In fact, the budget plan conforms almost exactly to the governor’s longtime fiscal approach. He wants to fund social programs as much as possible, but not create new, permanent spending programs that cannot be curtailed when fiscal times are bad. He talks repeatedly about frugality, yet his budgets continue to ramp up state spending to record levels. He did set aside $8.5 billion for the rainy-day fund to prepare for any downturn.

Even the governor’s approach to the state’s unfunded pension liabilities is prototypical Brown. The governor speaks regularly about the size of the state debt to pay for pensions and retiree medical programs, but he typically addresses the problem with small-scale solutions that trim debt levels without antagonizing state workers and the unions that represent them.

This particular deal would borrow money from a state fund that pays a low interest rate, and pay down some of the state’s pension debt by investing it with the California Public Employees’ Retirement System, which predicts a fairly high rate of return (7 percent). Brown says this plan will save the state $11 billion over the next two decades simply because of the difference in interest rates. 

In terms of spending, the budget uses $1.2 billion in new revenues from the state’s recently passed tax increase on tobacco to help pay for growing costs to Medi-Cal, the state health program for low-income residents. But about half of those new revenues will be earmarked to health care providers and to family-planning entities like Planned Parenthood. It expands spending on the state’s K-14 educational system.

The budget also expands spending for both of the state’s university systems (the University of California and California State University), but the nearly $300 million combined in increased higher education spending comes with some conditions. The plan withholds $50 million from the University of California until the Office of the President fulfills the recommendations made earlier this year by a state auditor. It also requires California State University officials to “find space for students denied entry to their preferred campus or program,” according to the Sacramento Bee.

The budget increases spending on subsidized affordable-housing programs by $400 million. The budget also will allow more people to take advantage of the state-level Earned Income Tax Credit. Under new criteria, low-income people earning up to $22,000 a year will qualify for state EITC payments, up nearly $8,000 from previous standards. The new eligibility standards also apply to people who work for ridesharing companies or are involved in other forms of self-employment, according to various news sources. The budget doesn’t include an extension of the cap-and-trade system, although the system is likely to be extended in separate legislation.

Furthermore, the budget spends $100 million to set up a new agency to deal with the legalization of recreational marijuana sales, including the creation of a tax office along the Redwood Coast in the heart of marijuana-growing country.

The whole budget, which includes all spending (from bonds, etc.) totals $183.2 billion. But the biggest controversies are not around the amount of money the state will spend. The Legislature used the trailer-bill process – normally reserved for technical amendments to budget matters – to pass some controversial, nonbudget-related matters.

For instance, Democrats are fighting a recall measure against state Sen. Josh Newman of Fullerton. Republicans targeted him because of his vote on the recently passed gas-tax increase. One trailer bill in the budget would extend the timelines for the recall, making it more likely that the election would be put on a regularly scheduled ballot timeframe that would be more favorable to the Democratic incumbent. Another trailer bill would reduce the power of elected officials in the state Board of Equalization, a tax board. Yet another creates new dam-safety rules, following problems at the Oroville Dam spillway last winter.

Still, what Democrats described as responsible drew some rebuke from Republicans, who note that general-fund spending is nearly $40 billion higher in this budget than it was six years ago. Balanced and progressive or out of control? It depends on which side of the aisle one sits on. But everyone at least agrees that it’s basically in balance.

 Steven Greenhut is Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.

CalSTRS v. Volkswagen

Good morning!

The legislative summer recess is coming to an end, so enjoy the weekend because next week is the start of a long month.

And now to dig right into our Morning Read, The Sacramento Bee has our top story today about the Volkswagen scandal: 

“California’s $188 billion teachers’ pension fund is stepping up the pressure on Volkswagen in a European lawsuit over the German automaker’s air-pollution scandal.

“The California State Teachers’ Retirement System, the second-largest U.S. public pension fund, has obtained a court order that will enable its attorneys to unearth potentially crucial corporate records relating to Volkswagen’s tainted diesel vehicles.

“The order came a month after CalSTRS joined other institutional shareholders in suing Volkswagen in Germany, claiming their investments in the company have been damaged by its diesel pollution scandal. CalSTRS’ shares of Volkswagen were worth $52 million as of Dec. 31.”

Legislature:

• Back on Monday.

Gov. Brown:

• No public events scheduled. 

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Twitter: @calwatchdog @mflemingterp

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Photo Credit: abc7.com

With a cautiously optimistic tone, Gov. Jerry Brown preached prudence on Thursday morning during his annual State of the State address.

The speech — courteous in its brevity, clocking in at under 20 minutes — touted accomplishments and initiatives, like a budget surplus, several credit upgrades, a rainy-day fund, increased education spending and a raise in the minimum wage. However, it was most notable for its call to pay down existing obligations before creating new ones.

“The challenge is to solve today’s problems without making those of tomorrow even worse,” Brown told a packed Assembly floor, arguing the need for preparedness for life’s uncertainty. “In that spirit, you are not going to hear me talk today about new programs. Rather, I am going to focus on how we pay for the commitments we have already made.”

On the budget — Brown released his version earlier this month — the popular Democratic governor said that state economists predict that the next recession, if only of average intensity, “would cut our revenues by $55 billion over three years.”

“That is why it is imperative to build up the rainy-day fund, which was recently overwhelmingly approved by the voters, and invest our temporary surpluses in badly needed infrastructure or in other ways that will not lock in future spending,” Brown said.

Brown’s budget had revenue exceeding expectations by $3.6 billion, with most of the money being tucked into the rainy-day fund, according the Legislative Analyst’s Office.

While all the talk of fiscal restraint is likely to appease some concerns from the right, there was plenty to like for those on the left. On inequality, Brown touted a raise in the minimum wage, an Earned Income Tax Credit, paid sick leave and other traditionally Democratic priorities, including expanded access to health care under the Affordable Care Act.

“Most importantly – and this is truly monumental – we have wholeheartedly embraced the Affordable Care Act,” Brown said. “This is an historic achievement. It will provide health security to so many who could not otherwise afford it.”

Brown asked that legislators consider the revised managed care organization tax, a greater explanation of which can be found here on the California Chamber of Commerce website.

Brown applauded the 51 percent increase in education spending since 2011 and spoke of the need for increased funding for roads. He touted the Paris climate agreement and the Prop. 1 water bond, noting the bond’s passage as one of the “bright spots in our contentious politics.”

The transcript can be found here.

The proposed budget can be found here.

The LAO’s analysis of the budget can be found here.

As the New York Times opined in a full-throated editorial, the hike “challenges Congress and other states, particularly New York. In Congress, the latest Democratic proposal calls for a federal minimum wage of $12 an hour by 2020. That would be adequate, if a bit on the low side, and a huge improvement from the current $7.25 an hour, the level since 2009.”

Regulating the future

Yet pro-hike analysts have already begun to make the case for further increases by downplaying the relative significance of the $15 benchmark. According to FiveThirtyEight, for instance, “$10 is a more accurate reflection of what low-wage Angelenos will actually experience,” thanks to inflation and cost of living.

“Los Angeles’s minimum wage won’t go up to $15 tomorrow,” FiveThirtyEight observed. “Instead, the hike will be phased in over the next five years. Assuming inflation holds more or less steady, $15 an hour in 2020 will be worth the equivalent of about $13.75 today.”

“But the bigger issue is that $15 doesn’t go as far in Los Angeles as it does in most of the rest of the country. Not even close. According to data from the Council for Community and Economic Research, it costs workers about 40 percent more to live in Los Angeles than in the average American community. That means that $15 in L.A. is the equivalent of less than $11 in the U.S. overall.”

In fact, however, the City Council’s vote has made such waves because it ratchets up the minimum wage “not just once but forever, with automatic annual hikes starting in 2022,” according to the Los Angeles Times.

That has city business owners on edge, the Times added. “The requirement aims to ensure that wages keep pace with cost-of-living increases, but business advocates say it could cripple entrepreneurs’ ability to adjust wages to unpredictable economic conditions — effectively enshrining automatic annual layoffs when times get tough.”

Going national

For labor advocates, however, the L.A. vote represented a capstone achievement in California, where minimum wage increases were recently passed at the municipal level throughout the Bay Area. Well aware that the $15 mark was first established by activists on the other side of the country, labor organizations quickly set their sights on the rest of the U.S., as one official told the Washington Post:

“How L.A. got to that number is rooted in the activity generating from the East Coast, where New York fast-food workers raised this as a demand, starting their first strikes two years ago,” says Laphonza Butler, president of the Service Employees International Union’s home care workers unit in Los Angeles. “It has just become the vernacular of the workers movement. And when Mayor Garcetti introduced his proposal at $13.25, we all knew that wasn’t enough.”

To begin consolidating the California gains that could launch a nationwide effort, local activists have turned their sights on the L.A. metro area as a whole.

“Campaigners for a $15 minimum wage are targeting Los Angeles County and a cluster of nearby cities to swiftly cement and expand their victory,” the Guardian noted. “The coalition of organised labour, civic activists, religious leaders and ordinary workers hopes to create a domino effect by persuading L.A. County and incorporated cities such as Long Beach, Santa Monica, Pasadena and West Hollywood to follow the city of L.A. and increase their minimum wages to $15 an hour too.”

Political alternatives

Under pressure to offer up a constructive option, as opposed to simply digging in against the hikes, business leaders have begun to consider pushing an increase in the so-called earned income tax credit. “The process is simple: You file a tax return, and the government sends you a check,” wrote Warren Buffett in the Wall Street Journal. “In essence, the EITC rewards work and provides an incentive for workers to improve their skills. Equally important, it does not distort market forces, thereby maximizing employment.” As wage-hiking activism continues, however, one question will be whether Americans wind up supporting both higher mandated wages and bigger tax credits.

Founded in 1985 by strategist Al From, the DLC thought the bad image of liberalism in the 1980s was well-earned. From’s goal was results-based government activism that understood incentives drove behavior.

Rule No. 1 was that throwing money at problems didn’t have a great history after a quarter-century of Great Society domestic liberalism. If this wasn’t working to solve a problem, try another approach.

Rule No. 2 was to accept the idea that government-centric efforts to address societal issues were not always best — that even Americans who weren’t Reaganites had a skepticism about what government could accomplish, and for good reason.

The DLC approach — touted by such folks as Arkansas Gov. Bill Clinton, Baltimore Mayor Kurt Schmoke, Massachusetts Sen. Paul Tsongas, Georgia Sen. Sam Nunn and the then-very-powerful New Republic magazine — eventually got a tryout when Clinton was elected president in 1992 after an amazing Democratic primary without a single serious liberal candidate.

Clinton had his hard-left moments. But after 1994, he “triangulated” against liberal lawmakers over and over again, including going along with sweeping GOP welfare reform in 1996. And Clinton never gets nearly enough credit from non-wonks for how he successfully tinkered with the Earned Income Tax Credit in a way that helped the working poor without disincentivizing work.

The DLC way never made it to California

But in California, the pragmatic DLC approach has no such substantive record. Its principles won lip service from Gov. Gray Davis briefly after his 1998 election when he fought for education reforms. But then Davis lost his spine and sold his soul with a series of concessions to public employee unions, and since then the DLC theories that results matter most and that throwing money at problems isn’t always smart have been abandoned by nearly all elected California Democrats.

If we have parsimonious budgets, it’s because state legislators don’t have money to spare; it’s not because they don’t still want to throw money at problems and ignore history.

This dynamic has played out in education, where Clintonian programs to force teachers to meet standards have gone nowhere.

It’s also evident on welfare reform. As Chuck Devore has chronicled, California never got around to implementing the sort of tough, mandatory welfare changes that in most of America proved to be the greatest anti-poverty program in U.S. history.

And as we’re seeing now in San Diego, the DLC approach on affordable housing — which would value results first and foremost — is considered bizarre and exotic.

Failed policy? Let’s pump it full of new funds

I dealt with the insanity of what the San Diego City Council’s Democratic majority is doing in an editorial Sunday on the six months that Council President Todd Gloria served as interim mayor:

“During his time as mayor, he provided the fifth vote on the City Council for a gigantic public policy mistake.

“That mistake was to sharply increase the ‘linkage’ fees on commercial and industrial development projects in the name of promoting affordable housing. If the program that council Democrats were funding had a history of working well, that’s one thing. But it doesn’t. It has a 24-year history of minimal results at high cost.

“Doubling-down on an approach that isn’t working is in keeping with the Golden State’s obtuse history on affordable housing. As the Public Policy Institute of California noted in 2003, local governments have a history of focusing on process — adopting programs that show their good intentions — instead of results.”

This is insane. In this “Moneyball” era — in which statistical analysis is able to readily quantify what works and what doesn’t work — the second-largest city in California and the eighth-largest city in America has embraced a failed policy in a way that will hurt the city’s economy in direct and obvious ways.

Is Ron Burgundy running City Hall? Stay stupid, San Diego.