Heading into what likely will be his final campaign, Gov. Jerry Brown sounded many of the right notes in the fourth budget of his third term as governor, promising to boost school spending by $10 billion and using $11 billion to pay down debt. He even found $1.6 billion for a rainy-day fund – a move we applaud.
A year after voters approved a $6 billion tax increase, Brown made clear that he has no desire to seek yet more new taxes: “I don’t think this is the year for new taxes.”
The governor faces a fundamental question: Will he be able to hold the line on desires for more spending, when most of the Legislature faces election and will be looking to create a legacy?
He could have some unexpected allies. Republicans were quick to respond to the budget with halting praise for the budget. They like the austerity of Brown’s budget, and most applaud the additional money for education. All would like to have seen more money put aside for times when the state is not doing as well.
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Brown’s $154.9 billion budget proposal leaves some room to restore painful cuts to safety-net programs; that’s important. He’s earmarking $11 billion to pay down what he calls the “wall of debt.”
“It is good to see money going into a rainy-day fund,” said Sen. Tom Berryhill. “I’m also glad to see him putting money toward paying down our debt.”
Part of that money would be used to pay off the $15 billion in so-called economic recovery bonds used by his predecessor, Gov. Arnold Schwarzenegger, to paper over prior budget deficits. That ought to be a cautionary note for legislators. Not too many years before Schwarzenegger went deeper into debt, the state was riding high on the strength of fat income-tax collections.
California relies heavily on taxes collected from the highest earners. They rely on capital gains for much of their income. Capital gains is a notoriously volatile source of tax receipts.
The governor’s 180-page budget summary cites demographic trends that will only add to the complexity of crafting budgets.
The youngest and oldest people among us draw on government services in various ways, appropriately so. During the next five years, the number of preschoolers will increase by 4.3 percent, and retirement-age adults will increase by almost 21 percent. Working-age Californians, the people who pay the bulk of taxes, will increase by 4.3 percent and college age population will fall by 4.5 percent. Such trends reinforce the need to make wise choices now.
The budget relies on accurate revenue forecasts. But predictions are not reality. Voters last year approved Proposition 39, which closed loopholes that benefited out-of-state corporations. Brown’s budget summary notes the initiative was supposed to generate $1 billion a year, $1.9 billion over a two-year period. A revised estimate shows the measure will generate only $1.4 billion.
Additionally, corporations will receive as much as $600 million in tax refunds in 2013-14. Perhaps they were overly conservative in their tax preparation during the recession. Maybe the state was too aggressive in its tax collection. Whatever the reasons, some money the state thinks it will receive could be illusory.
Further underscoring the need for budgetary sobriety, the governor is deferring some hard decisions until after votes are cast in November. Most notably, he is not tackling what he estimates is $80 billion in unfunded teacher pension debt, opting to establish a task force that will offer a solution in 2015. Waiting another year won’t make the problem better.
The latest stock market surge might suggest happy times are here again. But Californians have seen booms go bust too many times. Brown and lawmakers should use this year’s windfall primarily to pay off debt piled up in past years, and avoid most new spending, no matter how nice the concepts might be.