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.

Dueling Democrats

“California lawmakers on Monday approved a budget with $2.2 billion more in spending than proposed by Democrat Jerry Brown,” Business Insider noted, “the latest move by progressives to nudge the fiscally moderate governor to the left amid improvement in the state’s economy.”

“The general fund spending plan for the fiscal year that begins July 1 cleared the Senate 26-13 and passed the Assembly 52-28,” the San Jose Mercury News reported. “But Gov. Jerry Brown has not yet signed off on the deal, setting up the possibility of a nasty fight over a tiny fraction of the budget.”

What is small in relative terms, however, may be sizable in absolute numbers. Party leaders sought to spend $750 million beyond Brown’s budget on reducing the debt, plus nearly $1.5 billion in social services funding that Brown refused to restore to his $115 billion annual budget. Democrats justified the increases by estimating about $3 billion more in anticipated revenues than Brown and the Republicans expect, according to the Mercury News.

Heated rhetoric

For their part, Republicans did not miss their opportunity to take advantage of the disagreement between Brown and members of his own party. “Legislative Republicans were united in their opposition and called Monday’s vote a ploy to make sure lawmakers don’t miss a paycheck,” noted the Orange County Register. “Under state law, legislators had until midnight to pass a balanced budget or they would have had to forfeit pay.”

Given Gov. Brown’s continued resistance to Democrats’ expanded budgetary plans, some GOP lawmakers characterized the vote as a charade. “Is this a real budget we’re voting on today? Or is this just a sham budget?” asked state Sen. Jeff Stone, R-Temecula, the Register reported.

Despite the heated rhetoric, Republicans were careful to underscore how much common ground they maintained with the governor. “Again and again and again, we found ourselves as Republicans agreeing with the governor, and the governor agreeing with us,” remarked state Sen. Jim Neilsen, R-Gerber, according to the Mercury News. But Brown’s office made clear that a deal with legislative Democrats was expected within a matter of days, according to Business Insider:

“H.D. Palmer, the governor’s spokesman on budget and finance issues, said the administration was optimistic that an agreement would be reached soon. ‘Productive discussions with the Legislature on the state budget have continued throughout the weekend and into today,’ Palmer said.”

New and bigger programs

When negotiations have finished, Brown and Democrats will have argued their way through several multi-million-dollar initiatives meant to increase entitlements and restore public funding pared back in the wake of the 2008 financial crisis.

Under the new budget legislation, for instance, health care spending would rise by $40 million for unlawfully present children and $82 million for higher Medi-Cal reimbursement rates, as the Sacramento Bee reported. Other hikes, according to the Bee, include $261 million to expand childcare and preschool, $228 million to compensate in-home caretakers, and over $100 million “to eliminate a maximum state welfare award meant to discourage low-income women from having additional children.”

By Chris Reed

Nothing brings clarity to the absurdity of unions’ claims that they defend the poor and champion social justice than the annual fights over the state budget. Advocates of social services for the poor and needy are up in arms that Gov. Jerry Brown’s revised 2013-2014 budget doesn’t restore cuts. But state unions, most of which are in salary negotiations with Brown, aren’t backing them up. This San Jose Mercury-News story lays out the complaints:

“Democratic legislators and liberal advocacy groups signaled Wednesday they are ready to fight to restore safety net programs devastated by years of cuts, a day after Gov. Jerry Brown emphasized a sober economic outlook in a revised budget that leaves little room for improving the lot of the poor.

“Brown vowed to spend within the state’s means, proclaiming he is the ‘backstop’ to the ‘big spending machine’ of interest groups and liberal legislators sure to bang on his door for help.

“Brown scaled down hopes with a $96.4 billion budget that was $1.3 billion smaller than he’d proposed in January, saying that federal ‘sequestration’ cuts, lower wages and a hike in Social Security taxes had quelled economic growth.

“But advocates for the poor and disabled argue that a $1.1 billion rainy-day reserve and Brown’s plan to repay certain state debts may not be appropriate during a time when many people are still suffering the effects of the Great Recession.”

The CTA, CFT and AFSCME? All MIA

Nowhere in the Merc-News story or in any similar coverage do you see the CTA or CFT or AFSCME speak up for the poor. It’s not their priority.

And this is true in every economic circumstance. This is from what I wrote last year:

“When times are bad, unions pressure Democrats to always make social services for the poor be the first target of budget cutting, preserving public employee compensation by any means possible.

“When times are good, they pressure Democrats to save extra revenue for them. In the revenue boom that lasted from 2003-2007, social services spending went up by barely the rate of inflation, while spending on schools (teacher unions) and prisons (guard unions) went up at least four times as fast.”

Union power: It’s 24/7/365, whether in recessions or booms, and it’s always about union members’ compensation and job protections and little else. Dems may believe in social justice, but for their most powerful faction, such rhetoric amounts to a convenient smokescreen.

By Chris Reed

On the California revenue front, whether times are good or bad, happy or sad, the Democrats who control Sacramento are far more likely to help out the middle-class teachers who are the key force in their political coalition than the poor or needy.

That was hammered home again this week in the 2013-14 budget offered by Gov. Jerry Brown. While it does have a whiff of “social justice” about it in that the governor wants troubled schools to get disproportionately more money than the upscale schools where veteran teachers are concentrated, similar efforts have failed in the past. If that happens again this budget cycle, that will mean that schools were the primary beneficiaries of the billions in new revenue coming from Proposition 30’s higher taxes. And when I say schools, I mean teachers. Here in San Diego, without anything approaching a real debate, the city’s giant school district has committed to restoring a 7 percent raise for all teachers that had been put on hold because of state budget woes.

Meanwhile, advocates of social services for the needy and infirm are grousing, and asking when the deep cuts forced through by Gov. Brown will be restored. The answers from the governor amount to “not soon” and “tough luck.” Here’s KQED’s report. Here’s Dan Walters’ column on the same topic.

Revenue swell didn’t lift all ships

None of this is remotely surprising. Consider what happened during the state’s economic boom from 2002-2007, when state revenue surged 26 percent, from $80.6 billion to $101.3 billion.

The state Department of Social Services, which is responsible for child and family welfare, food stamp administration, help for the deaf and blind, and much more, saw its budget go from $8.15 billion to $9 billion. That’s 10 percent increase doesn’t even keep up with inflation over the same span.

In immense contrast, education spending went up 42 percent, from $26.85 billion to $38 billion.

To frame it another way, education spending went up by more than the entire Department of Social Services annual budget in any of the years from 2002-2007.

The poor and the needy, it seems, need to form a union to get some love from the party that says it’s all about protecting the vulnerable.

Here’s what I wrote about the implication of these budget stats when I first compiled them in August 2007:

Progressives should consider these numbers and realize the obvious: By the same logic with which you see Republican lawmakers as corporate stooges, you should see Dem lawmakers as union stooges.

This has become even more obvious in the 64 months since. Back in 2007, it would have struck me as far-fetched that Democrats would block efforts to quickly fire classroom sexual predators after a horrific scandal in which Los Angeles Unified had to pay off a teacher who fed kids semen to separate him from the school district. Little did I know.