California’s economy is on the mend and revenues are fat, but Gov. Brown offered some words of gloom as he unveiled a $171 billion budget blueprint for the fiscal year beginning July 1.
“If you’re a betting person, you can easily conclude that deficits are more likely than surpluses,” Brown said Thursday as he presented his 2016-17 budget to the Legislature.
“If you don’t remember anything else, just remember everything that goes up comes down,” he added.
How far down? His worst-case projection calculated a $55 billion revenue drop by the end of the decade and a $14 billion shortfall.
But the Democratic governor, who has described himself as “tight with a buck,” proposed major increases in school funding, adding $3,600 annually to bring the total to nearly $10,600 per student, just over half of what New York spends, according to a 2014 report of the National Education Association.
He also seeks an additional $2 billion for the voter-approved “rainy day fund” for fiscal emergencies, rather than reserving those funds for long-term state programs that might not be sustainable in the likelihood of an economic downturn. He also proposed diverting about $3.6 billion to transportation infrastructure, including funds from the state’s cap-and-trade, and provide $1 billion for the Medi-Cal program by taxing health plans.
But also expressed concern over attempts to go to the voters to raise billions of dollars for education, and was critical of an effort to extend temporary sales and income taxes that voters approved three years ago. That approval helped the state balance the budget as it emerged from the worst economic downturn since the Great Depression.
Brown, flanked by bar graphs and charts, hammered this point home on the danger to the economy from the high volatility of capital gains revenues: Some 50 percent of income taxes come from the 1 percent of tax-payers who rely heavily on capital gains, which typically involve income from stock sales. Just under 70 percent of the General Fund – the state’s main coffer, which includes sales, personal income and corporate tax revenues – comes from personal income taxes.
But the proposal’s relative austerity is concerning for those who aren’t one percenters. Brown said that permanent programs would be disastrous if a recession is coming, which he spoke of as if it were a certainty.
“Any way you look at it, we’re looking at a $55 billion loss in revenue going forward,” he said.
Brown said he is basing that certainty on the same basic economic knowledge he learned as a high school student.
The current economic boom has now exceeded the length of an average recovery: five years.
He emphasized that each program has its cost, which must be considered. Efforts cited by the governor as examples included efforts to build affordable housing and increase the minimum wage. According to Brown, San Francisco Mayor Ed Lee said that a single unit of affordable housing would cost taxpayers half a million dollars.
The minimum wage will increase at the start of this year to $10, but given the high cost of living throughout the state, some are pushing it even higher. While Brown said he would not rule out logistically-challenging regional minimum wage increases, in the event of a recession, a minimum wage would mean major job losses for lower-income areas.
With Brown’s recent return from the Paris climate talks, the proposal’s apparent decrease in environmental protection expenditures was also notable. But according to Brown, once the Legislature allocates cap and trade funds, the state will actually be spending more on environmental protections than it did in previous years.
Brown added, however, that the meeting the 2030 goals set at the Paris summit will be challenging.
“There’s no silver bullet that can de-carbonize our economy going forward,” Brown said.