June 11 (Bloomberg) -- California Governor Jerry Brown and fellow Democrats struck a deal to base the fiscal 2014 budget on his more conservative revenue estimate rather than higher projections, clearing the way for passage of a spending plan on time for the most populous U.S. state.
Brown and lawmakers will rely on figures the governor announced in May when he unveiled a $96.4 billion budget for the year that begins July 1. Democrats had wanted to use a higher estimate from the nonpartisan Legislative Analyst’s Office to justify spending about $2 billion more. Democrats said they’ll return to the issue when collections become clearer in January.
“All budgets are acts of compromise, and this budget is no exception,” Senator Mark Leno, a Democrat from San Francisco and chairman of the conference committee reviewing the spending plan, said yesterday at a hearing in Sacramento. “While it may be disappointing at first blush, I actually think there is wisdom in it on a number of levels. It’s conservative, so potentially that puts us at less risk.”
Brown, 75, built into his plan an $850 million surplus, California’s first in about a decade. He persuaded voters in November to boost income and sales taxes to end deficits that cumulatively exceeded $100 billion since 2007. He has vowed to use the money with restraint and won the state a credit rating upgrade by Standard & Poor’s, the first since 2006.
The governor placated Democrats by agreeing on some additional spending for health and welfare programs by diverting about $650 million that he had proposed to use to reduce debt.
Democrats and Brown also reached a compromise on his proposal to change how the state doles out additional money for schools in which 50 percent of students are poor and studying English as a second language.
Democrats opposed that plan because they said it shortchanged poor or English learning students in wealthier districts. The agreement increases the threshold to 55 percent, and boosts overall per pupil spending in all districts.
“The Legislature is doing their job and doing it well,” Brown said late yesterday in a statement. “It looks like California will get another balanced budget and, very importantly, educational funding that recognizes the different needs of California’s students.”
The governor, who projected state receipts at $97.2 billion in 2014, said May 14 that California’s economic growth will be curbed by higher federal payroll taxes and automatic U.S. budget cuts, known as sequestration. The Analyst’s Office three days later said Brown’s revenue estimate was $3.2 billion too low.
Democratic lawmakers sought to build the higher figure into their budget to cover spending increases on items such as indigent-adult dental care and tuition assistance for middle-income families. They’ll get some of that funding for those programs under the agreement.
California’s fiscal health has been strengthened by the higher income and sales taxes as well as an improving economy that’s fueling increases in capital-gains tax revenue. In May, the Legislative Analyst’s Office had estimated the state’s revenue was running about $4.5 billion more than forecast.
Brown has said his budget assumes that the windfall was a one-time infusion from high earners who cashed out investments at year-end, before federal capital-gains rates increased.
Brown and Democrats also agreed to give state workers a 4.5 percent pay increase, phased in over two years beginning in 2014 if revenue growth continues, the largest public-employee labor union said today. If revenue fails to meet a minimum target, the entire pay increase would begin later, in 2015. The union must still ratify the deal.
Brown’s budget, which includes a $1.1 billion reserve, would reduce a portion of what he calls the “wall of debt” -- amounting to $35 billion in internal and external borrowing and delayed payments to schools and community colleges. The new agreement puts off some of the reduction to later than the governor had proposed.
Democrats also agreed to Brown’s plan to borrow $500 million in carbon-allowance auction proceeds, required by law to be spent on reducing emissions of pollutants, to cover general expenses. So far the auctions have generated about $260 million. Borrowing against the fund also adds to the debt Brown has said he wants to bring down.
Lawmakers must pass a budget before June 16 or they lose pay under a 2010 law passed by voters. That measure also lowered the vote threshold to pass a spending plan to a simple majority instead of two-thirds.
Before the change in the law, budgets were routinely late in California, including a record 100 days in 2010 under Republican Governor Arnold Schwarzenegger. Since taking office, Brown has signed the annual spending plan on time two years in a row. The last time California enacted a budget on time for three consecutive years was in the middle 1980s.
“For the third year in a row, we will meet the June 15 constitutional deadline to pass a balanced budget,” Senate President Pro Tem Darrell Steinberg of Sacramento said in a statement. “More importantly, this plan wisely uses our resources to strengthen the foundation of California’s future.”
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