Governor remains cautious about economy

Last Friday, Gov. Jerry Brown announced his revisions to the fiscal year 2018-19 budget he proposed in January. The major change is the expectation that revenues will be $8.8 billion greater than the estimate four months ago.

Despite the revenue growth, Brown remains cautious about the state’s future economy. In fact, he revealed economists’ deep secret: “They never forecast a recession!”

Brown remains concerned about the length of this recovery and its likelihood of  ending. He displayed charts showing the state running a deficit for nearly 10 years from early 2002 through the first years of his term.

“We are nearing the longest economic recovery in modern history,” Brown said at the budget press conference. “Isaac Newton observed, ‘What goes up must come down!’”

Then he added, “This is the time to save for our future, not to make pricey promises we can’t keep. Let’s not blow it now.”

Consistent with his economic worries, the budget summary states, “A moderate recession will drop state revenues by over $20 billion annually for several years.”

As a result, one of his adjustments is to continue building the Rainy Day Fund so that future governors will have some help when the next recession occurs. At the end of the current fiscal year (June 30), the Rainy Day Fund will have $9.4 billion and Brown proposes to add another $4.35 billion. At the end of fiscal year 2018-19, the fund will be at $13.8 billion.

Besides the Rainy Day Fund, Brown is proposing another $3.2 billion be placed in the state’s traditional reserve fund.

“We’re already overextended,” he said. “It’s hard to believe.”

In his press release, State Sen. Jeff Stone (R-District 28) praised the governor’s actions. “Governor Brown should be commended for showing fiscal restraint and placing most of the projected budget surplus into the Rainy Day Fund and reserves. He is correct to point out that we must plan for uncertain times.”

With the added revenue, Brown focused on adding funds to programs that are one-time investments rather than continuing demands on future budgets. For example, $2 billion was allocated to deferred maintenance of state buildings, including universities, courts and flood control.

Another $360 million was assigned to homeless programs and $310 million for mental-illness programs, especially for enhanced early detection.

School funding continues to be a priority, as Proposition 98 specifies. Since FY 2011-12, when funding for kindergarten to community college bottomed at $47.3 billion, it has grown to a projection of $78.4 million for next fiscal year.

The governor said that for K-2 students, this funding level is equivalent to $4,600 per student more than in FY 2011-12.

The earned income tax credit increases for those between 18 and 25 years and older than 64. Healthcare coverage grows, as well as benefits for low-income residents.

The May revision still includes funding, proposed in January, to establish a state online college.

Stone recommended, “We should ensure that local law enforcement has the ability to clear the growing backlog of untested rape kits, so that victims of serious crimes can seek justice. We should ensure that the attorney general does his job, by giving him the resources to go after dangerous individuals who illegally possess firearms. And the public rightfully expects us to follow the will of the voters when they passed Proposition 1 and immediately begin building new water storage projects.”

Last week, Brown also announced an executive order to “combat dangerous tree mortality, increase the ability of our forests to capture carbon and systematically improve forest management.” His budget proposal incorporates $96 million to implement this effort. [More detail on the executive order and how the funds will be used will be in the May 24 issue.]

Besides funding for the Forest Carbon Plan, the May proposal also adds money to the state’s emergency response programs. This includes improving the communications systems, support for volunteers, hazard mitigations and the Office of Emergency Services, all needs identified after the fall wildfire season.

Before leaving the podium, Brown was asked if the Legislature might be more willing to spend the expected surplus. He replied, “The Legislature will have some ideas. We’ll work together. But all the people won’t be getting what they’d like to have … The money is not there.”