California Gov. Jerry Brown's revised two-year budget plan released Friday reflects conservative changes, but no immediate cuts, to help the state weather lower tax revenues.
Brown said the state needs to prepare for a recession and avoid major spending, citing already flattening tax receipts.
"I'm going to be pretty resolute on this budget," the governor said during a press conference in Sacramento. "We need reserves."
While the state does not need to make premature cuts, Brown said it will be ready to do so if needed.
The governor avoided any new, large initiatives in his $122.6 billion budget plan that he released in January. He proposed a $2 billion rainy day fund and pre-funding employee retirement benefits, among other items — but he warned lawmakers then that a downturn is just around the corner and advised against sweeping new programs.
He repeated that warning Friday.
The governor's revisions take into account April tax revenues that came in at $1 billion less than projected, although the Legislative Analyst's Office said the shortfall doesn't necessarily mean the state is running a deficit.
"First, as we have discussed in recent years, California's budget is in a stronger position than it was in years past, with reserves and other features present that allow it to withstand revenue shortfalls of this type. Second, declines in revenues — be they declines in 'current-year' estimates (for 2015-16) or 'budget year' estimates (for 2016-17) — trigger adjustments in state budget calculations," the office said on its website.
Attempting to avoid the boom and bust revenues the state has experienced in the past, Brown said the state should sock away money now for the next recession, even as most signs point to a continued bullish outlook.
“By the time the Budget is enacted in June, the economy will have finished its seventh year of expansion, two years longer than the average recovery,” Brown said in his budget summary. “The next recession is getting closer — even if we cannot tell exactly when it will hit.”
Brown said there are few signs of an “immediate contraction.” However, he noted the falling revenues since the beginning of the year. Medi‑Cal costs could also rise by hundreds of millions of dollars a year because of new managed care guidelines issued by the federal government.
Brown said he wanted to not repeat the mistakes lawmakers made before in the last two recessions when they increased spending.
To bolster his call for fiscal restraint, the governor pointed to a recent ranking by Moody's Investors Services that placed California 19th among 20 large states for preparedness in the event of a recession.
The state is vulnerable because it depends heavily on income tax revenue that is subject to stock market gyrations and other economic ups and downs. Proposition 30, the income tax increases on the wealthiest, has made state taxes more volatile, with the top 1 percent of Californians accounting for about 48 percent of the state's income taxes.
Other highlights of the revised budget include:
• A tax revenue forecast reduced by $1.9 billion after "poor April income tax receipts" and "more sluggish sales tax receipts than expected."
• Additional $3.4 billion to cover a higher minimum wage for state workers that will eventually reach $15 per hour statewide.
• An increase to $188.2 million from the general fund for Medi-Cal benefits covering undocumented immigrant children.
• An increase in California's corrections budget by more than $800 million from the current year to $13.5 billion. The Secretary of California Corrections Scott Kernan said the higher expenses are being driven by the rising costs of court-mandated changes to poor conditions and an increasing inmate population.
The governor also renewed his call for long-range transportation funding with a plan that would raise $36 billion over the next decade to help pay for a $59 billion backlog of road and bridge repairs and investment in public transit.
Brown’s plan relies on a combination of fee increases, stabilization of the gas tax, which has not kept pace with inflation, and utilizing revenues from the state’s cap and trade market. It also identifies ways to cut costs in the state’s transportation department.
Republicans oppose raising fees and gas taxes, favoring an approach that would divert funds from the controversial High Speed Rail project and other programs.
Homeless and Housing
The revised budget supports a $2 billion bond proposal to build permanent housing for the homeless. The state would issue bonds, which would be paid back over several years, from Proposition 63 revenues or the so-called “millionaires' tax” that funds mental health services.
The budget would make $267 million available in first-year funding for the affordable housing programs for the homeless with a particular focus on the mentally ill and chronically homeless.
While the governor didn’t offer grants to increase the affordable housing stock, he is encouraging legislation that would streamline multifamily housing development projects in in-fill areas.
The legislation would waive some conditional use and planned unit development permits for affordable housing projects.
“It’s counterproductive to continue providing funding for affordable housing under a system that slow down approvals in areas already vetted and zoned for housing,” the budget document states.
Legislators get turn at budget plan
The governor's fellow Democrats in the state Assembly and Senate have pushed for expanded social services in the wake of the 2008 economic downturn. Phil Ting, who heads the Assembly Budget Committee, said the Democrats want to ensure that damage from the recession is "slowly repaired," the Associated Press reported.
The state Senate for its part has sought $2 billion to build permanent housing units for the homeless, and the legislative women’s caucus wants $800 million to increase rates paid to child care providers' rates while extending care to more families.
The state has already made financial commitments this year, including for the incrementally higher minimum wages, paid family leave, new state worker contracts and an agreement on Medi-Cal that will increase developmentally disabled services.
With Brown's release of his revised budget plan, lawmakers now take over and draft their own version. They have until June 15 to complete their work.
This story has been updated.