Brown's Budget: Calif. Rebounding With Tax Hikes
Riding a wave of new tax revenue, California's spending plan for the coming fiscal year will rise by 7 percent, a powerful indication that the state that came to symbolize fiscal mismanagement during the heart of the recession is emerging into brighter days.
CAVANAUGH: Governor Jerry Brown unveiled his new budget today. It has good news for education, bad news for the Court system, and an overall message that the state has to hold the line on spending. Joining me now from Sacramento is Ben Adler, capital public radio bureau chief. And welcome to the show. ADLER: Hi, Maureen. CAVANAUGH: What were the highlights of the governor's presentation of his $19.6 billion budget? ADLER: Well, when it comes time to talk about the budget, at least for the last several year, the first question everyone wants to know is what's that number? How big is the deficit? And today, according to the governor, at least, that number is zero. It is a balanced budget. However, the governor does want to build a billion dollars reserve. So he's proposing a few different ways of getting there, not necessarily using cuts but adding a couple of fees or taxes in the healthcare area, one to hospital quality assurance, and another a gross premiums tax on Medicare managed care plan, and he wants to suspend some mandates and do a couple of other accounting tricks to get there as well. But that's the biggest headline. The governor says there is no deficit or surplus compared to two years ago, it was $26 billion. A few years before that, it was up to $40 billion. CAVANAUGH: Let's hear in the governor's own words, we have a clip from the presentation today, what he says overall about this particular budget. CAVANAUGH: There'll be some heartburn, but I'm here to get done what I think is compassionate, what is good for the State of California, and what we can maintain over time instead of just enjoying a momentary high and then having the hangover many years later. CAVANAUGH: And the governor also stressed that this was a live within our means budget. Is it? ADLER: Well, it's certainly in his mind designed to be, and he does it in a couple of ways. One is he's not proposing to spend -- he's not really proposing any new spending the way perhaps some Democrats or liberal groups would like. Instead he does want to build that reserve, and he's winning praise from Republicans today so far for that message of fiscal discipline. Though there is a little bit of an element of we'll see how it all goes in the end given the governor is a Democrat and the legislature is run by a supermajority of Democrats in both chambers. He's also really trying to take a carrot and stick approach to the UC and CSU, both of which have talked about looking at new tuition increases despite the fact that the governor and other democratic lawmakers have really campaigned for proposition 30, the big tax measure that passed in the Fall, as not involving anymore tuition increases. So he's trying to give them more money on the condition that they don't increase tuition and try to find ways to streamline and new ways to reduce costs. CAVANAUGH: How does he say this budget has no deficit when the analyst's office says the deficit is about $2 billion? ADLER: You can use numbers to tell a variety of stories. And it'd be too flippant to say magic. [ LAUGHTER ] ADLER: You make different estimates. You can estimate differently about how much money is going to come in from this area or that area, and not just in revenues but how much money will the state get from continuing the elimination of redevelopment agencies? How much money will the state get from its cap and trade program? Those are areas in which the legislative analyst's office and the governor's department of finance often disagree. But there's no way to know necessarily who was right or wrong. So the governor is using the numbers in a certain way to tell a story that there is no more deficit now, and is there has been in the past. Some folks are going to agree or disagree with that. There is some skepticism there from Republicans about how real is that zero deficit number is. Of the but also keep in mind that $1.9 billion projection from the LOA was about two months ago. So things have changed. And you never know. At the same time, let's wait and see what happens with fiscal cliff No. 2 in Washington and the impact that might or might not have on the State of California. CAVANAUGH: My last question to you, Ben, the governor made a big point about the fact that the deficit is gone, but the wall of debt as he characterized it remains. What does he mean by that? Why did he emphasize that, do you think? ADLER: Well, are for one thing, it plays into his message of trying to be thrifty right now. But two, there is a fair amount of money that the state owes right now. He's got it pegged at about $28 billion at the end of the current fiscal year, so June, and these are things like deferred payments to schools and community colleges. Economic recovery bonds. Loans from special funds. All of this acquired among other ways from various budgetary tricks used in previous years to balance the budget without having to make deeper cuts or increase taxes more. And the money in theory has to get paid down at some point, and the governor made a point of saying, look, at this stage in my life, I'm here to try to solve the state's budget problems. I don't want some other governor to come in and deal with what I had to deal with. CAVANAUGH: Here with me is Carl Luna. And Murtaza Baxamusa. CAVANAUGH: Carl, as far as education goes, Governor Brown wants to give $250 million to each state university system which is less than they hoped for, and as we just heard from Ben, he also put them on notice not to pursue a big tuition hike. What do you think about that? >> Well, are it's again the art of compromise. The UCs and the state system each wanted around $300 million. They were warning they got less than $130 million, there'd be major increases in tuition. So they got $250 million, not enough to erase the damage that's been done to the systems over the last five years, but it's withholding action. One of the only things that is California in the university of California system is the name. About 93% of their money no longer comes from the state. We basically booted the concept of state-paid UC and even state education in California. CAVANAUGH: In the sense that it's privately funded? LUNA: It's funded through tuitions, fees, through federal money coming in. But the UCs do not get anywhere near a large quantity of their money out of the state general fund. CAVANAUGH: That's interesting. Let me go to you, Murtaza. One of the most interesting aspects of the governor's plan for funding K-12 school is what he called disproportionate funding. He's advocating for schools with a high percentage of poor or nonEnglish speaking students to get more money than students in other schools. What do you think of that? BAXAMUSA: Well, you have to put this in the context of education where the governor emerges from a very successful campaign to raise resources for education. So he is at a commanding position, and he laid down the structure for reform that he wants to see in education. So this is the position that he's starting from. I have raised the revenue, and let's not use the old formulas, but look at the way in which we are investing in education per school. The CAVANAUGH: Ah, ha. BAXAMUSA: So I think this is one of the cornerstones of education reform that we're going to see in California. But the good news is that the first time since the recession, this is the first time that we have had more money for education than cuts since 2008. So it's actually a happy place to be talking about in terms of redistribution per pupil expenditures. CAVANAUGH: Right. But isn't it standard, Carl, for all public schools in the state to get proportionate funding from the state? LUNA: That's going to be an interesting political battle to play out. You have things like equal opportunity, the issues of the 14th amendment, equal protection. It's going to be anything to see if the wealthier districts in terms of their population want to see money taken away -- or not taken away BUT less money coming in. Before the recession, we weren't doing great. This may move us up a couple of notches. No matter which district you're in, the amount of money going into the schools is not what it was ten years ago and not up to the national averages. CAVANAUGH: What about the governor's words that although he would like to, he's not going to be restoring money to social service programs, money that was cut during the recession years? What do you think of the criticisms to that? Those social service programs were cut really pretty deeply during those years. BAXAMUSA: Correct. And even cal works is going to be further cut. To give perspective here though, yes, there's going to be difficult cuts that the legislature will have to deal with and negotiate with. And that's the governor's negotiationing position. But there's also the big elephant on the table is the Medi-Cal expansion. The implement a recollection of the Affordable Care Act. And it look like we are well positioning ourselves in terms of funding it, over $350 million budget forward that expansion. And he has committed to provide healthcare for those making 135% of federal poverty level. It's a very big commitment here. CAVANAUGH: I want to get another clip of what the governor said about his budget today. NEW SPEAKER: I went up and down this state promising that we would be good stewards of the People's money and that would they please add to it by the text measure. They voted for the tax measure. We're put this money into the schools as I said, but we're not going to play the game of spending money we don't have and then after I'm gone, somebody else comes along and has to face what I did, a $20 Billion deficit. So that's the context of this budget. CAVANAUGH: Your reaction to the budget, Carl? LUNA: It's positive news for California after all these years of multibillion dollars deficits to be down to a billion dollars or two. If the Facebook public offering had been better, that would even be gone. California state finance is still volatile. It's heavily tied to income tax receipts, sales tax receipt, and in a national and global economy, fiscal cliffs here, meltdowns in China there, no governor can be certain year in, year out, that four years down the line they'll have the revenue stream to maintain their projections. CAVANAUGH: But Murtaza, you're looking at this as a much better position than we have been in for the past several years. BAXAMUSA: It is. I completely agree with call in terms of the volatility of the personal and corporate income tax. And I therefore think that the surplus that we are projecting at the end of this year is probably not going to materialize. This is really a new day for California, and what Governor Brown said that this could serve as a model and lead by example in the rest of the nation could be a path forward. CAVANAUGH: Just really quickly, Carl, what about the governor's overall style? It's kind of like some sort of collective meeting in some way. LUNA: We said before we began today that Jerry Brown is a Jedi knight. He passed prop 30, he's turned a $23 billion swing in the budget, he's proven himself to be a very effective governor. Now his biggest opponents are going to be his own party in Sacramento since they have the supermajorities. And he's probably like Nixon going to China, best equipped to deal with the democratic supermajority.
Gov. Jerry Brown on Thursday proposed a $97.6 billion general fund budget for the 2013-14 fiscal year that wipes out years of deficits and even includes a modest surplus.
The additional revenue hiked the spending plan by $6.3 billion over the current year and helps the governor pour more money into public schools and universities.
The state's budget shortfall stood at $25 billion when Brown took office two years ago.
"California today is poised to achieve something that has eluded us for more than a decade - a budget that lives within its means, now and for many years to come," Brown said during a news conference at the Capitol.
A rebounding economy coupled with new revenue from the higher sales and income taxes voters approved last November have put the nation's most populous state on a healthier financial trajectory as it begins to turn the corner on an era of deep budget shortfalls and spending cuts to core state programs.
California's persistent budget woes came to represent the plight of states struggling through the recession as tax revenue declined steeply, leaving governors and state legislatures around the country little choice but to consider deep cuts or unpopular tax increases.
Brown took both approaches. He pushed an austerity message that forced cuts throughout state government during his first two years in office while persuading California voters to approve increases to the state sales tax and on income taxes on high-income earners.
Despite the new revenue flowing in, Brown has warned his Democratic colleagues who control both houses of the state Legislature that they must not overplay their hand and spend too freely. The governor wants to build a reserve fund for future downturns to help smooth the type of boom-and-bust budget cycles that have become chronic in California. "And I'm determined to avoid the fiscal mess that the last few governors had to deal with," Brown said. "The way you avoid it is by holding the line, by exercising a common sense approach to how we spend our money."
His budget contains an $850 million surplus.
Brown wants to focus the additional spending on public schools. His budget includes $2.7 billion more for K-12 education, which will account for 57 percent of general fund spending.
Among Brown's priorities is creating a new education funding formula. It would be aimed at giving school districts more control over spending and directing state money to the neediest children and poorest districts.
His proposal is expected to run into opposition from lawmakers representing more affluent regions of the state, but Brown said the state should spend proportionally more on students who have "disproportionate challenges."
"Growing up in Compton or Richmond is not like it is to grow up in Los Gatos or Beverly Hills or Piedmont," he said of his redistribution plan. "It is controversial, but it is right and it's fair."
Spending cuts are still expected in some areas, such as the courts, while health care programs and social services are expected to see no increases in spending. The state's two four-year higher education systems, the University of California and California State University, each will receive $250 million more.
California's general fund spending hit a high of $103 billion before the recession decimated the state's economy and severely cut tax revenue for the state and municipalities. It dropped to a low of $87 billion during the 2011-12 fiscal year, requiring lawmakers to make deep cuts in a wide array of state services, including K-12 schools, higher education, the court system, and social services for the needy and disabled.