By: Katy Grimes
Many in the state refer to the annual California governor’s January budget proposal as fantasy. Gov. Jerry Brown did not disappoint today as he presented his budget — “balanced and fair,” according to Brown, and a way to equalize the unequal.
“I want to advance the progressive agenda, but with the amount of money available,” Brown said during the press conference on the budget for fiscal year 2013-14, which begins on July 1.
Brown said that California is not facing a deficit spending plan for the next fiscal year. Yet, the non-partisan Legislative Analyst’s Office projected a $1.9 billion deficit for 2013-14. And while the LAO projected a deficit in the 2013-14 budget, they also projected budget surpluses ahead.
Many in the Capitol warned that the LAO’s projections were too rosy.
Brown presented a rosier scenario
To explain why Brown’s budget proposal is even more rosy than the LAO’s projections, the economic assumptions in the budget summary are telling.
According to Brown and his administration, there is an economic recovery, and many sectors of the economy are improving. Brown’s budget summary, however, did admit that there is still “economic uncertainty.” However, the Brown budget plan said economic uncertainty is the result of “global economic developments that tempered investment” and “Hurricane Sandy.”
Other economic assumptions in the budget summary include:
* Better real estate conditions
* California’s housing market in recovery;
* Employment gains improved. The reason listed for this is that “23 of 28 metropolitan areas added jobs” — but these were mostly government jobs;
* Consumer spending improvement.
Brown said that, under his budget, California can reduce its “wall of debt” from nearly $28 billion to $4.3 billion by the end of the 2016-17 budget. “It will not be easy, there will be some heartburn, but I’m here to get done what I think is compassionate, and what is good for the state of California,” Brown said.
LAO projections differ significantly from Brown’s
“The 2012–13 budget assumed a year-end reserve of $948 million,” the LAO found in its 2013-14 Budget Outlook. “Our forecast now projects the General Fund ending 2012–13 with a $943 million deficit.”
“We also expect that the state faces a $936 million operating deficit under current policies in 2013–14. These estimates mean that the new Legislature and the Governor will need to address a $1.9 billion budget problem in order to pass a balanced budget by June 2013 for the next fiscal year,” the LAO reported in November.
Prop. 30 is the recently passed ballot measure, authored by Brown, which increases income taxes on personal and business incomes of $250,000 and higher, as well as increasing sales taxes on everyone.
The LAO has consistently said that Prop. 30 will raise $6 billion per year.
Analysis of Prop. 30 by the LAO showed that the initiative will raise the state sales tax by one-quarter cent for every dollar for four years, and raise income taxes on Californians making over $250,000 for seven years.
Incomes of more than $500,000 would be taxed at an additional rate of 1 percent and 2 percent on incomes of $600,000 or more. Incomes of $1,000,000 and higher will pay a 3 percent increase.
The LAO has warned that the tax revenue could be volatile, depending on housing prices, the stock market and the economy because of the dependence on the tax increases of upper-income earners.
This particular budget issue will probably get punted to the governor’s May Budget Revise.
Other budget factors
Budgets projections have changed dramatically since the Legislature no longer has to pass budgets with a two-thirds majority vote.
The LAO used to be better at exploring different scenarios and factors for its budget projections. Now, with a majority budget, what is not included in budget projections is nearly as important and what they choose to use. What’s not included any longer are any fiscal issues important to Republicans and fiscal conservatives.
In this 2007-08 LAO budget projection, the good, the bad, and the ugly is included, and is a very different projection style from recent LAO budget projections. Many in the Capitol attribute this not only to the influence of the Democratic majority, but of the pressure put on the LAO by this majority.
Some in the Capitol worry that, because the Prop. 30 taxes expire after seven years, the Democrat-controlled Legislature will vote to extend them. Even if the governor of the time vetoes such a bill, the supermajority in the Legislature could override his veto.
“Investing” in California
Brown said that he was increasing education spending in the state from $44 billion to $66 billion. “This is real investing,” Brown said.
Brown said that he plans to increase education funding for low-income area schools, schools with non-English speaking students, students who are foster children and poor-performing schools. Brown quoted Aristotle, who said that distributive justice consists of ”treating equals equally and unequals unequally.”
“Treating unequals equally is not justice,” Brown said. “Growing up in Compton or Richmond is not the same as growing up in Los Gatos, Beverly Hills or Piedmont.”
“We recognize that putting in equality formulas … it is controversial, but right … fair,” Brown said.
Brown said that colleges and universities “will have to reconfigure themselves to keep the cost from escalating,” but would not guarantee that there would be no tuition rate hikes. “Guarantees are not part of this world we live in.”
The California State University and University of California will receive $125 million each, and the Community College system will receive $197 million.
Health care, climate change spending on the rise
With the implementation of the federal Affordable Care Act, Brown promised that health care spending was on the rise, but the state “would move cautiously.” He said that Obama was “historic and heroic” for passing the national health care act.
Brown mentioned climate change spending several times, and indicated that it was on the rise as well. Proposition 39, also passed in November, is a tax on out-of-state businesses, which have a significant presence in California. The money from Prop. 39 goes to the General Fund as well as into spending for renewable energy. It also factors into the mandatory education spending calculation of Proposition 98. Prop. 39 is estimated to bring in $1 billion in tax revenues, but many warn that this is also a volatile revenue prediction.
Sounding more like a fiscal conservative at times, Brown stressed that fiscal discipline was his priority. “Fiscal discipline is not an enemy of Democrats,” he said, to chuckles in the press bay. “It allows us to take care of people over time.”
Brown said that America is in a big fiscal mess, and referred to “two characters” who have written California off as a failed state. Adding that he would find creative ways to deal with the many challenges, Brown said “fiscal discipline and imaginative investment” could repair California.
Missing from the governor’s press conference, however, was any discussion of what the administration and lawmakers can do to grow the state’s economy and get the nearly 10 percent of those in unemployment back to work. “The true way is to create more taxpayers, not hike taxes on current taxpayers,” former state Senator George Runner told me in an interview; he’s now a member of the Board of Equalization. ”I’m disappointed that we’ve heard virtually nothing from the governor about spurring job creation and economic growth. Targeted tax credits, tax rollbacks. What can we do to actually grow the economy?
“If the governor and Legislature want to ensure California’s solvency, they need to help the private sector succeed in our state. That means fewer taxes and regulations, not more. There was a real absence of strategy about what to do.”