California’s Brown Urges Caution as Record Revenue Swells Budget

California Governor Jerry Brown is faced with a dilemma other leaders would love to have as he releases his budget today: what to do with record tax revenue expected to leave the most populous U.S. state with a growing surplus.

The state’s nonpartisan Legislative Analyst’s Office projects California will take in at least $2 billion more in revenue this fiscal year than what is estimated in the budget. That has lawmakers from Brown’s Democratic party calling on the 76-year-old governor to spend more on safety-net programs and other priorities. Brown urges caution, pointing out that most of the additional revenue must by law go to public schools.

“The state budget, after a decade of fiscal turbulence, is finally balanced -- more precariously than I would like - but balanced,” Brown told lawmakers earlier this week in his annual state of the state speech.

Brown, as he begins an unprecedented fourth term as governor of the state with the world’s eighth-largest economy, is known for using frugality and long-term fiscal planning to address some of California’s most vexing issues. He is credited with erasing deficits that plagued the state while shoring up reserves and paying down debt.

Still, Brown has boosted spending to record levels and, in his inaugural speech Jan. 5, championed public works projects such as a high-speed rail line connecting northern and southern California. He proposed expanding renewable energy mandates to require utilities to obtain 50 percent of power from renewable sources, up from 33 percent, and cutting gasoline consumption by cars in the state in half within 15 years.

‘California Excels’

“Taking significant amounts of carbon out of our economy without harming its vibrancy is exactly the sort of challenge at which California excels,” Brown said in the speech.

The budget Brown signed in June spends $108 billion from the general fund, a 25 percent increase in the past four years. He poured $1.6 billion into a rainy-day fund this year and projected it would grow to $2.8 billion next fiscal year. He paid off half of the $35 billion of loans and deferrals used in the past decade to cover previous shortfalls.

“If you look at the span of economic expansion, we are about five or six months beyond what is the historical average,” said Brown’s budget spokesman H.D. Palmer. “So at some point it is going to go the other way, and we want to ensure that we have sufficient insurance policy in the bank to deal with that.”

Democrats, who control both chambers of the legislature, say that Brown is too focused on paying down long-term debt and stashing cash in reserves. Some of that money, they said, should go toward safety-net programs.

‘Comeback Trail’

“Not all Californians have come back from the recession,” said Assembly Speaker Toni Atkins. “California is on the comeback trail, but we still have people suffering in some parts of our state, and we have to make sure we’re looking out for them.”

Safety-net programs such as medical insurance for the poor, welfare, in-home care for the elderly and disabled, and childcare subsidies all were slashed during the recession that left the state with more than $100 billion of cumulative deficits.

While Brown has restored some money for those programs, funding for child care and preschool programs, for example, remains almost one-third below the pre-recession level.

The cost to administer those programs continues to rise as more people need public assistance, Palmer said. Brown also is bracing for additional costs as the state prepares to implement President Barack Obama’s immigration reform that could extend health care and other benefits to undocumented immigrants.

Multiyear Planning

“This is a governor and an administration that has shown a strong capacity for multiyear planning for issues such as paying down debt, high-speed rail, water, unfunded health care liabilities and climate change,” said Chris Hoene, executive director of the California Budget Project, a research institution focused on budget policy and the poor. “They have shown a unique capacity to plan for the longer term, so it’s just a bit disingenuous to say somehow there is no way they can do anything about the safety net.”

Brown also is expected to use his budget to spell out his response to University of California President Janet Napolitano, the former U.S. Homeland Security who is pushing to raise tuition 28 percent unless the governor spends more money from the budget on the 10-campus system.

University Funding

Brown opposes the increase and said it violates a deal he struck with the system to freeze tuition in exchange for a $500 million boost to university funding, spread out over four years. Lawmakers paid the first $125 million installment last fiscal year.

Brown in his inaugural speech this week called on lawmakers to deal with a growing $59 billion backlog of repairs to California’s aging roads and bridges, urging them toward the same kind of bipartisanship they showed in putting a $7.5 billion water bond and reserve fund on the ballot last year.

“Each year, we fall further and further behind and we must do something about it,” Brown said. “So I am calling on Republicans and Democrats alike to come together and tackle this challenge. We came together on water when many said it was impossible. We came together -- unanimously - to create a solid Rainy Day Fund. We can do it again.”

He declined to spell out how the state might pay for the repairs, though he will release an annual nonbinding, five-year infrastructure spending plan along with his budget today.

Statewide Bond

The last statewide bond approved by voters for infrastructure was championed by former Governor Arnold Schwarzenegger in 2006, who won passage of a $42 billion bond package to overhaul roads, bridges, classrooms, housing, levees and rail systems.

About $5 billion of that remains unissued, part of $30 billion of authorized bonds that haven’t yet been sold. The state treasurer’s office in September estimated California would sell about $3.9 billion of taxpayer supported debt in the fiscal year that begins July 1.

Whether Brown would seek additional bonds remains to seen, though he has warned against bond spending. A year ago, he said that since 2000, the state has relied too much on debt to pay for infrastructure instead of pay-as-you-go financing. That means one of every two dollars spent on infrastructure goes toward paying interest, rather than buying concrete or steel, he said.

Gasoline Taxes

Other options include raising gasoline taxes, last increased in 1994; as well as a pay-as-you-go system that charges fees on road and bridge users and public private partnerships that would allow businesses to lease and operate transportation.

In 2013, advocates seeking to spend more money on transportation considered whether to ask voters to double California’s vehicle license fee over four years. It would have raised as much as $3 billion annually for road repairs, though the effort was eventually dropped.

Republican lawmakers last year floated a proposal to put a measure on the ballot that would have siphoned bond funding approved by voters in 2008 for high-speed rail to use on transportation fixes. The effort never gained traction.

“We agree with the governor that our infrastructure needs to be fixed,” said Senator Bob Huff, the Republican minority leader in the chamber. “You can’t discount the resources going to high-speed rail. When you prioritize, you tend to look at what you need most. Our roads are already crumbling, our cities are in gridlock. I’m a believer in high-speed rail, but you have to look at what our needs are now.”