Capitol Alert Breaking

California budget will test Jerry Brown’s relationship with lawmakers

Liberal activists were already criticizing Gov. Jerry Brown’s new spending plan when he got up to deliver it Thursday. A leak had revealed its contents early, rendering Brown’s presentation more a defense than an unveiling.

“Now some people would say because we have this little, little black mark there, that we should go on a spending binge,” Brown told reporters, circling in pen a surplus on the chart beside him. “I don’t agree with that.”

The argument over the black surplus bar on Brown’s chart will define six months of budget negotiations at the Capitol. While proposing modest spending increases for schools and social service programs, Brown’s $154.9 billion spending plan includes a $1.6 billion allocation to a rainy-day fund and billions more to pay off long-term debt.

“It isn’t time to just embark on a whole raft of new initiatives,” Brown said.

Brown is in a powerful position as he prepares for a likely re-election bid this year. He faces no Democratic opposition and even Republican analysts believe no GOP candidate is likely to unseat him.

Yet as he enters the final year of his term, Brown is still in pursuit of a legacy of fiscal restraint. It’s a difficult line to walk as he pushes construction of a controversial high-speed rail system and a $25 billion water project.

“His challenges are to his legislative and fiscal agenda,” said Jack Pitney, a government professor at Claremont McKenna College, “not to his political standing.”

Brown called his spending plan “a wise allocation of the public funds,” while acknowledging the difficulties it could create with the Legislature and advocacy groups.

“Prudence is never easy,” Brown said. “When the money’s in, people want to go for it. And we’ve tried to keep it very measured, and that’s really the story and will be the story of the coming year.”

As Brown left the Capitol to promote his plan at news conferences in San Diego and Los Angeles, lawmakers and social service advocates began to draw the lines that will shape conflict over the budget when he returns.

Anthony Wright, executive director of Health Access California, lamented the budget “continues the cuts that were made during the depths of the recession.” Assemblyman Roger Dickinson, D-Sacramento, said in a prepared statement that California “must go further to strategically restore cuts made in prior budgets and increase funding for essential services like education, services to our most vulnerable populations, and the courts.”

In the upper house, Senate President Pro Tem Darrell Steinberg, D-Sacramento, also said the budget does not include enough spending.

“We shouldn’t be shy to say that there is room, with this kind of economy and this kind of a budget, to invest and to reinvest in California’s economy and its people,” Steinberg said.

He described Brown’s budget release as the first act of an annual “four-act drama” and said the Senate will spend coming months examining whether more money should be put into CalWORKs (the state’s welfare-to-work program), in-home supportive services and autism treatment for children whose parents are eligible for Medi-Cal.

Brown has adjusted his initial budget proposals to accommodate lawmakers on some of their priorities in recent years. But he made no mention in his presentation Thursday of a chief concern of legislative Democrats: transitional kindergarten.

Asked about the proposal, Brown said, “I certainly will listen to legislative leaders and members as they make their proposals, but again, wisdom and prudence is the order of the day.”

Brown faces opposition from some environmentalists to his plan to use fees paid by carbon producers to help fund California’s high-speed rail project, and the prospects for his effort to put a rainy-day fund constitutional amendment on the November ballot are uncertain.

The proposed rainy-day fund would scrap some of the provisions in a measure already on the ballot – one opposed by some of Brown’s liberal allies.

That measure, ACA 4, was part of a 2010 budget deal involving Democrats, Republicans and then-Gov. Arnold Schwarzenegger and was originally scheduled to go before voters in 2012. But lawmakers that year moved the initiative to 2014, and unions and some advocates for programs for low-income residents have voiced concerns that the fund would collect too much money and make it too difficult to spend.

The California Labor Federation had no comment on the new proposal, while the California Teachers Association said it is reviewing it.

Steinberg, who voted for ACA 4 to help end a three-month budget standoff, on Thursday called that measure “flawed, and flawed significantly.”

“I think the governor’s proposal will undoubtedly be better, but we have to analyze it,” Steinberg said.

Assembly Speaker John A. Pérez, D-Los Angeles, who is running for state controller, said Brown’s budget “hits all the right points” and is in line with the Assembly leadership’s priorities. Pérez is championing the rainy-day fund, a measure he said is a “much more thoughtful approach than what was previously slated for the ballot.”

Republicans were skeptical. “...The rainy-day reserve needs to be more robust, and the ... proposal (already on the ballot) supported by Democrats and Republicans is a better starting point,” said Senate Republican leader Bob Huff of Diamond Bar.

Brown said details of his proposed rainy-day fund remain to be decided, but that it would ease boom-and-bust budget cycles, while providing more flexibility than ACA 4.

“The reason for that rainy-day fund is the volatility. With that zigzag, up and down, in capital gains and spending, the only way to offset that is to have money in reserve, and that’s what I intend to do,” Brown said.

Republican lawmakers reacted to the budget release with calls for greater measures to reduce long-term debt. But with large majorities of Democrats in both houses of the Legislature, even Republicans are focused on the interaction between those Democrats and Brown.

“The devil is in the details ... the fiscal restraint, the rainy-day fund, all those things are good,” said Assembly Republican leader Connie Conway of Tulare. “But what worries someone like me is that the governor gets overwhelmed by his own homies, as I like to say, because they are going to want to spend, spend, spend. And I don’t think he wants to do that.”

Focus on any rainy-day fund is likely to benefit Democrats seeking to project an image of restraint. But the Capitol is heavy with calls for increased revenue and spending, too.

State schools chief Tom Torlakson this week called for an extension of Proposition 30, Brown’s initiative to raise taxes, beyond its full expiration in 2018. Billionaire environmentalist Tom Steyer said last month he will ramp up a campaign in the Legislature this year for a tax on companies that extract oil in California.

Brown noted that the taxes in Proposition 30 are intended to be temporary, and said the time is wrong for an oil-severance tax.

“I don’t think this is the year for new taxes,” he said.

Brown spent much of 2012 campaigning for his ballot initiative to raise taxes, and its passage is one reason he is enjoying a budget surplus this year.

Now that the budget has improved significantly, he was asked whether the state needed the tax measure, after all.

Brown took an oversized chart of California’s long-term financial liabilities off its stand and held it over his head. It showed nearly $355 billion.

“Yeah,” he said, “We sure did.”

Three rainy-day funds

Gov. Jerry Brown this week proposed a rainy-day fund to help the state save for hard economic times. If passed by the Legislature it would replace a more restrictive measure sceheduled for the November ballot. If then approved by voters it would replace a largely ignored reserve created in 2004.

Budget Stabilization Account ACA 4 Gov. Jerry Brown’s rainy-day fund
Status Constitutional amendment approved by voters in March 2004 November 2014 ballot measure Proposed to replace ACA 4
How the fund gets money 3 percent of annual revenue is supposed to be transferred each year, but transfers have been suspended every year except 2007. Brown proposes a $1.6 billion transfer in 2014-15. 3 percent of annual revenue and “unanticipated revenue” above a 20-year trend line. Any revenue from capital-gains taxes that exceeds 6.5 percent of total general fund revenue
When can the fund be tapped Anytime, with majority vote of Legislature and approval of governor Only when total projected revenue for a budget year is less than expenditures in the previous year, or when there is an earthquake or other emergency Only one-half of the fund could be tapped in the first year of a recession. Money could be used to pay down “Wall of Debt” or long-term liabilities.
Schools No special provision No special provision Creates a reserve for Proposition 98, the state’s constitutional school-funding gurantee. Revenue spikes would be saved for down years.

Sources: Department of Finance, California law, Senate Budget and Fiscal Review Committee

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