California governor preps to release budget amid uncertainty
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SACRAMENTO >> Gov. Jerry Brown will release a proposed state spending plan this week without knowing the answers to key questions that will have a massive effect on the state’s finances.
Will California take a hit from new federal spending priorities under President-elect Donald Trump? How will the stock markets respond, affecting the incomes of wealthy taxpayers who provide a disproportionate share of state revenue?
Depending on the answers, the budget proposal may be short-lived and substantially overhauled by the time Brown issues his required revision in May.
Brown’s budget, which must be released by Tuesday under the state constitution, will lay the groundwork for the next six months of wrangling over how to allocate billions of dollars in state revenue.
Budgets are always uncertain. They require the governor and Legislature to predict a year in the future how the economy will perform, decide how much tax revenue will be generated as a result, then decide how to divvy up the expected money.
This year, however, is especially complicated due to Trump’s election and the changes it’s expected to bring to the fiscal priorities in Washington.
Republicans have vowed to repeal “Obamacare,” which provides $16 billion for the Medi-Cal low-income health plan, but it’s not clear when they’ll do it, what they’ll replace it with and how big the budget hit will be.
Trump has said it’s a priority to cut federal funds for state or local governments that refuse to cooperate with federal immigration authorities. As the home to millions of immigrants living in the country illegally, California’s Democratic legislative leaders have taken an aggressive stance against assisting in deportations.
U.S. House Speaker Paul Ryan, R-Wisconsin, has previously pushed a federal budget that would significantly redesign the social safety net, affecting billions of dollars for state-run programs. With Republicans in control of the White House and Congress, those priorities are likely to get renewed life — and closer scrutiny.
“I am clear that there will be change,” said Sen. Holly Mitchell, a Los Angeles Democrat who chairs the Senate budget committee. “I think it’s premature for us to assume what they will attack and how deeply they will attack it.”
The Democratic governor and his aides have said little in public about his budget plan but have repeatedly highlighted lower-than-expected state revenues along with the uncertainty posed by Trump, stock market performance and a potential recession. Brown is fond of repeating that California’s economic expansion has lasted far longer than the average for the post-World War II period and a slowdown is inevitable.
“We want to be careful not to overcommit the state to levels of spending that may not be sustainable over the long term,” said H.D. Palmer, a spokesman for Brown’s Department of Finance.
Given that tone, Brown seems likely to stick with the restrained approach he’s long favored for new ongoing spending commitments, putting him at odds once again with Democratic lawmakers eager to beef up support for immigrants, schools, colleges and social services.
Assembly Democrats released their own budget proposal late last year, pushing for $1 billion in new state spending even as they warn that Congress and the new president could significantly impact state revenue. Assemblyman Phil Ting, a San Francisco Democrat who heads the budget committee, said then that it would be reckless for lawmakers to hoard cash waiting on changes from Washington.
He proposed new spending on things such as expanding the earned-income tax credit, mandatory full-day kindergarten and reducing college costs.
“We have a social safety net that we have slowly started to repair from the devastating cuts of 2008,” Ting said Thursday. “At this point we’re going to continue that. We want to make sure that’s a priority.”
The nonpartisan legislative analyst, Mac Taylor, said in November that he projects the state will have a $2.8 billion surplus next year absent any new spending commitments. As part of his budget presentation, Brown will offer his own estimate.
Taylor’s office said Thursday that uncertainty about federal policies will likely lead to murky revenue projections in the coming months. Some taxpayers are likely deferring capital gains while they wait to see if Trump and the GOP Congress cut tax rates.
“It may be at least April 2017 before we receive information that can begin to illuminate the extent of these effects,” analysts wrote on the office’s website.