Brown’s revised budget

Good morning! And since it’s Friday the 13th, good luck.

Gov. Jerry Brown will release his revised budget today.  

Although the state’s economy has been growing, last month’s personal income tax revenues missed their mark by $1 billion. So expect Brown to renew calls to limit new spending. 

Capital Public Radio has more. 

ICYMI: CalWatchdog looks at the problem looming in the state’s budget.

In other news:

• Is the rise of Donald Trump hurting the chances of Republicans hoping to replace Barbara Boxer in the U.S. Senate to advance past the June primary? CalWatchdog has more. 
• A panel on Thursday approved a $15 million plan to protect anchor rods on the Bay Bridge from further corrosion. The bridge was completed in 2013, but the state has spent millions since then to fix it. The San Francisco Chronicle has more.

• “California ballot: Is a new law that allows activists to yank measures working?” asks The San Jose Mercury News. 

• The Assembly approved a measure on Thursday that rewards drivers of plug-in hybrid vehicles by continuing to grant access to HOV lanes. But critics say the move only helps wealthy drivers who can afford those vehicles and perpetuates traffic in those lanes, hurting carpoolers. The Sacramento Bee has more. 

Assembly: 

• Gone ’til Monday.

Senate: 

• Gone ’til Monday.

Gov. Brown:

• Releasing his revised budget at 10 a.m. in Sacramento. 

Tips: matt@calwatchdog.com

Follow us: @calwatchdog @mflemingterp

New followers: @DonnaWares @JuriSense 

But the governor’s proposed $170.7 billion budget ($122.6 billion general fund) for the 2016-17 fiscal year would lead to repeating that mistake when the next recession hits.

Revenues will plunge $55 billion over three years if an average recession hits next year according to the budget summary. That would result in a $29 billion budget deficit in 2020 based on Brown’s current spending proposal, which includes $4 billion in one-time expenditures. If the Legislature instead spends that $4 billion on new or ongoing programs, the deficit would balloon to $43 billion – larger than occurred during the Great Recession.

Recession Expected

California is in the seventh year of economic expansion. That makes it two years overdue for a recession, which has occurred every five years on average, according to Keely Bosler, chief deputy director of the California Department of Finance.

“While there is significant uncertainty in forecasts, there is one thing that is quite certain: and that is history,” Bosler told the Senate Budget and Fiscal Review Committee Jan. 19. “It’s this boom-and-bust cycle that this budget really aims to avoid going forward.” But she acknowledged that “the budget in the state of California does remain precariously balanced over the long term.”

Her cautionary words were echoed by committee Vice Chairman Sen. Jim Nielsen, R-Tehama.

“We must keep in mind that though times are a little bit better, some parts of our economy have not improved,” he said. “And therefore we must exercise constraint and not get overly ambitious. And that will be what governs our progress in the budget. Let’s not get overly ambitious, and let’s not let government get out of control.”

Examine the Department of Finance 2016 Budget Slides here

But Democratic legislators are eager to spend some of the budget surplus on ongoing social programs, particularly for the developmentally disabled, instead of socking it away in the state’s rainy day fund – despite the likelihood that doing so could once again bust the budget.

“It shouldn’t surprise any of us that a recession is at hand. The question is when, not if,” said committee Chairman Sen. Mark Leno, D-San Francisco. “At the same time, an additional $2 billion set aside in the rainy day fund above and beyond what voters told us they’d like to see in it – that I think will be at least part of the playing field of our debate.

“What is appropriate for continuing payment of debt and for reserves, at the same time recognizing that so many Californians who have been hurt at the time of the recession have not seen much recovery or reinvestment in the programs for which they rely for their quality of life?” Sen. Leno asked.

Rainy Day Fund

Proposition 2, passed in 2014, requires that $2.6 billion in this year’s budget be placed in the rainy day fund. Brown has proposed adding an extra $2 billion to the fund. That would bring the total to $8 billion (with previous funding), equating to two-thirds of the constitutional target of 10 percent of general fund revenues, according to Bosler.

But legislative analyst Mac Taylor warned the committee that, while it’s good to beef up state reserves, the Legislature would be unnecessarily tying its hands by going along with Brown’s extra $2 billion in the rainy day fund, which is known formally as the Budget Stabilization Account.

“We would caution you not to put extra money into the BSA,” Taylor said. “Once you put it in the BSA, it’s governed by the rules in the BSA. You can only take out half the monies, if you have a downturn, in the BSA. You might imagine a situation when you might want to take out more in the first year.”

Also up for grabs by the Legislature for whatever purpose it chooses is $1.1 billion from a tax on managed care organizations, an expenditure that Brown left unspecified, according to Taylor. In addition, he told the lawmakers that they could decide to siphon off some or all of the $2.5 billion Brown has proposed to spend on infrastructure, including $1.5 billion for state facilities.

Infrastructure Spending

“When it comes to one-time spending, the governor has focused on infrastructure,” said Taylor. “We think that’s a very positive thing. But keep in mind you have other one-time things that you can spend on. We have very high-cost pension and health retiree liabilities that are accruing costs at 7½ percent a year. So you may want to make additional payments to help fund those and pay those liabilities off. There’s no right choice.”

If the lawmakers do decide to spend the money on infrastructure, they should exercise more control on how it’s spent, instead of leaving it to the administration, Taylor said.

“You don’t want to lose control,” he said. “I think you’ve already lost way too much authority for capital outlay projects. You have given it to both university systems and the administration. Stop doing that. I think you should be exerting a lot more control over capital outlay projects.”

But Leno was more concerned about providing enough “human infrastructure” to help the state’s neediest residents.

Social Services Budgeting

“What I’m hearing is regarding developmentally disabled services that housing units are being lost, facilities are being closed,” Leno said. “Employees at the community-based organizations that supply services are leaving because the employees can find much better jobs than the $13-$14 per hour that some are being paid after 20, 25 years of service. What happens to that infrastructure?”

Taylor responded that there’s been a large growth in spending on the developmentally disabled due to the large increases in caseload. “But you can have just about every program and area of the budget come and tell you that they need a lot more,” he said.

Spending on regional centers for the developmentally disabled has grown by 24 percent in recent years, according to Bosler. “This is well beyond caseload and inflation,” she said. Contributing to the higher costs is California’s aging population, which requires more services and support, along with the rise in autism.

But Leno wasn’t satisfied, saying that the cuts made to social services during the Great Recession have yet to be fully restored.

“Do we want to suggest that even in these boom times that this is our new normal?” he asked. “Or do we have a goal of getting back to where we were at least in adjusted dollars to the 2008 level at some point? If not now, then the question is when. It certainly won’t happen during the next downturn, and quite likely we will have to make additional cuts. We continue to create a new normal level funding which is ever, ever lower.”

Power Over the Budget

Nielsen called the budgeting process itself into question, asserting that it gives too much power over spending to the governor.

“We’ve abdicated our authority over the budget,” he said. “I believe that we are almost making the Legislature irrelevant. Maybe we go through the exercise and pound our chest and try to think we’re important. And this has been a steady erosion over a long period of time.”

Taylor responded that budgetary authority is hard to get back after being given away. He cited the state’s ballot measures as contributing to the problem.

“Almost every initiative that has increased a tax in the last 20 years has dedicated the funds for particular purposes,” he said. “From a budgeting perspective, that’s just a terrible development. No matter how well meaning or how well purposed they may have been in the first year that that measure was passed, that’s not what budgeting is about. It’s about changing priorities, as you know, and being able to make decisions.”

Legislative budget committees plan to hold numerous hearings in the coming months to gain more insight into and provide input on the budget before the governor’s planned budget revision with updated revenue and expenditure figures in May.

Democrats in Sacramento praised the approval of a “balanced” and “on-time” budget. A prepared release from Assembly Speaker Toni Atkins, D-San Diego, says Assembly Bill 93, the budget bill, will “pay down debt, build reserves and restore funding to schools.”

“I want to thank our Budget Chair, Dr. Shirley Weber, our subcommittee chairs, the members of the Budget Committee and our conferees for performing an incredible amount of work, which is shown in the budget we voted on today,” said Speaker Atkins. “The stability from the years of hard choices gives us an opportunity that has been rare in recent years – the chance to focus on a budget that builds a stronger and brighter future for the people of California.”

Assemblyman Mike Gipson, D-Carson, released the following statement on the passage of AB93:

“I’m proud to support a balanced budget that prioritizes education, health care, and poverty reduction in California. By strengthening social programs to assist the disadvantaged, such as early education and the Earned Income Tax Program, more Californians will have the freedom to follow their own path to success and happiness. This budget will also help create healthier communities by restoring funding cuts to critical Medi-Cal programs. … Overall, these policies outline the virtues of a society concerned with creating the broadest opportunities for all of our citizens.”

Senator Connie Leyva, D-Chino, also commended the budget approval, calling it a “forward-looking budget that continues to strengthen California’s diverse communities … throughout the state.”

Democratic legislators highlighted the importance of investment in the Earned Income Tax Program, health care and Medi-Cal, state education at all levels of learning, public safety, child care and other programs. Senator Tony Mendoza, D-Artesia, said the budget “reflects the Legislature’s priorities of investing in the people of our great state … while paying down the state’s long term debt and setting aside more resources for our rainy day fund.”

But Republican legislators fear the budget does not do enough to meet the needs of California’s unfunded pension and retiree health care liabilities.

Senator John Moorlach, R-Costa Mesa, said on the Senate floor that the budget “departs from Governor Brown’s call for fiscal restraint” and does not “make a dent in our $72 billion in unfunded retiree medical costs, or the over $100 billion [plus] in unfunded pension liabilities.”

Senator Patricia Bates, R-Laguna Niguel, said the budget “gives a false sense of security to Californians.” Despite providing more resources for education, “it creates new and additional spending in other areas, which is simply unsustainable” and “may lead to higher taxes.” Her release continued:

“The undeniable fact is that this budget would spend a record $269 billion, which is $15 billion higher than last year’s budget. It also promises money that may never materialize as it assumes that the state will receive $3 billion more than what Governor Brown believes we will receive. That’s why he has not agreed to this budget. He recognizes that it repeats the foolishness of relying on rosy economic projections.

“Governor Brown has governed during times of both boom and bust, and I hope he will resist the urge to live beyond our means. By paying down more debt and smartly investing in top priorities such as education, we can avoid major problems down the road and secure a healthier future for all Californians.”

The Republican vice chairs of the Assembly and Senate budget committees, Assemblywoman Melissa Melendez, R-Lake Elsinore, and Senator Jim Nielsen, R-Gerber, also sent a formal letter to the governor, calling the proposed budget a “political exercise” and saying adoption of the budget would be “fiscal malpractice”:

“The needs of the state are great and the urge to spend is strong. As you have noted, however, a moderate economic downturn could cut state revenue by $40 billion over three short years. In assessing the health of the state’s economy, economists have suggested that California is not even prepared for a moderate recession. While our work to build a Rainy Day Fund is commendable, the Fund is only projected to have a $3.5 billion balance as of next summer. We should not delude ourselves into believing that $3.5 billion would be sufficient to smooth the effects of a significant economic tremor.”

According to charts from the Department of Finance, actual expenditures for fiscal year 2011-12 were $86.4 billion. As state revenues increased, that number has ballooned to $96.6 billion in FY 2012-13 and $99.8 billion in FY 2013-14. The proposed budget for FY 2015-16 is $117.5 billion – that’s about $17.7 billion dollars more than just two years ago.

The estimated revenue for the general fund in FY 2015-16 according to the Gov. Brown’s May Revise is $113.3 billion, which is less than the Legislature’s proposal to spend $117 billion and save $5 billion.

Gov. Brown and the Legislature will continue to negotiate and work out any discrepancies until the beginning of the fiscal year on July 1. The proposal now goes to the governor to sign and approve.

According to the overview, the conference version of the budget “carefully balances the need for additional public investment in child care, education, health care and other programs, with the necessity of maintaining the state’s fiscal stability through increased reserves and debt reduction.” These priorities include actions that will:

• “Benefit educational programs from pre-school through college, through:
  • “Investments of significant resources in early childhood education that will expand capacity, increase rates for services, and ensure a sound budgetary footing for the childcare program.
  • “Increased resources for K-12 education directed to the implementation of the Local Control Funding Formula, and more funds for educator training and adult education.
  • “Additional resources and improvements for the state’s higher education programs and segments by adopting greater support services, increasing enrollment slots for California residents, and CalGrant expansions.
• “Improve California’s health care system by increasing Medi-Cal provider rates, restoring most optional Medi-Cal benefits, and adding funding for specific specialized programs.
• “Provide resources for a new state Earned Income Tax Credit, consistent with the governor’s plan, which will provide a limited refundable tax credit for very low-income, wage-earning families.”

As detailed above, the Legislature’s version of the budget allocates total General Fund expenditures of $117.5 billion for 2015-16, which is about $2.2 billion more than Governor Jerry Brown’s May Revise. The budget includes total reserves of $5.7 billion, which includes $4.2 billion in the Prop. 2 “rainy day fund” and $1.5 billion in the regular budget reserve.

According to a prepared statement from the Assembly Democratic Caucus, the conference version of the budget “adds another $700 million over what the governor proposed for schools”:

• “Increases Prop. 98 funding for 2015-16 by $8.2 billion more than was provided in 2014-15 budget.
• “Expands Early Education funding by an ongoing amount of $577 million. In the budget year, the total cost will be $409 million, this includes:
  • “$148 million for preschool and quality rating activities within Proposition 98.
  • “$261 million for child care and preschool programs outside of Prop. 98.”

California community colleges and state universities will also receive increased funding:

• “Increases funding for the CSU by $107 million, an increase of $70 million over the May Revision. This increase will grow to about $150 million over the next few years, allowing CSU to increase enrollment and speed graduation times.
• “Provides $25 million increase for the UC, but makes the funds contingent upon UC increasing enrollment of California students by 5,000 over the next two years, capping enrollments of out of state students and only using state financial aid for in state students.
• “Increases the Cal Grant B stipend by $150, increases the number of Competitive Cal Grants awards by 16,000, eliminates the planned cut to Cal Grants for non-profit colleges, and funds the Middle Class Scholarship to cut tuition by 20 percent for CSU and UC students in the 2015-16 year.
• “Provides major increase for Community Colleges including a $38 million Cal Grant B increase for Community College Students.”

Regarding health care, the new budget will restore 5 percent of the “AB97 Medi-Cal rates cut for dental care immediately and the rest of Medi-Cal services on April 1, 2016.” In addition, funding has been allocated toward Medi-Cal services for children, regardless of immigration status. Previously optional Medi-Cal benefits have been restored, and Developmental Disability Services rates are increased by 5 percent for targeted services and 2.5 percent for all other services.

Senate President pro Tempore Kevin de León, D-Los Angeles, said in a prepared statement:

“Our legislative budget is on time, balanced, and great news for schools. Our budget includes $5.7 billion in reserves, about $1 billion more than the governor’s May Revision reserves, and an additional $760 million in debt payment, along with targeted investments to ensure economic growth and the well-being of our residents. This budget increases access to higher education for California students, adds childcare options for working families, creates an earned-income tax credit for working people, and provides help for Californians dealing with the drought.”

Despite the fanfare, Senate Republican Leader Bob Huff, R-San Dimas, urged caution in a release earlier this week:

“This budget deal negotiated by the legislative Democrats uses revenues projections that are higher than the governor’s May revenue projection by $3.2 billion. This is a risky move. I am afraid legislative Democrats want to spend money that may not exist and that once again will push our state into budget deficits down the road.

 

“Senate Republicans continue to press for a responsible, balanced budget. However, the ball is in the hands of the majority party in the Legislature, the Democrats. They can join the governor and Senate Republicans to continue to rebuild the Golden State’s financial health or they can continue to spend money we do not have, which ultimately would put our state financial outlook at risk.”

Both houses will vote on legislation reflecting the committee’s decisions, Senate Bill 69 and Assembly Bill 93, on Monday, June 15.

I’ve had enough. Four and a half months of Gov. Jerry Brown, Part Deux, is four and a half months too much.

Last October, even before he was elected, I was the first to demand: Recall Gov. Jerry Brown. Even before the election, in the Cheyne-Stokes of Meg Whitman’s pathetic campaign, it was clear Jerry would win — and win big. And it was clear he would be a disaster as  governor.

After he actually was elected, I figured I’d give him a break. His tax increase plea was predictable. At least he wanted to give voters a chance to give it a thumbs up or down.

But his May Revise is an outrage. We taxpayers worked ourselves into a frenzy to bring him more revenue. And we delivered: $6.6 billion more than he projected in his original, January budget proposal.

Our reward? He wants to increase spending. And to pay for that, he still wants to increase taxes for five years.

Most galling is that he wants to raise taxes to pay for bonds that haven’t been issued yet. He calls this responsible governance.

Here’s an idea: If you don’t have the money, don’t buy something. Don’t issue the bonds. Do we really need to blow $9 billion on that dumb high-speed rail boondoggle? Which means $18 billion in costs to taxpayers because of interest payments.

No, we don’t need it. And we don’t need this governor.

Recall Gov. Jerry Brown!

May 17, 2011

Update: My analysis now is online.

John Seiler:

Shortly after Gov. Jerry Brown today releases his May Revise of his budget proposal for fiscal year 2011-12, which begins July 1, we’ll have analyses up on CalWatchDog.com.

From press reports, it looks like he’ll be cutting back some of the tax increases; and won’t seek to impose them until calendar year 2012. And there will be more cuts.

But we’ll see.

May 15, 2011

Everyone’s waiting for Gov. Jerry Brown’s May Revise to his budget to be released on Monday. No doubt it will include tax increases.

But consider this new report from another high-tax state, New York:

ALBANY – Escape from New York is not just a movie – it’s also a state of mind.

A new Marist College poll shows that 36% of New Yorkers under the age of 30 are planning to leave New York within the next five years – and more than a quarter of all adults are planning to bolt the Empire State.

The New York City suburbs, with their high property values and taxes, are leading the exodus, the poll found.

Of those preparing to leave, 62% cite economic reasons like cost of living, taxes – and a lack of jobs.

“A lot of people are questioning the affordability of the state,” said Lee Miringoff, director of the Marist College Institute for Public Opinion.

The same holds for California. Unless you’re a genius computer geek in Silicon Valley, or a movie star in Hollywood, there’s little to hold young folks in California. Sure, the weather is far better than New York’s. But what good is balmy weather if you’re unemployed?

And even if you have a job, California is so expensive you have to work all the time just to “afford” it. So it damages family life.

But the Democrats who run the show in California don’t care. They care only about three things: unions, unions, unions.

May 13, 2011

By JOHN SEILER

Next Monday, Gov. Jerry Brown will release his “May Revise” to his January budget proposal for fiscal year 2011-12, which begins on July 1. Looking beyond the hoopla and spin, here are the top five things to look for:

Economy

1. A realistic assessment of the U.S. economic situation. Californians like to say the state is “the world’s seventh largest economy.” Actually, we’re one-ninth of the world’s largest economy. Actions by the federal government directly affect us.

The current economic “recovery” is the slowest since the end of World War II. Yesterday, President Obama admitted, “It’s gonna take us several years for us to get back to where we need to be.”

Before the Great Recession struck in 2007, Federal Reserve Board Chairman Ben Bernanke said that the national real-estate market never in history had declined overall, and never would. Then it did. And at his historic first press conference on April 27, he admitted:

That being said it is a relatively slow recovery.

A factor is that this is triggered by a double dip in the housing market and the housing market remains very weak.

And under normal circumstances construction, both residential and nonresidential, would be a big part of the recovery process. There are a number of other factors — oil prices and other things — there are a number of factors holding the recovery back.

Confirming that, today the Los Angeles Times reported:

April home sales in Southern California were down 9.2% from a year earlier. The figure, the lowest for April in three years, was 25.4% below the month’s average since record-keeping began in 1988, DataQuick of San Diego reported Thursday.

It’s pretty clear that the whole U.S. economy well could dip into a second part of a double-dip recession.  The May Revise should reflect that.

Inflation

2. Inflation is hurting everyone. As all Californians know when they fill up their cars or buy groceries, 1970s-style inflation is back. That affects personal paychecks as well as government budgets. The state and local government’s vast fleets of cars and trucks run on the same gas and diesel fuel that has doubled in price the past two years for everybody.

In particular, as I wrote in March, high food and fuel costs are straining local school district budgets.

The May Revise should include a realistic assessment of how much inflation is hurting personal, business and government budgets.

Dynamic Economy

3. The dynamic nature of the economy. People and businesses are not static. When government does something — good or bad — they respond. Higher taxes and tighter regulations hamper business growth. Lower taxes and looser regulations promote business growth.

That’s what the whole controversy of businesses moving to Texas is about.  Texas has reasonable regulations and no state income tax. California has absurd regulations and one of America’s highest state tax climates.

Brown once understood this. Maybe he still does. His 1992 presidential campaign include a call for a “flat tax,” meaning everyone would pay the same low tax rate. Such a reform would streamline tax preparation and collection, while lessening everyone’s tax burden. Economic growth would soar.

Unfortunately, 19 years later as governor his policies have hardened along with his arteries.

Yet it’s crucial that the May Revise included something about how the state economy is dynamic and responds to government actions, good or bad.

Jobs, Jobs, Jobs

4. Jobs creation is crucial. So far in the discussion about the budget, the obsession of Brown, Democrats who control the Legislature and pro-tax groupies in the media is that tax increases are the answer to every state problem. Budget Nirvana is being suppressed only by the refusal to increase taxes by those mean old Republicans.

But what about the massive numbers of Californians who are out of work? The official unemployment rate for California was 12 percent in March. That was second worst of the states, behind only Nevada’s 13.2 percent — which is improving faster.

And that’s only the official rate. If you include people who have stopped looking for work and those who are under-employed, then California’s unemployment rate soars to an incredible 22 percent (according to the U-6 number tallied by the U.S. Bureau of Labor Statistics).

Moreover, the high unemployment rate also means more Californians are using state services, such as food stamps and welfare, which drives up the state budget deficit.

The May Revise at least should at least acknowledge that Californians are hurting for jobs. They want to work, but state tax and regulatory policies won’t let businesses create enough jobs.

Unions

5. Union influence on the May Revise. In the first four months of his second go around as governor, Brown has shown little sign of the quirky, innovative governor of three decades ago. He’s become little more than a union hack, especially on the budget. His major action has been do demand a $12 billion tax increase be put before voters who already defeated tax increases in 2009 and 2010.

The May Revise will show if that is to continue being his modus operandi. It’s true that the unions provided essential campaign financing for his election victory last year.

But as fabled Assembly Speaker Jesse Unruh famously once said of lobbyists, “If you can’t eat their food, drink their booze, [expletive] and then vote against them, you have no business being up here.”

The May revise will show whether Gov. Jerry Brown finally is ready to shun the unions that elected him, but whose tax-increase demands would be ruinous — and start governing for all the people of the state.