December 16, 2017
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New California Budget Would Save Less Amid Sagging Tax Receipts

By Sharon Bernstein

SACRAMENTO - California will likely take in $2 billion less than anticipated in taxes over the coming fiscal year, Democratic Governor Jerry Brown said on Friday, issuing a stern warning to lawmakers not to push for new spending in budget negotiations.

Brown did not suggest cutting spending on state programs next year, opting instead to reduce the state's contribution to its rainy day fund. But he warned that deficits loom if spending continues apace and voters reject the extension of temporary tax measures that are widely credited for closing a multi-billion-dollar budget hole.

"In order to manage this budget, it's like riding a tiger," Brown said in announcing his annual May revision of his budget proposal for the fiscal year beginning July 1. "Deficit spending is on the horizon."

The 77-year-old governor, who also led the state from 1975 to 1983, has been notoriously tight-fisted since returning to office in 2011, reining in spending proposals by the state's liberal Democratic majority lawmakers to build a rainy day fund and hold down expenses after facing down a $27 billion budget deficit.

Earlier this week, state officials said tax revenues for the first four months of 2016 were $869 million below projections, due in large part to unexpectedly low income tax revenue in April.

On Friday, Brown said the drop in expected revenue for the next fiscal year would be $1.9 billion.

The expected revenue drop was an unpleasant surprise that Brown was largely able to offset in his budget proposal by taking advantage of a provision in state law that ties contributions to the rainy day fund to tax revenue, allowing a smaller contribution in lean years.

He is proposing a total spending plan of $173 billion, of which $122 billion would come from the state's general fund. That is slightly higher than his initial budget proposal of $170.7 billion in January, due to expected additional costs to pay for an increase in the minimum wage, a slight raise in benefits for disabled Californians and other spending.

The increase is accounted for in large part by funds from a new tax on managed healthcare organizations. The budget proposal would increase public spending on education, healthcare and infrastructure over the current year.

But Brown, a fiscal moderate who has battled his party's progressive wing on spending, warned lawmakers that he would not agree to additional spending as budget negotiations progress over the next month.

This could disappoint Democratic lawmakers, who dominate both houses of the legislature and had hoped for additional funds to pay for childcare for the poor and other programs.

Republicans welcomed Brown's tough talk. But Republican Assembly member Jay Obernolte, who represents conservative desert and mountain areas east of Los Angeles, said the governor had already committed the state to spending too much by supporting the minimum wage hike.

"Unfortunately, sometimes his actions don't match his words," Obernolte said.

State Assembly Speaker Anthony Rendon, a Democrat who represents several small cities southeast of Los Angeles, acknowledged the need to protect state finances to avoid future budget cuts.

But he signaled that he still intended to push for spending on priority issues.

“The Assembly will work to craft a responsible budget that protects reserves and reflects the values of the people of California: fighting poverty, improving early education, expanding access to higher education and making progress to increase affordable housing,” Rendon said.

(Reuters)