Cautious about new program funding

No new programs, concern about future recession, and care for the poor and low-income were the primary themes last week of Gov. Jerry Brown’s proposed budget for fiscal year 2018-19, which begins July 1.

The governor proposed spending $131.7 billion in general funds, which is 4.1-percent greater than the current-year budget. In his press release, Brown proudly said, “In stark contrast to the $27 billion budget gap of 2011, the 2018 fiscal plan reflects a healthy one-time surplus and increases funding for education, health care and other core priorities.”

This will be Brown’s last budget. Next January, a new governor will submit a budget for fiscal year 2019-20. But in his final proposal, Brown continued his cautious outlook toward the economy and the sensitivity of the state’s revenues to fiscal conditions. He continues to build the state’s reserves.

In his letter introducing the budget proposal, Brown emphasized his long-standing concern about prudent fiscal policies.

“In recent years, I have warned of an inevitable recession lurking in our future, which thankfully has not yet arrived. Nevertheless, we must remain vigilant and not let rosy statistics lull us into believing that economic downturns are a relic of the past. Fiscal restraints are needed more than ever as California approaches the peak of the business cycle … As was true in 2011, our Job Number 1 is fixing our state budget and keeping spending in line with revenue,” he said in his introduction.

Not only did he propose a deposit in the rainy-day fund, but he recommended full compliance with Proposition 2, approved in 2014, that established the goal that the fund achieve 10 percent of tax revenues.

Consequently, Brown proposes a supplemental transfer of $3.5 billion, along with the required 2018-19 transfer, for a total deposit of $5.1 million, which will bring the rainy-day fund to $13.5 billion. And there is another $2.3 billion available in discretionary reserves.

The budget proposal also increases funding for educational programs consistent with Prop 98. Funding for K-12 programs will grow more than $3 billion to an all-time high of $78.3 billion.

The education budget does include funding for a new program — a fully online community college.

“The online college’s initial focus will be collating and developing quality content and programs that provide vocational training, career advancement opportunities, and credentialing for careers in child development, the service sector, advanced manufacturing, healthcare, and in-home supportive services, among other areas,” the report said.

Healthcare totals more than $150 billion, which includes $118 billion for other funds such as federal grants. Medi-Cal funding is about two-thirds of this total.

The governor also has fully funded replacing voting systems and technology in every county. This will cost about $135 million.

State Sen. Jeff Stone was glad to see some of the governor’s budget proposals but also expressed concern about taxes.

“The Governor was prudent to propose fully funding the rainy-day reserve fund, but we have plenty of room to provide much-needed tax relief for California’s working families through income tax rate reductions to mitigate any negative impacts that may come from the recently adopted federal tax reform legislation,” concluded Stone.

The state’s Legislative Analyst’s Office advised that the May revision may see higher revenues this year because of the recent federal tax law changes. Also, funding for the Children’s Health Insurance Programs is still not definite.

Yet the LAO did conclude, “We believe the Governor’s continued focus on building more reserves is prudent in light of economic and federal budget uncertainty. The Legislature may want to consider whether the proposed level of reserves is its optimal level or if it wishes to have more or less total reserves (including those outside of the rainy day fund) at this point in time.”

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