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Brown Says California Democrats’ Budget Plan Insufficient

California Governor Jerry Brown said an alternative budget proposed by Democratic lawmakers to reduce welfare cuts in the most populous U.S. state, while closing a $15.7 billion deficit, would only worsen the gap in future years.

The Senate finance committee, facing a June 15 budget deadline, began passing parts of the Democrats’ plan yesterday. Their program would spare more health and welfare programs from Brown’s cuts by reducing reserves.

The 74-year-old governor has been meeting in private with his fellow Democrats to negotiate a compromise spending plan for the world’s ninth-biggest economy. The Assembly and the Senate, both dominated by Democrats, announced plans to vote on a budget before the deadline even if a deal with Brown hasn’t been reached.

“The Legislature has agreed to some tough cuts, but the budget before the committees today is not structurally balanced and puts us into a hole in succeeding years,” Brown said yesterday in a statement. “Balancing the budget is critical to protecting education for the long term. We’re not there yet.”

The deficit ballooned almost 70 percent since January because Brown overestimated how much tax revenue the most indebted state would collect. California lawmakers have trimmed spending and temporarily raised taxes to combat deficits totaling more than $100 billion in the past four years.

A voter initiative passed in 2010 strips lawmakers of their pay for every day the budget is late. Brown has until July 1 to sign it into law.

Tax Increases

The cornerstone of the governor’s deficit plan is a ballot measure in November that would boost income taxes on top earners to the highest in the nation, and raise sales levies that are now the highest of any state. Without the revenue, he said he’d cut $6 billion, most of it from schools, in midyear.

The governor also wants to slice $1.2 billion from health care for the poor, $1.1 billion from welfare and in-home help for the elderly and disabled, and $500 million from courts. He is counting on reducing the state’s personnel costs by 5 percent, mainly by cutting workers’ hours.

While the Democratic lawmakers likewise rely on the tax increases as well as the cuts if the ballot measure fails, they’ve said steeper reductions in welfare programs would shred safety nets. Democrats, for instance, want to limit reductions to CalWorks, the state’s welfare-to-work program, to about $350 million instead of the $880 million Brown wants.

‘Structural Reforms’

“We need additional structural reforms to cut spending on an ongoing basis, including welfare reform that’s built on President Clinton’s framework and focused on getting people back to work,” Brown said, referring to welfare changes under former President Bill Clinton.

To trim the deficit while maintaining some of the welfare cuts, Democrats would reduce the rainy-day fund to around $600 million for the fiscal year beginning July 1, instead of the $1 billion reserve Brown proposed.

“The governor is committed to a prudent reserve,” Michael Cohen, Brown’s chief deputy budget director, told the Senate committee yesterday. “Given the level of uncertainty and risks that are part of our budget realities, we think that remains prudent.”

The Democrats also would use $100 million more than the $292 million Brown proposed to siphon from the state’s share of a $25 billion national mortgage-relief settlement reached with Bank of America Corp., JPMorgan Chase & Co. (JPM) and other banks to end a probe of abusive foreclosure practices stemming from the collapse of the housing bubble.

No Gimmicks

“I assure you the Legislature will pass not only an on- time budget Friday, but it will be balanced and it will be honest,” said Senate Budget Committee chairman Mark Leno, a Democrat from San Francisco. “There will be no additional borrowing beyond what the governor has already proposed and there will be no gimmicks. It will be an honest, solid budget.”

California’s constitution requires legislators to pass a budget by June 15 with a simple majority vote.

Democrats control the Senate and the Assembly, though they don’t hold enough seats to pass a tax increase, which requires two-thirds approval. Unlike years past, Republicans have been left out of the closed-door negotiations since their votes aren’t needed to pass the budget.

“This whole process is a mess,” said Senator Bill Emmerson, a Republican from Riverside County.

To contact the reporter on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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