Governor Jerry Brown proposed a record high $122.6 billion General Fund budget plan for 2016-17 — an increase of $6 billion over last year — that makes significant increases in funding for education, health care and state infrastructure, while bolstering the state's Rainy Day Fund and paying down state debts and liabilities. Along with the increased spending, however, the Governor also urged fiscal restraint.
"Relative to years past, the state budget is in good shape. Education funding is at its highest level ever, fifteen million Californians are covered by Medi-Cal or Covered California, the minimum wage has risen to $10 an hour, and for the first time, the state will provide almost $400 million to low-wage working families through an earned income tax credit," wrote Brown in his letter to the Legislature.
"Given the wide disparities that exist in our state and the millions who struggle in one form or another, understandably there will be proposals to fund a variety of worthwhile programs. But it would be short-sighted in the extreme to now embark upon a host of new spending only to see massive cuts when the next recession hits. In view of the $27 billion deficit of just five years ago and the much larger one in 2009, it is clear that fiscal restraint must be the order of the day. It also goes without saying that we should be chipping away at the $72 billion unfunded liability that weighs down our retiree health system," he continued.
State Controller Betty T. Yee agrees with Brown's caution against over-spending on new programs.
“As the state’s chief fiscal officer, I applaud Governor Brown for taking into account the inevitability of an economic downturn. Our continued reliance on a highly volatile source of revenue means that recessions will hit hard, which is why we need comprehensive reform of our tax system. Like the Governor, I believe that we must restrain new spending and bolster the state’s rainy-day fund. The Governor is taking a prudent approach to our long-term liabilities, such as retiree health care, and I also think it’s reasonable to set aside $300 million for increased compensation to offset employees’ retiree health care contributions,” said Yee.
While local legislators are pleased to see education and transportation priorities in the Governor's budget proposal, they think increased spending is not the answer to some of the State's biggest problems.
“With the increased revenues that our state government is realizing, I am pleased that Governor Brown remains committed to bolstering our reserves, rebuilding our transportation system, and increasing funding to education. With a budget that is $6 billion larger than last year, we must remain prudent in using our new funds to invest in California and prepare for our next economic downturn. It would be easy to spend this revenue on new programs that require ongoing spending, but we could find ourselves facing deficits when the economy inevitably slows again," said Senator Anthony Cannella.
“I was disappointed that we were unable to reach a transportation funding package last year and am glad to see the Governor is keeping it a priority. Additional funding for transportation is an investment that will benefit all Californians. We cannot continue to delay the rebuilding of our transportation infrastructure,” continued Cannella.
For Senator Tom Berryhill, more taxes are not the answer to the State's transportation needs.
"I remain disappointed that the Governor prefers additional taxes to repair roads and bridges, rather than prioritizing more of our general fund dollars on that task. We had a $10 billion budget surplus last year, revenues are predicted to be even higher this year, and yet he continues to insist on tax increases. Maintaining a solid and safe transportation infrastructure should be more of a priority," said Berryhill.
Assemblymember Kristin Olsen echoed Cannella's opinion on the proposed budget's record spending, and went on to address education reform.
“I am pleased to see continued increases in school spending per student, but history and data shows that funding alone will not improve student outcomes. Our students deserve better. We have to be willing to pass meaningful reforms to improve the quality of education in our state. I call on Governor Brown and my Democratic colleagues to work with me toward true reform measures that will help our students, teachers, and economy,” said Olsen.
Highlights of the Governor's 2016-17 State Budget include:
Builds Up the Rainy Day Fund
The Governor's budget makes a supplemental deposit of $2 billion into the state's Rainy Day Fund - boosting the balance from 37 percent today to 65 percent of its constitutional target. Building up the fund is the best insurance policy against deep budget cuts in the next economic downturn.
Secures Health Care Funding
The managed care tax is set to expire at the end of the current year. It is a critical component of the state's financing for health care. The budget proposes a tax reform package that includes a replacement managed care organization tax for three years. The package provides a net reduction in taxes paid by the private health care industry, secures funding for General Fund Medi-Cal expenses and provides an opportunity for targeted rate increases for developmental disability services. Under the federal health care reform optional expansion, 3.4 million additional residents now receive health coverage and the budget allocates $740 million General Fund for the state's share of costs. These costs will grow to reach $1.8 billion General Fund by 2020-21.
Invests Significantly in K-12 Education
The budget boosts school spending per student to $10,591 in 2016-17 — an increase of nearly $3,600 compared to 2011-12 levels. The budget provides a fourth-year investment of more than $2.8 billion in the Local Control Funding Formula, which focuses on students with the greatest challenges to success, bringing the formula to 95 percent implementation. The budget also proposes a $1.6 billion early education block grant that combines three existing programs to promote local flexibility, focusing on disadvantaged students and improved accountability.
Keeps College Tuition Flat
The budget keeps tuition at 2011-12 levels for another year for the University of California and California State University, maintaining affordability while continuing to help students reduce the time it takes to successfully complete a degree.
Strengthens State Infrastructure
The budget reflects the Governor's transportation package, first outlined last summer, that would provide $36 billion over the next decade to improve the maintenance of highways and roads, expand public transit, and improve critical trade routes. The budget also includes $807 million ($500 million General Fund) for critical deferred maintenance at levees, state parks, universities, community colleges, prisons, state hospitals and other state facilities. The budget supports a major investment in renovating Sacramento's aged and inadequate state office infrastructure with a $1.5 billion General Fund down payment to begin that work for three buildings, including the State Capitol Annex.
Addresses Climate Change
The budget continues the Administration's actions to reduce greenhouse gas emissions through a $3.1 billion Cap and Trade Expenditure Plan that will reduce emissions through programs that support clean transportation, reduce short-lived climate pollutants, protect natural ecosystems and benefit disadvantaged communities.
Counters the Effects of Poverty
The budget reflects the implementation of the increase in the state's minimum wage to $10 per hour effective January 1st and provides funding ($380 million) for the second year of the Earned Income Tax Credit to help the state's poorest working families. The budget also provides a cost-of-living increase for aged, blind and disabled Californians in the Supplemental Security Income/State Supplemental Payment (SSI/SSP) program—the first state increase in grant levels since 2006.
Increases Correctional Spending
Spending on corrections rises only slightly, to $10.55 billion from $10.4 billion in the current fiscal year. It includes $116 million to keep inmates in private prisons in other states, $6 million for repairs at the California Rehabilitation Center east of Los Angeles and $29.3 million for community rehabilitation programs through a voter-approved lowering of penalties for some drug and property crimes.
Water and the Drought
The budget proposes a one-time sum of $323 million to address drought in the coming fiscal year. With reservoirs and groundwater supplies "significantly depleted," the budget proposes protecting water supplies, conserving water and providing emergency assistance to farm workers, fish and wildlife. There is also an extra $215 million in anticipation of extra costs to fight wildfires as a result of the drought. The proposal also allocates $385 million from the Proposition 1 water bond voters approved in 2014 for projects such as improving the state's water delivery system. Brown is proposing $100 million to protect the Central Valley from flooding, $80 million to restore a critical resting stop on the Salton Sea for migratory birds and another $60 million in habitat restoration in the Sacramento-San Joaquin River Delta.
The Associated Press contributed to the report.