Gov. Jerry Brown’s budget proposal for fiscal year 2017-18, which starts on July 1, is prudent. The General Fund expenditures are $122.5 billion, $240 million less than the current-year budget.
In his press conference, Brown stressed the states vulnerability to gyrating income tax revenue and possible major shifts in availability of federal funds. The dark cloud over Brown’s funding proposal, as it was last year, is the belief that another recession may be imminent.
The current recovery is the longest in post-World War II history; consequently, Brown questions its ability to continue.
Income tax revenue has not met projections for this fiscal year. The revenue totals for fiscal year 2017-18 had been reduced last May and June, and now in January.
“The trajectory of revenue growth is declining,” Brown said. “But it is still growing … California is growing but less than expected.” Without his budget adjustments, Brown stated the current budget would result in a $1.2 billion deficit and expand to $2 billion in 2017-18.
“California is the most progressive tax system in the country,” he stated. “As a corollary, it is one of the most unreliable revenue systems … to manage unreliability requires prudence.”
Despite Brown’s skepticism for the economy’s ability to continue to boost tax revenue, the Legislative Analyst’s Office commented Friday on Brown’s assumption about declining personal income tax revenue.
“In a normal growth year unaffected by recession or major policy changes, we expect PIT [personal income tax] growth to exceed 5 percent. Between 2009-10 and 2016-17 (using the administration’s estimates for 2015-16 and 2016-17), annual PIT growth has averaged over 8 percent. Moreover, PIT growth has exceeded the Governor’s 2017-18 estimates in 18 of the past 21 years,” wrote the LAO.
One of the major budget adjustments fell on the state’s school system (K-14). The budget is funding Proposition 98 at its minimal levels. This still provides a $1 billion increase for school districts, but it is much less than recent budgets.
The second major adjustment is eliminating funding for several one-time projects, such as $400 million for affordable housing and $300 million for state office buildings. Funding for these projects had been part of the current-year budget approval.
However, program cuts are not the only changes in the proposed budget. The governor expects enrollment in Medi-Cal to continue to grow. Consequently, the spending will increase $1.8 billion for a total of $19.1 billion. In addition, the governor and 13 labor associations are about to sign agreements for salary increases.
Also, because of Brown’s concern for a possible recession and dire consequences falling on the budget, the “Rainy Day Fund” will add another $1.2 billion for a total of nearly $8 billion available for emergencies.
Besides a possible recession, Brown’s budget staff recognizes that the new administration in Washington, D.C. could make changes with major effects on the state budget.
Repeal of the Affordable Care Act (Obamacare) is just one potential crisis. While Brown acknowledged that this is looming, he said the state could not adjust the proposed budget without details. He also urged national leaders to act prudently.
“The country doesn’t need any more divisive kinds of moves that divide the poor and rich, split the middle class,” Brown said.
“These very bold proposals aren’t very consistent with decency or smart political leadership,” he opined. “They could be extremely painful for California.” These uncertainties could open a massive hole in the state budget, he warned.
“Whatever happens we’ll live with and deal with it,” he promised.
