While the state’s finances have substantially improved from the last economic downturn, Brown has often said the state’s over-reliance on capital gains tax revenue will force dramatic cuts when the economy goes south if the state is not prepared.

Since earlier this year when the initial budget was unveiled, tax revenue projections were reduced $1.9 billion to reflect April’s personal income tax receipts missing expectations by $1 billion plus “sluggish” sales tax revenue.

“Things don’t last forever and right now the surging tide of revenue is beginning to turn, as it always does,” Brown said on Friday. “That’s why it’s very important and best that we prepare for our time of necessity.”

Rainy-day fund

Just last month, Moody’s rated California as the least prepared to withstand a recession of the largest states, for the over-reliance on income tax revenue, a lack of flexibility due to Constitutional mandates and entitlement spending and and weak reserve funding.

In 2014, voters passed Prop. 2, a rainy-day fund. The revised budget showed contributions to the fund had been reduced $1.6 billion since January. Brown on Friday continued to call for a robust reserve fund at the expense of new programs.

“We’re going to have a very productive, substantive debate over the next month,” Brown said of the budget negotiations. “But at the end of the day, we’ve got to come out with a sizable reserve. We can’t have any significant new spending and we’ve got to get ready for the downturn.”

Prop. 30

Voters appear likely to decide in November whether to extend Prop. 30 for 12 years — a “temporary” tax on the top incomes that was originally used to bolster education funding. The revised budget notes that letting this lapse would create the better part of a $4 billion budget shortfall by 2019, requiring cuts.

“Until the voters decide this important question, no significant new ongoing spending commitments should be made,” according to the budget summary.

Brown would not take a public position on the Prop. 30 extension, saying he was “leaving it to the people of California.”

An unexpected wave of disease has exacerbated increases brought on by Golden State policymakers. “While the avian flu outbreak this spring that resulted in the killing of 48 million domestic chickens and turkeys, mostly in the Midwest, continues to have a ripple effect across the country, a perfect storm of additional factors in California, namely the rollout of Proposition 2 and higher chicken feed prices, are wreaking havoc on Bay Area supermarket egg prices and limiting the supply of eggs to local restaurants, ice cream shops and bakeries,” the San Francisco Chronicle reported.

Citing data from the Department of Agriculture, KGO San Francisco noted that prices for a carton of large eggs jumped from $1.45 last August to $3.61 this month. Meanwhile, since last May, California has produced nearly 20 percent fewer eggs, according to USDA figures.

Costly chickens, costly eggs

According to the egg industry, that dip in production numbers should be attributed primarily to the passage of Prop. 2. Passed into law by voters as the Prevention of Farm Animal Cruelty Act, the Chronicle recalled, Prop. 2 “requires that all eggs sold in California come from farms that allow chickens to move around freely. Because each egg-laying hen must have 116 square inches of space, rather than the standard 67 inches of space in battery cages, there are fewer hens overall, and farms had to be upgraded.”

Those upgrades imposed costs passed along to consumers, industry advocates observed. “The costs of having to build new structures and new facilities were incurred by the egg farmers, and those costs have to get passed along,” said John Segale, spokesman for the Association of California Egg Farmers, in comments to the Associated Press. What’s more, the limitations imposed by Prop. 2 worsened the impact of the avian flu outbreak. Ken Klippen, president of the National Association of Egg Farmers, told AP that some of the big Iowa farms that meet Prop. 2 requirements have been knocked out completely by the disease.

More costly feed, meanwhile, has pushed egg prices higher. Klippen added that “California producers have to pay 20 cents more per dozen eggs for chicken feed because it’s mostly shipped from the Midwest.”

After hitting record prices earlier this summer, as Reason noted, consumers faced even greater sticker shock this fall.

Struggling to respond

As is often the case, the changing market has disproportionately affected small businesses; bakery owner Terri Littleton told Fox Sacramento she “survived the initial jump in prices when California’s law giving more cage space to egg laying chickens went into effect. But the avian flu epidemic and higher feed prices in drought-ridden California have made eggs even more expensive.”

Proprietors have been forced to make unattractive choices about how to compensate for the changes. Littleton stressed that “raising prices is a tough proposition for businesses that work on a small budget, and changing recipes might even be more harmful.” The experience of some larger chains appeared to underscore that point. One CNN report revealed that consumers have lashed out at Panda Express restaurants for pulling eggs from their fried rice and hot and sour soup recipes.”

In an ironic twist, not all egg merchants have found themselves in a painful bind. Anecdotal evidence suggested that specialty sellers could benefit from relatively more expensive egg prices. “We have seen people that we have not seen before at the farmers’ market, and they are saying if we’re going to pay that amount at the grocery store, we’d rather buy a fresher egg and a higher-quality egg,” one pasture-raised chicken rancher told the Chronicle. Eggs produced by so-called free range chickens now typically retail for  about $9 a dozen.

These are the numbers everybody works with until his May Revision of the budget. A budget then is passed by June 15, as required by the California Constitution.

For decades, the budget rarely came in on time. But it has done so in recent years for three reasons.

First, the economic recovery has erased the deficits of the later years of Gov. Arnold Schwarzenegger’s tenure.

Second, Brown actually has been more frugal than the spendthrift Hollywood actor.

Third, in 2010 voters passed Proposition 25, which dropped to a majority vote the previous two-thirds requirement in the Legislature to pass a budget (except for tax increases). Before that, the GOP minority could hold up budget passage until it got  some of what it wanted, such as lower spending in general, or higher spending on favored local pork projects.

The things to look for in Brown’s new budget plan are how much he allocates to education reform, high-speed rail and especially pension reform. His Inaugural Address already said he’ll dedicate “saving $2.8 billion in the state’s new constitutionally protected Rainy Day Fund,” from Proposition 2, which voters passed last November.

At CalWatchDog.com, we’ll be hashing out the numbers for you starting on Friday. (And by “hash,” we don’t mean hashish, but corned beef hash.)

The Bee looked at five things. My perspective follows.

1. “Will Brown loosen up?” and increase spending a lot. They don’t think so. Right. I think he’s also running for president and will want to tout a balanced budget, with a large surplus even, as part of his “California is back” theme.

2. “Funding health and human services.” The Bee expects some modest increases, but not as much as Brown wants. Probably the case.

The Bee also makes this mistake, “But California health and human services were cut by billions of dollars during the recession, and advocates and their Democratic allies fight each year to restore those services.”

What really happened is that, during the two years before the Great Recession, Gov. Arnold Schwarzenegger went on a wild spending binge and signed budgets that, combined, boosted spending on welfare and everything else an incredible 25 percent. The recession forced cuts. Since then, money has been “restored” to pre-Schwarzenegger binge levels, but not above them.

3. “Brown vs. Napolitano, Round 2.” UC President Janet Napolitano wants to boost tuition 25 percent over five years. Brown and the Legislature are balking. The Bee expects Brown’s response in his budget.

At CalWatchDog.com, we have been expecting that Brown, who knows state politics better than anybody in history, will triumph over the former head of Homeland Security.

4. “Retiree health care.” The Bee expects some movement on the $72 billion due for retired government workers’ plus health plans. Probably a little.

5. “Proposition 2,” the rainy day fund. The Bee expects some money to be put in the reserve. As the state treasury is raking in record tax takings, I think it will be quite a bit so Brown can take credit for preparing for the future — such as a future in a house with white paint.

Less than a third of California’s eligible voters cast ballots on Nov. 4….

Of those who registered to vote, little better than four in every 10 – about 42 percent – actually voted, either in person or by mail, the secretary of state reported in its Statement of the Vote….

In Los Angeles County, the most populace county with more than 5,000 voting precincts and eight million eligible voters, about 31 percent of registered voters cast ballots, the lowest participation level of any of the 58 counties. Of the L.A. voters who were eligible to cast ballots, less than a fourth went to the polls.

Part of this, I think, was due to California now being a one-party state dominated by Democrats. Gov. Jerry Brown hardly even campaigned for re-election; and even for that, he mainly talked about passing his initiatives, Proposition 1, the water bonds, and Proposition 2, the rainy-day fund. If he didn’t care about his own re-election, why should anybody else?

Democrats easily swept all statewide elections for lieutenant governor, secretary of state, treasurer, etc. The six ballot measures generated little controversy. Three won easily and three lost easily.

Turnout certainly will be higher in Nov. 2016, for the presidential election. But even there, nowadays the Democratic nominee easily wins with a 3 million-plus vote margin. The presidential candidates from both parties campaign here only troll for campaign cash.

However, numerous ballot measures are expected to be put before voters. The government-employee unions will be rallying their membership to pass several measures to gouge taxpayers even more. Taxpayers’ rights groups will be campaigning to keep taxes here slightly less preposterously unreasonable.

Otherwise, for most voters democracy in the Golden State seems about as appealing as one of First Lady Michelle Obama’s school lunches.

California’s budget picture is sort of like that old Sandy Dennis high-school movie, “Up the Down Staircase.”

Going up: Legislative Analyst Mac Taylor just reported tax receipts jumped $2 billion over projections in the fiscal 2014-15 budget the Legislature passed, and Gov. Jerry Brown signed, last June. And the state’s credit rating was bumped up to A+ by Standard & Poor’s after voters on Nov. 4 passed Proposition 2, which strengthened the state’s rainy-day fund. The last time the bond rating was increased to A+ was in 2006.

Going down: Despite the added revenue, the state has reached a limit on what it can spend, according to a new study by insurance-asset manager Conning and Company, “Municipal Credit Research: State of the States.”

Moreover, for October Conning ranked California 36th among the states on its percentage of Expenditure Burden, defined as a percentage of the burden on general fund revenues for debt, future pensions and Medicaid expenditures. That’s four ranks lower than for April.

And as CalWatchdog.com calculated, California also has the largest Expenditure Burden in terms of absolute dollars, as shown in the following table. (Expenditure Burden is the far-right column.)

States with Highest Expenditure Burden (Fourth Quarter 2014)

Pension burdens

Gov. Brown’s June budget report correctly projected the state’s “Wall of Debt” will be cut from $34.7 to $13.8 billion by the end of fiscal 2014-15 next June 30.  But this picture of the debt omits future unmet pension burdens and Medicaid spending.

Just before the election, Controller John Chiang – on Nov. 4 himself elected as the new state treasurer – released figures on pension debt that confirmed a crisis long raised by pension critics. He warned:

“The unfunded actuarial accrued liability of the state’s pension systems — or the present value of benefits earned to date that are not covered by current plan assets — shows it has steadily risen from $6.33 billion in 2003 to $198.16 billion in 2013.”

That warning was confirmed by Paul Mansour, Conning’s head of muni research. He told Bloomberg, “California is still being held back by relatively high debt and pension levels…. We are more cautious on them than the [bond] rating agencies.”

Bloomberg also reported:

“California has $87 billion of bonds paid from the general fund, more than twice as much as a decade ago, according to data from the state. Voters also approved $7.5 billion for water infrastructure bonds this month [Propositon 2]. Its $2,465 of debt per resident is the third-highest burden among the 10 most-populous U.S. states, according to a report issued last month by Treasurer Bill Lockyer. New York ranks first, with $3,204 per person. The median among all states is $1,054.”

Forecast

There’s another reason why the new $2 billion in revenue the LAO forecast doesn’t much help long-term pension and medical-expenditure burdens. Proposition 98, passed in 1988, mandated about 40 percent of any revenue – including new revenue – must go to public schools.

As the LAO reported:

“A $4 billion reserve would mark significant progress for the state, but maintaining such a reserve in 2015-16 would mean little or no new spending commitments outside of Proposition 98, the funding formula for schools and community colleges.” 

So of that extra $2 billion, just $1.2 billion of it can be used for other spending, debt reduction or reserves — about 1 percent of an $108 billion general-fund budget.

Moreover, according to the LAO, despite the new revenue, the general-fund’s balance actually has declined due to adjustments, including “a $358 million downward adjustment relating to an allocation of state sales and use tax (SUT) to local governments to correct for past accounting issues. All told, these adjustments result in an entering fund balance of $2.2 billion, or $243 million lower than the budget’s assumptions.”

Bottom line: California’s budget problems are far from over. Every good-news story going up the stairs seems to be met by a bad-news story going down.

Prop. 1, water bonds. Winning 68-32. The $7.5 billion in water bonds will cost $15 billion to pay off. For that, only $2.5 billion will go to dams and reservoirs to help alleviate future droughts. It’s a typical California ripoff, with special interests getting the lion’s share of the money.

Prop. 2, rainy day budget fund. Winning 71-29. The Legislature always has figured out ways to grab the money in previous rainy-day funds guaranteed by initiatives. We’ll see if that happens again.

Prop. 45, giving the insurance commissioner authority over medical insurance rates. Losing, 61-39. Massive ads against it doomed the initiative.

Prop. 46, drug testing doctors. Losing 68-32. A silly regulation that would have driven doctors from their profession faster than Obamacare is.

Prop. 47, reducing penalties, mainly for drug use. Winning, 57-43. A big coalition backed it. A rare defeat for law-enforcement unions.

Prop. 48, Indian gaming compact. Losing, 63-37.