As tax revenue surges, Gov. Jerry Brown is providing lawmakers with a revised spending plan that charts a sensible course between conflicting priorities.
Brown maintains his commitment to restraint while helping the least fortunate Californians share in the state’s economic recovery.
Details will change as legislative budget hearings intensify, and Assembly Speaker Toni Atkins and Senate President Pro Tem Kevin de Léon negotiate with the governor leading to legislators’ June 15 deadline for approving the spending plan.
Legislative Analyst Mac Taylor predicted the state will have $2.7 billion more to spend than was anticipated by Brown’s Department of Finance. By law, most of that money would go to public schools, but legislators could have $500 million more to spend as they see fit.
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The problem for lawmakers and Brown – a good problem to have – is how to allocate the windfall coming primarily from taxes on investment gains in real estate and the stock market. Brown offers a way for the state to alter its history of roller coaster budgeting without having to make major changes in the tax code.
Several Democrats in the Legislature hope to spend chunks of that money on new and expanded programs to bolster the safety net. Brown shares many of those goals – as do we.
But it would not be smart to make commitments that can’t be sustained once the economy and investment markets return to earth. As he said last week, another recession is coming, at some point. Also coming, unless the voters intervene, is the expiration of the tax increases Brown proposed and campaigned for in 2012.
And so the governor chose a limited set of new priorities from among the Democrats’ wish lists:
▪ A state earned-income tax credit, which helps to offset payroll and other taxes for low-income people as they move from public assistance into the workforce.
▪ Increased funding for the University of California and the California State University systems to hold tuition flat for the next two years.
▪ Medi-Cal health benefits for undocumented immigrants who are eligible for President Barack Obama’s executive order granting them residence status.
The revised budget’s big winner will be K-12 education, which will be getting $6 billion more in the coming fiscal year than was projected two years ago. The governor wisely proposed to use much of the remainder to pay down debt and add to the rainy day reserve.
California’s boom-and-bust budgeting is caused by a tax structure that leads to rises in revenue in good times, when wealthy residents profit from investments and pay taxes on those gains, and drops when recessions eat at capital gains.
One way to smooth out the fluctuations would be to reduce taxes on the rich and raise them on the middle class. That would not be fair or politically palatable, Brown noted. Another way would be to tax services. That, too, would generate significant opposition.
Brown is using a third way: Pay down debt and add to reserves. Californians voted for that approach when they approved Proposition 2 on the ballot last year. That is good for taxpayers and, ultimately, for people who rely on state services.
The next recession could be less difficult to manage, but only if California’s leaders don’t overextend commitments in the good times.