childhood education.

Thus, the budget that Brown offered Tuesday is even more preliminary than usual. The real budget will emerge five months hence, after revenue projections are updated in May with data from April’s income tax filing deadline in hand.

Income taxes account for more than two-thirds of the state’s general revenue – twice their proportion during Brown’s first governorship four decades ago – and most are paid by a relative handful of high-income Californians, particularly on very unpredictable investment earnings.

“This is just the corollary of a progressive tax system,” Brown said Tuesday, saying the only way to cushion revenue uncertainty is “a very large reserve.”

Brown’s caution – what he calls “prudence” – is warranted by both short- and long-term politics.

It’s much easier for Brown to propose a tight budget now and loosen the purse strings later in June, if revenue picks up, than it would be to do the opposite. And he’s certainly concerned, although he denies such selfish motives, about leaving a crushing budget deficit for whoever succeeds him in 2019.

Most incoming governors, including him, have faced such deficits, and Brown ran for governor again in 2010 on a pledge to put the state’s finances in order by paying down debt and building up reserves.

Leaving a pool of red ink for his successor would stain his legacy, and also would be bad for the state.

However, it could be a near thing. As Brown says, the state is overdue for a downturn. His advisers calculate that even a moderate recession could drop revenue by $18 billion a year, considerably more than the rainy-day fund he’s building as a cushion.