Concern over future revenue drop still paramount

Last week, Gov. Jerry Brown released his “May Revision” for the 2017-18 state budget. Changes from the January budget proposal were modest. As a result of a slight higher revenue forecast, Brown’s May budget proposal totals $124 billion of state funds, which is $1.5 billion more than the January submission.

Including special funds and bond revenue, the total budget is $183.4 billion, or $4 billion greater than January’s proposal.

While the state revenue forecast is $2.5 billion greater than the January forecast, the total is $3.3 billion less than the 2017-18 forecast made one year ago.

Brown directed the added funding to schools (about another $1.1 billion), health services, child care and state pension liabilities.

While Brown is still proposing to shift the funding for In-house Supportive Services to the counties, the May proposal recommends that the state provide $400 million of the $600 million cost. This would be a substantial benefit for the counties’ budgets.

Since January, Riverside County has been struggling to find another $40 million to fund the program. This would reduce the county’s cost to about $12 to $14 million.

Brown has included a $6 billion added payment to CalPERS for state pensions. This would reduce the state’s cost nearly $11 billion over the next two decades, according to the budget report.

In presenting the revised budget, Brown emphasized that potential budget problems lurk on the horizon. The revenue growth is now in its eighth year, three years longer than the average economic expansion.

“A moderate recession will drop state revenues by about $20 billion annually for several years,” the budget document states.

Also, action in the U.S. Congress to change the healthcare funding, such as reducing Medicaid support to the states, could have a drastic effect on California’s budget in future years.

At the end of next fiscal year, the state’s reserves will be about $10.1 billion, of which the “Rainy Day Fund” will total about $8.5 billion and the discretionary reserves about $1.6 billion. Total reserves are $700 million greater than the January budget estimate and $3.6 billion more than this year’s balance of $6.7 billion.

In its preliminary review of the governor’s budget, the Legislative Analyst’s Office wrote, “These reserves will be a key tool for the Legislature as it prepares for the next economic downturn and federal actions that could significantly affect the state budget’s bottom line in future years. Facing these uncertainties, we would encourage the Legislature to set its total reserve level for 2017-18 at — or preferably above — the level the governor now proposes.”

Despite the wet winter, Brown’s budget for Cal Fire continues to recognize the damage done to state forests from pest and climate. The proposed budget for Cal Fire includes funding for another 42 engines and the ability to staff engines and helibases for another month each spring. However, funding for drought responses was reduced $115 million.

There also is more funding to repair the state’s park road system, bridges and water systems.

Thursday afternoon, state Sen. Jeff Stone commented on Brown’s May revision. “As the governor said, we’ve spent billions of dollars on anti-poverty programs, but still one in four children go to bed hungry every night. At some point, you have to ask, what are the Democrats spending money on? Why hasn’t the billions already spent reduced the growth of poverty in California? Well, the answer is pretty simple — they’re misspending taxpayer dollars on things like a billion dollar boondoggle known as highspeed rail. They’re spending tax dollars on pay raises for public employees — and many of those employees work for a department where they have nothing to do.”