Californians received a final fiscal lesson in the upside of having a state run by a grown-up as Gov. Jerry Brown on Wednesday released his last budget and promised to squirrel away $13.5 billion in a rainy day fund.
Good thing. As the four-term governor made clear in proposing his $190.3 billion budget, the view ahead is cloudy.
A recession will hit at some point. Once that strikes, tax payments will fall, and a future governor will need to make budget cuts, though they will be softened by the surplus he is leaving. There also are the yet-to-be determined implications of President Donald Trump’s tax overhaul, which will cut taxes for corporations and for individuals in red states, but will raise taxes for many upper-income Californians.
Brown said he would have a better sense of the impact of the federal tax changes by May when he issues his revised budget. The governor needs to come up with changes to state tax law to cushion the impact of the Trump-Republican tax measure.
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But the famously thrifty Brown, who began his second stint as governor with a massive deficit in 2011, will leave the next governor with a surplus. Thank voters who approved tax hikes on high earners, the longest economic expansion since the end of World War II and Brown’s own penny-pinching ways.
With the stock market up and unemployment low, Californians will be paying more in state income taxes this April. Brown’s Department of Finance estimates a $6.1 billion windfall. But rather than allowing it to burn a hole in the state’s collective pocket, Brown is once again seeking to limit expectations.
He proposed placing an additional $3.5 billion in the state’s rainy day fund, setting aside $2.3 billion for other emergencies, and using the rest of the windfall for one-time expenses such as construction projects. The total rainy day fund would reach $13.5 billion. If he has his way, we may come to appreciate every cent.
Plenty of challenges remain for whoever succeeds Brown. One is care for severely mentally ill people, an afterthought in most administrations. In an indication of the growing problem, the budget proposal issued Wednesday notes that the number of people deemed incompetent to stand trial has increased by 33 percent since 2013-14.
Early in his tenure, Brown pushed legislation to curb pension costs, but the issue has been persistent. Retiree benefits consume 1.7 percent of the $131 billion general fund, up from less than one half percent 15 years ago.
Brown has expanded Medi-Cal to provide coverage for 3.9 million Californians, plus another 1.5 million people who are covered under the Affordable Care Act. He has signed raises to the minimum wage and implemented a state earned income tax credit, which provides payments to low-income workers.
But poverty remains high, particularly in the Central Valley. The cost and availability of housing, the focus of legislation in 2017, will become an ever larger problem. One in five California households spends more than half their income on shelter, the budget notes.
In his final budget, spending on public schools would reach $78.3 billion, up from $49.7 billion in the 2011-12 fiscal year, when California still reeled from recession. Despite that massive increase, many schools, particularly in poor neighborhoods, struggle.
Public interest lawyers at Public Citizen and the firm of Morrison & Foerster last month sued the state, contending there is a constitutional right to literacy and that schools in Stockton, Los Angeles and Inglewood have failed to teach students to read.
So California’s problems will continue to be big ones. They just won’t include a deficit, at least not until the next recession. Whoever takes office a year from now can be grateful for that favor, and for the master class in budgeting from the current occupant.