SACRAMENTO — California Gov. Jerry Brown (D) proposed more than $8.3 billion in new spending Thursday, mostly on the state’s beleaguered education system, as tax revenues rebound after nearly a decade in cuts.
The $155 billion budget proposal Brown outlined Thursday includes $106.8 billion in general fund spending, an increase of 8.5 percent over the state’s 2013-2014 budget. The burgeoning economy, and higher revenues on capital gains taxes that voters passed last year, have bolstered California’s coffers. State budget analysts expect to take in $71.3 billion from personal income taxes alone, almost $5.7 billion more than the state took in last year.
When Brown took office during the depths of the recession, the state faced a $26.6 billion budget hole. Now, state economists expect a $4.2 billion surplus by the middle of this year and a $5.6 billion surplus by the middle of 2015.
Brown’s budget includes $9.7 billion in new spending on state public schools, from kindergarten through college, including $1 billion aimed at preventing tuition hikes at the University of California and California State University systems. Both college systems would see their budgets increase by about $142 million as part of an agreement that would keep tuition costs at current levels.
“The good news is we’re putting $10 billion into California schools after years of drought,” Brown told reporters at a news conference to unveil the budget plan. “We are investing in education. That’s the big takeaway on the positive.”
Another $6.4 billion would be spent to pay off loans the state took from local school districts in the form of payment deferrals. It’s the first increase in funding state schools have seen since the recession began, in 2008, even as per-student costs have continued to rise.
The proposal includes $670 million to pay for expanding Medi-Cal, the state Medicaid program that will cover individuals who make less than 138 percent of the federal poverty limit.
State economists expect personal incomes to grow by 4.6 percent in 2014, and by 5 percent in 2015, said Michael Cohen, director of Brown’s finance department.
The budget also assumes a panel of federal judges will grant the state’s request for a two-year extension to meet a court order to reduce overcrowding in state prisons. State officials and court representatives are negotiating ahead of a court-imposed Friday deadline. Brown’s budget allocates an additional $500 million for new prison facilities after years in which the prison population has vastly outgrown capacity.
But Brown’s budget resists calls from some legislators and left-leaning groups to use the surpluses to reinstate some of the deep cuts to social services the state has had to make in recent years. Brown made a point to highlight the $354 billion in long-term financial liabilities the state still faces, including more than $217 billion in retirement pensions that remain unfunded.
“When you have this level of long-term liabilities, it isn’t time to embark on a whole raft of new initiatives,” Brown said. “This is a wise allocation of funds, and it does represent prudence in how we proceed. Prudence is never easy. When the money’s in, people want to go for it. And we’ve tried to keep it very measured.”
Brown has endorsed a proposed ballot measure backed by state Assembly Speaker John Perez (D) that would set aside cash for a rainy-day fund aimed at helping the state weather the next recession. At the news conference, Brown highlighted the volatility of the state’s revenue streams, especially from capital gains.
“Given the vagaries of the business cycle, and particularly the volatility of capital gains income, we must be ever vigilant in the commitment of public funds,” Brown wrote to legislators in his introduction to the budget. “[P]ast budgetary borrowing, unfunded retirement obligations, bond costs and deferred maintenance have created a mountain of long-term liabilities that totals hundreds of billions of dollars. In the face of such liabilities, our current budget surplus is rather modest.”
“The governor understands that the surplus is written in disappearing ink. The question is whether the legislature can resist the temptation to serve short-term political interests at the expense of long-term fiscal health,” said John Pitney, a political scientist at Claremont McKenna College and a former top staffer at the Republican National Committee. “In Sacramento, wisdom and prudence usually lose out to expedience and venality.”
Brown’s budget proposal leaves out some top Democratic priorities, including universal preschool for 4-year-olds, a plan widely popular in the Democratic-controlled Assembly and state Senate.
While some Democrats grumbled that their pet programs weren’t included, Brown’s proposal got early praise from some legislative Republicans.
“I hope that Gov. Brown is successful in convincing his fellow Democrats to resist the urge to spend away any fiscal progress the state has made. We’ve been down this road before and I’d strongly caution my legislative friends across the aisle from traveling it again,” Connie Conway, the Assembly’s Republican leader, said in a statement. ”In the not-so-distant past, California has seen unexpected revenue spikes that have evaporated overnight — quickly turning modest surpluses into enormous deficits.”
But the budget does use $250 million from a revenue pool funded by the state’s cap and trade system for one of Brown’s major priorities, a high-speed rail line that will initially run between San Francisco and Los Angeles, and will eventually expand south to San Diego and northeast to Sacramento. An initial segment between Merced and the San Fernando Valley is projected to cost $31 billion, according to the state High-Speed Rail Authority; the total project is estimated to cost more than twice as much.
The project is in limbo after a Sacramento County judge rejected a request from the authority to sell more than $8 billion in bonds to begin financing the rail system. Republicans in Congress, led by House Majority Whip Kevin McCarthy (R-Calif.), have vowed to block federal funding for the rail program.
Brown’s proposal is the beginning of a six-month budget process. Brown and state legislators will begin negotiations on the budget’s final numbers, which the legislature must pass by June 15. The budget must be enacted by July 1.
Brown had initially planned to lay out his budget Friday, but his office moved the rollout up a day after the 181-page outline leaked to the media this week.