Capitol Alert Breaking

Gov. Jerry Brown, Democrats still debating size of California’s budget

With less than a week before the constitutional deadline to pass a budget, the Democrats in control at the California Capitol are at odds on the big questions: how much money the state will take in, how it should be spent, and how major programs should be structured.

Gov. Jerry Brown, seeking re-election to a historic fourth term this fall, has emphasized debt reduction and prudence even as the economic forecast improves. Lawmakers, meanwhile, are seeking higher spending in many areas. Spending plans adopted by Assembly and Senate budget committees reflect revenue estimates by the nonpartisan Legislative Analyst’s Office that are $2.5 billion higher through June 2015 than the governor’s.

Lawmakers have proposed hundreds of millions in spending above the governor’s plan while questioning whether the administration has inflated some costs. Assembly and Senate plans accept the analyst’s view that the administration overstates Obamacare-driven growth in Medi-Cal caseloads by some $300 million.

The two houses also have parted ways from the administration on some major policy issues, such as school funding and the use of hundreds of millions of dollars from cap-and-trade auctions meant to reduce heat-trapping emissions. Brown wants to spend more of the money on planning and building the high-speed rail system that he has championed.

Last week, the Senate presented a plan that instead emphasizes targeting the revenue toward better urban planning and helping low-income communities hurt by pollution. The Assembly approach would create a grant program to reduce greenhouse gases.

Just how deep the intraparty rift runs, however, remains to be seen. With lawmakers now required to lose pay if a budget is not passed by June 15, lawmakers and administration officials have downplayed the prospect of any deal-breakers that would prevent an on-time spending package or prompt Brown’s veto.

Negotiations on a new budget take place with the state’s fiscal outlook the best it has been in years, thanks to an improving economy and voters’ approval of temporary tax hikes two years ago. Last month, Brown and legislative leaders announced an agreement on a rainy-day reserve constitutional amendment that passed overwhelmingly.

The governor and legislative leaders have met privately in recent days.

“Our intent is to complete our work by Friday,” said state Sen. Mark Leno, D-San Francisco, chairman of the Senate’s budget panel.

Assemblywoman Nancy Skinner, D-Berkeley, who leads the Legislature’s budget-writing committee that began meeting last week, said lawmakers have embraced the governor’s proposals to pay down some debt and put the reserve proposal before voters.

The issue now, said Skinner, “is what level of expenditures that aren’t in the governor’s budget are also fiscally responsible?”

Brown, speaking to reporters this week, downplayed any friction with his fellow Democrats, many of whom say he needs to do more to restore health and welfare programs slashed during the recession.

“We don’t have a unitary system of government,” Brown said. “We have judges and we have Assembly leaders and we have Senate leaders. And they all have different views, although in general, we have much more in common than we differ on. So I’m sure, at the end of the day, we’re going to get a timely budget, and I’ll be able to sign it or modify it as appropriate.”

Last month, Brown released a revised $107.77 billion general fund budget for the fiscal year that starts July 1. The Assembly’s resulting plan calls for $110.8 billion in spending and the Senate’s plan is for almost $110 billion. The budget conference committee met three times last week to try to reconcile the proposals, and is expected to resume its work today.

The hours-long hearings underscore the competing viewpoints in the Capitol.

The difference in revenue assumptions amounts to only about 2 percent of total spending. Explaining the disparity last month, Legislative Analyst Mac Taylor said that his office expects the stock market to continue its strong performance, producing more capital-gains revenue.

The Brown administration, Department of Finance spokesman H.D. Palmer said, does not want to repeat what happened in the late 1990s, when a surge of dot-com revenue evaporated within a few years, followed by a decade’s worth of budget struggles. “We don’t want to see that movie again,” Palmer said.

But Skinner noted that the Legislature went along with the governor’s revenue number during last year’s negotiation – and the analyst’s higher prediction turned out to be the right one. “I think there’s going to be a little more room,” she said of this year’s revenue talks.

Democrats also are skeptical of Brown’s claim that much of the new revenue in his revised budget is consumed by $1.2 billion in unanticipated costs for Medi-Cal.

Chief deputy finance director Keely Bosler, though, said the administration worries that the Legislature’s attitude will lead to a “fundamental underfunding” of Medi-Cal. “Small changes in assumptions can mean hundreds of millions of dollars in swings,” she told the conference committee.

Legislative Democrats rejected another major spending item in Brown’s plan: a payment of $100 million to begin resolving the $900 million the state owes counties, cities and special districts for the costs of complying with state laws from before 2004. Brown considers the money part of what he calls the state’s “Wall of Debt,” but Democrats note that the state doesn’t have to pay back the local money until 2021.

Meanwhile, Democrats have proposed hundreds of millions of dollars of other spending, from more money for in-home care workers to providing more services to child victims of sex trafficking, that is not part of Brown’s plan.

Other major budget issues between lawmakers and the administration center on disagreements about how particular programs should be run.

Cap-and-trade auctions, meant to reduce greenhouse gas emissions, could generate as much as $1 billion in 2014-15. Brown wants up to one-third of the money to go to high-speed rail starting in 2015-16.

Last week, though, Senate Democrats unveiled an alternative that targets most of the money at “smart growth” initiatives, transit, affordable housing and helping poor areas in heavily polluted areas. High-speed rail would get no more than 15 percent.

“There are only so many books and tapes to listen to,” state Sen. Hannah-Beth Jackson, D-Santa Barbara, said Tuesday, referring to the need for more commuter rail and other transit options for motorists trapped in traffic. Friday, Steinberg joined Los Angeles Mayor Eric Garcetti in Los Angeles to tout the plan in different parts of the state.

The pathway to a deal on a 2014-15 plan could involve some mix of the above. Besides its general fund revenue estimates, the Legislative Analyst’s Office pegged property tax revenue at $700 million more than the governor did. Although property tax money stays at the local level, the extra money would reduce what the state has to pay for schools – freeing up money for other spending sought by Democrats. The administration, though, also disagrees with the higher property tax number.

“We have and will continue to discuss those issues and hope to land at a spot acceptable to both the governor and the Legislature,” Palmer said of the talks.

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