Nothing good lasts forever.
That was the familiar message reverberating from Gov. Jerry Brown on Friday as he unveiled his updated version of the 2018-19 state budget—his 16th budget in his final term as governor. California’s strong economy is not going to last, and Brown says he is doing everything he can to safeguard against the next recession.
“Let’s not blow it now. We worked too hard for that,” Brown said.
What that translates to is, saving more and spending less on programs that come with ongoing costs. Instead, Brown proposes using this year’s higher-than-expected revenue toward one-time spending—using it to address homelessness and mental health and improve infrastructure at universities, state buildings and courts.
In January, the governor presented a proposed budget that included a $6.1 billion expected surplus. Now that surplus has grown to about $8.8 billion, thanks to big boosts from personal income and corporate taxes, Brown said he is committed to depositing most of it into reserves and the state’s Rainy Day Fund, which will have a balance of $9.4 billion at the end of this fiscal year.
As usual, much of the state’s total budget of $199.3 billion will pay for education and health care, which have seen increases since the last recession. The budget proposes spending an additional $4,600 per student compared to spending in 2011-12, which would bring the annual amount the state spends per pupil to about $11,628.
By the time Brown returned in 2010 to begin his second two-term stint as governor, there was a worldwide recession and the state faced a $25 billion deficit. Since then, California’s unemployment has dropped from 12 percent to a record low 4.6 percent. The economy has added 2.4 million jobs, and hourly wages increased by $4.76 an hour.
“It can get giddy at the peak,” Brown said. “Don’t fall over. I try to leave the most responsible budget I can to the next governor.”
Saving for later
By prioritizing one-time spending on infrastructure, homelessness and health needs rather than ongoing spending, the budget frees up some $6 billion to go toward the Rainy Day Fund, a mandatory reserve governed by rules, and the state’s discretionary reserve fund. Proposition 2 passed in 2014 established a goal of reserving 10 percent of tax revenues to the Rainy Day Fund by increasing savings when capital gains are high.
The state’s short-term goal is to continue fully filling that fund in order to prepare for a downturn. A moderate recession will drop state revenues by more than $20 billion annually for several years, according to the governor’s office.
Where to spend the rest?
The proposed budget leaves about $4 billion toward one-time expenditures in three areas.
Half of that would go to deferred maintenance—money for universities, the state and courts to pay for upkeep on buildings, equipment and levee repairs. The state has a huge backlog of infrastructure needs with a price tag of $20 billion, said Michael Cohen, the state’s finance director.
Brown also proposes distributing $359 million to help local governments combat homelessness, including $50 million for services for people with mental illness.
His proposed budget also adds another $312 million to develop better early detection of mental health illnesses, and education for mental health professionals, with a focus on psychiatry.
Other priorities he’s carved out include an additional $96 million more for wildfire prevention efforts such as thinning forests, $134 million for voting equipment and $16 million for earthquake early warning systems.
Key Democrats want more; Republicans want a refund
Brown’s so-called “May revise” is just one more pulse point on the way to a final state budget. Democratic legislative leaders now have several weeks to try to squeeze in more funding for for health care, education, housing and other asks between before the state’s June 30 deadline to put a new budget in place.
Their wish list includes a broader expansion of various health benefits for people lacking sufficient coverage. One controversial item: health coverage for all undocumented immigrants living in California. In 2015, California approved legislation to cover undocumented children and allow them to enroll in Medi-Cal, the state’s health care program for poor people.
Universal health care advocates like Anthony Wright, executive director of Health Access, say they’ll continue to push for coverage for adults. They insist everyone benefits when the sick among us can get treatment; critics counter that the state can ill afford to assume medical bills for immigrants not in the country legally.
About 200,000 undocumented children have enrolled in Medi-Cal, coverage that has cost the state about $180 million. Covering undocumented adults would cost an estimated $400 million, according to Wright.
Assemblyman Phil Ting, the San Francisco Democrat who chairs the Assembly Budget Committee, applauded Brown’s commitments toward homelessness but wants to allocate more for health coverage and higher education.
“When we craft a spending plan that addresses these issues, we make our state stronger and build a brighter future with opportunity for all — while still saving for a rainy day,” Ting said in a statement.
Some don’t think the surplus belongs to the state at all. State Sen. Ted Gaines, an El Dorado Republican, thinks a refund to the taxpayers is in order.
“This is Governor Brown’s last budget and thankfully so. He’s spent 8 years talking about fiscal discipline and prudence while supporting new taxes, fees and spending at every turn,” Gaines said. “He’s leaving behind a legacy of poverty, massive homelessness, and if he keeps this surplus, theft.”
Of course Republicans have no real influence on the final budget. The Legislature can approve its version with only a simple majority, so the Democrats who dominate both chambers are in control.